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Malaysian national extradited to the United States on embezzlement and FCPA charges in Malaysian fund scheme
On May 6, the DOJ announced that a Malaysian national was extradited to the United States from Malaysia on charges of conspiracy to embezzle and to violate the FCPA’s anti-bribery and accounting provisions in connection with a scheme relating to a Malaysia government-run strategic development fund. The Malaysian national was a former Managing Director at a financial institution. The indictment against him alleges that between 2009 and 2014, he conspired with others to launder billions of dollars embezzled from the development fund, including money from three bond offerings underwritten by the financial institution in 2012 and 2013, and that he conspired to bribe government officials in Malaysia and Abu Dhabi to obtain and retain business for the financial institution, including the bond transactions. DOJ alleges that the financial institution received approximately $600 million in fees and revenues from its work for the fund, and that he and his co-conspirators embezzled more than $2.7 billion from the fund's bond deals. In his first court appearance, he pleaded not guilty to the charges, and press coverage reported a federal magistrate judge’s statement that he and the DOJ are engaged in plea negotiations, but his defense counsel denied the judge’s characterization.
As detailed in prior FCPA Scorecard coverage, an alleged co-conspirator and former managing director of the same financial institution pleaded guilty in November 2018 to conspiracy to violate the FCPA and to commit money laundering. Another charged co-conspirator has not appeared in court.
Ninth Circuit denies rehearing in Wadler FCPA whistleblower retaliation case
On April 8, the Ninth Circuit denied a petition to rehear its February order affirming most of the jury’s award – $8 million of the original $11 million – in a landmark FCPA whistleblower-retaliation case. The court denied the life sciences manufacturing company’s petition without explanation.
For prior coverage of the matter, including an analysis of the Ninth Circuit’s February opinion, please see here, here, here, and here.
Micronesian official pleads guilty to corruption-related money laundering conspiracy
On April 3, the DOJ announced that a Micronesian government official pleaded guilty in the District of Hawaii to a money laundering conspiracy “involving bribes made to corruptly secure engineering and project management contracts from the government of the Federated States of Micronesia (FSM), in violation of the” FCPA. The official was arrested in February after a Hawaiian executive pleaded guilty to a related FCPA conspiracy charge the prior month (see previous FCPA Scorecard coverage here).
According to the DOJ, the official "was a government official in the FSM Department of Transportation, Communications and Infrastructure who administered FSM’s aviation programs, including the management of its airports.” The official admitted that, between 2006 and 2016, a Hawaii-based engineering and consulting company “paid bribes to FSM officials, including [the official], to obtain and retain contracts with the FSM government valued at nearly $8 million.” The official’s sentencing is scheduled for July 29.
German medical equipment provider settles FCPA claims for $230 million
On March 29, DOJ publicly released a non-prosecution agreement it had entered into in late February with a Germany-based provider of medical equipment and services in which the company agreed to pay over $230 million to settle claims that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. The alleged misconduct, which included various schemes to pay bribes to public and/or government officials in exchange for business opportunities, occurred over the course of at least a decade and spanned 17 or more countries in Africa, Europe, and the Middle East. On the same day, the company also entered into an administrative order with the SEC. The SEC stated that the company had failed to timely address “numerous red flags of corruption in its operations” that were known to the company as far back as the early 2000s, and that it “failed to properly assess and manage its worldwide risks, and devoted insufficient resources to compliance.”
While the company received credit for making a voluntary disclosure to DOJ in April 2012 and for remedial measures undertaken since that time, DOJ stated that the company failed to timely respond to certain of its requests and, at times, provided incomplete responses to those requests. Accordingly, the company did not receive full credit for cooperation and did not qualify for a declination under the FCPA Corporate Enforcement Policy. In its non-prosecution agreement, among other things, the company agreed to: (i) the appointment of an independent compliance monitor for a two-year term, followed by one year of self-reporting, (ii) continuation of its efforts to cooperate with the DOJ’s investigation, and (iii) disgorgement of approximately $147 million to the SEC and payment of approximately $85 million in fines to the U.S. Treasury. The fine amount was calculated with a 40% discount off of the bottom of the United States Sentencing Guidelines fine range based on $141 million in profits from the alleged misconduct.
Notably, the alleged misconduct involved no U.S.-based conduct, individuals, subsidiaries, or third parties. Instead, the individuals alleged to have engaged in misconduct apparently used internet-based email accounts hosted by service providers in the U.S. (and therefore utilized means and instrumentalities of U.S. interstate commerce), and the company’s American Depository Shares trade on the NYSE so the company files periodic reports with the SEC.
Hong Kong energy executive sentenced to three years in prison for Chad and Uganda bribes
According to the DOJ, on March 25 a Hong Kong executive was sentenced in the SDNY to a 36-month prison sentence. He headed up a private Chinese energy company and was sentenced “for his role in a multi-year, multimillion-dollar scheme to bribe top officials of Chad and Uganda in exchange for business advantages.”
He was convicted of money laundering, violating the FCPA, and conspiracy after a week-long trial in December 2018. The DOJ alleged that starting in the fall of 2014, he used his US-based NGO to cover up a scheme in which he offered $2 million in cash to the President of Chad concealed in gift boxes, in exchange for the company receiving oil rights from the government; the President rejected the bribe. In Uganda, the DOJ alleged that he gave $1,000,000 in cash payments to the Foreign Minister of Uganda and the President of Uganda.
9th Circuit issues opinion in Wadler, remands for possible new trial
On February 26, 2019, the Ninth Circuit issued a long-awaited opinion in a case involving a life sciences manufacturing company and its former General Counsel. The 23-page opinion, slated for publication, takes a mixed view of the trial outcome, vacating in part, affirming in part, and remanding for the district court to determine whether to hold a new trial.
Two years ago, following a $55 million civil and criminal FCPA settlement by the company, a jury awarded Wadler (the company’s former General Counsel) $11 million in punitive and compensatory damages, including double back-pay under Dodd-Frank, in his whistleblower retaliation case against his former employer. The company appealed to the Ninth Circuit, arguing that the district court erroneously instructed the jury that SEC rules or regulations prohibit bribery of a foreign official; that the company’s alleged FCPA violations resulted from Wadler’s own failure to conduct due diligence as the company’s General Counsel; that the district court should have allowed certain impeachment testimony and evidence related to Wadler’s pursuit and hiring of a whistleblower attorney; and that Wadler was not a “whistleblower” under Dodd-Frank because he only reported internally and did not report out to the SEC. The Court heard arguments on November 14, 2018.
Section 806 of the Sarbanes-Oxley Act, codified as 18 U.S.C. § 1514A, protects whistleblowers from retaliation under certain circumstances, including reporting violations of “any rule or regulation of the Securities and Exchange Commission.” The company alleged, and the Ninth Circuit agreed, that the district court’s jury instructions incorrectly stated that Section 806 encompasses reports of FCPA violations. The Court ruled that “statutory provisions of the FCPA, including the three books-and-records provisions and anti-bribery provision . . . are not ‘rules or regulations of the SEC’ under SOX § 806.” However, the Court found that with the right instructions, a jury could have still ruled in Wadler’s favor. Accordingly, the Court vacated the Section 806 verdict and remanded to the district court for consideration of a new trial. On the other hand, the Court held that the same jury instruction error was harmless for the purposes of Wadler’s California public policy claim, so the Court upheld that verdict and its associated damages. The Court also rejected the company’s claims of evidentiary error. Finally, the Court ruled that under another case involving a real estate investment company and its former executive, Dodd-Frank does not apply to people who only report misconduct internally, and vacated the Dodd-Frank claim. As for damages, the Ninth Circuit affirmed Wadler’s compensatory and punitive damages award but vacated the double back-pay associated with the Dodd-Frank claim.
This decision is likely the first circuit court opinion to cite the case in an FCPA case for its holding that individuals who only report violations internally do not hold “whistleblower” status under Dodd-Frank.
For prior coverage of the matter, please see here, here, and here.
DOJ amends its FCPA Corporate Enforcement Policy, softens disappearing messaging ban
In March 2019, the DOJ amended its FCPA Corporate Enforcement Policy, including to clarify the agency’s position on the use of ephemeral messaging apps by companies seeking full cooperation credit under the policy. Ephemeral messaging apps such as Signal, WhatsApp, and Telegram, now common in many workplaces, allow users to send messages that may not be preserved and retrievable later in the same way as e-mails. To the DOJ, the impermanence of ephemeral messaging makes uncovering details about past events more difficult. Prior to the amendments, the DOJ’s initial Corporate Enforcement Policy had indicated that full cooperation credit would not be available to companies which allowed employees to use “software that generates but does not appropriately retain business records or communications.”
The updated policy softens this position and specifically addresses ephemeral messaging platforms. Companies using the platforms may now be eligible for full cooperation credit, provided that they “implement[] appropriate guidance and controls on the use of personal communications and ephemeral messaging platforms that undermine the company’s ability to appropriately retain business records or communications or otherwise comply with the company’s document retention policies or legal obligations.” While the amendment may allow companies to take advantage of the beneficial aspects of ephemeral messaging, it also begs new questions as to what constitutes “appropriate” guidance and controls.
The March 2019 amendments also provide additional clarification on de-confliction; add a new comment explaining how the DOJ will implement a presumption of a declination in cases where a company involved in a merger or acquisition “uncovers misconduct through thorough and timely due diligence . . . and voluntarily self-discloses,” with the potential for a declination for the acquiring company even where there are aggravating circumstances regarding the acquired company; and enlarge the voluntary self-disclosure of individuals category to include information not just about “all individuals involved in the violation,” but “all individuals substantially involved in or responsible for the violation.”
In his March 8, remarks to the American Bar Association’s National Institute on White Collar Crime, Assistant Attorney General Brian A. Benczkowski referenced the updates and emphasized the importance of reviewing the 12 previous case declinations made under the policy as supplemental guidance in understanding the policy.
9th Circuit affirms $8 million California whistleblower claim
On February 26, the U.S. Court of Appeals for the 9th Circuit affirmed a former general counsel’s whistleblower retaliation claim, under California public policy, against a biopharmaceutical manufacturer and its CEO but vacated the jury’s Sarbanes-Oxley Act (SOX) and Dodd-Frank Act verdicts. According to the opinion, the general counsel sued the company and the CEO claiming whistleblower retaliation under SOX, the Dodd-Frank Act, and California wrongful termination case law, claiming the company fired him after he alleged the company may have violated the FCPA in China. The jury awarded the general counsel $11 million, including $2.96 million in lost wages, which was doubled under the Dodd-Frank Act’s whistleblower provision, and $5 million in punitive damages. The company appealed the verdict arguing the district court erred in the instructions to the jury when it stated that statutory provisions of the FCPA constitute “rules or regulations of the SEC for purposes of whether [the general counsel] engaged in protected activity under SOX.”
On appeal, the 9th Circuit concluded the district court’s instructional error was not harmless as to the SOX claim, finding that the statutory provisions of the FCPA are not “rules or regulations of the SEC under SOX” as instructed to the jury. While the error was not harmless, the appellate court rejected entering judgment in favor of the company and instead, remanded the case back for proper instruction. Additionally, the appellate court vacated the district court’s instructions for the jury to enter judgment in favor of the Dodd-Frank Act claim, citing to the Supreme Court decision in Digital Realty Trust Inc. v. Somers. The appellate court concluded that the whistleblower provision of the act does not apply to purely internal reports and entered judgment in favor of the company. As for the California public policy claim, the appellate court determined that the incorrect SOX jury instructions were harmless because his California claim did not depend on SOX and the jury “necessarily would have reached the same verdict under proper instruction.” The affirmation of the California claim and associated damages left the general counsel with an award of nearly $8 million.
IT outsourcing company resolves FCPA investigations
On February 15, an information technology and business process outsourcing company paid $25 million to settle SEC civil charges that it violated the FCPA. The SEC alleged that the company paid $3.6 million in bribes through its construction contractor to senior government officials in India in order to obtain permits needed to build, among other things, a large office campus in Chennai. To resolve the SEC’s allegations, the company paid $19 million in disgorgement and a $6 million penalty.
The DOJ declined to bring criminal charges against the company, citing, among other factors, the company’s voluntary self-disclosure, comprehensive investigation, full cooperation and remediation, and its preexisting compliance program. The company issued a statement highlighting that the matter did not concern any of the company’s work with clients and did not affect any of the services it provides to clients.
On the same day the settlement was announced, two former company executives—the president and chief legal officer—were hit with civil and criminal charges for allegedly authorizing $2 million in bribes and directing the creation of false contractor change orders to mask payment of the bribes. The former executives are charged with violating the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. Pursuant to its letter agreement with DOJ, the company is required to fully cooperate in the ongoing prosecutions.
Former insurance executives charged with laundering bribes to Barbados Minister of Industry
On January 28, DOJ announced charges against the former chief executive and a former senior vice president of a Barbados-based insurance company. The indictment alleges that the the company's executives participated in a scheme to launder approximately $36,000 in bribes to the then-Minister of Industry of Barbados in exchange for his assistance in securing government contracts for the company. According to the indictment, the bribes were laundered through a United States bank account in the name of a dental company located in New York. The former Minister of Industry was arrested in August 2018 and the indictment against him referenced, but did not name, his alleged co-conspirators. The superseding indictment against the three co-defendants and another still unnamed former insurance executive was unsealed on January 18, 2019. Prior Scorecard coverage of the arrest and indictment of the former Minister of Industry can be found here.
The company voluntarily self-disclosed the case to DOJ and received a declination letter from DOJ for its cooperation pursuant to the FCPA Corporate Enforcement Policy. The declination letter required the company to disgorge $93,940.19 in profits received through the conduct at issue. The declination was based, in part, on the company’s termination of all executives and employees involved in the alleged misconduct and in helping DOJ identify the culpable individuals. Prior Scorecard coverage of the declination letter can be found here.