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  • SEC fines tech company $2.5 million to settle FCPA charges

    Securities

    On May 26, the SEC announced that a Connecticut-headquartered tech research and consulting company (the “settling company”) agreed to pay nearly $2.5 million to settle claims that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. According to the SEC’s order, from roughly December 2014 through August 2015 the settling company allegedly entered into a scheme with several private South African companies through which a South African IT consulting company was paid substantial amounts of money even though the settling company “knew or consciously disregarded the possibility” that all or part of this money would go to South African government officials to influence the award of multi-million-dollar contracts to the settling company. During this time, the SEC found that the settling company’s policy regarding third-party consultants failed to adequately address anti-corruption risks, and the settling company lacked sufficient internal accounting controls to document payments made to third parties. The settling company also failed to implement anti-corruption vendor onboarding procedures and lacked adequate monitoring procedures, the SEC said.

    The settling company consented to the SEC’s order without admitting or denying the allegations and agreed to pay a $1.6 million civil money penalty and $856,764 in disgorgement and prejudgment interest. The SEC recognized the company’s cooperation and remedial efforts.

    Securities Financial Crimes Enforcement FCPA Bribery Of Interest to Non-US Persons

  • SEC fines gaming company $4 million as successor to a company charged with FCPA violations

    Securities

    On March 6, the SEC announced that an Ireland-based global gaming and sports betting company, as successor-in-interest to a company it acquired in 2020 (the “acquired company”), agreed to pay a $4 million civil money penalty to settle claims that the acquired company violated the books and records and internal accounting controls provisions of the FCPA by using third-party consultants in Russia. According to the SEC’s order, the acquired company operated several gaming brands, including an online poker website. The SEC said that between May 26, 2015 and May 15, 2020, while the acquired company’s shares were registered with the SEC, it paid roughly $8.9 million to consultants in Russia in an effort to legalize poker in the country. During this time period, the SEC explained, the acquired company lacked sufficient internal accounting controls over its Russian operations with respect to third-party consultants, and failed to “consistently make and keep accurate books and records regarding its consultant payments in Russia.” Many of these third-party consultants, the SEC said, were “retained without adequate due diligence or written contracts, and paid without adequate proof of services.” The order indicated that certain payments were inaccurately recorded as lobbying fees, and that some payments went towards reimbursements for gifts given to individuals, including Russian government officials, and to a Russian state agency responsible for administering internet censorship filters. The SEC charged the Ireland company, as successor-in-interest to the acquired company, with violating Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. The resolution requires the Ireland company, which neither admitted nor denied the allegations, to pay a $4 million civil money penalty. The SEC recognized the Ireland company’s cooperation and remedial efforts.

    Securities Financial Crimes SEC FCPA Bribery Of Interest to Non-US Persons Securities Exchange Act

  • DOJ, SEC reach $460 million FCPA settlement with global technology company

    Financial Crimes

    On December 2, the DOJ announced that it fined a Swiss-based global technology company $315 million to settle criminal charges related to allegations that, from 2015 to 2017, the company engaged in a bribery scheme with an electricity provider owned by the South African government. As part of the scheme, the company arranged to use a third party to pay a high-ranking South African government official at the electricity provider in exchange for awarding business to the global technology company. The settlement was the DOJ’s first coordinated resolution with authorities in South Africa. Authorities in South Africa separately brought corruption charges against the high-ranking South African government official. In addition to the financial penalty, the company entered into a three-year deferred prosecution agreement in connection with a criminal information charging the company with conspiracy to violate the FCPA’s anti-bribery provisions, conspiracy to violate the FCPA’s books and records provisions, and substantive violations of the FCPA. Two of the company’s subsidiaries located in Switzerland and South Africa each pleaded guilty to conspiracy to violate the anti-bribery provisions of the FCPA.

    The next day on December 3, the SEC announced that the company agreed to pay $75 million to settle the SEC’s claims. The company consented to the SEC’s cease-and-desist order which stated that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA and the Exchange Act. The SEC also ordered the company to pay more than $72 million in disgorgement. However, the Commission deemed the disgorgement order satisfied by the company’s reimbursement of its ill-gotten gains to the South African government as part of an earlier civil settlement based largely on the same underlying facts as the SEC’s action.

    Financial Crimes Securities SEC DOJ Enforcement Securities Exchange Act Bribery FCPA Of Interest to Non-US Persons

  • SEC fines tech company $23 million for FCPA violations

    Financial Crimes

    On September 27, the SEC announced that a multinational information technology company headquartered in Texas  (the “Company”) agreed to pay over $23 million to settle claims that its agents and employees of its subsidiaries in Turkey, the United Arab Emirates (UAE), and India violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. According to the SEC’s order, from at least 2014 through 2019, several subsidiary employees used discount schemes and false marketing reimbursement payments to create slush funds used to bribe foreign officials in exchange for business. The slush funds were also used to provide other benefits, including paying for foreign officials and their families to attend technology conferences around the world and trips to the U.S. The SEC explained that first-level supervisors at the subsidiaries could approve purchase orders under $5,000 without evidence that marketing activity actually took place. By exploiting this loophole in the company’s controls, employees of the Company’s subsidiaries in Turkey, the UAE, and India were able to funnel money into the slush funds undetected. Employees of the Turkish subsidiary allegedly used the funds to bribe government officials and pay for the travel and accommodation expenses of customers, including foreign officials, the SEC claimed. Employees of the UAE subsidiary allegedly used the funds to pay $130,000 in bribes to government officials in exchange for six contracts. Employees in India also allegedly engaged in a similar scheme, with one employee claiming that the Company would lose out on a deal if the Indian Ministry of Railways was not provided a 70 percent software discount. According to the SEC, the Ministry’s procurement website showed that the Indian subsidiary faced no competition because the Ministry required the use of the Company’s products for the project.

    The resolution requires the Company to pay a $15 million civil money penalty, $7,114,376 million in disgorgement, and $791,040 in prejudgment interest. The Company neither admitted nor denied the allegations.

    This is the second time the Company has resolved FCPA charges with the SEC. In 2012, the Company paid a $2 million penalty to settle allegations that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA when it allegedly failed to prevent an India subsidiary from maintaining unauthorized side funds at distributors. 

    Financial Crimes Of Interest to Non-US Persons SEC Bribery Enforcement FCPA Turkey United Arab Emirates India

  • Brazilian airline agrees to $41 million FCPA settlement

    Financial Crimes

    On September 15, a São Paulo-based domestic airline agreed to pay over $41 million to resolve parallel civil and criminal investigations by the SEC and DOJ. The investigations related to a bribery scheme executed by the airline to secure favorable payroll tax and fuel tax treatment through two pieces of new legislation. At the time of the conduct, the airline was the largest air transportation and travel services group in Brazil and its shares traded on the New York Stock Exchange. The favorable tax treatment provided the airline, along with all other Brazilian airlines, reduced taxes and expenses.

    According to the SEC and DOJ, a member of the airline’s Board of Directors (the “Director”) orchestrated the scheme, meeting and communicating with Brazilian officials and politicians and their close associates on numerous occasions. At one point, the Director communicated with a close associate of a Brazilian official who, “in turn, discussed the bribe schemes . . . with the Brazilian Official . . . via an ephemeral messaging application that uses end-to-end encrypted and content-expiring messages.” The servers of this messaging application were exclusively located in the United States (one the jurisdictional hooks relied on by the government).

    The Director ultimately authorized and directed the bribe payments from the airline to officials, and payments were made both directly from the airline and from companies controlled by the Director to various companies controlled by Brazilian officials or their close associates. Some of the intermediary companies receiving the corrupt payments were based in the U.S. and some of the payments were transmitted through a U.S. correspondent bank. The payments made directly by the airline were authorized from the Director’s own “Cost Center,” which had been created under the airline’s legal department and over which the Director had full discretion with no clearly defined controls or limits. The payments were inaccurately recorded in the airline’s books and records as payments to various third-party vendors for services that were never actually rendered. The airline did not have an effective review process of the documentation submitted before or after the disbursement of funds to monitor whether the invoices were authentic or whether the payments were for bona fide expenditures.

    As a result of this conduct, the SEC and DOJ determined that the airline violated the anti-bribery provisions, the books and records provisions, and the internal controls provisions of the FCPA.

    To resolve the civil charges, the airline agreed to a cease-and-desist order, disgorgement and pre-judgment interest totaling $70 million, although all but $24.5 million was waived based upon the airline’s present financial condition.

    To resolve the criminal charges, the airline entered into a deferred prosecution agreement (DPA). The original criminal penalty was calculated to be $87 million but was reduced to $17 million in light of the airline’s financial condition. In calculating the penalty, the DOJ acknowledged full credit for the airline’s cooperation, despite the fact that the airline did not self-report the violations. The DOJ also considered the airline’s remedial measures, which included terminating the Director at issue and relationships with all third-party vendors involved in the underlying misconduct, and a complete overhaul of its compliance program. However, the DPA did not require the appointment of a corporate compliance monitor.

    The DOJ and SEC each agreed to offset $1.7 million in penalties the airline is expected to pay to resolve the parallel Brazilian proceedings against their respective resolutions.

    Financial Crimes FCPA SEC DOJ Enforcement Of Interest to Non-US Persons Brazil Bribery

  • 2nd Circuit affirms acquittal of former transportation and energy industry executive

    Financial Crimes

    On August 12, the U.S. Court of Appeals for the Second Circuit upheld a lower court’s decision to partially acquit a former executive of a French multinational transportation and energy company after a federal jury found him guilty of seven counts related to the Foreign Corrupt Practices Act (FCPA) and four counts of money laundering. The former executive, a British national, was employed by the company’s U.K. subsidiary and involved in a bribery scheme to secure public contracts in Indonesia for the company’s U.S. subsidiary. The 2nd Circuit agreed that the government failed to prove that the former executive was covered by the FCPA as an agent of a domestic concern, but left the money laundering convictions intact.

    In 2019, a jury in the U.S. District Court for the District of Connecticut found the defendant guilty of one count of conspiracy to violate the FCPA, six counts of substantive FCPA violations, and four counts of money laundering, for his involvement in a scheme to bribe Indonesian officials in exchange for granting his company’s U.S. subsidiary, a power generation equipment manufacturer, a power plant construction contract. After the guilty verdict, he filed a Rule 29(a) motion for a judgment of acquittal, arguing as to the FCPA counts that the government “failed to prove that he was an agent of [the subsidiary], the relevant domestic concern.” The 2nd Circuit had previously held that accomplice and co-conspirator liability was not available in the case, leaving agency liability. (Covered by InfoBytes here.)

    As previously covered by InfoBytes, in 2020, the district court agreed that the evidence at trial did not establish that the subsidiary exercised “control over [the former executive’s] actions sufficient to demonstrate agency” and acquitted him of the FCPA-related counts after determining that the government failed to prove at trial that the defendant was an “agent” of a domestic concern.

    On appeal, a divided three-judge panel affirmed the lower court’s decision, concluding that “[t]here was no explicit or implied agency or employee relationship between [the defendant and the company’s U.S. subsidiary] such that the elements of an agency relationship were proven beyond a reasonable doubt.” The majority held that lack of control held by the subsidiary over the defendant was fundamental in determining whether he was acting as an agent of the subsidiary. A principal’s accountability for the actions of an agent depends on its ability to select and control the agent and terminate the agency relationship, as well as an agent’s agreement to act on the principal’s behalf, the majority wrote. “[T]he fact that [the defendant] collaborated with and supported [the subsidiary and a co-defendant] does not mean he was under their control within the meaning of the FCPA,” the majority explained.

    Financial Crimes Of Interest to Non-US Persons FCPA Appellate Second Circuit Bribery

  • SEC enters $78 million FCPA settlement with steel pipe manufacturer

    Securities

    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.

    Securities Financial Crimes SEC Enforcement FCPA Securities Exchange Act Bribery Of Interest to Non-US Persons Petrobras

  • International medical waste provider agrees to $84 million FCPA settlement

    Financial Crimes

    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.

    Financial Crimes SEC DOJ FCPA Bribery Enforcement Of Interest to Non-US Persons Brazil Argentina Mexico

  • Biden outlines anti-corruption strategy

    Federal Issues

    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.

    Federal Issues Biden Financial Crimes Corruption Agency Rule-Making & Guidance Of Interest to Non-US Persons Anti-Money Laundering Beneficial Ownership Bribery FCPA Bank Secrecy Act Corporate Transparency Act

  • SEC enters $19 million FCPA settlement with advertising company

    Financial Crimes

    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.

    Financial Crimes Securities SEC FCPA Bribery Of Interest to Non-US Persons China

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