InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
New York Federal Reserve Bank Official Questions FCPA's "Facilitating Payments" Exception
On July 23, Thomas Baxter, General Counsel for the New York Federal Reserve Bank, in public remarks at a risk management conference, questioned the FCPA’s “exception for ‘facilitating or expediting payments’ made in furtherance of routine government action.” Mr. Baxter stated that “official corruption is a problem that some U.S. financial institutions have found challenging during the last year,” and suggested that those problems could derive from an organizational value system undermined by the facilitating payments exception. Mr. Baxter acknowledged that the exception “is grounded in a practical reality,” but expressed his preference for a zero tolerance standard. He explained that “when an organizational policy allows some types of official corruption . . ., this diminishes the efficacy of compliance rules that are directed toward stopping official corruption.” He urged U.S. financial institutions to foster organizational value systems that “go beyond black-letter U.S. law” with regard to official corruption. Mr. Baxter made these comments in the context of a broader speech on organizational culture and its impact on compliance in which he also suggested that foreign banks’ recent sanctions and tax evasion compliance woes could be explained by a difference in the corporate values of foreign and U.S. banks and their employees when it comes to laws designed to support broader U.S. public policy.
11th Circuit First To Define "Instrumentality" Under FCPA
On May 16, the U.S. Court of Appeals for the Eleventh Circuit became the first circuit court to define “instrumentality” under the FCPA. U.S. v. Esquenazi, No. 11-15331 (11th Cir. May 16, 2014). The FCPA generally prohibits bribes to a “foreign official” defined as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof.” Two individuals appealed their convictions and sentences imposed for FCPA and related violations, arguing that the telecommunications company whose employees they were alleged to have bribed in exchange for relief from debt owed to that company was not, as the government asserted and a jury found, an “instrumentality” of a foreign government. As the court explained, “instrumentality” is not defined in the FCPA, and no circuit court has yet offered a definition. The court held that, based on the statutory context of the term following amendment of the FCPA in 1998 to implement the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, an instrumentality is “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own." The court explained that to determine control, triers of fact should consider (i) the foreign government’s formal designation of the entity; (ii) whether the government has a majority interest in the entity; (iii) the government’s ability to hire and fire the entity’s principals; (iv) the extent to which the entity’s profits, if any, go directly into the governmental fisc, and the extent to which the government funds the entity if it fails to break even; and (v) the length of time those indicia have existed. The court added that the factors to consider in determining whether an entity performs a function of the government include: (i) whether the entity has a monopoly over the function it exists to carry out; (ii) whether the government subsidizes the costs associated with the entity providing services; (iii) whether the entity provides services to the public at large in the foreign country; and (iv) whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function. In this case, the court determined that the telecommunications company at issue was an instrumentality under the FCPA, and after applying that decision to the convicted individuals’ specific challenges, affirmed their convictions and sentences.
DOJ, SEC Announce More Charges In Broker-Dealer Foreign Bribery Case
On April 14, the DOJ and the SEC announced additional charges in a previously announced case against employees of a U.S. broker-dealer related to an alleged “massive international bribery scheme.” The DOJ announced the arrest of the CEO and a managing partner of the New York-based U.S. broker-dealer on felony charges arising from an alleged conspiracy to pay bribes to a senior official in Venezuela’s state economic development bank in exchange for the official directing financial trading business to the broker-dealer. The SEC, whose routine compliance examination detected the allegedly illegal conduct, announced parallel civil charges against the same two executives. Broker-dealer employees charged earlier in the case pleaded guilty last August for conspiring to violate the FCPA, the Travel Act, and anti-money laundering laws, as well as for substantive counts of those offenses, relating, among other things, to the scheme involving bribe payments. In November 2013, the Venezuelan bank senior official pleaded guilty in Manhattan federal court for conspiring to violate the Travel Act and anti-money laundering laws, as well as for substantive counts of those offenses, for her role in the scheme.
DOJ Opinion Release Discusses FCPA Risk Related To Investment Bank's Buyout Of Minority Shareholder
Recently, the DOJ issued its first opinion release of 2014 regarding application of the FCPA. In this instance, an investment bank and securities issuer who was a majority shareholder of a foreign financial services company sought the DOJ’s opinion with regard to the bank’s purchase of the remaining minority interest from a foreign businessman who now serves as a senior foreign official. The DOJ determined that based on the facts and representations described by the requestor, the only purpose of the payment to the official would be consideration for the minority interest. The DOJ explained that although the FCPA generally prohibits an issuer from corruptly giving or offering anything of value to any “foreign official” in order to assist “in obtaining or retaining business for or with, or directing business to” the issuer, it does not “per se prohibit business relationships with, or payments to, foreign officials.” In this situation, the DOJ determined, based on numerous, fact-intensive considerations, that the transfer of value as proposed would not be prohibited under the FCPA. The DOJ found no indications of corrupt intent, citing, among other things, the proffered purpose to sever the parties’ existing financial relationship to avoid a conflict of interest, and the use of a reasonable alternative valuation model. The DOJ also determined the bank demonstrated that the parties would appropriately and meaningfully disclose their relationships before the sale closed, and that the bank would implement strict recusal and conflict-of-interest-avoidance measures to prevent the shareholder/foreign official from assisting the bank in obtaining or retaining business. As with all Opinion Releases under the FCPA, the DOJ cautioned that the opinion has no binding application to any other party.
Japanese Trading Company Pleads Guilty In DOJ FCPA Enforcement Action
On March 19, the DOJ announced that Marubeni Corporation, a Japanese trading company, agreed to plead guilty to violating the FCPA by participating in a seven-year scheme to bribe high-ranking government officials in Indonesia to help the company secure a contract for a power project. The DOJ charged that to conceal the bribes, the company and a consortium partner retained two consultants purportedly to provide legitimate consulting services on behalf of the power company and its subsidiaries in connection with the project. The DOJ asserted, however, that the primary purpose for hiring the consultants was to use them to pay bribes to Indonesian officials.The eight-count criminal information against the company included one count of conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) and seven counts of violating the FCPA. As part of its plea, the company admitted its criminal conduct and agreed to pay a criminal fine of $88 million, subject to the district court’s approval. Sentencing is scheduled for May 15, 2014. Two years ago, the company entered a deferred prosecution agreement and agreed to pay $54.6 million to resolve allegations it acted as an agent for a joint venture in a scheme to bribe Nigerian officials.
DOJ Announces Anti-Bribery Charges Against Oil Services Company's Former Executives
On January 6, the DOJ announced that two former CEOs of an oil and gas services company had been charged for their alleged involvement in a scheme to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA), and for other related offenses. The DOJ also revealed that the company’s former General Counsel (GC) had entered a guilty plea on bribery and fraud charges related to the alleged schemes. According to two separate Criminal Complaints that were filed in the U.S. District Court for the District of New Jersey, the former CEOs allegedly paid bribes to a Colombian official for his assistance in securing approval of a contract valued at approximately $39 million. They were also charged with attempting to defraud members of the company’s board through their attempts to secure kickbacks for themselves as part of an effort to acquire another firm. The Information filed against the former GC provided further details on the bribery and kickback schemes.
DOJ, SEC Announce Anti-Bribery Enforcement Actions Against U.S. Metals Firm
On January 9, the SEC and the DOJ announced the resolution of parallel FCPA enforcement actions against a major U.S. extractive industries firm and one of its subsidiaries. The actions related to improper payments to officials of a foreign government, and to a “middle man” serving as an intermediary to secure contracts to supply a government controlled aluminum plant. The SEC’s cease and desist order asserts the parent firm lacked sufficient internal controls to prevent and detect bribes made through foreign subsidiaries, which were improperly recorded in the parent company’s books and records as legitimate commissions or sales. The order directs the parent firm to disgorge $175 million, $14 million of which would be satisfied by forfeiture required in the parallel DOJ action. As a result of that action, the parent company pleaded guilty to one count of violating the FCPA’s anti-bribery provisions and consented to entry of a judgment that requires the company to pay a criminal fine of $209 million and forfeit $14 million. The plea agreement also requires the parent firm to maintain and implement an enhanced global anti-corruption compliance program, and both the parent and subsidiary companies must cooperate with the DOJ in its continuing investigation of individuals and institutions that were involved in the subject activities.
DOJ, SEC Announce Anti-Bribery Enforcement Actions Against U.S. Agribusiness Firm
On December 20, the DOJ and the SEC announced separate enforcement actions against a major U.S. agribusiness firm and one of its foreign subsidiaries. In the DOJ action filed in the U.S. District Court for the Central District of Illinois, a foreign subsidiary of the U.S. corporate parent pleaded guilty to a single count of conspiracy to violate the anti-bribery provisions of the FCPA, and agreed to pay $17.8 million in criminal fines. The plea agreement resolved allegations that the subsidiary paid bribes through intermediary firms to Ukrainian government officials in exchange for over $100 million in value-added tax (VAT) refunds. The DOJ also entered into a non-prosecution agreement with the U.S. parent to resolve claims that the company failed to implement internal controls sufficient to prevent and detect FCPA violations. Under that agreement, the company must periodically report on its compliance efforts, and continue implementing enhanced compliance programs and internal controls. The SEC’s parallel civil enforcement action resolved charges that the parent firm’s lack of sufficient anti-bribery compliance controls, which contributed to FCPA violations by foreign subsidiaries that generated over $33 million in illegal profits. The U.S. parent corporation consented to entry of a judgment that requires the company to disgorge the illegal profits plus $3 million in interest. The judgment also permanently enjoins the parent company from violating the relevant parts of the Exchange Act and requires compliance reporting for a three-year period.
DOJ Announces Latest FCPA Action Related To Nigerian Gas Pipeline Project
On December 10, the DOJ announced that a German engineering and services company agreed to resolve charges that it violated the FCPA by bribing government officials of the Federal Republic of Nigeria to obtain and retain contracts related to the Eastern Gas Gathering System (EGGS) project. The settlement is the most recent of several related to that project, and the charges are based on activities that occurred over a three-year period beginning a decade ago. In a criminal information filed in the U.S. District Court for the Southern District of Texas, the DOJ charged that the company, as part of a joint venture, conspired to make corrupt payments totaling more than $6 million to Nigerian government officials to assist in obtaining and retaining contracts. Through the joint venture the companies submitted inflated bids to cover the cost of paying bribes to Nigerian officials. The company entered into a deferred prosecution agreement, in which it admitted to the alleged conduct, agreed to pay a $32 million penalty, and consented to enhance its internal controls and retain an independent corporate compliance monitor for at least 18 months.
Multinational Oil Services Company Resolves FCPA, Sanctions, And Export Control Matter
On November 26, the DOJ announced that Weatherford International—a multinational oil services company—and certain of its subsidiaries agreed to pay approximately $250 million in fines and penalties to resolve FCPA, sanctions, and export control violations. The DOJ alleged in a criminal information that the company knowingly failed to establish an effective system of internal accounting controls designed to detect and prevent corruption, including FCPA violations. The alleged compliance failures allowed employees of certain of the company’s subsidiaries in Africa and the Middle East to engage in prohibited conduct over the course of many years, including both bribery of foreign officials and fraudulent misuse of the United Nations’ Oil for Food Program. The company entered into a deferred prosecution agreement, pursuant to which it must pay an approximately $87 million penalty, retain an independent corporate compliance monitor for at least 18 months, and continue to implement an enhanced FCPA compliance program and internal controls. The subsidiaries pleaded guilty to related specific acts of corruption, including those alleged in a separate criminal information. The DOJ alleged, among other things, that employees of certain subsidiaries engaged in at least three schemes to pay bribes to foreign officials in exchange for government contracts. In addition the parent company agreed to pay over $65 million and submit to compliance and monitoring requirements to resolve parallel SEC civil allegations that the company violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA.
Separately, the parent company entered into an agreement with the Treasury Department’s Office of Foreign Assets Control (OFAC) and a deferred prosecution agreement with the DOJ, as well as an agreement with the Department of Commerce, to resolve alleged sanctions and export controls violations. Collectively, those agreements require the company to, among other things, pay $100 million in penalties and fines—inclusive of a $91 million settlement with OFAC—and undergo external audits of its efforts to comply with the relevant U.S. sanctions law for calendar years 2012, 2013, and 2014. Those payments resolve allegations, described in part in another DOJ criminal information, that the company and certain subsidiaries exported or re-exported oil and gas drilling equipment to, and conducted business operations in, sanctioned countries—including Cuba, Iran, Sudan, and Syria—without the required U.S. Government authorization.