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On June 6, the SEC announced that a Luxembourg-based manufacturer and supplier of steel pipe products agreed to pay over $78 million to settle the SEC’s claims that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA and the Exchange Act. The settlement is the latest in the long-running investigation regarding Brazilian state-owned and controlled energy company Petrobras, and resolves allegations that agents and employees of the company’s Brazilian subsidiary paid approximately $10.4 million in bribes between 2008 and 2013 to obtain over $1 billion in new contracts and to retain existing business from Petrobras. The bribes were allegedly funded on behalf of the company through entities associated with its controlling shareholder and paid to Brazilian government officials in exchange for using their influence to persuade Petrobras to forego an international tender process. The DOJ closed its parallel investigation without charges.
This is the second time the Luxembourg-based company has resolved FCPA charges with U.S. authorities, following 2011 resolutions with both the DOJ and SEC related to a state-owned entity in Uzbekistan. The company had been the first ever to enter into a Deferred Prosecution Agreement with the SEC.
The current resolution involves a $25 million monetary penalty, as well as $42.8 million in disgorgement and over $10 million in prejudgment interest. The company neither admitted nor denied the allegations.
On April 20, the DOJ entered into a deferred prosecution agreement (DPA) with an Illinois-based international medical waste management company, in which the company agreed to pay a fine of approximately $52.5 million related to a conspiracy to violate the FCPA’s anti-bribery provision and books and records provisions. Together with a related resolution with the SEC, and with various foreign authorities, the total resolution will reach over $84 million.
According to the DOJ, between 2011 and 2016, the company participated in a scheme to bribe officials at government agencies and instrumentalities in Brazil, Mexico, and Argentina to obtain and retain business and to secure improper advantages in connection with providing waste management services. An executive at the company’s Latin America division directed employees in the company’s offices in Brazil, Mexico, and Argentina to pay bribes, typically in cash, that were calculated as a percentage of the underlying contract payments owed to the company from government customers.
As part of the DPA, the company agreed to cooperate with the DOJ’s ongoing or future investigations, to improve its compliance program, and to retain an independent compliance monitor for two years, followed by self-reporting for the remainder of the term.
The DOJ noted that in addition to cooperation and remediation the resolution reflects a number of factors including, the company’s (i) “failure to voluntarily and timely disclose the conduct that triggered the investigation”; and (ii) “the nature, seriousness, and pervasiveness of the offense.”
The SEC simultaneously announced a resolution of a related matter, in which the company consented to a cease-and-desist order finding violations of the FCPA’s anti-bribery, books and records, and internal accounting controls provisions. According to the SEC, the scheme also included sham third-party vendors who used false invoices to conceal cash payments to government clients. In addition, the company failed to have sufficient internal accounting controls in place to prevent or detect the misconduct and failed to implement its FCPA policies or procedures prior to 2016. Under the terms of the order, the company agreed to pay $28.2 million in disgorgement and prejudgment interest, of which up to $4.2 million will be offset by disgorgement paid to foreign authorities.
On February 17, the SEC announced that South Korea’s largest telecommunications company agreed to pay $6.3 million to settle the SEC’s claims that the company violated the books and records and internal accounting controls provisions of the FCPA. According to the SEC, the company “lacked sufficient internal accounting controls over expenses, including executive bonuses and purchases of gift cards, which enabled managers and executives to generate slush funds.” This allegedly allowed company employees to provide improper benefits and payments to government officials in Korea and Vietnam and to seek business from government customers.
With respect to the company’s conduct in Korea, the SEC alleged that from “at least 2009 through 2017, high-level [company executives] maintained slush funds, comprised of both off-the-books accounts and physical stashes of cash, in order to provide items of value to government officials, among others.” These slush funds were then allegedly used for gifts and entertainment, as well as illegal political contributions to Korean government officials who had the ability to influence company business. The SEC also stated that between 2015 and 2016, the company allegedly made more than $1.6 million in payments to three organizations at the request of high-level government officials. All these payments were recorded as either charitable donations or sponsorships, and the company took no measures to determine whether the payments were legitimate donations, the SEC said.
Concerning the company’s conduct in Vietnam, the SEC alleged that between 2014 and 2018, company employees “internally discussed providing money to third parties connected to government officials in Vietnam in order to obtain contracts for two projects.” The company allegedly arranged with a construction company to pay roughly $95,000 to a high-level official in 2014 in order to obtain a contract, and then later allegedly falsely booked a $200,000 payment to the construction company as “[s]upport/consulting for performance of the business (completed).” During this time, the SEC claimed the company “lacked sufficient internal accounting controls regarding third parties and no relevant compliance policies regarding due diligence,” and allegedly “took no meaningful steps in response to allegations of improper payments in connection with the contracts.”
Without admitting or denying wrongdoing, the company consented to a cease and desist order, and agreed to pay approximately $3.5 million in civil penalties and $2.8 million in disgorgement and prejudgment interest. The company and 14 executives were indicted by South Korean authorities in November 2021 for criminal violations related to political contributions.
On December 6, the Biden administration released the United States Strategy on Countering Corruption (Strategy) in response to President Biden’s June Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest, which designated the “fight against corruption” as a top priority in preserving national security in the United States. (Covered by InfoBytes here.) According to a fact sheet issued the same day, the comprehensive Strategy is intended to “improve the U.S. Government’s ability to prevent corruption, more effectively combat illicit finance, better hold corrupt actors accountable, and strengthen the capacity of activists, investigative journalists, and others on the front lines of exposing corrupt acts.” To achieve this, the Strategy presents a “whole-of-government approach to elevating the fight against corruption,” including by taking expanded steps to reduce corrupt actors from accessing the U.S. and international financial system to hide assets and lauder proceeds derived from corrupt acts. The Strategy, which discusses enforcement and rulemaking under the FCPA, Bank Secrecy Act, and Corporate Transparency Act, among other statutes, is divided into the following five pillars:
- “Modernizing, coordinating, and resourcing U.S. Government efforts to fight corruption,” including “prioritizing intelligence collection and analysis on corrupt actors and their networks.”
- “Curbing illicit finance” by, among other things, “[i]ssuing beneficial ownership transparency regulations” to identify bad actors and reveal when ill-gotten cash or criminal proceeds is hidden in real estate transactions, as well as cooperating with other counties to strengthen anti-money laundering regimes to increase transparency in the international financial system.
- “Holding corrupt actors accountable” by engaging with partner countries to detect and disrupt foreign bribery, developing “a kleptocracy asset recovery rewards program that will enhance the U.S. Government’s ability to identify and recover stolen assets linked to foreign government corruption that are held at U.S. financial institutions,” and working with the private sector to “encourage[e] the adoption and enforcement of anti-corruption compliance programs by U.S. and international companies.”
- “Preserving and strengthening the multilateral anti-corruption architecture,” including working to implement robust transparency and anti-corruption measures with the G7 and G20 and “target[ing] corruption in finance, acquisition, and human resource functions.”
- “Improving diplomatic engagement and leveraging foreign assistance resources to achieve anti-corruption policy goals” by, among other things, safeguarding government assistance funds from corrupt actors, “[e]xpanding anti-corruption focused U.S. assistance, and monitoring the efficacy of this assistance,” allowing for flexibility within “anti-corruption initiatives and broader assistance efforts to respond to unexpected situations worldwide,” and improving support for independent audit and oversight institutions.
The Strategy will require federal departments and agencies to submit annual reports to President Biden on progress made to achieve its objectives.
On October 19, multiple agencies—the DOJ, SEC and UK’s FCA—announced a coordinated resolution with a European bank related to debt offerings for entities in Mozambique. (See here and here.) In total, fines to U.S. and U.K. authorities reached almost $475 million, and the institution also agreed to forgive $200 million of the debt.
In a related action, a London-based subsidiary of a Russian bank (bank) separately agreed to pay over $6 million to settle SEC charges related to its role in a second 2016 bond offering. According to the SEC’s order, the second offering as structured by the bank and reespondent permitted investors “to exchange their loan participation notes (LPNs) for a direct sovereign bond issued by the Republic of Mozambique” in an earlier bond offering. However, the SEC alleged that the offering materials distributed and marketed by the respondent and bank “failed to disclose the full nature of Mozambique’s indebtedness and, relatedly, its risk of default on the notes.” Furthermore, the SEC alleged that proceeds from the financing from the respondent and bank were supposed to be used exclusively for maritime projects, but in reality, without the bank’s knowledge, only a portion of the loan proceeds was applied towards maritime projects while the rest was diverted to pay kickbacks and make improper payments to Mozambican government officials. Mozambique later defaulted on the financings after the full extent of “secret” debt was revealed.
On October 6, the FTC unanimously resurrected the Penalty Offense Authority under Section 5 of the FTC Act to deter for-profit higher education institutions from engaging in certain unlawful practices. The Commission sent notices to 70 of the nation’s largest for-profit institutions to inform them that the FTC is “cracking down on any false promises they make about their graduates’ job and earnings prospects and other outcomes and will hit violators with significant financial penalties.” The notice outlines several practices previously found to be unfair or deceptive that could lead to civil penalties of up to $43,792 per violation and puts institutions on alert that they could incur significant sanctions should they engage in certain unlawful practices. Commissioner Rohit Chopra, who was recently confirmed as Director of the CFPB, issued a statement commending the initiative, noting that “[u]nder the FTC’s Penalty Offense Authority, the Commission and the Attorney General can seek substantial civil penalties against companies that engage in practices where they had knowledge that the practices were previously determined by a prior Commission order to be illegal.” This is a particularly important tool, Chopra stressed, given the U.S. Supreme Court’s decision in AMG Capital Management, LLC v. FTC, which unanimously held that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement” (covered by InfoBytes here).
On September 24, the SEC announced that a London-based advertising company agreed to pay over $19 million to settle the SEC’s claims that the company violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA and the Exchange Act. According to the SEC, the company “through intermediaries, paid as much as a million dollars in bribes to Indian officials to obtain and retain government business, resulting in over $5 million in net profit from 2015 – 2017.” In addition, the company allegedly benefited from other illicit schemes at its subsidiaries such as: (i) “a subsidiary in China making unjustified payments to a vendor in connection with a Chinese tax audit, resulting in significant tax savings to [the company’s subsidiary]”; (ii) “a subsidiary in Brazil making improper payments to purported vendors in connection with government contracts in 2016-2018”; and (iii) “in 2013, a Peruvian subsidiary funneling funds through other [of the company’s] entities to disguise the source of funding for a political campaign in Peru.” The SEC further alleged that the company “failed to devise and maintain a sufficient system of internal accounting controls necessary to detect and prevent the bribe payments at this Indian subsidiary or properly account for the true nature of payments and income at all four subsidiaries.”
The SEC alleged that the company had knowledge of significant red flags connected to the China subsidiary and its CEO through an internal audit in 2017, which found that the China subsidiary was employing tax avoidance schemes and other significant violations of the company’s internal accounting controls. Then in 2018, a China subsidiary employee informed a regional location officer and the company’s regional tax director in China that the China subsidiary was in the midst of a tax audit and its management may face criminal charges for its tax avoidance schemes. The SEC also alleged that despite a policy that prohibited its companies from paying third parties to assist in obtaining or retaining government contracts without the company’s approval, the “Brazil Subsidiary made improper payments to vendors in connection with securing government contracts at [Brazilian CEO’s] direction.” In respect to the Peruvian subsidy, the SEC alleged that the company “was unjustly enriched by $291,935 as a result of Peru Subsidiary acting as a conduit for a bribery scheme.”
In entering the administrative order, the SEC considered the company’s cooperation and remedial efforts. Without admitting or denying wrongdoing, the company consented to a cease and desist order, and agreed to pay a $8 million civil money penalty and approximately $11.2 million in disgorgement and prejudgment interest.
On June 25, the DOJ entered into a deferred prosecution agreement (DPA) with the subsidiary of a UK-based global engineering company, in which the subsidiary agreed to pay a fine of approximately $18.3 million related to a conspiracy to violate the FCPA’s anti-bribery provisions. Together with resolutions by a related subsidiary with the SEC, and various foreign authorities, the total resolution will reach over $43 million.
According to the DOJ, between 2011 and 2014, the subsidiary participated in a scheme to bribe officials in Brazil to win an approximately $190 million contract from Petrobras to design a gas-to-chemicals complex in the country. The DOJ stated that the subsidiary admitted to paying bribes in Brazil to win the contract, which involved the participation of an Italian sales agent affiliated with a Monaco-based intermediary company. The DOJ further noted that the subsidiary “took acts in furtherance of the scheme while located in New York and Texas, and earned at least $12.9 million in profits from the corruptly obtained business.”
As part of the DPA, the subsidiary agreed to cooperate with the DOJ’s ongoing or future investigations, to improve its compliance program, and to report to the DOJ on those improvements. The subsidiary’s criminal penalty reflected a 25 percent discount off the bottom of the applicable U.S. Sentencing Guidelines due largely to its cooperation and remediation. The DOJ noted that in addition to cooperation and remediation the resolution reflects a number of factors including, (i) the subsidiary’s “failure to voluntarily and timely disclose the conduct that triggered the investigation”; and (ii) “the nature and seriousness of the offence, which spanned multiple years and involved a high-level executive.”
The SEC simultaneously announced a resolution of a related matter, in which a related subsidiary consented to a cease-and-desist order finding violations of the FCPA’s anti-bribery, books and records, and internal accounting controls provisions. According to the SEC, the subsidiary paid approximately $1.1 million in bribes to obtain the Brazilian contract. Under the terms of the order, the subsidiary agreed to pay $22.7 million in disgorgement and prejudgment interest, in which up to $12.6 million will be offset by disgorgement paid to foreign authorities.
In related proceedings, the subsidiary received provisional court approval for a settlement with the UK’s Serious Fraud Office and settled with several Brazilian authorities. Under the terms of the DPA, the DOJ will credit up to approximately $10.7 million of the criminal penalty to payments the subsidiary makes to the SFO and to Brazilian authorities.
On January 8, the DOJ announced it had entered into a deferred prosecution agreement with a German-based multi-national financial services company (company), in which the company agreed to pay more than $130 million to resolve an investigation into violations of the Foreign Corrupt Practices Act (FCPA) and a separate investigation into a commodities fraud scheme.
According to the DOJ, between 2009 and 2016, the company admitted to knowingly and willfully conspiring to conceal payments to business development consultants (BDC) which were actually bribes to foreign officials in order to obtain business. The company admitted that employees agreed to “misrepresent the purpose of payments to BDCs and falsely characterize[d] payments to others as payments to BDCs” in violation of the FCPA’s books, records, and accounts provisions. Additionally, company employees failed to implement adequate internal accounting controls in violation of the FCPA by, among other things, (i) failing to conduct meaningful due diligence regarding the BDCs; (ii) paying BDCs who were not under contract with the company at the time; and (iii) paying BDCs without adequate documentation of the services purportedly performed.
Additionally, the DOJ stated that between 2008 and 2013, the company’s precious metal traders engaged in a scheme to defraud other traders on the New York Mercantile Exchange Inc. and Commodity Exchange Inc. by placing orders to buy and sell precious metals futures contracts with the intent to cancel those orders before execution. The company previously settled with the CFTC in January 2018 for substantially the same conduct (covered by InfoBytes here).
Of the total $130 million penalty, the company will pay a criminal penalty of nearly $80 million to the DOJ in relation to the FCPA violations, and will pay $43 million in disgorgement and prejudgment interest to the SEC to settle allegations that the company violated the FCPA’s books and records and internal accounting controls provisions. The company will pay over $7.5 million in relation to the commodities scheme, for criminal disgorgement, victim compensation, and a criminal penalty. The DOJ noted that the company received full credit for cooperation with the investigations and for significant remediation.
On December 3, the DOJ announced it had entered into a deferred prosecution agreement with the U.S. affiliate of one of the largest energy trading firms in the world, in which the company agreed to pay a combined $135 million in criminal penalties related to two counts of conspiracy to violate the anti-bribery provisions of the FCPA. The agreement also resolves a parallel investigation in Brazil. According to the DOJ, between 2005 and 2014, the company paid millions of dollars in bribes to public officials in Brazil, Ecuador, and Mexico “‘to obtain improper competitive advantages that resulted in significant illicit profits for the company.’” Specifically, the company and its co-conspirators paid more than $8 million in bribes to at least four officials at Brazil’s state-owned and controlled oil company, Petróleo Brasileiro S.A. – Petrobras (Petrobras), “in exchange for receiving confidential Petrobras pricing and competitor information.” The company concealed the bribery scheme “through the use of intermediaries and a fictitious company that facilitated the payments to offshore accounts and, ultimately, to the Petrobras officials.” In another instance, the company bribed at least five additional Petrobras officials in order to receive confidential pricing information used to win fuel oil contracts, whereby “a consultant acting on behalf of [the company] engaged in back-channel negotiations with a Houston-based Petrobras official,” and “ultimately settl[ed] on the pre-arranged price that allowed for bribes to be paid from [the company] to the Petrobras officials.”
Between 2015 and July 2020, the company also engaged in a second bribery conspiracy by offering and paying government officials in Ecuador and Mexico more than $2 million in exchange for business opportunities connected to the purchase and sale of oil products. The company and its co-conspirators—who knew the funds, at least in part, were going towards the bribes—“entered into sham consulting agreements, set up shell companies, created fake invoices for purported consulting services and used alias email accounts to transfer funds to offshore companies involved in the conspiracy.”
DOJ is crediting $45 million of the total criminal penalty against the amount the company will pay to resolve the Brazilian Ministério Público Federal’s investigation into conduct related to the company’s bribery scheme in Brazil. The company and another entity within its group of energy trading firms have also agreed to continue to cooperate with the DOJ in ongoing criminal investigations and prosecutions, and will make enhancements to their compliance programs and report on their implementation for a three-year period.
In a related matter, the company also agreed to disgorge more than $12.7 million and pay an $83 million civil money penalty related to manipulative and deceptive trading activity not covered by the DOJ’s deferred prosecution agreement. Under the order, the civil money penalty will be recognized and offset up to $67 million by the amount paid to the DOJ as part of the deferred prosecution agreement. The CFTC noted that the company’s “fraudulent and manipulative conduct—including conduct relating to foreign corruption—defrauded its counterparties, harmed other market participants, and undermined the integrity of the U.S. and global physical and derivatives oil markets.” This case is the first foreign corruption action brought by the CFTC.
- Kathryn L. Ryan and Jedd R. Bellman to discuss “Risk and compliance management: Are you covered?” at a Mortgage Bankers Association webinar
- Melissa Klimkiewicz and Daniel A. Bellovin to discuss “Things to know about flood insurance” at a NAFCU webinar
- Hank Asbill to discuss “Ethical issues at sentencing” at the 31st Annual National Seminar on Federal Sentencing
- Max Bonici will moderate a panel on “Enforcement risk and other regulatory and compliance issues related to crypto and digital assets” at the American Bar Association’s 2022 Annual Meeting
- John R. Coleman to provide a “CFPB Update” at MBA’s 2022 Regulatory Compliance Conference
- Amanda R. Lawrence to discuss “The shifting data privacy and data protection landscape” at MBA’s 2022 Regulatory Compliance Conference
- Jeffrey P. Naimon to provide “An update on key fair lending cases and the CRA and UDAAP rules” at MBA’s 2022 Regulatory Compliance Conference
- Benjamin W. Hutten to discuss “Fundamentals of financial crime compliance” at the Practicing Law Institute
- Benjamin W. Hutten to discuss “Ongoing CDD: Operational considerations” at NAFCU’s Regulatory Compliance & BSA Seminar
- James C. Chou to discuss ransomware at NAFCU’s Regulatory Compliance & BSA seminar
- Elizabeth E. McGinn, Benjamin W. Hutten, and James C. Chou to discuss “The Evolving Regulatory Landscape: Third-party and cyber risk management” at the 2022 mWISE Conference
- James T. Parkinson to present a “Global anti-corruption update” at IBA’s annual conference