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Nevada Casino Operator Settles FCPA Allegations with SEC
On April 7, the SEC settled FCPA allegations with a Nevada-based operator of numerous hotel, resort, and casino properties in the United States and Asia. In a cease and desist order, the SEC found that the operating company violated the FCPA’s internal controls and books and records provisions related to activities in China and Macau. The SEC order alleged that the operating company made more than $62 million in payments to a consultant in Asia, without supporting documentation or appropriate authorizations, and at times continued to make payments to the consultant without being able to account for prior transfers.
The operating company consented to the SEC’s order without admitting or denying the charges and agreed to pay a $9 million dollar penalty. In addition to the penalty, the operating company agreed to obtain an independent monitor for two years to “review its FCPA-related internal controls, recordkeeping, and financial reporting policies and procedures and its ethics and compliance functions.”
Indiana Medical Device Manufacturer's Deferred Prosecution Agreement with DOJ Extended for a Second Time
On March 25, an Indiana-based medical device manufacturer announced that the deferred prosecution agreement it entered into with the DOJ to settle FCPA charges in 2012 would be extended a second time. The company reported that the DOJ and SEC’s investigation into alleged misconduct in Brazil and Mexico, and into the company’s compliance program, was still ongoing.
The company settled FCPA charges with the DOJ and SEC in 2012 related to its conduct in Argentina, Brazil and China. As previously reported, the company disclosed in March 2015 that the deferred prosecution agreement it had agreed to as part of the settlement would be extended for one year because the company had discovered additional potential FCPA violations in Brazil and Mexico.
Pharmaceutical Company Settles with SEC Regarding FCPA Offenses in China
On March 23, the SEC announced that it settled FCPA allegations with a Switzerland-based pharmaceutical company, via a cease and desist order finding that the company violated the FCPA’s book and records and internal controls provisions related to activities in China. The SEC found that employees of two of the company’s Chinese subsidiaries gave money and gifts to Chinese health care providers at state-owned hospitals in order to boost sales. In some cases, the order found, the company’s employees created spreadsheets that linked payments to individual Chinese health care providers to increased sales of certain drugs and created a ranking system for the health care providers.
The SEC’s order found that the company recorded the payments as lecture fees, conferences, seminars, medical studies, and travel and entertainment. The SEC further found that the company failed to devise and implement a sufficient system of internal accounting controls to detect the improper payments, and lacked an effective anti-corruption compliance program. The order did not say whether the company self-disclosed the involved conduct, but the order notes the company’s cooperation and states that the company began an internal investigation after news reports surfaced that a competitor was investigating similar FCPA concerns in its Chinese subsidiaries.
The company consented to the SEC’s order without admitting or denying the charges and agreed to pay $25 million to resolve the case, including a $2 million penalty, disgorgement of $21.5 million in profits, and $1.5 million in prejudgment interest. The company will also provide status reports to the SEC for the next two years regarding remediation efforts and new anti-corruption compliance measures.
Oil and Gas Company Discloses SEC Investigation into Potential FCPA Violations
On March 15, an Ohio-based provider of sand products used in the oil and gas industry disclosed that in December 2015, the SEC notified it of an investigation of potential violations of the FCPA and other securities laws related to its international operations. The company had previously retained outside counsel to conduct an investigation and determined that no further action was necessary. The company did not estimate the potential costs of the SEC investigation or any potential penalties or fines that could result.
SEC Announces Senior Staff Changes; New Office of Risk and Strategy
On March 8, the SEC announced a change in senior leadership, naming Robert M. Fisher the Managing Executive of the Office of Compliance Inspections and Examinations (OCIE). Succeeding Peter B. Driscoll, Fisher will be responsible for overseeing the OCIE’s business operations, technology servicers, examiner training, and Tips, Complaints and Referrals programs. The SEC also announced a new Office of Risk and Strategy within its Office of Compliance and Inspections and Examinations, naming Driscoll as its Chief Risk and Strategy Officer. The new office is intended to “consolidate and streamline the OCIE’s risk assessment, market surveillance, and quantitative analysis teams and provide operational risk management and organizational strategy for OCIE.” In his new role as Chief Risk and Strategy Officer, Driscoll will lead the Washington, D.C.-based Investment Adviser/Investment Company examination staff.
In a separate March 10 announcement, the SEC named Anthony S. Kelly Co-Chief of the Enforcement Division’s Asset Management Unit (Unit). Succeeding Julie Riewe, Kelly joins Marshall Sprung to lead the Unit, which focuses on misconduct by investment advisers, investment companies, and private funds.
Large International Bank Discloses SEC and DOJ Investigations Into its Hiring Practices in Asia
On March 1, a large international bank based in the U.K. disclosed in its annual report that it is being investigated in connection with its hiring practices in Asia. In disclosing both DOJ and SEC investigations, the bank noted that it is cooperating with the investigations and “keeping certain regulators in other jurisdictions informed.” While not explicitly linking the hiring probe to the FCPA, the acknowledgement appears to be the latest by an international financial institution concerning U.S. investigations into FCPA implications of its hiring practices in Asia and continues the long-running “Sons and Daughters” investigations by the SEC. Prior coverage of other aspects of the “Sons and Daughters” investigation around the world is available here.
Separately in its annual report, the U.K.-based financial institution also stated that the “DOJ and SEC are undertaking an investigation into whether the [bank’s] relationships with third parties who assist [the bank] to win or retain business are compliant with the” FCPA. The bank disclosed that it has briefed regulators in other jurisdictions about these investigations.
SEC Settles with Health Science Company and Former Employee Over Bribes to Russian Government Officials
On March 3, the SEC announced it settled FCPA charges with a health science company and a former engineer, Mikhail Gourevitch, for their role in bribing Russian government officials to obtain approvals for a liver cancer drug. The company and Gourevitch settled their respective cases with the SEC via separate Administrative Orders Instituting Cease-and-Desist Proceedings. Both the company (now a privately held company, but which was publicly-traded on the NYSE during the 2004-2011 time period at issue) and Gourevitch consented to the SEC orders without admitting or denying the FCPA findings.
In the order settling the charges against the company, the SEC found that it violated the FCPA’s books and records and internal accounting controls provisions in connection with payments made to a Russian third-party agent. According to the SEC, portions of the payments to the agent were used to bribe government officials in Russia to obtain government approval to license, register, and distribute TheraSphere, a liver cancer therapy drug. The company never ultimately won approval to distribute TheraSphere and did not earn any profits as a result from the improper payments.
The order found that the company mischaracterized the agent fees as legitimate business expenses and that it (i) did not have adequate policies and procedures in places to detect corruption risks; and (ii) provided little, if any, training regarding how to conduct business in high-risk jurisdictions. The company, which is a leading provider of medical isotopes, targeted therapies, and sterilization technologies, agreed to pay a $375,000 penalty to settle the charges. The SEC noted the company’s cooperation, self-reporting, and remedial acts in assessing the penalty.
Gourevitch, a dual Canadian and Israeli citizen, agreed to pay $100,000 in disgorgement, $12,950 in prejudgment interest, and a $66,000 penalty to settle the charges that he violated the anti-bribery, books-and-records, and false records provisions of the FCPA. The SEC found that Gourevitch facilitated and monitored the consulting contracts between the company and the Russian third-party agent, who was Gourevitch’s childhood friend.
Telecommunications Company Settles FCPA Charges With SEC in Apparent "Sons and Daughters" Case
The SEC announced on March 1 that it settled FCPA charges with a San Diego-based mobile chip maker. The company agreed to pay a $7.5 million civil penalty to resolve charges that it violated the FCPA by hiring relatives of Chinese government officials and providing things of value to foreign officials and their family members, in an attempt to influence these officials to take actions that would assist the company in obtaining or retaining business in China.
The company and the SEC settled the case via an Administrative Order Instituting Cease-and-Desist Proceedings, in which the company did not admit or deny the findings set forth in the order. The order found that the company had violated the anti-bribery, internal controls, and books-and-records provisions of the FCPA. In addition to the $7.5 million civil penalty, the company agreed to provide the SEC with self-reports and certifications concerning its FCPA compliance during a two-year period.
According to the order, the company both offered and provided employment and paid internships to family members of Chinese foreign officials in order to try to obtain business. Many of these hires were referred to internally at the company as “must place” or “special” hires and did not satisfy the company’s internal hiring standards. The order also details the company’s provision of meals, gifts, travel, and entertainment to both foreign officials and relatives of foreign officials in an effort to influence these officials to use the company’s technology.
The settlement appears to be an extension of the SEC’s “Sons and Daughters” investigations which, up until now, have been focused on the hiring practices of financial institutions in the Asia Pacific. Prior coverage of other aspects of the “Sons and Daughters” investigations around the world is available here.
Massachusetts-Based Technology Company and Two Chinese Subsidiaries Pay $28 Million to Settle Civil and Criminal FCPA Charges; SEC Uses First DPA With Individual
On February 16, the SEC and DOJ announced a settlement with a Massachusetts-based technology company for violations of the FCPA. The technology company and two Chinese subsidiaries agreed to pay $28 million to settle the parallel civil and criminal actions, with the technology company paying approximately $13.5 million in disgorgement and prejudgment interest to settle the SEC’s charges, and its two Chinese subsidiaries paying approximately $14.54 million in penalties in a Non-Prosecution Agreement with the DOJ.
The company admitted that its subsidiaries in Shanghai and Hong Kong provided non-business related travel and other improper payments to Chinese government officials to win business. Specifically, from 2006 to 2011, the two subsidiaries provided nearly $1.5 million to Chinese officials in improper travel, gifts, and entertainment. The Chinese officials were employed by state-owned entities that were customers of the technology company. The travel and entertainment expenses included overseas trips to visit the technology company’s facilities, including cooperate headquarters in Massachusetts, but the majority of the time on the trips was spent on recreational excursions unrelated to the purported business purpose. For example, the company paid for Chinese officials to visit New York, Las Vegas, San Diego, Los Angeles, and Honolulu, as well as guided tours, golfing, and other leisure activities during those trips. Employees of the company’s subsidiaries also provided gifts to the Chinese officials, including cell phones, iPods, gift cards, wine, and clothing. The payments were recorded in the company’s books and records as legitimate commissions or business expenses.
As part of the investigation, the SEC also entered into its first Deferred Prosecution Agreement (DAP) with an individual in an FCPA case. The SEC announced that it would wait three years to bring any FCPA charges against a former employee of one of the subsidiaries, Yu Kai Yuan, because of the cooperation he provided during the SEC’s investigation.
Amsterdam-Based Telecommunications Company Pays $795 Million to Settle FCPA Charges Both in US and Abroad
On February 18, an Amsterdam-based telecommunications company and its Uzbek subsidiary reached a global settlement with the SEC, DOJ, and Dutch regulators Openbarr Ministerie (OM) and the Fiscal Intelligence and Investigation Service (FIOD), in which the telecommunications company will pay more than $795 million to resolve FCPA violations in Uzbekistan. The Amsterdam-based telecommunications provider was charged with bribing an Uzbek government official related to the President of Uzbekistan in exchange for government-issued licenses. Between 2006 and 2012, the telecommunications company and its subsidiary made more than $114 million in bribe payments through an entity affiliated with the Uzbek official and disguised approximately half a million dollars as charitable donations made to charities affiliated with the Uzbek official.
The terms of the settlement require the telecommunications company to pay $397.5 million to Dutch regulators, $230.1 million to the DOJ, and $167.5 million to the SEC; it must also retain an independent corporate monitor for three years. DOJ also filed a forfeiture proceeding, seeking more than $550 million held in Swiss bank accounts which it alleged were funds that the Amsterdam-based telecommunications company and two other telecommunications companies used to bribe and/or launder the bribe payments to the Uzbek official. This forfeiture complaint follows the DOJ’s earlier forfeiture complaint filed on June 29, 2015, seeking forfeiture of more than $300 million in funds held in Belgium, Luxembourg, and Ireland.