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  • 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

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  • 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

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  • 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

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  • 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

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  • 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

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  • 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

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  • 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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  • Global engineering company subsidiary agrees to $43 million FCPA settlement

    Financial Crimes

    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.

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

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  • Swiss bank to pay $79 million to settle money laundering charges

    Financial Crimes

    On May 27, the DOJ announced it had entered into a three-year deferred prosecution agreement with a Swiss bank charged with conspiring to commit money laundering, in which the bank agreed to pay more than $79 million after admitting that it “conspired to launder over $36 million in bribes through the United States to soccer officials” in exchange for broadcasting rights to international soccer matches. According to the DOJ, between February 2013 and May 2015, the bank, through a former bank relationship manager (who pleaded guilty in June 2017 for his role in the scheme and was sentenced last November), conspired with sports marketing executives to launder at least $36 million in bribes through the U.S. in order to “conceal the true nature of the payments and promote the fraud.” During this period, the DOJ claimed the bank’s anti-money laundering (AML) controls “failed to detect or prevent money laundering transactions related to the bribery schemes,” and that had the former bank relationship manager’s supervisors or compliance personnel conducted meaningful due diligence they would have been alerted to “multiple, significant red flags, including facially false contracts, payments to third parties at the direction of a [soccer federation] official, and services purportedly rendered by shell corporations—all of which would have alerted the [b]ank to the bribery, money laundering or other illegal activity.” The DOJ further noted that the bank admitted it was aware that the former bank relationship manager’s clients’ accounts were associated with international soccer—an area “generally understood to involve high corruption risks”—but still directed these accounts to be fast tracked in the hopes of obtaining lucrative business.

    The terms outlined in the deferred prosecution agreement are based on several factors, the DOJ stated, including the bank’s prior criminal history and the fact that the bank failed to voluntarily disclose the conduct and played a critical rule in the scheme for more than two years. The DOJ further noted that the bank did not receive any cooperation credit because it made misleading representations about relevant facts in the case, which hindered the investigation, and failed to provide all evidence pertaining to the involvement of senior management. However, the bank did receive some credit for making significant efforts to remediate its compliance program and spent $112 million on a three-year AML initiative designed to upgrade all accounts held by the bank, not just high-risk accounts. Under the terms of the agreement, the bank will pay a fine of roughly $43.3 million and forfeit approximately $36.4 million.

    Financial Crimes DOJ Of Interest to Non-US Persons Anti-Money Laundering Bribery

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  • Multi-national bank settles FCPA and commodities fraud charges for $130 million

    Financial Crimes

    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.

    Financial Crimes FCPA DOJ CFTC SEC Enforcement Bribery

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