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July 7, 2020 |
U.S. DOJ and SEC Issue First Comprehensive Update to FCPA Resource Guide Since 2012

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On Friday, July 3, 2020, the U.S. Department of Justice (“DOJ”) Criminal Division and U.S. Securities Exchange Commission (“SEC”) published the Second Edition of A Resource Guide to the U.S. Foreign Corrupt Practices Act (the “FCPA Resource Guide,”), a consolidated manual setting forth the authorities’ guidance regarding the Foreign Corrupt Practices Act (“FCPA”) that has served as an essential resource for practitioners in understanding the government enforcers’ views on the statute and approaches to enforcing it.

The FCPA Resource Guide had not been substantively updated in the nearly eight years since it was originally published in November 2012 (an update containing mainly non-substantive changes was issued in August 2015). The Second Edition largely retains the core structure and content of the original FCPA Resource Guide, while including updates to reflect several important developments in governmental guidance, relevant case law, and enforcement activity since the original publication. In so doing, the Second Edition re-establishes the FCPA Resource Guide as an invaluable “one-stop shop” for companies and practitioners to understand the perspectives of both enforcers regarding a variety of FCPA-related topics.

The Second Edition reflects significant updates regarding a variety of legal issues under the FCPA. These include the definition of “foreign official,” the scope of the SEC’s disgorgement power, the scope of the term “agent” for assessing corporate liability, the statute of limitations applicable to violations of the accounting provisions, and the requirements for criminal violations of the books and records and internal controls provisions. The Second Edition likewise incorporates recent governmental guidance regarding the key components of an effective compliance program, the application of the FCPA in the context of M&A transactions, the selection of corporate monitors, and, notably, the FCPA Corporate Enforcement Policy.

Notable updates reflected in the Second Edition include the following:

  • Updated Guidance Regarding FCPA Internal Controls Provision: The Second Edition attempts to add texture to the sometimes ambiguous FCPA internal accounting controls provision, which requires companies to establish processes that provide “reasonable assurances” regarding the reliability of financial reporting and preparation of financial statements. Recognizing that the FCPA does not specify a particular set of controls, and that such mechanisms are not synonymous with a company’s FCPA compliance program, the Second Edition notes that “an effective compliance program contains a number of components that may overlap with a critical component of an issuer’s internal accounting controls.” The guidance adds that a company’s internal controls must take into account the “operational realities and risks attendant to the company’s business” such as the types of products and services offered, supply chain, work force, degree of regulation, extent of government interaction, and operations in high-risk jurisdictions. Although this is a welcome recognition that internal accounting controls and compliance regimes are not entirely coextensive, this language also seeks to ground some of the SEC’s enforcement actions by suggesting that operational risk is part of the internal accounting controls of a company when those words are absent from the statute. It therefore is unlikely that the SEC will alter its sometimes aggressive interpretation of the FCPA’s internal controls provision in bringing enforcement actions where companies have fallen short, in the SEC’s judgment, in building, for example, effective controls around third parties.
  • Additional Focus on Successor Liability in Mergers and Acquisitions: The Second Edition provides increased clarity into corporate successor liability under the FCPA, with a particular focus on the M&A context. The update recognizes that while pre-acquisition due diligence is encouraged, robust due diligence prior to a merger or acquisition may not always be feasible. In such circumstances, the Second Edition instructs that the timeliness and thoroughness of compliance integration efforts, appropriate due diligence, and voluntary disclosure of uncovered wrongdoing post-acquisition will be primary considerations for DOJ and SEC in considering whether to take action against a successor for violations identified at a predecessor company. Further, under the FCPA Corporate Enforcement Policy, incorporated into the Second Edition, an acquiring company that voluntarily discloses post-acquisition conduct by the acquired company and takes appropriate remediation steps may be eligible for a presumption of declination, even where aggravating circumstances exist as to the acquired party. The Second Edition further points out that enforcement actions against acquiring parties in such instances have been rare, and generally they have involved either egregious and sustained violations, or culpability on the part of a successor following an acquisition. The Second Edition notes that where a successor company identifies and remediates issues in a timely fashion, any enforcement action is more likely to target the predecessor company, particularly where the government’s investigation pre-dated the acquisition. Though the Second Edition provides additional interpretive guidance regarding the authorities’ approach to successor liability in M&A transactions, it retains the original FCPA Resource Guide’s direction regarding sound practices in this context in relation to pre-acquisition due diligence, the prompt application of anti-corruption policies and procedures to new acquisitions, the training of relevant stakeholders regarding the parent’s anti-corruption obligations and applicable policies, prompt anti-corruption audits of newly acquired businesses or entities, and the prompt and thorough disclosure of any corrupt payments identified through these due diligence and audit processes.
  • Expanded Guidance Regarding the Evaluation of Corporate Compliance Programs: The Second Edition builds on the prior edition’s guidance to companies regarding the hallmarks of effective anti-corruption compliance programs, conforming it to the updated regulatory expectations set forth in DOJ’s most recent update to its guidance regarding the “Evaluation of Corporate Compliance Programs,” issued in June 2020 (detailed in our recent client alert). The Second Edition more strongly signals the extent to which DOJ and the SEC will consider the effectiveness of corporate compliance and ethics programs both at the time of the misconduct and at the time of the resolution, which will impact the form of a resolution, its monetary value, and any required compliance undertakings. Among the more notable changes in this section is a sharpened focus on a company’s remediation efforts to apply “lessons learned” from compliance lapses, which the Second Edition characterizes as “the truest measure of an effective compliance program.”
  • Incorporation of Other Recent Guidance: As practitioners are well aware, U.S. enforcers (particularly DOJ) have issued a litany of new memoranda in the last several years on a variety of topics in an effort to provide greater clarity and transparency to companies regarding the enforcement authorities’ approaches to investigating and prosecuting corporate misconduct, including in the FCPA space. The Second Edition references these new guidance documents, including DOJ’s guidance for selecting monitors in Criminal Division matters (covered in our 2018 Year-End FCPA Update), “anti-piling on” policy regarding the coordinated resolution of enforcement actions involving multiple enforcement authorities (discussed in our 2018 Mid-Year FCPA Update), and the corporate compliance program guidance noted above. The FCPA Resource Guide now includes a section regarding DOJ’s FCPA Corporate Enforcement Policy, which was most recently updated in November 2019 (as discussed in our 2019 Year-End FCPA Update). The policy, which was established as a pilot program in April 2016 and codified in November 2017, and the principles of which have since been applied in Criminal Division matters outside of the FCPA setting, provides incentives to companies—up to a presumption of declination—that voluntarily self-report, fully cooperate with DOJ, and engage in prompt and thorough remediation. The Second Edition includes a series of examples in which companies received declinations under the Corporate Enforcement Policy.
  • Updated Case Studies and Hypotheticals: The Second Edition includes a number of updates to case studies and hypotheticals, which illuminate how DOJ and the SEC are likely to view particular fact patterns. In some instances, the Second Edition replaces older case studies with more recent examples; the Second Edition also includes new case studies to illustrate the types of gifts that might lead to enforcement action, such as a 2017 enforcement action involving a company allegedly paying for foreign officials to travel to sporting events and providing them with significant “spending money,” paying tuition for foreign officials’ children, and providing foreign officials with luxury vehicles. Other topics benefitting from new and/or updated case studies and hypotheticals include gifts or payments to third parties; payments to employees of agencies and instrumentalities of foreign governments; liability for the misconduct of third-party agents or intermediaries; the applicability of the “local law defense”; parent-company and post-acquisition liability; ineffective internal controls and compliance programs; and the assessment of FCPA penalties, among other subjects.
  • Refinements to Scope of Liability for Foreign “Agents” Following Hoskins: The Second Edition reflects the government’s view of the scope of FCPA liability for foreign individuals not directly covered by the FCPA’s anti-bribery provisions following the Second Circuit’s decision in United States v. Hoskins (discussed most recently in our 2019 Year-End FCPA Update). In that case, the Second Circuit held that foreign nationals are subject to the FCPA anti-bribery provisions if they are agents, employees, officers, directors, or shareholders of a U.S. issuer or domestic concern, or if they act in furtherance of a bribery scheme while in the territory of the United States. Though the Second Edition acknowledges Hoskins, it takes the position that this decision has not been applied outside the Second Circuit, characterizes this legal question as “unsettled,” and cites to a contradictory district court opinion which held, relying on a Seventh Circuit precedent, that defendants can be liable for conspiracy to violate, or for aiding and abetting in violations of, the FCPA even where they do not “belong to the class of individuals capable of committing a substantive FCPA violation.” Such a reluctance to accept the limits of Hoskins speaks volumes regarding the DOJ’s desire to expand the FCPA further than permitted by the Second Circuit. Notably, the updated guidance does not mention the subsequent history of the Hoskins case, in which the district court granted the defendant’s post-trial motion for a judgment of acquittal on seven FCPA-related counts based on DOJ’s inability to establish the defendant’s agency relationship with his employer’s U.S. subsidiary. Also absent from the Second Edition is language echoing the December 2019 comments from the former Assistant Attorney General for the Criminal Division, Brian Benczkowski, in which he suggested that, following the Second Circuit decision in Hoskins, DOJ “is not looking to stretch the bounds of agency principles beyond recognition, or even push the FCPA statute toward its outer edges,” but would use its discretion to apply theories of agency liability following a thorough evaluation of each case, based on “provable facts that align with agency principles.” The Second Edition likewise maintains the position that foreign companies and their agents can be liable in civil or administrative proceedings for aiding and abetting FCPA anti-bribery violations, and emphasizes that Hoskins is limited to the anti-bribery provisions, whereas the accounting provisions apply to “any person.” The Second Edition, therefore, suggests that the government will continue to construe Hoskins narrowly, in terms of both the breadth of its holding and its precedential effect outside of the Second Circuit.
  • Incorporation of Recent Case Law Regarding SEC Disgorgement Power: The Second Edition reflects two recent Supreme Court decisions narrowing the scope of the SEC’s ability to seek disgorgement as an equitable remedy, including in FCPA enforcement actions. The Second Edition includes references to the Court’s 2017 decision in Kokesh v. SEC, which held that disgorgement was a “penalty” subject to the five-year statute of limitations set forth in 28 U.S.C. § 2462. The Second Edition also briefly references the Court’s recent decision in Liu v. SEC, which (as detailed in our recent client alert) upheld the SEC’s authority to seek disgorgement as an equitable remedy, but on the conditions that the disgorgement not exceed the defendant’s net profits and that it be awarded for the benefit of victims.
  • Updated Guidance Regarding the Definition of “Instrumentality”: The Second Edition incorporates the Eleventh Circuit’s seminal 2014 decision in United States v. Esquenazi, which analyzed the definition of “instrumentality” under the FCPA. The Second Edition approvingly cites the Esquenazi court’s definition of an instrumentality as “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own,” and incorporates the factors identified in Esquenazi for assessing the “government control” and “government function” prongs of this definition. These factors offer refinements, but not major changes, to the guidance provided in prior versions of the FCPA Resource Guide.
  • Clarifications Regarding Application of FCPA Accounting Provisions: The Second Edition includes two key clarifications regarding the application of the books-and-records and internal controls provisions of the FCPA, which have grown in prominence in recent years, particularly in SEC matters, as a powerful tool to bring enforcement actions absent direct allegations of bribery. First, the Second Edition states the government’s view that in the absence of a statute of limitations in the FCPA itself, substantive violations of the anti-bribery provisions are subject to a five-year statute of limitations under 18 U.S.C. § 3282, whereas criminal violations of the FCPA accounting provisions are considered “securities fraud offenses” subject to the six-year statute of limitations provided for in 18 U.S.C. § 3301. Second, the Second Edition clarifies that criminal penalties for violations of the FCPA accounting provisions are imposed only where the defendant knowingly and willfully failed to maintain accurate books and records or implement an adequate system of internal accounting controls.

Although the Second Edition generally does not break new ground, this update helpfully incorporates key takeaways from recent governmental guidance, case law, and enforcement actions, keeping the FCPA Resource Guide current as a valuable resource for companies and practitioners alike. As with the original FCPA Resource Guide, the Second Edition includes the caveat that it is “non-binding, informal, and summary in nature,” and many of the concepts described in the document are nuanced and open to a range of interpretations. Companies navigating complex FCPA matters should therefore continue to rely on experienced counsel to understand how U.S. enforcement authorities interpret and enforce the FCPA in practice.


The following Gibson Dunn lawyers assisted in preparing this client update:  F. Joseph Warin, Richard Grime, Patrick Stokes, Michael Diamant, Oleh Vretsona, Chris Sullivan, Alexander Moss, Brian Williamson, Will Cobb, and Ciara Davis.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues.  We have more than 110 attorneys with FCPA experience, including a number of former federal prosecutors and SEC officials, spread throughout the firm’s domestic and international offices.  Please contact the Gibson Dunn attorney with whom you work, or any of the following:

Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Richard W. Grime (+1 202-955-8219, rgrime@gibsondunn.com) Patrick F. Stokes (+1 202-955-8504, pstokes@gibsondunn.com) Judith A. Lee (+1 202-887-3591, jalee@gibsondunn.com) David Debold (+1 202-955-8551, ddebold@gibsondunn.com) Michael S. Diamant (+1 202-887-3604, mdiamant@gibsondunn.com) John W.F. Chesley (+1 202-887-3788, jchesley@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) Stephanie Brooker (+1 202-887-3502, sbrooker@gibsondunn.com) M. Kendall Day (+1 202-955-8220, kday@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Adam M. Smith (+1 202-887-3547, asmith@gibsondunn.com) Christopher W.H. Sullivan (+1 202-887-3625, csullivan@gibsondunn.com) Oleh Vretsona (+1 202-887-3779, ovretsona@gibsondunn.com) Courtney M. Brown (+1 202-955-8685, cmbrown@gibsondunn.com) Jason H. Smith (+1 202-887-3576, jsmith@gibsondunn.com) Ella Alves Capone (+1 202-887-3511, ecapone@gibsondunn.com) Pedro G. Soto (+1 202-955-8661, psoto@gibsondunn.com)

New York Zainab N. Ahmad (+1 212-351-2609, zahmad@gibsondunn.com) Matthew L. Biben (+1 212-351-6300, mbiben@gibsondunn.com) Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Joel M. Cohen (+1 212-351-2664, jcohen@gibsondunn.com) Lee G. Dunst (+1 212-351-3824, ldunst@gibsondunn.com) Mark A. Kirsch (+1 212-351-2662, mkirsch@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Lawrence J. Zweifach (+1 212-351-2625, lzweifach@gibsondunn.com) Daniel P. Harris (+1 212-351-2632, dpharris@gibsondunn.com)

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Los Angeles Debra Wong Yang (+1 213-229-7472, dwongyang@gibsondunn.com) Marcellus McRae (+1 213-229-7675, mmcrae@gibsondunn.com) Michael M. Farhang (+1 213-229-7005, mfarhang@gibsondunn.com) Douglas Fuchs (+1 213-229-7605, dfuchs@gibsondunn.com)

San Francisco Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) Thad A. Davis (+1 415-393-8251, tadavis@gibsondunn.com) Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com) Michael Li-Ming Wong (+1 415-393-8333, mwong@gibsondunn.com)

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Munich Benno Schwarz (+49 89 189 33-110, bschwarz@gibsondunn.com) Michael Walther (+49 89 189 33-180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33-130, mzimmer@gibsondunn.com)

Hong Kong Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Oliver D. Welch (+852 2214 3716, owelch@gibsondunn.com)

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Singapore Joerg Bartz (+65 6507 3635, jbartz@gibsondunn.com)

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April 24, 2020 |
Gibson Dunn Earns 84 Top-Tier Rankings in Chambers USA 2020

In its 2020 edition, Chambers USA: America’s Leading Lawyers for Business awarded Gibson Dunn 84 first-tier rankings, of which 31 were firm practice group rankings and 53 were individual lawyer rankings. Overall, the firm earned 302 rankings – 84 firm practice group rankings and 218 individual lawyer rankings. Gibson Dunn earned top-tier rankings in the following practice group categories: National – Antitrust National – Antitrust: Cartel National – Appellate Law National – Corporate Crime & Investigations National – FCPA National – Outsourcing National – Product Liability: Consumer Class Actions National – Real Estate National – Retail: Corporate & Transactional National – Securities: Regulation CA – Antitrust CA – IT & Outsourcing CA – Litigation: Appellate CA – Litigation: General Commercial CA – Litigation: Securities CA – Litigation: White-Collar Crime & Government Investigations CA – Real Estate: Zoning/Land Use CA (Los Angeles & Surrounds) – Employee Benefits & Executive Compensation CA – Real Estate: Northern California CA – Real Estate: Southern California CO – Litigation: White-Collar Crime & Government Investigations CO – Natural Resources & Energy DC – Corporate/M&A & Private Equity DC – Labor & Employment DC – Litigation: General Commercial DC – Litigation: White-Collar Crime & Government Investigations NY – Litigation: General Commercial: The Elite NY – Real Estate: Mainly Corporate & Finance NY – Technology & Outsourcing TX – Antitrust This year, 156 Gibson Dunn attorneys were identified as leading lawyers in their respective practice areas, with some ranked in more than one category. The following lawyers achieved top-tier rankings:  D. Jarrett Arp, Michael Bopp, Theodore Boutrous, Jessica Brown, Jeffrey Chapman, Linda Curtis, Michael P. Darden, Patrick Dennis, Mark Director, Thomas Dupree, Scott Edelman, Miguel Estrada, Stephen Fackler, Sean Feller, Eric Feuerstein, Amy Forbes, Stephen Glover, Richard Grime, Peter Hanlon, Hillary Holmes, Daniel Kolkey, Brian Lane, Jonathan Layne, Ray Ludwiszewski, Karen Manos, Randy Mastro, Cromwell Montgomery, Stephen Nordahl, Theodore Olson, Richard Parker, William Peters, Tomer Pinkusiewicz, Jesse Sharf, Orin Snyder, George Stamas, Beau Stark, Charles Stevens, Daniel Swanson, Steven Talley, Helgi Walker, Robert Walters, F. Joseph Warin, Debra Wong Yang, and Meryl Young.

March 5, 2020 |
Gibson Dunn Earns 155 Rankings from Chambers Global 2020

In the 2020 edition of Chambers Global, Gibson Dunn earned 155 total rankings – 56 firm practice group rankings and 99 individual rankings.  The firm and its lawyers were recognized globally and in the Asia-Pacific, Europe, Latin America and Middle East regions, with additional recognitions in Belgium, China, France, Germany, India, Indonesia, the Philippines, Singapore, the United Arab Emirates, the United Kingdom and the United States.  This year, 79 Gibson Dunn attorneys were identified as leading lawyers in their respective practice areas, with a number ranked in more than one category.

January 10, 2020 |
2019 Year-End German Law Update

Click for PDF Since the end of World War II, Germany’s foreign policy and economic well-being were built on three core pillars: (i) a strong transatlantic alliance and friendship, (ii) stable and influential international institutions and organizations, such as first and foremost, the EU, but also others such as the UN and GATT, and, finally, (iii) the rule of law. Each of these pillars has suffered significant cracks in the last years requiring a fundamental re-assessment of Germany’s place in the world and the way the world’s fourth largest economy should deal with its friends, partners, contenders and challengers. A few recent observations highlight the urgency of the issue:

  • The transatlantic alliance and friendship has been eroding over many years. A recent Civey study conducted for the think tank Atlantic-Brücke showed that 57.6% of Germans prefer a “greater distance” to the U.S., 84.6% of the 5,000 persons polled by Civey described the German-American relationship as negative or very negative, while only 10.4% considered the relationship as positive.
  • The current state of many international institutions and organizations also requires substantial overhaul, to put it mildly: After Brexit has occurred, the EU will have to re-define its role for its remaining 27 member states and its (new) relationship with the UK, which is still the fifth-largest economy on a stand-alone basis. GATT was rendered de facto dysfunctional on December 10, 2019, when its Appellate Body lost its quorum to hear new appeals. New members cannot be approved because of the United States’ veto against the appointment of new appeal judges. The UN is also suffering from a vacuum created by an attitude of disengagement shown by the U.S., that is now being filled by its contenders on the international stage, mainly China and Russia.
  • Finally, the concept of the rule of law has come under pressure for some years through a combination of several trends: (i) the ever expanding body of national laws with extra-territorial effect (such as the FCPA or international sanction regulations), a rule-making trend not only favored by the U.S., but also by China, Russia, the EU and its member states alike, (ii) the trend – recently observed in some EU member states – that the political party in charge of the legislative and executive branch initiates legislative changes designed to curtail the independence of courts (e.g. Poland and Hungary), and (iii) the rise of populist parties that have enjoyed land-slide gains in many countries (including some German federal states) and promulgate simple solutions, not least by cutting corners and curtailing legal procedures and legal traditions.
These fundamental challenges occur toward the end of a period of unprecedented rise in wealth and economic success of the German economy: Germany has reaped the benefits of eight decades of peace and the end of the Cold War after the decay of the Soviet Union. It regained efficiencies after ambitious structural changes to its welfare state in the early years of the millennium, and it re-emerged as a winner from the 2008 financial crisis benefiting (among others) from the short-term effects of the European Central Bank’s policy of a cheap Euro that mainly benefits the powerful German export machine (at the mid- and long-term cost to German individual savers). The robust economy that Germany enjoyed over the last decade resulted in record budgets, a reduction of public debt, a significant reduction in unemployment, and individual consumption at record levels. Therefore, the prospects of successfully addressing the above challenges are positive. However, unless straight forward and significant steps are identified and implemented to address the challenges ahead, the devil will be in the detail. The legislative changes across all practice areas covered in this year-end update are partly encouraging, partly disappointing in this respect. It is impossible to know whether the new laws and regulations will, on balance, make Germany a stronger and more competitive economy in 2020 and beyond. Healthy professional skepticism is warranted when assessing many of the changes suggested and introduced. However, we at Gibson Dunn are determined and committed to ensuring that we utilize the opportunities created by the new laws to the best benefit of our clients, and, at the same time, helping them in their quest to limit any resulting threats to the absolute minimum. As in prior years, in order to succeed in that, we will require your trust and confidence in our ability to support you in your most complicated and important business decisions and to help you form your views and strategies to deal with sophisticated German legal issues in times of fundamental change. Your real-world questions and the tasks you entrust us with related to the above developments and changes help us in forming our expertise and sharpening our focus. This adds the necessary color that allows us to paint an accurate picture of the multifaceted world we are living in, and on this basis, it will allow you to make sound business decisions in the interesting times to come. In this context, we are excited about every opportunity you will provide us with to help shaping our joint future in the years to come. _______________________

Table of Contents      

  1. Corporate, M&A
  2. Tax
  3. Financing and Restructuring
  4. Labor and Employment
  5. Real Estate
  6. Compliance and Litigation
  7. Antitrust and Merger Control
  8. Data Protection
  9. IP & Technology
 _______________________

1.   Corporate, M&A

1.1   ARUG II – New Transparency Rules for Listed German Corporations, Institutional Investors, Asset Managers, and Proxy Advisors In November 2019, the German parliament passed ARUG II, a long awaited piece of legislation implementing the revised European Shareholders’ Rights Directive (Directive (EU) 2017/828). ARUG II is primarily aimed at listed German companies and provides changes with respect to “say on pay” provisions, as well as additional approval and disclosure requirements for related party transactions, the transmission of information between a corporation and its shareholders and additional transparency and reporting requirements for institutional investors, asset managers and proxy advisors. “Say on pay” on remuneration of board members; remuneration policy and remuneration report In a German stock corporation, shareholders determine the remuneration of the supervisory board members at a shareholder meeting, whereas the remuneration of the management board members is decided by the supervisory board. Under ARUG II, shareholders of German listed companies must be asked to vote on the remuneration of the board members pursuant to a prescribed procedure. First, the supervisory board will have to prepare a detailed remuneration policy (including maximum remuneration amounts) for the management board, which must be submitted to the shareholders if there are major changes to the remuneration, and in any event at least once every four years. The result of the vote on the policy will only be advisory except that the shareholders’ vote to reduce the maximum remuneration amount will be binding. With respect to the remuneration of supervisory board members, the new rules require a shareholder vote at least once every four years. Second, at the annual shareholders’ meeting, the shareholders will vote ex post on the remuneration report which contains the remuneration granted to the present and former members of the management board and the supervisory board in the previous financial year. Again, the shareholders’ vote, however, will only be advisory. Both the remuneration report and the remuneration policy have to be made public on the company’s website for at least ten years. The changes introduced by ARUG II will not apply retroactively and will not therefore affect management board members’ existing service agreements, i.e. such agreements will not have to be amended in case they do not comply with the new remuneration policy. Related party transactions German stock corporation law already provides for various safeguards to protect minority shareholders in transactions with major shareholders or other related parties (e.g. the capital maintenance rules and the laws relating to groups of companies). In the future, for listed companies, these mechanisms will be supplemented by a detailed set of approval and transparency requirements for related party transactions. In particular, transactions exceeding certain thresholds will require prior supervisory board approval, provided that a rejection by the supervisory board can be overruled by shareholder vote, and a listed company must publicly disclose any such material related party transaction, without undue delay over media channels providing for European-wide distribution. Communication / Know-your-Shareholder Listed corporations will have the right to request information on the identity of their shareholders, including the name and both a postal and electronic address, from depositary banks, thus allowing for a direct communication line, also with respect to bearer shares (“know-your-shareholder”). Furthermore, depositary banks and other intermediaries will be required to pass on important information from the corporation to the shareholders and vice versa, e.g. with respect to voting in shareholders’ meetings and the exercise of subscription rights. Where there is more than one intermediary in a chain, the intermediaries are required to pass on the respective information within the chain. Increased transparency requirements for institutional investors, asset managers and proxy advisors Institutional investors and asset managers will be required to disclose their engagement policy (including how they monitor, influence and communicate with investee companies, exercise shareholders’ rights and manage actual and potential conflicts of interests). They will also have to report annually on the implementation of their engagement policy and on their voting decisions. Institutional investors will also have to disclose to which extent key elements of their investment strategy match the profile and duration of such institutional investors’ liabilities towards their ultimate beneficiaries. If they involve asset managers, institutional investors also have to disclose the main aspects of their arrangements with them. The new disclosure and reporting requirements, however, only apply on a “comply or explain” basis, i.e. investors and asset managers may choose not to comply with the transparency requirements provided that they give an explanation as to why this is the case. Proxy advisors will have to publicly disclose on an annual basis whether and how they have applied their code of conduct based again on the “comply or explain” principle. They also have to provide information on the essential features, methodologies and models they apply, their main information sources, the qualification of their staff, their voting policies for the different markets they operate in, their interaction with the companies and the stakeholders as well as how they manage conflicts of interests. These rules, however, do not apply to proxy advisors operating from a non-EEA state with no establishment in Germany. Entry into force and transitional provisions The provisions concerning related party transactions already apply. The rules relating to communications via intermediaries and know-your-shareholder information will apply from September 3, 2020. The “mandatory say on pay” resolutions will only have to be passed in shareholder meetings starting in 2021. The remuneration report will have to be prepared for the first time for the financial year 2021. It needs to be seen whether companies will already adhere to the new rules prior to such dates on a voluntary basis following requests from their shareholders or pressure from proxy advisors. In any event, both listed companies as well as the other addressees of the new transparency rules should make sure that they are prepared for the new reporting and disclosure requirements.

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1.2   Restatement of the German Corporate Governance Code – New Stipulations for the Members of the Supervisory Board and the Remuneration of the Members of the Board of Management

A restatement of the German Corporate Governance Code (Deutscher Corporate Governance Kodex, DCGK” or the “Code”) is expected for the beginning of 2020, after the provisions of the EU Shareholder Rights Directive II (Directive (EU) 2017/828 of the European Parliament and of the Council of May 17, 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement) were implemented into German domestic law as part of the "ARUG II" reform as of January 1, 2020. This timeline seeks to avoid overlaps and potentially conflicting provisions between ARUG II and the Code. In addition to structural changes, which are designed to improve legal clarity compared to the previous 2017 version, the new Code contains a number of substantial changes which affect boards of management and supervisory boards in an effort to provide more transparency to investors and other stakeholders. Some of the key modifications can be summed up as follows:
(a)   Firstly, restrictions on holding multiple corporate positions are tightened considerably. The new DCGK will recommend that (i) supervisory board members should hold no more than five supervisory board mandates at listed companies outside their own group, with the position of supervisory board chairman being counted double, and (ii) members of the board of management of a listed company should not hold more than two supervisory board mandates or comparable functions nor chair the supervisory board of a listed company outside their own group. (b)   A second focal point is the independence of shareholder representatives on the supervisory board. In this context, the amended DCGK for the first time introduces certain criteria which can indicate a lack of independence by supervisory board members such as long office tenure, prior management board membership, family or close business relationships with board members and the like. However, the Government Commission DCGK (Regierungskommission Deutscher Corporate Governance Kodex) (the “Commission”) has pointed out that these criteria should not replace the need to assess each case individually. Furthermore, at least 50% of all shareholder representatives (including the chairperson) shall be independent. If there is a controlling shareholder, at least two members of the supervisory board shall be independent of such controlling shareholder (assuming a supervisory board of six members). (c)   A third key area of reform focuses on the remuneration of members of the board of management. Going forward, it is recommended that companies should determine a so-called “target total remuneration”, i.e. the amount of remuneration that is paid out in total if 100 percent of all previously determined targets have been achieved, as well as a "maximum compensation cap", which should not be exceeded even if the previously determined targets are exceeded. Under the new Code, the total remuneration of the management board should be “explainable to the public”. (d)  Finally, the Commission has decided to simplify corporate governance reporting and put an end to the parallel existence of (i) the corporate governance report under the Code and (ii) a separate corporate governance statement contained in the management report of the annual accounts. Going forward, the corporate governance statement in the annual financial statements will be the core instrument of corporate governance reporting.
In recent years, governance topics have assumed ever increasing importance for both domestic and foreign investors and are typically a matter of great interest at annual shareholders’ meetings. Hence, we recommend that (listed) stock corporations, in a first step, familiarize themselves with the content of the new recommendations in the Code and, thereafter, take the necessary measures to comply with the rules of the revised DCGK once it takes effect . In particular, stock corporations should evaluate and disclose the different mandates of their current supervisory board members to comply with the new rules.

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1.3   Cross-Border Mobility of European Corporations Facilitated On January 1, 2020 the European Union Directive on cross-border conversions, mergers and divisions (Directive (EU) 2019/2121 of the European Parliament and of the Council of November 27, 2019) (the “Directive”) has entered into force. While a legal framework for cross-border mergers had already been implemented by the European Union in 2005, the lack of a comparable set of rules for cross-border conversions and divisions had led to fragmentation and considerable legal uncertainty. Whenever companies, for example, attempted to move from one member state to another without undergoing national formation procedures in the new member state and liquidation procedures in the other member state, they were only able to rely on certain individual court rulings of the European Court of Justice (ECJ). Cross-border asset transfers by (partial) universal legal succession ((partielle) Gesamtrechtsnachfolge) were virtually impossible due to the lack of an appropriate legal regime. The Directive now seeks to create a European Union-wide legal framework which ultimately enhances the fundamental principle of freedom of establishment (Niederlassungsfreiheit). The Directive in particular covers the following cross-border measures:
  • The conversion of the legal structure of a corporation under the regime of one member state into a legal structure of the destination member state (grenzüberschreitende Umwandlung) as well as the transfer of the registered office from one member state to another member state (isolierte Satzungsitzverlegung);
  • Cross-border division whereby certain assets and liabilities of a company are transferred by universal legal succession to one or more entities in another member state which are to be newly established in the course of the division. If all assets and liabilities are transferred, at least two new transferee companies are required and the transferor company ceases to exist upon effectiveness of the division. In all cases, the division is made in exchange for shares or other interests in the transferor company, the transferee company or their respective shareholders, depending on the circumstances.
  • The Directive further amends the existing legal framework for cross-border merger procedures by introducing common rules for the protection of creditors, dissenting minority shareholders and employees.
  • Finally, the Directive provides for an anti-abuse control procedure enabling national authorities to check and ultimately block a cross-border measure when it is carried out for abusive or fraudulent reasons or in circumvention of national or EU legislation.
Surprisingly, however, the Directive does not cover a cross-border transfer of assets and liabilities to one or more companies already existing in another member state (Spaltung durch Aufnahme). In addition, the Directive only applies to corporations (Kapitalgesellschaften) but not partnerships (Personengesellschaften). Member states have until January 2023 to implement the Directive into domestic law. Through this legal framework for corporate restructuring measures, it is expected that the Directive will harmonize the interaction between national procedures. If the member states do not use the contemplated national anti-abuse control procedure excessively, the Directive can considerably facilitate cross-border activities. Forward looking member states may even consider implementing comparable regimes for divisions into existing legal entities which are currently beyond the scope of the Directive.

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1.4   Transparency Register: Reporting Obligations Tightened and Extended to Certain Foreign Entities

The Act implementing the 5th EU Anti-Money Laundering Directive (Directive (EU) 2018/843) which amended the German Anti-Money Laundering Act (Geldwäschegesetz, GwG) with effect as of January 1, 2020 (see below under section 6.2) also introduced considerable new reporting obligations to the transparency register (Transparenzregister), which seeks to identify the “ultimate beneficial owner”. Starting on January 1, 2020, not only associations incorporated under German private law, but also foreign associations and trustees that have a special link to Germany must report certain information on their „beneficial owners“ to the German transparency register. Such link exists if foreign associations acquire real property in Germany. Non-compliance is not only an administrative offence (potential fines of up to EUR 150,000), but the German notary recording a real estate transaction must now check actively that the reporting obligation has been fulfilled before notarizing such transaction and must refuse notarization if it has not. Foreign trustees must in addition report the beneficial owners of the trust if a trust acquires domestic real property or if a contractual partner of the trust is domiciled in Germany. Reporting by a foreign association or trustee to the German transparency register is, however, not required if the relevant information on the beneficial owners has already been filed with a register of another EU member state. Additional requirements apply to foreign trustees. In addition, the reporting obligations of beneficial owners, irrespective of their place of residence, towards a German or, as the case may be, foreign association, regarding their interest have been clarified and extended. Associations concerned must now also actively make inquiries with their direct shareholders regarding any beneficial owners and must keep adequate records of these inquiries. Shareholders must respond to such inquiries within a reasonable time period and, in addition, must also notify the association pro-actively, if they become aware that the beneficial owner has changed as well as duly record any such notification. Furthermore, persons or entities subject to the GwG obligations (“Obliged Persons”) inspecting the transparency register to fulfil their customer due diligence requirements (e.g. financial institutions and estate agents) must now notify the transparency register without undue delay of any discrepancies on beneficial ownership between entries in the register and other information and findings available to them. Finally, the transparency register is now also accessible to the general public without proof of legitimate interest with regard to certain information about the beneficial owner (full legal name of the beneficial owner, the month and year of birth, nationality and country of residence as well as the type and extent of the economic interest of the beneficial owner). As in the past, however, the registry may restrict inspection into the transparency register, upon request of the beneficial owner, if there are overriding interests worthy of protection. In return for any disclosure, starting on July 1, 2020, beneficial owners may request information on inspections made by the general public (in contrast to inspections made by public authorities or Obliged Persons such as, e.g. financial institutions, auditing firms, or tax consultants and lawyers). Although reporting obligations to the transparency register were initially introduced more than 2.5 years ago, compliance with these obligations still seems to be lacking in practice. Therefore, any group with entities incorporated in Germany, any foreign association intending to acquire German real estate and any individual qualifying as a beneficial owner of a domestic or foreign association should check whether new or outstanding inquiry, record keeping or reporting obligations arise for them and take the required steps to ensure compliance. In this context, we note that for some time now the competent administrative enforcement authority (Bundesverwaltungsamt) has increased its efforts to enforce the transparency obligations, including imposing fines on associations that have failed to make required filings. It is to be expected that they will further tighten the reins based on this reform.

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1.5   UK LLPs with Management Seat in Germany – Status after Brexit?

As things stand at present the British government is pushing to enact its Withdrawal Agreement Bill (the “WAB”) to ensure that it can take the UK out of the EU on January 31, 2020. Pursuant to the WAB such withdrawal from the EU is not intended to result in a so-called “Hard Brexit” as the WAB introduces a transition period until December 31, 2020 during which the European fundamental freedoms including the freedom of establishment would continue to apply. Freedom of establishment has, over the last decade in particular, resulted in German law recognizing that UK (and other EU) companies can have their effective seat of management (Verwaltungssitz) in Germany rather than the respective domestic jurisdiction. Until the end of the transition period, UK company structures such as UK Plc, Ltd. or LLP will continue to benefit from such recognition. But what happens thereafter if the EU and the UK (or, alternatively, Germany and the UK) do not succeed in negotiating particular provisions for the continued recognition of UK companies in the EU or Germany, respectively? From a traditional German legal perspective, such companies will lose their legal capacity as a UK company in Germany after the transition period because German courts traditionally follow the real or effective seat theory (Sitztheorie) and thus apply German corporate law to the companies in question rather than the incorporation theory (Gründungstheorie) which would lead to the application of English law. There would be a real risk that UK companies that have their effective management seat in Germany would have to be reclassified as a German company structure under the numerus clausus of German company structures. For some company structures such as the “LLP” German law does not have an equivalent LLP company structure as such, and reclassifying it as a German law limited partnership would not work either in most cases due to lack of registration in the German commercial register. In short, the only alternative for future recognition of a UK multi-person LLP, under German law, may be a German civil law partnership (GbR) or in certain cases a German law commercial partnership (OHG), with all legal consequences that flow from such structures, including, in particular, unlimited member liability. The discussion on how to resolve this issue in Germany has focused on a type of German partnership with limited liability (Partnerschaftsgesellschaft mit beschränkter Haftung, PartGmbB), that has only limited scope. A PartGmbB is only open to members of the so-called liberal or free professions such as attorneys or architects. In addition, the limitation of liability in a PartGmbB applies only to liability due to professional negligence and risks associated with the profession, and would thus not benefit their members generally. Unless UK companies with an effective seat of management in Germany opted to risk reliance on the status quo – in the event there is no new framework for recognition after the transition period – affected companies should either change their seat of management to the UK (or any other EU jurisdiction that applies the incorporation theory) and establish a German branch office, or, alternatively, consider forming a suitable German legal corporate structure before the end of the transition period at the end of December 2020.

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1.6   The ECJ on Corporate Agreements and the Rome I Regulation

In its decision C-272/18, of 3 October 2019, the European Court of Justice (ECJ) further clarified the scope of the EU regulation Rome I (Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (the “Rome I Regulation”) on the one hand, and international company law which is excluded from the scope of the Rome I Regulation on the other hand. The need for clarification resulted from Art. 1 para. 2 lit f. of the Rome I Regulation pursuant to which “questions governed by the law of companies and other bodies, corporate or unincorporated, such as the creation, by registration or otherwise, legal capacity, internal organization or winding-up of companies and other bodies […]” are excluded from the scope of the Rome I Regulation. The ECJ, as the highest authority on the interpretation of the Regulation, held that the “corporate law exception” does not apply to contracts which have shares as object of such contract only. According to the explicit statement of the Advocate General Saugmandsgaard Øe, this also includes share purchase agreements which are now held to be within the scope of the Rome I Regulation. This exception from the scope of the Rome I Regulation is thus much narrower than it has been interpreted by some legal commentators in the past. The case concerned a law suit brought by an Austrian consumer protection organization (“VKI”) against a German public instrument fund (“TVP”), and more particularly, trust arrangements for limited (partnership) interests in funds designed as public limited partnerships. The referring Austrian High Court had to rule on the validity of a choice of law clause in trust agreements concerning German limited partnership interests between the German fund TVP, as trustee over the investors’ partnership interests, and Austrian investors qualifying as consumers, as trustors. This clause provided for the application of German substantive law only. VKI claimed that this clause was, under Austrian substantive law, not legally effective and binding because pursuant to the Rome I Regulation, a contract concluded by a consumer with another person acting in the exercise of his/her trade or profession shall either be governed by the law of the country of the consumer’s habitual residence (in this case Austria) and/or, in the event the parties have made a choice as to the applicable law, at least not result in depriving the consumer of the protection offered to him/her by his/her country of residence. The contractual choice of German law could not therefore, in VKI’s view, deprive Austrian investors of rights guaranteed by Austrian consumer protection laws. TVP, on the other hand, argued that the Rome I Regulation was not even applicable as the contract in question was an agreement related to partnership interests and, thus, to corporate law which was excluded from the scope of the Rome I Regulation. The ECJ ruled that the relevant corporate law exclusion from the scope of the Rome I Regulation is limited to the organizational aspects of companies such as their incorporation or internal statutes. In turn, a mere connection to corporate law was ruled not to be sufficient to fall within the exclusion. Sale and purchase agreements in M&A transactions, or as in the matter at hand trust arrangements, are therefore covered by the Rome I Regulation. The decision provides that the choice of law principle of the Rome I Regulation is, subject to the restrictions imposed by the Regulation itself for particular groups such as consumers and employees, applicable in more cases than considered in the past with respect to corporate law related contracts.

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1.7   German Foreign Direct Investment – Further Rule-Tightening Announced for 2020

Restrictions on foreign investment is increasingly becoming a perennial topic. After the tightening of the rules on foreign direct investment in 2017 (see 2017 Year-End German Law Update under 1.5) and the expansion of the scope for scrutiny of foreign direct investments in 2018 (see 2018 Year-End German Law Update under 1.3), the German Ministry of Economy and Energy (Bundesministerium für Wirtschaft und Energie) in November 2019 announced further plans to tighten the rules for foreign direct investments in Germany in its policy guideline on Germany’s industrial strategy 2030 (Industriestrategie 2030 – Leitlinien für eine deutsche und europäische Industriepolitik). The envisaged amendments to the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung, AWV) relate to the following three key pillars: Firstly, by October 2020, the German rules shall be adapted to reflect the amended EU regulations (so-called EU Screening Directive dated March 19, 2019). This would be achieved, inter alia, by implementing a cooperation mechanism to integrate other EU member states as well as the EU Commission into the review process. Further, the criteria for public order or security (öffentliche Ordnung oder Sicherheit) relevant to the application of foreign trade law is expected to be revised and likely expanded to cover further industry sectors such as artificial intelligence, robotics, semiconductors, biotechnology and quantum technology. The threshold for prohibiting a takeover may be lowered to cover not only a “threat” but a “foreseeable impairment” of the public order or security (as contemplated in the EU directive). Secondly, if the rules on foreign direct investments cannot be relied on to block an intended acquisition, but such acquisition nonetheless affects sensitive or security related technology, another company from the German private sector may acquire a stake in the relevant target as a so-called “White Knight” in a process moderated by the government. Thirdly, as a last resort, the strategy paper proposes a “national fallback option” (Nationale Rückgriffsoption) under which the German state-owned Kreditanstalt für Wiederaufbau could acquire a stake in enterprises active in sensitive or security-related technology sectors for a limited period of time. Even though the details for the implementation of those proposals are not yet clear, the trend towards more protectionism continues. For non-EU investors a potential review pursuant to the rules on foreign direct investment will increasingly become the new rule and should thus be taken into account when planning and structuring M&A transactions.

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2.   Tax - German Federal Government Implements EU Mandatory Disclosure Rules

On December 12, 2019 and December 20, 2019, respectively, the two chambers of the German Federal Parliament passed the Law for the Introduction of an Obligation to report Cross-Border Tax Arrangements (the “Law”), which implements Council Directive 2018/822/EU (referred to as “DAC 6”) into Germany’s domestic law effective as of July 1, 2020. DAC 6 entered into force on June 25, 2018 and requires so-called intermediaries, and in some cases taxpayers, to report cross-border arrangements that contain defined characteristics with their national tax authorities within specified time limits. The stated aim of DAC 6 is to provide tax authorities with an early warning mechanism for new risks of tax avoidance. The Law follows the same approach as provided for in DAC 6. The reporting obligation would apply to “cross-border tax arrangements” in the field of direct taxes (e.g. income taxes but not VAT). Cross-border arrangements concern at least two member states or a member state and a non-EU country. Purely national German arrangements are - contrary to previous drafts of the Law – not subject to reporting.
(a)   Reportable cross-border arrangements must have one or more specified characteristics (“hallmarks”). The hallmarks are broadly scoped and represent certain typical features of tax planning arrangements, which potentially indicate tax avoidance or tax abuse. (i)    Some of these hallmarks would result in reportable transactions only if the “main benefit test” is satisfied. The test would be satisfied if it can be established that the main benefit that a person may reasonably expect to derive from an arrangement is obtaining a tax advantage in Germany or in another member state. Hallmarks in that category are, inter alia, the use of substantially standardized documentation or structures, the conversion of income into lower taxed categories of revenue or payments to an associated enterprise that are tax exempt or benefit from a preferential tax regime or arrangement. (ii)   In addition, there are hallmarks that would result in reportable transactions regardless of whether the main benefit test is satisfied. Hallmarks in this category are, for example, assets that are subject to depreciation in more than one jurisdiction, relief from double taxation that is claimed more than once, arrangements that involve hard-to-value intangibles or specific transfer pricing arrangements. (b)   The primary obligation to disclose information to the tax authorities rests with the intermediary. An intermediary is defined as “any person that promotes, designs for a third party, organizes, makes available for implementation or manages the implementation of a reportable cross-border arrangement.” Such intermediary must be resident in the EU or provides its services through a branch in the EU. Typical intermediaries are tax advisors, accountants, lawyers, financial advisors, banks and consultants. When multiple intermediaries are engaged in a cross-border arrangement, the reporting obligation lies with all intermediaries involved in the same arrangement. However, an intermediary can be exempt from reporting if he can prove that a report of the arrangement has been filed by another intermediary. In the event an intermediary is bound by legal professional privilege from reporting information, the intermediary would have to inform the relevant taxpayer of the possibility of waiving the privilege. If the relevant taxpayer does not grant the waiver, the responsibility for reporting the information would shift to the taxpayer. Other scenarios where the reporting obligation is shifted to the taxpayer are in-house schemes without involvement of intermediaries or the use of intermediaries from countries outside the EU. (c)   Reporting to the tax office is required within a 30-day timeframe after the arrangement is made available for implementation or when the first step has been implemented. The report must contain the applicable hallmark, a summary of the cross-border arrangement including its value, the applicable tax provisions and certain information regarding the intermediary and the taxpayer. The information will be automatically submitted by the competent authority of each EU member state through the use of a central directory on administrative cooperation in the field of direct taxation. (d)  The reporting obligations commence on July 1, 2020. However, the Law also has retroactive effect: for all reportable arrangements that were implemented in the interim period between June 24, 2018 and June 30, 2020 the report would have to be filed by August 31, 2020. Penalties for noncompliance with the reporting obligations are up to EUR 25,000 while there are no penalties for noncompliance with such reportable arrangements for the interim period between June 25, 2018 and June 30, 2020.
Since, as noted above, the reporting obligation can be shifted to the client as the taxpayer and the client will then be responsible for complying with the reporting obligations, taxpayers should consider establishing a suitable reporting compliance process. Such process may encompass sensitization for and identification of reportable transactions, the determination of responsibilities, the development of respective DAC 6 governance and a corresponding IT-system, recording of arrangements during the transitional period after June 24, 2018, robust testing and training as well as live operations including analysis and reporting of potential reportable arrangements.

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3.   Financing and Restructuring

3.1   EU Directive on Preventive Restructuring Framework – Minimum Standards Across Europe? On June 26, 2019, the European Union published Directive 2019/1023 on a preventive restructuring framework (Directive (EU) 2019/1023 of the European Parliament and of the Council of June 20, 2019) (the “Directive”). The Directive aims to introduce standards for “honest entrepreneurs” in financial difficulties providing businesses with a “second chance” in all EU member states. While some member states had already introduced preventive restructuring schemes in the past (e.g. the UK scheme of arrangement), others, like Germany, stayed inactive, leaving debtors with the largely creditor-focused and more traditional tools set forth in the German Insolvency Code (Insolvenzordnung, InsO). By contrast, the Directive now seeks to protect workers and creditors alike in “a balanced manner”. In addition, a particular focus of the Directive are small and medium-sized enterprises, which often do not have the resources to make use of already existing restructuring alternatives abroad. The key features of the Directive provide, in particular:
  • The preventive restructuring regime shall be available upon application of the debtor. Creditors and employee representatives may file an application, but generally the consent of the debtor shall be required in addition;
  • Member states are required to implement early warning tools and to facilitate access to information enabling debtors to properly assess their financial situation early on and detect circumstances which may ultimately lead to insolvency;
  • Preventive restructuring mechanisms must be set forth in domestic law in the event there is a “likely insolvency”. Debtors must be given the possibility to remain in control of the business operations while restructuring measures are implemented to avoid formal insolvency proceedings. In Germany, it will be a challenge to properly distinguish between the newly introduced European concept of “likely insolvency” which is the door opener for preventive restructuring under the Directive and the existing German legal concept of “imminent illiquidity” (drohende Zahlungsunfähigkeit) which under current insolvency law enables German debtors to proceed with a voluntary insolvency filing;
  • A stay of individual enforcement measures for an initial period of four months (with an extension option of up to a maximum of 12 months) must be provided for, thus putting debtors in a position to negotiate a restructuring plan. During this time period, the performance of executory contracts cannot be withheld solely due to non-payment;
  • Minimum requirements for a restructuring plan include an outline of the contemplated restructuring measures, effects on the workforce, as well as the prospects that insolvency can be prevented on the basis of such measures;
  • Restructuring measures contemplated by the Directive are wide ranging and include a change in the composition of a debtor’s assets and liabilities, a sale of assets or of the business as a going concern, as well as necessary operational changes;
  • Voting on the restructuring plan is generally effected by separate classes of creditors in each case with a majority requirement of not more than 75%.
  • Cross-class cram down will be available subject to certain conditions including (i) a majority of creditor classes (including secured creditors) voted in favor and (ii) dissenting creditors are treated at least equal to their pari passu creditors (or better than creditors ranking junior). In addition, the restructuring plan must be approved by either a judicial or administrative authority in order to be binding on dissenting voting classes. Such approval is also required in the event of new financing or when the workforce is reduced by more than 25%.
Member states have until July 17, 2021 to implement the Directive into domestic law (subject to a possible extension of up to one year), but considering the multiple alternative options the Directive leaves to member states, discussions on how to best align existing domestic laws with the requirements of the Directive have already started. Ultimately, the success of the Directive depends on the willingness of the member states to implement a truly effective pre-insolvency framework. The inbuilt flexibility and variety of structuring alternatives left to the member states can be an opportunity for Germany to finally enact an out-of-court restructuring scheme beyond the existing debtor in possession (Eigenverwaltung) or protective shield (Schutzschirm) proceedings which, however, currently kick in only at a later stage of financial distress after an insolvency filing has already been made.

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3.2   Insolvency Contestation in Cash Pool Scenarios

One of the noticeable developments in the year 2019 was that inter-company cash-pool systems have increasingly come under close scrutiny in insolvency scenarios. There were several decisions by the German Federal Supreme Court (Bundesgerichtshof, BGH), the most notable one probably a judgment handed down on June 27, 2019 (case IX ZR 167/18) in a double insolvency case where the respective insolvency administrators of an insolvent group company and its insolvent parent and cash pool leader were fighting over the treatment of mutually granted upstream and downstream loans during the operation of a group-wide cash management system that saw multiple loan movements between the two insolvent debtors during the relevant pre-insolvency period. Under applicable German insolvency contestation laws (Insolvenzanfechtung), the insolvency administrator of the insolvent subsidiary has the right to contest any shareholder loan repayments or equivalent payments made to its parent as shareholder and pool leader within a period of one year prior to the point in time when the insolvency filing petition is lodged. The rationale of this rule is to protect the insolvent estate and regular unsecured trade creditors from pre-insolvency payments to shareholders who in an insolvency would only be ranked as subordinated creditors. The contestation right – if successful - allows the insolvency administrator to claw back from shareholders such earlier repayments to boost the funds available for distribution in the insolvency proceedings. In cases such as the one at hand where the cash pool was operated in a current account system resulting in multiple cash payments to and from the pool leader, the parent’s potential exposure could have grown exponentially if the insolvency administrator of the subsidiary could have simply added up all loan repayments made within the last year, irrespective of the fact that the pool leader, in turn, regularly granted new down-stream loan payments to the subsidiary as and when liquidity was needed. In one of the main conclusions of the judgment, the BGH confirmed the calculation mechanism for the maximum amount that can be contested and clawed back in scenarios such as this: The court, in this respect, does not simply add up all loan repayments in the last year. Instead, it uses the historic maximum amount of the loans permanently repaid within the one-year contestation period as initial benchmark and then deducts the outstanding amounts still owed by the insolvent subsidiary at the end of the contestation period. Interim fluctuations, where further repayments to the pool leader occurred, are deemed immaterial if they have been re-validated by new subsequent downstream loans. Consequently, the court limits the exposure of the pool leader in current account situations to the balance of loans, not by way of a simple addition of all repayments. In a second clarification, the BGH decreed that customary, arm’s length interest charged by the pool leader to the insolvent subsidiary for its downstream loans and then paid to the shareholder as pool leader are not qualified as a “payment equivalent to a loan repayment”, because interest is an independent compensation for the downstream loan, not capital transferred to the lender for temporary use. Beyond the specifics of the decision, the increased focus of the courts on cash pools in crisis situations should cause larger groups of companies that operate such group-wide cash management systems to revisit the underlying contractual arrangements to ensure that participating companies and the pool leader have adequate mutual early warning systems in place, as well as robust remedies and/or withdrawal rights to react as early as possible to the deterioration of the financial position of one or several cash pool participants. Even though the duration of the one-year contestation period will often mean that even carefully and appropriately drafted cash pooling documentation cannot always preempt or avoid all risk in a later financial crisis, at least, the potential personal liability risks for management which go beyond the mere contestation risk can be mitigated and addressed this way.

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4.   Labor and Employment

4.1   De-Facto Employment – A Rising Risk for Companies A widely-noticed court decision by the Federal Social Court (Bundessozialgericht) (judgment of June 4, 2019 – B12 R11 11/18 R) on the requalification of freelancers as de-facto employees has potentially increased risks to companies who employ freelancers. In this decision, the court requalified physicians officially working as “fee doctors” in hospitals as de-facto employees, because they were considered as integrated into the hospital hierarchy, especially due to receiving instructions from other doctors and the hospital management. While this decision concerned physicians, it found wide interest in the general HR community, as it tightened the leeway for employing freelancers. This aspect is particularly important for companies in Germany, as there is a war for talent, particularly with respect to engineers and IT personnel. These urgently sought-after experts are in high demand and therefore often able to dictate the contractual relationships. In this respect, they often prefer a freelancer relationship, as it is more profitable for them and gives them the opportunity to also work for other (even competing) companies. Against the background of this decision, every company would be well advised to review very thoroughly, whether a “freelancer” is really free of instructions regarding the place of work, the working hours, and the details of the work to be done. Otherwise, the potential liability for the company – both civil and criminal – is considerable if freelancers are deemed to be de-facto employees.

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4.2   New Constraints for Post-Contractual Non-Compete Covenants

A recently published decision by the Higher District Court (Oberlandesgericht) of Munich has restricted the permissible scope of post-contractual non-compete covenants for managing directors (decision of August 2, 2018 – 7 U 2107/18). The court held that such restrictions are only valid if and to the extent they are based upon a legitimate interest of the company. In addition, their scope has to be explicitly limited in the respective wording tailored to the individual case. This court decision is important, because, unlike for “regular” employees, post-contractual non-compete agreements for managing directors are not regulated by statutory law. Therefore, every company should, in a first step, carefully review whether a post-contractual non-compete is really necessary for the relevant managing director. If it is deemed to be indispensable, the wording should be carefully drafted according to the above-mentioned principles.

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4.3   ECJ Judgments on Vacation and Working Hours

The European Court of Justice (ECJ) has handed down two employee-friendly decisions regarding (a) the forfeiture of entitlement to vacation and (b) the control of working hours (case C-684/16, judgment of November 6, 2018 and case C-55/18, judgment of May 14, 2019). According to the first decision, employee vacation entitlement cannot simply be forfeited due to the lapse of time, even if such a forfeiture is stipulated by national statutory law. Rather, the employer has an obligation to actively notify employees of their outstanding entitlement to vacation and encourage them to take their remaining vacation. In the other decision, the ECJ demanded that the company establish a system to control and document all the working hours of its employees, not only those exceeding a certain threshold. In practical terms of the German economy, not all companies currently have such seamless time control and documentation systems in place. However, until this ECJ judgment is implemented into German statutory law, companies cannot be fined solely based upon the ECJ judgment. Thus, a legislative response to this issue and the court decision must be awaited.

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5.         Real Estate

5.1   Real Estate – Rent Price Cap concerning Residential Space in Berlin On November 26, 2019, the Berlin Senate (the government of the federal state of Berlin) passed a draft bill for the “Act on Limiting Rents on Berlin’s Residential Market” (Gesetz zur Mietenbegrenzung im Wohnungswesen in Berlin), the so-called Berlin rent price cap (Mietendeckel). It is expected that this bill will be adopted by the Berlin House of Representatives (the legislative chamber of the federal state of Berlin) and come into force in early 2020, with certain provisions of the bill having retroactive effect as of June 18, 2019. This bill shall apply to residential premises in Berlin (with a few exceptions) that were ready for occupancy for the first time before January 1, 2014. The three key instruments of this bill are (a) a rent freeze, (b) the implementation of rent caps and (c) a limit on modernization costs that can be passed on to the tenant.
(a)   The rent freeze shall apply to all existing residential leases and shall freeze the rent at the level of the rent on June 18, 2019 (or, if the premises were vacant on that date, the last rent before that date). This rent freeze also applies to indexed rents and stepped rents. As of 2022, landlords shall be entitled to request an annual inflation related rent adjustment, however, capped at 1.3% p.a.. Prior to entering into a new residential lease agreement, the landlord must inform the future tenant about the relevant rent as at June 18, 2019 (or earlier, as applicable). (b)   Depending on the construction year and fit-out standards (with / without collective heating / bathroom), initial monthly base rent caps between EUR 3.92 and EUR 9.80 per square meter (m²) shall apply. These caps shall be increased by 10% for buildings with up to two apartments. Another increase of EUR 1 per m² shall apply with respect to an apartment with “modern equipment”, i.e. an apartment that has at least three of the following five features: (i) barrier-free access to a lift, (ii) built-in kitchen, (iii) “high quality” sanitary fit-out, (iv) “high quality” flooring in the majority of the living space and (v) low energy performance (less than 120 kWh/(m²a). The bill does not contain a definition of what constitutes “high quality”. For new lettings after June 18, 2019 and re-lettings after this bill has come into force, the rent must not exceed the lower of the applicable rent caps and the rent level as of June 18, 2019 (or earlier, as applicable). If the agreed monthly rent as of June 18, 2019 (or earlier) was below EUR 5.02 per m², the re-letting rent may be increased by EUR 1 per m² up to a maximum monthly rent of EUR 5.02 per m². Once the act has been in effect for nine months, the tenants may request the public authorities to reduce the rent of all existing leases to the appropriate level if the rent is considered “extortionate”, i.e. if the rent exceeds the applicable rent cap level (subject to certain surcharges / discounts for the location of the premises) by more than 20% and it has not been approved by public authorities. The surcharges / discounts amount to +74 cents per m² (good location), -9 cents per m² (medium location) and –28 cents per m² (simple location). (c)   Modernization costs shall only be passed on to tenants if they relate to (i) measures required under statutory law, (ii) thermal insulation of certain building parts, (iii) measures for the use of renewable energies, (iv) window replacements to save energy, (v) replacement of the heating system, (vi) new installation of elevators or (vii) certain measures to remove barriers. Such costs can also only be passed on to tenants to the extent that the monthly rent is not increased by more than EUR 1 per m² and the applicable rent cap is not exceeded by more than EUR 1 per m². To cover the remaining modernization costs, landlords may apply for subsidies under additional subsidy programs of the state of Berlin. Any rent increase due to modernization measures is to be notified to the state-owned Investitionsbank Berlin.
Breaches of the material provisions of this bill are treated as an administrative offence and may be fined by up to EUR 500,000 in each individual case. Many legal scholars consider the Berlin rent price cap unconstitutional (at least, in parts) for infringing the constitutional property guarantee, the freedom of contract and for procedural reasons. In particular, they raise concerns about whether the state of Berlin is competent to pass such local legislation (as certain provisions deviate from the German Civil Code (BGB) as federal law) and whether the planned retroactive effect is permissible. The opposition in the Berlin House of Representatives and a parliamentary faction on the federal level have already announced that they intend to have the Berlin rent cap reviewed by the Berlin’s Regional Constitutional Court (Verfassungsgerichtshof des Landes Berlin) and the Federal Constitutional Court (Bundesverfassungsgericht). In light of the severe potential fines, landlords should nonetheless consider compliance with the provisions of the Berlin rent price cap until doubts on the constitutional permissibility have been finally clarified.

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5.2   Changes to the Transparency Register affecting Real Property Transactions

Certain aspects of the act implementing the 5th EU Anti-Money Laundering Directive (Directive (EU) 2018/843) which amended the German Anti-Money Laundering Act (GwG) are of particular interest to the property sector. We would, therefore, refer interested circles to the above summary in section 1.4.

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6.   Compliance and Litigation

6.1   German Corporate Sanctions Act German criminal law so far does not provide for corporate criminal liability. Corporations can only be fined under the law on administrative offenses. In August 2019, the German Federal Ministry of Justice and Consumer Protection (Bundesministerium der Justiz und für Verbraucherschutz) circulated a legislative draft of the Corporate Sanctions Act (Verbandssanktionengesetz, the “Draft Corporate Sanctions Act”) which would, if it became law, introduce a hybrid system. The main changes to the current legal situation would eliminate the prosecutorial discretion in initiating proceedings, tighten the sentencing framework and formally incentivize the implementation of compliance measures and internal investigations. So far, German law grants the prosecution discretion on whether to prosecute a case against a corporation (whereas there is a legal obligation to prosecute individuals suspected of criminal wrongdoing). This has resulted not only in an inconsistent application of the law, in particular among different federal states, but also in a perceived advantageous treatment of corporations over individuals. The Draft Corporate Sanctions Act now intends to introduce mandatory prosecution of infringements by corporations, with an obligation to justify non-prosecution under the law. The law as currently proposed would also apply to criminal offenses committed abroad if the company is domiciled in Germany. Under the current legal regime, corporations can be fined up to a maximum of EUR10 million (in addition to the disgorgement of profits from the legal violation), which is often deemed insufficient by the broader public. The Draft Corporate Sanctions Act plans to increase potential fines to a maximum of 10% of the annual—worldwide and group-wide—turnover, if the group has an average annual turnover of more than EUR100 million. Additionally, profits could still be disgorged. The Draft Corporate Sanctions Act would also introduce two new sanctions: a type of deferred prosecution agreement with the possibility of imposing certain conditions (e.g. compensation for damages and monitorship), and a “corporate death penalty,” namely the liquidation of the company to combat particularly persistent and serious criminal behavior. The Draft Corporate Sanctions Act would also allow the prosecutor to either refrain from pursuing prosecution or to positively take into account in the determination of fines the existence of an adequate compliance system. If internal investigations are carried out in accordance with the requirements set out in the Draft Corporate Sanctions Act (including in particular: (i) substantial contributions to the authorities’ investigation, (ii) formal division of labor between those conducting the internal investigation, on the one hand, and those acting as criminal defense counsel, on the other, (iii) full cooperation, including full disclosure of the investigation and its results to the prosecution, and (iv) adherence to fair trial standards, in particular the interviewee’s right to remain silent in internal investigations), the maximum fine might be reduced by 50%, and the liquidation of the company or a public announcement might be precluded. It is unclear under the current legal regime whether work product created in the context of an internal investigation is protected against prosecutorial seizure. The Draft Corporate Sanctions Act wants to introduce a clarification in this respect: only such documents will be protected against seizure that are part of the relationship of trust between the company as defendant and its defense counsel. Therefore, documents used or created in the preparation of the criminal defense would be protected. Documents from interviews in the context of an internal investigations, however, would only be protected in case they stem from the aforementioned relationship between client and defense counsel. Interestingly, and as mentioned above, the draft law requires that counsel conducting the internal investigation must be separate from defense counsel if the corporation wants to claim a cooperation bonus. How this can be achieved in practice, in particular in an international context where criminal defense counsel is often expected to conduct the internal investigation and where the protection of legal privilege may depend on this dual role, is unclear. In particular here, the draft does not seem sufficiently thought-through, and both the legal profession and the business community are voicing strong opposition. Overall, it is doubtful at the moment that the current government coalition, in its struggle for survival, will continue to pursue the implementation of this legislative project as a priority. Therefore, it remains to be seen whether, when, and with what type of amendments the German Corporate Sanctions Act will be passed by the German Parliament.

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6.2   Amendments to the German Anti-Money Laundering Act: Further Compliance Obligations, including for the Non-Financial Sector

On January 1, 2020, the Act implementing the 5th EU Anti-Money Laundering Directive (Directive (EU) 2018/843) became effective. In addition to further extending the scope of businesses that are required to conduct anti-money laundering and anti-terrorist financing procedures in accordance with the German Anti-Money Laundering Act (Geldwäschegesetz, GwG), in particular in the area of virtual currencies, it introduced new obligations and stricter individual requirements for persons or entities subject to the GwG obligations (“Obliged Persons”). The new requirements must be taken into account especially in relation to customer onboarding and ongoing anti-money laundering and countering terrorist financing (“AML/CTF”) compliance. The following overview provides a summary of some key changes, in particular, concerning the private non-financial sector, which apply in addition to the specific reporting obligations to the transparency register already described above under section 1.4.
  • The customer due diligence obligations (“KYC”) were further extended and also made more specific. In particular, Obliged Persons are now required to collect proof of registration in the transparency register or an excerpt of the documents accessible via the transparency register (e.g. shareholder lists) when entering into a new business relationship with a relevant entity. In addition, the documentation obligations with regard to the undertaken KYC measures have been further increased and clarified. Further important changes concern the enhanced due diligence measures required in the case of a higher risk of money laundering or terrorist financing, in particular with regard to the involvement of “high-risk countries”.
  • Obliged Persons must now also notify the registrar of the transparency register without undue delay of any discrepancies on beneficial ownership between entries in the transparency register and other information and findings available to them.
  • Obliged Persons must register with the Financial Intelligence Unit (FIU), regardless of whether they intend to report a suspicious activity, as soon as the FIU’s new information network starts its operations, but no later than January 1, 2024.
  • In accordance with the findings of the First National Risk Assessment, the duties for the real estate sector were significantly extended and increased. Real estate agents are now also subject to the AML/CTF risk management requirements of the GwG and are required to conduct customer due diligence when they act as intermediaries in the letting of immovable property if the monthly rent amounts to EUR 10,000 or more. Furthermore, notaries are now explicitly required to check the conclusiveness of the identity of the beneficial owner before notarizing a real estate purchase transaction in accordance with section 1 of the German Federal Real Estate Transfer Tax Act (Grunderwerbsteuergesetz) and may even be required to refuse notarization, see also section 1.4 above on the transparency register.
  • In an effort towards a more uniform EU-wide approach with regard to politically exposed persons (“PEPs”), EU member states must submit to the EU Commission a catalogue of specific functions and offices which under the relevant domestic law justify the qualification as PEP by January 10, 2020. The EU Commission will thereafter publish a consolidated catalogue, which will be binding for Obliged Persons when determining whether a contractual partner or beneficial owner qualifies as PEP with the consequence that enhanced customer due diligence applies.
  • Furthermore, the new law brought some clarifications by changing or introducing definitions, including in particular a new self-contained definition for the term “financial company”. For example, the legislator made clear that industrial holdings are not subject to the duties of the GwG: Any holding companies which exclusively hold participations in companies outside of the credit institution, financial institution or insurance sector do not qualify as financial companies under the GwG, unless they engage in business activities beyond the tasks associated with the management of their participations. That said, funds are not explicitly excluded from the definition of financial companies – and since their activities generally also include the acquisition and sale of participations, it is often questionable whether the exemption for holding companies applies.
  • Another noteworthy amendment concerns the group-wide compliance obligations in section 9 of the GwG: the amended provision now distinguishes (more) clearly between obligations applicable to an Obliged Person that is the parent company of a group and the other members of the group.
The amendments to the GwG have further intensified the obligations not only for the classical financial sector but also the non-financial sector. Since the amendments entered into force on January 1, 2020, the relevant business circles are well advised to review whether their existing AML/CTF risk management system and KYC procedures need to be adjusted in order to comply with the new rules.

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6.3   First National Risk Assessment on the Money Laundering and Terrorist Financing Risk for Germany – Implications for the Company-Specific Risk Analyses

The first national risk assessment for the purposes of combatting money laundering and terrorist financing (“NRA”) was finally published on the website of the German Federal Ministry of Finance (Bundesministerium der Finanzen) on October 21, 2019 (currently in German only). When preparing their company-specific risk analyses under the GwG, Obliged Persons must now take into consideration also the country-, product- and sector-specific risks identified in the NRA. Germany as a financial center is considered a country with a medium-high risk (i.e. level 4 of a five-point scale from low to high) of being abused for money laundering and terrorist financing. The NRA identifies, in particular, the following key risk areas: anonymity in transactions, the real estate sector, the banking sector (in particular, in the context of correspondent banking activities and international money laundering) and the money remittance business due to the high cash intensity and cross-border activities. With regard to specific cross-border concerns, the NRA has identified eleven regions and states that involve a high risk of money laundering for Germany: Eastern Europe (particularly Russia), Turkey, China, Cyprus, Malta, the British Virgin Islands, the Cayman Islands, Bermuda, Guernsey, Jersey and the Isle of Man. Separately, a medium-high cross-border threat was identified for Lebanon, Panama, Latvia, Switzerland, Italy and Great Britain, and a further 17 countries were qualified as posing a medium, medium-low or low threat with regard to money laundering. The results of the NRA (including the assessment of cross-border threats in its annex 4) need to be taken into consideration by Obliged Persons both of the financial and non-financial sector when preparing or updating their company-specific risk analyses in a way that allows a third party to assess how the findings of the NRA were accounted for. Obliged Persons (in particular, if supervised by the BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht) or active in other non-financial key-risk sectors), if they have not already done so, should thus conduct a timely review, and document such a review, of whether the findings of the NRA require an immediate update to their risk assessment or whether they consider an adjustment in the context of their ongoing review.

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7.   Antitrust and Merger Control

7.1   Antitrust and Merger Control Overview 2019 Germany’s antitrust watchdog, the German Federal Cartel Office (Bundeskartellamt), has had another very active year. On the cartel enforcement side, the Bundeskartellamt concluded several cartel investigations and imposed fines totaling EUR 848 million against 23 companies or associations and 12 individuals from various industries including bicycle wholesale, building service providers, magazines, industrial batteries and steel. As in previous years, leniency applications continue to play an important role for the Bundeskartellamt‘s antitrust enforcement activities with a total of 16 leniency applications received in 2019. With these applications and dawn raids at 32 companies, it can be expected that the agency will have significant ammunition for an active year in 2020 in terms of antitrust enforcement. With respect to merger control, the Bundeskartellamt reviewed approximately 1,400 merger filings in 2019. 99% of these filings were concluded during the one-month phase 1 review. Only 14 merger filings (i.e. 1% of all merger filings) required an in-depth phase 2 examination. Of those, four mergers were prohibited and five filings were withdrawn – only one was approved in phase 2 without conditions, and four phase 2 proceedings are still pending. In addition, the Bundeskartellamt has been very active in the area of consumer protection and concluded its sector inquiry into comparison websites. The agency has also issued a joint paper with the French competition authority regarding algorithms in the digital economy and their competitive effects. For 2020, it is expected that the Bundeskartellamt will conclude its sector inquiry regarding online user reviews as well as smart TVs and will continue to focus on the digital economy. Furthermore, the Bundeskartellamt has also announced that it is hoping to launch the Federal Competition Register for Public Procurement by the end of 2020 – an electronic register that will list companies that have been involved in serious economic offenses.

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7.2   Competition Law 4.0: Proposed Changes to German Competition Act

The German Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie) has compiled a draft bill for the tenth amendment to the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen, GWB) that aims at further developing the regulatory framework for digitalization and implementing European requirements set by Directive (EU) 2019/1 of December 11, 2018 by empowering the competition authorities of the member states to be more effective enforcers and to ensure the proper functioning of the internal market. While it is not yet clear when the draft bill will become effective, the most important changes are summarized below. (Super) Market Dominance in the Digital Age Various amendments are designed to help the Federal Cartel Office (Bundeskartellamt) deal with challenges created by restrictive practices in the field of digitalization and platform economy. One of the criteria to be taken into account when determining market dominance in the future would be “access to data relevant for competition”. For the first time, companies that depend on data sets of market-dominating undertakings or platforms would have a legal claim to data access against such platforms. Access to data will also need to be granted in areas of relative market power. Giving up the reference to “small and medium-sized” enterprises as a precondition for an abuse of relative or superior market power takes into account the fact that data dependency may exist regardless of the size of the concerned enterprise. Last but not least, the draft bill refers to a completely new category of “super dominant” market players to be controlled by the Bundeskartellamt, i.e. undertakings with “paramount significance across markets”. Large digital groups may not have significant market shares in all affected markets, but may nevertheless be of significant influence on these markets due to their key position for competition and their conglomerate structures. Before initiating prohibitive actions against such “super dominant” market players, the Bundeskartellamt will have to issue an order declaring that it considers the undertaking to have a “paramount significance across markets”, based on the exemplary criteria set out in the draft bill. Rebuttable Presumptions Following an earlier decision of the German Federal Supreme Court (Bundesgerichtshof, BGH), the draft bill suggests introducing a rebuttable presumption whereby it is presumed that direct suppliers and customers of a cartel are affected by the cartel in case of transactions during the duration of the cartel with companies participating in the cartel. The rebuttable presumption is intended to make it easier for claimants to prove that they are affected by the cartel. Another rebuttable presumption shall apply in favor of indirect customers in the event of a passing-on. However, there is still no presumption for the quantification of damages. Another procedural simplification foreseen in the draft bill is a lessening of the prerequisites to prove an abuse of market dominance. It would suffice that market behavior resulted in an abuse of market dominance, irrespective of whether the market player utilized its dominance for abusive purposes. Slight Increase of Merger Control Threshold The draft bill provides for an increase of the second domestic turnover threshold from EUR 5 million to EUR 10 million. Concentrations would consequently only be subject to filing requirements in the future if, in the last business year preceding the concentration, the combined aggregate worldwide turnover of all the undertakings concerned was more than EUR 500 million, and the domestic turnover of, at least, one undertaking concerned was more than EUR 25 million and that of another undertaking concerned was more than EUR 10 million. This change aims at reducing the burden for small and medium-sized enterprises. The fact that transactions that provide for an overall consideration of more than EUR 400 million may trigger a filing requirement remains unchanged.

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7.3   “Undertakings” Concept Revisited – Parents Liable for their Children?

Following the Skanska ruling of the European Court of Justice (ECJ) earlier this year (case C-724/17 of March 14, 2019) , the first German court decisions (by the district courts (Landgerichte) of Munich and Mannheim) were issued in cases where litigants were trying to hold parent companies liable for bad behavior by their subsidiaries. As a reminder: In Skanska, the ECJ ruled on the interpretation of Article 101 of the Treaty on the Functioning of the European Union (TFEU) in the context of civil damages regarding the application of the “undertakings” concept in cases where third parties claim civil damages from companies involved in cartel conduct. The “undertakings” concept, which the ECJ developed with regard to the determination of administrative fines for violations of Article 101 TFEU, establishes so-called parental liability. This means that parent entities may be held liable for antitrust violations committed by their subsidiaries, as long as the companies concerned are considered a “single economic unit” because the parent has “decisive influence” over the offending company and is exercising that influence. The Skanska case extends parental liability to civil damages cases. The decisions by the two German courts in Mannheim and Munich denied a subsidiary’s liability for its parent company, or for another subsidiary, respectively.

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8.   Data Protection: GDPR Fining Concept Raises the Stakes

While some companies are still busy implementing the requirements of the General Data Protection Regulation (the “GDPR”), the German Conference of Federal and State Data Protection Authorities has increased the pressure in October 2019 by publishing guidelines for the determination of fines in privacy violation proceedings against companies (the “Fining Concept”). Even though the Fining Concept may seem technical at first glance, it has far-reaching consequences for the fine amounts, which have already manifested in practice. The Fining Concept applies to the imposition of fines by German Data Protection Authorities within the scope of the GDPR. Since the focus for determining fines is on the global annual turnover of a company in the preceding business year, it is to be expected that fines will increase significantly. For further details, please see our client update from October 30, 2019 on this subject. In the past few months, in particular after the Fining Concept was published, several German Data Protection Authorities already issued a number of higher fines. Most notably, in November 2019 the Berlin Data Protection Authority imposed a fine against a German real estate company in the amount of EUR 14.5 million (approx. USD 16.2 million) for non-compliance with general data processing principles. The company used an archive system for the storage of personal data from tenants, which did not include a function for the deletion of personal data. In December 2019, another fine in the amount of EUR 9.5 million (approx. USD 10.6 million) was imposed by the Federal Commissioner for Data Protection and Freedom of Information against a major German telecommunications service provider for insufficient technical and organizational measures to prevent unauthorized persons from being able to obtain customer information. Many German data protection authorities have announced further investigations into possible GDPR violations and recent fines indicate that the trend towards higher fine levels will continue. This development leaves no doubt that the German Data Protection Authorities are willing to use the sharp teeth that data protection enforcement has received under the GDPR – and leave behind the rather symbolic fine ranges that were predominant in the pre-GDPR era. This is particularly true in light of the foreseeable temptation to use the concept of “undertakings” as developed under EU antitrust laws, which may include parental liability for GDPR violations of subsidiaries in the context of administrative fines as well as civil damages. For further details on the concept of “undertakings” in light of recent antitrust case law, please see above under Section 7.3.

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9.   IP & Technology

On April 26, 2019, the German Trade Secret Act (the “Act”) came into effect, implementing the EU Trade Secrets Directive (2016/943/EU) on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. The Act aims at consolidating what has hitherto been a potpourri of civil and criminal law provisions for the protection of trade secrets and secret know-how in German legislation. Besides an enhanced protection of trade secrets in litigation matters, one of the most important changes to the pre-existing rules in Germany is the creation of a new and EU-wide definition of trade secrets. Trade secrets are now defined as information that (i) is secret (not publicly known or easily available), (ii) has a commercial value because it is secret, (iii) is subject to reasonable steps to keep it secret, and (iv) there is a legitimate interest to keeping it secret. This definition therefore requires the holder of a trade secret to take reasonable measures to keep a trade secret confidential in order to benefit from its protection. To prove compliance with this requirement when challenged, trade secret holders will further have to document and track their measures of protection. This requirement goes beyond the previous standard pursuant to which a manifest interest in keeping an information secret would have been sufficient. There is no clear guidance yet on what is to be understood as “reasonable measures” in this respect. A good indication may be the comprehensive case law developed by U.S. courts when interpreting the requirement of “reasonable efforts” to maintain the secrecy of a trade secret under the U.S. Uniform Trade Secrets Act. Besides a requirement to advise recipients that the information is a confidential trade secret not to be disclosed (e.g. through non-disclosure agreements), U.S. courts consider the efforts of limiting access to a “need-to-know” scope (e.g. through password protection). Another point that is of particular importance for corporate trade secret holders is that companies may be indirectly liable for negligent breaches of third-party trade secrets by their employees. Enhanced liability risks may therefore result when hiring employees who were formerly employed by a competitor and had access to the competitor’s trade secrets. Reverse engineering of lawfully acquired products is now explicitly considered a lawful means of acquiring information, except when otherwise contractually agreed. Previously, reverse engineering was only lawful if it did not require considerable expense. To avoid disclosing trade secrets that form part of a product or object by surrendering prototypes or samples, contracts should provide for provisions to limit the acquisition of the trade secret. In a nutshell, companies would be well advised to review their internal policies and procedures to determine whether there are reasonable and sufficiently trackable legal, technical and organizational measures in place for the protection of trade secrets, to observe and assess critically what know-how is brought into an organization by lateral hires, and to amend contracts for the surrender of prototypes and samples as appropriate.

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The following Gibson Dunn lawyers assisted in preparing this client update: Birgit Friedl, Marcus Geiss, Silke Beiter, Stefan Buehrle, Lutz Englisch, Daniel Gebauer, Kai Gesing, Franziska Gruber, Selina Gruen, Dominick Koenig, Markus Nauheim, Mariam Pathan, Annekatrin Pelster, Wilhelm Reinhardt, Sonja Ruttmann, Martin Schmid, Sebastian Schoon, Benno Schwarz, Dennis Seifarth, Ralf van Ermingen-Marbach, Milena Volkmann, Michael Walther, Finn Zeidler, Mark Zimmer and Caroline Ziser Smith. Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. The two German offices of Gibson Dunn in Munich and Frankfurt bring together lawyers with extensive knowledge of corporate, financing and restructuring, tax, labor, real estate, antitrust, intellectual property law and extensive compliance / white collar crime and litigation experience. The German offices are comprised of seasoned lawyers with a breadth of experience who have assisted clients in various industries and in jurisdictions around the world. Our German lawyers work closely with the firm's practice groups in other jurisdictions to provide cutting-edge legal advice and guidance in the most complex transactions and legal matters. For further information, please contact the Gibson Dunn lawyer with whom you work or any of the following members of the German offices: General Corporate, Corporate Transactions and Capital Markets Lutz Englisch (+49 89 189 33 150), lenglisch@gibsondunn.com) Markus Nauheim (+49 89 189 33 122, mnauheim@gibsondunn.com) Ferdinand Fromholzer (+49 89 189 33 170, ffromholzer@gibsondunn.com) Dirk Oberbracht (+49 69 247 411 503, doberbracht@gibsondunn.com) Wilhelm Reinhardt (+49 69 247 411 502, wreinhardt@gibsondunn.com) Birgit Friedl (+49 89 189 33 122, bfriedl@gibsondunn.com) Silke Beiter (+49 89 189 33 170, sbeiter@gibsondunn.com) Annekatrin Pelster (+49 69 247 411 502, apelster@gibsondunn.com) Marcus Geiss (+49 89 189 33 122, mgeiss@gibsondunn.com) Finance, Restructuring and Insolvency Sebastian Schoon (+49 69 247 411 505, sschoon@gibsondunn.com) Birgit Friedl (+49 89 189 33 122, bfriedl@gibsondunn.com) Alexander Klein (+49 69 247 411 505, aklein@gibsondunn.com) Marcus Geiss (+49 89 189 33 122, mgeiss@gibsondunn.com) Tax Hans Martin Schmid (+49 89 189 33 110, mschmid@gibsondunn.com) Labor Law Mark Zimmer (+49 89 189 33 130, mzimmer@gibsondunn.com) Real Estate Peter Decker (+49 89 189 33 115, pdecker@gibsondunn.com) Daniel Gebauer (+49 89 189 33 115, dgebauer@gibsondunn.com) Technology Transactions / Intellectual Property / Data Privacy Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Corporate Compliance / White Collar Matters Benno Schwarz (+49 89 189 33 110, bschwarz@gibsondunn.com) Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33 130, mzimmer@gibsondunn.com) Finn Zeidler (+49 69 247 411 504, fzeidler@gibsondunn.com) Markus Rieder (+49 89189 33 170, mrieder@gibsondunn.com) Ralf van Ermingen-Marbach (+49 89 18933 130, rvanermingenmarbach@gibsondunn.com) Antitrust Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Jens-Olrik Murach (+32 2 554 7240, jmurach@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Litigation Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33 130, mzimmer@gibsondunn.com) Finn Zeidler (+49 69 247 411 504, fzeidler@gibsondunn.com) Markus Rieder (+49 89189 33 170, mrieder@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Ralf van Ermingen-Marbach (+49 89 18933 130, rvanermingenmarbach@gibsondunn.com) International Trade, Sanctions and Export Control Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Richard Roeder (+49 89 189 33 122, rroeder@gibsondunn.com) © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 9, 2020 |
Developments in the Defense of Financial Institutions – The International Reach of the U.S. Money Laundering Statutes

Click for PDF Our clients frequently inquire about precisely when U.S. money laundering laws provide jurisdiction to reach conduct that occurred outside of the United States.  In the past decade, U.S. courts have reiterated that there is a presumption against statutes applying extraterritorially,[1] and explicitly narrowed the extraterritorial reach of the Foreign Corrupt Practices Act (“FCPA”)[2] and the wire fraud statute.[3]  But the extraterritorial reach of the U.S. money laundering statutes—18 U.S.C. §§ 1956 and 1957—remains uncabined and increasingly has been used by the U.S. Department of Justice (“DOJ”) to prosecute crimes with little nexus to the United States.  Understanding the breadth of the money laundering statutes is vital for financial institutions because these organizations often can become entangled in a U.S. government investigation of potential money laundering by third parties, even though the financial institution was only a conduit for the transactions. This alert is part of a series of regular analyses of the unique impact of white collar issues on financial institutions.  In this edition, we examine how DOJ has stretched U.S. money laundering statutes—perhaps to a breaking point—to reach conduct that occurred outside of the United States.  We begin by providing a general overview of the U.S. money laundering statutes.  From there, we discuss how DOJ has relied on a broad interpretation of “financial transactions” that occur “in whole or in part in the United States” to reach, for instance, conduct that occurred entirely outside of the United States and included only a correspondent banking transaction that cleared in the United States.  And while courts have largely agreed with DOJ’s interpretation of the money laundering statutes, a recent acquittal by a jury in Brooklyn in a case involving money laundering charges with little nexus to the United States shows that juries occasionally may provide a check on the extraterritorial application of the money laundering statutes—for those willing to risk trial.  Next, we discuss three recent, prominent examples—the FIFA corruption cases, the 1MDB fraud civil forfeitures, and the recent Petróleos de Venezuela, S.A. (“PDVSA”) indictments—that demonstrate how DOJ has increasingly used the money laundering statutes in recent years to police corruption and bribery abroad.  The alert concludes by illustrating the risks that the broad reach of the money laundering statutes can have for financial institutions.

1. The U.S. Money Laundering Statutes and Their Extraterritorial Application

In 1980, now-Judge Rakoff wrote that “[t]o federal prosecutors of white collar crime, the mail fraud statute is our Stradivarius, our Colt 45, our Louisville Slugger, our Cuisinart—and our true love.”[4]  In 2020, the money laundering statutes now play as an entire string quartet for many prosecutors, particularly when conduct occurs outside of the United States. Title 18, Sections 1956 and 1957 are the primary statutes that proscribe money laundering.  “Section 1956 penalizes the knowing and intentional transportation or transfer of monetary proceeds from specified unlawful activities, while § 1957 addresses transactions involving criminally derived property exceeding $10,000 in value.”  Whitfield v. United States, 543 U.S. 209, 212-13 (2005).  To prosecute a violation of Section 1956, the government must prove that: (1) a person engaged in a financial transaction, (2) knowing that the transaction involved the proceeds of some form of unlawful activity (a “Specified Unlawful Activity” or “SUA”),[5] and (3) the person intended to promote an SUA or conceal the proceeds of an SUA.[6]  And if the person is not located in the United States, Section 1956 provides that there is extraterritorial jurisdiction if the transaction in question exceeds $10,000 and “in the case of a non-United States citizen, the conduct occurs in part in the United States.”[7]  The word “conducts” is defined elsewhere in the statute as “includ[ing] initiating, concluding, or participating in initiating, or concluding a transaction.”[8]  Putting it all together, establishing a violation of Section 1956 by a non-U.S. citizen abroad requires:

Figure 1: Applying Section 1956 Extraterritorially

Section 1957 is the spending statute, involving substantially the same elements as Section 1956 but substituting a requirement that a defendant spend proceeds of criminal activity for the requirement that a defendant intend to promote or conceal an SUA.[9]

a. “Financial Transaction” and Correspondent Banking

Although the term “financial transaction” might at first blush seem to limit the reach of money laundering liability, the reality is that federal prosecutors have repeatedly and successfully pushed the boundaries of the types of value exchanges that qualify as “financial transactions.”  As one commentator has noted, “virtually anything that can be done with money is a financial transaction—whether it involves a financial institution, another kind of business, or even private individuals.”[10]  Indeed, courts have confirmed that the reach of money laundering statutes extends beyond traditional money.  One such example involves the prosecution of the creator of the dark web marketplace Silk Road.  In 2013, federal authorities shut down Silk Road, which they alleged was “the most sophisticated and extensive criminal marketplace on the Internet” that permitted users to anonymously buy and sell illicit goods and services, including malicious software and drugs.[11]  Silk Road’s creator, Ross William Ulbricht, was charged with, among other things, conspiracy to commit money laundering under Section 1956.[12]  The subsequent proceedings focused in large part on the meaning of “financial transactions” as used in Section 1956 and specifically, whether transactions involving Bitcoin can qualify as “financial transactions” under the statute.  Noting that “financial transaction” is broadly defined, the district court reasoned that because Bitcoin can be used to buy things, transactions involving Bitcoin necessarily involve the “movement of funds” and thus qualify as “financial transactions” under Section 1956.[13] In addition to broadly interpreting “financial transaction,” DOJ also has taken an expansive view of what constitutes a transaction occurring “in part in the United States”—a requirement to assert extraterritorial jurisdiction over a non-U.S. citizen.[14]  One area where DOJ has repeatedly pushed the envelope involves correspondent banking transactions. Correspondent banking transactions are used to facilitate cross-border transactions that occur between two parties using different financial institutions that lack a direct relationship.  As an example, if a French company (the “Ordering Customer”) maintains its accounts at a French financial institution and wants to send money to a Turkish company (the “Beneficiary Customer”) that maintains its accounts at a Turkish financial institution, and if the French and Turkish banks lack a direct relationship, then often those banks will process the transaction using one or more correspondent accounts in the United States.  An example of this process is depicted in Figure 2.

Figure 2: Correspondent Banking Transactions[15]

Although correspondent banking transactions can occur using a number of predominant currencies, such as euros, yen, and renminbi, U.S. dollar payments account for about 50 percent of correspondent banking transactions.[16]  Not only that, but “[t]here are indications that correspondent banking activities in US dollars are increasingly concentrated in US banks and that non-US banks are increasingly withdrawing from providing services in this currency.”[17]  As a result, banks in the United States play an enormous role in correspondent banking transactions. Given the continued centrality of the U.S. financial system, when confronted with misconduct taking place entirely outside of the United States, federal prosecutors are often able to identify downstream correspondent banking transactions in the United States involving the proceeds of that misconduct.  On the basis that the correspondent banking transaction qualifies as a financial transaction occurring in part in the United States, prosecutors have used this hook to establish jurisdiction under the money laundering statutes.  Two notable examples are discussed below.

i. Prevezon Holdings

The Prevezon Holdings case confirmed DOJ’s ability to use correspondent banking transactions as a jurisdictional hook for conduct occurring overseas.  The case arose from an alleged $230 million fraud scheme that a Russian criminal organization and Russian government officials perpetrated against hedge fund Hermitage Capital Management Limited.[18]  In 2013, DOJ filed a civil forfeiture complaint alleging that (1) the criminal organization stole the corporate identities of certain Hermitage portfolio companies by re-registering them in the names of members of the organization.  Then, (2) other members of the organization allegedly filed bogus lawsuits against the Hermitage entities based on forged and backdated documents.  Later, (3) the co-conspirators purporting to represent the Hermitage portfolio companies confessed to all of the claims against them, leading the courts to award money judgments against the Hermitage entities.  Finally, (4) the representatives of the purported Hermitage entities then fraudulently obtained money judgments to apply for some $230 million in fraudulent tax refunds.[19]  DOJ alleged that this fraud scheme constituted several distinct crimes, all of which were SUAs supporting money laundering violations.  DOJ then sought forfeiture of bank accounts and real property allegedly traceable to those money laundering violations. The parties challenging DOJ’s forfeiture action (the “claimants”) moved for summary judgment on certain of the SUAs, claiming that those SUAs, including Interstate Transportation of Stolen Property (“ITSP,” 18 U.S.C. § 2314), did not apply extraterritorially.  The district court rejected claimants’ challenge to the ITSP SUA.  The court held that Section 2314 does not, by its terms, apply extraterritorially.[20]  Nevertheless, the court found the case involved a permissible domestic application of the statute because it involved correspondent banking transactions.  Specifically, the court held that “[t]he use of correspondent banks in foreign transactions between foreign parties constitutes domestic conduct within [the statute’s] reach, especially where bank accounts are the principal means through which the relevant conduct arises.”[21]  In support of this holding, the court described U.S. correspondent banks as “necessary conduits” to accomplish the four U.S. dollar transactions cited by the government, which “could not have been completed without the services of these U.S. correspondent banks,” even though the sender and recipient of the funds involved in each of these transactions were foreign parties.[22]  The court also rejected claimants’ argument that they would have had to have “purposefully availed” themselves of the services of the correspondent banks, on the basis that this interpretation would frustrate the purpose of Section 2314 given that “aside from physically carrying currency across the U.S. border, it is hard to imagine what types of domestic conduct other than use of correspondent banks could be alleged to displace the presumption against extraterritoriality in a statute addressing the transportation of stolen property.”[23]

ii. Boustani

The December 2019 acquittal of a Lebanese businessman on trial in the Eastern District of New York marks an unusual setback in DOJ’s otherwise successful efforts to expand its overseas jurisdiction by using the money laundering statutes and correspondent banking transactions. Jean Boustani was an executive at the Abu Dhabi-based shipping company Privinvest Group (“Privinvest”).[24]  According to prosecutors, three Mozambique-owned companies borrowed over $2 billion through loans that were guaranteed by the Mozambican government.[25]  Although these loans were supposed to be used for maritime projects with Privinvest, the government alleged that Boustani and his co-conspirators created the maritime projects as “fronts to raise as much money as possible to enrich themselves,” ultimately diverting over $200 million from the loan funds for bribes and kickbacks to themselves, Mozambican government officials, and Credit Suisse bankers.[26]  According to the indictment, Boustani himself received approximately $15 million from the proceeds of Privinvest’s fraudulent scheme, paid in a series of wire transfers, many of which were paid through a correspondent bank account in New York City.[27] Boustani did not engage directly in any activity in the United States, and he filed a motion to dismiss arguing that, with respect to a conspiracy to commit money laundering charge, as a non-U.S. citizen he must participate in “initiating” or “concluding” a transaction in the United States to come under the extraterritorial reach of 18 U.S.C. § 1956(f).[28]  Specifically, he argued that “[a]ccounting interactions between foreign banks and their clearing banks in the U.S. does not constitute domestic conduct . . . as Section 1956(f) requires.”[29]  In response, prosecutors argued that Boustani “systematically directed $200 million of U.S. denominated bribe and kickback payments through the U.S. financial system using U.S. correspondent accounts”[30] and that such correspondent banking transactions are sufficient to allow for the extraterritorial application of Section 1956.[31] The court agreed with the government’s position.  In denying the motion to dismiss, the court held that correspondent banking transactions occurring in the United States are sufficient to satisfy the jurisdictional requirements of 18 U.S.C. § 1956(f).[32]  It cited to “ample factual allegations” that U.S. individuals and entities purchased interests in the loans at issue by wiring funds originating in the United States to locations outside the United States and that Boustani personally directed the payment of bribe transactions in U.S. dollars through the United States, describing this as “precisely the type of conduct Congress focused on prohibiting when enacting the money laundering provisions with which [Boustani] is charged.”[33] The jury, however, was unconvinced.  After a roughly seven-week trial, Boustani was acquitted on all charges on December 2, 2019.[34]  The jurors who spoke to reporters after the verdict said that a major issue for the jury was whether or not U.S. charges were properly brought against Boustani, an individual who had never set foot in the United States before his arrest.[35]  The jury foreman commented, “I think as a team, we couldn’t see how this was related to the Eastern District of New York.”[36]  Another juror echoed this sentiment, adding, “We couldn’t find any evidence of a tie to the Eastern District. . . .  That’s why we acquitted.”[37] The Boustani case illustrates that even if courts are willing to accept the position that the use of correspondent banks in foreign transactions between foreign parties constitutes domestic conduct within the reach of the money laundering statute, juries may be less willing to do so.

b. Using “Specified Unlawful Activities” to Target Conduct Abroad

Another way in which the U.S. money laundering statutes reach broadly is that the range of crimes that qualify as SUAs for purposes of Sections 1956 and 1957 is virtually without limit.  Generally speaking, most federal felonies will qualify.  More expansively, however, the money laundering statutes include specific foreign crimes that also qualify as SUAs.  For example, bribery of a public official in violation of a foreign nation’s bribery laws will qualify as an SUA.[38]  Similarly, fraud on a foreign bank in violation of a foreign nation’s fraud laws qualifies as an SUA.[39]  In addition to taking an expansive view of what constitutes a “financial transaction” and when it occurs “in part in the United States,” DOJ also has increasingly used the foreign predicates of the money laundering statute to prosecute overseas conduct involving corruption or bribery.  This subsection discusses a few notable recent examples.

i. FIFA

In May 2015, the United States shocked the soccer world when it announced indictments of nine Fédération Internationale de Football Association (“FIFA”) officials and five corporate executives in connection with a long-running investigation into bribery and corruption in the world of organized soccer.[40]  Over a 24-year period, the defendants allegedly paid and solicited bribes and kickbacks relating to, among other things, media and marketing rights to soccer tournaments, the selection of a host country for the 2010 FIFA World Cup, and the 2011 FIFA presidential elections.[41]  The defendants included high-level officials in FIFA and its constituent regional organizations, as well as co-conspirators involved in soccer-related marketing (e.g., Traffic Sports USA), broadcasting (e.g., Valente Corp.), and sponsorship (e.g., International Soccer Marketing, Inc.).[42]  Defendants were charged with money laundering under Section 1956(a)(2)(A) for transferring funds to promote wire fraud, an SUA.[43]  Two defendants were convicted at trial.[44]  The majority of the remaining defendants have pleaded guilty and agreed to forfeitures.[45] One of the defendants, Juan Ángel Napout, challenged the extraterritorial application of the U.S. money laundering statutes.  At various points during the alleged wrongdoing, Napout served as the vice president of FIFA and the president of the Confederación Sudamericana de Fútbol (FIFA’s South American confederation).[46]  Napout was accused of using U.S. wires and financial institutions to receive bribes for the broadcasting and commercial rights to the Copa Libertadores and Copa America Centenario tournaments.[47]  He argued that the U.S. money laundering statutes do not apply extraterritorially to him and that, regardless, this exercise of extraterritorial jurisdiction was unreasonable.[48]  The district court rejected these arguments, concluding that extraterritorial jurisdiction was proper because the government satisfied the two requirements in 18 U.S.C. § 1956(f): the $10,000 threshold and conduct that occurred “in part” in the United States.[49]  Notably, at trial, the jury acquitted Napout of the two money laundering charges against him but convicted him on the other three charges (RICO conspiracy and two counts of wire fraud).[50]  At the same trial, another defendant, José Marin, was charged with seven counts, including two for conspiracy to commit money laundering.  Marin was acquitted on one of the money laundering counts but convicted on all others.[51]

ii. 1MDB

The 1MDB scandal is “one of the world’s greatest financial scandals.”[52]  Between 2009 to 2014, Jho Low, a Malaysian businessman, allegedly orchestrated a scheme to pilfer approximately $4.5 billion from 1 Malaysia Development Berhad (“1MDB”), a Malaysian sovereign wealth fund created to pursue projects for the benefit of Malaysia and its people.[53]  Low allegedly used that money to fund a lavish lifestyle including buying various properties in the United States and running up $85 million in gambling debts at Las Vegas casinos.[54]  The former Prime Minister of Malaysia, Rajib Nazak, also personally benefited from the scandal, allegedly pocketing around $681 million.[55]  Additionally, his stepson, Riza Aziz, used proceeds from the scandal to fund Red Granite Pictures, a U.S. movie production company, which produced “The Wolf of Wall Street,” among other films.[56] In 2016, DOJ filed the first of a number of civil forfeiture actions against assets linked to funds pilfered from 1MDB, totaling about $1.7 billion.[57]  As the basis of the forfeiture, DOJ asserted a number of different violations of the U.S. money laundering statutes on the basis of four SUAs.[58] In March 2018, Red Granite Pictures entered into a settlement agreement with the DOJ to resolve the allegations in the 2016 civil forfeiture action.[59]  On October 30, 2019, DOJ announced the settlement of a civil forfeiture action against more than $700 million in assets held by Low in the United States, United Kingdom and Switzerland, including properties in New York, Los Angeles, and London, a luxury yacht valued at over $120 million, a private jet, and valuable artwork.[60]  Although neither Red Granite Pictures nor Low challenged the extraterritoriality of the U.S. money laundering statute as applied to their property, the cases nevertheless serve as noteworthy examples of DOJ using its authority under the money laundering statutes to police political corruption abroad.

iii. PDVSA

To date, more than 20 people have been charged in connection with a scheme to solicit and pay bribes to officials at and embezzle money from the state-owned oil company in Venezuela,  Petróleos de Venezuela, S.A.[61]  The indictments charge money laundering arising from several SUAs, including bribery of a Venezuelan public official.[62] Many of the defendants have pled guilty to the charges, but the charges against two former government officials, Nervis Villalobos and Rafael Reiter, remain pending.[63]  In March 2019, Villalobos filed a motion to dismiss the FCPA and money laundering claims against him on the basis that these statutes do not provide for extraterritorial jurisdiction.[64]  As to the money laundering charges, he argued that “[e]xtraterritorial jurisdiction over a non-citizen cannot be based on a coconspirator’s conduct in the United States,” and that extraterritorial application of the money laundering statute would violate international law and the due process clause.[65]  As of this writing, the court has not ruled on the motion.

2. The Risks to Financial Institutions

The degree to which the U.S. money laundering statutes can reach extraterritorial conduct outside the United States has important implications for financial institutions.  Prosecutions of foreign conduct under the money laundering statutes frequently involve high-profile scandals, as shown above.  Financial institutions are often drawn into these newsworthy investigations.  In the wake of the FIFA indictments, for instance, “[f]ederal prosecutors said they were also investigating financial institutions to see whether they were aware of aiding in the launder of bribe payments.”[66]  Indeed, more than half a dozen banks reportedly received inquiries from law enforcement related to the FIFA scandal.[67] At a minimum, cooperating with these investigations is time-consuming and costly.  The investigations can also create legal risk for financial institutions.  In the United States, “federal law generally imposes liability on a corporation for the criminal acts of its agents taken on behalf of the corporation and within the scope of the agent’s authority via the principle of respondeat superior, unless the offense conduct solely furthered the employee’s interests at the employer’s expense (for instance, where the employee was embezzling from the employer).”[68]  And prosecutors can satisfy the intent required by arguing that individual employees were “deliberately ignorant” of or “willfully blind” to, for instance, clearing suspicious transactions.[69] The wide scope of potential corporate criminal liability in the United States is often surprising to our clients, particularly those with experience overseas where the breadth of corporate liability is narrower than in the United States.  As one article explained, the respondeat superior doctrine is “exceedingly broad” as “it imposes liability regardless of the agent’s position in the organization” and “does not discriminate” in that “the multinational corporation with thousands of employees whose field-level salesman commits a criminal act is as criminally responsible as the small corporation whose president and sole stockholder engages in criminal conduct.”[70] Given the breadth of corporate criminal liability, DOJ applies a 10-factor equitable analysis to determine whether to impute individual employee liability to the corporate employer.  These 10 factors are the “Principles of Federal Prosecution of Business Organizations,” and are often referred to by the shorthand term “Filip Factors.”  The factors include considerations such as the corporation’s cooperation, the pervasiveness of the wrongdoing, and other considerations meant to guide DOJ’s discretion regarding whether to pursue a corporate resolution.[71]  They are not equally weighted (indeed, there is no specific weighting attached to each, and the DOJ’s analysis will not be mathematically precise).  Financial institutions should continually assess, both proactively and in the event misconduct occurs, the actions that can be taken to ensure that they can persuasively argue that, even if there is legal liability under the doctrine of respondeat superior, prosecution is nevertheless unwarranted under the Filip Factors.

3. Conclusion

In recent years, DOJ has expansively applied the money laundering statutes to reach extraterritorial conduct occurring almost entirely overseas.  Indeed, a mere correspondent banking transaction in the United States has been used by DOJ as the hook to prosecute foreign conduct under the U.S. money laundering statutes.  Because of the extraordinary breadth of corporate criminal liability in the United States, combined with the reach of the money laundering statutes, the key in any inquiry is to quickly assess and address prosecutors’ interests in the institution as a subject of the investigation. ____________________ [1]              Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010). [2]              United States v. Hoskins, 902 F.3d 69 (2d Cir. 2018).  Although the Second Circuit rejected the government’s argument that Hoskins could be charged under the conspiracy and complicity statutes for conduct not otherwise reachable by the FCPA, id. at 97, he was nevertheless found guilty at trial in November 2019 on a different theory of liability: that he acted as the agent of Alstom S.A.’s American subsidiary.  See Jody Godoy, Ex-Alstom Exec Found Guilty On 11 Counts In Bribery Trial, Law360 (Nov. 8, 2019), https://www.law360.com/articles/1218374/ex-alstom-exec-found-guilty-on-11-counts-in-bribery-trial. [3]              See, e.g., United States v. Elbaz, 332 F. Supp. 3d 960, 974 (D. Md. 2018) (collecting cases where extraterritorial conduct not subject to the wire fraud statute). [4]              Jed S. Rakoff, The Federal Mail Fraud Statute (Part I), 18 Duq. L. Rev. 771, 822 (1980). [5]              Many of the SUAs covered by Section 1956 are incorporated by cross-references to other statutes.  See 18 U.S.C. § 1956(c)(7).  All of the predicate acts under the Racketeer Influenced and Corrupt Organizations Act, for instance, are SUAs under Section 1956.  18 U.S.C. § 1956(c)(7)(a).  One commentator has estimated that there are “250 or so” predicate acts in Section 1956.  Stefan D. Cassella, The Forfeiture of Property Involved in Money Laundering Offenses, 7 Buff. Crim. L. Rev. 583, 612 (2004).  Another argues this estimate is “exceptionally conservative.”  Charles Doyle, Cong. Research Serv., RL33315, Money Laundering: An Overview of 18 U.S.C. § 1956 and Related Federal Criminal Law 1 n.2 (2017). [6]              See, e.g., Fifth Circuit Pattern Jury Instructions (Criminal Cases) Nos. 2.76A, 2.76B, available at   http://www.lb5.uscourts.gov/viewer/?/juryinstructions/Fifth/crim2015.pdf; Ninth Circuit Manual of Model Criminal Jury Instruction Nos. 8.147-49, available at http://www3.ce9.uscourts.gov/jury-instructions/sites/default/files/WPD/Criminal_Instructions_2019_12_0.pdf. [7]              18 U.S.C. § 1956(f). [8]              18 U.S.C. § 1956(c)(2). [9]              See, e.g., Fifth Circuit Pattern Jury Instructions (Criminal Cases) No. 2.77; Ninth Circuit Manual of Model Criminal Jury Instruction No. 8.150. [10]             Stefan D. Cassella, The Money Laundering Statutes (18 U.S.C. §§ 1956 and 1957), The United States Attorneys’ Bulletin, Vol. 55, No. 5 (Sept. 2007); see also 18 U.S.C. § 1956(c)(4)(i) (definition of “financial transaction”). [11]             United States v. Ulbricht, 31 F. Supp. 3d 540, 549-50 (S.D.N.Y. 2014). [12]             Id. at 568-69. [13]             Id.  Ultimately, Ulbricht was convicted and his conviction was affirmed on appeal.  See United States v. Ulbricht, 858 F.3d 71 (2d Cir. 2017).  The Second Circuit did not address the district court’s interpretation of the term “financial transactions” under Section 1956. [14]             18 U.S.C. § 1956(f)(1). [15]             International Monetary Fund, Recent Trends in Correspondent Banking Relationships: Further Considerations, at 9 (April 21, 2017), https://www.imf.org/en/Publications/Policy-Papers/Issues/2017/04/21/recent-trends-in-correspondent-banking-relationships-further-considerations. [16]             Id. [17]             Bank for International Settlements Committee on Payments and Market Infrastructures, Correspondent Banking, at 12 (July 2016), https://www.bis.org/cpmi/publ/d147.pdf. [18]             See generally Bill Browder, Red Notice: A True Story of High Finance, Murder, and One Man’s Fight for Justice (2015).  The alleged scheme was discovered by Russian tax lawyer Sergei Magnitsky, who was arrested on specious charges and died after receiving inadequate medical treatment in a Russian prison.  In response to Magnitsky’s death, the United States passed a bill named after him sanctioning Russia for human rights abuses.  See Russia and Moldova Jackson–Vanik Repeal and Sergei Magnitsky Rule of Law Accountability Act of 2012, Pub. L. 112–208 (2012). [19]             Second Amended Complaint at 10-12, United States v. Prevezon Holdings Ltd., No. 13-cv-06326 (S.D.N.Y. Oct. 23, 2015), ECF No. 381. [20]             United States v. Prevezon Holdings Ltd., 251 F. Supp. 3d 684, 691-92 (S.D.N.Y. 2017). [21]             Id. at 692. [22]             Id. at 693. [23]             Id.  [24]             Stewart Bishop, Boustani Acquitted in $2B Mozambique Loan Fraud Case, Law360 (Dec. 2, 2019), https://www.law360.com/articles/1221333/boustani-acquitted-in-2b-mozambique-loan-fraud-case. [25]             Superseding Indictment at 6, United States of America v. Boustani et al., No. 1:18-cr-00681 (E.D.N.Y. Aug. 16, 2019), ECF No. 137. [26]             Id. at 6-7. [27]             Id. at 33. [28]             Motion to Dismiss at 35-36, United States of America v. Boustani et al., No. 1:18-cr-00681 (E.D.N.Y. June 21, 2019), ECF No. 98. [29]             Id. at 36. [30]             Opposition to Motion to Dismiss at 38, United States of America v. Boustani et al., No. 1:18-cr-00681 (E.D.N.Y. July 22, 2019), ECF No. 113. [31]             Id. at 34-35 (citing United States v. All Assets Held at Bank Julius (“All Assets”), 251 F. Supp. 3d 82, 96 (D.D.C. 2017).) [32]             Decision & Order Denying Motions to Dismiss at 14, United States of America v. Boustani et al., No. 1:18-cr-00681 (E.D.N.Y. Oct. 3, 2019), ECF No. 231. [33]             Id. at 15-16; see also All Assets, 251 F. Supp. 3d at 95 (finding correspondent banking transactions fall within U.S. money laundering statutes because “[t]o conclude that the money laundering statute does not reach [Electronic Fund Transfers] simply because [defendant] himself did not choose a U.S. bank as the correspondent or intermediate bank for his wire transfers would frustrate Congress’s intent to prevent the use of U.S. financial institutions ‘as clearinghouses for criminals’”).  In United States v. Firtash, No. 13-cr-515, 2019 WL 2568569 (N.D. Ill. June 21, 2019), the defendant recently moved to dismiss an indictment on grounds including that correspondent banking transactions do not fall within the scope of the U.S. money laundering statute.  The court has sidestepped the argument for now, concluding that this argument “does not support dismissal of the Indictment at this stage” because “the Indictment does not specify that the government’s proof is limited to correspondent bank transactions.”  Id. at *9. [34]             Stewart Bishop, Boustani Acquitted in $2B Mozambique Loan Fraud Case, Law360 (Dec. 2, 2019), https://www.law360.com/articles/1221333/boustani-acquitted-in-2b-mozambique-loan-fraud-case. [35]             Id. [36]             Id. [37]             Id. [38]             18 U.S.C. § 1956(c)(7)(B)(iv).  In United States v. Chi, 936 F.3d 888, 890 (9th Cir. 2019), the Ninth Circuit recently rejected the argument that the term “bribery of a public official” in Section 1956 should be read to mean bribery under the U.S. federal bribery statute, as opposed to the article of the South Korean Criminal Code at issue in that case. [39]             18 U.S.C. § 1956(c)(7)(B)(iii). [40]             U.S. Dep’t of Justice, Attorney General Loretta E. Lynch Delivers Remarks at Press Conference Announcing Charges Against Nine FIFA Officials and Five Corporate Executives (May 27, 2015), https://www.justice.gov/opa/speech/attorney-general-loretta-e-lynch-delivers-remarks-press-conference-announcing-charges. [41]             Superseding Indictment at ¶¶ 95-360, United States v. Hawit, No. 15-cr-252 (E.D.N.Y. Nov. 25, 2015), ECF No. 102. [42]             See, e.g., id. at ¶¶ 30-93. [43]             See, e.g., id. at ¶ 371. [44]             Press Release, U.S. Dep’t of Justice, High-Ranking Soccer Officials Convicted in Multi-Million Dollar Bribery Schemes (Dec. 26, 2017), https://www.justice.gov/usao-edny/pr/high-ranking-soccer-officials-convicted-multi-million-dollar-bribery-schemes. [45]             U.S. Dep’t of Justice, FIFA Prosecution United States v. Napout et al. and Related Cases, Upcoming Court Dates, https://www.justice.gov/usao-edny/file/799016/download (last updated Nov. 5, 2019). [46]             Superseding Indictment, supra note 41, at ¶ 41. [47]             Superseding Indictment, supra note 41, at ¶¶ 376-81, 501-04. [48]             Memorandum of Law in Support of Defendant Juan Angel Napout’s Motion to Dismiss All Charges for Lack of Extraterritorial Jurisdiction, at 3-4, Hawit, supra note 41, ECF No. 491-1. [49]             United States v. Hawit, No. 15-cr-252, 2017 WL 663542, at *8 (E.D.N.Y. Feb. 17, 2017). [50]             United States v. Napout, 332 F. Supp. 3d 533, 547 (E.D.N.Y. 2018). [51]             Id.  On appeal, Napout challenged the extraterritoriality of the honest-services wire-fraud statutes, a case currently pending before the Second Circuit.  See United States of America v. Webb et al., No. 18-2750 (2d. Cir. appeal docketed Sept. 17, 2018), Dkt. 107.  Marin did not raise the extraterritoriality of the money laundering statute on appeal.  Id., Dkt. 104. [52]             Heather Chen, Mayuri Mei Lin, and Kevin Ponniah, 1MDB: The Playboys, PMs and Partygoers Around a Global Financial Scandal, BBC (Apr. 2, 2019), https://www.bbc.com/news/world-asia-46341603; see generally Tom Wright & Bradley Hope, Billion Dollar Whale: The Man Who Fooled Wall Street, Hollywood, and the World (2018). [53]             Complaint at 6, United States v.“The Wolf of Wall Street,” No. 2:16-cv-05362 (C.D. Cal. July 20, 2016), ECF No. 1, https://www.justice.gov/archives/opa/page/file/877166/download. [54]             Complaint, supra note 53, at 37. [55]             Najib 1MDB Trial: Malaysia Ex-PM Faces Court in Global Financial Scandal, BBC (Apr. 3, 2019), https://www.bbc.com/news/world-asia-47194656.  In the aftermath of the scandal, Nazak was voted out of office and currently faces trial in Malaysia.  Id. [56]             Complaint, supra note 53, at 63-65. [57]             Complaint, supra note 53; Rishi Iyengar, ‘Wolf of Wall Street’ Maker Settles US Lawsuit for $60 Million, CNN Business (Mar. 7, 2018), https://money.cnn.com/2018/03/07/media/wolf-wall-street-red-granite-1mdb-settlement/index.html. [58]             See Complaint, supra note 53, at 132. [59]             Consent Judgment of Forfeiture, No. 2:16-cv-05362 (C.D. Cal. Mar. 8, 2018), ECF No. 143.  As a part of the settlement, Red Granite Pictures agreed to forfeit $60 million.  Id. at 5. [60]             See United States v. Any Rights to Profits, Royalties and Distribution Proceeds Owned by or Owed Relating to EMI Music Publishing Group, Stipulation and Request to Enter Consent Judgment of Forfeiture, No. 16-cv-05364 (C.D. Cal. Oct. 30, 2019), ECF No. 180; Press Release, U.S. Dep’t of Justice, United States Reaches Settlement to Recover More Than $700 Million in Assets Allegedly Traceable to Corruption Involving Malaysian Sovereign Wealth Fund (Oct. 30, 2019), https://www.justice.gov/opa/pr/united-states-reaches-settlement-recover-more-700-million-assets-allegedly-traceable. [61]             See Indictment, United States v. De Leon-Perez et al., No. 4:17-cr-00514 (S.D. Tex. Aug. 23, 2017), ECF No. 1; Press Release, U.S. Dep’t of Justice, Two Members of Billion-Dollar Venezuelan Money Laundering Scheme Arrested (July 25, 2018), https://www.justice.gov/opa/pr/two-members-billion-dollar-venezuelan-money-laundering-scheme-arrested. [62]           Criminal Information at 1-2, United States v. Krull, No. 1:18-cr-20682 (S.D. Fla. Aug. 16, 2018), ECF No. 23; Criminal Complaint at 6, United States v. Guruceaga, et al., No. 18-MJ-03119 (S.D. Fla. July 23, 2018), ECF No. 3. [63]           Press Release, U.S. Dep’t of Justice, Former Venezuelan Official Pleads Guilty to Money Laundering Charge in Connection with Bribery Scheme (July 16, 2018), https://www.justice.gov/opa/pr/former-venezuelan-official-pleads-guilty-money-laundering-charge-connection-bribery-scheme-0. [64]           See Defendant’s Motion to Dismiss at 9-24, United States v. Villalobos, No. 4:17-cr-00514 (S.D. Tex. Mar. 28, 2019), ECF No. 123. [65]           See id. at 21-35. [66]           Gina Chon & Ben McLannahan, Banks face US investigation in Fifa corruption scandal, Financial Times (May 27, 2015); see also Christie Smythe & Keri Geiger, U.S. Probes Bank Links in FIFA Marketing Corruption Scandal, Bloomberg (May 27, 2015). [67]           Christopher M. Matthews & Rachel Louise Ensign, U.S. Authorities Probe Banks’ Handling of FIFA Funds, Wall St. Journal (July 23, 2015). [68]           Fed. Ins. Co. v. United States, 882 F.3d 348, 368 (2d Cir. 2018). [69]           See, e.g., Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754, 769 (2011); United States v. Florez, 368 F.3d 1042, 1044 (8th Cir. 2004). [70]           Philip A. Lacovara & David P. Nicoli, Vicarious Criminal Liability of Organizations: RICO as an Example of a Flawed Principle in Practice, 64 St. John’s L. Rev. 725, 725-26 (1990). [71]           See U.S. Department of Justice, Principles of Federal Prosecution of Business Organizations (Aug. 28, 2008), https://www.justice.gov/sites/default/files/dag/legacy/2008/11/03/dag-memo-08282008.pdf.

The following Gibson Dunn attorneys assisted in preparing this client update:  M. Kendall Day, Stephanie L. Brooker, F. Joseph Warin, Chris Jones, Jaclyn Neely, Chantalle Carles Schropp, Alexander Moss, Jillian Katterhagen Mills, Tory Roberts, and summer associates Beatrix Lu and Olivia Brown.

Gibson Dunn has deep experience with issues relating to the defense of financial institutions.  For assistance navigating white collar or regulatory enforcement issues involving financial institutions, please contact the Gibson Dunn lawyer with whom you usually work, any of the leaders and members of the firm’s Financial InstitutionsWhite Collar Defense and Investigations, or International Trade practice groups, or the following authors in the firm’s Washington, D.C., New York, and San Francisco offices: M. Kendall Day – Washington, D.C. (+1 202-955-8220, kday@gibsondunn.com) Stephanie Brooker –  Washington, D.C.(+1 202-887-3502, sbrooker@gibsondunn.com) F. Joseph Warin – Washington, D.C. (+1 202-887-3609, fwarin@gibsondunn.com) Jaclyn Neely – New York (+1 212-351-2692, jneely@gibsondunn.com) Chris Jones* – San Francisco (+1 415-393-8320, crjones@gibsondunn.com) Chantalle Carles Schropp – Washington, D.C. (+1 202-955-8275, cschropp@gibsondunn.com) Alexander R. Moss – Washington, D.C. (+1 202-887-3615, amoss@gibsondunn.com) Jillian N. Katterhagen* – Washington, D.C. (+1 202-955-8283 , jkatterhagen@gibsondunn.com)

Please also feel free to contact any of the following practice group leaders:

Financial Institutions Group: Matthew L. Biben – New York (+1 212-351-6300, mbiben@gibsondunn.com) Stephanie Brooker – Washington, D.C. (+1 202-887-3502, sbrooker@gibsondunn.com) Arthur S. Long – New York (+1 212-351-2426, along@gibsondunn.com) White Collar Defense and Investigations Group: Joel M. Cohen – New York (+1 212-351-2664, jcohen@gibsondunn.com) Charles J. Stevens – San Francisco (+1 415-393-8391, cstevens@gibsondunn.com) F. Joseph Warin – Washington, D.C. (+1 202-887-3609, fwarin@gibsondunn.com) International Trade Group: Ronald Kirk – Dallas (+1 214-698-3295, rkirk@gibsondunn.com) Judith Alison Lee – Washington, D.C. (+1 202-887-3591, jalee@gibsondunn.com) *Mr. Jones and Ms. Katterhagen Mills are not yet admitted in California and Washington, D.C., respectively.  They are practicing under the supervision of Principals of the Firm. © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 8, 2020 |
Webcast: FCPA Trends in the Emerging Markets of China, Russia, Latin America, India and Africa

For emerging markets around the globe, 2019 was a microcosm of the decade that preceded it: high-profile corruption scandals, grass-roots anti-graft movements, record-breaking enforcement actions, and historic legislative changes. Headline-grabbing scandals in Latin America, for example, sparked mass protests and toppled political leaders. Fundamental reforms to anti-graft laws and agencies in China resulted in enforcement actions against companies amidst an escalating trade war with the United States. In India, a simmering public broadly believes that aggressive anti-graft initiatives have yet to meet expectations. This past year, multinational enforcement actions stemming from conduct in Africa resulted in eye-popping monetary settlements. In Russia, police used mass arrests in an attempt to quell civil unrest sparked by corruption at the highest levels of the government.

Join our team of experienced international anti-corruption attorneys to learn more about how to do business in Russia, Latin America, China, India and Africa without running afoul of anti-corruption laws, including the Foreign Corrupt Practices Act (“FCPA”).

Topics to be discussed:

  • An overview of FCPA enforcement statistics and trends for 2019;
  • The corruption landscape in key emerging markets, including recent headlines and scandals;
  • Lessons learned from local anti-corruption enforcement in Latin America, China, India, Africa, and Russia;
  • Key anti-corruption legislative changes in Latin America, China, India, Africa, and Russia; and
  • Mitigation strategies for businesses operating in high-risk markets.
View Slides (PDF) Listen to Audio (MP3) - Audio file is available for download and replay at your convenience, without MCLE credit. To read the latest about the Foreign Corrupt Practices Act, please visit our 2019 Year-End FCPA Update,

PANELISTS:  Kelly Austin Partner-in-Charge of Gibson Dunn's Hong Kong office and a member of the firm's Executive Committee. Ms. Austin's practice focuses on government investigations, regulatory compliance and international disputes. She has extensive experience in government and corporate internal investigations, including those involving the FCPA, anti-money laundering, securities, and trade control laws. Ms. Austin also regularly guides companies on creating and implementing effective compliance programs. Joel Cohen Trial lawyer and former federal prosecutor, Mr. Cohen is a partner in Gibson Dunn's New York office, Co-Chair of the firm's White Collar Defense and Investigations Group, and a member of its Securities Litigation, Class Actions and Antitrust & Competition Practice Groups. He has been lead or co-lead counsel in 24 civil and criminal trials in federal and state courts, and he is equally comfortable in leading confidential investigations, managing crises or advocating in court proceedings. Mr. Cohen's experience includes all aspects of FCPA/anticorruption issues, in addition to financial institution litigation and other international disputes and discovery. Benno Schwarz German-qualified partner in Gibson Dunn's Munich office and a member of the firm's International Corporate Transactions and White Collar Defense and Investigations Practice Groups. Mr. Schwarz has many years of experience in the area of corporate anti-bribery compliance, especially issues surrounding the enforcement of the US FCPA and the UK Bribery Act as well as Russian law. Patrick Stokes Litigation partner in Gibson Dunn’s Washington, D.C. office and member of the firm’s White Collar Defense and Investigations, Securities Enforcement and Litigation Practice Groups. Mr. Stokes is a former head of DOJ’s FCPA Unit, where he managed DOJ’s enforcement program and all criminal FCPA matters. His practice includes internal corporate investigations, government investigations, compliance reviews, enforcement actions regarding corruption, securities fraud, and financial institutions fraud. F. Joseph Warin Partner in Gibson Dunn's Washington, D.C. office, Chair of the office's Litigation Department, and Co-Chair of the firm's White Collar Defense and Investigations Practice Group. Mr. Warin is regarded as a top lawyer in FCPA investigations, FCA cases, and special committee representations. He has handled cases and investigations in more than 40 states and dozens of countries in matters involving federal regulatory inquiries, criminal investigations and cross-border inquiries by dozens of international enforcers, including the UK's SFO and FCA, and government regulators in Germany, Switzerland, Hong Kong, and the Middle East. Oliver Welch Associate in Gibson Dunn’s Hong Kong office and a member of the firm’s White Collar Defense and Investigations and Litigation Practices. Mr. Welch has extensive experience representing clients throughout the Asia region on a wide variety of compliance and anti-corruption issues, including FCPA matters. He counsels multi-national corporations on global anti-corruption compliance programs and controls, and assists in drafting anti-corruption compliance policies, procedures, and training materials.
MCLE CREDIT INFORMATION:  This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 2.0 credit hours, of which 2.0 credit hours may be applied toward the areas of professional practice requirement.  This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Victoria Chan (Attorney Training Manager) at vchan@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 2.0 hours. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.

January 6, 2020 |
2019 Year-End FCPA Update

Click for PDF 2019 was, by many measures, the most significant year ever in Foreign Corrupt Practices Act (“FCPA”) enforcement. More than $2.6 billion in corporate fines sets a new high-water mark, driven by the two largest corporate resolutions in the statute’s history. Fifty-four FCPA enforcement actions, or 73 total cases including ancillary actions, brought by the FCPA Units of the U.S. Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”), each rank second only to 2010 in the annals of FCPA enforcement. Four FCPA and FCPA-related trials is the most ever. Add on top of this new FCPA enforcement policy guidance from DOJ, an expanding body of case law on the FCPA and related offenses, among many other developments, and there is a strong argument that international anti-corruption enforcement has never been more robust. This client update provides an overview of the FCPA and other domestic and international anti-corruption enforcement, litigation, and policy developments from 2019, as well as the trends we see from this activity. We are privileged to help our clients navigate these challenges daily and are honored to have once again been ranked Number 1 in the Global Investigations Review “GIR 30” ranking of the world’s top investigations practices, as well as The American Lawyer’s “Litigation Department of the Year” ranking of the nation’s top litigation practices. For more analysis on the year in anti-corruption enforcement, compliance, and corporate governance developments, please join us for our upcoming complimentary webcast presentations: 10th Annual Webcast: FCPA Trends in Emerging Markets on January 8 (to register, click here) and 16th Annual Webcast: Challenges in Compliance and Corporate Governance on January 23 (to register, click here).

FCPA OVERVIEW

The FCPA’s anti-bribery provisions make it illegal to corruptly offer or provide money or anything else of value to officials of foreign governments, foreign political parties, or public international organizations with the intent to obtain or retain business.  These provisions apply to “issuers,” “domestic concerns,” and those acting on behalf of issuers and domestic concerns, as well as to “any person” who acts while in the territory of the United States.  The term “issuer” covers any business entity that is registered under 15 U.S.C. § 78l or that is required to file reports under 15 U.S.C. § 78o(d).  In this context, foreign issuers whose American Depository Receipts (“ADRs”) or American Depository Shares (“ADSs”) are listed on a U.S. exchange are “issuers” for purposes of the FCPA.  The term “domestic concern” is even broader and includes any U.S. citizen, national, or resident, as well as any business entity that is organized under the laws of a U.S. state or that has its principal place of business in the United States. In addition to the anti-bribery provisions, the FCPA also has “accounting provisions” that apply to issuers and those acting on their behalf.  First, there is the books-and-records provision, which requires issuers to make and keep accurate books, records, and accounts that, in reasonable detail, accurately and fairly reflect the issuer’s transactions and disposition of assets.  Second, the FCPA’s internal controls provision requires that issuers devise and maintain reasonable internal accounting controls aimed at preventing and detecting FCPA violations.  Prosecutors and regulators frequently invoke these latter two sections when they cannot establish the elements for an anti-bribery prosecution or as a mechanism for compromise in settlement negotiations.  Because there is no requirement that a false record or deficient control be linked to an improper payment, even a payment that does not constitute a violation of the anti-bribery provisions can lead to prosecution under the accounting provisions if inaccurately recorded or attributable to an internal controls deficiency. Foreign corruption also may implicate other U.S. criminal laws. Increasingly, prosecutors from the FCPA Unit of DOJ have been charging non-FCPA crimes such as money laundering, mail and wire fraud, Travel Act violations, tax violations, and even false statements, in addition to or instead of FCPA charges. Perhaps most prevalent among these “FCPA-related” charges is money laundering—a generic shorthand term for several statutory provisions that together criminalize the concealment or transfer of proceeds from certain “specified unlawful activities,” including corruption under the FCPA or laws of foreign nations, through the U.S. banking system. Although this has not always been the case, DOJ now frequently deploys the money laundering statutes to charge “foreign officials” who are not themselves subject to the FCPA. It is thus increasingly commonplace for DOJ to charge the alleged provider of a corrupt payment under the FCPA and the alleged recipient with money laundering violations. DOJ has even used these foreign officials to cooperate in ongoing investigations.

FCPA AND FCPA-RELATED ENFORCEMENT STATISTICS

The below table and graph detail the number of FCPA enforcement actions initiated by DOJ and the SEC, the statute’s dual enforcers, during the past 10 years.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC
48 26 23 25 11 12 19 8 17 9 10 10 21 32 29 10 22 17 35 19
Chart-FCPA Enforcement Actions (2019-2010) As impressive as these numbers are in their own right, as we noted in our 2018 Year-End FCPA Update these FCPA enforcement statistics increasingly tell only a part of the story in international anti-corruption enforcement by U.S. prosecutors and regulators. Last year, for the first time in the modern enforcement era, DOJ’s FCPA Unit brought more corruption cases under related statutes, such as money laundering, than it did under the FCPA. In 2019, criminal FCPA enforcement actions were back out in front with 35, but the additional subset of 19 FCPA-related criminal enforcement actions continued a trend of substantial extra-FCPA enforcement by DOJ. As can be seen from the below table and graph, which includes non-FCPA charges brought by the FCPA Unit in international corruption investigations, 2019 was the most prolific year in the history of foreign anti-corruption enforcement by DOJ’s FCPA Unit.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC
51 26 24 25 12 12 21 8 19 9 12 10 27 32 36 10 48 17 54 19
Chart-FCPA and FCPA-Related Enforcement Actions (2019-2010)

2019 FCPA + FCPA-RELATED ENFORCEMENT TRENDS

In each of our year-end FCPA updates, we seek not only to report on the year’s FCPA enforcement activity but also to distill the trends that stem from these actions. Given the long incubation period of most FCPA cases, enforcement trends often have a multi-year trajectory. 2019 was no different, as the year’s FCPA enforcement activity sounded in many of the themes we have observed over recent years. Although one could reasonably argue for the inclusion of others, we have identified six key enforcement trends for 2019 that we believe stand out from the rest:
  1. A new high-water mark for corporate FCPA financial penalties;
  2. FCPA clusters;
  3. DOJ issues declinations despite aggravating factors;
  4. SEC continues to invoke aggressive theories of FCPA liability;
  5. DOJ continues to bring a significant number of “FCPA-related” charges; and
  6. Several FCPA defendants go to trial.

A New High-Water Mark for Corporate FCPA Financial Penalties

We consistently advise against overreliance upon any single year’s enforcement statistics, lest aberration be confused with trend. That said, significant enforcement activity in 2019 pushed the FCPA to new limits. Four corporate FCPA enforcement actions included combined financial penalties of more than $200 million each. Two companies entered into resolutions earlier in the year for $282.6 million and $231.7 million. In other years, these might stand out as the most significant financial resolutions, but in 2019 they were overshadowed as the record for highest FCPA resolution was set two times over. On March 6 and 7, 2019, the SEC and DOJ announced a combined $850 million FCPA resolution with Russian telecommunications company and U.S. issuer Mobile TeleSystems PJSC (“MTS”). The charges arise from the long-running investigation of alleged corrupt payments to Gulnara Karimova, daughter of the late Uzbek president, to facilitate access to the Uzbek telecom market. Similar conduct arising from the same investigation previously led to FCPA resolutions with VimpelCom Ltd. and Telia Company AB as reported in our 2016 Mid-Year and 2017 Year-End FCPA Updates, respectively. With respect to MTS, the government alleged that the company and its Uzbek subsidiary paid approximately $420 million in bribes to Karimova between 2004 and 2012 through shell companies, charities, sponsorships, and inflated prices paid to purchase shares in a company owned by Karimova. To resolve the criminal charges, MTS entered into a deferred prosecution agreement with DOJ on charges of conspiracy to violate the FCPA’s anti-bribery and books-and-records provisions and a substantive violation of the internal controls provision, and its Uzbek subsidiary pleaded guilty to one count of conspiracy to violate the anti-bribery and books-and-records provisions. To resolve the civil charges, MTS consented to a cease-and-desist proceeding by the SEC alleging violations of the anti-bribery, books-and-records, and internal controls provisions. With offsetting credits, MTS paid $750 million to resolve the criminal FCPA charges and $100 million to resolve the civil FCPA charges, and it agreed to retain an independent compliance monitor for a three-year term. Simultaneous with the corporate resolutions, DOJ announced unsealed indictments charging Karimova with one count of money laundering conspiracy and Bekhzod Akhmedov, a former MTS Uzbek subsidiary general director, with one count of FCPA conspiracy, two substantive FCPA violations, and one count of money laundering conspiracy. According to the indictments, in the early 2000s, the pair agreed that Akhmedov would facilitate bribe payments to Karimova, totaling more than $865 million over the course of the scheme, in exchange for her help facilitating the entry into the local telecom market for various companies. Neither defendant has yet made an appearance in U.S. court, with Karimova reportedly in Uzbek custody serving a prison term on local corruption charges. MTS held the top spot as the largest corporate FCPA monetary resolution in history for nine months, until on December 6, 2019, DOJ and the SEC announced that Telefonaktiebolaget LM Ericsson agreed to pay more than $1 billion to resolve investigations into alleged FCPA violations in China, Djibouti, Indonesia, Kuwait, Saudi Arabia, and Vietnam. According to the charging documents, between 2000 and 2017, Ericsson allegedly entered into sham contracts with third-party agents for the payment of “corporate marketing fees” that were in reality used to facilitate corrupt payments to government officials, all with the knowledge of “high-level executives.” To resolve criminal charges of conspiring to violate the FCPA anti-bribery, books-and-records, and internal controls provisions, Ericsson entered into a three-year deferred prosecution agreement with DOJ, pursuant to which it agreed to pay a criminal penalty of $520,650,432 and to retain a compliance monitor for three years. Ericsson’s Egyptian subsidiary also pleaded guilty to one count of conspiracy to violate the anti-bribery provisions. To resolve the civil case with the SEC, Ericsson consented to an injunction from future violations of the FCPA’s anti-bribery, books-and-records, and internal controls provisions, and agreed to pay nearly $539,920,000 in disgorgement plus prejudgment interest, bringing the total financial resolution to $1,060,570,432. The SEC’s resolution also includes the same requirement for a compliance monitor with a three-year term. Together with the other enforcement activity from 2019, corporate fines in FCPA cases topped $2.5 billion for the first time in the history of the statute. A chart tracking the total value of corporate FCPA monetary resolutions by year, since the advent of blockbuster fines brought in with the 2008 Siemens resolution, follows: Chart - Total Value of Corporate FCPA Monetary Resolutions (2008-2019) The Ericsson and MTS matters now hold the Number 1 and 2 positions on the Corporate FCPA Top 10 list, respectively, which currently reads as follows:

No.

Company*

Total Resolution

DOJ Component

SEC Component

Date

1

Ericsson $1,060,570,432 $520,650,432 $539,920,000 12/06/2019

2

Mobile TeleSystems $850,000,000 $750,000,000 $100,000,000 03/07/2019

3

Siemens** $800,000,000 $450,000,000 $350,000,000 12/15/2008

4

Alstom $772,290,000 $772,290,000 -- 12/22/2014

5

KBR/Halliburton $579,000,000 $402,000,000 $177,000,000 02/11/2009

6

Teva $519,000,000 $283,000,000 $236,000,000 12/22/2016

7

Telia*** $483,103,972 $274,603,972 $208,500,000 09/21/2017

8

Och-Ziff $412,000,000 $213,000,000 $199,000,000 09/29/2016

9

BAE Systems**** $400,000,000 $400,000,000 -- 02/04/2010

10

Total S.A. $398,200,000 $245,200,000 $153,000,000 05/29/2013

* Our figures do not include the 2018 FCPA case against Petróleo Brasileiro S.A. – Petrobras (“Petrobras”), even though some sources have reported the resolution as high as $1.78 billion, because the first-of-its kind resolution negotiated by Gibson Dunn offset the vast majority of payments against a shareholders’ class action lawsuit and foreign regulatory proceeding, leaving only $170.6 million fairly attributable to the DOJ / SEC FCPA resolution.

** Siemens’s U.S. FCPA resolutions were coordinated with a €395 million ($569 million) anti-corruption settlement with the Munich Public Prosecutor.

*** The combined amount of U.S., Dutch, and Swedish financial penalties was $965.6 million.

**** BAE pleaded guilty to non-FCPA conspiracy charges of making false statements and filing false export licenses, but the alleged false statements concerned the existence of the company’s FCPA compliance program, and the publicly reported conduct concerned alleged corrupt payments to foreign officials.

FCPA Clusters

A core platform of the stratospheric success of DOJ and SEC FCPA enforcement over the past 15 years is the significant leverage the agencies have employed to turn singular investigations into multiple—sometimes myriad—enforcement actions. One way to do this is to charge both the company and one or more of its employees or agents. Another is to use one entity at the center of a particular activity as a hub and then proceed out to each of the spokes—prominent examples include the “Panalpina” oil services cases of 2010 and the Petrobras “Operation Car Wash” investigation that has netted FCPA charges in each of the past four years. Yet a third method is to focus on a particular industry practice, with the “princeling” hiring of children of government officials for internships in the banking sector being a prominent recent example. Of whichever variety, the FCPA Unit prosecutors and regulators continue to follow the evidence and efficiently churn out new cases in clusters. A great example of DOJ leveraging a relatively contained, one-country fact pattern into many cases over numerous years, extending into 2019, is Alstom S.A.’s alleged corrupt winning of the Taharan power plant contract in Indonesia. We first reported on this investigation in our 2013 Mid-Year FCPA Update, when charges were filed against former Alstom executives David Rothschild, Frederic Pierucci, William Pomponi, and Lawrence Hoskins. Corporate cases against Alstom (which extended well beyond Indonesia) and Marubeni Corporation followed the next year, as reported in our 2014 Year-End and 2014 Mid-Year FCPA Updates, respectively. In 2019, DOJ won a trial conviction of Hoskins, as covered below, but other new charges filed during the summer were against former Alstom Indonesia Country President Edward Thiessen and Regional Sales Manager Larry Puckett, each of whom had entered into plea agreements years ago, which remained non-public until their cooperation completed with testimony at Hoskins’s trial. This brings the number of defendants associated with this investigation to eight, and underscores our periodic point that even as we report on public prosecutions, there may be in any given year a number of additional cases pending under seal. As noted above, Brazil’s Operation Car Wash is among the most prolific anti-corruption investigations of all time and a perfect example of a “hub and spoke” approach to FCPA matters. In 2019, there were four new FCPA cases that, while separate, all arose out of the same broader investigation:
  • On November 22, 2019, DOJ announced an FCPA resolution with Korean engineering company Samsung Heavy Industries Co. Ltd. arising from the company’s alleged provision of $20 million to an intermediary, between 2007 and 2013, while knowing that some or all of that amount would be paid to officials at Petrobras. To resolve FCPA anti-bribery conspiracy charges, Samsung Heavy Industries entered into a deferred prosecution agreement with DOJ and agreed to pay a $75.5 million criminal fine, half of which is to be credited to a parallel resolution the company reached with Brazilian authorities.
  • On November 20, 2019, DOJ announced the unsealing of a February indictment of Brazilian citizen Jose Carlos Grubisich, a former CEO and board member of Brazilian petrochemical company and U.S. ADS-issuer Braskem S.A. (which itself reached the first FCPA resolution arising from Operation Car Wash, together with parent company Odebrecht S.A., as covered in our 2016 Year-End FCPA Update). DOJ alleges that Grubisich directed corrupt payments, caused the falsification of Braskem’s records including by making false SOX sub-certifications, and engaged in a money laundering conspiracy. No trial date has yet been set. Grubisich, who was arrested at JFK Airport when he arrived in New York for a vacation unaware of the sealed indictment, is being held without bail while he contests DOJ’s argument that he is a flight risk.
  • On June 25, 2019, DOJ and Brazilian authorities announced a coordinated resolution with UK oil and gas company TechnipFMC plc related to the conduct of its predecessor companies—Technip S.A. and FMC Technologies, Inc. There were two corruption schemes alleged, one related to Brazil and Technip and the other to Iraq and FMC Technologies (covered below). For the Brazilian scheme, DOJ and Brazilian prosecutors alleged that, from 2003 to 2013, the legacy Technip business conspired with Singapore-based Keppel Offshore & Marine Ltd. (which previously resolved FCPA charges as covered in our 2017 Year-End FCPA Update) to pay more than $69 million for the ultimate benefit of officials at Petrobras, as well as $6 million in payments to Brazil’s Workers’ Party and certain party officials. To resolve the overall charges with DOJ, TechnipFMC entered into a deferred prosecution agreement and its U.S. subsidiary pleaded guilty, both in connection with charges of conspiracy to violate the FCPA’s anti-bribery provisions, and TechnipFMC agreed to pay a total penalty of more than $296 million, 70% of which will be paid to Brazilian authorities. Notably, this penalty reflects a 25% discount for TechnipFMC’s cooperation, but that discount was applied to an amount near the middle of the Sentencing Guidelines range rather than the bottom, as is more frequently the case, because of Technip’s recidivism, having previously resolved FCPA charges with DOJ and the SEC in connection with the Bonny Island, Nigeria FCPA scheme as reported in our 2010 Mid-Year FCPA Update.
  • Coincident with the corporate resolution with TechnipFMC, DOJ announced the guilty plea of Brazilian citizen Zwi Skornicki to a single count of conspiracy to violate the FCPA’s anti-bribery provisions. Skornicki admitted that as an agent of both TechnipFMC and Keppel Offshore & Marine, between 2001 and 2014, he participated in a scheme to pay $55 million in bribes to officials of Petrobras and the Brazilian Workers’ Party. Skornicki currently awaits a 2020 sentencing date.
As noted above, the TechnipFMC resolution also included an Iraqi component pertaining to the alleged conduct of its predecessor FMC Technologies. This would later serve as the sole basis for a case brought by the SEC on September 19, 2019, whereby the SEC alleged that, between 2008 and 2013, FMC paid nearly $800,000 in commissions to a Monaco-based oil services company while knowing that some or all of those payments would be provided to Iraqi government officials. To resolve the SEC charges, TechnipFMC consented to a cease-and-desist order enjoining future violations of the anti-bribery, books-and-records, and internal controls provisions and agreed to disgorge $5,061,906 in profits plus prejudgment interest. The Iraqi scheme of the TechnipFMC resolution, and specifically the use of its Monaco-based oil services company, brings us to another, developing cluster of anti-corruption enforcement that we predict will spawn FCPA cases for years to come. The Monégasque oil services company has been publicly identified as Unaoil, and its imbroglio has grown to include the guilty pleas of former CEO Cyrus Allen Ahsani, former COO Saman Ahsani, and former Business Development Director Steven Hugh Hunter. All three pleaded guilty to a single count of conspiracy to violate the FCPA’s anti-bribery provision. Hunter’s case is narrower and alleges a corruption scheme in Libya between 2009 and 2015. The charges against the Ahsani brothers are far more sweeping, and allege a scheme spanning 1999 through 2016, 27 client companies (most of which are anonymized, but Rolls-Royce PLC and SBM Offshore N.V. are named based on their prior FCPA settlements as covered in our 2017 Mid-Year and 2017 Year-End FCPA Updates, respectively), and payments to government officials in Algeria, Angola, Azerbaijan, the Democratic Republic of the Congo, Iran, Iraq, Kazakhstan, Libya, and Syria. Each of the former Unaoil executives awaits a 2020 sentencing date. We cover Unaoil developments on the other side of the Atlantic in our UK section. The third type of FCPA enforcement cluster concerns a similar pattern of conduct that is widespread throughout an industry. A prevalent example from recent years relates to the hiring of family members of foreign government officials, which though not inherently illegal under the FCPA, does present heightened risk as it may be later perceived that the hiring was not based on the merits of the candidate but rather on the hope that it would corruptly influence the government official. We have covered numerous examples of these cases in recent years, and 2019 brings us two more. On August 22, 2019, the SEC announced a settled cease-and-desist proceeding against Deutsche Bank AG to resolve allegations that the bank did not adequately enforce its Asia-Pacific Region hiring policy. According to the SEC, the bank continued to hire individuals linked to state-owned entities and officials, often outside the typical application process, following circulation of a compliance memo identifying potential corruption risks associated with such practices. To resolve the allegations of books-and-records and internal controls violations, Deutsche Bank agreed to pay $10.8 million in disgorgement, $2.4 million in prejudgment interest, and a $3 million civil penalty, for a total of $16,179,850. In a similar action, on September 27, 2019, Barclays PLC consented to an SEC cease-and-desist proceeding for alleged violations of the FCPA’s accounting provisions. According to the SEC, over approximately four years, subsidiaries in the Asia-Pacific Region hired more than 100 candidates who were referred by or connected to executives at clients, both governmental and commercial. Despite policies prohibiting that provision of employment in exchange for business, Barclays allegedly did not effectively train personnel on the policies or monitor compliance with them. To resolve the allegations, Barclays agreed to pay $4.8 million in disgorgement plus prejudgment interest and a $1.5 million penalty, for a total of $6,308,726.

DOJ Issues Declinations Despite Aggravating Factors

As discussed in our 2017 Year-End FCPA Update, DOJ’s FCPA Corporate Enforcement Policy introduced a presumption that DOJ will decline to prosecute a company that voluntarily discloses FCPA-related misconduct, cooperates fully in the investigation, and appropriately remediates the misconduct. Among the Policy’s many caveats, however, is that the presumption may be overcome by certain aggravating factors, which include the involvement of executive management in the misconduct. These caveats caused many to wonder if the exceptions might swallow the rule, even as DOJ officials have assured that this is not the case. Supporting DOJ’s notion, in 2019, DOJ issued two corporate declinations in cases involving alleged misconduct by senior leadership. The first such example came on February 15, 2019, with New Jersey-headquartered information technology services company Cognizant Technology Solutions Corp. The company settled an SEC cease-and-desist proceeding for alleged FCPA bribery, books-and-records, and internal controls violations. The SEC’s order included allegations that then-President Gordon J. Coburn and then-Chief Legal Officer Steven E. Schwartz authorized Cognizant’s construction contractor in India to make a $2 million payment to government officials to obtain permits and licenses related to the construction and operation of various Cognizant facilities in that country, and then agreed to reimburse the contractor through $2.5 million in previously rejected change orders. Without admitting or denying the allegations, Cognizant consented to the cease-and-desist proceeding and agreed to pay a $6 million civil penalty together with disgorgement and prejudgment interest of $19,167,368, as well as to self-report to the SEC on remediation and compliance matters for a two-year period. On the same day as the SEC resolution, DOJ published a letter declining to prosecute Cognizant for the same conduct, but requiring Cognizant to disgorge $2,976,210 in additional profits allegedly earned outside of the statute-of-limitations period covered by the SEC resolution, thus making this another “declination with disgorgement” included for statistical purposes. DOJ prominently noted the company’s timely voluntary disclosure, cooperation, remedial efforts, and agreement to disgorge all benefits from the conduct as determined by a “cost avoidance calculation,” which overcame the “aggravating factor” of senior management involvement in the misconduct. Both Coburn and Schwartz have been charged criminally by DOJ and civilly by the SEC in connection with the alleged India bribery scheme. They have pleaded not guilty and filed a motion to dismiss the criminal charges. The civil case has been stayed on DOJ’s motion, pending resolution of the criminal cases. But the SEC has not rested on its laurels, as on September 13, 2019 it brought a third case, this one against former Cognizant COO and Indian national Sridhar Thiruvengadam. The SEC alleges that Thiruvengadam caused the falsification of Cognizant’s books and records, and circumvented its internal controls, including by signing false SOX sub-certifications stating that he was unaware of any fraud involving senior management when he allegedly was aware of the India bribery scheme. Without admitting or denying the allegations, Thiruvengadam consented to the cease-and-desist order and agreed to pay a civil penalty of $50,000. DOJ has not announced criminal charges against Thiruvengadam. The second example of DOJ issuing a public declination in an FCPA matter, despite the alleged involvement of senior management, occurred on September 26, 2019 and involves Wisconsin-based digital printing company Quad/Graphics, Inc. According to the allegations in a parallel SEC cease-and-desist proceeding, Quad/Graphics engaged in bribery schemes in Peru and China, and concealed unlawful sales to Cuba by manipulating sales records, including with the involvement of senior sales and finance executives based in the United States. To resolve the SEC’s anti-bribery and accounting provisions charges, Quad/Graphics agreed to pay a total of $9,895,334 in disgorgement, prejudgment interest, and penalties and to a one-year self-reporting period. DOJ’s declination letter did not require additional disgorgement or punitive measures beyond the SEC resolution, and thus is not counted as a separate action for statistical purposes.

SEC Continues to Invoke Aggressive Theories of FCPA Liability

The SEC showed that it will continue to employ aggressive theories of liability utilizing the FCPA’s accounting provisions, a multi-year trend that we have highlighted in our 2018 and 2017 Year-End FCPA Updates. A notable example from 2019, covered above, is the use of the FCPA’s accounting provisions to charge sanctions-related misconduct involving Quad/Graphics and its sales to Cuba. The SEC alleged that the company “falsified” its corporate books and records by referring to transactions involving Cuba’s state-owned telecommunications company without mentioning the word “Cuba” and using generic terms like “broker” and customer initials. There also have been public reports of the SEC attempting to similarly expand the FCPA’s accounting provisions to punish AML-related deficiencies, although SEC FCPA Unit Chief Charles E. Cain has downplayed those reports. In another recent example of aggressive SEC theories on display, on May 9, 2019, the SEC announced a settled cease-and-desist proceeding alleging that Brazilian telecommunications company and U.S. ADR issuer Telefônica Brasil provided 232 tickets to 127 government officials to attend the 2014 World Cup and the 2013 Confederations Cup, worth a total of $738,000, inclusive of hospitality (~ $5,800 per official, on average). Although the SEC intimated potential corruption by quoting from various company documents suggesting that the tickets were “for relationship-building activities with strategic audiences” and that guest lists took into account “the importance of the actions that each guest has already effectively done in our favor,” there was no allegation or charge of corruption or benefit received as a result of the tickets. Rather, the alleged violations were that Telefônica Brasil lacked internal controls to prevent gifts that “might influence or reward an official decision,” and “inaccurately” recorded the expenses as “Publicity Institutional Events” and “Advertising & Publicity” rather than explicitly noting that the tickets “were given to government officials.” To settle the SEC’s books-and-records and internal controls charges, and without admitting or denying the allegations, Telefônica Brasil consented to the entry of a cease-and-desist order and agreed to pay a $4,125,000 civil penalty. To date, it does not appear that DOJ intends to bring any charges.

DOJ Continues to Bring a Significant Number of “FCPA-Related” Charges

The SEC and DOJ initiated or unsealed FCPA charges against 30 individual defendants in 2019, including nine associated with corporate enforcement events involving Alstom (Puckett and Thiessen), Cognizant (Coburn, Schwartz, and Thiruvengadam), MTS (Akhmedov), TechnipFMC (Skornicki), Braskem (Grubisich), and Westport Fuel (Nancy Gougarty). Continuing a trend observed in our 2018 Year-End FCPA UpdateDOJ’s FCPA Unit also brought a significant number of non-FCPA prosecutions against individuals, initiating an additional 19 individual prosecutions in non-FCPA actions arising out of FCPA investigations. Increasingly pairing charges against bribe payer and bribe recipient, the non-FCPA charges in large part target foreign official bribe recipients, who under established case law cannot be charged under the FCPA but can be charged with other criminal offenses associated with the receipt of those bribes, most frequently money laundering. Another significant category of “FCPA-related” charges includes so-called “facilitators” who allegedly participated in the transfer of corrupt proceeds, but for jurisdictional, evidentiary, or other reasons are charged with money laundering rather than FCPA counts. Examples of each abound in the 2019 enforcement statistics. One significant cluster of FCPA and FCPA-related enforcement activity continues to arise out of separate, long-running investigations of corruption tied to Venezuela’s state-owned energy company, Petróleos de Venezuela S.A. (“PDVSA”), among other departments, as follows:
  • On February 26, 2019, in connection with a “pay to play” bid rigging scheme, DOJ unsealed FCPA charges against Venezuelan nationals Franz Herman Muller Huber and Rafael Enrique Pinto Franceschi, respectively the president and a sales representative of a U.S.-based industrial equipment company, for FCPA, wire fraud, and money laundering charges. DOJ alleges that, between 2009 and 2013, the two defendants paid bribes to three PDVSA officials to obtain favorable bidding treatment, inside information about competitors, and preferential payment on past due invoices. Both Muller and Pinto have pleaded guilty and await sentencing, as is also the case with two of the three alleged PDVSA bribe recipients, Jose Orlando Camacho and Ivan Alexis Guedez, who were covered in our 2018 Year-End FCPA Update.
  • On September 4, 2019, a superseding indictment was unsealed charging Javier Alvarado OchoaDaisy Teresa Rafoi Bleuler, and Paulo Jorge Da Costa Casqueiro Murta with substantive and conspiracy money laundering charges, and Rafoi and Casqueiro additionally with FCPA conspiracy. The original indictment, which included Nervis Gerardo Villalobos Cardenas, Alejandro Isturiz Chiesa, and Rafael Ernesto Reiter Munoz, among others, as discussed in our 2018 Mid-Year FCPA Update, alleged that Venezuelan nationals and PDVSA officials solicited bribes and kickbacks from vendors in exchange for PDVSA contracts. The superseding indictment alleges that Alvarado (a Venezuelan national and PDVSA official) participated in the scheme, with Rafoi and Casqueiro (both Swiss-based wealth managers) laundering the proceeds through Swiss bank accounts.
  • Illustrating the length of these PDVSA bid-rigging corruption investigations, in June 2019 DOJ moved to unseal a 2016 criminal information charging Darwin Enrique Padron Acosta with one count of conspiracy to commit FCPA bribery and money laundering in connection with corrupt payments allegedly made to Jose Luis Ramos Castillo, a PDVSA official whose money laundering plea we first covered in our 2016 Mid-Year FCPA Update. In November 2019, Padron was sentenced on his 2016 guilty plea to 18 months incarceration and the forfeiture of more than $9 million.
  • In a separate Venezuelan corruption scheme, this one relating to state-owned electric company Corporación Eléctrica Nacional, S.A. (“Corpoelec”), DOJ has announced FCPA and FCPA-related charges against four defendants. On June 24, 2019, Venezuelan citizen Jesus Ramon Veroes and U.S. citizen Luis Alberto Chacin Haddad each pleaded guilty to FCPA conspiracy charges arising from an alleged scheme to pay bribes to senior Corpoelec officials in exchange for the award of contracts worth $60 million. Days later, on June 27, Luis Alfredo Motta Dominguez and Eustiquio Jose Lugo Gomez, respectively the former President and Procurement Director of Corpoelec, were indicted on money laundering charges. The underlying investigation reportedly stems from a would-be accomplice who initially was part of the scheme, but after feeling cheated out of money promised by Chacin and Veroes became a confidential witness for the U.S. government. Chacin and Veroes were each sentenced to 51-months imprisonment and agreed to disgorge more than $5 million in profits and to surrender Miami real estate, while both Motta and Lugo are currently considered fugitives. In a sign of the ever-increasing confluence of FCPA, anti-money laundering, and sanctions enforcement, the Department of Treasury’s Office of Foreign Assets Control has added Motta and Lugo to the specially designated nationals (“SDN”) list, thus prohibiting U.S. persons from engaging in business dealings with them or their assets.
  • Staying in Venezuela, but with yet a third, fourth, and fifth government agency, on July 25, 2019, DOJ announced an indictment of Colombian citizens Alex Nain Saab Moran and Alvaro Pulido Vargas for their alleged roles in a bribery scheme involving the Servicio Nacional Integrado de Administración Aduanera y Tributaria (“SENIAT”), Comisión de Administración de Divisas (“CADIVI”), and Guardia Nacional Bolivariana de Venezuela (“GNB”), respectively Venezuela’s Revenue Service, currency exchange authority, and National Guard. According to the indictment, after securing a government contract to build public housing, Saab and Pulido submitted fraudulent invoices to the government for reimbursement of non-existent construction materials and paid SENIAT, CADIVI, and GNB officials to facilitate payment on those invoices. Saab and Pulido, who are at large, face one count of money laundering conspiracy and seven substantive money laundering counts. Like Motta and Lugo above, neither Saab nor Pulido have yet made an appearance in U.S. court and both were designated as SDNs following the announcement of their indictment.
Another significant cluster of FCPA and FCPA-related charges arising out of Latin America concerns Ecuador’s state-owned oil company, Empresa Pública de Hidrocarburos del Ecuador (“PetroEcuador”), as follows:
  • On January 24, 2019, U.S. citizen Jose Luis De La Paz Roman pleaded guilty to an FCPA conspiracy charge arising from the PetroEcuador bribery scheme;
  • On April 4, 2019, Ecuadorian citizen and Florida resident Gustavo Trujillo pleaded guilty to a two-count information charging wire fraud and money laundering conspiracy in connection with the same scheme to launder corrupt funds as charged in the 2017 FCPA case against Ramiro Andres Luque Flores;
  • On May 10, 2019, DOJ announced the unsealing of an indictment charging Ecuadorian citizens Armengol Alfonso Cevallos Diaz and Jose Melquiades Cisneros Alarcon with FCPA and money laundering charges arising from millions in bribes allegedly paid to PetroEcuador officials;
  • Finally, in September 2019, DOJ moved to unseal money laundering conspiracy charges against former PetroEcuador executive Jose Raul de la Torre Prado and his associate Roberto Barrera, as well as filed a criminal information on similar money laundering charges against Ecuadorian / U.S. businessperson Juan Sebastian Espinoza Calderon, all of whom have pleaded guilty and await sentencing.
In a textbook example of DOJ prosecuting both the demand and supply side of bribery, on February 11, 2019, Micronesian Transportation Department official Master Halbert was arrested on money laundering conspiracy charges associated with his alleged receipt of bribes from Frank James Lyon. Lyon, a co-owner of a privately held Hawaiian engineering company, had in January pleaded guilty to conspiracy to violate the FCPA’s anti-bribery provisions and to commit federal program fraud in connection with his alleged payment of approximately $200,000 in bribes to Halbert and other Micronesian officials in order to obtain FAA-funded airport contracts from the Micronesian Transportation Department. Separately, Lyon also admitted to paying $240,000 to Hawaiian state officials in connection with federally funded state contracts. On May 13, 2019, the Honorable Susan O. Mollway of the U.S. District Court of the District of Hawaii sentenced Lyon to a 30-month prison term. Halbert pleaded guilty on April 2, 2019, and received an 18-month prison term on July 29, 2019. Accounting for additional FCPA-related charges this year, we reported in our 2018 Year-End FCPA Update on DOJ’s August 2018 “declination with disgorgement” letter to Barbadian insurance company Insurance Corporation of Barbados Limited (“ICBL”), which followed the unsealing of a March 2018 indictment charging Donville Inniss, a former Minister of Industry and member of Parliament of Barbados, with money laundering in connection with his alleged receipt of $36,000 from ICBL in exchange for agreeing to award government contracts to the insurer. As we observed at the time, a redacted superseding indictment filed in the Inniss case made clear that DOJ had filed money laundering charges under seal against two former senior executives of ICBL. On January 18, 2019, those portions of the indictment were unsealed, showing that former CEO Ingrid Innes and former senior vice president Alex Tasker were each charged with one count of money laundering conspiracy and two counts of money laundering in connection with the $36,000 paid to Inniss. Neither Innes nor Tasker are in U.S. custody, while Inniss’s trial is scheduled to begin in January 2020 before the Honorable Kiyo A. Matsumoto in the Eastern District of New York. On December 20, 2019, Judge Matsumoto issued a comprehensive, 71-page memorandum and order addressing a number of pretrial motions in limine in the Inniss case. Among the rulings was a denial of a motion by DOJ to find that former ICBL CEO Innes waived her attorney-client privilege over a document that she prepared for her attorney by saving it to the hard drive of her company-issued computer, without any “confidential” or “privileged” notations, and then neglecting to delete it before turning her computer in to company representatives. Among the factors the Court found important to the decision that Inniss did not waive privilege were that Innis: (1) emailed the document to her attorney using a personal email address; (2) saved the document to her local “My Documents” folder and not the company’s shared document management system; (3) did not connect her device to the company’s network after preparing the document; (4) had forgotten when surrendering her device that she had saved the document to the computer; (5) immediately objected when company representatives attempted to use the document during an interview with her; and (6) while aware that ICBL had a policy stating the company may monitor usage of company devices, as CEO was not aware of the company ever enforcing that policy. Nonetheless, Judge Matsumoto stated in her ruling that this was a close call and this stands as an important caution to executives who learn they are under investigation by company representatives. Finally, although much of the public docket remains shrouded in under-seal filings, the outlines of another FCPA-related case may be seen in a two-page criminal information filed against Fernando Carvalho Frimm on March 15, 2019 in the U.S. District Court for the Southern District of Texas. The bare-bone allegations charge that Frimm filed a false tax return that understated his 2010 income by at least $172,538, in violation of 26 U.S.C. § 7206(1). Based on the prosecutors, judicial assignment, and publicly available information, it appears this case may be related to DOJ’s investigation of SBM Offshore as reported in our 2017 Year-End FCPA Update.

Several FCPA Defendants Go To Trial

As DOJ continues to aggressively pursue more and more individuals for alleged FCPA and FCPA-related violations, it is inevitable that more and more we will see some opt to put the government to its burden at trial. This year saw multiple individual defendants take their cases to a jury.

Lawrence Hoskins

In what was undoubtedly the FCPA trial of the year, and arguably one of the most significant in the statute’s history, UK citizen Lawrence Hoskins was convicted in the long-running case arising from the Alstom Indonesia investigation. We last discussed the Hoskins case in our 2018 Year-End FCPA Update, in the context of the Second Circuit’s significant jurisdictional decision holding that the government could not charge a foreign national with conspiracy or aiding and abetting an FCPA offense if that person did not otherwise belong to the class of individuals that can be charged with committing a substantive FCPA violation. In light of the decision, a central question at trial was whether DOJ could prove that Hoskins was acting as an “agent” of a U.S. person (e.g., Alstom’s U.S. subsidiary). On November 8, 2019, after an eight-day trial and one day of deliberations, the jury answered that question in the affirmative, convicting Hoskins on 11 of the 12 FCPA and money laundering counts. The trial centered on allegations that Hoskins functioned as an agent of Alstom USA for the purpose of its bribing Indonesian officials. The trial judge instructed the jury that the government had to prove that the U.S. subsidiary had given Hoskins authority to take actions on its behalf and had the ability to control Hoskins’s conduct. On the evidence presented at trial, this effectively reduced to whether Hoskins was taking direction from Alstom USA executive Frédéric Pierucci, who previously pleaded guilty and served time in prison (covered in our 2014 and 2017 Year-End FCPA Updates). The government alleged that Pierucci “controlled the strategy and approach” and “called the shots” in directing Hoskins’s participation in the bribery scheme, and argued that witness testimony and email communications were more probative than corporate org charts in demonstrating the relationship between Alstom USA and Hoskins. Hoskins’s defense counsel countered that he only supported but did not take direction from Pierucci when hiring consultants in Asia and seized on the fact that only one of the government’s five witnesses had ever even met with or spoken to Hoskins. Based on the verdict, the jury apparently accepted the government’s agency evidence. The issue will likely be afforded further consideration, however, including in connection with Hoskins’s motion for judgment of acquittal, which was filed on November 29, 2019, and any subsequent appeal. Indicative of DOJ’s use of money laundering charges to pursue individuals in FCPA cases who pose jurisdictional challenges, the jury also returned convictions on all but one of the money laundering charges against Hoskins based on evidence that he and others retained consultants to conceal payments. Sentencing is currently scheduled for March 6, 2020.

Jean Boustani

Another example of DOJ’s 360-degree approach to prosecuting foreign corruption was announced on March 7, 2019, with an unsealed indictment against conspirators in an alleged bribery scheme involving loans to the Government of Mozambique. Specifically, three former UK-based investment bankers from a Swiss financial institution that is a U.S. issuer—Andrew PearseSurjan Singh, and Detelina Subeva—were charged with conspiracy to violate the FCPA’s anti-bribery and internal controls provisions, as well as wire fraud, securities fraud, and money laundering conspiracy. Two former Mozambican government officials—former Minister of Finance Manuel Chang and former State Information & Security Service official Antonio do Rosario—as well as Mozambique business consultant Teofilo Nhangumele, were collectively charged with an assortment of wire fraud, securities fraud, and money laundering conspiracy charges. Two Lebanese former executives of UAE shipbuilding company Privinvest Group—Jean Boustani and Najib Allam—also were charged with similar non-FCPA offenses, marking eight defendants charged by the FCPA Unit. The indictment alleges that between approximately 2013 and 2016, the defendants organized more than $2 billion in loans to companies owned and controlled by the Mozambican government, ostensibly for the purpose of funding maritime projects for which the UAE shipbuilding company would provide services, but Boustani and Allam allegedly diverted more than $200 million of the proceeds, paying $150 million as bribes to Chang and other officials and $50 million in kickbacks to investment bankers Pearse, Singh, and Subeva. The initial charges were unsealed in January 2019 when Boustani was arrested at JFK Airport. Three defendants have entered guilty pleas: Subeva and Singh to one count each of money laundering conspiracy, and Pearse to conspiracy to commit wire fraud. Chang was arrested in South Africa in December 2018 and reportedly is contesting extradition to the United States. Rosario and Nhangumele were both arrested in Mozambique in February 2019; they have been detained along with a reported 18 additional individuals, all of whom are expected to stand trial on local charges. DOJ intends to seek extradition of Rosario and Nhangumele. Allam reportedly remains at large. Boustani opted for trial, and pushed for a speedy one considering that he was held without bail. Pretrial motions to dismiss on jurisdictional grounds were denied but, on December 2, 2019, a jury sitting in the U.S. District Court for the Eastern District of New York acquitted him of all three counts he faced—conspiracy to commit wire fraud, securities fraud, and money laundering. Prosecutors emphasized that some of the bribe payments came through U.S. correspondent banks, while the defense argued that Boustani could not have foreseen that money paid via foreign banks would travel through the United States and that the United States “was not the world’s policeman.” Although these arguments did not work on the Honorable William F. Kuntz II in his pretrial rulings, post-trial interviews suggest the jury had concerns with DOJ’s theory of jurisdiction.

Joseph Baptiste + Roger Richard Boncy

We reported in our 2018 Year-End FCPA Update on the superseding indictment in the case against retired U.S. Army colonel and Haitian non-profit founder Joseph Baptiste to add Roger Richard Boncy, a former lawyer of dual U.S.-Haitian citizenship who once served as Haiti’s Ambassador-at-Large, as a defendant on FCPA conspiracy, Travel Act, and money laundering conspiracy charges. According to the indictment, Boncy and Baptiste solicited bribes from two undercover FBI agents who were posing as prospective investors for a multi-million dollar port development project in Haiti. But instead of funneling the money to Haitian officials, Baptiste allegedly pocketed it. Although the trial of Baptiste nearly went forward in late 2018, in light of the superseding indictment, a joint trial for Baptiste and Boncy was scheduled for June 2019. On June 20, 2019, following a nine-day trial, the jury returned its verdict finding Boncy and Baptiste guilty of conspiracy to violate the Travel Act and the FCPA, as well as Baptiste guilty of money laundering conspiracy. The jury did acquit Boncy of additional money laundering and Travel Act counts. On August 26, 2019, Baptiste filed a motion for judgment of acquittal, arguing in part that the prosecution failed to prove that Baptiste conspired to procure any official act through bribery, that it failed to specify sufficiently the object of the alleged conspiracy, and that it failed to establish Baptiste’s corrupt intent.  Baptiste also filed a motion seeking a new trial based on ineffective assistance of counsel. A motions hearing was held on December 16, 2019, but the Court has yet to rule.

Mark T. Lambert

We reported in our 2018 Mid-Year FCPA Update on the January 2018 FCPA, wire fraud, and money laundering indictment of Mark T. Lambert, the former Co-President of Transport Logistics International, alleged to have participated in a conspiracy to make corrupt payments to a Russian state-owned supplier of uranium and uranium enrichment services in return for sole-source contracts. Lambert was scheduled to go to trial in the District of Maryland in April, and then June 2019, but during the first half of the year DOJ superseded the indictment not once but twice, changing the operative dates when the conspiracy allegedly began and when Lambert allegedly joined it. Following these delays, a three-week trial commenced in late October, resulting in the conviction of Lambert of four FCPA counts, two counts of wire fraud, and a single count of conspiracy to violate the FCPA and commit wire fraud. The jury acquitted Lambert on two other FCPA counts and one count of money laundering. The trial featured evidence that Lambert and coconspirators attempted to conceal the payments by using fake invoices and code words, and caused Transport Logistics International to fraudulently overbill the Russian state-owned entity. On December 6, 2019, Lambert filed a motion for judgment of acquittal on the two wire fraud convictions, arguing that the government failed to prove that he made any material misrepresentations or omissions that caused injury to the Russian state-owned entity, the alleged victim of the fraud. Lambert’s motion is still pending as of the date of this update and his sentencing is scheduled for March 2020.

Rounding Out the 2019 FCPA Enforcement Docket

Additional 2019 FCPA enforcement actions not covered elsewhere in this update include:

Microsoft Corporation

On July 22, 2019, DOJ and the SEC announced a joint FCPA resolution with leading technology company Microsoft, relating to alleged violations of the FCPA’s books-and-records and internal controls provisions. The SEC’s allegations included alleged payments to government officials in Hungary, inadequate documentation surrounding the role of an unauthorized distributor in Turkey, and excessive hospitality and gifts to governmental and commercial customers in Saudi Arabia and Thailand. DOJ’s allegations focused more narrowly on the Hungary conduct, which involved Microsoft’s subsidiary allegedly making improper payments to government officials through third parties. To resolve the DOJ matter, Microsoft’s Hungarian subsidiary entered into a three-year non-prosecution agreement and paid a criminal fine of $8,751,795. To resolve the SEC matter, parent Microsoft consented to the entry of a cease-and-desist order and agreed to pay $16,565,151 in disgorgement plus prejudgment interest. Microsoft received the maximum (25%) cooperation credit available for its substantial cooperation and extensive remedial measures. Microsoft also was not required to retain a monitor, but will report on its compliance program efforts for the three-year non-prosecution period.

Ugandan Adoption Case

On August 29, 2019, adoption agent Robin Longoria pleaded guilty to a one-count information charging conspiracy to violate the FCPA, wire fraud, and visa fraud stemming from an alleged plot to illicitly facilitate adoptions of children from Uganda. Longoria admitted to participating in a scheme to bribe Ugandan probation officers to recommend that certain children be placed into orphanages, then bribe Ugandan judges and court personnel to grant guardianship of these children to the adoption agency’s clients. The bribes were allegedly funded through “foreign program fees” charged to clients. Longoria’s sentencing is currently scheduled for January 8, 2020.

Juniper Networks, Inc.

Also on August 29, 2019, the SEC announced a settled cease-and-desist proceeding with California-based network technology company Juniper, alleging violations of the FCPA’s accounting provisions. According to the SEC’s order, sales employees of Juniper subsidiaries in Russia and China increased sales discounts to channel partners, and rather than pass those savings on to end customers pooled them as “common funds” at the channel-partner level. These funds were allegedly used to pay for unauthorized customer travel, including for government officials and in some cases involving falsified trip and meeting agendas. A member of senior management allegedly learned of the “common funds” in late 2009, and Juniper instructed employees to stop the practices at issue, but they nevertheless continued through 2013. To resolve the allegations, Juniper agreed to pay $11,745,018, which includes a civil penalty of $6,500,000. Juniper previously announced that DOJ had closed its investigation with no action.

Westport Fuel Systems, Inc. + Former Chief Executive Officer

On September 27, 2019, the SEC announced a settled cease-and-desist proceeding against Canadian clean fuel systems manufacturer and U.S. issuer Westport and its former CEO, Nancy Gougarty. According to the SEC, Gougarty allegedly caused Westport to violate the FCPA when she knowingly transferred shares in a joint venture to a private equity fund while knowing that a Chinese government official had an undisclosed financial interest in the fund. The SEC further alleged that Gougarty concealed the official’s financial interest from the company’s Board, and also falsely identified the joint venture interests in public SEC filings. To resolve the charges of FCPA anti-bribery, books-and-records, and internal controls violations, Westport agreed to pay disgorgement of $2.35 million, prejudgment interest of $196,000, and a civil penalty of $1.5 million, and Gougarty agreed to pay a $120,000 penalty. Westport also will self-report to the SEC for two years.

China-Based Executives of a Multi-Level Marketing Company

On November 14, 2019, DOJ unsealed an indictment charging two Chinese citizens who formerly served as senior executives of the Chinese subsidiary of a publicly traded “multi-level marketing company” headquartered in Los Angeles. China Managing Director Yanliang “Jerry” Li and China External Affairs Head Hongwei “Mary” Yang were each charged with conspiracy to violate the FCPA’s anti-bribery, books-and-records, and internal controls provisions. Li also was charged with criminal charges of perjury and destruction of records, and was named the defendant in a separate civil complaint filed by the SEC. According to the charging documents, Li and Yang bribed Chinese government officials to obtain direct sales licenses and stifle negative media coverage, and approved forged reimbursement requests designed to conceal the expenditures. Li also allegedly perjured himself during investigative testimony before the SEC, and purportedly installed “wiping software” on his company computer in an effort to destroy electronic records when he learned of the investigation. The company has not been identified by DOJ or the SEC.

SEC FCPA Settlement in 1MDB Case

We reported in our 2018 Year-End FCPA Update on the criminal FCPA charges against Malaysian businessperson Low Taek Jho (“Jho Low”) and former bankers Tim Leissner and Ng Chong Hwa, who collectively were alleged to have participated in diverting more than $2.7 billion from Malaysian sovereign wealth fund 1Malaysia Development Berhad (“1MDB”) for their own benefit and to make payments to officials of state-owned investment funds. On December 16, 2019, the SEC announced its own FCPA resolution with Tim Leissner only, pursuant to which he consented to the entry of a cease-and-desist order finding that he violated the FCPA’s anti-bribery, books-and-records, and internal controls provisions and agreed to disgorge $43.7 million, offset dollar-for-dollar by the prior entry of a forfeiture order in connection with his 2018 guilty plea in the criminal case. The SEC forewent a civil penalty against Leissner in recognition of the criminal case, as well as a $1,425,000 civil penalty already imposed in an associated Federal Reserve Board proceeding initiated on March 11, 2019.

2019 YEAR-END FCPA-RELATED ENFORCEMENT LITIGATION

Following the filing of FCPA or FCPA-related charges, the lifecycle of criminal and civil enforcement proceedings can take years to wind their way through the courts. In addition to the FCPA trials covered above, a selection of prior-year matters that saw enforcement litigation developments during 2019 follows.

DOJ Dismisses 10-Year-Old Case Against the Siriwans

In one example of the multiyear “tail” that can follow the filing of FCPA-related charges, in January 2019, DOJ dismissed a 10-year-old FCPA-related case against a former Thai government official and her daughter. As an early example of DOJ pursuing alleged FCPA bribe recipients together with alleged bribe payers, we reported in our 2011 Year-End FCPA Update that Juthamas Siriwan, the former Governor of the Tourism Authority of Thailand, and her daughter, Jittisopa Siriwan, were charged in a criminal money laundering indictment for allegedly receiving approximately $1.8 million from husband and wife film producers Gerald and Patricia Green in return for awarding the Greens’ businesses up to $14 million in contracts. The Siriwans sought to dismiss their indictment in federal court through the special appearance of their counsel, even as they technically remained fugitives in Thailand. The Honorable George H. Wu of the U.S. District Court for the Central District of California stayed the motion pending Thailand’s decision on whether to grant DOJ’s request to extradite the Siriwans. In the years that followed, Juthamas and Jittisopa ultimately were charged and sentenced to significant prison terms in Thailand for the same conduct, leading DOJ on January 3, 2019 to file a motion to dismiss the U.S. charges, which the Court granted the next day. Thereafter, Thailand’s Appeal Court in May 2019 upheld a significant 50-year sentence for Juthamas while reducing the sentence for Jittisopa by four years to a still significant 40-year term.

Court Rejects Samir Khoury’s Motion to Dismiss 10-Year-Old Indictment

Another example of the FCPA’s long tail is Lebanese businessperson Samir Khoury’s attack on a decade-old indictment charging him with mail and wire fraud offenses arising out of the Bonny Island, Nigeria corruption scheme. In our 2018 Year-End FCPA Update, we reported that after successfully moving to unseal a 2008 indictment that he long suspected had been filed against him, Khoury moved to compel the government to produce additional evidence necessary to file a revised motion to dismiss on Speedy Trial Act and statute-of-limitations grounds. On March 13, 2019, the Honorable Keith P. Ellison of the U.S. District Court for the Southern District of Texas ordered the government to produce descriptions of certain communications regarding its efforts to apprehend Khoury. With this information in hand, Khoury on April 19 filed a renewed motion to dismiss the indictment, arguing that the evidence shows that the government failed to prosecute the case diligently. On December 6, 2019, the Court denied Khoury’s motion, holding that the government’s delay was attributable to Khoury’s decision to remain in Lebanon and rejecting his argument that the government not seeking his extradition warranted dismissal of the charges. Although the Court believed the issue to be a close one, the Court also found that the government’s claims were not time-barred, crediting the government’s application under 18 U.S.C. § 3292 to suspend the statute of limitations to allow it to gather foreign evidence; the Court held that such applications can be filed at any time before indictment, as long as the official request is made before the statute of limitations expires, which was the case here. As of the date of publication, no further proceedings have been scheduled in this case, although Khoury has filed an additional motion for a “Ruling on Constitutional Issues Not Addressed” in the Court’s December 6 order.

District Court Rejects Dmitry Firtash’s Motion to Dismiss

As reported in our 2014 Mid-Year FCPA Update, in 2014 DOJ announced an indictment charging several foreign nationals, including Ukrainian billionaire Dmitry Firtash, with FCPA bribery and related charges in connection with an alleged scheme to bribe government officials in India to procure titanium-ore mining rights. Even as Firtash contested extradition proceedings following his arrest in Austria, in May 2017 his counsel filed a motion to dismiss the U.S. charges in absentia, as covered in our 2017 Mid-Year FCPA Update. On June 21, 2019, the Honorable Rebecca R. Pallmeyer denied the motion, which had been joined by co-defendant Andras Knopp, in a detailed 39-page opinion and order. The Court found venue to be proper in the Northern District of Illinois given the allegation that the criminal conspiracy ultimately sought to sell the subject titanium to a U.S. company operating in Illinois, and found sufficient U.S. contacts to satisfy due process in subjecting the defendants to prosecution in the United States. Judge Pallmeyer also rejected defendants’ arguments that the FCPA conspiracy charge should be dismissed in line with the Second Circuit’s decision in United States v. Hoskins (covered in our 2018 Year-End FCPA Update), which held that the government cannot charge foreign nationals with conspiracy or aiding and abetting an FCPA offense if those persons do not otherwise belong to the class of individuals that can be charged with committing a substantive FCPA violation. The Court here held that Firtash and Knopp could be charged with aiding and abetting an FCPA offense, rejecting the defendants’ Hoskins argument, by reasoning that Hoskins relied, in part, on precedents determining the statutory limits on who can be charged with complicity liability based not only on the statute’s text, but also on its legislative history, whereas the Seventh Circuit inferred “legislative intent only from the text of the statute.” Judge Pallmeyer recognized that the Seventh Circuit might reach a different result “where the defendant’s actions are extraterritorial and the underlying statute has no extraterritorial application,” which was a significant factor in the Second Circuit’s analysis in Hoskins. Without a clear precedent from the Seventh Circuit on the effect of extraterritoriality on complicity liability, however, Judge Pallmeyer was unwilling to follow Hoskins in this case. A further setback for Firtash followed days later when, on June 25, 2019, the Austrian Supreme Court affirmed a lower court’s decision allowing for his extradition to the United States. Although the ultimate decision will now reside with Austria’s Justice Minister, Firtash is one step closer to facing a trial in a country in which he has never before set foot.

Rolls-Royce Defendant’s Appeal Dismissed

The U.S. Court of Appeals for the Sixth Circuit dismissed an interlocutory appeal in the ongoing prosecution of Azat Martirossian that raises the oft-recurring issue in FCPA and FCPA-related prosecutions of whether a foreign-located defendant can challenge an indictment without physically submitting to the jurisdiction of a U.S. court. As covered in our 2018 Year-End FCPA Update, on May 24, 2018, Martirossian—an Armenian citizen and Chinese resident who has never been to the United States—was indicted on money laundering charges associated with the alleged Rolls-Royce bribery scheme. While he remained outside of the United States, his counsel filed a motion to dismiss the indictment in absentia, alleging the charges insufficiently alleged a U.S. nexus. On October 9, 2018, Chief Judge Edmund A. Sargus, Jr., of the U.S. District Court for the Southern District of Ohio granted DOJ’s request to hold Martirossian’s motion in abeyance “until or unless he submits to the jurisdiction of this Court.” Following Martirossian’s interlocutory appeal and petition for a writ of mandamus to the U.S. Court of Appeals for the Sixth Circuit, on March 7, 2019 the Sixth Circuit dismissed his appeal and denied his mandamus petition. The Court concluded that the District Court’s October 2018 decision was not a final appealable order and that Martirossian did not qualify for a writ of mandamus. Writing for the Sixth Circuit, Judge Jeffrey S. Sutton observed that under the fugitive disentitlement doctrine, “If a defendant refuses to show up to answer an indictment, ignores an arrest warrant, or leaves the jurisdiction, the court may decline to resolve any objections to the indictment in his absence.” The panel concluded that Martirossian did not qualify for a writ in large part because “he has a readily available means of obtaining a ruling on his motion to dismiss the indictment”—namely, showing up to court.

Second and Ninth Circuits Reject McDonnell Challenges to Money Laundering Convictions of Foreign Government Officials

We covered the 2017 trial conviction of former Wall Street banker-turned-Guinean Minister of Mines and Geology, Mahmoud Thiam, in our 2017 Mid-Year FCPA Update. On August 5, 2019, the U.S. Court of Appeals for the Second Circuit affirmed Thiam’s money laundering convictions in an opinion that gives wind for the wings of DOJ’s expansive use of the statute. Writing for the Court, the Honorable John M. Walker, Jr. rejected Thiam’s argument that the jury instructions were erroneous because they did not include the “official acts” guidance of the U.S. Supreme Court decision in United States v. McDonnell. In McDonnell, the Supreme Court concluded that the definition of an “official act” for purposes of the federal bribery statute should be interpreted narrowly, such that “[s]etting up a meeting, talking to another official, or organizing an event (or agreeing to do so)—without more—does not fit [the] definition of ‘official act.’” Here, the Second Circuit held that McDonnell does not apply to money laundering charges founded, as in this case, on foreign bribery statutes that do not have the same limitations as the U.S. domestic bribery statute at issue in McDonnell. Foreign nations may define their bribery statutes more broadly, the Court said, and in all events the evidence was sufficient for the jury to find that Thiam’s actions in negotiating favorable terms for a joint venture in exchange for bribes was an “official act” even under McDonnell. On December 9, 2019, the Supreme Court declined to take up Thiam’s petition for certiorari. On August 30, 2019, the U.S. Court of Appeals for the Ninth Circuit turned aside a challenge by Dr. Heon-Cheol Chi, a former Director of the Korea Institute of Geoscience and Mineral Resources, to his money laundering conviction that we covered in our 2017 Year-End FCPA Update. Similar to its sister circuit, the Honorable Carlos T. Bea writing for the Ninth Circuit held that it was appropriate for the trial court to refuse to graft U.S. domestic bribery precedent, under McDonnell and otherwise, onto the “bribery of a public official” under foreign law specified unlawful activity in the money laundering statute.

2019 YEAR-END FCPA-RELATED POLICY DEVELOPMENTS

In addition to the enforcement activity covered above, the year saw DOJ issue important guidance on how it will administer corporate criminal enforcement, assess inability-to-pay claims, and evaluate corporate compliance programs; and another regulator—the Commodity Futures Trading Commission (“CFTC”)—signal its intention to take a seat at the table in foreign corruption matters.

DOJ Refines FCPA Corporate Enforcement Policy

On March 8, 2019, DOJ announced a number of revisions to the FCPA Corporate Enforcement Policy released in November 2017, as covered in our 2017 Year-End FCPA Update. In remarks announcing the changes, Assistant Attorney General and Criminal Division Leader Brian A. Benczkowski explained that they seek to “ensur[e] that our policies provide the right message and the right mix of incentives.” Among the most significant revisions are:
  • Ephemeral Messaging: One of the most confounding provisions of the original FCPA Corporate Enforcement Policy required that in order to receive full cooperation credit in any FCPA resolution, companies had to “prohibit[] employees from using software that generates but does not appropriately retain business records and communications.” The pervasive use of ephemeral messaging apps, particularly outside of the United States, led many to question the practicality of this prohibition. The revised policy now stops short of an outright ban, and directs companies to implement “appropriate guidance and controls” to ensure that employees use these services in a way providing for adequate data retention.
  • De-Confliction: The revised policy maintains the requirement that, to receive full cooperation credit, companies must be prepared to de-conflict interviews and other investigative steps to ensure they do not interfere with DOJ’s investigation. It adds a footnote, however, clarifying that although DOJ “may, where appropriate, request that a company refrain from taking a specific action for a limited period of time . . . the Department will not take any steps to affirmatively direct a company’s internal investigation efforts.” This mantra, which is now echoed consistently by DOJ FCPA prosecutors, is well timed in light of the prominent May 2, 2019 ruling by Chief Judge Colleen McMahon of the Southern District of New York in United States v. Connolly, which criticized the government’s purportedly excessive reliance on and coordination with outside counsel’s investigation in a non-FCPA matter.
  • M&A Due Diligence: Consistent with remarks by Deputy Assistant Attorney General Matthew S. Miner in July 2018 (covered in our 2018 Year-End FCPA Update), the revised policy provides that “where a company undertakes a merger or acquisition, uncovers misconduct through thorough and timely due diligence or, in appropriate instances, through post-acquisition audits or compliance integration efforts, and voluntarily self-discloses the misconduct and otherwise takes action consistent with this Policy . . . there will be a presumption of a declination in accordance with and subject to the other requirements of this Policy.” Of further interest on this topic, in June 2019, at an American Bar Association white collar crime conference in the Czech Republic, Miner stated: “[I]f a company self-discloses misconduct that was discovered in the context of a merger or acquisition, and we determine that the conduct and financial impact was de minimis, we may be open to a company’s request that we not disclose the declination.”
  • Significance of Aggravating Factors: In his remarks announcing the revisions to the policy, Assistant Attorney General Benczkowski clarified that the presence of one or more aggravating factors, for example the involvement of senior company management, will “not necessarily preclude a declination” where the subject company is otherwise in full compliance with the policy. DOJ’s decision in March 2019 not to prosecute Cognizant, discussed above, is consistent with this approach.
This policy was again updated in November 2019 to make clear that the obligation to disclose “all relevant facts” in order to qualify for voluntary disclosure credit applies only to those facts “known to [the company] at the time of the disclosure.” The substantive point behind this otherwise modest wording tweak is to acknowledge that companies may not always have full information at the time of a voluntary disclosure, and that DOJ encourages companies to come forward early, even before their investigations are fully concluded.

DOJ Announces Updated Guidance for Evaluating Corporate Compliance Programs

On April 30, 2019, DOJ’s Criminal Division released updated guidance to DOJ prosecutors on how to assess the effectiveness of corporate compliance programs when conducting investigations, making charging decisions, and negotiating resolutions. Reflecting DOJ’s continued focus on corporate compliance programs, this guidance, “Evaluation of Corporate Compliance Programs,” updates earlier guidance from DOJ’s Fraud Section in February 2017 (covered in our 2017 Mid-Year FCPA Update). Speaking at the GIR Live event on October 8, 2019, Assistant Attorney General Benczkowski summarized this guidance as revolving “around three questions that go to the heart of every compliance matter: First, is the compliance program well designed? Second, is the program being implemented effectively and in good faith? And third, does the compliance program work in practice?” For more on this guidance, please see our separate Client Alert, “Updated DOJ Criminal Division Guidance on the ‘Evaluation of Corporate Compliance Programs.’”

DOJ Releases New Inability-To-Pay Guidance

On October 8, 2019, DOJ released new guidance on how prosecutors should evaluate inability-to-pay claims in criminal resolutions, titled “Evaluating a Business Organization’s Inability to Pay a Criminal Fine or Criminal Monetary Penalty.” Although the U.S. Sentencing Guidelines direct courts to consider a corporation’s financial resources in determining an appropriate monetary penalty, they lack detailed instructions about how to evaluate inability-to-pay claims, and this guidance seeks to fill that gap, at least for the Criminal Division attorneys to whom this guidance is directed. The new guidance provides that, before DOJ will entertain any inability-to-pay claim, the parties must first agree on both the form of the criminal resolution and the amount of monetary penalty, based on the merits and without regard to the corporation’s financial condition. Then, the company must submit an “Inability-to-Pay Questionnaire.” Although completing a questionnaire has long been a requirement when claiming inability to pay, the questionnaire now seeks a number of forward-looking metrics. The answer to these questions will form the basis on which DOJ assesses inability-to-pay claims, which, according to the guidance, will often require consultation with accounting experts. If there are serious questions that a company cannot afford the contemplated penalty, prosecutors must consider a variety of factors, including what gave rise to the company’s current financial condition. Prosecutors also should examine whether the corporation can raise alternative sources of capital to pay the penalty, as well as whether the penalty could adversely affect pension funds, prompt layoffs or production shortages, or cause it to fall below regulatory capital requirements. Not all collateral consequences are considered relevant, however. Prosecutors generally should not consider whether the penalty would harm growth, future dividends, future hiring or retention, or executive compensation. If an inability to pay is found, prosecutors may, with the permission of the section chief, adjust the penalty downward as necessary to avoid threatening the company’s continued viability or ability to make restitution payments. Downward adjustments exceeding 25% of the contemplated penalty require approval from the Assistant Attorney General for the Criminal Division. Alternatively, DOJ may implement a payment plan over a reasonable time horizon if doing so would allow full payment of the proposed fine or penalty.

The CFTC Wades Into International Corruption Waters

In a significant development that already is having impacts on the dynamics of FCPA investigations, the CFTC’s Enforcement Division recently signaled its intent to enforce foreign bribery matters that fall within its jurisdiction. On March 6, 2019, the CFTC published an advisory on self-reporting and cooperation for “violations involving foreign corrupt practices,” and the same day Enforcement Division Director James M. McDonald delivered remarks announcing the CFTC’s intent to bring enforcement actions stemming from foreign bribery. In the ensuing months, more than one company has announced involvement in a CFTC inquiry with a potential foreign bribery nexus. The CFTC appears focused on potential violations of the Commodity Exchange Act (“CEA”) that relate to foreign bribery. As Director McDonald signaled in his remarks, even as the CFTC does not envision itself as a third enforcer of the FCPA, in these inquiries and any future CFTC enforcement matters, the CFTC will work with the SEC and DOJ to avoid duplicate investigative steps and appropriately consider disgorgement and penalties paid to other enforcement authorities.

2019 YEAR-END LEGISLATIVE DEVELOPMENTS

The year saw several legislative developments relevant to FCPA enforcement, as follows:
  • Foreign Extortion Prevention Act (H.R. 4140): On August 2, 2019, a bipartisan group of representatives, including Rep. Sheila Jackson Lee (D-Tex.), Rep. John Curtis (R-Utah), Rep. Tom Malinowski (D-N.J.), and Rep. Richard Hudson (R-N.C.), introduced the Foreign Extortion Prevention Act (“FEPA”). The bill is meant to criminalize extortion by foreign officials, which would align U.S. law with similar prohibitions in other countries. The bill, which has been referred to the House Judiciary Committee’s Subcommittee on Crime, Terrorism, and Homeland Security, would amend the federal bribery statute, 18 U.S.C. § 201, to allow for criminal penalties, including up to two years’ imprisonment, for any foreign official who “directly, or indirectly, corruptly demands, seeks, receives, accepts, or agrees to receive or accept anything of value” in exchange for “being influenced in the performance of any official act” or “being induced to do or omit to do any act” in violation of their official duties. Notably, FEPA uses the same broad definition of “foreign official” as the FCPA, which would tend to facilitate parallel prosecutions of alleged bribe payers and bribe recipients. However, the placement of this prohibition under the auspices of the domestic federal bribery statute rather than the FCPA would subject the definition of “official act” to the limitations recognized by the Supreme Court’s 2016 McDonnell decision discussed above.
  • Countering Russian and Other Overseas Kleptocracy (H.R. 3843): On July 18, 2019, Representatives Bill Keating (D-Mass.) and Brian Fitzpatrick (R-Pa.) introduced the Countering Russian and Other Overseas Kleptocracy (“CROOK”) Act. Among other things, the bill would establish an “Anti-Corruption Action Fund,” seeded with 5% of all civil and criminal fines and penalties collected pursuant to FCPA enforcement actions. The Fund would be used to sponsor anti-corruption initiatives around the world, thus creating a mechanism for the proceeds of foreign corrupt payments to be used to fight the root causes of corruption abroad. The CROOK Act has been referred to the House Committees on Foreign Affairs and Financial Services, but no subsequent actions have been taken on the bill. Although its prospects for passage are uncertain, it reflects bipartisan consensus that U.S. involvement in countries where corruption is endemic is important to fight corruption around the world.

2019 YEAR-END KLEPTOCRACY FORFEITURE ACTIONS

There was continued activity in the Kleptocracy Asset Recovery Initiative spearheaded by DOJ’s Money Laundering and Asset Recovery Section (“MLARS”) Unit, which uses civil forfeiture actions to freeze, recover, and, in some cases, repatriate the proceeds of foreign corruption. On February 26, 2019, DOJ announced the repatriation of $6 million to the Kyrgyz Republic. The repatriation arose from funds stolen by Kurmanbek Bakiyev and his son, Maxim Bakiyev, whose regime was overthrown in 2010. The funds were identified in the insider trading prosecution of Eugene Gourevitch, a former business partner of Maxim Bakiyev. Following Gourevitch’s conviction, the Kyrgyz Republic filed a Petition for Remission with MLARS, which was granted in October 2018. On October 7, 2019, DOJ filed a complaint in federal court seeking to recover nearly $640,000 from a U.S. bank account controlled by former Peruvian President Alejandro Celestino Toledo Manrique. The complaint alleges that Toledo earned the money by selling a property in Maryland, which he purchased using the proceeds of bribes from Brazilian construction company Odebrecht during Toledo’s presidency. Toledo, who denies the allegations, currently is fighting extradition from the United States to face criminal charges in his native Peru. Finally, as noted above, we have been covering the 1MDB corruption case since it was first announced as a civil forfeiture proceeding in July 2016 as covered in our 2016 Year-End FCPA Update. This case came to a successful resolution for MLARS in 2019, as on October 30, they announced a settlement by which DOJ will recover more than $700 million in assets acquired by Jho Low and his family using funds allegedly misappropriated from 1MDB. With this settlement, the United States has recovered or assisted in the recovery of more than $1 billion in assets associated with 1MDB—the largest recovery to date under the Kleptocracy Asset Recovery Initiative and DOJ’s largest ever civil forfeiture.

2019 YEAR-END PRIVATE CIVIL LITIGATION SECTION

As we have been reporting for years, although the FCPA does not provide for a private right of action, private civil litigants employ various causes of action in connection with losses allegedly associated with FCPA-related conduct, often through shareholder litigation.  A selection of matters with developments in 2019 follows.

Shareholder Lawsuits

  • Cemex S.A.B. de C.V.: On July 12, 2019, the Honorable Valerie E. Caproni of the U.S. District for the Southern District of New York dismissed a shareholder class action against Mexican building materials company and U.S. issuer Cemex, as well as several individual officers, alleging that Cemex concealed a bribery scheme and made misleading statements and omissions by not disclosing the extent of the corruption at its Colombian branch. The lawsuit was filed in 2018 following a series of disclosures that an internal probe revealed payments of approximately $20 million to a Colombian company in return for land, mining rights, and tax benefits for a new cement plant, and that the SEC and DOJ were investigating. Judge Caproni found that most of the alleged false or misleading statements or omissions were not actionable and that plaintiffs had failed to adequately plead scienter, but gave plaintiffs leave to amend. A second amended complaint has been filed and motion to dismiss briefing is final, pending a second decision by the Court.
  • Cobalt International Energy Inc.: On February 13, 2019, the Honorable Nancy F. Atlas of the U.S. District Court for the Southern District of Texas approved a combined $173.8 million settlement in a consolidated class action against Cobalt stemming from alleged bribery in Angola.  Judge Atlas also approved an award of $43.45 million in fees for plaintiffs’ attorneys.  As we reported in our 2016 Mid-Year FCPA Update, the suit was filed in November 2014 by a class of investors claiming to have lost money because Cobalt “misrepresented, and failed to disclose, the corrupted nature of its business in Angola and the true value of the Company’s Angolan oil wells.” The litigation has continued over the last five years, with the SEC and DOJ declining to charge Cobalt during that time.  The company and executives named in the suit did not admit wrongdoing in resolving the suit.
  • General Cable: On April 30, 2019, the Honorable William O. Bertelsman of the U.S. District Court for the Eastern District of Kentucky granted another motion to dismiss in General Cable’s favor.  In our 2018 Year-End FCPA Update, we covered Judge Bertelsman’s July 2018 dismissal of a putative class action alleging that General Cable had inflated its stock value by failing to disclose that employees of its foreign subsidiaries had violated the FCPA.  In the Court’s most recent dismissal, which also concerned a putative class action related to General Cable’s 2016 settlement of FCPA charges, the Court concluded that one category of statements that the plaintiff identified in its suit was not materially false or misleading, and that the plaintiff failed to establish that General Cable was required to disclose a second category of information. The Court also concluded the plaintiff did not adequately plead scienter relating to the company’s knowledge of the effectiveness of its internal controls.
  • Mobile TeleSystems: Within days of the March 2019 FCPA resolution with DOJ and the SEC, investors in the Russian telecommunications company and U.S. issuer filed a putative class action suit relating to the alleged failure to disclose the Uzbek bribery scheme and the likelihood of resulting fines in its public filings. Plaintiffs thereafter amended the complaint to add claims that MTS’s failure to cooperate with DOJ and the SEC cost the company as much as $350 million in lost cooperation credit that could have reduced penalties in the FCPA resolution. Specifically, the investors pointed to DOJ’s statements in the deferred prosecution agreement that MTS “significantly delayed production of certain relevant materials,” “refused to support interviews with current employees during certain periods of the investigation,” and failed to “appropriately remediate” as considerations in determining a higher penalty.
  • OSI Systems: On May 7, 2019, the Honorable Virginia A. Phillips of the U.S. District Court for the Central District of California dismissed a putative class action alleging that OSI misled investors by concealing the dealings of its Albanian subsidiary as reported in an admitted short sellers’ report claiming that the company bribed someone by selling 49% of its subsidiary for under $5. Plaintiffs were given leave to amend, which they did in July 2019. As of the date of this publication, the motion is fully briefed and pending decision.

Civil Fraud / RICO Actions

  • Harvest Natural Resources, Inc.: As reported in our 2018 Mid-Year FCPA Update, in February 2018, the now-defunct Houston energy company filed suit in the U.S. District Court for the Southern District of Texas alleging RICO and antitrust violations against various individuals and entities affiliated with the Venezuelan government and PDVSA. The complaint alleged that because Harvest refused to pay $40 million in bribes to Venezuelan officials, approval for the sale of its Venezuelan assets was wrongfully withheld. As a result, Harvest had to sell the assets to different buyers at a $470 million loss, which led to the company’s dissolution. On October 29, 2018, Harvest voluntarily dismissed the case as to all defendants except Rafael Darío Ramírez Carreño, Venezuela’s former Minister of Energy and ex-President of PDVSA. After Ramirez initially failed to respond, Chief Judge Lee H. Rosenthal granted Harvest’s motion for a default judgment, which on February 13, 2019 was trebled to $1.4 billion. Ramirez has now filed a motion to set aside the default judgment and dismiss the suit, briefing for which remains ongoing.

Employee Defamation Actions

  • Zimmer Biomet Holdings: On October 8, 2019, the U.S. Court of Appeals for the Seventh Circuit affirmed a ruling by the U.S. District Court for the Northern District of Indiana granting Biomet’s motion for summary judgment in the defamation lawsuit initiated by Alejandro Yeatts, a former employee of the company’s Argentinian subsidiary. As reported in our 2017 Mid-Year FCPA Update, Yeatts filed a complaint in 2016 alleging that the company defamed him by improperly including him on a “Restricted Parties List” of persons with whom the company could not conduct business. The District Court held in April 2017 that the statement that Yeatts posed a “compliance risk” was an opinion that could not be proved false and therefore was not defamatory. The Seventh Circuit agreed. In the District Court opinion, Magistrate Judge Michael G. Gotsch, Sr. had further held that the statement was protected by a qualified privilege covering good-faith statements made according to a legal, moral, or social duty to those with a corresponding duty and by the qualified privilege of public interest, which covers the reporting of criminal activity to law enforcement. Because it found that the statements were not defamatory, the Seventh Circuit did not address the application of these privileges.

2019 YEAR-END INTERNATIONAL ANTI-CORRUPTION DEVELOPMENTS

Multilateral Development Bank Sanctions Follow FCPA Resolutions

DOJ and SEC FCPA investigations frequently take years to resolve, but occasionally even that is not the final chapter in enforcement. There are sometimes “tagalong” actions by other enforcers, lagging months or even years behind an FCPA enforcement event. Examples from 2019, involving the World Bank, the African Development Bank, and the Inter-American Development Bank, highlight this phenomenon. On January 29, 2019, the World Bank announced a three-year debarment of Odebrecht S.A.’s Brazilian construction and engineering subsidiary, Construtora Norberto Odebrecht S.A. According to the World Bank, Construtora Norberto Odebrecht engaged in fraudulent and collusive practices—terms of art in the World Bank context—in connection with a Bank-financed project designed to improve water quality and flood control in Colombia. The alleged fraudulent practice involved failing to disclose fees paid to agents that helped obtain confidential information during the tender prequalification and bidding processes, while the alleged collusive practice involved attempts “to improperly influence the tendering package.” As covered in our 2016 Year-End FCPA Update, in December 2016 Odebrecht and its petrochemical subsidiary reached a multi-billion resolution with authorities in Brazil, Switzerland, and the United States. Odebrecht’s 2016 FCPA plea agreement included apparently unrelated allegations of misconduct in Colombia, as well as a now-standard provision requiring the company to cooperate fully with investigations conducted by multilateral development banks (“MDBs”) such as the World Bank. In a likely nod to this provision, the World Bank credited the contribution of “[d]isclosures from prior settlements” in its investigation, which reportedly involved review of more than 1 million documents in five languages, interviews of more than 75 witnesses, and eight forensic audits—a scale commensurate with major investigations conducted by sovereign authorities. Odebrecht filed for bankruptcy protection in Brazil in June 2019. The MDBs routinely enforce each other’s debarments pursuant to a cross-debarment agreement. In fiscal year 2019, the World Bank recognized 33 cross-debarments from other MDBs, and imposed several debarments eligible for recognition by other MDBs. On September 22, 2019 the Inter-American Development Bank went further when it announced a six-year debarment of Construtora Norberto Odebrecht and multiple subsidiaries, and a 10-year conditional debarment on Odebrecht Engenharia e Construção S.A. and multiple subsidiaries. Like the World Bank resolution, the conduct addressed by the Inter-American Development Bank appears to be unrelated to that discussed in the 2016 FCPA plea agreement. In another MDB debarment following an FCPA enforcement action, on March 22, 2019, the African Development Bank announced a resolution relating to alleged misconduct involving three legacy Alstom companies. As covered in our 2014 Year-End FCPA Update, in December 2014 DOJ announced criminal plea agreements with Alstom and certain subsidiaries. In the instant matter, the Bank alleged that in connection with two Egyptian power projects in 2006 and 2011, the Alstom companies paid or offered nearly €3 million to local agents at least partly to garner support from public officials. The Bank debarred two of the companies for 76 months (which can be reduced to 48 months) and the third for one year. In its press release, the African Development Bank prominently credited GE Power, which acquired the Alstom companies after the alleged misconduct occurred, for its “substantial cooperation with the investigation of the legacy cases as well as the high quality of the company’s comprehensive compliance programme.” Although MDB enforcement unquestionably overlaps with FCPA enforcement, we remind our readers that a variety of conduct can give rise to a MDB violation, that there is a relaxed burden for proving a violation at these institutions, and that significant consequences can result from their sanctions. We direct interested readers to refer to our separate article, “Sanctionable Practices at the World Bank: Interpretation and Enforcement.”

Europe

United Kingdom

SFO Publishes Guidance for Corporate Cooperation On August 6, 2019, the UK Serious Fraud Office (“SFO”) published “Corporate Co-operation Guidance.” Although the primary audience for this five-page internal policy is SFO prosecutors and investigators, its guidance for assessing whether a company has adequately cooperated is valuable for companies and practitioners to understand what the SFO will take into account in deciding whether to offer a deferred prosecution agreement. For an in-depth analysis of the guidance, please see our separate Client Alert, “The UK Serious Fraud Office’s latest guidance on corporate co-operation – Great expectations fulfilled or left asking for more?Güralp Systems DPA and Former Executives Acquitted On December 20, 2019, the SFO announced the resolution of several cases relating to its long-running investigation of seismic measurement device manufacturer Güralp Systems Ltd. The company entered into a deferred prosecution agreement on charges of conspiracy to make corrupt payments and failure to prevent bribery arising from the payment of just over $1 million between 2002 and 2015 to Dr. Heon-Cheol Chi of the Korea Institute of Geoscience and Mineral Resources in exchange for, among other things, recommending Güralp Systems’s products to end users and setting equipment specifications to favor the company. To resolve the charges, Güralp Systems agreed to disgorge £2,069,861 in illicit profits and report to the SFO on the status of its compliance program over the five-year period of the deferred prosecution agreement. In approving the resolution, SFO Director Lisa K. Osofsky commended the company’s voluntary disclosure to both the SFO and DOJ. As discussed above and in prior updates, Dr. Chi was successfully prosecuted by DOJ on money laundering charges following Güralp Systems’s disclosure. The SFO’s cases against former Güralp Systems executives were not as successful. Company founder Dr. Cansun Güralp, former Finance Director Andrew Bell, and former Head of Sales Natalie Pearce were all acquitted of corruption charges at trial.

Sarclad DPA and Former Executives Acquitted

In a turn of events not unlike the immediately preceding case, on July 16, 2019, the SFO announced a corporate deferred prosecution agreement with Sarclad Ltd., coincident with the acquittal of three former company executives. The corporate agreement was reached on July 6, 2016, but the identity of the company was quarantined pending investigation of potential individual defendants. We previously reported the resolution as the “XYZ Ltd.” deferred prosecution agreement, analyzed at length in our 2016 Year-End FCPA Update. The SFO alleged that the steel company engaged in corruption between 2004 and 2012—straddling passage of the Bribery Act 2010—through third-party agents in China, India, and Korea. Pursuant to the three-year deferred prosecution agreement, which has now expired, Sarclad disgorged £6,201,085 in illicit gains, paid a £352,000 fine, and reported to the SFO annually. The individual defendants, former Managing Director Michael Sorby, former Sales Manager Adrian Leek, and former Project Manager David Justice, were all acquitted.

Alstom Investigation Concludes with Tunisia Sentencing

On November 25, 2019, Alstom Network UK Ltd. was sentenced to pay £16.4 million for its April 2018 conviction on conspiracy to corrupt in relation to bribes allegedly paid to win a Tunisian tram and infrastructure contract as reported in our 2018 Year-End FCPA Update. According to the SFO, this sentencing brings to an end a 10-year investigation involving cooperation with more than 30 countries and resulting in five convictions.

Unaoil Defendants

On July 19, 2019, the SFO announced the guilty plea of Basil al Jarah, the Iraqi partner of Monaco-based Unaoil. As reported in our 2018 Mid-Year FCPA Update, the SFO announced charges against al Jarah in May 2018 for conspiracy to pay alleged bribes to secure a $733 million contract to build two oil pipelines and oil handling facilities in Iraq. More than a year later, al Jarah pleaded guilty to conspiracy to pay bribes in violation of the Criminal Law Act 1977 and Prevention of Corruption Act 1906. Three other individuals who have been charged by the SFO, Ziad Akle, Paul Bond, and Stephen Whiteley, are scheduled to go to trial in London in January 2020.

Additional Defendants Sentenced in North Sea Oil Exploration Bribery Scheme

On January 11, 2019, three additional former FH Bertling Limited employees and one former ConocoPhillips employee received suspended sentences in connection with the alleged corrupt scheme to obtain inflated freight forwarding contracts for a North Sea oil exploration project covered in our 2017 Mid-Year FCPA Update. Newly sentenced were Colin Bagwell (nine months, £5,000 fine); Giuseppe Morreale (15 months, £20,000 fine); Stephen Emler (12 months, £15,000 fine); and Christopher Lane (six months, 28-day curfew order). Emler and Morreale also received concurrent 18- and 24-month prison terms relating to conduct in Angola, and on June 3, 2019, the SFO fined FH Bertling £850,000 for allegedly making $350,000 of bribe payments to an employee of Angola’s state-owned oil company, Sonangol, to secure $20 million worth of shipping contracts.

Former Petrofac Executive Pleads Guilty

On February 6, 2019, David Lufkin, the former Global Head of Sales for Petrofac International Limited, pleaded guilty at Westminster Magistrates’ Court to 11 counts of bribery in violation of the UK Bribery Act. The charges to which he pleaded relate to alleged corrupt payments to win more than $4.2 billion of contracts in Iraq and Saudi Arabia. Lufkin has not yet been sentenced. Look for much more on UK white collar developments in our forthcoming 2019 Year-End United Kingdom White Collar Crime Update, to be released on January 22, 2020.

France

On the enforcement front, in December 2018, French prosecutors indicted Tsunekazu Takeda, president of Japan’s Olympic Committee, on corruption charges stemming from the bidding process that resulted in Tokyo being awarded the 2020 Summer Olympics. French authorities contend that Tokyo’s bidding committee paid more than $2 million to African Olympic Committee officials in exchange for their votes. In March 2019, Takeda, who denies the allegations, stepped down from his position and resigned from his position at the International Olympic Committee. Takeda has admitted that he approved payments of $2.1 million to a Singaporean consultant before the 2013 vote selecting Japan as the host of the 2020 Games. Also in March 2019, French prosecutors indicted Yousel Al-Obaidly, CEO of media group beIN, on corruption charges relating to the bidding process for the 2017 and 2019 track and field world championships in London and Qatar. Al-Obaidly, who sits on the board of the French soccer club Paris Saint-Germain, has denied wrongdoing. In July 2019, the French Anti-Corruption Agency’s (“AFA”) Sanctions Committee (which we discuss in our separate Client Alert, “New French Anti-Corruption Regime Alert”) rendered its first decision, dismissing claims against French electrical distribution company Sonepar related to allegations that the company had not satisfied five of the compliance obligations imposed by Article 17 of Sapin II. The Committee considered that Sonepar took steps following the AFA’s inspection to address the alleged breaches. As a result, it is possible for a company that has not implemented the measures imposed by Sapin II at the time of the AFA’s inspection to remediate the potential deficiencies before being judged by the Sanctions Committee. On the policy front, on June 27, 2019, the French Parquet National Financier and Anti-Corruption Agency issued an 18-page guidance document discussing factors involved in reaching a CJIP. The guidance sets out several factors that weigh in favor of a CJIP, including implementation of a corporate compliance program, remedial measures, and cooperation. So too, according to the guidance, does a thorough internal company investigation accompanied by a disclosure of the results. With the increase in recent years in coordinated, multi-jurisdictional anti-corruption investigations and enforcement efforts, this new guidance embracing the results of internal investigations may be a step toward reducing the disparate effects of how internal investigations potentially are treated by different enforcers around the world.

Germany

As reported in our 2018 Year-End German Law Update, the German government is working on a corporate criminal liability and internal investigations bill that could significantly change the practice of German criminal law. Unlike in the United States and many other countries, German criminal law does not currently provide for corporate criminal liability. Corporations can only be fined under the law for administrative offenses. In August 2019, the German Federal Ministry of Justice and Consumer Protection circulated a draft Corporate Sanctions Act, which, if enacted, would introduce a hybrid system. The main changes would include eliminating prosecutorial discretion in corporate matters, expanding the framework for punishing corporations, and formally incentivizing compliance measures and internal investigations. The main proposed changes to German Law that would be implemented with the Corporate Sanctions Act include:
  • mandatory prosecution of corporate misconduct (which currently exists only for individuals), with an obligation to justify non-prosecution, and also extending to criminal offenses committed abroad by companies domiciled in Germany;
  • an increase in potential maximum fines from €10 million to 10% of the annual—worldwide and group-wide—turnover, if the group has an average annual turnover of more than €100 million, in addition to disgorgement;
  • the introduction of two new corporate sanctions—a type of deferred prosecution agreement with the possibility to impose certain conditions (such as a monitorship), and a “corporate death penalty,” namely, the liquidation of the company; and
  • incentives to reward effective compliance programs and incentivize internal investigations and voluntary disclosures, including up to a 50% fine reduction.
It is doubtful whether the current government coalition will continue to view this legislation as a priority, and it therefore remains to be seen what will be passed into law and when.

Greece

In July 2019, a Greek court sentenced three former Johnson & Johnson executives, all British nationals, to seven years in prison following their convictions on fraud and money laundering charges related to allegations of improper payments to Greek healthcare professionals between 2000 and 2006—allegations that featured in the company’s 2011 FCPA resolution (covered in our 2011 Mid-Year FCPA Update). The three individuals reportedly plan to appeal.

Russia

In October 2019, the Russian Ministry of Labor issued new anti-corruption guidelines. These new guidelines extend and supplement, rather than preempt, the Ministry’s guidelines issued in 2013. The Ministry recommended that private and public organizations develop a system of incentives and sanctions, and implement anti-corruption policies in employment contracts. Additionally, the Ministry placed particular attention on the use of an algorithm for assessing corruption risks. The algorithm factors in a company’s risk profile to determine policies and standards that an organization needs to put in place. The Ministry also clarified that if an organization fails to comply with the new guidelines, authorities will issue an order to comply. Failure to satisfy such an order will result in an administrative fine of up to 100,000 RUB (~ $1,562). In addition, entities convicted of administrative corruption offenses under Article 19.28 of the Code of Administrative Offenses—Unlawful Payments Made on Behalf of Legal Entities—are added to the public register of corporate corruption offenders, which bars them from participating in federal and municipal procurement tenders for two years from the date of conviction. 240 entities were added to the register in 2019. Beginning January 1, 2020, information about administrative anti-corruption convictions of entities will be entered into their registration profiles in the uniform register of suppliers participating in public procurement, thus making purchasers aware of the potential vendors’ past anti-corruption violations.

Spain

In October 2019, Spain’s High Court approved corruption and money laundering charges against Spanish construction company FCC in connection with payments allegedly made to Panamanian officials between 2010 and 2014. Prosecutors allege that FCC, which was part of a consortium headed by Odebrecht that won the rights to construct two metro lines in Panama, overcharged for steel and then laundered those funds through shell companies and used them to pay bribes. FCC is currently deciding whether to appeal the charges.

Sweden

In our 2017 Year-End FCPA Update, we reported that three former Telia executives—former CEO Lars Nyberg, former deputy CEO and head of Telia’s Eurasia unit Tero Kivisaari, and former general counsel for the Eurasia unit Olli Tuohimaa—had been charged with bribery in Sweden in connection with an investigation into the alleged payment of hundreds of millions of dollars to the daughter of the then-president of Uzbekistan, Gulnara Karimova. Prosecutors assert that they engineered payments of more than $300 million to Karimova between 2007 and 2010 to facilitate Telia’s entry into the Uzbek telecommunications market. This is part of the same course of conduct for which Karimova herself has been indicted on U.S. money laundering charges, as described above. The three former Telia executives proceeded to trial in September 2018 and, on February 15, 2019, all three were acquitted by the Stockholm District Court. The court held that the prosecution failed to prove that Karimova was a foreign government official as that term is defined under Swedish law. The court rejected the prosecution’s argument that she effectively headed the telecom sector because, the court found, she held no official position in government. The court further declined to give weight to the fact that the company, Telia, admitted in U.S. court proceedings that Karimova was a foreign official. Although prosecutors have appealed the district court’s decision, their inability to secure a conviction led Sweden to drop its claim to a $208.5 million share of the $965 million coordinated resolution that Telia reached in 2017 with authorities in the United States, the Netherlands, and Sweden. As noted in our 2017 Year-End FCPA Update, $208.5 million was designated for either the Dutch Public Prosecution Service or Swedish Prosecution Service, depending on whether Swedish prosecutors could establish corruption beyond a reasonable doubt through the individual cases. On March 19, 2019, Telia announced that it had paid that portion of the settlement to the Dutch Public Prosecution Service.

Switzerland

In another Karimova-related proceeding, on June 24, 2019, a court in Switzerland convicted a person identified only as a relative of Karimova (Swiss press articles suggest it is her ex-husband) for money laundering in connection with a scheme to hide and obscure money transfers to Karimova. The Swiss Attorney General’s office also announced the return of approximately 130 million Swiss francs (~ $133 million) that had been frozen as part of the investigation involving Karimova to the Government of Uzbekistan. According to reports, authorities are continuing a related criminal investigation into five other unnamed individuals. In other developments, on August 12, 2019, the Geneva public prosecutor announced that it filed charges against Israeli billionaire Beny Steinmetz and two other individuals for bribery and forgery in connection with payments to Guinean officials related to a mining concession. As noted in our 2017 Year-End FCPA Update, Steinmetz reportedly is under investigation in several countries, including Israel and the United States. On October 17, 2019, the Swiss Attorney General’s Office announced that Geneva commodities trader Gunvor was ordered to pay nearly 94 million Swiss francs (~ $94.8 million) for failing to prevent employees and agents from bribing officials to secure oil supplies in the Republic of Congo and the Ivory Coast between 2008 and 2011. Investigations into individuals reportedly are ongoing.

Ukraine

Anti-corruption developments in Ukraine have straddled the country’s recent change in administrations. In April 2019, the prior president announced the establishment of the High Anti-Corruption Court, a specialized tribunal to adjudicate corruption cases. The court began work in September 2019, handing down its first sentence in October 2019, which convicted an appellate court judge of providing false information in a state declaration on assets and income. In September 2019, the new president signed into law a constitutional amendment abolishing general immunity against prosecution for parliament members and limiting their immunity to voting and statements made during parliamentary sessions. The new president also signed into law measures governing the legal status of anti-corruption whistleblowers, providing legal protection for whistleblowers and a reward system under which whistleblowers may receive a reward of 10% of the bribe or harm caused to the state, up to 12.5 million Ukrainian hryvnias (~ $532,000), for successful corruption or corruption-related convictions involving bribes or harm caused to the state exceeding 9.6 million Ukrainian hryvnias (~ $409,000).

The Americas

Argentina

As reported in our prior updates, former President Cristina Fernández de Kirchner faces numerous corruption and money laundering investigations. Fernández’s Vialidad (“highway administration”) influence-peddling trial began in 2019 amid strong political tension and public protest. The prosecution alleges that Fernández illicitly assigned a public contract to a friend’s business. Fernández, who enjoyed limited immunity as a senator, enjoys an even higher level of immunity following the October 2019 presidential elections; despite multiple corruption probes, Argentine citizens voted to return the Peronist Party to power, electing Fernández to serve as vice president. Shortly after her election victory, in December 2019, Fernández testified at her trial, adamantly denying all allegations of wrongdoing and pointing instead to political persecution.

Brazil

The drive against corruption remains prominent in Brazil. The long-running “Operation Car Wash” investigation persists, and prosecutors continue to accumulate convictions. To date, the government has obtained more than 200 convictions, recovered $1.2 billion (R$5.05 billion), and launched 70 investigative phases. Although Operation Car Wash continued in force this past year, with the arrest of former president Michel Temer in March and the signing of a nearly $100 million dollar (R$410 million) leniency agreement with Braskem SA in May, the probe also faced renewed allegations of bias and several unfavorable court decisions. Earlier this year, a Brazilian media outlet published texts, emails, and video and audio recordings that allegedly evidence ethical breaches and improper coordination between federal prosecutors and former judge and current Justice Minister Sérgio Moro, during the prosecution of former president Luiz Inácio Lula da Silva (“Lula”). Brazil’s Supreme Court also delivered several decisions in 2019 that prosecutors say will threaten Operation Car Wash and other anti-corruption efforts. Following a March 2019 Supreme Court decision that corruption cases involving illegal campaign contributions should be heard by electoral courts, prosecutors expressed concerns about the electoral courts’ ability to handle complex corruption cases and warned that individuals already convicted of campaign contribution-related crimes may ask the Court to annul their sentences and send their cases to electoral courts. In August, the Court overturned an Operation Car Wash conviction for the first time, ruling that former Petrobras president Aldemir Bendine, whose case was overseen by Moro, should have been permitted to make a closing argument to respond to accusations. Finally, in November 2019, former President Lula was released from prison following a decision by the Supreme Court that defendants may remain free while their appeals are pending.

Canada

As reported in our 2018 Mid-Year FCPA Update, in 2018 Canada introduced legislation allowing deferred prosecution agreements for corporate offenders. The law came into effect on September 19, 2018, and engineering and construction giant SNC-Lavalin became one of the first major companies to seek such an agreement in connection with a long-running investigation of alleged bribery of Libyan officials. The prosecution reportedly was unwilling to negotiate with the company; after Prime Minister Justin Trudeau allegedly exerted pressure on Attorney General MP Jody Wilson-Raybould to return to the bargaining table with the company, Wilson-Raybould and another cabinet member resigned. In December 2019 subsidiary SNC-Lavalin Construction Inc. pleaded guilty to one count of fraud and agreed to pay a C$280 million (~ $213.5 million) fine and also will be subject to a three-year probation order. In connection with the resolution, SNC-Lavalin agreed to engage a monitor to assess its ethics and compliance program. Former SNC-Lavalin executive Sami Bebawi also was charged for his role in the alleged scheme. Following a six-week trial, Bebawi was convicted in December 2019 on all five charges he faced, including fraud, corruption of foreign officials, and laundering proceeds of crime. In a related development, former CEO Pierre Duhaime pleaded guilty in February 2019, on the eve of his own trial, to a single breach-of-trust count related to alleged bribery to build a hospital in Montreal. In January 2019, U.S. citizen Robert Barra and UK national Shailesh Govindia were convicted under the Corruption of Foreign Public Officials Act (“CFPOA”) in connection with the Cryptometrics matter discussed in our 2017 Year-End FCPA Update. They were charged with allegedly agreeing to bribe Indian officials, including employees of Air India. Notably, the judge explained that the CFPOA is a specific intent offense requiring evidence that the defendants knew that the bribe recipients were “foreign officials.” With respect to Barra, the judge found that the prosecution failed to prove beyond a reasonable doubt that he knew that employees of Air India—a government-owned enterprise—qualified as foreign public officials, but had no issue concluding that he understood the Indian Minister of Civil Aviation, another bribe-payment target, was a foreign public official under the CFPOA.

Chile

Chilean authorities pushed ahead with several prominent public corruption investigations in 2019. The Public Prosecutor’s Office recently pressed charges against 33 individuals accused of participating in a corruption ring within the national police force (the Carabiniers of Chile). The 3,000-page charging document accuses both civilians and former high-level officials, many of whom have been in preventive detention since 2017, of money laundering, illicit association, and misappropriation of approximately tens of millions of dollars of public funds over a decade. Meanwhile, the Chilean Supreme Court suspended three appellate judges from the Court of Appeals of Rancagua following a series of bribery accusations. Chilean authorities also are investigating another 19 officials, including judges and lawyers.

Colombia

Colombia continues to deal with follow-on investigations related to Brazilian construction company Odebrecht S.A. In December 2018, a Colombian court fined Odebrecht $250 million and banned the company from government contracts for 10 years. In April 2019, a Colombian judge ordered an investigation into the president of Colombia’s largest finance company, Grupo Aval, which also faces investigation by U.S. authorities; other Grupo Aval executives previously have been implicated in wrongdoing related to Odebrecht. And in May 2019, Colombia’s Attorney General and former Grupo Aval attorney, Néstor Humberto Martínez, resigned amid questions about his ties to Odebrecht and possible involvement in the company’s misconduct. In August 2019, former Supreme Court president Francisco Ricaurte and the former director of Colombian healthcare services company Saludcoop, Carlos Palacino—prime suspects in two of Colombia’s top corruption scandals—were released after the prosecution failed to timely bring charges against them. Following the release, the Superior Justice Council ordered an investigation of prosecutors, attorneys, and judges to assess the role they played in the expiration of the criminal charges against Ricaurte and Palacino.

Ecuador

For years, former President Rafael Correa and his allies have faced corruption allegations, including investigations related to Odebrecht’s dealings in Ecuador. In August 2019, Ecuador’s Attorney General sought the preventative arrest and detention of Correa and other former officials implicated in the campaign finance investigation dubbed the Arroz Verde (“Green Rice”) scandal. In November 2019, the National Court of Justice of Ecuador approved and ratified an order of preventative detention against Correa and the other subjects of investigation. Correa, who is currently residing in Belgium, has denied wrongdoing.

Guatemala

As detailed in our 2018 Year-End FCPA Update, former Guatemalan President Jimmy Morales announced the termination of the mandate of the UN-backed International Commission Against Impunity (known by its Spanish acronym “CICIG”) in January 2019. Following the announcement, the Guatemalan government reportedly obstructed corruption investigations and threatened judicial independence, and members of the legislature have introduced measures that would grant amnesty to corrupt officials and release officials previously convicted of corruption. The CICIG closed on September 3, 2019, after Alejandro Giammattei—an ally of former President Morales—won the Guatemalan presidency in an August 2019 runoff election. It remains to be seen whether the current administration and legislature will champion anti-corruption efforts, but in September 2019, the Guatemalan legislature created a special committee to review and potentially reverse work done by the CICIG. In October 2019, however, Guatemala’s constitutional court issued an injunction to halt the commission’s activities.

Honduras

In late May 2019, the Fiscal Unit Against Impunity and Corruption (“UFECIC”) and Mission to Support the Fight against Corruption and Impunity in Honduras (“MACCIH”) jointly announced an investigation, called “Narco-politics,” into former Honduran President Porfirio Lobo as part of a larger inquiry into his administration. Pursuant to this investigation, UFECIC and MACCIH filed injunctions against 12 individuals, including Lobo, alleged to have been part of a money laundering scheme during Lobo’s administration. In September 2019, Lobo’s wife and former first lady Rosa Elena Bonilla de Lobo was sentenced to 58 years in prison for misusing approximately $779,000 in international donations and public funds during her husband’s presidency (2010-14). Her associate, Saul Escobar, also was sentenced to a 48-year prison term for embezzling public funds and fraud. Bonilla and Escobar have appealed their sentences to the Honduran Supreme Court.

Mexico

Since taking office in December 2018, President Andres Manuel López Obrador has affirmed his commitment to fighting corruption. Mexico has continued to move forward with its National Anti-corruption System (“NAS”), which still has not been fully implemented despite having entered into force in July 2017. NAS includes the General Administrative Liabilities Act, which places restrictions on gifts and other compensation to public officials with no de minimis exception, an issue discussed extensively in López Obrador’s inaugural speech. An investigation into Emilio Lozoya Austin, the former CEO of state-run oil company Petróleos Mexicanos (“PEMEX”), concluded with arrest warrants and charges of corruption, bribery, and tax fraud. The government also froze Lozoya’s bank accounts and barred him from holding public office for 10 years. Eduardo León Trauwitz, the company’s former director of security, also was indicted but has not appeared at court hearings. Alonso Ancira, the chair of AHMSA, the largest integrated steel plant in Mexico, was arrested in May on money laundering and bribery-related charges in connection with PEMEX’s $475 million purchase of an AHMSA fertilizer plant in 2013. In October 2019, former head of PEMEX Fertilizers Edgar Torres was fined $165 million in connection with the matter.

Peru

Peru—second perhaps only to Brazil—has acted decisively in reaction to the Odebrecht scandal. In February 2019, Peruvian prosecutors settled with Odebrecht, allowing the company to remain in the country in exchange for agreeing to pay a fine and share information with prosecutors. In March 2019, a similar agreement was reached with Brazilian construction firm OAS. Peru’s Odebrecht corruption probe has implicated nearly every former living president of the country, with all but one detained or under investigation in relation to the scandal. Former president Alan García reportedly committed suicide in April 2019 before he could be arrested in connection with the investigation. President Martín Vizcarra also is attempting to pass anti-corruption legislation through negotiations with the legislature, which is controlled by opposition parties. The proposed reforms would include giving the judiciary greater authority to curtail immunities for politicians suspected of corruption.

Asia

China

The Chinese central government is sending a clear message concerning corruption in the financial sector. During the Third Plenary Session of the 19th Central Commission for Discipline Inspection (“CCDI”) in early January 2019, and a meeting of the Central Politburo of the Communist Party of China in February 2019, President Xi Jinping underscored the need to step up the anti-corruption crackdown in the financial sector. Following Xi’s speech, 2019 saw investigations into and disciplinary actions against individuals at all levels of financial institutions and regulators for corruption offenses. In May 2019, the National Supervisory Commission announced that Liu Shiyu, former chief of the China Securities Regulatory Commission, had joined a growing list of senior officials who have surrendered to anti-corruption authorities since Xi launched his anti-corruption campaign in 2012. Liu was the highest ranking government official within the securities regulator and oversaw 711 initial public offerings in China during his three-year tenure. Liu was removed from his post in October following the probe and received a relatively light punishment of two years’ probation from the Communist Party. In June 2019, the National Supervisory Commission put Xu Tie, another high-ranking government official from the China Securities Regulatory Commission, under investigation for corruption. Xu, who had retired in 2013, previously served as the deputy director in the Commission and was responsible for reviewing and approving initial public offerings. Notable corruption-related actions against public officials outside of the financial sector include: Meng Hongwei, former Interpol President and Vice Minister of China’s Ministry of Public Security, who pleaded guilty in March to taking more than $2 million in bribes; Nur Bekri, the former head of China’s National Energy Administration and governor of Xinjiang province, who was sentenced to life imprisonment for bribery in December; Lu Wei, former head of internet censorship, who was jailed 14 years for bribery in March; and Wang Xiaoguang, former vice governor of Guizhou province, who was sentenced to 20 years in prison and fined a record $26 million in April after pleading guilty to bribery, embezzlement, and insider trading. As we reported in our 2018 Year-End FCPA Update, last year China enacted the International Criminal Judicial Assistance Law (“ICJA Law”), which serves as a blocking statute to prohibit entities and persons in China from providing evidence to foreign investigators without prior authorization from Chinese authorities. Uncertainty remains as to how Chinese authorities will implement the ICJA Law, including the imposition of penalties for violations. But some U.S. courts already have indicated that the law does not excuse companies from producing documents in U.S. proceedings. In August 2019, the U.S. Court of Appeals for the D.C. Circuit affirmed civil contempt orders against three China-headquartered banks that resisted the production of records in response to U.S. law enforcement subpoenas, in which the lower court recognized that production might violate the ICJA Law but found that severe sanctions by the Chinese government were unlikely.

Hong Kong

Hong Kong’s Independent Commission Against Corruption (“ICAC”) and Securities and Futures Commission have stepped up collaboration to combat financial crime in the semi-autonomous region. The two agencies entered into a memorandum of understanding in August 2019, formalizing cooperation efforts that will include case referrals, joint investigations, exchanging information, and mutual assistance in investigations. Previously, the agencies had cooperated on only two investigations. One such investigation led to the June arrest of a former senior executive at the Hong Kong Exchanges & Clearing Limited for suspected corruption in approving the listing applications of two companies. In May 2019, the ICAC charged former JPMorgan Managing Director Catherine Leung Kar-cheung with bribing the chair of a logistics company in 2010 by offering to employ the chair’s son in exchange for business. The allegations against Leung relate to the “Sons and Daughters” hiring program alleged in the bank’s 2016 FCPA resolution (covered in our 2016 Year-End FCPA Update). Leung pleaded not guilty, and trial is set to begin in February 2020. In September, Hong Kong formally withdrew a proposed extradition bill that would have permitted the transfer of individuals suspected of criminal activity, including bribery offenses, to mainland China for investigation and prosecution. The bill sparked months-long protests that continue to weigh on the semi-autonomous region.

India

In March 2019, former Supreme Court Justice Pinaki Chandra Ghose was appointed as the first Chairperson of India’s “Lokpal,” a federal-level anti-corruption watchdog. The Lokpal and Lokayutkas Act, 2013 (“Lokpal Act”) was the culmination of a long-drawn public campaign against corruption in India, anticipated to provide a boost to anti-corruption enforcement in the country. The Lokpal Act provides for the appointment of a Lokpal at the federal level and “Lokayuktas” at the provincial level. The Lokpal and Lokayuktas are bodies mandated to inquire into and prosecute corruption complaints against public servants. The Lokpal post remained vacant until March 2019. The Government of India had argued that it was unable to appoint the Lokpal because the Lokpal Act required that the leader of opposition be a part of the selection committee to consider and appoint the Lokpal. Because no single opposition party had managed to secure 10% of the seats in the Indian Parliament after the 2014 parliamentary elections, the Government of India claimed that no one could be appointed as the leader of opposition. Anti-corruption activists and lawyers challenged the Government of India’s inaction, and in 2017, the Supreme Court of India directed the Government of India to proceed with the appointment of the Lokpal despite the absence of the leader of opposition in the selection committee. Yet, the post remained vacant for more than a year. After another push by the Supreme Court of India in 2018, the Government of India finally began the process of appointing members to the Lokpal. The process ultimately led to the appointment of Justice Pinaki Chandra Ghose as the first Chairperson of the Lokpal, along with eight other members.

Indonesia

In September 2019, Indonesia’s House of Representatives passed a bill significantly weakening the powers of the country’s anti-corruption agency, the Corruption Eradication Commission (“KPK”). The law took effect on October 17, 2019, after 30 days of non-signature by Indonesia’s President. The amendments to the KPK Law place the formerly independent agency under the oversight of a Supervisory Board, whose members will be appointed by the President. The KPK will be required to obtain Supervisory Board approval for certain investigative activities. Critics of the amendments, which sparked nationwide protests, expressed concern that they will weaken the KPK’s ability to fight corruption in the country.

Japan

As reported in our 2018 Year-End FCPA Update, in July 2018 Japanese prosecutors indicted three executives of Yokohama-based power plant manufacturer Mitsubishi Hitachi Power Systems Inc. (“MHPS”)—Satoshi UchidaFuyuhiko Nishikida, and Yoshiki Tsuji—for allegedly bribing a Thai official in 2015. The scheme came to the attention of prosecutors after a self-report by MHPS, which became the first company to enter into a plea agreement in Japan for organized crime and bribery; in recognition of its cooperation, MHPS was not prosecuted. Nishikida and Tsuji, who admitted to the charges during their first hearing in December 2018, respectively received 18-month and 16-month prison terms, suspended for three years. Uchida, who denied the charges, was convicted and sentenced to 18 months imprisonment in September 2019.

Korea

In August 2019, the Supreme Court of Korea ordered retrials for former President Park Geun-hye, former Samsung Electronics Vice Chairman Lee Jae Yong, and Presidential confidante Choi Soon-sil on the grounds that the Seoul High Court had misunderstood the law on bribery in convicting the three of them in cases we reported most recently in our 2018 Year-End FCPA Update. The Supreme Court found that former President Park’s bribery charges should have been considered separately from her other charges, as required by the Public Official Election Act. The Supreme Court also overturned the High Court’s earlier finding that only the KRW 3.6 billion (~ $3 million) in equestrian training costs paid on behalf of Choi Soon-sil’s daughter were bribes. The Supreme Court additionally recognized KRW 1.6 billion (~ $1.3 million) in donations made to sports foundations organized by Choi Soon-sil and three horses worth KRW 3.4 billion (~ $2.8 million) purchased for Choi Soon-sil’s daughter. Lee Jae Yong’s retrial commenced in December 2019, with Lee’s counsel requesting high-profile witnesses to appear. As we also reported in our 2018 Year-End FCPA Update, in July 2018, former President Park was separately convicted of illegally diverting millions of dollars from the National Intelligence Service. On appeal, the Seoul High Court acquitted her of the charge of accepting bribes from the National Intelligence Service and applied a different charge of “loss of state funds” to reduce her sentence by one year. In November 2019, the Supreme Court overturned the Seoul High Court’s judgment, determining that former President Park should also be found guilty of accepting bribes. The High Court’s retrial is likely to lead to lengthier imprisonment for former President Park, who is already serving multiple jail terms consecutively. In April 2019, former President Park filed for a suspended sentence, citing poor health. The Seoul Prosecutors’ Office dismissed her petition.

Malaysia

As we reported in our 2018 Year-End FCPA Update, in 2018 Malaysia passed the Malaysian Anti-Corruption Commission (Amendment) Act 2018 (“MACC Act”), which created liability for commercial organizations if a person associated with the organization engages in corruption. The corporate liability provision in the MACC Act comes into force in June 2020. In July 2019, Securities Commission Malaysia announced that it would implement an action plan complementing the MACC Act to strengthen corporate governance, part of which will require listed companies to institute effective anti-corruption policies. In the meantime, Malaysian authorities continue to pursue enforcement actions and attempts to recover assets linked to the 1MDB scandal. Three trials commenced this year against Malaysia’s former Prime Minister, Najib Razak, who faces 42 charges of corruption, abuse of power, and money laundering in five criminal cases linked to the scandal. Lawyers for Najib, who has pleaded not guilty to all of the charges brought so far, have argued that Najib was a victim of the scheme. Malaysia intends to seek return of the assets recovered by U.S. authorities, and has filed criminal charges against Goldman Sachs seeking compensation for its role. In August 2019, Malaysia’s attorney general also filed criminal charges against 17 current and former executives at Goldman Sachs. The executives, who were charged under a section of the Malaysian Capital Markets and Services Act that holds senior executives responsible for offenses committed by the firm, face up to ten years’ imprisonment, in addition to monetary penalties, if convicted.

Middle East and Africa

Israel

In late February 2019, following the police recommendations covered in our 2018 Year-End FCPA Update, Attorney General Avichai Mandelblit announced that he intended to move forward with indicting Israeli Prime Minister Benjamin Netanyahu on bribery and breach of trust charges. In November, Attorney General Mandelblit issued a 63-page indictment covering charges stemming from three investigations. The first case deals with favors Netanyahu allegedly granted to individuals who gifted him luxury items. The second case involves alleged actions to damage the competition of a domestic newspaper in exchange for positive coverage. And the third involves allegations that Netanyahu awarded business to Israeli telecom company Bezeq in exchange for favorable news coverage. Netanyahu has agreed to step down from all Ministry positions he holds except for the Premiership. The case against Netanyahu, which could take years to resolve, comes at a time of great uncertainty for the Israeli State, which is headed towards its third general election in a year.

South Africa

The High Court in South Africa rejected appeals by a French defense firm and former President Jacob Zuma to dismiss charges against them related to allegations that the company paid Zuma $34,000 a year to avoid investigation into a multibillion dollar arms deal. These charges, originally filed more than a decade ago, were reignited due to the efforts of anti-corruption groups and politicians. Both the company and Zuma may petition the Supreme Court of South Africa to dismiss the charges, but it appears that they may have to face trial.

CONCLUSION

As is our semiannual tradition, in the following weeks Gibson Dunn will be publishing a series of enforcement updates for the benefit of our clients and friends as follows:
  • Tuesday, January 7: 2019 Year-End Update on Corporate NPAs and DPAs;
  • Thursday, January 9: 2019 Year-End Developments in the Defense of Financial Institutions;
  • Friday, January 10: 2019 Year-End German Law Update;
  • Monday, January 13: 2019 Year-End False Claims Act Update;
  • Tuesday, January 14: 2019 Year-End Securities Enforcement Update;
  • Wednesday, January 15: AI & Related Technologies Q4 Update;
  • Thursday, January 16: 2019 Year-End UK Labor & Employment Update;
  • Friday, January 17: 2019 Year-End Class Actions Update;
  • Wednesday, January 22: 2019 Year-End UK White Collar Crime Update;
  • Thursday, January 23: 2019 Year-End Sanctions Update;
  • Monday, January 27: 2019 Year-End Cybersecurity Update (United States);
  • Tuesday, January 28: 2019 Year-End Cybersecurity Update (European Union);
  • Thursday, January 30: 2019 Year-End Securities Litigation Update;
  • Tuesday, February 4: 2019 Year-End AI & Related Technologies Update;
  • Monday, February 10: 2019 Year-End China Antitrust Update;
  • Tuesday, February 11: 2019 Year-End Shareholder Activism Update; and
  • Monday, March 16: 2019 Year-End Aerospace & Related Technologies Update.

The following Gibson Dunn lawyers assisted in preparing this client update:  F. Joseph Warin, John Chesley, Christopher Sullivan, Richard Grime, Patrick Stokes, Reuben Aguirre, Brian Anderson, Claire Aristide, Shruti Chandhok, Claire Chapla, Timothy Deal, Austin Duenas, Brittany Garmyn, Julie Hamilton, Daniel Harris, Patricia Herold, Amanda Kenner, Derek Kraft, Emily Maxim Lamm, Kate Lee, Nicole Lee, Lora MacDonald, Andrei Malikov, Megan Meagher, Jesse Melman, Steve Melrose, Caroline Monroy, Erin Morgan, Alexander Moss, Jaclyn Neely, Virginia Newman, Jonathan Newmark, Nick Parker, Mariam Pathan, Liesel Schapira, Sydney Sherman, Jason Smith, Pedro Soto, Laura Sturges, Karthik Ashwin Thiagarajan, Ralf van Ermingen-Marbach, Jeffrey Vides, Milagros Villalobos, Oleh Vretsona, Caitlin Walgamuth, Alina Wattenberg, Samantha Weiss, Oliver Welch, Dillon Westfall, Brian Williamson, Brian Yeh, and Caroline Ziser Smith.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues.  We have more than 110 attorneys with FCPA experience, including a number of former federal prosecutors and SEC officials, spread throughout the firm’s domestic and international offices.  Please contact the Gibson Dunn attorney with whom you work, or any of the following: Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Richard W. Grime (+1 202-955-8219, rgrime@gibsondunn.com) Patrick F. Stokes (+1 202-955-8504, pstokes@gibsondunn.com) Judith A. Lee (+1 202-887-3591, jalee@gibsondunn.com) David Debold (+1 202-955-8551, ddebold@gibsondunn.com) Michael S. Diamant (+1 202-887-3604, mdiamant@gibsondunn.com) John W.F. Chesley (+1 202-887-3788, jchesley@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) Stephanie Brooker (+1 202-887-3502, sbrooker@gibsondunn.com) M. Kendall Day (+1 202-955-8220, kday@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Adam M. Smith (+1 202-887-3547, asmith@gibsondunn.com) Christopher W.H. Sullivan (+1 202-887-3625, csullivan@gibsondunn.com) Oleh Vretsona (+1 202-887-3779, ovretsona@gibsondunn.com) Courtney M. Brown (+1 202-955-8685, cmbrown@gibsondunn.com) Jason H. Smith (+1 202-887-3576, jsmith@gibsondunn.com) Ella Alves Capone (+1 202-887-3511, ecapone@gibsondunn.com) Pedro G. Soto (+1 202-955-8661, psoto@gibsondunn.com) New York Zainab N. Ahmad (+1 212-351-2609, zahmad@gibsondunn.com) Matthew L. Biben (+1 212-351-6300, mbiben@gibsondunn.com) Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Joel M. Cohen (+1 212-351-2664, jcohen@gibsondunn.com) Lee G. Dunst (+1 212-351-3824, ldunst@gibsondunn.com) Mark A. Kirsch (+1 212-351-2662, mkirsch@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Lawrence J. Zweifach (+1 212-351-2625, lzweifach@gibsondunn.com) Daniel P. Harris (+1 212-351-2632, dpharris@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) Laura M. Sturges (+1 303-298-5929, lsturges@gibsondunn.com) Los Angeles Debra Wong Yang (+1 213-229-7472, dwongyang@gibsondunn.com) Marcellus McRae (+1 213-229-7675, mmcrae@gibsondunn.com) Michael M. Farhang (+1 213-229-7005, mfarhang@gibsondunn.com) Douglas Fuchs (+1 213-229-7605, dfuchs@gibsondunn.com) San Francisco Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) Thad A. Davis (+1 415-393-8251, tadavis@gibsondunn.com) Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com) Michael Li-Ming Wong (+1 415-393-8333, mwong@gibsondunn.com) Palo Alto Benjamin Wagner (+1 650-849-5395, bwagner@gibsondunn.com) London Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com) Charlie Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com) Sacha Harber-Kelly (+44 20 7071 4205, ) Michelle Kirschner (+44 (0)20 7071 4212, mkirschner@gibsondunn.com) Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com) Steve Melrose (+44 (0)20 7071 4219, smelrose@gibsondunn.com) Paris Benoît Fleury (+33 1 56 43 13 00, bfleury@gibsondunn.com) Bernard Grinspan (+33 1 56 43 13 00, bgrinspan@gibsondunn.com) Jean-Philippe Robé (+33 1 56 43 13 00, jrobe@gibsondunn.com) Munich Benno Schwarz (+49 89 189 33-110, bschwarz@gibsondunn.com) Michael Walther (+49 89 189 33-180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33-130, mzimmer@gibsondunn.com) Hong Kong Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Oliver D. Welch (+852 2214 3716, owelch@gibsondunn.com) São Paulo Lisa A. Alfaro (+5511 3521-7160, lalfaro@gibsondunn.com) Fernando Almeida (+5511 3521-7093, falmeida@gibsondunn.com) Singapore Grace Chow (+65 6507.3632, ) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

December 23, 2019 |
Guralp Systems Limited – UK Serious Fraud Office’s Sixth Deferred Prosecution Agreement Results in No Penalty for Company. Tectonic Shift in DPAs or Factual Peculiarity?

Click for PDF Facts The SFO alleged that three senior employees of Guralp Systems Limited (“the Company”), a UK based seismology company, conspired to corruptly make payments of approximately £1 million over a period of twelve years between 2003 and 2015 to a public official and employee of the Korea Institute of Geoscience and Mineral Resources, in return for £2 million worth of contracts. The trial of those individuals resulted in not guilty verdicts, the last of which was returned on 20 December 2019. Shortly after the announcement of those verdicts the SFO announced here for the first time that it had, on 22 October 2019, entered into a Deferred Prosecution Agreement (“DPA”) with the Company, based on the facts for which the individuals were acquitted. It should be noted that the public official who received the bribe was convicted after a trial in California in July 2017 (https://www.justice.gov/opa/pr/director-south-koreas-earthquake-research-center-convicted-money-laundering-million-dollar). DPA Offences The DPA is for both an offence of conspiracy to corrupt, contrary to the Criminal Law Act 1977 and Prevention of Corruption Act 1906 and an offence of failing to prevent, contrary to the Bribery Act 2010. The choice of the conspiracy charge is explained by the fact that the conduct commenced prior to the coming into force of the Bribery Act 2010. The failing to prevent charge is in respect of that failure commencing on the date the Bribery Act came into force. Cooperation and the Interests of Justice Test The Court recognised the following matters as demonstrating that it was in the interests of justice for the case to be resolved by way of a DPA:

  • Self-reporting in circumstances where much of the evidence relied on in the DPA and trial of the individuals was volunteered by the company.
  • Removal of employees responsible for the alleged misconduct.
  • No prior corporate misconduct.
  • Introduction of a new compliance programme and the severing of links with distributors which presented compliance concerns.
The SFO in its application for approval of the DPA identified without elaboration further conduct that it described as demonstrating extensive cooperation:
  • Deferring employee interviews until the SFO was content for the interviews to proceed.
  • Providing material relating to the interviews.
  • Consulting the SFO in relation to other matters including communications with customers and suppliers.
  • Keeping the SFO informed of all contact with the public official and his travel arrangements.
The factors recognised by the court and the SFO are largely conventional. It should however be noted that this is the third DPA in a row where a company received credit for deferring employee interviews. The deferring of interviews is also consistent with the SFO’s Corporate Cooperation Guidance previously analysed here. Such requests will no doubt be made in future cases, albeit likely not in all. A common feature in each of the DPAs in which the SFO has required this is their ostensibly domestic nature, with a small number of persons of interest. Terms Of note, and unlike the five prior DPAs, there is no penalty element in this DPA. There is however a full disgorgement of profit. That disgorgement has to be paid within the five year currency of the DPA. The Court stated that both the absence of a penalty and the loose arrangement for the payment of disgorgement do not set any precedent, but are a result of the impecunious financial circumstances of the Company (paragraph 42). This is not therefore a tectonic shift in the approach to financial terms. The judgment recognises the possibility that the disgorgement will not be paid in the five year currency of the DPA. As such the judgement suggests that a variation of the DPA may be necessary (paragraph 41). However, a DPA can only be varied in respect of “circumstances that were not, and could not have been, foreseen” (see Crime and Courts Act 2013, Schedule 17, paragraph 10(1)(b)). Here the circumstance of not being able to pay are foreseeable. There is a compliance reporting term that requires the Company to provide annual reports to the SFO containing various compliance metrics, including the effectiveness of training. The term does not require any SFO or third party approval of the effectiveness of the training. If the SFO concludes the training to be ineffective there is no mechanism in the DPA to compel an improvement nor would the ineffectiveness amount to a breach of the DPA. Further, the absence of a third party approval mechanism means that the SFO is effectively entering the arena as a compliance assessor. Having taken on this role, the SFO must therefore ensure that it retains resource on the case to properly receive reports and provide criticism and feedback. If the SFO is passive and future misconduct occurs as a result of inadequate training, the Company would be able to point to the lack of any SFO criticism as implicit approval and the SFO could find itself a witness in a future trial. There is also a requirement for the company’s Compliance Officer to “co-operate generally” with the SFO. That appears at first glance to be a significant shift in enforcement policy. The term is not one however that creates any civil or criminal liability for the compliance officer. A compliance officer who felt that a request from the SFO was unreasonable and refused to comply with a request would not therefore be subject to any form of court sanction. Similarly the compliance officer’s refusal would not amount to a breach of the DPA by the Company. This term therefore looks as if it will be difficult to enforce, though in the spirit of the company’s cooperation it may not prove to be an issue. As first used in the Serco DPA, there is a requirement to report defined future misconduct. Conclusion This is the second DPA resolved by the SFO this year and the second by its current Director, Lisa Osofsky. There is much about this DPA in common with its predecessors and particularly its immediate predecessor. The significant difference is the omission of a penalty, but this is case specific and explicitly stated not to set any precedent. The recognition given by the SFO for the deferring of employee interviews has become a trend, albeit in smaller largely domestic focussed cases. It is interesting to observe however that the court did not refer to this factor in its judgment. In prior DPAs the court has adopted all the interests of justice factors advanced by the SFO in its application for the DPA. It would however be too much to infer that this factor played no role in the court’s decision making. The same judge who approved this DPA previously expressly recognised it in a prior DPA as an important demonstration of cooperation. Companies who identify misconduct over which the SFO will have jurisdiction should approach internal investigations with care. Our view is that initial interviews and other unavoidable overt steps designed to establish whether there is anything to report are reasonable. The Director of the SFO has recognised this in a number of speeches including on April 3, 2019 where she said, “I know that companies will want to examine any suspicions of criminality or regulatory breaches – indeed they have a duty to their shareholders to ensure allegations or suspicions are investigated, assessed and verified, so they understand what they may be reporting before they report it.” However once initial interviews, whether alone or combined with other evidence, demonstrate misconduct that would be of interest to the SFO, then further interviews or overt steps prior to self-reporting will likely fall short of the SFO’s expectations. Companies will therefore have to give careful consideration as to whether interviews should be suspended, pending consultation with the SFO.

This client alert was prepared by Sacha Harber-Kelly, Patrick Doris and Steve Melrose.

Gibson, Dunn & Crutcher's lawyers are available to assist in addressing any questions you may have regarding these developments.  If you would like to discuss this alert in greater detail, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following members of the firm's UK disputes practice.

Philip Rocher (+44 (0)20 7071 4202, procher@gibsondunn.com) Patrick Doris (+44 (0)20 7071 4276, pdoris@gibsondunn.com) Sacha Harber-Kelly (+44 (0)20 7071 4205, sharber-kelly@gibsondunn.com) Charles Falconer (+44 (0)20 7071 4270, cfalconer@gibsondunn.com) Allan Neil (+44 (0)20 7071 4296, aneil@gibsondunn.com) Steve Melrose (+44 (0)20 7071 4219, smelrose@gibsondunn.com) Sunita Patel (+44 (0)20 7071 4289, spatel2@gibsondunn.com) Shruti S. Chandhok (+44 (0)20 7071 4215, schandhok@gibsondunn.com)

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September 10, 2019 |
The UK Serious Fraud Office’s latest guidance on corporate co-operation – Great expectations fulfilled or left asking for more?

Click for PDF On August 6, 2019 the Serious Fraud Office (“SFO”) in London published a new section of its Operational Guidance entitled Corporate Co-operation Guidance (the “Co-operation Guidance”). The Director of SFO, Lisa Osofsky, foreshadowed the publication of such guidance in previous speeches, noting in one that the purpose of the guidance was “to provide… added transparency about what [companies] might expect if they decide to self-report fraud or corruption.” [1] This raised great expectations amongst practitioners and companies alike. The question is whether these expectations have been met or do they leave readers asking for more? The primary audience for the Co-operation Guidance is SFO prosecutors and investigators. This is also the case for the Deferred Prosecution Agreement Code of Practice (the “DPA Code”) where, the Crime and Courts Act 2013 directs that a Code be published to give prosecutors “guidance on - the general principles to be applied in determining whether a DPA is likely to be appropriate in a given case.[2] However, despite the intended primary audience of these documents, knowing the considerations that prosecutors will take into account when assessing whether it is in the public interest to offer a Deferred Prosecution Agreement  (“DPA”) is invaluable insight for companies. In many respects the Co-operation Guidance codifies the content of speeches given by the Director and other members of the SFO’s senior leadership. Reliance on speeches to understand the requirements had always been unsatisfactory where they may have been unpublished, selectively reported and on occasions were inconsistent.[3] Introduction to the Co-operation Guidance The Co-operation Guidance begins by providing high level opening descriptions of cooperation, which includes timely self-reporting to the SFO, the identification of the alleged perpetrators and the prompt provision of evidence. On the other hand it identifies delay, stalling tactics or prejudicing a criminal investigation by warning potential suspects, as uncooperative. The Co-operation Guidance also makes clear early on that it is not a “checklist”, that “each case will turn on its own facts” and that “co-operation is one of many factors that the SFO will take into consideration when determining an appropriate resolution…” In saying this the SFO preserves a significant breadth of prosecutorial discretion. This is welcome to the extent that it provides the possibility for a case being resolved by a DPA that does not fit a conventional view of what constitutes the interests of justice. For example, such discretion has permitted a previous DPA to be concluded where the Court’s first reaction was that if the company in that matter “were not to be prosecuted … then it was difficult to see when any company would be prosecuted.” [4] Whilst discretion may therefore be welcome, the unqualified  words that “even full, robust co-operation – does not guarantee any particular outcome” suggests that the SFO has missed the opportunity to maximise the incentivisation for self-reporting and other co-operation. In contrast, the DOJ’s FCPA Corporate Enforcement Policy contains a presumption in favour of a declination with disgorgement for self-reporting, co-operation and remediation absent aggravating circumstances. Those considering reporting conduct captured by both UK and US enforcers are therefore presented on the face of it with different and potentially inconsistent standards and consequences for self-reporting and other co-operation. In its introductory paragraphs the Co-operation Guidance refers to and quotes from the separate but similarly named Guidance on Corporate Prosecutions (the “Corporate Guidance”). The Corporate Guidance is undated but heralds back to the Directorship of the SFO under Richard Alderman which ended in 2012. It was the first attempt to provide direction in respect of the SFO’s expectations of companies regarding co-operation. It contains the public interest factors both in favour of charging and not charging companies. Those public interest criteria were adopted in the public consultation draft of the DPA Code in 2013. As a result of that public consultation the public interest criteria were amended in the DPA Code as finally published. The Corporate Guidance is now therefore redundant. Anyone referring to both the Corporate Guidance and the DPA Code will find inconsistent criteria, and may therefore arrive at a conclusion which is flawed. [5] Examples of Co-operative Conduct Provision of Information In a speech delivered by Ms Osofsky on December 4, 2018 she stated:

“Cooperation is making the path to a case easier. For the prosecutor that means making the path to admissible evidence easier. This is not rocket science. It is documents. It is financial records. It is witnesses.
  • Make them available – promptly.
  • Point us to the evidence that is most important – both inculpatory and exculpatory. In other words, give us the “hot” documents. Don’t just bury us in a document dump.
  • Make the evidence available in a way that comports with our laws.
  • Make it available in a way useful to us so that we can do our job – which we will do. We will not, of course, simply take your word for it. We will use what you give us as a starting point, not an end point. We will test, we will probe.
  • Do not do things that create proof issues for us or create procedural barriers.”
Despite the Co-operation Guidance making it plain that it is not exhaustive nor a checklist for identifying cooperative conduct, instead of providing overarching guidance which describe positive behaviours consistent with the Director’s words, it instead begins by particularising in detail over twenty mechanistic criteria in respect of material identification, collection, processing and production which reads like the very checklist it previously disavows. Those experienced in conducting internal investigations will already approach document identification, collection, processing and production in a methodical manner. The detail given in the Co-operation Guidance however signals that the SFO will seek the provision of material of a specified scope, that is compliant with a particular collection and production methodology, is accompanied by an audit trail and individuals are identified who will be able to give evidence in a future trial in these respects. Given the particularised approach, companies and their advisors should familiarise themselves with the requirements. Individual Interview Accounts The importance of the company’s approach to interviewing individuals is dealt with in detail. Obtaining, preserving and disclosing early accounts from persons central to the events under investigation has long been a key focus of the SFO, and has led to extensive litigation, either where the SFO has sought such accounts (SFO v ENRC)[6] or failed to do so properly (R (on the application of AL) v SFO).[7] The Co-operation Guidance states that companies should seek the SFO’s view “before interviewing potential witnesses or suspects” or “taking other overt steps”. In this respect, the Co-operation Guidance does not acknowledge that there may be interviews or other overt steps that need to be conducted by the company in order to establish whether there is any conduct to self-report to the SFO. The Director of the SFO however has recognised that this may be the case in a number of speeches including on April 3, 2019 where Ms Osofsky stated that, “I know that companies will want to examine any suspicions of criminality or regulatory breaches – indeed they have a duty to their shareholders to ensure allegations or suspicions are investigated, assessed and verified, so they understand what they may be reporting before they report it.” The absence of this recognition in the Co-operation Guidance is a significant omission which creates uncertainty. Our view is that  those conducting investigations may conduct interviews and take other unavoidable overt steps in order to establish whether there is anything to report. However if those interviews, whether alone or combined with other steps, demonstrate misconduct that would be of interest to the SFO, then any further interviewing or taking of overt steps prior to self-reporting, will likely fall short of what is suggested by the Co-operation Guidance. Companies will therefore have to give careful consideration as to whether interviews should be suspended, pending consultation with the SFO. It would seem that it is not the SFO’s desire to direct internal investigations, but instead to secure the opportunity to determine whether it should conduct interviews first, in order for example to secure an individual’s first account or prevent a suspect being tipped off. A request not to interview is comparable to the de-confliction of witness interviews in the DOJ’s FCPA Corporate Enforcement Policy. If the SFO makes such a request in practice, it is then reasonable to assume that it will conduct an interview promptly to ensure that the company may proceed to interview for its own fact gathering purposes, including  disciplinary or remedial action. A company’s disciplinary and remedial action are also documented as important considerations for assessing whether a DPA is in the interests of justice.[8] There have been instances where companies in the UK have been directed not to conduct interviews at all. This occurred in the investigations of Tesco Stores Limited and Serco Geografix Limited. The acquiescence by the companies to such a request weighed positively in favour of DPAs being approved. However, there are more recently commenced investigations in which companies have not been so directed so it cannot be determined yet whether this reflects a settled trend. It may be expected that such direction will be given in the future, particularly in cases concerning uniquely UK misconduct and involving a small number of persons of interest. Privilege Claims over Internal Investigation Interview Records A whole section of the Co-operation Guidance is devoted to privilege. Waiver is characterised as co-operative but an assertion of privilege will in the eyes of the SFO be neutral. While this is a welcome clarification, the Co-operation Guidance notes that a Court may view the assertion differently and footnotes the case of SFO v ENRC in support of that caution. In our view the judgement in that case says no more than waiving privilege will be viewed positively. However, it is in our view unlikely that a Court deciding whether a DPA is in the interests of justice would weigh a properly established assertion of privilege against a company when establishing whether to approve a DPA. Of the five DPAs approved to date in the UK, two involved assertions of privilege yet were approved by the same judge who gave the judgment in SFO v ENRC. Those DPAs are in our view clear authority that waiver of privilege is not a prerequisite. Where there is a balancing exercise of potentially competing considerations as to whether a DPA is in the interest of justice, the positive weight of a waiver of privilege in some cases may make a determinative difference favouring a DPA. However, this will be difficult to determine at the early stages of a self-reporting process and may be incapable of remedy later. Whether to assert privilege thereby forfeiting credit, or waiving privilege to receive it, will require careful judgements to be made. Where privilege claims are made, the Co-operation Guidance reminds prosecutors that the claims will need to be properly established. Not only is the SFO interested in knowing what individuals have said in interviews that it was not party to, it is cognisant that future defendants will be equally interested. The SFO has a duty to those defendants to pursue all reasonable lines of enquiry to secure such information. In our client alert of September 5, 2018, commenting on the case of SFO v ENRC, we set out what a company must demonstrate in order to best establish a claim of privilege. The Co-operation Guidance states that such claims should be certified by independent counsel. The SFO appears therefore not to be prepared to accept representations made by a company, regardless of how well they might be articulated or evidenced. While not prescriptive on the level of detail that will be required in independent counsel’s certification, given the statement that claims of privilege will need to be properly established, it suggests that significant detail will be expected. The reasons for this are twofold. Firstly, in requiring independent counsel certification, the SFO is implicitly agreeing to be bound by such certifications. As such they must be able to make a qualitative examination of the certification. Secondly, the detail will be important since future individual defendants may dispute the certification even if the SFO is satisfied, and therefore the reasoning will need to be capable of withstanding such challenge. The use of independent counsel is a proactive step to address potential criticism by individual defendants that the testing of a company’s assertion of privilege was inadequate. Whether the use of independent counsel will halt the satellite litigation contesting privilege claims rather than merely providing a different springboard for the challenge remains to be seen. We suspect it will be the latter given the often complex and finely balanced factual considerations that need to be assessed. In 2014 individual defendants made precisely such a challenge to independent counsel’s determination, albeit in that case they were unsuccessful. [9] Conclusion The Co-operation Guidance is the product of repeated requests from companies and legal practitioners for clarity as to what constitutes co-operation in corporate investigations in order that they know how to secure a DPA. Under the SFO’s previous Director, the issuing of such guidance was resisted. [10] For the SFO to depart from this position was worth doing only if the outcome is to provide clarity and certainty. The clarification on conducting interviews and claims of privilege is certainly helpful and sets some recent ambiguity to rest. How document collection, processing and production should occur is made clear. However the manner of a company’s document collection and production is unlikely to ever be weighed heavily in an SFO decision to offer to resolve a case by way of a DPA. Therefore whilst understanding SFO requirements in this respect is helpful, the lengthy addressing of this issue in the Co-operation Guidance elevates disproportionately its relative importance in any such decision. It is however the unwillingness to describe definitively the consequences of self-reporting and other co-operative behaviour which, absent aggravating features, would presumptively result in a DPA being offered is the key point on which the Co-operation Guidance does not meet expectations. Whilst the SFO is likely to dismiss this uncertainty as a difficulty for companies and their advisors to navigate, the enforcement of multi-jurisdictional financial crime and the incentivisation of its self-reporting is an enforcer’s responsibility and requires an appreciation of the global enforcement landscape. Providing such clarity and certainty could have significantly encouraged self-reporting thereby advancing the prompt and effective enforcement of corporate crime, which was the main driver behind the introduction of DPAs. As the then Solicitor General, Oliver Heald QC said in 2012 when announcing the decision to introduce DPAs, “Whatever perspective we bring to the issue of enforcement, it is clear that all involved could benefit from a tool to reduce the complexity and uncertainty of current enforcement powers, and to deal with cases more quickly and in a way which better meets the interests of justice and commands public confidence.”[11] This unresolved lack of clarity and certainty is likely to leave companies asking for more. _____________________ [1]   Lisa Osofsky, “Fighting fraud and corruption in a shrinking world” 3 April, 2019, Royal United Services Institute, London. [2]   Schedule 17, paragraph 6(1) (a). [3]   See reporting of a speech given at GIR Live, London, December 6, 2018 which made the novel suggestion that asserting privilege may be inconsistent with co-operation - https://globalinvestigationsreview.com/article/1177673/waiving-privilege-shows-willingness-to-cooperate-sfo-official-says [4]   SFO v Rolls-Royce Plc, Southwark Crown Court, 17 January 2017, https://www.judiciary.uk/wp-content/uploads/2017/01/sfo-v-rolls-royce.pdf at paragraph 61. [5]   By way of illustration the Corporate Guidance states that: “A genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice, involving self-reporting and remedial actions, including the compensation of victims: In applying this factor the prosecutor needs to establish whether sufficient information about the operation of the company in its entirety has been supplied in order to assess whether the company has been proactively compliant. This will include making witnesses available and disclosure of the details of any internal investigation.” The DPA Code however states (with emphasis added for illustration) that “Considerable weight may be given to a genuinely proactive approach adopted by P’s management team when the offending is brought to their notice, involving within a reasonable time of the offending coming to light reporting P’s offending otherwise unknown to the prosecutor and taking remedial actions including, where appropriate, compensating victims. In applying this factor the prosecutor needs to establish whether sufficient information about the operation and conduct of P has been supplied in order to assess whether P has been co-operative. Co-operation will include identifying relevant witnesses, disclosing their accounts and the documents shown to them. Where practicable it will involve making the witnesses available for interview when requested. It will further include providing a report in respect of any internal investigation including source documents. [6]   [2018] EWCA Civ 2006. [7]   [2018] EWHC 856 (Admin). [8]   DPA Code, paragraph 2.8.2 iv. [9]   R v Dennis Kerrison and Miltos Papachristos, Southwark Crown Court. [10]   https://globalinvestigationsreview.com/article/1149586/sfo-director-we-dont-do-guidance [11]   Oliver Heald QC, “Keynote Speech to the World Bribery and Corruption Compliance Forum, 23 October 2012:  https://www.gov.uk/government/speeches/keynote-speech-to-the-world-bribery-and-corruption-compliance-forum.

This client alert was prepared by Sacha Harber-Kelly, Patrick Doris and Shruti Chandhok.

Gibson, Dunn & Crutcher's lawyers are available to assist in addressing any questions you may have regarding these developments.  If you would like to discuss this alert in greater detail, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following members of the firm's UK disputes practice.

Philip Rocher (+44 (0)20 7071 4202, procher@gibsondunn.com) Patrick Doris (+44 (0)20 7071 4276, pdoris@gibsondunn.com) Sacha Harber-Kelly (+44 20 7071 4205, ) Charles Falconer (+44 (0)20 7071 4270, cfalconer@gibsondunn.com) Allan Neil (+44 (0)20 7071 4296, aneil@gibsondunn.com) Steve Melrose (+44 (0)20 7071 4219, smelrose@gibsondunn.com) Sunita Patel (+44 (0)20 7071 4289, spatel2@gibsondunn.com) Shruti Chandhok (+44 (0)20 7071 4215, schandhok@gibsondunn.com)

© 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

July 10, 2019 |
Former Special Counsel Prosecutor Zainab Ahmad to Join Gibson Dunn as Partner in New York

Gibson, Dunn & Crutcher LLP today announced that leading prosecutor Zainab Ahmad will join the firm as a partner in the New York office.  Ahmad will join the firm after serving as a Senior Assistant Special Counsel in Special Counsel Robert S. Mueller’s Office and following a successful career as a prosecutor and trial lawyer at the Department of Justice in both Washington, D.C. and the Eastern District of New York. "We are thrilled to welcome Zainab to the firm,” said Ken Doran, Chairman and Managing Partner of Gibson Dunn.  “Zainab will be a great addition to our premiere White Collar Defense and Investigations Practice.  She is universally respected for her work ethic, drive, judgment and ability to build trust and confidence with everyone who works with her.  Her educational background, clerkships and prior work in key areas, such as cybercrime, anti-corruption, and anti-money laundering matters will complement the firm’s global practice.” “Zainab will be a terrific addition to the firm,” said Joel Cohen, a New York partner and Co-Chair of the White Collar Defense and Investigations Practice. “She has unique and impressive experience navigating investigations across borders – and in places where there essentially are no borders.  Her stints at Main Justice placed her at the center of the most significant matters affecting the Department of Justice and covered areas most likely to affect our clients.  Her background working complex, cross-border investigations and her history of collaboration with foreign law enforcement will be a valuable asset for our clients.” “I couldn’t be more excited to begin the next chapter of my legal career at Gibson Dunn,” Ahmad said.  “Increasingly, clients are facing challenges that span jurisdictions and borders, which makes Gibson Dunn’s global platform very attractive.  The firm’s talent pool is impressively deep, and I look forward to collaborating with my new colleagues across offices.” Ahmad augments the firm’s already deep bench of more than 50 former U.S. Department of Justice leaders and Assistant U.S. Attorneys. About Zainab Ahmad Ahmad’s practice will focus on white collar defense and investigations.  She will also advise on regulatory and civil litigation challenges, such as matters involving cybercrime, corruption, anti-money laundering, sanctions and FCPA issues. Before joining Gibson Dunn, Ahmad served with the U.S. Department of Justice for 11 years.  She recently served as a Senior Assistant Special Counsel in Special Counsel Robert S. Mueller’s Office from 2017 to 2019.  Prior, she served as an Assistant U.S. Attorney at the U.S. Attorney’s Office in the Eastern District of New York, where her roles included Deputy Chief of the National Security and Cybercrime section.  During her tenure, she prosecuted and supervised some of the most complex international terrorism investigations in the United States, focusing on al-Qaeda, ISIS and attacks against U.S. military personnel and U.S. diplomats.  In pursuit of these extraterritorial national security investigations, she worked closely with the FBI, U.S. intelligence community, the Department of State and the Department of Defense, and she traveled to Europe, the Middle East and West Africa seeking evidence, testimony and extradition assurances.  Her work was chronicled in a The New Yorker feature article, “Taking Down Terrorists in Court.” During her career, she was seconded twice to Washington, D.C., serving in 2016 as Counselor for Transnational Organized Crime and International Affairs and in 2017 as Acting Deputy Assistant Attorney General in Washington, D.C., where she was responsible for supervising about 70 prosecutors in three sections: Organized Crime & Gangs, Human Rights and Special Prosecutions and Capital Cases, including the filter team handling the “Panama Papers”-related investigations. Ahmad received her law degree in 2005 from the Columbia University School of Law, where she received the Hamilton Fellowship (full scholarship for academic excellence), was a James Kent Scholar and a Harlan Fisk Stone Scholar, and served as the Senior Editor of the Columbia Law Review.  She served as a law clerk for Judge Jack B. Weinstein of the U.S. District Court for the Eastern District of New York from 2006 to 2007 and for Judge Reena Raggi of the U.S. Court of Appeals for the Second Circuit from 2007 to 2008.

May 3, 2019 |
Updated DOJ Criminal Division Guidance on the “Evaluation of Corporate Compliance Programs”

Click for PDF On April 30, 2019, the U.S. Department of Justice (“DOJ”), Criminal Division, released updated guidance to DOJ prosecutors on how to assess corporate compliance programs when conducting an investigation, in making charging decisions, and in negotiating resolutions.  The pronouncement, “Evaluation of Corporate Compliance Programs,” updates earlier guidance that DOJ’s Fraud Section issued in February 2017 (covered in our 2017 Mid-Year FCPA Update).  This guidance emphasizes DOJ’s laser focus on compliance programs, requiring companies under investigation to carefully evaluate, test, and likely upgrade their programs well before the investigation is over. The updated Evaluation document has been restructured around the three “fundamental questions” from the Justice Manual that DOJ prosecutors should assess:

  1. Is the corporation’s compliance program well designed?
  1. Is the program being applied earnestly and in good faith?  In other words, is the program being implemented effectively?
  1. Does the corporation’s compliance program work in practice?
Under these three categories, the updated Evaluation groups 12 topics and sample questions that DOJ considers relevant in evaluating a corporate compliance program.  Much like the earlier Evaluation articulation, these topics relate to common elements of effective compliance programs, including policies and procedures, training, reporting mechanisms and investigations, third-party due diligence, tone at the top, compliance independence and resources, incentives and disciplinary measures, and periodic testing and review.  Several of these core standards can be found in other compliance program guidance materials, such as the Resource Guide to the U.S. Foreign Corrupt Practices Act and, very recently, the “Framework for OFAC Compliance Commitments” issued by OFAC on May 2, 2019, pursuant to the Agency’s promise to provide more guidance on its expectations for sanctions compliance programs. The following chart captures how the 12 compliance topics in the updated Evaluation are grouped under DOJ’s three core questions.

Core Questions

Compliance Topic

(Core Focus)

Is the Program Well Designed?

Risk Assessment 

DOJ will assess whether the program is appropriately tailored to the company’s business model and the particularized risks that accompany it, considering factors like the company’s locations, industry sectors, and interactions with government officials.

Policies and Procedures

DOJ will assess whether the company has established appropriate policies and procedures, the processes for doing so and disseminating them to the workforce, and the guidance and training provided to “key gatekeepers in the control processes.”

Training and Communications

DOJ will assess the compliance training provided to directors, officers, employees, and third parties, as well as efforts to communicate to the workforce about the company’s response to misconduct, and the availability of resources to provide compliance guidance to employees.

Confidential Reporting Structure and Investigation Process

DOJ will assess the company’s reporting channels and investigative mechanism.

Third-Party Management

DOJ will examine whether the company’s third-party due diligence process is risk-based and includes controls and monitoring related to the qualifications and work of its third parties.

Mergers and Acquisitions

DOJ will examine the company’s M&A pre-acquisition due diligence and post-acquisition integration processes.
Is the Program Implemented Effectively?

Commitment by Senior and Middle Management

DOJ will evaluate the commitment by company leadership to a culture of compliance, including management’s messaging and promotion of compliance and the board’s role in overseeing compliance.  The OFAC Compliance Framework similarly emphasizes the importance of management’s commitment to, and support of, a company’s compliance program.

Compliance Autonomy and Resources

DOJ will assess whether the compliance function has sufficient seniority, resources, and autonomy commensurate with the company’s size and risk profile.  Notably, DOJ will ask whether the company outsourced all or parts of its compliance function to an external firm or consultant.  If so, DOJ will probe the level of access that the external firm or consultant has to company information.

Incentives and Disciplinary Measures

DOJ will assess whether the company has clear disciplinary procedures that are enforced consistently, as well as whether and how the company incentivizes ethical behavior.
Does the Program Work in Practice?

Continuous Improvement, Periodic Testing, and Review

DOJ will consider how the company has reviewed and evaluated its compliance program to ensure it is current, including changes made to the program in light of lessons learned.  DOJ also will assess the internal audit function and how the company measures its culture of compliance.  Effective training also is called out specifically in the OFAC Compliance Framework.

Investigation of Misconduct

DOJ will assess the effectiveness and resources of the company’s investigative function.  Notably, this is the second instance in the updated Evaluation calling for DOJ to assess a company’s investigative function.

Analysis and Remediation of Any Underlying Misconduct

DOJ will consider whether the company conducts root-cause analyses of misconduct and takes timely and appropriate remedial action against violators.  Under the heading “Accountability,” the updated Evaluation includes a question about whether disciplinary actions for failures in supervision have been considered by the company.

KEY TAKEAWAYS

The updated Evaluation covers many of the same topics as the prior version, yet the addition of certain questions signals added emphasis or expectations compared to the prior guidance.  Although non-exhaustive, the following list outlines key takeaways from the updated Evaluation that companies should consider in building, maintaining, and enhancing their compliance programs.
  • Starting with a Risk Assessment and Building on “Lessons Learned”:  The updated Evaluation calls for tailoring a company’s compliance program based on its risk assessment, and ensuring that the criteria for the risk assessment are “periodically updated.”  Commentators suggest risk assessments annually or every two years.  DOJ does not prescribe the timing of risk assessments.  Going forward, “‘revisions to corporate compliance programs [should be made] in light of lessons learned.’”  This means that a company’s risk assessment should be an ongoing and iterative process, and that a company should reexamine and revise its compliance program from time to time based on the risk assessment results.  Reexamining and revising the compliance program is necessary to address DOJ’s particular emphasis on making enhancements in response to specific instances of misconduct.  When companies conduct internal investigations, especially where there is a prospect of a government-facing inquiry, they should give serious consideration to taking prompt remedial steps to address the components highlighted by the updated Evaluation document.  This will better position companies to advocate that they have effectively and timely remediated root-cause issues and should receive remediation credit.
  • Importance of Compliance Personnel:  In evaluating whether a company has sufficient staffing for compliance personnel, the updated Evaluation presents a number of related queries, such as where within the company the compliance function is housed (but without dictating a particular reporting structure) and how the compliance function compares with other functions within the company in terms of stature, compensation, rank/title, reporting lines, resources, and access to key decision-makers.
  • Responsibility for Third Parties:  The updated Evaluation indicates an increased focus on a company’s oversight of third parties, which historically have factored into the vast majority of Foreign Corrupt Practices Act enforcement actions.  Among other things, DOJ will consider whether a company has “appropriate business rationale[s]” for the use of third parties and whether it has considered “the compensation and incentive structures” for third parties against the compliance risks posed.  In addition, in assessing a company’s remediation of misconduct involving suppliers, DOJ will consider the company’s process for supplier selection.  Termination of a supplier or business partner upon a company’s finding of misconduct, and steps to ensure that such third parties cannot be re-engaged without appropriate authorization, is a sign of a mature compliance program expected by DOJ.
  • Cascading Tone from the Top:  The updated Evaluation emphasizes “culture of compliance.”  Crucially, messaging at the “top” alone will not equate to an adequate tone of compliance.  Rather, DOJ will focus on how the compliance tone cascades downward in the organization and to counterparties.  DOJ will examine not only the standards set by the board of directors and senior executives, but also the tone and actions of middle management to reinforce those standards.  The focus on the cultural leadership by mid-level management has been a constant theme from DOJ for more than a decade.  In addition, in assessing a company’s remediation, DOJ will consider whether managers were held accountable for misconduct that occurred under their supervision and whether the company considered disciplinary actions for failures in supervision.
Like its predecessor, the updated Evaluation guidance is an important resource for companies both for reactively defending their compliance programs in the context of a DOJ investigation and for proactively benchmarking or enhancing their programs.  Clearly, this refined prism will provide the template for DOJ Filip Factor presentations.
The following Gibson Dunn lawyers assisted in preparing this client update:  F. Joseph Warin, Richard Grime, Patrick Stokes, Christopher Sullivan, Oleh Vretsona, Abbey Bush, and Alexander Moss. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues.  We have more than 110 attorneys with FCPA experience, including a number of former federal prosecutors and SEC officials, spread throughout the firm’s domestic and international offices.  Please contact the Gibson Dunn attorney with whom you work, or any of the following: Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Richard W. Grime (+1 202-955-8219, rgrime@gibsondunn.com) Patrick F. Stokes (+1 202-955-8504, pstokes@gibsondunn.com) Judith A. Lee (+1 202-887-3591, jalee@gibsondunn.com) David Debold (+1 202-955-8551, ddebold@gibsondunn.com) Michael S. Diamant (+1 202-887-3604, mdiamant@gibsondunn.com) John W.F. Chesley (+1 202-887-3788, jchesley@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) Stephanie Brooker (+1 202-887-3502, sbrooker@gibsondunn.com) M. Kendall Day (+1 202-955-8220, kday@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Adam M. Smith (+1 202-887-3547, asmith@gibsondunn.com) Christopher W.H. Sullivan (+1 202-887-3625, csullivan@gibsondunn.com) Oleh Vretsona (+1 202-887-3779, ovretsona@gibsondunn.com) Courtney M. Brown (+1 202-955-8685, cmbrown@gibsondunn.com) Jason H. Smith (+1 202-887-3576, jsmith@gibsondunn.com) Ella Alves Capone (+1 202-887-3511, ecapone@gibsondunn.com) Pedro G. Soto (+1 202-955-8661, psoto@gibsondunn.com) New York Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Joel M. Cohen (+1 212-351-2664, jcohen@gibsondunn.com) Lee G. Dunst (+1 212-351-3824, ldunst@gibsondunn.com) Mark A. Kirsch (+1 212-351-2662, mkirsch@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Lawrence J. Zweifach (+1 212-351-2625, lzweifach@gibsondunn.com) Daniel P. Harris (+1 212-351-2632, dpharris@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) Laura M. Sturges (+1 303-298-5929, lsturges@gibsondunn.com) Los Angeles Debra Wong Yang (+1 213-229-7472, dwongyang@gibsondunn.com) Marcellus McRae (+1 213-229-7675, mmcrae@gibsondunn.com) Michael M. Farhang (+1 213-229-7005, mfarhang@gibsondunn.com) Douglas Fuchs (+1 213-229-7605, dfuchs@gibsondunn.com) San Francisco Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) Thad A. Davis (+1 415-393-8251, tadavis@gibsondunn.com) Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com) Michael Li-Ming Wong (+1 415-393-8333, mwong@gibsondunn.com) Palo Alto Benjamin Wagner (+1 650-849-5395, bwagner@gibsondunn.com) London Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com) Charlie Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com) Sacha Harber-Kelly (+44 20 7071 4205, ) Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com) Steve Melrose (+44 (0)20 7071 4219, smelrose@gibsondunn.com) Paris Benoît Fleury (+33 1 56 43 13 00, bfleury@gibsondunn.com) Bernard Grinspan (+33 1 56 43 13 00, bgrinspan@gibsondunn.com) Jean-Philippe Robé (+33 1 56 43 13 00, jrobe@gibsondunn.com) Munich Benno Schwarz (+49 89 189 33-110, bschwarz@gibsondunn.com) Michael Walther (+49 89 189 33-180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33-130, mzimmer@gibsondunn.com) Hong Kong Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Oliver D. Welch (+852 2214 3716, owelch@gibsondunn.com) São Paulo Lisa A. Alfaro (+5511 3521-7160, lalfaro@gibsondunn.com) Fernando Almeida (+5511 3521-7093, falmeida@gibsondunn.com) Singapore Grace Chow (+65 6507.3632, ) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 25, 2019 |
Gibson Dunn Earns 79 Top-Tier Rankings in Chambers USA 2019

In its 2019 edition, Chambers USA: America’s Leading Lawyers for Business awarded Gibson Dunn 79 first-tier rankings, of which 27 were firm practice group rankings and 52 were individual lawyer rankings. Overall, the firm earned 276 rankings – 80 firm practice group rankings and 196 individual lawyer rankings. Gibson Dunn earned top-tier rankings in the following practice group categories: National – Antitrust National – Antitrust: Cartel National – Appellate Law National – Corporate Crime & Investigations National – FCPA National – Outsourcing National – Real Estate National – Retail National – Securities: Regulation CA – Antitrust CA – Environment CA – IT & Outsourcing CA – Litigation: Appellate CA – Litigation: General Commercial CA – Litigation: Securities CA – Litigation: White-Collar Crime & Government Investigations CA – Real Estate: Southern California CO – Litigation: White-Collar Crime & Government Investigations CO – Natural Resources & Energy DC – Corporate/M&A & Private Equity DC – Labor & Employment DC – Litigation: General Commercial DC – Litigation: White-Collar Crime & Government Investigations NY – Litigation: General Commercial: The Elite NY – Media & Entertainment: Litigation NY – Technology & Outsourcing TX – Antitrust This year, 155 Gibson Dunn attorneys were identified as leading lawyers in their respective practice areas, with some ranked in more than one category. The following lawyers achieved top-tier rankings:  D. Jarrett Arp, Theodore Boutrous, Jessica Brown, Jeffrey Chapman, Linda Curtis, Michael Darden, William Dawson, Patrick Dennis, Mark Director, Scott Edelman, Miguel Estrada, Stephen Fackler, Sean Feller, Eric Feuerstein, Amy Forbes, Stephen Glover, Richard Grime, Daniel Kolkey, Brian Lane, Jonathan Layne, Karen Manos, Randy Mastro, Cromwell Montgomery, Daniel Mummery, Stephen Nordahl, Theodore Olson, Richard Parker, William Peters, Tomer Pinkusiewicz, Sean Royall, Eugene Scalia, Jesse Sharf, Orin Snyder, George Stamas, Beau Stark, Charles Stevens, Daniel Swanson, Steven Talley, Helgi Walker, Robert Walters, F. Joseph Warin and Debra Wong Yang.

February 7, 2019 |
F. Joseph Warin and Kevin Kelley Named Among Top Latin America Lawyers

Latinvex has named Washington, D.C. partner F. Joseph Warin and New York partner Kevin Kelley on its 2019 Latin America’s Top 100 Lawyers list featuring “leading attorneys from international law firms that are involved in the legal business in Latin America.” The list was published on February 7, 2019. Named a top lawyer in the FCPA & Fraud category, Warin focuses on complex civil litigation, white collar crime, and regulatory and securities enforcement – including Foreign Corrupt Practices Act investigations, False Claims Act cases, special committee representations, compliance counseling and class action civil litigation. He has handled cases and investigations in more than 40 states and dozens of countries. Warin’s clients include corporations, officers, directors and professionals in regulatory, investigative and trials involving federal regulatory inquiries, criminal investigations and cross-border inquiries by dozens of international enforcers. Named a top lawyer in the Capital Markets category, Kelley advises on capital markets transactions, particularly those involving non-U.S. issuers engaging in U.S. public or private securities offerings and exchange and tender offers. His clients include the major U.S. investment banks as well as corporations, financial institutions and sovereign issuers throughout Latin America, the Caribbean and Europe. Kelley has significant experience representing issuers and underwriters in public and 144A offerings of debt and equity securities, compliance with U.S. securities laws, and NYSE and NASDAQ listings by foreign issuers.

January 8, 2019 |
Webcast: FCPA Trends in the Emerging Markets of Asia, Russia, Latin America, and Africa

In 2018, anti-corruption movements in several regions picked up steam, maturing from grassroots, street-level protests to electoral mobilization, far-reaching anti-corruption legislation, and renewed focus from local law enforcement. The constant drumbeat of scandals, impeachments, prosecutions and new legislative efforts highlights the extent to which corruption remains deeply rooted in many regions. As companies increasingly look to compete in emerging markets, the ever-present threat of corruption creates an environment fraught with commercial, legal and reputation risk.

Join our team of experienced international anti-corruption attorneys to learn more about how to do business in key markets in Asia (with a focus on China, India, and South Korea), Russia, Latin America, and Africa without running afoul of anti-corruption laws, including the FCPA.

Topics to be discussed:

  • An overview of FCPA enforcement and trends for 2018;
  • The corruption landscape in key emerging markets, including recent headlines and scandals;
  • Lessons learned from local anti-corruption enforcement in key markets in Asia, Russia, Latin America, and Africa;
  • Key anti-corruption legislative changes in major markets in Asia, Russia, Latin America, and Africa; and
  • Mitigation strategies for businesses operating in high-risk markets.
View Slides (PDF)

PANELISTS: Kelly Austin Partner-in-Charge of Gibson Dunn’s Hong Kong office. Ms. Austin focuses her practice in government and internal investigations, regulatory compliance, and international disputes. Ms. Austin has extensive experience in government and corporate internal investigations, including those involving the FCPA, anti-money laundering, securities, and trade control laws. Ms. Austin also regularly guides companies on creating and implementing effective compliance programs. Joel Cohen Co-Chair of the firm’s White Collar Defense and Investigations practice and a member of its Securities Litigation, Class Actions and Antitrust practice groups, Mr. Cohen is a partner in Gibson Dunn’s New York office. He is a former federal prosecutor and has been lead or co-lead counsel in 24 civil and criminal trials in federal and state courts. Mr. Cohen’s experience includes all aspects of FCPA/anticorruption issues, in addition to financial institution litigation and other international disputes and discovery, and he is equally comfortable leading confidential investigations, managing crises or advocating in court proceedings. Sacha Harber-Kelly Partner in Gibson Dunn’s London office and a member of the firm’s White Collar Defense and Investigations practice group. Mr. Harber-Kelly focuses his practice in global white-collar investigations, representing clients in criminal and regulatory investigations as well as cross-border enforcement inquiries. He was a Prosecutor from 2007 to 2017 with the U.K.’s Serious Fraud Office (SFO) in the Anti-Corruption and Bribery Division, where he handled some of the largest and most complex cases brought by the SFO, and he was centrally involved in the U.K.’s development of a Deferred Prosecution Agreement (DPA) regime. He also has worked extensively with a range of other enforcement authorities in the U.K., U.S. and beyond. Benno Schwarz German-qualified partner in Gibson Dunn’s Munich office, Mr. Schwarz is a member of the firm's International Corporate Transactions and White Collar Defense and Investigations practice groups. Mr. Schwarz has many years of experience in corporate anti-bribery compliance, especially issues surrounding the enforcement of the FCPA and the U.K. Bribery Act as well as Russian law, including the planning and implementation of internal corporate investigations both nationally and internationally, advising on the structuring, implementation and assessment of compliance management systems, and representing companies before domestic and foreign authorities during associated criminal and administrative proceedings. He speaks and conducts transactions and internal investigations in German, English and Russian. F. Joseph Warin Partner in Gibson Dunn's Washington, D.C. office, Chair of the office's Litigation Department, and Co-Chair of the firm's White Collar Defense and Investigations practice group. Mr. Warin is consistently regarded as a top lawyer in FCPA investigations, False Claims Act (FCA) matters, fraud and corporate investigations, and special committee representations. He has handled cases and investigations in more than 40 states and dozens of countries in matters involving federal regulatory inquiries, criminal investigations and cross-border inquiries by dozens of international enforcers, including the U.K.'s SFO and FCA, and government regulators in Germany, Switzerland, Hong Kong, and the Middle East. His credibility at DOJ and the SEC is unsurpassed among private practitioners, a reputation based in large part on his experience as the only person ever to serve as a compliance monitor or counsel to the compliance monitor in three separate FCPA monitorships, pursuant to settlements with the SEC and DOJ. Oliver Welch Associate in Gibson Dunn’s Hong Kong office and a member of the firm’s Litigation and White Collar Defense and Investigations practice groups. Mr. Welch has extensive experience representing clients throughout the Asia region on a wide variety of compliance and anti-corruption issues. His practice focuses on internal and regulatory investigations, including the FCPA, and he regularly counsels multi-national corporations regarding their anti-corruption compliance programs and controls, and assists clients in drafting policies, procedures, and training materials designed to foster compliance with global anti-corruption laws. He also advises on anti-corruption due diligence in connection with corporate acquisitions, private equity investments, and other business transactions.
MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of  2.50 credit hours, of which 2.50 credit hours may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. This program has been approved for credit in accordance with the requirements of the Texas State Bar for a maximum of 2.00 credit hours, of which 2.00 credit hour may be applied toward the area of accredited general requirement. Attorneys seeking Texas credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 2.00 hours. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.

January 7, 2019 |
2018 Year-End FCPA Update

Click for PDF 2018 was an extraordinary year in the U.S. government's efforts to combat foreign corruption.  The 38 combined FCPA enforcement actions, resulting in $1 billion in corporate fines, alone provide much to discuss.  But this is only a part of the story of the year in anti-corruption enforcement, as we also saw an explosion in the pursuit of FCPA-related offenses, continued multi-national enforcement, and a rare appellate decision on the jurisdictional reach of the FCPA, among many other developments. This client update provides an overview of the FCPA and other domestic and international anti-corruption enforcement, litigation, and policy developments from the year 2018, as well as the trends we see from this activity. For more analysis on the year in anti-corruption enforcement as well as challenges in compliance and corporate governance, please join us for one or both of our upcoming complimentary webcast presentations: FCPA Trends in the Emerging Markets of Asia, Russia, Latin America, and Africa on January 8 (to register, click here) and Challenges in Compliance and Corporate Governance on January 29 (to register, click here). FCPA OVERVIEW The FCPA's anti-bribery provisions make it illegal to corruptly offer or provide money or anything else of value to officials of foreign governments, foreign political parties, or public international organizations with the intent to obtain or retain business.  These provisions apply to "issuers," "domestic concerns," and those acting on behalf of issuers and domestic concerns, as well as to "any person" who acts while in the territory of the United States.  The term "issuer" covers any business entity that is registered under 15 U.S.C. § 78l or that is required to file reports under 15 U.S.C. § 78o(d).  In this context, foreign issuers whose American Depository Receipts ("ADRs") or American Depository Shares ("ADSs") are listed on a U.S. exchange are "issuers" for purposes of the FCPA.  The term "domestic concern" is even broader and includes any U.S. citizen, national, or resident, as well as any business entity that is organized under the laws of a U.S. state or that has its principal place of business in the United States. In addition to the anti-bribery provisions, the FCPA also has "accounting provisions" that apply to issuers and those acting on their behalf.  First, there is the books-and-records provision, which requires issuers to make and keep accurate books, records, and accounts that, in reasonable detail, accurately and fairly reflect the issuer's transactions and disposition of assets.  Second, the FCPA's internal controls provision requires that issuers devise and maintain reasonable internal accounting controls aimed at preventing and detecting FCPA violations.  Prosecutors and regulators frequently invoke these latter two sections when they cannot establish the elements for an anti-bribery prosecution or as a mechanism for compromise in settlement negotiations.  Because there is no requirement that a false record or deficient control be linked to an improper payment, even a payment that does not constitute a violation of the anti-bribery provisions can lead to prosecution under the accounting provisions if inaccurately recorded or attributable to an internal controls deficiency. International corruption also may implicate other U.S. criminal laws.  Increasingly in recent years, prosecutors from the FCPA Unit of the U.S. Department of Justice ("DOJ") have begun charging non-FCPA crimes such as money laundering, mail and wire fraud, Travel Act violations, tax violations, and even false statements, in addition to or instead of FCPA charges.  Perhaps most prevalent amongst these "FCPA-related" charges is money laundering—a generic term used as shorthand for several statutory provisions that together criminalize the concealment or transfer of proceeds from certain "specified unlawful activities," including corruption under the laws of foreign nations, through the U.S. banking system.  DOJ frequently deploys the money laundering statutes to charge "foreign officials" who are not themselves subject to the FCPA.  It is thus increasingly commonplace for DOJ to charge the alleged giver of a corrupt payment with FCPA violations and the alleged recipient with money laundering violations. FCPA AND FCPA-RELATED ENFORCEMENT STATISTICS The below table and graph detail the number of FCPA enforcement actions initiated by DOJ and the Securities and Exchange Commission ("SEC"), the statute's dual enforcers, during the past 10 years.

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC
26 14 48 26 23 25 11 12 19 8 17 9 10 10 21 32 29 10 21 17

Chart - FCPA Enforcement Actions (2009-2018)

Viewed from this perspective, 2018 was undoubtedly a productive year, and enforcement trends must have a multi-year lens. When we see our counterparts in the hallways of the Bond Building, we see plenty of evidence of a continued frenetic pace of activity within the FCPA Unit. To illustrate this further, one need only look at a slightly different set of statistics that captures the activity of DOJ's FCPA Unit rather than the number of cases it brings under a particular statute. As can be seen from the below table and graph, which includes non-FCPA charges brought by the FCPA Unit in international corruption investigations, 2018 was the second most prolific year in the history of foreign anti-corruption enforcement by the U.S. government.

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC
28 14 51 26 24 25 12 12 21 8 19 9 12 10 27 32 36 10 47 17

FCPA + FCPA-Related Enforcement Actions Chart

2018 FCPA + FCPA-RELATED ENFORCEMENT TRENDS In each of our year-end FCPA updates, we seek not only to report on the year's FCPA enforcement actions but also to identify and synthesize the trends that stem from these actions.  For 2018, seven key enforcement trends stand out from the rest: 1.      DOJ brings "FCPA-related" charges against individuals at an unprecedented pace; 2.      Venezuela in the spotlight; 3.      Continuing scrutiny of the financial services industry; 4.      Continuing reverberations from Brazil's "Operation Car Wash"; 5.      Public company executives, don't forget about the SEC . . . ; 6.      The SEC continues to assert aggressive theories in non-precedential settlements; and 7.      DOJ issues four declinations under the FCPA Corporate Enforcement Policy.             DOJ Brings "FCPA-Related" Charges at an Unprecedented Pace As discussed above, DOJ has in the past several years fundamentally changed its approach to international corruption cases.  A phenomenon we first reported in our 2009 Year-End FCPA Update, when it was but a trickle, has now become a full-fledged river.  In 2018, DOJ's FCPA Unit brought 26 non-FCPA criminal cases on top of 21 FCPA enforcement actions.  This is a dramatic upswing in non-FCPA prosecutions brought by the FCPA Unit, on par with the output of the prior decade combined.  Accounting most significantly for this trend is DOJ's aggressive deployment of the money laundering statute, in particular against officials of foreign governments. For decades, it has been established law that "foreign officials"—a necessary participant in at least completed FCPA bribery schemes—are nonetheless not covered by the anti-bribery provisions.  And for many years that meant that DOJ focused its criminal enforcement efforts on the "supply side" of bribery.  But starting several years ago, and then exploding in the numbers shown this year, DOJ has attacked the "demand side" every bit as aggressively, principally by charging foreign official bribe recipients (though not sitting, high-level officials) with money laundering.  The most prolific example would be those charged in connection with the Venezuelan bribery schemes described in the following section, although by no means is this the only example. In addition to turning the officials of foreign sovereigns into U.S. defendants, another significant characteristic of DOJ's money laundering explosion is the potential for theories of U.S. jurisdiction that exceed even the FCPA in their aggressiveness.  For an FCPA bribery charge, the defendant should be a U.S. national, a U.S. company, an employee or agent of an issuer or U.S. company, or a foreign party alleged to have taken an action on U.S. soil.  But for money laundering jurisdiction, DOJ has for some time taken the position that the mere use of U.S. correspondent bank accounts—through which the vast majority of U.S. dollar transactions worldwide are routed—is sufficient to vest the United States with jurisdiction to prosecute.  Thus, if a wire for a corrupt payment in U.S. dollars is made from an account in Foreign Country A to an account in Foreign Country B, but routes instantaneously through a bank account in a U.S. dollar-denominated account in New York, DOJ may assert it has jurisdiction over that transaction even if the parties and business at issue are wholly foreign.  Examples of this aggressive theory on display in 2018 can be seen in the Chi Ping Patrick Ho and Azat Martirossian prosecutions discussed below, among others.  The law on this issue is at this point unclear and subject to multiple statutory and due process defenses—we expect this aggressive assertion of extra-U.S. jurisdiction to be a frequent source of litigation in the years to come. One final point of note with respect to the DOJ FCPA Unit's focus on money laundering charges is that increasingly FCPA Unit attorneys are teaming up with attorneys from the Money Laundering and Asset Recovery Section ("MLARS").  We have been covering in these updates the work of MLARS for years now, including through their "Kleptocracy Asset Recovery Initiative," which uses civil forfeiture actions to freeze, recover, and, in some cases, repatriate the proceeds of foreign corruption.  Several significant FCPA investigations of the recent past began as MLARS forfeiture actions, including prominently those involving "1MDB" in Malaysia and Gulnara Karimova in Uzbekistan as discussed herein, years before they became criminal FCPA cases.  Further, although this update captures developments through 2018, in early January 2019 MLARS and FCPA Unit prosecutors teamed up once again in a big way with the unsealing of criminal charges against several individuals in connection with an alleged bribery and kickback scheme in Mozambique.  We will continue to monitor this and other enforcement activity in future updates. To help our clients meet these developing challenges, Gibson Dunn has on its team the former chiefs of both the DOJ FCPA Unit (Patrick F. Stokes) and MLARS (M. Kendall Day)—not to mention also the former key member of what is now the SEC's FCPA Unit (Richard W. Grime) and former head of the Enforcement Division at the U.S. Department of Treasury's Financial Crimes Enforcement Network, aka FinCEN (Stephanie Brooker).  Few if any firms can match the depth of our bench in this area.             Venezuela in the Spotlight                         PDVSA "pay-to-play" procurement scheme For three years now, we have been covering the steady expansion of charges brought by DOJ in connection with an alleged "pay-to-play" corruption scheme involving procurement processes at Venezuelan state-owned energy company Petróleos de Venezuela S.A. ("PDVSA").  As we first reported in our 2015 Year-End FCPA Update, DOJ alleges that between 2009 and 2014 U.S. businesspersons paid millions of dollars in bribes to PDVSA officials to influence the award of competitive energy contract procurements, as well as to secure preferential treatment in the payment of outstanding debts owed by PDVSA. During the second half of 2018, DOJ unsealed charges against five new defendants in the PDVSA procurement investigation.  On July 31, Jose Manuel Gonzalez-Testino was arrested at Miami International Airport based on a criminal complaint filed in the U.S. District Court for the Southern District of Texas alleging substantive and conspiracy FCPA charges for the payment of at least $629,000 in bribes to an official of PDVSA's purchasing arm, which based on the allegations appears to be Cesar David Rincon-Godoy, who pleaded guilty to one count of money laundering earlier in the year.  In another pairing of charges against bribe payer and bribe recipient, on September 13, DOJ announced guilty pleas by Juan Carlos Castillo Rincon and Jose Orlando Camacho, respectively a former manager for a Houston-based logistics and freight forwarding company and a former PDVSA procurement official.  Castillo Rincon pleaded guilty to FCPA conspiracy for making corrupt payments to Orlando Camacho, who himself pleaded guilty to money laundering conspiracy for receiving the payments.  On October 30, another former PDVSA procurement official, Ivan Alexis Guedez, pleaded guilty to a money laundering conspiracy charge in connection with his receipt of corrupt payments.  Finally, on December 10, former PDVSA official Alfonzo Eliezer Gravina Munoz pleaded guilty for the second time in connection with the PDVSA investigation.  As previously reported in our 2016 Mid-Year FCPA Update, Gravina Munoz pleaded guilty in 2016 to money laundering conspiracy and tax charges associated with his alleged receipt of bribes.  Gravina Munoz agreed to cooperate with U.S. investigators as part of the original guilty plea, yet according to his 2018 guilty plea to obstruction of justice, he concealed information about a co-conspirator and tipped that person off about the investigation, leading the co-conspirator to destroy evidence and attempt to flee the United States (based on the timing of his arrest at the airport in July 2018, some have reported that the co-conspirator is Gonzalez-Testino). In total, DOJ has (publicly) brought 20 cases of FCPA and FCPA-related charges against 19 individuals associated with the PDVSA procurement corruption investigation.  Fifteen of these defendants have pleaded guilty in connection with 16 of these cases, all awaiting a 2019 sentencing date before the Honorable Gray H. Miller of the U.S. District Court for the Southern District of Texas.  Three of the remaining four defendants are listed as fugitives and have yet to be brought within the jurisdiction of the court, while the fourth (Gonzalez-Testino) awaits a trial date.             Venezuelan currency exchange schemes There can be no question that the above-described PDVSA procurement case is significant.  But developments in 2018 in separate corruption-related cases out of Venezuela may ultimately prove to be even more substantial. According to a July 23 affidavit in support of multiple arrest warrants, a confidential witness approached federal agents in 2016, confessed to his or her involvement in a corrupt currency conversion / embezzlement scheme involving PDVSA funds, and agreed to cooperate in a surreptitious manner.  Two years and more than 100 recorded conversations later, "Operation Money Flight" has yielded (public) charges against nine individuals for $1.2 billion in alleged money laundering. Although complex in operation, the genesis of the scheme relates simply to a substantial difference between the official and unofficial rates at which Venezuelan bolivars could be exchanged for U.S. dollars.  Co-conspirators allegedly entered into contracts to convert PDVSA bolivars into dollars at the unofficial rate (e.g., 60:1) and then, with the assistance of corrupt payments to government officials, allegedly converted the purchased bolivars back into dollars at the official rate (e.g., 6:1).  In so doing, co-conspirators allegedly were able to receive as much as 10 times their investment by effectively embezzling money from PDVSA. The first charges were announced on July 25, 2018, with the arrest of Matthias Krull, a German national resident in Panama working for a European bank, and Gustavo Adolfo Hernandez Frieri, a naturalized U.S. citizen who operated financial services firms out of Florida.  Also charged in connection with the money laundering scheme are businesspersons Francisco Convit Guruceaga, Jose Vincente Amparan Croquer, Hugo Andre Ramalho Gois, Marcelo Federico Gutierrez Acosta y Lara, and Mario Enrique Bonilla Vallera, former legal counsel for the Venezuelan Ministry of Oil and Mining Carmelo Urdaneta Aqui, and former PDVSA Finance Director Abraham Edgardo Ortega.  Only weeks after his arrest in Miami, Krull pleaded guilty to a single money laundering conspiracy count and was sentenced on October 29, 2018 to 10 years in prison.  Ortega, who was arrested in September and pleaded guilty to a single money laundering conspiracy count on October 31, 2018, awaits an April 2019 sentencing date.  Frieri, who was arrested in Italy reportedly while on vacation with his family, is still undergoing extradition proceedings.  The remaining defendants have yet to make an appearance in the U.S. District Court for the Southern District of Florida and are designated as fugitives. A second set of charges connected to alleged currency conversion corruption in Venezuela (though not specific to PDVSA) was announced on November 19, 2018, when DOJ unsealed an indictment against Raul Gorrin Belisario, the billionaire owner of the Globovision news network, charging him with conspiracy to violate the FCPA and numerous money laundering counts.  On the same day, DOJ unsealed money laundering guilty pleas by former Venezuelan National Treasurer Alejandro Andrade Cedeno and former bank owner Gabriel Arturo Jimenez Aray.  According to the charging documents, Gorrin Belisario bribed two successive Venezuelan National Treasurers, including Andrade Cedeno, to enter into contracts for foreign exchange transactions at favorable rates.  Gorrin Belisario and Jimenez Aray allegedly laundered the bribes and proceeds of the scheme through a Dominican bank owned by the latter.  Jimenez Aray was sentenced to three years in prison, while Andrade Cedeno was sentenced to 10 years in prison and agreed to forfeit a staggering $1 billion in cash and luxury assets that he allegedly received as bribes.  Gorrin Belisario has yet to make an appearance in the U.S. District Court for the Southern District of Florida and is designated a fugitive.             Continuing Scrutiny of the Financial Services Industry                         1MDB We have been tracking for several years now investigative activity related to Malaysian sovereign wealth fund 1Malaysia Development Berhad ("1MDB").  As covered in our 2016 Year-End FCPA Update, the investigations first surfaced with a massive civil forfeiture action filed by MLARS in the U.S. District Court for the Central District of California seeking to recover funds allegedly misappropriated from 1MDB.  On November 1, 2018, the investigation took a turn with prosecutors from the FCPA Unit and MLARS unsealing criminal FCPA charges in the U.S. District Court for the Eastern District of New York against Malaysian businessperson Low Taek Jho and two former bankers, Tim Leissner and Ng Chong Hwa.  Collectively, the three are alleged to have participated in the diversion of more than $2.7 billion from 1MDB, between 2009 and 2014 and in connection with three separate bond offerings, for the illicit purposes of making payments to officials of state-owned investment funds of Malaysia and the UAE and embezzlement for their own personal benefit. Leissner has pleaded guilty to a two-count information charging him with a dual FCPA conspiracy—both to violate the anti-bribery provisions and to circumvent his former issuer-employer's internal controls—as well as money laundering conspiracy.  Sentencing is currently set for January 2019, although of note Leissner already has agreed to forfeit more than $40 million in connection with the scheme.  Ng and Low were each indicted on FCPA bribery and money laundering charges, with Ng additionally being charged with FCPA internal controls violations.  Ng has been arrested in Malaysia and is awaiting extradition proceedings, while Low remains at large.                         Legg Mason Inc. We covered DOJ's June 2018 non-prosecution agreement with Maryland-based investment firm Legg Mason in our 2018 Mid-Year FCPA Update.  As anticipated therein, the SEC followed with its own FCPA charges, announcing on August 27, 2018 a settled cease-and-desist proceeding associated with the alleged scheme to bribe Libyan officials to secure investment opportunities.  To resolve the SEC's FCPA internal controls charge, Legg Mason agreed to pay $34.5 million in disgorgement and prejudgment interest.  This resolution is unusual because typically the SEC and DOJ resolve investigations on the same day and not months apart, but the cases were coordinated in that the investment firm received credit in the DOJ resolution for disgorgement ultimately paid to the SEC and the SEC's order does not include a separate civil penalty in recognition of Legg Mason's $32,625,000 criminal fine.                         Joo Hyun Bahn After pleading guilty earlier this year to criminal FCPA charges in connection with the feigned Vietnamese skyscraper plot covered in our 2017 Year-End and 2018 Mid-Year FCPA updates, on September 6, 2018, former real estate broker Joo Hyun Bahn consented to an administrative cease-and-desist order with the SEC based on the same conduct.  To resolve civil FCPA anti-bribery, books-and-records, and internal controls allegations, Bahn agreed to pay $225,000 in disgorgement, which was deemed satisfied by the forfeiture and restitution payments that Bahn was ordered to pay in the criminal proceeding.  On the same day that the SEC resolution was announced, the Honorable Edgardo Ramos of the U.S. District Court for the Southern District of New York sentenced Bahn to six months in prison, to forfeit $225,000, and pay to $500,000 in restitution. Notably, there have been no reports of a pending resolution involving Bahn's former employer, real estate firm Colliers International.  If this continues to the case, it may reflect a judgment that charges are not appropriate given Bahn's alleged deceit toward his former employer coupled with the fact that the deal in question was never consummated.             Continuing Reverberations from Brazil's "Operation Car Wash" Our readership is well aware that the long-running "Operation Car Wash" investigation has resulted in significant corruption-related enforcement activity both within and without Brazil.  To say nothing of its seismic domestic impact, where it is credited with toppling a presidential administration, viewed strictly from a U.S. FCPA perspective Operation Car Wash has become one of the most significant "clusters" of FCPA enforcement activity ever.  Prior FCPA enforcement actions with connections to this investigation against Braskem S.A., Keppel Offshore & Marine Ltd., Odebrecht S.A., Rolls-Royce plc, and SBM Offshore N.V. are covered in our 2016 and 2017 year-end FCPA updates.  Said Principal Deputy Assistant Attorney General John P. Cronan at the recent Latin Lawyer / Global Investigations Review Anti-Corruption and Investigations Conference in São Paulo, "our close relationship with Brazil has borne fruit with some of the Department of Justice's most significant FCPA resolutions over the past 12 months." On September 27, 2018, DOJ and the SEC added to the "Operation Car Wash" numbers by announcing a joint FCPA resolution with Petróleo Brasileiro S.A. – Petrobras ("Petrobras"), Brazil's state-owned oil company.  Petrobras entered into a non-prosecution agreement with DOJ to resolve FCPA accounting allegations based on the conduct of certain former executives who already have been convicted in Brazil for concealing their engagement in a scheme of embezzlement and political payoffs that harmed and caused severe loss to Petrobras.  The SEC likewise alleged that Petrobras violated the FCPA's accounting provisions, as well as certain non-scienter-based provisions of the Securities Act and the Exchange Act through allegedly misleading statements to U.S. investors in connection with a stock offering completed in 2010.  In moves illustrative of the unusual nature of the resolution, DOJ explicitly recognized that Petrobras was a victim of its former employees' embezzlement, and the SEC acknowledged the company's "significant cooperation" with the SEC's investigation and its status as an Assistant to the Prosecution in 51 proceedings in Brazil. Although some have reported the financial resolution reached by Petrobras as high as $1.78 billion, the amount to be paid by the company in connection with the FCPA resolutions is far more modest.  To resolve the criminal case, Petrobras agreed to a fine of $853.2 million, but will pay only $85.3 million (10%) of that to DOJ, with an 80% offsetting credit applied against $682.56 million to be paid to fund social responsibility programs in Brazil as part of an agreement with the Brazilian Federal Prosecutor's Office and a 10% offsetting credit applied against a civil penalty imposed by the SEC.  Similarly, the SEC imposed $933.5 million in disgorgement and prejudgment interest and an $853.2 million penalty, but takes only $85.3 million of that after crediting the Brazilian resolution against the penalty and, in a first-of-its kind for FCPA resolutions, crediting the entire disgorgement amount against the shareholders' class action settlement described in our 2018 Mid-Year FCPA Update.  Said SEC FCPA Unit Chief Charles E. Cain of this latter credit while speaking at the Securities Enforcement Forum on November 1, 2018:  "It made sense for this case," and other companies should not expect the same result moving forward.  Thus Petrobras will in effect pay just over $170 million to resolve its FCPA resolutions with DOJ and the SEC. In another Operation Car Wash-related FCPA enforcement action, Houston-based offshore drilling company Vantage Drilling International resolved SEC allegations that it lacked adequate internal controls over payments to its supplier of drilling assets—a Taiwanese shipping magnate who was the company's largest shareholder and sat on its board—and the engagement of a third-party agent without due diligence to assist in marketing the company to Petrobras.  According to the SEC, Vantage Drilling failed to respond to red flags indicating a risk that the director and the agent would bribe Petrobras officials in connection with obtaining a $1.8 billion contract that benefitted the company.  Vantage Drilling previously has identified the Taiwanese director as Hsin-Chi Su, one of several people who along with former Vantage Drilling CEO Paul Bragg have been charged by Brazilian prosecutors. Without admitting or denying the allegations, Vantage Drilling consented to the cease-and-desist proceeding and agreed to pay $5 million in disgorgement.  The SEC did not impose additional penalties in light of Vantage's financial condition.  The company initiated bankruptcy proceedings after Petrobras terminated its drilling services contract in 2015 in reaction to the corruption allegations.  DOJ closed its investigation into the company in 2017 without taking action.             Public Company Executives, Don't Forget about the SEC . . . It is a frequent and misguided critique of FCPA enforcement that executives in high-profile positions are not held to account for the misdeeds that occur on their watch.  Although frequently there are legitimate jurisdictional, prudential, or other explanations for this purported phenomenon, DOJ and the SEC have each made a point in recent years of underscoring their commitment to holding individuals accountable for corporate misconduct.  For example, SEC FCPA Enforcement Chief Charles E. Cain said recently, "Corporate culture starts at the top, and when misconduct is directed by the highest level of management it is critical that they are held accountable for their conduct."  Two examples of the SEC charging public company executives in 2018 FCPA enforcement actions in the wake of corporate resolutions follow. On September 25, 2018, the SEC announced a settled cease-and-desist proceeding against Patricio Contesse González, the former longtime CEO of Chilean chemical and mining company and ADR-issuer Sociedad Química y Minera de Chile, S.A. ("SQM"), which 20 months earlier paid more than $30 million to resolve DOJ / SEC FCPA enforcement actions as covered in our 2017 Mid-Year FCPA Update.  The SEC's order alleges that González used a discretionary "CEO account" to funnel $15 million to Chilean politicians and then failed to disclose these payments to SQM's internal and external auditors.  To resolve the SEC's allegations that he caused SQM to violate and himself violated the FCPA books-and-records and internal controls provisions, as well as signed misleading management representation letters to SQM's external auditor and signed false certifications in SQM's filings, González agreed to pay a civil penalty of $125,000. Similarly, on December 18, 2018, the SEC announced a settled cease-and-desist proceeding with Paul A. Margis, the former CEO of Panasonic Avionics Corporation ("PAC"), a U.S. subsidiary of Japanese electronics company and former American Depositary Share-issuer Panasonic, which together with PAC paid more than $280 million in an April 2018 DOJ / SEC FCPA resolution as covered in our 2018 Mid-Year FCPA Update.  The SEC alleged that Margis authorized $1.76 million in payments to three third parties, one of whom was a government official actively negotiating with PAC for a post-retirement position as he simultaneously negotiated with PAC for a major contract extension on behalf of his state-owned airline employer, even though these third parties provided little-to-no work on behalf of PAC.  To resolve the charges that he circumvented PAC's internal controls, falsified PAC's books and records, caused Panasonic to violate the FCPA's accounting provisions, and misled external auditors in certifications and representation letters, Margis agreed to pay a civil penalty of $75,000.  While not an FCPA resolution, PAC's former CFO Takeshi Uonaga agreed in a parallel resolution to pay a $50,000 civil penalty to resolve allegations that he backdated a contract to allow for untimely recognition of revenue in connection with a contract with the same state-owned airline.
The SEC Continues to Assert Aggressive Theories in Non-Precedential Settlements
In 2018, the SEC resolved 10 corporate FCPA enforcement actions that did not have a corresponding DOJ resolution.  In several of these SEC-only resolutions, the SEC leveraged the accounting provisions to bring cases predicated upon aggressive theories of FCPA liability that, at least on the face of the charging documents, bore a tenuous (or non-existent) connection to foreign bribery.  In another case, the SEC seemed to stretch (if not break) the boundaries of the anti-bribery provision.  Thus continues a trend we have observed periodically over the years, including most recently in our 2017 Year-End FCPA Update.  Although settlements are clearly non-binding in the legal sense, any FCPA practitioner knows that they are frequently bandied about as precedent in settlement discussions and thus become a very real part of the body of FCPA enforcement that must be contended with. In our 2018 Mid-Year FCPA Update, we reported on two cases involving aggressive interpretations of the accounting provisions:  (1) the SEC's cease-and-desist proceeding against Elbit Imaging Ltd., where the violation alleged by the SEC concerned the use of third parties on whom due diligence was not performed and no evidence of work performed; and (2) the SEC's cease-and-desist proceeding against Kinross Gold, where the alleged violations related to the slow implementation of compliance controls at two acquired subsidiaries, failure to respond to internal audits flagging the inadequate controls, and inadequate efforts to ensure that payments to vendors and consultants were used appropriately.  In neither case did the SEC directly allege specific corrupt payments. More recently, on September 28, 2018, the SEC announced a settled cease-and-desist proceeding against Michigan-based medical technology company Stryker Corporation, related to alleged violations of the FCPA's accounting provisions.  The allegations relate to the company's internal controls purportedly being insufficient to detect the risk of improper payments in India, China, and Kuwait.  Specifically, the SEC alleged that an internal forensic review of Stryker's Indian subsidiary identified no supporting documentation for 27% of higher-risk transactions tested, as well as inflated invoices in connection with third-party sales to private hospitals.  The SEC further alleged that Stryker's Chinese subsidiary used at least 21 sub-distributors that were not vetted, approved, or trained as required by company policy, which increased the risk of improper payments, and that Stryker did not test or otherwise assess compliance with its policies by a distributor in Kuwait that made over $32,000 in duplicative per diem payments to health care professionals over the course of three years.  To resolve these FCPA accounting allegations, and without admitting or denying the SEC's findings, Stryker consented to the entry of a cease-and-desist order and agreed to pay a $7.8 million civil penalty.  Stryker also was required to retain an independent compliance consultant, narrowly focused on reviewing Stryker's anti-corruption policies and procedures and internal controls applicable to third parties, for an 18-month term.  It is likely that the compliance monitor was imposed, at least in part, because this was Stryker's second FCPA resolution, having resolved a prior FCPA enforcement action with the SEC in October 2013 as detailed in our 2013 Year-End FCPA Update. Employing a different sort of aggressive FCPA theory, on September 12, 2018, the SEC announced a settled cease-and-desist proceeding against a multinational conglomerate for alleged violations of the FCPA's anti-bribery, books-and-records, and internal controls provisions. The company was alleged among other things to have made improper payments with respect to public housing officials in Azerbaijan to retain sales. What makes this case stand out as aggressive in its charging theory is the Section 30A bribery charge relating to the conduct in Azerbaijan. The only clear allegation of involvement by the parent in its Russian subsidiary’s alleged conduct is that the parent "failed to detect the conduct"—seemingly an inadequate internal controls theory, if that. Further, there is a prominent allegation of U.S. jurisdictional nexus via the fact that the payments made on behalf of the Russian subsidiary "were [made] in U.S. dollar denominations and involved U.S. correspondent banks." To resolve the allegations, the company agreed to pay $13.9 million, consisting of nearly $10 million in disgorgement and prejudgment interest and a $4 million penalty. DOJ closed its investigation in March 2018 without bringing its own enforcement action. Finally, on December 26, 2018, the SEC brought an FCPA enforcement action unlike any other of which we are aware.  The SEC charged Brazilian state-owned power company and issuer Centrais Elétricas Brasileiras S.A. ("Eletrobras") with violations of the FCPA's books-and-records and internal controls provisions based entirely on the alleged self-dealing of its now-former executives, which had no apparent benefit to the company.  Specifically, the SEC alleged that executives of an Eletrobras subsidiary managing a massive nuclear power plant construction project received kickbacks from private Brazilian construction companies in exchange for paying inflated or sham invoices on behalf of the company.  Payments also were allegedly made to Brazilian political party and government officials, which is why we count this as an FCPA enforcement action; however, the payments were made on behalf of the Brazilian construction companies and only funded, in part, out of the alleged sham invoices and inflated contract prices paid by the Eletrobras subsidiary.  There is no allegation that Eletrobras received an improper benefit via these payments, and indeed it would seem that the company was a victim in this course of conduct.  Nonetheless, the SEC alleged that Eletrobras maintained deficient internal controls and had inaccurate books and records as a result of this scheme.  To resolve the SEC proceedings, without admitting or denying the findings, Eletrobras consented to the entry of a cease-and-desist order and agreed to pay a $2.5 million civil penalty.  There was no disgorgement as there was no benefit to Eletrobras alleged.  The company previously announced that DOJ closed its investigation without taking enforcement action.             DOJ Issues Four Declinations under the FCPA Corporate Enforcement Policy DOJ issued four public declination letters in 2018 pursuant to the FCPA Corporate Enforcement Policy.  Two of these coincided with parallel SEC FCPA enforcement actions, one anticipates a future foreign regulatory action, and the fourth stands alone as a corporate action (but follows an individual enforcement action).  All of the letters followed decisions by the named companies to make voluntary disclosures, which is a threshold requirement under the FCPA Corporate Enforcement Policy. The first declination letter of 2018 concerned Dun & Bradstreet as we covered in our 2018 Mid-Year FCPA Update.  Descriptions of the three declination letters from the second half of 2018 follow:
  • Güralp Systems Limited – On August 20, 2018, DOJ issued a public declination letter to UK seismology company Güralp Systems in connection with the same set of events leading to the U.S. money laundering conviction of Heon-Cheol Chi, former Director of the Korea Institute of Geoscience and Mineral Resources ("KIGAM") Earthquake Research Center, described in our 2017 Year-End FCPA Update.  DOJ stated in the letter that it was closing its investigation without charges against Güralp Systems, despite evidence of corrupt payments to Chi, based on a variety of factors, including most prominently that Güralp Systems, "a U.K. company with its principal place of business in the U.K., is the subject of an ongoing parallel investigation by the U.K.'s Serious Fraud Office for violations of law relating to the same conduct and has committed to accepting responsibility for that conduct with the SFO."  As described below, several former Güralp Systems executives have been charged in the UK, but the UK investigation of Güralp Systems remains ongoing.
  • Insurance Corporation of Barbados Limited – Three days later, on August 23, 2018, DOJ issued a public declination letter to Barbadian insurance company ICBL.  This letter came several weeks after DOJ unsealed a March 2018 indictment charging Donville Inniss, a former Minister of Industry and member of Parliament of Barbados, with money laundering in connection with his alleged receipt of $36,000 from ICBL in exchange for agreeing to award government contracts to the insurer.  Pursuant to the declination letter, which is countersigned by ICBL's Board Chair, ICBL agreed to the letter's brief recitation of facts and to disgorge nearly $94,000 in profits received from the tainted contracts, making it the first so-called "declination with disgorgement" agreement under the official FCPA Corporate Enforcement Policy (although prior such agreements were reached under the predecessor FCPA Pilot Program).  Inniss's trial is scheduled for June 2019 before the Honorable Kiyo A. Matsumoto of the U.S. District Court for the Eastern District of New York.  Interestingly, a redacted superseding indictment filed by DOJ in the case makes clear that money laundering charges have been filed under seal against the former CEO and a senior vice president of ICBL.
  • Polycom, Inc. – The year's final FCPA enforcement event, announced on December 26, 2018, involved a coordinated SEC cease-and-desist order entered against, and DOJ declination letter issued to, California telecommunications provider Polycom.  The allegations set forth in the SEC order, which charge violations of the FCPA's books-and-records and internal controls provisions, assert that between 2006 and 2014 employees of Polycom's Chinese subsidiary provided discounts to distributors or resellers while knowing that those discounts would be used to fund improper payments to government end customers.  To resolve these allegations, Polycom agreed to pay $12.5 million in disgorgement and prejudgment interest plus a $3.8 million civil penalty.  DOJ then issued a letter declining to prosecute Polycom for the China conduct, prominently noting the company's voluntary disclosure, cooperation, and agreement to enter into the SEC resolution.  What is perhaps most noteworthy about the Polycom settlement is that whereas the SEC explicitly limited its disgorgement to illicit profits earned on or after September 27, 2012—clearly in recognition of the five-year statute of limitations imposed by 28 U.S.C. § 2462 and Kokesh v. SEC, 137 S. Ct. 1635 (2017)—DOJ made a condition of its declination letter that Polycom disgorge an additional $20.3 million representing profits earned outside "the time limits prescribed by 28 U.S.C. § 2462."
            Rounding Out the 2018 FCPA Enforcement Docket Additional 2018 FCPA enforcement actions not covered above or in our 2018 Mid-Year FCPA Update are as follows:
  • Roger Richard Boncy – On October 30, 2018, DOJ filed a superseding indictment in the case against retired U.S. Army colonel and Haitian non-profit founder Joseph Baptiste, covered in our 2017 Year-End FCPA Update, to add Boncy as a defendant on the FCPA conspiracy, Travel Act, and money laundering conspiracy charges.  Boncy is a former lawyer of dual U.S.-Haitian citizenship who once served as Haiti's Ambassador-at-Large.  According to the indictment, Boncy and Baptiste solicited bribe money from two undercover FBI agents who were posing as prospective investors for a multi-million dollar port development project in Haiti.  But instead of funneling the bribe money to Haitian officials, Baptiste allegedly pocketed it.  Although the trial of Baptiste nearly went forward in late 2018, in light of the superseding indictment, a joint trial for Baptiste and Boncy is now scheduled for June 2019.
  • Sanofi – On September 4, 2018, the SEC announced a settled FCPA accounting resolution with Paris-headquartered and U.S.-listed pharmaceutical manufacturer Sanofi, pursuant to which the company agreed to pay $25.2 million in disgorgement, prejudgment interest, and penalties to resolve allegations regarding corrupt payments to government procurement officials and healthcare providers in Kazakhstan and the Middle East.  Sanofi also agreed as part of the resolution to self-report about anti-corruption compliance to the SEC for a two-year period.
  • Juan Andres Baquerizo Escobar – On July 11, 2018, DOJ filed a criminal money laundering charge against another defendant involved in the ongoing investigation of corruption at Ecuador's state-owned oil company, Petroecuador.  Baquerizo Escobar, an Ecuadorian businessperson, pleaded guilty two months later to facilitating the transfer of $1.72 million in bribes to Petroecuador officials between 2012 and 2016.  He awaits a January 2019 sentencing date.  As discussed in our 2017 Year-End and 2018 Mid-Year FCPA updates, charges have been brought against four other defendants in this investigation—money laundering charges against former Petroecuador officials Arturo Escobar Dominguez and Marcelo Reyes Lopez, money laundering charges against Ecuadorian businessperson Jose Larrea, and FCPA and money laundering charges against Ecuadorian businessperson Frank Roberto Chatburn Ripalda.  The first three have all now pleaded guilty, including Larrea on September 11, 2018, and been sentenced to prison terms of 53 months (Reyes Lopez), 48 months (Escobar Dominguez), and 27 months (Larrea), respectively.  Chatburn Ripalda was scheduled to go to trial in February 2019, but a superseding indictment charging him with additional alleged bribes to Petroecuador officials was filed on December 13, 2018.  A hearing on the superseding indictment and likely a new trial date is set for January 2019.
2018 FCPA-RELATED ENFORCEMENT LITIGATION             Second Circuit Issues Important FCPA Jurisdictional Decision in Hoskins On August 24, 2018, the U.S. Court of Appeals for the Second Circuit issued a long-awaited decision in the criminal FCPA case filed against former Alstom executive Lawrence Hoskins.  As we reported in our 2015 Year-End and 2016 Mid-Year FCPA updates, the Honorable Janet Bond Arterton of the U.S. District Court for the District of Connecticut ruled below that Hoskins, a UK national working for a UK subsidiary of a French company, could not be held liable under the FCPA pursuant to a theory of conspiring with or aiding-and-abetting a person who was subject to the statute where it could not be shown that Hoskins was himself subject to the statute.  In an unusual move underscoring the programmatic importance of this issue, DOJ took an interlocutory appeal to the Second Circuit. The Second Circuit largely affirmed the judgment of the district court, in an opinion authored by the Honorable Rosemary S. Pooler.  Specifically, the Second Circuit affirmed the lower court's ruling that the government may not charge a defendant under the FCPA based on conspiracy or aiding-and-abetting theories if that defendant does not himself fall within one of the "three clear categories of persons who are covered by [the FCPA's anti-bribery] provisions."  The Court's opinion extensively reviews the FCPA's legislative history and concludes that the text of the statute reflected "surgical precision" on its drafters' part in clearly establishing its jurisdictional reach to specifically exclude foreign persons who are neither agents of U.S. companies and who did not act within the territory of the United States.  Thus, under the interpretive principle established in the Supreme Court's landmark Gebardi decision, such persons likewise cannot be charged with FCPA conspiracy or aiding-and-abetting offenses.  The Second Circuit went on to observe that the general presumption against the extraterritorial application of statutes provided an independent basis to preclude the government from charging Hoskins with FCPA conspiracy given an absence of clearly expressed congressional intent to allow conspiracy and aiding-and-abetting liability to broaden the FCPA's extraterritorial reach.  The Court did, however, hold that the government should be permitted to make a showing that Hoskins acted as an agent of a domestic concern (namely, Alstom's U.S. subsidiary), in which case he could be held liable for conspiring with Alstom's U.S. employees or other foreign nationals who did act within the territory of the United States. Given the paucity of appellate decisions interpreting and construing the FCPA, this decision is a significant precedent limiting the government's ability to prosecute non-resident, foreign defendants who do not act within U.S. territory and are not agents of a U.S. issuer or domestic concern.  Of course, DOJ may well respond by attempting to rely on an expanded view of agency liability to reach non-resident defendants who did not act within U.S. territory.  Further, as set forth in other portions of this Update, DOJ is increasingly relying upon the money laundering statute as an alternative basis for criminal liability where corrupt transactions pass through the U.S. banking system.  As for Hoskins's case, it has been returned to the District of Connecticut with a March 2019 trial date.             DOJ Secures FCPA Trial Conviction We reported in our 2018 Mid-Year FCPA Update on the then-pending motion to dismiss of Chi Ping Patrick Ho, the head of a China and Virginia-based NGO who was indicted in December 2017 on FCPA and money laundering charges associated with his alleged role in separate corruption schemes in Chad and Uganda.  Following oral argument on July 19, 2018, the Honorable Loretta A. Preska of the U.S. District Court for the Southern District of New York denied Ho's motion to dismiss the indictment making two separate findings:  (1) it is not inconsistent to charge Ho both as a foreign national acting within the territory of the United States pursuant to 18 U.S.C. § 78dd-3 and at the same time as an agent of a domestic concern subject to 18 U.S.C. § 78dd-2—these are factual questions to be addressed by the jury; and (2) that wire transfers from one foreign jurisdiction to another foreign jurisdiction, passing through the United States via a correspondent banking account transfer as most U.S. dollar transactions do, may survive a facial challenge to a money laundering charge.  The Court deferred Ho's due process challenge to the latter charge pending the evidence to be submitted at trial. Motion to dismiss denied, Ho proceeded to trial.  The evidence presented at the seven-day trial included that Ho offered gift boxes containing $2 million in cash to the President of Chad, who rejected the offer and provided no illicit benefit to Ho or his employer.  Ho then turned his attention to the second corruption scheme in Uganda, whereby he allegedly paid $500,000 via wire transfer to a purported charitable foundation designated by the Foreign Minister and a $500,000 cash "campaign donation" to the President.  On December 5, 2018, after only three hours of deliberation, the federal jury in Manhattan returned a guilty verdict on seven of the eight counts set forth in the indictment, including FCPA and money laundering charges.  A key witness for the government at Ho's trial was Cheikh Gadio, the former Foreign Minister of Senegal alleged to have been Ho's co-conspirator.  Gadio himself had been charged with money laundering, as reported in our 2017 Year-End FCPA Update, but on September 14, 2018 DOJ dismissed that charge.  On December 18, 2018, Ho filed a one-paragraph motion to set aside the verdict pursuant to Rule 29(c), which was denied by Judge Preska in a one-word order dated December 19.  Ho is scheduled to be sentenced in March 2019.             Court Dismisses Civil FCPA Charges against Former Och-Ziff Executives In our 2017 Mid-Year FCPA Update, we discussed the SEC's civil FCPA charges against two executives of New York-based hedge fund Och-Ziff Capital Management Group LLC, Michael L. Cohen and Vanja Baros, arising out of an alleged corruption scheme in various African countries.  Cohen and Baros filed separate motions to dismiss the SEC's charges based on the Kokesh decision, in which the Supreme Court unanimously held that disgorgement is a "penalty" as defined in 28 U.S.C. § 2462 and therefore subject to the five-year statute of limitations.  The defendants argued that the conduct alleged in the SEC's complaint, which occurred between 2007 and 2012, was time-barred. On July 12, 2018, the Honorable Nicholas G. Garaufis of the U.S. District Court for the Eastern District of New York agreed with the defendants and dismissed the SEC's charges.  In a 32-page memorandum opinion, Judge Garaufis held that:  (1) the Court can and should consider a statute-of-limitations defense on a motion to dismiss, determining whether the relief sought by the SEC operates as a penalty based on the allegations set forth in the complaint; (2) the SEC may not allege conduct that is untimely in the complaint only then to seek discovery of whether there are additional violations within the statute-of-limitations period; (3) a tolling agreement executed by Cohen, which would have made timely certain of the SEC's claims concerning alleged conduct in sub-Saharan Africa, was limited by its express language to the SEC's initial investigation in Libya and therefore did not encompass investigations that arose from the initial investigation; and (4) the SEC's claim began to accrue at the time of the alleged violations of law, not when the defendants allegedly received illicit benefits from that misconduct, and in any event the SEC did not specifically allege that the defendants received illicit benefits within the applicable statute-of-limitations period. Although the Court's decision is undoubtedly significant for the growing body of FCPA case law, it represents only a partial victory for defendant Cohen.  As reported in our 2018 Mid-Year FCPA Update, Cohen has been charged by criminal indictment with FCPA-related offenses arising from his alleged failure to disclose his interest in an African mining operation to a charitable foundation client and subsequent acts to cover up the transaction after the SEC opened an investigation.  The criminal case also is before Judge Garaufis, but the allegations, timing, and theory of that case are different and it is unclear whether the statute of limitations will be a viable defense for Cohen.  Discovery in that matter is ongoing, with the next status hearing set for February 2019.             Court Dismisses FCPA-Related Charges against Former Military Contractor In an FCPA-related case that has largely flown under the radar of the FCPA community, in December 2017 DOJ charged former military contractor Charley Dean Hill with making false statements to FBI agents investigating payments by Hill's employer—a security and infrastructure provider—to obtain government licenses and permits from Iraqi officials.  Specifically, DOJ alleged that in a 2010 interview Hill stated falsely that he had never sent cash from Iraq to the United States. The single-count false statements charge was initially filed by way of criminal information, pursuant to a plea agreement, but then Hill backed out of the plea agreement and was charged by indictment in February 2018.  Hill filed a motion to dismiss the indictment on the grounds that it was untimely to charge him nearly eight years after the alleged false statement.  DOJ defended on the grounds that it timely sought and received a tolling order pursuant to 18 U.S.C. § 3292, which permits DOJ to toll the statute of limitations for up to three years while it seeks foreign-located evidence from a foreign government pursuant to a Mutual Legal Assistance Treaty.  But following a lengthy and spirited oral argument on the motion before the U.S. District Court for the District of South Carolina, the Honorable Henry M. Herlong, Jr. determined that because DOJ did not enumerate the false statements statute (18 U.S.C. § 1001) as one of the crimes under investigation in its § 3292 tolling application, the tolling order did not cover the crime ultimately charged and DOJ's indictment was untimely.  The Court therefore granted Hill's motion to dismiss.             Defendant Sentenced in HISS Case As we first reported in our 2015 Mid-Year FCPA Update, in January 2015 DOJ filed a civil action in the U.S. District Court for the Eastern District of Louisiana to forfeit nine New Orleans properties allegedly purchased with the proceeds of corruption involving the former Executive Director of the Honduran Institute of Social Security ("HISS").  Several years later, as discussed in our 2018 Mid-Year FCPA Update, a grand jury returned an indictment charging Carlos Alberto Zelaya Rojas, the nominal owner of the properties, with 12 counts of money laundering and other offenses.  The indictment alleged that Zelaya Rojas assisted his brother, the former HISS Executive Director, who was himself criminally charged in Honduras with taking millions of dollars in bribes from two Honduran businessmen, with laundering at least $1.3 million in bribe payments, including through the purchase of the nine New Orleans properties.  Following his June 2018 guilty plea to a single count of money laundering conspiracy, on October 3, 2018, Zelaya Rojas was sentenced by the Honorable Martin L.C. Feldman to 46 months in prison, in addition to the forfeiture of the nine properties.
Court Refuses to Consider Motion to Dismiss on Fugitive Disentitlement Grounds
The U.S. District Court for the Southern District of Ohio recently issued a decision in the ongoing prosecution of Azat Martirossian on an important and recurring issue in FCPA and FCPA-related prosecutions.  As readers of our updates well know, FCPA and FCPA-related indictments are frequently filed under seal where they wait months or even years for an internationally located defendant to cross a border subject to the long-arm of U.S. law enforcement.  But, for a variety of reasons, DOJ will frequently unseal an indictment with one or more defendants still outside of their jurisdictional reach.  The oft-recurring question in these cases is whether the international defendant may challenge the basis for their indictment without coming to the United States and physically submitting him or herself to the jurisdiction of the court. In the instant case, on May 24, 2018, Martirossian—an Armenian citizen and Chinese resident "who has never set foot in the United States"—was added to the Rolls-Royce related indictment most recently described in our 2018 Mid-Year FCPA Update.  Weeks later, on June 22, 2018, counsel for Martirossian filed a motion to dismiss the money laundering charges even as Martirossian himself remained outside the United States.  DOJ responded by invoking the "fugitive disentitlement doctrine" and asking the Court to hold the motion in abeyance.  On October 9, 2018, the Court granted the government's motion, and stayed Martirossian's motion "until or unless he submits to the jurisdiction of this Court."  Martirossian has since filed both an interlocutory appeal and a writ of mandamus with the U.S. Court of Appeals for the Sixth Circuit, which both remain pending as of publication.             FCPA-Related Charges Unsealed 10 Years Later We have been reporting for some time now on the unusual case of Lebanese businessman Samir Khoury.  Khoury has long suspected that he was the so-called "LNG Consultant" described in public charging documents arising from the Bonny Island, Nigeria corruption cases of a decade ago, and further that there was an indictment against him filed under seal, just waiting for him to travel to the United States or a country with an extradition treaty.  In a remarkably aggressive strategy, Khoury filed multiple civil suits in the U.S. District Court for the Southern District of Texas seeking to unseal the indictment if, as he suspected, it exists.  Khoury has gotten his wish. On July 9, 2018, the Honorable Keith P. Ellison granted Khoury's motion to unseal a November 2008 indictment charging him with mail and wire fraud offenses arising out of the Bonny Island, Nigeria scheme, as discussed in our 2009 Mid-Year FCPA Update, among others.  Within days of the indictment being unsealed, Khoury filed a motion to dismiss the indictment for violation of his rights under the Speedy Trial Act, or, alternatively, as time-barred under the applicable statute of limitations.  DOJ responded by arguing that Khoury's motion should not be considered, under the fugitive disentitlement doctrine, until he appears before the court to answer the charges.  A hearing on the motion was held on November 29, 2018, at which Judge Ellison declined for a second time to apply the fugitive disentitlement doctrine.  Khoury has moved to compel the government to produce certain additional evidence necessary to file a revised motion to dismiss and a hearing on this motion is scheduled for January 2019.             Third Circuit Affirms FCPA Sentence We reported in our 2016 Mid-Year FCPA Update on the April 2016 guilty plea of Dmitrij Harder, former owner and president of a Pennsylvania-based consulting company, based on FCPA bribery charges that he made more than $3.5 million in "consulting" payments to the sister of an official of the European Bank for Reconstruction and Development to corruptly influence the award of contracts to clients of Harder's.  As noted in our 2017 Year-End FCPA Update, Harder was sentenced in July 2017 to 60 months in prison by the U.S. District Court for the Eastern District of Pennsylvania. Harder appealed his sentence to the U.S. Court of Appeals for the Third Circuit, claiming that the District Court failed to meaningfully consider his arguments concerning sentencing disparity and mitigation, including a chart prepared by a law professor concluding that the average sentence for FCPA defendants is only 13 months, as well as a novel argument that Harder deserved a reduced sentence because the Russian energy projects promoted by his bribes had delivered "exceptionally positive economic results" in Eastern Siberia.  On November 8, 2018, the Third Circuit affirmed the District Court's sentence.  The Honorable Eugene E. Siler, sitting by designation from the Sixth Circuit, authored the unanimous, unpublished panel opinion finding that the district court had properly considered all of Harder's arguments for a lower sentence. 2018 FCPA-RELATED POLICY DEVELOPMENTS
DOJ Revises Standard Non-Waiver Agreement Following Fourth Circuit Decision
Non-waiver agreements between companies and DOJ historically have been used as an imperfect truce between companies attempting to preserve privilege protections and DOJ seeking to obtain the benefits of information identified during internal investigations.  Pursuant to these agreements, companies agreed to share the work product fruits of their investigations with DOJ and DOJ agreed not to assert that this disclosure constituted a waiver of various privileges.  On June 27, 2018, the U.S. Court of Appeals for the Fourth Circuit upset the metaphorical applecart with a significant (though unpublished) decision, In re Grand Jury 16-3817 (16-4), enforcing a non-waiver provision against DOJ.  Already its impacts are being seen by all who practice in FCPA matters before DOJ. To facilitate cooperation with a DOJ investigation, "X Corp." (whose identity is under seal) executed agreements allowing employees, including a former in-house attorney, to share privileged material in interviews with DOJ while expressly disclaiming waiver.  Years later, DOJ subpoenaed the attorney to testify before a grand jury about the same statements made during the interview.  X Corp. intervened and sought a protective order. On appeal from the district court's denial of the protective order, the U.S. Court of Appeals for the Fourth Circuit reversed.  The Court held that the plain language of the agreement with DOJ showed that X Corp. expressly reserved its privileges as to DOJ.  Accordingly, X Corp. could assert privilege over the information before the grand jury as if the prior interview never occurred. In response to the Fourth Circuit's decision, DOJ has adopted a new form agreement that is significantly less protective of company interests.  How this will impact DOJ's ability to obtain cooperation in corporate FCPA investigations—which is a very complicated issue influenced by many factors beyond privilege—remains to be seen.
Does the "China Initiative" Signal Enhanced FCPA Scrutiny of Chinese Companies?
On November 1, 2018, in the context of announcing criminal and civil enforcement proceedings against a Chinese company, a Taiwanese company, and three Taiwanese nationals in connection with the alleged theft of trade secrets from a U.S. company, then-Attorney General Jeff Sessions declared a "China Initiative" to be led by DOJ's National Security Division, with participation from other DOJ offices, including the Criminal Division (which houses the Fraud Section / FCPA Unit).  While the primary focus of the so-called "China Initiative" seems to on countering economic espionage, lurking among the initiative's 10 stated goals is to "[i]dentify [FCPA] cases involving Chinese companies that compete with American businesses." Although we have been reporting for years on the risks of doing business in China, and our studies have demonstrated that China is the most frequent situs of conduct charged in FCPA enforcement actions, we have seen nothing in the public sphere or our confidential caseload to suggest that DOJ's FCPA Unit will be departing from its historical focus on conduct rather than nationality.  For example, when asked about the China Initiative several weeks later at the ACI FCPA Conference, Unit Chief Daniel S. Kahn responded, "We are prosecutors, and we follow evidence, and that's what we have always done."  It is noteworthy that although many FCPA cases involve Chinese conduct, far fewer involve Chinese nationals or companies.  No doubt this is in significant part due to the jurisdictional challenges of DOJ bringing such an action.  All of this is to say, time will tell whether and if so how the China Initiative's FCPA goal will be operationalized by DOJ's FCPA Unit, which is led by dedicated, career civil servant prosecutors, many layers removed from those who announced the policy. Of course, if the Chinese Initiative is perceived as leveraging the FCPA to achieve political objectives, the Chinese government may counter with steps to frustrate DOJ investigations.  As we note below, in October 2018, China enacted a new blocking statute, the International Criminal Judicial Assistance Law, that could be used to prevent Chinese companies from providing evidence or assistance to foreign authorities like DOJ.             DOJ Provides Additional Guidance Concerning Criminal Division Monitors Speaking at the New York University School of Law on October 12, 2018, Assistant Attorney General Brian A. Benczkowski announced a new namesake memorandum (the "Benczkowski Memorandum") providing additional guidance for the selection of compliance monitors.  The memorandum reaffirms prior guidance on this issue from the "Morford Memorandum" of March 2008, while elaborating on considerations Criminal Division attorneys should take into account when deciding whether to require a monitor.  These considerations include the potential costs of a monitor, not only in monetary terms but also with respect to "whether the proposed scope of a monitor's role is appropriately tailored to avoid unnecessary burdens to the business's operations." Benczkowski's remarks also are of interest in another respect.  Monitors have tremendous power and discretion in their activities and, in some situations, the power dynamic leads companies facing what they believe are unreasonable demands to feel that they have little practical recourse.  Rejecting the notion that companies should suffer in silence and emphasizing the active role that DOJ should play in policing monitors, Benczkowski remarked that "it is incumbent on our prosecutors to ensure that monitors are operating within the appropriate scope of their mandate" and that "we absolutely want to know of any legitimate concerns regarding the authorized scope of the monitorship, cost or team size."  These are welcome remarks for companies undergoing or facing the prospect of an FCPA monitorship. Of final note, Benczkowski broke from the recent movement to centralize corporate compliance expertise within a single "compliance counsel" position, and declared a renewed focus on "a workforce better steeped in compliance issues across the board."  To that end, he announced as a priority the hiring of attorneys not only with courtroom prosecutorial experience, but with experience evaluating corporate compliance programs to supplement the already talented and experienced DOJ workforce.             DOJ Extends FCPA Corporate Enforcement Policy to M&A In a July 25, 2018 speech before ACI's Global Forum on Anti-Corruption Compliance in High Risk Markets, Deputy Assistant Attorney General Matthew S. Miner announced important guidance for companies that identify FCPA issues in pre-acquisition due diligence or post-acquisition compliance integration.  Specifically, acknowledging that DOJ wishes to encourage M&A activity by companies with strong compliance programs and not to have "the specter of enforcement . . . be a risk factor that impedes such activity by good actors," Miner announced that "we intend to apply the principles contained in the FCPA Corporate Enforcement Policy to successor companies that uncover wrongdoing in connection with mergers and acquisitions and thereafter disclose that wrongdoing and provide cooperation, consistent with the terms of the Policy."  One month later, at a GIR Live event, Miner expanded his comments to make clear that they apply to "other types of potential wrongdoing, not just FCPA violations," unearthed in connection with an acquisition and disclosed to DOJ. These announcements make good policy sense given the number of FCPA enforcement matters that arise from acquisitions, including notably in 2018 the Polycom matter described above.

2018 FCPA-RELATED PRIVATE CIVIL LITIGATION

The FCPA does not provide a private right of action, but as we often note, civil litigants long have pursued a variety of causes of action against companies in connection with FCPA-related conduct, with varying success.  The second half of 2018 certainly was no exception.  Examples of matters with material developments over the past six months include:             Shareholder Lawsuits
  • Freeport-McMoRan Inc. – As covered in our 2016 Mid-Year FCPA Update, on January 26, 2016, shareholders filed a securities fraud class-action alleging that the international mining company failed to disclose bribery in Indonesia.  The suit followed reports that the Indonesian House of Representatives was investigating payments by a senior executive of Freeport Indonesia to the speaker of the House.  On August 3, 2018, the Honorable Diane J. Humetewa of the U.S. District Court for the District of Arizona granted Freeport's motion to dismiss.  The Court found, among other things, that plaintiffs failed to plead sufficient facts to plausibly claim that the executive attempted to bribe Indonesian officials.  Rather, the pleadings only left open this possibility and suggested that Freeport Indonesia may have been solicited for a bribe and not itself committed any wrongdoing.
  • General Cable Corp. – On July 23, 2018, the Honorable William O. Bertelsman of the U.S. District Court for the Eastern District of Kentucky granted General Cable's motion to dismiss a putative class action, which contended that the company inflated its stock value by failing to disclose that employees of its foreign subsidiaries had violated the FCPA in connection with the conduct ultimately leading to General Cable's December 2016 resolutions with DOJ and the SEC described in our 2016 Year-End FCPA Update.  In dismissing the suit, the Court concluded that plaintiffs had not met the stringent pleading standard for breach-of-prudence claims based on non-public information and that their breach of loyalty and duty to monitor claims were similarly deficient.  The plaintiffs have noticed an appeal to the U.S. Court of Appeals for the Sixth Circuit.
  • Grupo Televisa S.A.B. – On August 6, 2018, shareholders filed an amended complaint against ADR-issuer and Mexican media giant Grupo Televisa in the U.S. District Court for the Southern District of New York, alleging that it failed to disclose the payment of millions of dollars in bribes to secure broadcast rights for the FIFA World Cup.  The action came after the former CEO of Argentine sports marketing company Torneos y Competencias (which, as covered in our 2016 Year-End FCPA Update, entered into a $113 million, four-year deferred prosecution agreement) testified at the corruption trial of three former FIFA officials that Grupo Televisa had participated in the scheme.  This witness previously pleaded guilty in November 2015 to wire fraud and other charges and agreed to testify on the government's behalf.  Grupo Televisa moved to dismiss the complaint on October 15, and the plaintiffs filed their opposition on November 16, 2018.
  • KBR Inc. – On August 31, 2018, the Honorable Ewing Werlein, Jr. of the U.S. District Court for the Southern District of Texas dismissed an investor class action lawsuit filed soon after the Serious Fraud Office announced in April 2017 that it was investigating KBR in connection with its ongoing Unaoil investigation.  In dismissing the case, the Court noted that the "Plaintiffs act as if the opening of an investigation is all they need to make wholesale allegations of bribery against KBR."  Although the Court granted leave to file an amended complaint, none was filed, and the case was terminated on September 24, 2018.
  • Rio Tinto plc – On August 31, 2018, the Honorable Andrew L. Carter of the U.S. District Court for the Southern District of New York dismissed an investor lawsuit alleging that former executives of the mining company bribed an acquaintance of Guinea's then-President to maintain mining contracts in the country and misled investors by failing to disclose the alleged bribery.  The suit came on the heels of Rio Tinto notifying authorities in the United States, the United Kingdom, and Australia that it was investigating a payment to the third party.  Rio Tinto moved to dismiss for, among other reasons, failure to state a claim, arguing that the payment was not made to a "foreign official" and therefore did not violate the FCPA.  In granting the motion to dismiss, Judge Carter agreed that plaintiffs failed adequately to allege that the recipient of the payments in question was a "foreign official," and likewise rejected that the recipient could be an "instrumentality," a term he found covers entities, not individuals.
            Civil Fraud / RICO Actions The multi-billion-dollar resolution between Odebrecht S.A. and authorities in Brazil, Switzerland, and the United States discussed in our 2016 Year-End FCPA Update has spurred civil litigation in federal court with the Brazilian construction conglomerate.  In June 2017, investment funds filed a civil fraud suit in the U.S. District Court for the Southern District of New York, alleging that the Odebrecht bonds they purchased lost value when the scandal broke.  On August 8, 2018, the U.S. District Court for the Southern District of New York allowed certain federal and state law claims to proceed. This is not the only suit against Odebrecht stemming from the resolution discussed above.  On June 12, 2018, Ecuadorian manufacturer Plastiquim and its owner initiated a suit in Florida state court against Odebrecht and others alleging fraud, RICO violations, conspiracy, and unfair business practices.  According to the filings, Odebrecht failed to disclose that a business loan Plastiquim obtained through an Odebrecht affiliate was a vehicle for laundering money tied to Odebrecht's bribery scheme.  On December 18, 2018, Odebrecht filed a motion to dismiss the complaint. 2018 INTERNATIONAL ANTI-CORRUPTION DEVELOPMENTS             World Bank Enforcement The World Bank Group continued its active role in global anti-corruption enforcement.  In its most-recent fiscal year, the World Bank debarred 78 firms and individuals, recognized 73 cross-debarments from other multilateral development banks, and referred 43 matters to national authorities.             Europe                         United Kingdom             Alstom Executives On December 19, 2018, a global sales manager for Alstom Power Ltd.'s Boiler Retrofits unit, Nicholas Reynolds, was found guilty of conspiracy to corrupt by a jury at Blackfriars Crown Court.  Two days later, he was sentenced to 4.5 years in prison and made to pay costs of £50,000.  As a result of Reynolds' conviction, the Serious Fraud Office ("SFO") lifted reporting restrictions and revealed additional details of the investigation dating back several years. Reynolds was charged at the same time as John Venskus, the former Business Development Manager at Alstom Power Ltd., who pleaded guilty in October 2017 and was sentenced to 3.5 years in prison.  Göran Wikström, the former Regional Sales Director at Alstom Power Sweden AB, also pleaded guilty in June 2018 and was sentenced to 31 months in prison and made to pay £40,000 in costs. Reynolds, Venskus, and Wikstom allegedly were part of a conspiracy to bribe officials and politicians to secure contracts for a Lithuanian power station.  The SFO alleged that they falsified records to circumvent bribery and corruption controls, causing Alstom companies to pay more than €5 million to secure contracts worth €240 million.  Alstom Power Ltd. pleaded guilty to conspiracy to make corrupt payments in May 2016 and paid a fine of £6.3 million, compensation to the Lithuanian government of nearly £11 million, and prosecution costs of £700,000. The SFO further reported that, on April 10, 2018, Alstom Network UK Limited was found guilty of one count of conspiracy to corrupt in relation to bribes allegedly paid to win a Tunisian tram and infrastructure contract.  The company and two former executives were acquitted of other charges relating to Indian and Polish transport contracts.             Güralp Systems Executives Earlier in this Update we discuss the declination letter received by UK seismology company Güralp Systems Limited for alleged payments to Heon-Cheol Chi, Director of the KIGAM Earthquake Research Center in Korea.  As noted above, one of the principal reasons asserted by DOJ in support of its declination was Güralp's commitment to accepting responsibility in connection with an ongoing SFO investigation.  Although no corporate resolution has yet been reached with Güralp, three of its former executives—founder Cansun Güralp, former managing director Andrew Bell, and former head of sales Natalie Pearce—have been charged by the SFO with conspiracy to make corrupt payments in violation of Section 1 of the Criminal Law Act 1977 and Section 1 of the Prevention of Corruption Act 1906.  Trial dates have not yet been set.             Gulnara Karimova Asset Seizure We reported in our 2016 Mid-Year and 2017 Year-End FCPA updates on the foreign bribery resolutions involving alleged bribes to Gulnara Karimova, daughter of the late Uzbek President, to influence telecommunications matters in Uzbekistan.  On October 3, 2018, the SFO issued a claim in the High Court in London against Karimova and acquaintance Rustam Madumarov, pursuant to the Proceeds of Crime Act 2002, to recover assets that were allegedly obtained using the bribes.  A hearing on the matter has yet to be scheduled.  For her part, Karimova is reportedly serving a sentence of house arrest in Uzbekistan.             ENRC Ruling On September 5, 2018, the English Court of Appeal issued judgment in The Director of the Serious Fraud Office and Eurasian Natural Resources Corporation Limited, reversing a highly criticized High Court judgment, finding that interviews conducted by outside lawyers and work conducted by forensic accounts in an internal investigation is covered by legal privilege.  For more on this important decision, please see our Client Alert, "Court of Appeal in London Overturns Widely Criticised High Court Judgment in SFO v ENRC." Look for much, much more on UK white collar developments in our forthcoming 2018 Year-End United Kingdom White Collar Crime Update, to be released on January 22, 2019.                         Greece More than two years after trial began in the so-called cash-for-contracts scandal, Prodromos Mavridis—a former telecommunications manager for Siemens' Greek affiliate—testified in October 2018 that he did not pay politicians from a slush fund to secure state contracts.  Mavridis, whose testimony centered on a contract for Siemens to digitize the network of OTE, Greece's primary telecommunications provider, testified that Siemens' Managing Board had unfairly pinned on him responsibility for the slush fund.  The trial, which has been postponed repeatedly, continues more than a decade after authorities first launched a probe into Siemens' activities. Greek anti-corruption authorities in October 2018 ordered former defense minister Yiannos Papantoniou and his wife detained pending trial on charges that he accepted and laundered kickbacks in connection with a Greek navy contract.  Papantoniou has denied wrongdoing, citing an earlier Greek Parliamentary probe that was closed based on insufficient evidence.                         Italy In September 2018, an Italian court handed down a split decision in a long-running corruption trial concerning oil and gas industry-related bribes in Algeria.  The court found oil services group Saipem and its former CEO Pietro Tali guilty on corruption charges relating to nearly €198 million in payments Saipem made to Algerian intermediaries to secure €8 billion worth of contracts with Algeria's state-owned energy firm Sonatrach.  The court seized €198 million from Saipem, which was also fined €400,000, and then sentenced Tali to nearly five years in prison.  The court also convicted former Saipem executives Pietro Varone and Alessandro Bernini and sentenced each of them to more than four years in prison. At the same time, the court acquitted oil and gas giant Eni, as well as former Eni CEO Paolo Scaroni and current Eni Chief Upstream Officer Antonio Vella, of similar charges.  Prosecutors had alleged that Eni—which jointly controls Saipem—sought to use the payments to win approval from Algeria's energy ministry of Eni's plan to acquire a Canadian oil and gas company that held rights to a large Algerian gas field. Separately, Italy's governing coalition moved in September 2018 to bar those convicted of serious corruption crimes from working with the state through a so-called "bribe destroyer" bill.  The bill would impose a lifetime ban on holding public office or seeking state contracts on people sentenced to more than two years in prison for corruption-related offenses.  For those sentenced to fewer than two years for corruption-related crimes, the bill would impose a five-to-seven-year ban.  The bill now goes to Parliament, where the ruling coalition has a majority in both houses.                         The Netherlands On September 4, 2018, global financial institution ING Group NV agreed to pay authorities in the Netherlands €775 million to settle allegations that it violated Dutch anti-money laundering and counter-terrorism financing laws.  Allegations in the settlement concern millions of dollars that passed through ING accounts, allegedly without sufficient scrutiny, between 2010 and 2016.  These payments allegedly included $55 million to Gulnara Karimova, daughter of the then-President of Uzbekistan who has been implicated in several recent enforcement actions in multiple countries.  The resolution included €100 million in disgorgement and a fine of €675 million, the largest ever imposed by the Dutch Public Prosecution Service.  ING issued a press release the next day announcing that the U.S. SEC had closed a related investigation.                         Switzerland On August 28, 2018, Pascal Collard, a former Geneva-based oil trader with global commodity trading company Gunvor Group, received an 18-month suspended sentence from the Swiss Federal Criminal Court for bribing officials to secure oil shipments from the Republic of Congo and the Ivory Coast.  In September 2017, the Swiss Attorney General's office opened an investigation into Gunvor and its Dutch subsidiary charging the companies with organizational failings that allowed their employees to violate bribery laws.                         Russia The Russian State Duma recently enacted new anti-corruption legislation, which entered into force in August 2018.  The new legislation has two key components.  First, if a company doing business in Russia is suspected of bribery, Russian prosecutors may petition for and obtain a court-ordered freeze of company assets.  The value of the frozen assets may not exceed the maximum potential penalty, which can range from a minimum of 1 million rubles to a maximum of 100 times the sum of the bribe.  Second, companies operating in Russia can exempt themselves from corporate liability for bribery by self-reporting the wrongdoing.  Specifically, a company that uncovers and discloses to authorities illicit conduct committed by itself or its employees (or enables a government investigation to identify such conduct) may automatically receive a full release from the statutory penalty for bribery.                         Ukraine In anticipation of the upcoming annual EU-Ukraine Association Council, the EU published its Association Implementation Report on Ukraine.  Regarding anti-corruption, the report recognized Ukraine's progress on the legislative front and in establishing anti-corruption institutions, but at the same time noted ongoing difficulties with implementing such measures and their limited effect to date. For example, as of September 2018, the National Anticorruption Bureau of Ukraine ("NABU") and the Specialized Anticorruption Prosecutor's Office had initiated 644 investigations of high-level corruption.  But only 21 of these investigations have resulted in convictions.  The vast majority (including the highest-profile investigations) have been stymied by Ukraine's courts.  Further, the new High Anti-Corruption Court ("HACC"), a judicial body designed to grant a panel of nominated, independent judges jurisdiction over cases pursued by the NABU, was established in June 2018.  Its nominating committee has yet to be selected, however, and as a result no judges have been appointed.  Likewise, although the National Agency for Prevention of Corruption ("NAPC") has set up an automatic verification system for electronic asset declarations submitted by Ukrainian government officials, the NAPC had verified only 400 out of 2.7 million submitted declarations by October 2018.             The Americas                         Argentina In the second half of 2018, Argentina was captivated by a corruption scandal implicating dozens of politicians and businesspeople.  The aptly named "Notebooks" scandal concerns notebooks belonging to the chauffeur of Roberto Baratta, a high-ranking official in the administration of former President Cristina Fernández de Kirchner.  Covering more than a decade, the notebooks allegedly describe tens of millions of dollars in bribes from public works contractors and others seeking favorable treatment that the chauffeur delivered to Fernández, her husband and former President Néstor Kirchner, and other high-level officials. Fernández was indicted on September 17, 2018, but her status as a sitting senator in Argentina's legislature grants her immunity from arrest.  The federal judge presiding over many of the criminal cases stemming from the Notebooks scandal asked the legislature to impeach Fernández, but the effort failed in the face of strong political support.  Fernández's former planning minister, Julio De Vido—who was sentenced in October 2018 to almost six years in prison on separate graft charges—also is under investigation in the Notebooks scandal.  While Fernández's administration is the focus of the investigation, current President Macri's cousin, the former head of an Argentinian construction company, also is implicated, and in November, authorities indicted the president of Techint Group, Paolo Rocca.  Dozens of businesspeople seeking to avoid prison time have entered into plea deals. On the legislative front, in October 2018, the Argentine Anti-Corruption Office adopted "Integrity Guidelines" pursuant to Argentina's Law on Criminal Liability of Legal Persons, which as covered in our 2018 Mid-Year FCPA Update came into effect in March 2018.  Modeled on similar guidance from the United States, the United Kingdom, and Brazil, the guidelines are designed to aid in complying with Articles 22 and 23 of the law, which outline requirements for corporate compliance programs.                         Brazil In the wake of a tumultuous presidential election, the fight against corruption remains at the forefront of Brazilian life.  The late 2018 election was widely viewed as a repudiation of the Workers' Party, which was at the epicenter of Brazil's massive anti-corruption investigation, Operation Car Wash.  President-elect Jair Messias Bolsonaro has taken a hard line against corruption in his speeches and named leading anti-corruption figures to his administration.  For example, Bolsonaro retained Wagner de Campos Rosário, who played a critical role in negotiating corporate leniency agreements in connection with Operation Car Wash, as the Minister of Transparency and Chief of the Comptroller General of the Federal Union.  Bolsonaro also appointed Judge Sérgio Moro, the federal judge who has presided over Operation Car Wash since 2014, to serve as Minister of Justice and Public Security. Independent of these political developments, Brazilian enforcement authorities have continued to investigate and prosecute corruption at high levels.  In 2018, the Operation Car Wash Task Force launched 10 new phases, bringing the total to 57.  Most recently, enforcement authorities have focused on allegations of corrupt payments by commodity traders.  Since 2014, the investigation has resulted in more than 1,000 search and seizure orders, more than 250 arrest warrants, approximately 550 international cooperation requests, approximately 180 individual plea bargain agreements, more than 10 leniency agreements, more than 200 convictions, and recovery of approximately $3 billion (R$12.3 billion) via plea deals.  Five of the six living Brazilian ex-presidents—Fernando Collor de Mello, Luiz Inácio Lula da Silva, Dilma Rousseff, José Sarney, and Michel Temer—have been implicated.  Collor, Lula, and Rousseff are currently defendants in criminal cases, while Sarney's and Temer's cases await further analysis by the Supreme Court.  Lula, currently serving a prison sentence for money laundering and corruption related to Operation Car Wash, recently was also charged with money laundering in connection with a bribery scheme involving Equatorial Guinea. In another Operation Car Wash-related development, Dutch oil and gas services provider SBM Offshore N.V. announced two agreements in July and September 2018 to pay a total of $347 million to Brazilian authorities and Petrobras to resolve allegations of paying bribes to secure contracts with the state-owned oil company.  As we reported in our 2017 Year-End FCPA Update, SBM previously reached an FCPA resolution with DOJ in November 2017.  In a seeming nod to these Brazilian resolutions, the $238 million fine in the DOJ FCPA settlement credited a to-be-paid amount to Brazilian authorities. Plea bargains have remained an essential tool for Brazilian authorities to expose systemic corruption, in Operation Car Wash and in other investigations.  Nonetheless, there are uncertainties about the use of this tool, including with respect to the use of plea bargain evidence by other agencies and the consequences of breaching an agreement.  For example, the Attorney General's Office has requested the rescission of plea bargain agreements with Joesley and Wesley Batista, whose corruption cases were reported in our 2017 Year-End and 2018 Mid-Year FCPA updates.  To provide greater legal certainty around the negotiation of plea bargains, the Brazilian Prosecutor's Office recently published guidance on the procedures necessary to enter into a plea bargain.  Other Brazilian agencies likewise have engaged in efforts to incentivize whistleblowing and to enhance transparency and accountability.  These efforts, combined with the new Ministry of Justice and Public Security's vow to tackle corruption, look to make 2019 a key year in Brazil's ongoing fight against corruption.                         Costa Rica As 2018 drew to a close, Costa Rica's judiciary faced a crisis, as various members of the Costa Rican Supreme Court have been suspended or impeached for alleged links to a corruption scandal known as the "Cementazo."  The scandal revolves around businessman Juan Carlos Bolaños and his cement importation company, Grupo JCB.  Bolaños was arrested, convicted, and sentenced to serve prison in 2017.  In April 2018, the legislature impeached Judge Celso Gamboa for allegedly alerting Bolaños to developments in the case against him.  And in July 2018, the Costa Rican judiciary reprimanded four judges accused of stifling investigations by ignoring evidence of influence peddling on the part of two congressmen linked to Bolaños's scheme.  Days later, the president of Costa Rica's Supreme Court, Carlos Chinchilla, announced his immediate retirement at age 55.  The Costa Rican Attorney General's Office has filed a criminal action against the five judges.                         El Salvador In a groundbreaking stand against corruption in this Central American nation, former President Elías Antonio "Tony" Saca González was sentenced in September 2018 to 10 years in prison and ordered to return $260 million after pleading guilty to charges of embezzlement and money laundering.  Saca, who served as president between 2004 and 2009, detailed an elaborate $300 million corruption scheme in a lengthy confession during an August 2018 court hearing.  Saca implicated other public officials, including then-First Lady Ana Ligia de Saca, who he said received, among other things, all-expense paid trips overseas and a $10,000 monthly stipend.  She now faces her own criminal case for money laundering and other crimes.  In a move that mirrors her husband's, she recently offered to plead guilty in exchange for receiving the shortest possible sentence.  El Salvador's District Attorney's Office currently is evaluating whether to accept the former first lady's offer. Former President Saca is the first president in Salvadoran history to stand trial for corruption.  This case could serve as a model for the prosecution of other leaders accused of corruption.  In June 2018, for example, the District Attorney's Office ordered the arrest of 30 close friends and family of former President Mauricio Funes, Saca's successor, for their alleged participation in a multi-million dollar embezzlement scheme.  Although Funes received asylum in Nicaragua in 2016, claiming political persecution shortly after prosecutors opened a civil unlawful enrichment action against him, he and his son were ordered to return hundreds of thousands of dollars to El Salvador.                         Guatemala Anti-corruption efforts in Guatemala suffered a significant setback as President Jimmy Morales announced that the U.N.-sponsored International Commission Against Impunity in Guatemala (known by its Spanish acronym "CICIG") would be shut down and replaced by local Guatemalan institutions.  As detailed in our 2018 Mid-Year FCPA Update, CICIG is an anti-corruption commission that has conducted investigations against top Guatemalan leaders and businesspeople.  CICIG currently is conducting a probe against President Morales for illicit campaign financing.  In a move denounced as an attack on judicial independence, Morales attempted to expel CICIG chief Iván Velásquez Gómez in 2017, shortly after Guatemala's attorney general announced she would seek to remove Morales's immunity from prosecution.  The Supreme Court of Justice of Guatemala swiftly halted Morales's efforts.  The Court has thrice received requests to prompt Congress to deliberate whether Morales should be stripped of immunity for unlawful acts committed during his tenure as his political party's secretary general.  It permitted the last of these requests to proceed to Congress in mid-2018. In August 2018, Morales announced that he would transfer CICIG's authority to Guatemalan hands due to CICIG's alleged selective prosecution, intimidation of the citizenry, and erosion of due process and the presumption of innocence.  The decision was met with intense disapproval from human rights organizations and advocates, although it received only mild criticism from the U.S. embassy in Guatemala.  Morales has since revoked or denied visas to dozens of CICIG personnel probing his potential wrongdoing, including Velásquez Gómez.                         Haiti A recent corruption scandal has led to public unrest.  A Haitian Senate probe has accused more than a dozen former government officials—including former Prime Ministers Jean-Max Bellerive and Laurent Lamothe—and businesspeople of embezzling $2 billion from a Venezuelan oil discount program.  Anti-corruption protests arising from the probe turned violent in October and November 2018, with protestors demanding an accounting of the funds.  After the protests, two top government officials and 15 advisers were fired, in accordance with recommendations from an August 2018 report from the Haitian Senate.                         Mexico With the July 2018 election of Andres Manuel López Obrador, Mexico's anti-corruption movement received another boost.  Campaigning largely on the fight against corruption, President López Obrador is expected to complete the implementation of the National Anti-corruption System ("NAS"), as well as other reform efforts.  Although it was approved in 2016, the NAS faced significant roadblocks under former President Peña Nieto, who stalled the appointment of a national general prosecutor, national anti-corruption chief prosecutor, and judges on the new Federal Administrative Court. In the meantime, Mexico continues to pursue existing corruption cases.  After announcing earlier this year that it would impose a nearly $60 million penalty on Odebrecht for bribery violations, Mexico's main anti-corruption auditor has expressed the government's intention to recover this fine through seizure of balances owed to Odebrecht by state-owned Pemex, in the face of legal resistance from Odebrecht.  Moreover, in addition to debarring Odebrecht bids from public tenders until 2020, officials from the López Obrador administration have signaled that future bids from Odebrecht and other companies will be shut out throughout President López Obrador's tenure. Yet arguably the biggest development in anti-corruption enforcement for Mexico this year is the adoption of the United States-Mexico-Canada Agreement ("USMCA"), an agreement among the three nations that will replace the 25-year-old NAFTA.  In the USMCA, the three countries have included a chapter dedicated solely to anti-corruption.  In Chapter 27, titled "Anticorruption," the parties agree to adopt and enforce anti-corruption measures, protect whistleblowers, and promote the participation of the private sector in fighting corruption, among other things.  Mexico reportedly made the primary efforts to include Chapter 27 in the hopes of promoting and maintaining foreign investment.                         Venezuela Venezuela's Attorney General, Tarek William Saab, continued his office's anti-corruption campaign this year.  Saab revealed that, during his first year in office, the Public Prosecutor's Office convicted 616 individuals, including many former government officials, on charges of corruption.  The Public Prosecutor's Office also uncovered 18 different corruption schemes within the oil industry.  One of these schemes involved Venezuela's state-owned energy company, PDVSA.  In September 2018, Saab announced arrest warrants for nine officials involved in the fraudulent purchase of aluminum tanks for transporting fuel.  PDVSA had paid millions of dollars for 234 tanks, only 168 of which were delivered and not according to the appropriate technical specifications.  Saab estimates this resulted in a loss of approximately $19 million. The country's president has not escaped allegations of corruption.  In November 2018, Venezuela's exiled Supreme Tribunal of Justice requested that Interpol issue an international arrest warrant for President Nicolás Maduro for accepting money from illegal activities.  According to Venezuela's former Attorney General, President Maduro accepted millions of dollars in bribes from Odebrecht. Asia                         China China grabbed the attention of the global legal community in October 2018 with its International Criminal Judicial Assistance Law ("ICJA").  Although guidance relating to its implementation and enforcement remains to be seen, the ICJA would appear to act as a blocking statute and prohibit entities and persons in China from cooperating with or providing evidence to foreign investigators absent the authorization of Chinese authorities.  Much remains to be written about the ICJA, but we will continue to monitor this development that could substantially impact many FCPA investigations. On the enforcement front, the sixth year of President Xi Jinping's anti-corruption campaign brought a number of significant structural changes to China's anti-corruption regime and a steady stream of high-profile investigations and prosecutions.  In addition to the changes discussed in our 2018 Mid-Year FCPA Update, the Chinese government established the State Administration for Market Regulation ("SAMR"), which is empowered to investigate commercial bribery and unfair competition, among other things, and centralizes and consolidates functions previously assigned to several regulatory bodies, including the State Administration for Industry and Commerce.  In total, nearly 350,000 officials, including 25 at the provincial or ministerial level, have been punished for violating austerity rules since late 2012.  And on November 30, 2018, China for the first time extradited a former Chinese official accused of taking bribes from the European Union.                         India In July 2018, long-awaited amendments to India's Prevention of Corruption Act (Amendment) Act, 2018 came into force.  In the works for several years, the amendments contain a number of significant changes to the anti-corruption law in India which we have detailed in our Client Alert, "Amendments to the Prevention of Corruption Act, 1988: Implications for Commercial Organizations Doing Business in India." On the enforcement front, India's Central Bureau of Investigation ("CBI") in May registered a case under the Indian Penal Code and Prevention of Corruption Act alleging that officers linked to AirAsia India conspired with Indian officials to expedite approvals and change Indian aviation policies to benefit the airline.  CBI's investigation is ongoing.                         Japan In July 2018, Japanese prosecutors indicted three executives of Yokohama-based power plant manufacturer Mitsubishi Hitachi Power Systems Ltd ("MHPS")—Satoshi Uchida, Fuyuhiko Nishikida, and Yoshiki Tsuji—for allegedly bribing a Thai official in 2015.  Nishikida and Tsuji admitted to the charges in December 2018, while Uchida's first hearing is set for January 11.  This scheme came to the attention of prosecutors after a self-report by MHPS.  MHPS became the first company to enter into a plea agreement in Japan for organized crime and bribery, and in recognition of its cooperation, MHPS was not prosecuted for the scheme.  Japan's plea bargain system for organized crime and bribery cases was only introduced in June 2018, just one month before MHPS's plea agreement.                         Korea Two former Korean presidents received substantial terms of imprisonment in 2018 for corruption-related offenses.
  • In August 2018, Park Geun-Hye, who as reported in our 2018 Mid-Year FCPA Update was convicted of 16 corruption-related offenses in April 2018, saw her prison sentence and fine increased to 25 years and KRW 20 billion (~$18 million) for accepting more improper payments than previously thought.  Earlier in the summer, Park received an eight-year sentence on separate charges of interfering with the 2016 elections and illegally diverting millions of dollars from the National Intelligence Service.  Park is currently serving her terms consecutively.
  • In October 2018, Lee Myung-Bak was sentenced to 15 years and a fine of KRW 13 billion (~ $11.5 million) for bribery and embezzlement.  The Seoul Central District Court concluded that he received more than KRW 11 billion (~ $10 million) in bribes before and during his presidency.
                        Malaysia In April 2018, Malaysia passed the Malaysian Anti-Corruption Commission (Amendment) Act 2018, which introduces a new section creating liability for commercial organizations if a person associated with the organization engages in corruption.  Directors, controllers, officers, partners, and members of the company management can face a jail term of up to 20 years and a fine of the higher of 10 times the value of the bribe or RM 1 million (~ $240,000).  Modeled after the UK Bribery Act, a defense is available for companies that "had in place adequate procedures to prevent persons associated with the commercial organization from undertaking such conduct."  While the Act officially came into force on October 1, 2018, the provisions relating to corporate liability will not be operative for another two years to provide companies with time to enhance their internal controls. On the enforcement front, on December 17, 2018, Malaysian prosecutors brought charges against three units of a prominent New York-headquartered investment bank and issuer for allegedly false and misleading statements in materials prepared in connection with the 1MDB bond offerings.  Other charges filed by Malaysian authorities have targeted former Prime Minister Najib Razak, his wife Rosmah Mansor, and several former Malaysian foreign intelligence agents.                         Thailand On July 22, 2018, Thailand's new anti-corruption law—the Act Supplementing the Constitution Relating to the Prevention and Suppression of Corruption B.E. 2561 (2018)—came into force.  The new law expands the scope of persons covered by the law.  Previously, only individuals and entities registered in Thailand could be liable for bribery, but the new law applies to legal entities registered abroad if they have Thai operations.  Much like the UK Bribery Act, under the Thai law a company can be liable for bribes paid by "associated persons" for the company's benefit unless the company can demonstrate that it had in place adequate internal controls.             Middle East and Africa                         Israel On December 2, 2018, Israeli police recommended that Prime Minister Benjamin Netanyahu be indicted on bribery and fraud charges, among others, marking the third time in 2018 that the police recommended indicting Netanyahu.  The most-recent recommendation stems from allegations that Netanyahu awarded contracts to Israeli telecom company Bezeq in exchange for favorable news coverage.  Netanyahu has denied the allegations, and the decision whether to indict him in any of the three cases, which would be unprecedented, is with Attorney General Avichai Mandelblit.                         Saudi Arabia On September 25, 2018, Saudi Arabia amended its anti-corruption law to remove the 60-day statute of limitations applicable to anti-corruption investigations into current and former Saudi ministers.  The amendment follows the large-scale anti-corruption probe, initiated in November 2017 by Crown Prince Mohammed bin Salman, that involved detaining and questioning of hundreds of influential Saudis as covered in our 2017 Year-End and 2018 Mid-Year FCPA updates.  That effort has resulted in the Saudi government seizing more than $100 billion.                         South Africa In September 2018, the son of former South African President Jacob Zuma (who was ousted in February in connection with corruption allegations as reported in our 2018 Mid-Year FCPA Update) reportedly agreed to testify at a judicial inquiry into allegations that the wealthy Gupta brothersAjay, Atul, and Rajesh—illegally influenced cabinet appointments and the award of state contracts during Zuma's administration.  Former deputy finance minister Mcebisi Jonas reportedly told investigators in August 2018 that Zuma's son helped arrange a meeting between him and the Guptas at which he was offered his post and a nearly $40 million bribe.  The son denied that any bribe was offered.  The group handling the investigation, the South African Commission of Inquiry into State Capture, Corruption and Fraud in the Public Sector, reportedly has been given until March 2020 to investigate.  The Guptas reportedly are in the UAE, but an extradition treaty recently signed between the two countries may signal that additional developments are on the horizon. CONCLUSION As is Gibson Dunn's semi-annual tradition, over the next several weeks we will be publishing a series of enforcement updates for the benefit of our clients and friends as follows:
  • Tuesday, January 8:  2018 Year-End Update on Corporate NPAs and DPAs;
  • Wednesday, January 9:  2018 Year-End False Claims Act Update;
  • Thursday, January 10:  2018 Year-End Developments in the Defense of Financial Institutions;
  • Friday, January 11:  2018 Year-End German Law Update;
  • Monday, January 14:  2018 Year-End Trade Secrets Update;
  • Tuesday, January 15:  2018 Year-End Securities Enforcement Update;
  • Wednesday, January 16:  2018 Year-End Securities Litigation Update;
  • Thursday, January 17:  2018 Year-End UK Labor & Employment Update;
  • Friday, January 18:  2018 Year-End Class Actions Update;
  • Monday, January 21:  2018 Year-End FDA and Health Care Compliance and Enforcement Update – Drugs and Devices;
  • Tuesday, January 22:  2018 Year-End UK White Collar Crime Update;
  • Wednesday, January 23:  2018 Year-End Activism Update;
  • Monday, January 28:  2018 Year-End Cybersecurity Update (United States);
  • Tuesday, January 29:  2018 Year-End Cybersecurity Update (European Union);
  • Wednesday, January 30:  2018 Year-End Health Care Compliance and Enforcement Update – Providers;
  • Thursday, January 31:  2018 Year-End Government Contracts Litigation Update;
  • Friday, February 1: 2018 Year-End Media and Entertainment Update;
  • Monday, February 4:  2018 Year-End Transnational Litigation Update;
  • Tuesday, February 5:  2018 Year-End AI & Related Technologies Update;
  • Wednesday, February 6:  2018 Year-End Sanctions Update; and
  • Thursday, February 7:  2018 Year-End China Antitrust Update.

The following Gibson Dunn lawyers assisted in preparing this client update:  F. Joseph Warin, John Chesley, Christopher Sullivan, Richard Grime, Patrick Stokes, Wendy Cai, Ella Alves Capone, Claire Chapla, Grace Chow, Winson Chu, Timothy Deal, Austin Duenas, Daniel Harris, Patricia Herold, Korina Holmes, Derek Kraft, Nicole Lee, Vinay Limbachia, Lora MacDonald, Michael Marron, Jesse Melman, Steve Melrose, Katie Mills, Erin Morgan, Alexander Moss, Jaclyn Neely, Jonathan Newmark, Nick Parker, Arturo Pena Miranda, Anna Luiza Ramos, Emily Riff, Katie Salvaggio, Liesel Schapira, Emily Seo, Jason Smith, Pedro Soto, Ian Sprague, Laura Sturges, Karthik Ashwin Thiagarajan, Bonnie Tong, Jeffrey Vides, Milagros Villalobos, Caitlin Walgamuth, Alina Wattenberg, Oliver Welch, Carissa Yuk, and Caroline Ziser Smith.

Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding these issues.  We have more than 110 attorneys with FCPA experience, including a number of former federal prosecutors and SEC officials, spread throughout the firm's domestic and international offices.  Please contact the Gibson Dunn attorney with whom you work, or any of the following: Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Richard W. Grime (+1 202-955-8219, rgrime@gibsondunn.com) Patrick F. Stokes (+1 202-955-8504, pstokes@gibsondunn.com) Judith A. Lee (+1 202-887-3591, jalee@gibsondunn.com) David Debold (+1 202-955-8551, ddebold@gibsondunn.com) Michael S. Diamant (+1 202-887-3604, mdiamant@gibsondunn.com) John W.F. Chesley (+1 202-887-3788, jchesley@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) Stephanie Brooker (+1 202-887-3502, sbrooker@gibsondunn.com) M. Kendall Day (+1 202-955-8220, kday@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Adam M. Smith (+1 202-887-3547, asmith@gibsondunn.com) Christopher W.H. Sullivan (+1 202-887-3625, csullivan@gibsondunn.com) Oleh Vretsona (+1 202-887-3779, ovretsona@gibsondunn.com) Courtney M. Brown (+1 202-955-8685, cmbrown@gibsondunn.com) Jason H. Smith (+1 202-887-3576, jsmith@gibsondunn.com) Ella Alves Capone (+1 202-887-3511, ecapone@gibsondunn.com) Pedro G. Soto (+1 202-955-8661, psoto@gibsondunn.com) New York Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Joel M. Cohen (+1 212-351-2664, jcohen@gibsondunn.com) Lee G. Dunst (+1 212-351-3824, ldunst@gibsondunn.com) Mark A. Kirsch (+1 212-351-2662, mkirsch@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Lawrence J. Zweifach (+1 212-351-2625, lzweifach@gibsondunn.com) Daniel P. Harris (+1 212-351-2632, dpharris@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) Laura M. Sturges (+1 303-298-5929, lsturges@gibsondunn.com) Los Angeles Debra Wong Yang (+1 213-229-7472, dwongyang@gibsondunn.com) Marcellus McRae (+1 213-229-7675, mmcrae@gibsondunn.com) Michael M. Farhang (+1 213-229-7005, mfarhang@gibsondunn.com) Douglas Fuchs (+1 213-229-7605, dfuchs@gibsondunn.com) San Francisco Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) Thad A. Davis (+1 415-393-8251, tadavis@gibsondunn.com) Marc J. Fagel (+1 415-393-8332, mfagel@gibsondunn.com) Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com) Michael Li-Ming Wong (+1 415-393-8333, mwong@gibsondunn.com) Palo Alto Benjamin Wagner (+1 650-849-5395, bwagner@gibsondunn.com) London Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com) Charlie Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com) Sacha Harber-Kelly (+44 20 7071 4205, ) Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com) Steve Melrose (+44 (0)20 7071 4219, smelrose@gibsondunn.com) Paris Benoît Fleury (+33 1 56 43 13 00, bfleury@gibsondunn.com) Bernard Grinspan (+33 1 56 43 13 00, bgrinspan@gibsondunn.com) Jean-Philippe Robé (+33 1 56 43 13 00, jrobe@gibsondunn.com) Audrey Obadia-Zerbib (+33 1 56 43 13 00, aobadia-zerbib@gibsondunn.com) Munich Benno Schwarz (+49 89 189 33-110, bschwarz@gibsondunn.com) Michael Walther (+49 89 189 33-180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33-130, mzimmer@gibsondunn.com) Hong Kong Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Oliver D. Welch (+852 2214 3716, owelch@gibsondunn.com) São Paulo Lisa A. Alfaro (+55 (11) 3521-7160, lalfaro@gibsondunn.com) Fernando Almeida (+55 (11) 3521-7095, falmeida@gibsondunn.com) Singapore Grace Chow (+65 6507.3632, ) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 11, 2018 |
SFO Successfully Defends Challenge over the Territorial Scope of Compulsory Document Requests

Click for PDF Last week the High Court in London handed down its decision following a challenge by KBR, Inc. against the issuing of compulsory document requests that required the production of documents held by the company outside of the UK. KBR, Inc. is a U.S. engineering and construction company and ultimate parent company of the KBR Group. It does not have a physical presence in the UK, but has a subsidiary, KBR Ltd, that does. KBR Ltd is under investigation by the SFO for suspected bribery. At the heart of the proceedings was a notice issued to KBR, Inc. by the Serious Fraud Office ("SFO") under section 2(3) of the Criminal Justice Act 1987 ("CJA") (the "July Section 2 Notice") compelling the production of documents held outside the UK.  The SFO issued the July Section 2 Notice to a representative of KBR, Inc. who had attended a meeting with the SFO in the UK to discuss its investigation into KBR Ltd.

The Challenge

KBR, Inc. challenged the July Section 2 Notice on three grounds:
  1. Jurisdiction:  the July Section 2 Notice was ultra vires the CJA, as it requested material held outside of the UK from a company incorporated outside of the UK.
  2. Discretion:  the Director of the SFO made an error of law in issuing the July Section 2 Notice instead of using its power to seek Mutual Legal Assistance ("MLA") from the US authorities under the UK's 1994 bilateral MLA Treaty with the US.
  3. Service:  the July Section 2 Notice was not properly served on KBR, Inc. under the CJA.
Jurisdiction The Court held that in relation to UK companies with documents outside of the UK, that section 2(3) of the CJA must have "an element of extraterritorial application" otherwise "a UK company could resist an otherwise lawful s.2(3) notice on the ground that the documents in question were held on a server out of the jurisdiction". The extraterritorial reach would minimize the risk of the SFO's investigations being frustrated by companies moving their documents out of the jurisdiction. As regards documents held by foreign companies outside of the UK, the court held that section 2(3) will extend to some foreign companies in respect of documents held abroad, when there is a "sufficient connection" between the foreign company and the jurisdiction (the UK). This test is fact specific in order to allow for "practical justice in the individual case". In KBR, Inc.'s case, the Court found that certain following factors were not sufficient on their own to satisfy the "sufficient connection" test, including:
  • the fact that KBR, Inc. was the parent company of KBR Ltd, as it would ensnare parent companies of multinational groups without justification.
  • the fact that KBR, Inc. cooperated to a degree with the SFO's request for documents and remained willing to do so voluntarily, on terms that it would apply SFO search terms across data held in the US.  Cooperation is to be encouraged but it should not give rise to a risk of being held to imply acceptance of jurisdiction.
  • the fact that a KBR, Inc. representative agreed to, and did, attend a meeting with the SFO.  This is for similar reasons as those set out above.
However, the Court went on to find that there was a sufficient connection between KBR, Inc. and the UK in this case, based on the fact that some suspected corrupt payments made by KBR to Unaoil required the express approval of KBR, Inc. and were processed by KBR, Inc.'s treasury function, and for a period approval was also required from KBR, Inc.'s compliance function before payment could be released.  The Court also observed that a corporate officer of KBR, Inc. was based in the Group's UK office.

Discretion

KBR, Inc. argued that even if the CJA did confer jurisdiction on the SFO to compel the production of materials abroad, the Director of the SFO should not have exercised his power under section 2(3) of the CJA, which is discretionary, and should have first considered using the MLA route.  KBR, Inc.'s position was that in failing to do this amounted to an error of law. This argument was rejected. The High Court held that the MLA option was an additional power available to the SFO:
"The availability of MLA gives the Director additional options; it does not curtail his discretion to use the separate power of issuing s.2(3) notices… It follows that KBR [Inc] has failed to demonstrate any error of law on the part of the Director in the exercise of his discretion to issue the July Notice."
The High Court noted additionally in the SFO's favour that there are "good practical reasons" for the Director to use a section 2 notice instead of MLA. Such reasons included delays, the risk that a request is ignored, and the burden on the requested state of having to deal with a request when it would be simpler to obtain the materially directly. KBR, Inc. had neither shown nor suggested that compliance with the July Section 2 Notice would have raised any complexities or issues of local U.S. law, or conflict with duties owed by KBR, Inc. to third parties.

Service

KBR, Inc. argued that simply giving the July Notice to KBR, Inc.'s representative during an SFO meeting was not enough to "serve" KBR, Inc. with the July Section 2 Notice, and that the fact that KBR, Inc. 's representative was in the UK did not signify that KBR, Inc. was present in the UK. The court rejected this challenge, noting in particular that section 2(3) required no additional formality beyond the giving of the notice. The Court held that KBR, Inc. was "plainly present" in the jurisdiction when the SFO gave the July Section 2 Notice to its representative. The SFO made the meeting in question conditional on the attendance of "the clients" (i.e., KBR, Inc.). As such, it was clear that KRB Inc's representatives were in the jurisdiction in their capacity as representatives and not "coincidentally or on some personal frolic". The High Court, however, noted that the SFO's plan to give the July Notice to KBR, Inc.'s representative during the course of the meeting had "unappealing features". However, those features did not invalidate the July Notice; rather they serve as a warning to others who may attend similar meetings with the SFO in the future.

Implications

The decision has helped to clarify the scope of the SFO's section 2 notice power, which to-date has not been considered comprehensively by the courts. The SFO will no doubt be satisfied with the result. Foreign companies that hold documents outside of the UK will not be immune from the SFO's section 2 power, provided that the SFO can illustrate a "sufficient connection" between the company in question and the UK.  A parent / subsidiary relationship alone will not suffice, but where there are links between a UK subsidiary and its foreign parent, for example if they share accounting or compliance functions, this will likely suffice.  In this case, another connection was the presence of a KBR, Inc. employee in KBR Ltd's office. This seems a rather tenuous connection. Whether that factor alone would have been enough is difficult to assess. The High Court, however, obviously thought it was sufficiently material to identify and take into account. This decision is likely to embolden the SFO in serving section 2 notices on foreign companies involved in their investigations. The Crime (Overseas Production Orders) Bill, which is currently before Parliament, may soon render the decision less relevant, at least as far as documents are stored electronically and in states where reciprocal arrangements are made for recognition of production orders.  The Bill has received little press attention to date but it may have significant implications.  If enacted, the SFO (amongst other authorities) will be able to make an application to the Crown Court for an order requiring an overseas person to produce electronic data in connection with an investigation, where there is an international cooperation agreement in place with the jurisdiction in question.  We note that the U.S. has passed the CLOUD Act (Clarifying Lawful Use of Overseas Data Act), which the UK Government has stated was passed "in anticipation and preparation" for a bilateral UK-US data access agreement.  If the Bill becomes law and agreements are put in place, it may become much easier for the SFO to obtain electronic data from overseas to aid its investigations.

This client alert was prepared by Patrick Doris, Sacha Harber-Kelly, Steve Melrose and Rose Naing.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments.  If you would like to discuss this alert in greater detail, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following members of the firm's disputes practice:

Philip Rocher (+44 (0)20 7071 4202, procher@gibsondunn.com) Patrick Doris (+44 (0)20 7071 4276, pdoris@gibsondunn.com) Sacha Harber-Kelly (+44 20 7071 4205, sharber-kelly@gibsondunn.com) Charles Falconer (+44 (0)20 7071 4270, cfalconer@gibsondunn.com) Allan Neil (+44 (0)20 7071 4296, aneil@gibsondunn.com) Steve Melrose (+44 (0)20 7071 4219, smelrose@gibsondunn.com) Sunita Patel (+44 (0)20 7071 4289, spatel2@gibsondunn.com)

© 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

August 9, 2018 |
Amendments to the Prevention of Corruption Act, 1988: Implications for Commercial Organizations Doing Business in India

Click for PDF The Indian Parliament recently passed the Prevention of Corruption Act (Amendment) Act, 2018 (the "2018 Amendment"), amending the Prevention of Corruption Act, 1988 (the "PCA"). The PCA is the primary Indian legislation tackling corruption and bribery involving public officials in India. The 2018 Amendment has been in the works for several years and marks the most significant set of amendments made to the PCA since its inception. The 2018 Amendment—which came into force on July 26, 2018[1]--effects critical changes to the PCA, including direct liability for commercial organizations involved in bribery in India. This update provides an overview of the key changes effected by the 2018 Amendment and its impact on commercial organizations doing business in India.[1a]

A. Supply Side of Bribery

Prior to the  2018 Amendment, the primary focus of the PCA had been to deal with the demand side of corruption.  The main charging sections of the PCA deal with the acceptance of bribes by public servants. Prior to the 2018 Amendment, Section 7 of the PCA penalized a public servant who accepted or obtained gratification other than legal remuneration in respect of an official act.  Section 11 made it an offence for a public servant, among other things, to accept or obtain for himself or for any other person, "any valuable thing without consideration or for a consideration which he knows to be inadequate", from any person who may have an interest in a proceeding or business transacted by the public servant, or some connection with the official function of the public servant or his subordinates. The PCA covered the supply side of bribery only indirectly. The abetment of an offence under Sections 7 or 11 of the historical PCA was punishable under Section 12.  A person offering a bribe or giving a valuable item to a public servant could have been prosecuted for abetting an offence under Sections 7 or 11 of the PCA. The 2018 Amendment overhauls these charging sections of the PCA and includes a distinct offence dealing with the supply side of bribery. Section 8 of the amended PCA prohibits the giving or promising to give an undue advantage (which includes any kind of gratification) other than legal remuneration to a public servant with the intention of inducing or rewarding a public servant for the improper performance of any public function.  Whether the offer or promise is ultimately accepted by the public servant is immaterial.   Punishment for the offence may include imprisonment for a period not exceeding seven years and/or a fine. At this juncture, it is important to note the import of the term "public servant" under the PCA. The general understanding was that the term referred to employees of different branches of the state (executive, legislature, judiciary) or employees of public sector undertakings and institutions.  As a result of the broad manner in which the term 'public servant' has been defined in the PCA, however, it is not just persons associated with an Indian governmental institution who come under PCA purview. For example, as the PCA's definition of the term 'public servant' includes any person who discharges a duty in "which the State, the public or the community at large has an interest"[2], the Supreme Court of India ruled in 2016 that the term also includes employees of private banks.[3]

B. Removal of Immunity to Bribe Giver

Under Section 24 of the PCA (in its unamended form), bribe givers received immunity from prosecution if they reported the acceptance of a bribe by a public servant or became a witness in the prosecution of a bribery offence. The 2018 Amendment significantly limits this protection for bribe givers, and instead increases the burden on bribe givers to report the occurrence of an offence. Those seeking immunity must now prove that they were "compelled" to provide an undue advantage (such as a bribe) to a public servant and must report the provision of the undue advantage to Indian enforcement or investigating agencies within a period of seven days.[4]  It is currently unclear as to what evidence would be needed to establish that a person was compelled to provide a bribe by a public servant.

C. Bribery by Commercial Organizations

The 2018 Amendment has introduced provisions that will have a far-reaching impact on commercial organizations operating in India. While these amendments are intended to improve integrity levels within the Indian business community, they will also significantly increase the compliance burden for companies doing business in India. Under Section 9 of the amended PCA, a commercial organization can be held liable "if any person associated with the commercial organisation gives or promises to give any undue advantage to a public servant" with an intent to obtain or retain business or any advantage for that commercial organizations. This provision covers all types of entities (including domestic companies, foreign companies and partnerships) doing business in India, but does not include charitable organizations. Commercial organizations operating in India will therefore be vicariously liable for any bribes provided to public servants by persons associated with such organizations. In order to cast a wide net on intermediaries who provide bribes on behalf of commercial organizations, the 2018 Amendment considers anyone "who performs services for or on behalf of the commercial organisation" to be a person associated with such organization. Consequently, commercial organizations can be held liable for the actions of their employees, agents, service providers and professional advisers. Further, a parent company (including a foreign parent company) can be held liable under the PCA for the actions of its Indian subsidiary. Commercial organizations can avoid liability for a bribe provided by a person associated with them by demonstrating that the bribe was provided to the public servant despite the organization putting in place "adequate procedures designed to prevent" it. While the 2018 Amendment does not delineate what are considered to be "adequate procedures", it requires the Indian Government to prescribe guidelines in this regard.[5] The requirement to install adequate safeguards is the latest in a legislative trend mandating robust compliance programs.  For example, the [Indian] Companies Act, 2013 requires directors of Indian companies to annually certify that they have "taken proper and sufficient care for the maintenance of adequate accounting records… for preventing and detecting fraud and other irregularities".[6] More stringent obligations apply to companies that are listed on Indian stock exchanges. Foreign parent companies should be mindful of the increased liability under the amended PCA. As parent entities may now be held liable in India for wrong-doing committed by their Indian subsidiaries, such parent companies should ensure that their Indian subsidiaries have adequate procedures to prevent bribe-giving to Indian public servants. Until such time as the Indian Government stipulates guidelines regarding the "adequate procedures", commercial organizations doing business in India would do well to adhere to established international standards for compliance programs, such as those expected under the U.S. Foreign Corrupt Practices Act ("FCPA") and the U.K. Bribery Act ("UKBA").

D. Managerial Liability

In addition to imposing liability on individuals providing bribes to public servants and commercial organizations deriving business or an advantage from such bribes, the 2018 Amendment also imposes liability on directors, managers, secretaries and other officers of a commercial organization. Under Section 10 of the amended PCA, managerial personnel of a commercial organization will be liable if the prosecution is able to establish that such personnel consented to or connived with the person committing the offence under the PCA. Managerial personnel can face imprisonment for up to seven years and/or fines if found guilty. Even though managers of commercial organizations will not be held liable for bribes that are provided without their knowledge or participation, it is more important than ever for management to set the right tone at the top of their organizations to avoid personal liability and ensure that their organizations do not fall afoul of the amended PCA.

E. Conclusion

The 2018 Amendment makes significant changes to a law that has been in place for over three decades and has seen uneven enforcement.  The investigative and prosecutorial burden required to successfully enforce the provisions of the PCA against errant public servants appears to have increased[7] as a result of the 2018 Amendment.  However, the new law also brings with it a promise of more speedy trials in bribery cases.  Under the amended PCA, trials are required to be completed within two years from the date on which the case is filed.  While this amendment does not address delays that generally plague the investigative process, it is expected to expedite cases once filed.[8] For commercial organizations doing business in India, the 2018 Amendment is an opportunity to revisit their anti-bribery policies, compliance programmes, and processes,  especially for frameworks that have been focused on ensuring compliance with legislation like the FCPA or the UKBA. With commercial organizations and managerial personnel now directly under scrutiny for violations of the PCA, multinational organizations need to ensure that their India operations rise up to the heightened compliance standards ushered in by the 2018 Amendment.
[1]      Gazette Notification No. S.O. 3664(E) dated 26 July 2018. [1a]      This update is based on the text of the 2018 Amendment as passed by the upper house of the Indian Parliament on the 19th of July, 2018. [2]      Section 2(c)(viii) of the PCA. [3]      See Central Bureau of Investigation v. Ramesh Gelli and others, Criminal Appeal Nos. 1077-1081 of 2013 and Writ Petition (Crl.) no. 167 of 2015. The Supreme Court of India came to include private bankers within the definition of a public servant also as a result of provisions of the [Indian] Banking Regulation Act, 1949. [4]      Parliament passes bill to punish bribe-givers, Deccan Herald, at: https://www.deccanherald.com/national/parliament-passes-bill-punish-683401.html (25 July 2018). [5]      The Institute of Company Secretaries of India (ICSI) formulated a Corporate Anti-Bribery Code in October 2017 that can be adopted by Indian commercial organizations on a voluntary basis. However, there is no statutory backing for this code and nothing to suggest that policies and stipulations contained therein would satisfy the requirements of the amended PCA. [6]      Section 134(5)(c) of the Companies Act, 2013. [7]      Section 17A is a new provision requiring the prior sanction of the relevant federal or state government with whom the public servant is employed. [8]      Under Section 4(5) of the amended PCA, the trial period can be extended until a maximum of four years from the date of filing of the case provided that the judge hearing the case records reasons for any extension beyond the initial two year period.

Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding these issues.  We have more than 110 attorneys with FCPA experience, including a number of former federal prosecutors and SEC officials, spread throughout the firm's domestic and international offices.  Please contact the Gibson Dunn attorney in the firm's FCPA group with whom you work, or the authors:

Kelly Austin - Hong Kong (+852 2214 3788, kaustin@gibsondunn.com) Karthik Ashwin Thiagarajan - Singapore (+65 6507 3636, kthiagarajan@gibsondunn.com) Oliver D. Welch - Hong Kong (+852 2214 3716, owelch@gibsondunn.com) Please also feel free to contact any of the following leaders and members of the FCPA group: Washington, D.C. F. Joseph Warin - Co-Chair (+1 202-887-3609, fwarin@gibsondunn.com) Richard W. Grime (+1 202-955-8219, rgrime@gibsondunn.com) Patrick F. Stokes (+1 202-955-8504, pstokes@gibsondunn.com) Judith A. Lee (+1 202-887-3591, jalee@gibsondunn.com) David P. Burns (+1 202-887-3786, dburns@gibsondunn.com) David Debold (+1 202-955-8551, ddebold@gibsondunn.com) Michael S. Diamant (+1 202-887-3604, mdiamant@gibsondunn.com) John W.F. Chesley (+1 202-887-3788, jchesley@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) Stephanie Brooker (+1 202-887-3502, sbrooker@gibsondunn.com) M. Kendall Day (+1 202-955-8220, kday@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Adam M. Smith (+1 202-887-3547, asmith@gibsondunn.com) Oleh Vretsona (+1 202-887-3779, ovretsona@gibsondunn.com) Christopher W.H. Sullivan (+1 202-887-3625, csullivan@gibsondunn.com) Courtney M. Brown (+1 202-955-8685, cmbrown@gibsondunn.com) Jason H. Smith (+1 202-887-3576, jsmith@gibsondunn.com) Ella Alves Capone (+1 202-887-3511, ecapone@gibsondunn.com) Pedro G. Soto (+1 202-955-8661, psoto@gibsondunn.com) New York Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Joel M. Cohen (+1 212-351-2664, jcohen@gibsondunn.com) Lee G. Dunst (+1 212-351-3824, ldunst@gibsondunn.com) Mark A. Kirsch (+1 212-351-2662, mkirsch@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Lawrence J. Zweifach (+1 212-351-2625, lzweifach@gibsondunn.com) Daniel P. Harris (+1 212-351-2632, dpharris@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) Laura M. Sturges (+1 303-298-5929, lsturges@gibsondunn.com) Los Angeles Debra Wong Yang - Co-Chair (+1 213-229-7472, dwongyang@gibsondunn.com) Marcellus McRae (+1 213-229-7675, mmcrae@gibsondunn.com) Michael M. Farhang (+1 213-229-7005, mfarhang@gibsondunn.com) Douglas Fuchs (+1 213-229-7605, dfuchs@gibsondunn.com) San Francisco Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) Thad A. Davis (+1 415-393-8251, tadavis@gibsondunn.com) Marc J. Fagel (+1 415-393-8332, mfagel@gibsondunn.com) Charles J. Stevens - Co-Chair (+1 415-393-8391, cstevens@gibsondunn.com) Michael Li-Ming Wong (+1 415-393-8333, mwong@gibsondunn.com) Palo Alto Benjamin Wagner (+1 650-849-5395, bwagner@gibsondunn.com) London Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com) Charlie Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com) Sacha Harber-Kelly (+44 20 7071 4205, ) Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com) Steve Melrose (+44 (0)20 7071 4219, smelrose@gibsondunn.com) Paris Benoît Fleury (+33 1 56 43 13 00, bfleury@gibsondunn.com) Bernard Grinspan (+33 1 56 43 13 00, bgrinspan@gibsondunn.com) Jean-Philippe Robé (+33 1 56 43 13 00, jrobe@gibsondunn.com) Audrey Obadia-Zerbib (+33 1 56 43 13 00, aobadia-zerbib@gibsondunn.com) Munich Benno Schwarz (+49 89 189 33-110, bschwarz@gibsondunn.com) Michael Walther (+49 89 189 33-180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33-130, mzimmer@gibsondunn.com) Hong Kong Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Oliver D. Welch (+852 2214 3716, owelch@gibsondunn.com) São Paulo Lisa A. Alfaro - Co-Chair (+55 (11) 3521-7160, lalfaro@gibsondunn.com) Fernando Almeida (+55 (11) 3521-7095, falmeida@gibsondunn.com) © 2018 Gibson, Dunn &amp Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

July 9, 2018 |
2018 Mid-Year FCPA Update

Click for PDF The steady clip of Foreign Corrupt Practices Act ("FCPA") prosecutions set in 2017 has continued apace into the first half of 2018, largely quieting any questions of enforcement of this important statute under the current Administration.  Although this update captures developments through June 30, the enforcers did not have a reprieve for the July 4th holiday, because they announced two corporate enforcement actions in the first week of the month.  From our perspective, all signs point to business as usual at the U.S. Department of Justice ("DOJ") and Securities and Exchange Commission ("SEC"), the two regulators charged with enforcing the FCPA. This client update provides an overview of the FCPA as well as domestic and international anti-corruption enforcement, litigation, and policy developments from the first half of 2018.

FCPA OVERVIEW

The FCPA's anti-bribery provisions make it illegal to corruptly offer or provide money or anything else of value to officials of foreign governments, foreign political parties, or public international organizations with the intent to obtain or retain business.  These provisions apply to "issuers," "domestic concerns," and those acting on behalf of issuers and domestic concerns, as well as to "any person" who acts while in the territory of the United States.  The term "issuer" covers any business entity that is registered under 15 U.S.C. § 78l or that is required to file reports under 15 U.S.C. § 78o(d).  In this context, foreign issuers whose American Depository Receipts ("ADRs") are listed on a U.S. exchange are "issuers" for purposes of the FCPA.  The term "domestic concern" is even broader and includes any U.S. citizen, national, or resident, as well as any business entity that is organized under the laws of a U.S. state or that has its principal place of business in the United States. In addition to the anti-bribery provisions, the FCPA also has "accounting provisions" that apply to issuers and those acting on their behalf.  First, there is the books-and-records provision, which requires issuers to make and keep accurate books, records, and accounts that, in reasonable detail, accurately and fairly reflect the issuer's transactions and disposition of assets.  Second, the FCPA's internal controls provision requires that issuers devise and maintain reasonable internal accounting controls aimed at preventing and detecting FCPA violations.  Prosecutors and regulators frequently invoke these latter two sections when they cannot establish the elements for an anti-bribery prosecution or as a mechanism for compromise in settlement negotiations.  Because there is no requirement that a false record or deficient control be linked to an improper payment, even a payment that does not constitute a violation of the anti-bribery provisions can lead to prosecution under the accounting provisions if inaccurately recorded or attributable to an internal controls deficiency.

FCPA ENFORCEMENT STATISTICS

The following table and graph detail the number of FCPA enforcement actions initiated by DOJ and the SEC during each of the past 10 years.

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018 (as of 7/06)

DOJ

SEC

DOJ

SEC

DOJ

SEC

DOJ

SEC

DOJ

SEC

DOJ

SEC

DOJ

SEC

DOJ

SEC

DOJ

SEC

DOJ

SEC

26

14

48

26

23

25

11

12

19

8

17

9

10

10

21

32

29

10

11

6

Number of FCPA Enforcement Actions Per Year

2018 MID-YEAR FCPA ENFORCEMENT ACTIONS

The first half of 2018 saw a diverse mix of FCPA enforcement activity, from relatively modest to very large financial penalties, the first-ever coordinated U.S.-French bribery resolution, and numerous criminal prosecutions of individual defendants, particularly for non-FCPA charges arising out of foreign corruption investigations.

Corporate FCPA Enforcement Actions

There have been 11 corporate FCPA enforcement actions in 2018 to date.

Elbit Imaging Ltd.

The year's first corporate FCPA enforcement action involved an aggressive interpretation of the FCPA's accounting provisions resulting in a relatively modest financial penalty.  On March 9, 2018, Israeli-based holding company and issuer Elbit Imaging settled an SEC-only cease-and-desist proceeding for alleged FCPA books-and-records and internal controls violations.  According to the SEC's order, between 2007 and 2012 Elbit and an indirect subsidiary paid $27 million to two consultants and one sales agent in connection with real estate projects in Romania and the United States.  Without making direct allegations, the SEC intimated corruption in the Romanian projects by asserting that the two consultants were engaged without any due diligence to facilitate government approvals and were paid significant sums of money without any evidence of work performed.  In connection with the U.S. project, the SEC again asserted that the sales agent was retained without due diligence and paid significant sums of money without evidence of work performed, but in this case concluded that the majority of those funds were embezzled by Elbit's then-CEO. Without admitting or denying the allegations, Elbit consented to the cease-and-desist proceeding and agreed to pay a $500,000 civil penalty.  The SEC acknowledged Elbit's self-reporting to U.S. and Romanian authorities, as well as the fact that Elbit is in the process of winding down its operations as factors in setting the modest penalty and lack of any post-resolution monitoring or reporting obligations.  This resolution marks the lowest monetary assessment in a corporate FCPA enforcement action since June 2016 (Nortek, Inc., covered in our 2016 Mid-Year FCPA Update, in which the company paid just more than $320,000 in disgorgement and prejudgment interest).

Transport Logistics International, Inc.

The first criminal corporate FCPA resolution of 2018 stems from an investigation that we have been following for several years.  On March 12, 2018, Maryland transportation company Transport Logistics International ("TLI") reached a deferred prosecution agreement with DOJ arising from an alleged scheme to make more than $1.7 million in corrupt payments to an official of JSC Techsnabexport ("TENEX")—a Russian state-owned supplier of uranium and uranium enrichment services—in return for directing sole-source uranium transportation contracts to the company.  We first reported on this in our 2015 Year-End FCPA Update in connection with guilty pleas by former TLI Co-President Daren Condrey, wife Carol Condrey, TENEX official Vadim Mikerin, and businessman Boris Rubizhevsky.  Rounding out the charges, on January 10, 2018 the other former TLI Co-President Mark Lambert was indicted on 11 counts of FCPA, wire fraud, and money laundering charges. To resolve the charges of conspiracy to violate the FCPA's anti-bribery provisions, TLI entered into a deferred prosecution agreement and agreed to pay a $2 million criminal penalty, as well as self-report to DOJ on the state of its compliance program over the three-year term of the agreement.  Notably, the $2 million penalty represents a significant departure from the DOJ-calculated fine of $21.4 million, based upon an inability-to-pay analysis by an independent accounting firm hired by DOJ that confirmed TLI's representation that a penalty greater than $2 million would jeopardize the continued viability of the company.  After a significant colloquy with government and company counsel concerning whether DOJ was being unduly lenient in deferring prosecution, the Honorable Theodore Chuang of the U.S. District Court for the District of Maryland approved of the resolution.  Trial in the case against remaining defendant Lambert is currently set for April 2019.

Kinross Gold Corporation

On March 26, 2018, the SEC announced a settled cease-and-desist order against Canadian gold mining company Kinross Gold for alleged violations of the FCPA's accounting provisions.  According to the charging document, in 2010, Kinross acquired two subsidiaries that operated mines in Mauritania and Ghana but, despite due diligence identifying a lack of anti-corruption compliance controls, was slow to implement such controls.  Kinross further allegedly failed to respond to multiple internal audits flagging the inadequate controls, and payments continued to be made to vendors and consultants, often in connection with government interactions, without appropriate efforts to ensure that the funds were not used for improper payments.  Notably, however, the SEC did not allege any specific corrupt payments made by or on behalf of Kinross. Without admitting or denying the allegations, Kinross agreed to pay a $950,000 penalty to resolve the charges.  The SEC's order does not allege that the company realized profits tied to the misconduct and therefore did not order disgorgement.  The SEC acknowledged Kinross's remedial efforts, which the company will continue to self-report to the SEC on for one year.  Kinross has stated that DOJ has closed its investigation without taking any enforcement action.

The Dun & Bradstreet Corporation

On April 23, 2018, the business intelligence company Dun & Bradstreet agreed to settle FCPA accounting charges arising from allegations of improper payments to acquire confidential data in China.  According to the SEC, between 2006 and 2012 two Chinese subsidiaries made payments to Chinese officials and third parties to obtain non-public information that was not subject to lawful disclosure under Chinese law.  One of the subsidiaries and several of its officers were prosecuted and convicted in China for the unlawful procurement of this data. Without admitting or denying the allegations, Dun & Bradstreet consented to the entry of a cease-and-desist order and agreed to disgorge $6.08 million of profits, plus $1.14 million in prejudgment interest, and pay a $2 million civil penalty.  The SEC's order did not impose ongoing reporting requirements on Dun & Bradstreet and credited the company's self-disclosure, which occurred after local police conducted a raid at one of the subsidiaries.  Among other remedial actions, Dun & Bradstreet shuttered one of the subsidiaries.  Citing the FCPA Corporate Enforcement Policy, DOJ issued a public letter declining to prosecute Dun & Bradstreet in light of the SEC resolution and other factors.

Panasonic Corporation

On April 30, 2018, the SEC and DOJ announced the first joint FCPA resolution of 2018, with Japanese electronics company Panasonic and its California-based subsidiary Panasonic Avionics Corporation ("PAC"), respectively.  PAC designs and distributes in-flight entertainment systems and communications services to airlines worldwide.  According to the charging documents, PAC agreed to provide a post-retirement consultancy position to an official at a state-owned airline as PAC was negotiating agreements with the state-owned airline worth more than $700 million.  PAC allegedly paid the official $875,000 for little to no work.  Separately, PAC also allegedly failed to follow its own third-party due diligence protocols in Asia, including by concealing the retention of agents who did not pass screening by employing them as sub-agents to a single qualified agent. To resolve a one-count criminal information charging PAC with causing the falsification of Panasonic's books and records, PAC entered into a deferred prosecution agreement with DOJ and agreed to pay a $137.4 million criminal fine, a 20% discount from the bottom of the applicable Guidelines range based on the company's cooperation but failure to voluntarily disclose.  To resolve civil FCPA anti-bribery and accounting violations, as well as allegations that it fraudulently overstated its income in a separate revenue recognition scheme, Panasonic consented to an SEC cease-and-desist order and agreed to pay $143.2 million in disgorgement and prejudgment interest.  Together, the parent and subsidiary agreed to pay combined criminal and regulatory penalties of more than $280 million. In addition to the monetary penalties, PAC agreed to engage an independent compliance monitor for a period of two years to be followed by one year of self-reporting.  In addition to traditional monitor requirements, such as demonstrated FCPA expertise, the deferred prosecution agreement includes an additional proviso to the list of qualifications for monitor selection—diversity—stating that "[m]onitor selections shall be made in keeping with the Department's commitment to diversity and inclusion."

Société Générale S.A. /Legg Mason, Inc.

Closing out the first half of 2018 corporate enforcement in a big way, on June 4, 2018 DOJ announced two separate but related FCPA enforcement actions with French financial services company Société Générale ("SocGen") and Maryland-based investment management firm Legg Mason, Inc.  Both resolutions stem from SocGen's payment of more than $90 million to a Libyan intermediary, while allegedly knowing that the intermediary was using a portion of those payments to bribe Libyan government officials in connection with $3.66 billion in investments placed by Libyan state-owned banks with SocGen.  A number of those investments were managed by a subsidiary of Legg Mason. To settle the criminal FCPA bribery and conspiracy charges, SocGen entered into a deferred prosecution agreement and had a subsidiary plead guilty.  SocGen also simultaneously resolved unrelated criminal fraud charges of rigging LIBOR rates.  Further, in the first U.S.-French coordinated resolution in a foreign bribery case, SocGen also reached a parallel resolution with the Parquet National Financier ("PNF") in Paris.  After netting out offsets between the bribery resolutions, SocGen agreed to pay $292.78 million to DOJ and $292.78 million to French authorities, in addition to $275 million to resolve DOJ's LIBOR-related allegations.  Adding $475 million paid to the U.S. Commodity Futures Trading Commission in the LIBOR case, the total price tag well exceeds $1.3 billion. Legg Mason had a somewhat lesser role in the alleged corruption scheme, reflected in the fact that it was permitted to enter into a non-prosecution agreement with DOJ with a $64.2 million price tag.  Nearly half of the DOJ resolution amount is subject to a potential credit "against disgorgement paid to other law enforcement authorities within the first year of the [non-prosecution] agreement," a seeming anticipatory nod to a forthcoming FCPA resolution with the SEC. Both companies will self-report to DOJ over the course of the three-year term of their respective agreements.  Neither was required to retain a compliance monitor, although the principal reasoning for lack of monitor in the SocGen case appears to be that the bank will be subject to ongoing monitoring by France's L'Agence Française Anticorruption.

Beam Suntory Inc.

Trailing into the second half of 2018, on July 2, 2018 the SEC announced an FCPA resolution with Chicago-based spirits producer Beam Suntory relating to allegations of improper payments to government officials in India.  According to the SEC, from 2006 through 2012 senior executives at Beam India directed efforts by third parties to make improper payments to increase sales, process license and label registrations, obtain better positioning on store shelves, and facilitate distribution.  The allegations include an interesting cameo by the SEC's 2011 FCPA resolution with Beam competitor Diageo plc (covered in our 2011 Year-End FCPA Update).  The SEC alleged that after the Diageo enforcement action was announced, Beam sent an in-house lawyer to India to investigate whether similar conduct was occurring at Beam India and to implement additional FCPA training.  This review led to a series of investigations culminating in a voluntary disclosure to the SEC. Without admitting or denying the allegations, Beam consented to the entry of a cease-and-desist order to resolve FCPA accounting provision charges and agreed to disgorge $5.26 million of profits, plus $917,498 in prejudgment interest, and pay a $2 million civil penalty.  The SEC's order did not impose ongoing reporting requirements on Beam and acknowledged the company's voluntary self-disclosure, cooperation with the SEC's investigation, and the remedial actions taken by the company, including ceasing operations at Beam India until Beam was satisfied it could operate in a compliant manner.  Beam has announced that it is continuing to cooperate in a DOJ investigation.

Credit Suisse Group AG

Further trailing into the second half of 2018, on July 5 DOJ and the SEC announced the second joint FCPA resolution of 2018 with Swiss-based financial services provider and issuer Credit Suisse.  According to the charging documents, between 2007 and 2013 Credit Suisse's Hong Kong subsidiary hired more than 100 employees at the request of Chinese government officials.  These so-called "relationship hires" were allegedly made to encourage the referring officials to direct business to Credit Suisse and despite the fact that, in many cases, these applicants did not possess the technical skills and qualifications of those not referred by foreign officials. To resolve the criminal investigation, Credit Suisse's Hong Kong subsidiary entered into a non-prosecution agreement and agreed to pay a criminal penalty of just over $47 million.  Notably, Credit Suisse received only a 15% discount from the bottom of the Guidelines range (rather than the maximum 25% available under the FCPA Corporate Enforcement Policy for non-voluntary disclosures) because its cooperation was, allegedly, "reactive and not proactive" and "because it failed to sufficiently discipline employees who were involved in the misconduct."  Credit Suisse will self-report on the status of its compliance program over the three-year term of the agreement. To resolve the SEC investigation, the parent company consented to a cease-and-desist proceeding alleging violations of the FCPA's anti-bribery and internal controls provisions and agreed to pay nearly $25 million in disgorgement plus more than $4.8 million in prejudgment interest.  This brings the total monetary resolution to nearly $77 million. Prior examples of so-called "princeling" FCPA resolutions include JPMorgan Chase & Co. (covered in our 2016 Year-End FCPA Update), Qualcomm, Inc. (covered in our 2016 Mid-Year FCPA Update), and Bank of New York Mellon Corp. (covered in our 2015 Year-End FCPA Update).

Individual FCPA and FCPA-Related Enforcement Actions

The number of FCPA prosecutions of individual defendants during the first half of 2018 was a relatively modest half dozen, including the indictment of former TLI Co-President Mark Lambert discussed above.  But that number masks the true extent of FCPA-related enforcement as DOJ brought twice that many prosecutions in money laundering and wire fraud actions arising out of FCPA investigations.  In large part, these non-FCPA charges are a result of DOJ pursuing the foreign official recipients of bribe payments, who cannot be charged under the FCPA but can be charged with criminal offenses (including money laundering) associated with the receipt of those bribes.

FCPA-Related Charges in Och-Ziff Case

In our 2017 Mid-Year FCPA Update, we covered civil FCPA charges filed by the SEC against former Och-Ziff Capital Management Group LLC executive Michael L. Cohen.  On January 3, 2018, a criminal indictment was unsealed charging Cohen with 10 counts of investment adviser fraud, wire fraud, obstruction of justice, false statements, and conspiracy.  According to the indictment, Cohen violated his fiduciary duties to a charitable foundation client by failing to disclose his personal interest in investments he promoted relating to an African mining operation and then engaged in obstructive acts to cover up the transaction after the SEC began investigating. Cohen has pleaded not guilty to all charges.  No trial date has been set.

Additional FCPA and FCPA-Related Charges in PDVSA Case

We have been reporting on DOJ's investigation of a corrupt pay-to-play scheme involving Venezuela's state-owned energy company, Petróleos de Venezuela S.A. ("PDVSA"), since our 2015 Year-End FCPA Update.  On February 12, 2018, DOJ unsealed and announced charges against five new defendants for their alleged participation in the scheme:  Luis Carolos De Leon Perez, Nervis Gerardo Villalobos Cardenas, Cesar David Rincon Godoy, Rafael Ernesto Reiter Munoz, and Alejandro Isturiz Chiesa.  All five defendants are charged with money laundering; De Leon and Villalobos are additionally charged with FCPA conspiracy. According to the indictment, in 2011 PDVSA found itself in significant financial distress relating to the sharp reduction in global oil prices.  Knowing that the agency would be unable to pay all of its vendors, the five defendants (the three non-FCPA defendants with PDVSA and the two FCPA defendants as brokers) concocted a scheme to solicit PDVSA vendors to obtain preferential treatment in payment only if they agreed to kickback 10% of the payments to the defendants. Four of the five defendants were arrested in Spain in October 2017, whereas Isturiz remains at large.  Cesar Rincon was extradited from Spain in early February and, on April 19, 2018, pleaded guilty to one count of money laundering conspiracy and was ordered to forfeit $7 million, pending a summer sentencing date.  De Leon, a U.S. citizen, has been extradited to the United States and has pleaded not guilty, although pre-trial filings suggest that a plea agreement may be in the works.  Villalobos and Reiter remain in Spanish custody pending extradition proceedings. These charges bring to 15 the number of defendants charged (publicly) in the wide-ranging PDVSA corruption investigation.  With Cesar Rincon, 11 of the 15 have now pleaded guilty.

Additional FCPA Charges in U.N. Bribery Case

We have been reporting on FCPA and non-FCPA charges associated with a scheme to bribe U.N. ambassadors to influence, among other things, the development of a U.N.-sponsored conference center in Macau, since our 2015 Year-End FCPA Update.  On April 4, 2018, Julia Vivi Wang, a former media executive who promoted U.N. development goals, pleaded guilty to three counts of FCPA bribery, conspiracy, and tax evasion in connection with her role in the scheme.  Wang was originally charged in March 2016, but a superseding charging document was filed in 2018.  Wang's sentencing has been set for September 5, 2018.

Additional FCPA and FCPA-Related Charges in Petroecuador Case

In our 2017 Year-End FCPA Update, we reported on the money laundering indictment of Marcelo Reyes Lopez, a former executive of Ecuadorian state-owned oil company Petroecuador.  Lopez pleaded guilty on April 11, 2018 to money laundering conspiracy in connection with his alleged receipt of bribes. On March 28, 2018, another former Petroecuador executive, Arturo Escobar Dominguez, likewise pleaded guilty to one count of conspiracy to commit money laundering.  Then, on April 19, 2018, a grand jury in the Southern District of Florida returned an indictment charging two additional defendants:  Frank Roberto Chatburn Ripalda and Jose Larrea.  Chatburn is charged with FCPA bribery, money laundering, and conspiracy in connection with his alleged payment of $3.27 million in bribes to Petroecuador officials to obtain $27.8 million in contracts for his company.  Larrea is charged with conspiracy to commit money laundering in connection with the scheme.  Chatburn has yet to be arraigned, and Larrea has pleaded not guilty with a current trial date of August 2018.

New FCPA and FCPA-Related Charges in Setar Case

In April 2018, charges against a former Florida telecommunications company executive, Lawrence W. Parker, Jr., and a former official of the Aruban state-owned telecommunications company Servicio di Telecomunicacion di Aruba N.V. ("Setar"), Egbert Yvan Ferdinand Koolman, were unsealed in the U.S. District Court for the Southern District of Florida.  According to the charging documents, Koolman accepted $1.3 million in bribes from Parker and others, for several years, in exchange for providing confidential information concerning Setar business opportunities.  Parker was charged with one count of FCPA conspiracy and Koolman with one count of money laundering conspiracy. Both Parker and Koolman have pleaded guilty and have been sentenced to 35 and 36 months in prison, in addition to $700,000 and $1.3 million in restitution, respectively.

New FCPA-Related Charge in HISS Case

In our 2015 Mid-Year FCPA Update, we covered DOJ's civil action to forfeit nine New Orleans properties—worth approximately $1.5 million—filed in the U.S. District Court for the Eastern District of Louisiana.  On April 27, 2018, a grand jury sitting in the same district returned an indictment criminally charging Carlos Alberto Zelaya Rojas, the nominal owner of those properties, with 12 counts of money laundering and other offenses associated with the impediment of the civil forfeiture proceedings.  According to the indictment, Zelaya is the brother of the former Executive Director of the Honduran Institute of Social Security ("HISS").  The brother, who according to press reports was criminally charged in Honduras, allegedly received millions of dollars in bribes from two Honduran businessmen.  Zelaya then assisted with the laundering of at least $1.3 million of those bribe payments, including through the purchase of the nine properties. On June 27, 2018, Zelaya pleaded guilty to a single count of money laundering conspiracy and has been detained pending an October sentencing date.  As part of this plea, Zelaya consented to the forfeiture of the nine properties.

Additional FCPA-Related Charges in Rolls-Royce Case

In our 2017 Mid-Year FCPA Update, we covered the multi-jurisdictional resolution of criminal bribery charges against UK engineering company Rolls-Royce.  The corporate charges were then supplemented by FCPA and FCPA-related charges against five individual defendants as reported in our 2017 Year-End FCPA Update.  On May 24, 2018, DOJ announced a superseding indictment that charged two new defendants—Vitaly Leshkov and Azat Martirossian—with money laundering charges associated with the Rolls-Royce bribery scheme. According to the indictment, Leshkov and Martirossian were employees of a technical advisor to a state-owned joint venture between the governments of China and Kazakhstan, formed to transport natural gas between the two nations.  In this capacity, they allegedly "had the ability to exert influence over decisions" by the state-owned joint venture and accordingly qualified as foreign officials even though they had no official government positions.  They then participated in a scheme to solicit bribes on behalf of employees of the state-owned joint venture from employees of Rolls-Royce. Neither Martirossian nor Leshkov have made a physical appearance in U.S. court to answer the charges.  Nevertheless, Martirossian already has moved to dismiss the indictment as described immediately below.

2018 MID-YEAR CHECK-IN ON FCPA ENFORCEMENT LITIGATION

Martirossian Motion to Dismiss

As just described, Azat Martirossian was indicted on May 24, 2018 on money laundering charges associated with the alleged Rolls-Royce bribery scheme in China and Kazakhstan.  Although Martirossian reportedly remains in China and has yet to make a physical appearance in U.S. court, he very quickly filed a motion to dismiss the indictment on the grounds that it insufficiently alleges a U.S. nexus.  The motion also contests the "aggressive theory" that Martirossian qualifies as a "foreign official" under the FCPA based on his work as a technical advisor to a state-owned entity. DOJ's initial response briefly contests Martirossian's arguments on the merits, but focuses more on DOJ's contention that the motion should be held in abeyance until Martirossian submits himself to the jurisdiction of the Court pursuant to the fugitive disentitlement doctrine.  The motion remains pending before Chief Judge Edmund A. Sargus of the U.S. District Court for the Southern District of Ohio.

Ho Motion to Dismiss

We reported in our 2017 Year-End FCPA Update on the December 2017 indictment of Chi Ping Patrick Ho, the head of a Chinese non-governmental organization that holds "special consultative status" at the United Nations, on FCPA and money laundering charges associated with his alleged role in corruption schemes involving Chad and Uganda.  After pleading not guilty earlier this year, on April 16 Ho filed a motion to dismiss certain of the counts.  Ho argues, among other things, that the indictment inconsistently charges him with violating both 15 U.S.C. § 78dd-2, which applies to "domestic concerns," and § 78dd-3, which applies to persons who act within U.S. territory in furtherance of a bribe.  Ho additionally contends that the money laundering charges fail because they cannot be based on wires sent from one foreign jurisdiction to another foreign jurisdiction—here Hong Kong to Dubai and Uganda—with no U.S. nexus other than the fact that they passed through a New York bank account.  DOJ, as one would expect, opposed the motion, which remains pending before the Honorable Loretta A. Preska of the U.S. District Court for the Southern District of New York. 

Denial of Ng Seng's Motion for New Trial / Sentencing

We covered in our 2017 Year-End FCPA Update the conviction after trial of Macau billionaire Ng Lap Seng on FCPA, federal programs bribery, and money laundering charges associated with his role in a scheme to pay more than $1 million in bribes to two U.N. officials in connection with, among other things, a plan to build a U.N.-sponsored conference center in Macau.  Seng subsequently filed a Rule 33 motion for a new trial, arguing that DOJ introduced a new theory of liability at trial, constituting an amendment of or prejudicial variance from the indictment, as well as that the Government's key witness, cooperating defendant Francis Lorenzo, committed perjury at trial, which DOJ failed adequately to investigate and correct. On May 9, 2018, the Honorable Vernon S. Broderick of the U.S. District Court for the Southern District of New York denied the motion.  In a lengthy opinion, steeped in the facts of the four-week trial, the Court found that there was no constructive amendment of or prejudicial variance from the superseding indictment based on the evidence adduced at trial, and further that Seng failed to meet his burden of establishing perjury by Lorenzo, and that even if there had been perjury it was not material to the jury's verdict. Judge Broderick subsequently sentenced Seng to 48 months in prison and ordered approximately $1.8 million in forfeiture and restitution.  Seng has appealed to the Second Circuit, which in an early ruling denied Seng's motion for bail pending appeal but ordered his appeal to be expedited. In the same case, on February 28, 2018, Judge Broderick sentenced Seng's co-defendant and former assistant, Jeff Yin, to 7 months in prison and nearly $62,000 in restitution for his tax evasion conviction.

Motion to Intervene in Och-Ziff Sentencing Proceedings

As reported in our 2016 Year-End FCPA Update, New York-based hedge fund Och-Ziff Capital Management Group LLC, together with its investment advisor subsidiary, reached a coordinated FCPA resolution with DOJ and the SEC in September 2016, pursuant to which the entities agreed to pay just over $412 million in total.  After several adjournments of the sentencing hearing, on February 20, 2018 a self-styled victim of Och-Ziff's alleged corruption, Africo Resources Limited, filed a letter with the Court asserting that it is entitled to a share of the proceeds collected by DOJ pursuant to the Mandatory Victim Restitution Act.  Och-Ziff, represented by Gibson Dunn, has filed a submission disputing Africo Resources' claims.  The Honorable Nicholas G. Garaufis of the U.S. District Court for the Eastern District of New York has yet to rule.

SEC Proceedings Against Och-Ziff Defendants Stayed

As reported in our 2017 Year-End FCPA Update, former Och-Ziff executive Michael Cohen and analyst Vanja Baros filed motions to dismiss the civil FCPA proceedings brought against them by the SEC.  After those motions were fully briefed and argued, but pending ruling, DOJ unsealed an indictment that charged Cohen criminally as discussed above. On February 9, 2018, DOJ filed a motion to intervene and stay the SEC civil suit on the grounds that the facts of the civil cases overlap substantially with the criminal case, even though the indictment does not allege FCPA violations.  Cohen and Baros did not object to a stay of the SEC case, but requested that the Court rule on their pending motions to dismiss first.  On May 11, 2018, the Honorable Nicholas G. Garaufis granted DOJ's motion to stay discovery in the SEC's case, but denied the request to stay ruling on the motions to dismiss.  A decision on those motions remains pending.

Khoury's Motion to Unseal Indictment

We reported in our 2017 Year-End FCPA Update on the unorthodox motion filed by Samir Khoury to unseal an indictment against him that may or may not exist.  Khoury, a former consultant named in prior FCPA corporate resolutions as "LNG Consultant," contends that it is likely that there is an indictment pending against him under seal since approximately 2009, waiting for him to travel to the United States or another country with an extradition treaty.  Khoury asserts that the indictment should be unsealed and then dismissed given the prejudicial effect of the passage of time. Oral argument on the motion was heard before the Honorable Keith P. Ellison of the U.S. District Court for the Southern District of Texas on March 22, 2018.  At the hearing, Khoury's counsel presented argument that 12 potential defense witnesses have died since 2009, and that Khoury has been unable to open bank accounts in his native Lebanon and has lost business opportunities because of his perceived affiliation with the Bonny Island scheme.  In response, attorneys for DOJ refused to acknowledge whether Khoury had or had not been indicted, but indicated that if an indictment did exist it could hold the indictment under seal indefinitely. On June 11, 2018, Judge Ellison issued a Memorandum Opinion and Order.  He first pushed aside DOJ's "issue preclusion" arguments that decisions from several years prior resolve this matter, holding that the three years that has passed since that litigation represent a changed circumstance warranting another look.  Similarly, the Court rejected DOJ's "fugitive disentitlement" argument, holding that Khoury is not a fugitive because he did not abscond from the United States but rather has at all relevant times been living in his native Lebanon.  Judge Ellison gave DOJ 20 days to submit to the Court, in camera, any evidence it "wishes to adduce in opposition to Mr. Khoury's Motion to Unseal." DOJ filed a sealed pleading on July 2, 2018.  The next day, Khoury filed a motion to unseal any portion of that pleading that was beyond the contours of what the Court permitted.  This motion, as well as the underlying motion to unseal and dismiss, remain pending.

Guilty Plea in Vietnamese Skyscraper Case

In our 2017 Mid-Year FCPA Update, we reported on the indictment of New Jersey real estate broker Joo Hyun Bahn in connection with a feigned plot to bribe an official of the sovereign wealth fund of a Middle Eastern country (subsequently identified as Qatar) to induce the official to cause the fund to purchase a skyscraper in Hanoi.  The alleged agent of the sovereign wealth fund subsequently admitted that the bribery plot was a sham and that he pocketed the bribe payment. On January 5, 2018, Bahn pleaded guilty to one count of FCPA conspiracy and one count of violating the FCPA in the U.S. District Court for the Southern District of New York.  His sentencing is scheduled for September 6, 2018 before the Honorable Edgardo Ramos.

Guilty Plea in Siemens Case

As reported in our 2017 Year-End FCPA Update, former Siemens executive Eberhard Reichert was extradited to the United States, following his arrest in Croatia, to face a December 2011 indictment charging him and seven others in relation to their alleged roles in a scheme to bribe Argentine officials in connection with a $1 billion contract to create national identity cards. On March 15, 2018, Reichert pleaded guilty in the U.S. District Court for the Southern District of New York to one count of conspiring to violate the anti-bribery, internal controls, and books-and-records provisions of the FCPA and to commit wire fraud.  Reichert awaits a sentencing date before the Honorable Denise L. Cote.

2018 MID-YEAR FCPA-RELATED DEVELOPMENTS

In addition to the enforcement activity covered above, the first six months of 2018 saw DOJ issue important guidance on how it will administer criminal enforcement, as well as a Supreme Court decision with significant ramifications for FCPA whistleblowers.

DOJ Announces "Piling On" Policy

On May 9, 2018, Deputy Attorney General Rod J. Rosenstein introduced a new DOJ "Policy on Coordination of Corporate Resolution Penalties."  Announcing the policy at a New York City Bar event, Rosenstein said that it attempts to discourage "piling on" by different enforcement authorities punishing the same company for the same conduct. Incorporated in Sections 1-12.100 and 9-28.1200 of the U.S. Attorneys' Manual, the new policy directs federal prosecutors to "consider the totality of fines, penalties, and/or forfeiture imposed by all Department components as well as other law enforcement agencies and regulators in an effort to achieve an equitable result."  The policy has four key components:
  • First, prosecutors may not use the specter of criminal prosecution as leverage in negotiating a civil settlement;
  • Second, if multiple DOJ components are investigating the same company for the same conduct, they should coordinate to avoid duplicative penalties;
  • Third, DOJ should coordinate with and consider fines, penalties, and/or forfeiture paid to other federal, state, local, or foreign enforcement authorities investigating the same company for the same conduct; and
  • Fourth, the policy sets forth factors DOJ should consider in determining whether multiple penalties are appropriate, including the egregiousness of wrongdoing, statutory requirements, the risk of delay in achieving resolution, and the adequacy and timeliness of a company's disclosures to and cooperation with DOJ.
In our view, the policy largely reflects pre-existing DOJ practice in the FCPA arena, where DOJ routinely coordinates resolutions with the SEC and, increasingly, participates in cross-border resolutions by, among other things, crediting a company's payments to foreign enforcement authorities in calculating the U.S. criminal fine.  We covered this latter phenomenon in our 2017 Year-End FCPA Update.

Supreme Court Decision Resolves Dispute Over Who is a "Whistleblower"

On February 21, 2018, the U.S. Supreme Court unanimously held in Digital Realty Trust, Inc. v. Somers that the anti-retaliation provision of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act covers only those who report an alleged violation of the federal securities laws to the SEC.  The Court's decision reversed a Ninth Circuit ruling that Dodd-Frank's anti-retaliation provision also covers employees who report such issues internally without reporting them to the SEC.  Although the statutory definition of a "whistleblower" as "any individual who provides . . . information relating to a violation of the securities laws to the [SEC], in a manner established . . . by the [SEC]," appeared to be clear to all nine justices, this issue had sharply divided the lower courts in recent years. The holding in Digital Realty has been interpreted by some as a harbinger of future potential whistleblowers bypassing internal reporting channels and going directly to the SEC to ensure they are protected.  Although we agree that the Court's decision could affect the decision-making calculus of a would-be whistleblower, studies routinely show that the vast majority of employees report their concerns internally first, and that they report externally only after they feel their concerns have not been adequately addressed.  We are not certain that this phenomenon will change, at least dramatically, and we thus advise our clients and friends that it is more important now than ever for companies to scrutinize their internal policies and procedures to ensure that they encourage internal reporting, protect those who do, and robustly investigate the concerns expressed.  For more on the Supreme Court's decision, please see our Client Alert, "Supreme Court Says Whistleblowers Must Report to the SEC Before Suing for Retaliation Under Dodd-Frank."

2018 MID-YEAR KLEPTOCRACY FORFEITURE ACTIONS

We continue to follow DOJ's Kleptocracy Asset Recovery Initiative, spearheaded by DOJ's Money Laundering and Asset Recovery Section.  The initiative uses civil forfeiture actions to freeze, recover, and, in some cases, repatriate the proceeds of foreign corruption.  The first half of 2018 saw continued coordination between attorneys from MLARs and DOJ's FCPA Unit, as they have been frequently appearing in one another's enforcement actions, working hand-in-glove across section lines.  As stated by then-Acting Deputy Assistant Attorney General (now Gibson Dunn partner) M. Kendall Day in his February 6, 2018 testimony before the Senate Committee on the Judiciary, "One of the most effective ways to deter criminals . . . is to follow the criminals' money, expose their activity and prevent their networks from benefitting from the enormous power of [the U.S.] economy and financial system." In our 2016 and 2017 Year-End FCPA Updates, we reported on DOJ's massive civil forfeiture action seeking to recover more than $1 billion in assets associated with Malaysian sovereign wealth fund 1Malaysia Development Berhad ("1MDB").  In February 2018, a 300-foot superyacht allegedly bought with money stolen from 1MDB was impounded on behalf of U.S. authorities off the coast of Bali.  DOJ seeks to bring the yacht to the United States where it can be taken into U.S. government custody and sold.  In March, Hollywood production company Red Granite Pictures (the company that produced The Wolf of Wall Street) agreed to pay $60 million to resolve a civil lawsuit stemming from the DOJ's investigation.  Red Granite was co-founded by the stepson of the Malaysian prime minister, and DOJ alleged that three of Red Granite's productions were funded with money stolen from 1MDB.

2018 MID-YEAR FCPA-RELATED PRIVATE CIVIL LITIGATION

We continue to observe that although the FCPA does not provide for a private right of action, various causes of action are employed by civil litigants in connection with losses allegedly associated with FCPA-related conduct.  A selection of matters with developments in the first half of 2018 follows.

Shareholder Lawsuits

  • Centrais Electricas Brasileiras S.A. ("Eletrobras"):  On May 2, 2018, Eletrobras entered into a $14.75 million settlement agreement with shareholders to resolve claims that the government-controlled utility made misrepresentations in its public filings regarding the company's financials and internal controls in connection with a bid-rigging scheme for service and engineering contracts.  In a press release, Eletrobras stated that it made no admission of wrongdoing or misconduct, but entered into the agreement for the best interests of its shareholders.  A hearing on the proposed settlement is scheduled before the Honorable John G. Koeltl of the U.S. District Court for the Southern District of New York on July 17, 2018.
  • Cobalt International Energy, Inc.:  On April 5, 2018, the U.S. Bankruptcy Court for the Southern District of Texas approved a Chapter 11 plan by Cobalt on the heels of a consolidated class action against the exploration and production company for material misrepresentations regarding an alleged bribery scheme involving Angolan officials and the true potential of the company's Angolan wells.  In June 2017, the Honorable Nancy F. Atlas certified a class of investors who purchased the company's securities between March 2011 and November 2014.  In February 2018, the plaintiffs voluntarily dismissed the class action without prejudice because of the bankruptcy proceedings.
  • Embraer S.A.:  On March 30, 2018, the U.S. District Court for the Southern District of New York dismissed a class action lawsuit against Brazilian-based aircraft manufacturer Embraer, which had contended that Embraer made false statements in its securities filings pertinent to its 2016 FCPA resolution.  In dismissing the suit, the Honorable Richard M. Berman explained that a company's filings need not constitute a wholesale "confession" and that companies "do not have a duty to disclose uncharged, unadjudicated wrongdoing."  The Court found that Embraer properly disclosed that it might have to pay fines or incur sanctions as a result of the investigation, that the company's financial statements were accurate, and that because Embraer's code of ethics was "inherently aspirational," an undisclosed breach of the code was not actionable under the securities laws.
  • Petróleo Brasileiro S.A. – Petrobras:  On June 4, 2018, the U.S. District Court for the Southern District of New York held a final settlement hearing for a securities class action brought against Brazil's state oil company Petrobras.  As previously reported in our 2017 Mid-Year FCPA Update, the class action plaintiffs—purchasers of Petrobras securities in the United States—alleged that Petrobras made materially false and misleading statements about its earnings and assets as part of a far-reaching money laundering and bribery scheme in Brazil.  The settlement, which does not involve any admission of wrongdoing or misconduct by Petrobras and, in fact, includes an express denial of liability, resolves these claims for a total of $2.95 billion paid by Petrobras plus an additional $50 million paid by its external auditor, PricewaterhouseCoopers Auditores Independentes ("PwC Brazil").  In a series of opinions and orders from June 25 to July 2, 2018, the Honorable Jed S. Rakoff approved of the settlement, but reduced counsel fees for the plaintiffs by nearly $100 million, to just over $200 million total.

Civil Fraud / RICO Actions

Bermuda

As reported in our 2017 Mid-Year FCPA Update, the Government of Bermuda filed a Racketeer Influenced and Corrupt Organizations Act ("RICO") lawsuit in U.S. District Court for the District of Massachusetts against Lahey Clinic, Inc., alleging that, for nearly two decades, the defendants conspired with Dr. Ewart Brown—the former Premier of Bermuda, a member of Bermuda's Parliament, and the owner of two private health clinics in Bermuda—to receive preferential treatment.  On March 8, 2018, the Honorable Indira Talwani granted Lahey's motion to dismiss, finding the Government of Bermuda had failed to demonstrate that it had suffered an injury to its U.S.-held business or property as a result of the alleged schemes.

EIG Global Energy Partners Litigation

In our 2017 Mid-Year FCPA Update we covered the civil fraud lawsuit against Petrobras filed by various investment funds, including EIG Global Energy Partners, alleging the funds lost their investment in an offshore drilling project known as "Sete" as a result of the Operation Car Wash scandal.  On March 30, 2017, the U.S. District Court for the District of Columbia largely denied Petrobras's motion to dismiss, finding in relevant part that Petrobras was not immune from civil lawsuit under the Foreign Sovereign Immunities Act ("FSIA") because the suit concerned Petrobras's commercial activities having a "direct effect" in the United States.  Petrobras took an interlocutory appeal of the FSIA ruling. On July 3, 2018, the U.S. Court of Appeals for the District of Columbia Circuit affirmed the judgment of the district court in a 2-1 decision authored by the Honorable Karen L. Henderson.  "Although a foreign state is presumptively immune from the jurisdiction of United States courts," the Court held that the "direct-effect" exception to the FSIA applied on the facts as alleged by EIG in its complaint, while at the same time acknowledging that other "third-party lenders might have also injured EIG" and that the "locus" of the tort was foreign.  The Honorable David B. Sentelle filed a dissenting opinion in which he concluded that the requisite "direct effect" on U.S. commerce had not been established sufficiently to divest Petrobras of its presumptive right to immunity from suit in the U.S. courts. This is not the only RICO litigation initiated by EIG arising out of its failed Brazilian investment.  As summarized in our 2017 Year-End FCPA Update, in December 2017 Keppel Offshore & Marine Ltd. paid more than $422 million in penalties for its alleged bribery scheme with Brazilian government officials, including officials at Petrobras.  On February 6, 2018, EIG funds that had invested with Keppel filed suit in the U.S. District Court for the Southern District of New York seeking more than $660 million in damages for alleged RICO violations.  Plaintiffs allege that Keppel did not disclose its scheme to bribe Brazilian officials to secure contracts for the Sete project, and, after being discovered, the bribery scheme effectively wiped out EIG's $221 million investment.  EIG has since amended its complaint to add additional predicate acts, and a briefing schedule for the motion to dismiss has been issued by the Honorable Paul G. Gardephe.

Harvest Natural Resources

On February 16, 2018, a recently-defunct Texas-based energy company, Harvest Natural Resources, Inc., filed suit in the U.S. District Court for the Southern District of Texas against various individuals and entities affiliated with the Venezuelan government and Venezuela's state oil company, PDVSA.  The complaint alleges that, because Harvest refused to pay four separate bribes to Venezuelan officials in the pay-to-play scheme resulting in criminal prosecutions as described above, the Venezuelan government wrongfully refused to approve the sale of Harvest's energy assets, forcing Harvest to sell the assets to a different buyer at a loss of approximately $470 million.  The complaint further alleges that by requiring bribes to approve sales, Venezuela tainted the market and made it impossible for law-abiding companies to conduct business within the country.  The complaint claims that the defendants violated both the RICO and antitrust laws. On April 30, 2018, the defendants moved to dismiss the suit for failure to state a claim.  On May 11, 2018 Chief Judge Lee H. Rosenthal granted Harvest's motion for jurisdictional discovery to test defendants' jurisdictional ties and contacts.

Setar

On March 3, 2017, Setar, N.V., filed a civil suit in the U.S. District Court for the Southern District of Florida against several individuals and entities, including Lawrence W. Parker, Jr. and former Setar official Egbert Yvan Ferdinand Koolman, who as discussed above pleaded guilty to one count of FCPA conspiracy and one count of money laundering conspiracy, respectively.  In relevant part, an amended complaint filed in February 2018 alleges that Koolman orchestrated a years-long scheme to steal more than $15 million from Setar through kickbacks and other improper means.  According to Setar's amended complaint, when the Panama Papers (covered in our 2016 Mid-Year FCPA Update) became public and linked Koolman to a British Virgin Islands company, this led to an internal investigation that resulted in Koolman's termination and the identification of the scheme.  Various motions to dismiss have been filed, and the proceedings are ongoing.

FCPA-Related FOIA Litigation

100Reporters LLC

We have been covering for several years the Freedom of Information Act ("FOIA") lawsuit filed by media organization 100Reporters against DOJ in the U.S. District Court for the District of Columbia.  100Reporters sought records relating to DOJ's 2008 FCPA resolution with Siemens AG and the monitorship reports prepared by Dr. Theo Waigel and his U.S. counsel, F. Joseph Warin of Gibson Dunn. As discussed in our 2017 Mid-Year FCPA Update, on March 31, 2017, the Honorable Rudolph Contreras granted defendants' motions for summary judgment, in part, and denied in its entirety 100Reporters' cross-motion for summary judgment.  The Court accepted Gibson Dunn's position on behalf of Dr. Waigel that the "consultant corollary" to the deliberative process privilege may extend to communications between a government agency and an independent monitor and thereby shield information from disclosure under FOIA Exemption 5—the first time a court has applied the consultant corollary to a compliance monitor.  Judge Contreras denied summary judgment on these grounds because DOJ did not specifically identify the deliberative process at issue with respect to each type of documents withheld by DOJ, and left the door open for defendants to submit further affidavits to support this argument.  The Court also ordered DOJ to submit a copy of one monitorship work plan and one monitorship report for in camera review to assess whether any of the withheld materials could be segregated from non-exempt material. In response to the Court's order, DOJ submitted two new declarations from DOJ personnel involved in the monitorship, an amended chronology of events supporting the deliberative process privilege, and the materials required for in camera review.  DOJ and 100Reporters filed renewed cross-motions for summary judgment. On June 18, 2018, the Court granted in part and denied in part both sets of cross-motions for summary judgment.  Judge Contreras scrutinized the materials submitted by DOJ and held that DOJ's Exemption 4 withholdings were overbroad and although DOJ had justified withholding certain information under Exemption 5, those withholdings also were overbroad.  Ultimately, the Court determined that certain materials should be produced to 100Reporters; however, the Court determined that DOJ properly withheld the monitorship reports themselves (aside from a single, brief "best practices" subsection of each report), as well as draft work plans, presentations by the Monitor to DOJ, and correspondence among the Monitor, monitorship team, and DOJ.  Thus, the core monitorship materials, including the monitorship reports, will be withheld.  Judge Contreras ordered DOJ to reexamine its withholdings and redactions in light of the Court's guidance and disclose the newly identified non-exempt information to 100Reporters.

Monitor Candidates

As covered in our 2016 Year-End and 2017 Mid-Year FCPA Updates, GIR Just Anti-Corruption journalist Dylan Tokar filed a December 2016 FOIA lawsuit in the U.S. District Court for the District of Columbia seeking disclosure of the names of corporate compliance monitor candidates submitted by 15 companies that settled FCPA charges through agreements that contained a monitorship requirement, as well as information regarding the DOJ committee tasked with evaluating and selecting such candidates.  In 2017, DOJ provided the identity of some of the firms associated with the monitorship candidates and certain information about the DOJ committee—but withheld the names of the candidates who were not selected, citing privacy concerns reflected in FOIA Exemptions 6 and 7(C).  When DOJ refused to answer a second request for the candidate names, the parties cross-moved for summary judgment. On March 29, 2018, the Honorable Rudolph Contreras granted GIR Just Anti-Corruption's motion for summary judgment.  The Court rejected DOJ's contention that the FOIA request would not lead to enhanced public understanding of the monitor selection process, instead concluding that GIR Just Anti-Corruption "sufficiently demonstrated that the public interest will be significantly served by the release of these names."  The Court also rejected DOJ's argument that its refusal to disclose the names of monitorship candidates fell under FOIA exemption 7(C), which traditionally shields individuals from the stigma of being associated with an ongoing investigation.  The Court denied the majority of DOJ's cross-motion for summary judgment with the exception of granting DOJ's argument regarding redaction of information relating to efforts by one of the companies to enhance its compliance program on trade secrets grounds.  DOJ released the names to GIR Just Anti-Corruption in June 2018.

2018 MID-YEAR INTERNATIONAL ANTI-CORRUPTION DEVELOPMENTS

World Bank Integrity Vice Presidency Expands Consideration of Monitor Candidates

In March 2018, the World Bank—through Integrity Vice Presidency ("INT") head Pascale Hélène Dubois—changed course regarding those it will allow to serve as a compliance monitor for companies sanctioned by the World Bank.  Ms. Dubois explained in a written response to GIR Just Anti-Corruption that the World Bank now will consider representatives of law firms with concurrent cases before INT, so long as the individuals proposed as monitors are not currently advising on those cases.  By revising the prior approach of informally disqualifying candidates from firms that had faced INT as adversaries in sanctions proceedings, the World Bank has broadened the pool of potential candidates. Also in March, the World Bank Office of Suspension and Debarment ("OSD") released a 10-year update of metrics regarding OSD's role in World Bank enforcement.  The report illustrates the depth and breadth of efforts by the World Bank to ensure that those who participate in projects financed with World Bank funds play by World Bank rules, but also shows the difficulty of successfully challenging INT allegations of misconduct:  historically, OSD has agreed with the preliminary determinations of INT—agreeing in 96% of cases that INT had presented sufficient evidence for at least one claim set forth, and in 62% of cases that INT had presented sufficient evidence for all claims set forth.

Europe

United Kingdom

As we reported in our 2017 Year-End United Kingdom White Collar Crime Update, last year six individuals were charged by the UK Serious Fraud Office ("SFO") in connection with investigations of Unaoil.  The first half of 2018 brought additional developments in this investigation.  On May 22, 2018, the SFO announced charges against Basil Al Jarah (Unaoil's Iraq partner) and Ziad Akle (Unaoil's territory manager for Iraq) for conspiracy to pay alleged bribes to secure a $733 million contract to build two oil pipelines in Iraq.  And on June 26, 2018, the SFO announced charges against Unaoil Monaco SAM and Unaoil Ltd.  Unaoil Ltd was charged in connection with the same oil pipeline project, while Unaoil Monaco SAM was charged with conspiracy to make corrupt payments to secure the award of contracts for SBM Offshore.  Unaoil has been summoned to appear at the Westminster magistrates court in London on July 18, 2018. In other enforcement developments, following a three-day trial in the High Court in London, in March 2018 the SFO secured recovery of £4.4 million from two senior Chad diplomats to the United States who received bribes from Canadian oil and gas company Griffiths Energy International in exchange for securing oil development rights.  This is the first time that money was returned overseas in a civil recovery case.  As reported in our 2013 Year-End FCPA Update, on January 22, 2013 Griffiths entered a guilty plea in Canada and paid a CAD $10.35 million fine in connection with the alleged bribery. Look for much more on UK white collar developments in our forthcoming 2018 Mid-Year United Kingdom White Collar Crime Update, to be released on July 16, 2018.

France

As discussed above, in June 2018 SocGen entered into a deferred prosecution agreement with DOJ and reached a parallel settlement with the French PNF in the first coordinated enforcement action by DOJ and French authorities in an overseas anti-corruption case.  SocGen will also be subject to ongoing monitoring by the L'Agence Française Anticorruption. In two decisions this year, France's Supreme Court—the Cour de Cassation—limited the use of "international double jeopardy" as a viable defense to criminal prosecution.  French law provides that a criminal conviction in another country will preclude prosecution in France if no act related to the conduct took place in France.  But in March 2018, the French Court ruled that the Swiss company Vitol could be prosecuted for charges related to its involvement in the U.N. Oil-for-Food Program, despite having entered a guilty plea for grand larceny in New York based on the same facts.  The case spent more than five years in French courts before the Supreme Court ruled that the International Covenant on Civil and Political Rights, to which France is a signatory, prevents double jeopardy on similar charges for "unique facts" and applies "only in cases where both proceedings were initiated in the territory of the same State."  The decision thus appears to end the protection against prosecution in France for the same conduct that had given rise to proceedings in the United States. The 2018 Vitol decision resembled another recent ruling in which the French Supreme Court overturned a lower court's refusal to hear the case against British-Israeli lawyer Jeffrey Tesler, who pleaded guilty in the United States to charges of bribing Nigerian officials.  As we reported in our 2017 Mid-Year FCPA Update, the Paris Court of Appeals had previously held that the prosecution of Tesler was precluded by his 2011 plea agreement entered in U.S. court, suggesting that the U.S. plea was essentially involuntary and precluded him from fairly defending himself in France.  On January 17, 2018, the French Supreme Court reversed that ruling, noting that Tesler had not been deprived of his right to a fair trial because his appearance in French courts was not dictated by the terms of the U.S. plea agreement.  Furthermore, because some of the corrupt acts had been committed in France, the U.S. plea deal did not preclude French prosecution.

Germany

In February 2018, the German unit of French aerospace multinational Airbus SE agreed to pay $99 million to resolve a six-year bribery investigation by German prosecutors into a 2003 deal to sell fighter jets to Austria.  Although prosecutors conceded that they had identified no evidence that bribes were used to secure the 2003 contract, they accused Airbus management of supervisory negligence in allowing employees to make large payments linked to the deal for "unclear purposes."  Airbus continues to face ongoing litigation in Austria, where the Austrian government is seeking more than $1 billion in damages from Airbus in connection with the 2003 deal.

Russia

One of Russia's semiautonomous republics, Dagestan, has become embroiled in a major corruption scandal, with the arrest of numerous high-ranking local government officials, including the acting prime minister, his two deputies, and the mayor of Makhachkala (Dagestan's capital).  In Moscow, Alexander Drymanov, a high-level official within Russia's Investigative Committee ("IC") known to be very close to Alexander Bastrykin, the head of the IC, resigned from his position in early June.  His resignation has been widely linked to allegations that Drymanov and other IC officers accepted bribes from the ringleader of a prominent criminal syndicate to ensure the release of a member of this syndicate.  Additionally, in March 2018, Drymanov's former deputy told federal investigators of payments he had made in exchange for favorable treatment from Drymanov.  Drymanov has characterized his departure as retirement; however, news reports suggest his removal is part of a coordinated attack against Bastrykin by other law enforcement agencies, such as the General Prosecutor's Office and the FSB (the KGB's successor).

Ukraine

Ukraine's parliament passed a bill to establish an anti-corruption court on June 7, 2018, which President Petro Poroshenko signed into law four days later.  This court will become the fourth anti-corruption institution launched in Ukraine since 2014, following the establishment of the National Anti-Corruption Bureau of Ukraine ("NABU"), the Specialized Anti-Corruption Prosecutor's Office ("SAPO"), and the National Agency on Corruption Prevention ("NAZK").  There is hope that the new court will address one of the NABU's key complaints:  that, despite investigations into and arrests of corrupt officials, these efforts are being wasted due to corrupt judges who help the officials escape justice.  The newly passed law creates certain mechanisms intended to ensure that the anti-corruption court's judges remain impartial and do not become beholden to political or financial influence.  Most notably, candidates for appointment to this court are subject to vetting by and interviews with a panel of six international experts.  If three of the six raise concerns about a nominee's integrity or background, they may vote to block the candidacy, which result can be reversed only following further deliberations and a repeat vote. Despite the generally positive reaction to this piece of legislation, commentators have voiced concerns over one provision added to the bill at the last moment, whereby regular courts will retain jurisdiction over ongoing corruption cases, and any resulting appeals also will be heard in courts of general jurisdiction, rather than the appellate branch of the anti-corruption court.  Anti-corruption activists have expressed outrage at the furtive way in which this provision became part of the law—it was absent from the version of the law read to members of parliament prior to their vote—and have suggested its purpose is to enable the acquittal of certain indicted individuals, already on (or awaiting) trial, by courts of general jurisdiction.

The Americas

Argentina

A federal magistrate in Argentina has charged former President Cristina Fernández de Kirchner and her children with money laundering and ordered millions in assets seized.  In another enforcement proceeding, the Anticorruption Office is seeking a prison sentence of five-and-a-half years, along with permanent disqualification from public office, against ex-Vice President and former Minister of Finance Amado Boudou after his conviction for "passive bribery" and "transactions incompatible with the exercise of public functions."  The sentencing follows a trial concerning Boudou's purchase of 70% of a then-bankrupt government contractor and his subsequent actions to have the bankruptcy lifted so that the contractor could again participate in federal government contracts. As covered in our Key 2017 Developments in Latin American Anti-Corruption Enforcement client alert, Argentina has passed sweeping new anti-corruption legislation under which legal entities are strictly liable for crimes such as bribery, extortion, or illicit enrichment of public officials that are committed, directly or indirectly, in their name, interest, or benefit.  Punishment for violating the law may result in one or a combination of criminal fines, suspension of state benefits, debarment, and dissolution.  To be exempt from penalties and administrative responsibility under the new law, legal entities must be able to demonstrate that they reported the wrongdoing as a result of a proper internal investigation; implemented a compliance program prior to commission of the act in question; and returned the benefit that was wrongfully obtained.  Companies facing possible sanctions may mitigate their punishment by cooperating in an active investigation.  Such cooperation includes disclosing accurate, actionable information that sheds further light on potential wrongdoing, recovery of assets, or identification of individual offenders. Articles 22 and 23 of the new law outline requirements for compliance or "integrity" programs.  The programs should be designed to prevent, detect, and correct irregularities and illicit acts taken by the corporation, its representatives, or third parties that confer a benefit to the company.  To receive exemption from any penalties under the law, companies must create internal compliance reporting methods and develop procedures to investigate reports.  The law requires that the compliance or integrity program contain at least (1) a code of conduct; (2) rules and procedures to prevent illicit acts in the course of bidding for administrative contracts, or in any other interaction with the public sector; and (3) periodic training programs for directors, administrators, and staff.

Brazil

Despite facing economic and political uncertainty, Brazil remains a driving force in global anti-corruption efforts.  Brazilian law enforcement entities across the country increasingly are cooperating with each other, as well as with dozens of foreign enforcement authorities.  Operation Lava Jato (Car Wash), now in its fifth year, continues to accumulate convictions related to a vast corruption scheme that exploited contracts with Brazil's state-owned oil company, Petrobras.  So far, prosecutors have charged approximately 400 individuals and obtained more than 200 convictions on charges including corruption, money laundering, and abuse of the international financial system.  Building on its previous efforts, the Car Wash Task Force has initiated four new phases of Car Wash in 2018, many of which dig deeper into allegations that came to light in previous phases. We discussed in our 2017 Year-End FCPA Update the conviction of President Luiz Inácio Lula da Silva on corruption and money laundering charges.  Despite his conviction, Lula remained the front-runner for Brazil's October 2018 presidential election.  In April 2018, however, Lula was ordered to turn himself in and begin serving his 12-year prison sentence.  Now in prison and with little hope of successfully appealing his conviction, it is unlikely Lula will be eligible to run for the presidency. Brazilian authorities also have expanded Operation Carne Fraca ("Weak Flesh"), which covers allegations of bribery in the Brazilian meatpacking industry to evade food safety inspections.  After launching the investigation in 2017, authorities carried out a third investigative phase in March 2018.  The new phase focused on Brazilian food processing giant BRF, with police arresting former BRF CEO Pedro de Andrade Faria, former BRF Vice President of Global Operations Helio dos Santos, and other executives.  Meanwhile, authorities have continued to investigate Brazilian meatpacking company JBS and its parent company, J & F Investimentos.  Its former executives and part owners Joesley and Wesley Batista—who were targets of earlier phases of Weak Flesh, as reported in our 2017 Year-End FCPA Update, and had been in prison since 2017—were released from prison after their prison sentences were commuted to house arrest in February 2018.  In May 2018, Brazilian authorities again arrested Joesley Batista, charging him with corruption, money laundering, and obstruction of justice.  Additional charges are expected, particularly as additional Brazilian law enforcement entities join the investigations.

Canada

In February 2018, Public Services and Procurement Canada ("PSPC"), the division of the Canadian government responsible for internal administration, announced that it would introduce legislation to adopt the use of deferred prosecution agreements as a new tool to penalize corporate wrongdoing.  The proposed program, known as the Remediation Agreement Regime, is intended to encourage companies to voluntarily disclose potential misconduct by offering a potential alternative to criminal conviction and debarment.  Legislation to adopt the Regime was introduced in March 2018.  Under the proposed bill, "remediation agreements" would be subject to prosecutorial discretion and, as in the United Kingdom, would require judicial approval and oversight.  Notably, only certain economic crimes—bribery, fraud, insider trading, and books-and-records violations, among others—would be eligible for deferred prosecution under the current draft of the bill. In addition to proposing the adoption of deferred prosecution agreements, PSPC in March further announced it would work to enhance the government-wide "Integrity Regime" debarment program.  Under the current program, companies convicted of certain white collar offenses are banned from bidding on government contracts for a period of 10 years, which can be reduced to a five-year ban in certain circumstances.  According to a March 2018 press release, enhancements to the program will include increasing the number of triggers that can lead to debarment, as well as introducing greater flexibility in debarment decisions.  A detailed description of the Integrity Regime's new provisions will be included in a revised Ineligibility and Suspension Policy to be published on November 15, 2018.  The enhanced program will come into effect on January 1, 2019.

Colombia

As reported in our 2017 Mid-Year FCPA Update, former National Director of Anti-Corruption for Colombia's Office of the Attorney General Luis Gustavo Moreno Rivera was charged in U.S. federal court with conspiracy to commit money laundering and related charges in June 2017.  On May 18, 2018, Moreno was extradited from Bogotá to Miami on charges stemming from an alleged bribery scheme.  Moreno and his purported middleman, Colombian attorney Leonardo Luis Pinilla Gomez, are accused of receiving a $10,000 bribe in a Miami mall bathroom in exchange for confidential information, including witness statements, from Moreno's corruption investigation of former Córdoba governor Alejandro Lyons Muskus.  The exchange allegedly was a down payment for a $132,000 deal, in which Moreno agreed to discredit a witness in a case against Lyons before the IRS.  Recorded conversations purportedly capture Moreno and Pinilla discussing Moreno's ability to control and obstruct the investigation.  Moreno and Pinilla were arraigned in Miami in late May and face wire fraud and money laundering-related charges. In August 2018, Colombia will hold a public referendum allowing citizens to vote on seven proposals aimed at combating graft and corruption.  The referendum will include provisions amending prison sentences and imposing lifelong bans on government employment for individuals found guilty of corruption, lower salaries for legislators and senior government officials, terms limits for holding office in public companies, and greater transparency in the bidding processes for government contracts.

Guatemala

Corruption investigations in Guatemala continued to face obstacles in early 2018.  As noted in our 2017 Year-End FCPA Update, President Jimmy Morales attempted to expel from Guatemala Iván Velásquez, a Colombian prosecutor and head of the International Commission Against Impunity (known by its Spanish acronym "CICIG"), on August 27, 2017.  CICIG is a U.N. commission created in 2006 to investigate corruption in the Guatemalan government.  The attempted expulsion came after Velásquez and Guatemalan Attorney General Thelma Aldana announced an investigation into Morales for illegal campaign financing.  Though the Guatemalan Supreme Court blocked the expulsion and other attempts to prevent investigations into Morales, CICIG remains embattled. In March 2018, the Guatemalan government removed 11 national police investigators from CICIG, disrupting the investigation into Morales and other high-ranking government officials.  Additionally, U.S. Senator Marco Rubio has placed $6 million in U.S. aid to CICIG, which represents a third of its annual budget, on hold, citing suspected manipulation of CICIG by Russian bank VTB to politically persecute a Russian family.  Rubio's concerns stem from CICIG's involvement in the criminal conviction of the Bitkov family, Russian nationals found guilty of purchasing false Guatemalan passports and entering Guatemala illegally after the state-owned Russian bank targeted their paper business. Despite these challenges, CICIG has moved forward with other investigations.  In February, former President Álvaro Colom and nine members of his cabinet were arrested.  Among them is Juan Alberto Fuentes Knight, a former finance minister and current chairman of Oxfam International.  The investigation concerns a $35 million deal for a public bus system in Guatemala City.  Prosecutors allege that nearly a third of the funding was spent on equipment that went unused.

Honduras

The Organization of American States Mission to Support the Fight Against Corruption and Impunity in Honduras (known by its Spanish-language acronym, "MACCIH") has faced a number of setbacks over the past six months.  In December 2017, MACCIH and the Public Ministry (national prosecutors) indicted five outgoing members of the Honduran Congress for misappropriating public funds in a case known as Red de Diputados.  Around the time of the announcement, then-Spokesman and Head of MACCIH Juan Jiménez Mayor said that between 60 and 140 additional legislators were under investigation as part of the corruption probe.  Shortly thereafter, Congress passed a law blocking MACCIH from assisting the Public Ministry, and ordering the Tribunal Superior de Cuentas ("TSC")—a government body dominated by ruling party stalwarts—to engage in an audit of the funds that Congress members have received since 2006.  The new measure shields members of Congress from legal action until the TSC concludes its investigation, which may take several years.  Citing the new law, the judge overseeing the Red de Diputados case released the five indicted congresspersons and postponed their trial.  On February 15, 2018, MACCIH's director, Jiménez Mayor, announced in an open letter that he was resigning from the organization as a result of the challenges of working with the Honduran government and a lack of support from OAS Secretary General Luis Almagro Lemes. In late May 2018, the Honduran Supreme Court partially invalidated an agreement that created the Fiscal Unit Against Impunity and Corruption ("UFECIC"), the entity within the Public Ministry that worked with MACCIH.  The controversial ruling came in response to a legal challenge to MACCIH brought by three individuals accused by prosecutors and MACCIH of embezzling money in connection with the Red de Diputados case.  The plaintiffs argued that MACCIH should be declared unconstitutional because it violated Honduras' sovereignty and the independence of its governmental organizations.  Though the court rejected that argument, it determined that the UFECIC, by serving as MACCIH's investigative arm, impermissibly delegated constitutional functions to MACCIH and thus should be invalidated.  The Supreme Court's decision followed lobbying by members of Honduras's Congress—many of whom were being investigated by MACCIH—to invalidate the entire anti-corruption mission.  The opinion has been criticized by anti-corruption advocates.

Mexico

On May 18, 2018, the Mexican government published new requirements for companies wishing to contract with Petróleos Mexicanos ("PEMEX"), the Mexican state-owned oil company and a subject of numerous FCPA enforcement actions.  The new rules require parties contracting with PEMEX to have compliance programs designed to prevent and detect any instances of corruption.  The compliance program must remain in force for the duration of the contract with PEMEX and PEMEX has the power to verify the program.  The newly published regulations do not specify requirements for the compliance program, though one guidepost may be the Mexican Ministry of Public Administration's Model Program for Company Integrity in the recently passed General Law of Administrative Responsibility ("GLAR").  As discussed in our Key 2017 Developments in Latin American Corruption Enforcement client alert, the Model Program calls for clearly written anti-corruption policies and procedures, training, and avenues for reporting potential misconduct. In October 2017, Santiago Nieto was fired from his post as Special Prosecutor for Electoral Crimes.  Nieto claimed that his firing was politically motivated to halt his investigation into whether funds solicited by Emilio Lozoya Austin—CEO of PEMEX—were used to finance President Enrique Peña Nieto's 2012 campaign.  This May, the Mexican government initiated an investigation against Lozoya, which remains ongoing.  Lozoya is alleged to have requested and received millions of dollars of improper payments from the Brazilian construction firm Odebrecht.  Nevertheless, the Mexican government has thus far not pursued further investigations into whether government officials accepted bribes from Odebrecht.  In April, Mexico issued administrative sanctions against Odebrecht, barring the company from doing business in the country for at least two years and three months.  The Mexican government also has fined Odebrecht $30 million.

Peru

Peruvian President Pedro Pablo Kuczynski resigned on March 21, 2018, the day before a scheduled congressional impeachment vote.  As reported in our 2017 Year-End FCPA Update, Kuczynski has been the subject of an investigation involving former Odebrecht CEO Marcelo Odebrecht's alleged payment of $29 million in bribes to Peruvian officials, including Kuczynski and former presidents Ollanta Humala and Alejandro Toledo.  Kuczsynski's resignation followed quickly after surreptitiously recorded videos purported to show his colleagues, including Peruvian congressman Kenji Fujimori, bribing opponents with public contracts in exchange for voting against his impeachment in the 2018 vote.  Martín Vizcarra, the Vice-President, assumed the Peruvian presidency in Kuczynski's place and will serve out his term through 2021. On June 10, 2018, Peruvian prosecutors formally opened an investigation into Kuczynski, Toledo, and former president Alan García for allegedly accepting bribes from Odebrecht.  The three former Peruvian Presidents are suspected of promising construction contracts in exchange for undeclared campaign contributions.  Humala already was under investigation for similar allegations; he and his wife were arrested in July 2017 but were released in May 2018 because no formal charges had yet been filed against them.  Toledo, who has been living in the United States, continues to fight extradition to Peru.

Asia

Bangladesh

Bangladesh's former two-term Prime Minister, Khaleda Zia, was sentenced to a five-year prison term in February 2018.  Zia had been convicted of embezzling donations meant for an orphanage trust established during her term as Prime Minister.  In March 2018, a Bangladeshi court granted bail to Zia, prompting hopes that she could participate in a December general election.  Despite a decision by the  Bangladeshi Supreme Court upholding a lower court's decision to grant Zia bail, Zia remains imprisoned as her bail related to other charges has been denied.  Zia faces more than 30 separate inquiries into allegations of violence and corruption.

China

China's anti-corruption campaign continues to be a priority as Xi Jinping moves into his second term.  Following the nationwide pilot scheme of the National Supervisory System rolled out in November 2017, in March 2018 the National People's Congress ("NPC") passed the Supervision Law of the People's Republic of China ("PRC Supervision Law") and at the same time amended the Chinese Constitution.  This provided legal and constitutional foundation for the National Supervisory System.  Supervisory Commissions at national and local levels are a new organ of the state and have jurisdiction to investigate corruption by all public servants in China, including those who are not party members.  Supervisory commissions have broad investigative powers to conduct interviews and interrogations, carry out inquiries and searches, freeze assets, obtain, seal/block and seize properties, records and evidence, conduct inquests, inspections and forensic examinations, and to detain individuals under a new mechanism known as "Liu Zhi."  The 2018 NPC also approved a wide ranging reorganization of the Ministries under the State Council.  This means that enforcement of commercial bribery offenses under the Anti-Unfair Competition Law will now be carried out by the new State Administration for Market Regulation and its local counterparts. The first half of 2018 has also seen prosecution and sentencing of a number of high-profile individuals for corruption offenses.  Most notably in May 2018, Sun Zhengcai, a former member of the Politburo, was sentenced to life for bribery.  Sun had served as party chief of Chongqing, succeeding Bo Xilai who was sentenced to life imprisonment for corruption offenses in 2013.  He is the first serving member of the Politburo to be targeted by the campaign.  Xiang Junbo, the former Chairman of China's now-defunct insurance regulator and the highest-ranking finance official snared in China's anti-corruption campaign, has pleaded guilty to taking bribes and is awaiting sentencing.

India

In February 2018, the Central Bureau of Investigation ("CBI") registered a case against executives of the Indian subsidiary of U.S.-based engineering and construction firm CDM Smith, as well as officials of the National Highways Authority of India ("NHAI").  According to the CBI, CDM Smith paid bribes through its Indian subsidiary to various officials of the NHAI to secure infrastructure contracts between 2011 and 2016. The CDM Smith executives that stand accused allegedly disguised their bribes as "allowable business expenses" on their income tax returns.  The CBI enforcement action follows the 2016 Pilot Program declination with CDM Smith (covered in our 2017 Mid-Year FCPA Update) in which CDM Smith agreed to disgorge just over $4 million in profits in connection with the alleged improper payments to the NHAI. On April 4, 2018, the Indian government sought to pass the Prevention of Corruption (Amendment) Bill, 2013 (discussed in our 2016 Year-End FCPA Update) at a parliamentary session held at the Rajya Sabha (otherwise known as the Council of States, the upper house of the Indian Parliament).  The proposed law would introduce specific offenses and fines for commercial organizations engaging in bribery in India, create a specific offense for offering a bribe, and provide for criminal liability for company management of companies engaging in corrupt practices.  However, the Bill failed to be passed.  The Bill's prospects of passage remain unclear.

Korea

The first half of 2018 saw a number of high-profile charges and convictions for corruption-related offenses.  As reported in our 2017 Year-End FCPA Update, then-President Park Geun-Hye was impeached in December 2016 amid allegations of influence peddling and corruption.  In April 2018, Park was convicted of 16 corruption-related offenses, including abuse of power, bribery, and coercion.  She was sentenced to 24 years' imprisonment and a fine of KRW 18 billion (approximately $16 million).  Park decided not to appeal her sentence and is currently serving her jail term.  Choi Soon-Sil, Park's friend and advisor who was accused of coercing Korean conglomerates into donating millions of dollars to charitable organizations connected to the former President, was sentenced in February 2018 to 20 years' imprisonment for influence peddling, abuse of power, and corruption. In March 2018, another former Korean President, Lee Myung-Bak, was arrested on multiple charges of corruption, including bribery, embezzlement, tax evasion, and abuse of power.  Lee allegedly received more than KRW 11 billion (approximately $10 million) in bribes before and during his presidency.  Lee's trial began at the end of May 2018 and is ongoing. As reported in our 2017 Year-End FCPA Update, Samsung Electronics Vice Chairman Lee Jae Yong was convicted of bribery and related charges and sentenced to five years' imprisonment in August 2017.  In an unexpected turn of events, Lee was released from prison in February 2018, after the Seoul High Court halved his jail term to 2.5 years and suspended his sentence on appeal.  In contrast, Lotte Group's Chairman Shin Dong Bin was convicted of bribery and sentenced to 30 months' imprisonment and a fine of KRW 7 billion (approximately $6.5 million) in February 2018.  The court found that he paid KRW 7 billion (approximately $6.5 million) to Choi Soon-Sil's K Sports Foundation in return for Park's support of reissuing Lotte's business permit to operate its duty-free stores.  Shin remains imprisoned while his appeal of the sentence continues.

Middle East and Africa

Israel

In January 2018, the Office of Israel's Tax and Economic Prosecutor announced that it reached a Conditional Agreement with Teva Pharmaceuticals Industries Ltd, the world's largest manufacturer of generic pharmaceutical products.  The agreement arose from alleged corrupt payments made between 2002 and 2012 to high-ranking ministry of health officials in Russia and Ukraine to influence the approval of drug registrations, as well as to state-employed physicians in Mexico to influence the prescription of products.  As part of the agreement with Israeli authorities, Teva agreed to pay a fine of approximately $22 million, on top of the $519 million it paid to resolve FCPA charges arising from the same conduct, as covered in our 2016 Year-End FCPA Update.  This was the second enforcement action brought under Israel's foreign bribery statute and the first involving a Conditional Agreement.  Israeli prosecutors stated that the decision to enter into a Conditional Agreement with Teva was based on various factors, including the large penalty already paid to U.S. authorities, Teva's cooperation and remediation, and recent financial hardships incurred by Teva.

Saudi Arabia

Earlier this year, Saudi officials began taking steps to conclude a large anti-corruption probe initiated in November 2017 by Saudi Arabian Crown Prince Mohammed bin Salman that involved the detainment and questioning of hundreds of influential Saudis (covered in our 2017 Year-End FCPA Update).  According to one prosecutor, the government reached settlements worth $106 billion as a result of the probe.  Although most detainees have been released, some remain in custody pending trial.  Some analysts have viewed the corruption campaign as a power grab by Prince Mohammed, but the Saudi government insists its focus is combating endemic corruption.  In March 2018, Saudi officials announced that new anti-corruption departments were added to the Attorney General's office in furtherance of King Salman and Crown Prince Mohammed's goal to eradicate corruption.

South Africa

In April 2018, South African officials announced the reopening of a corruption investigation involving alleged abuse of public funds for a dairy farm in Vrede.  The investigation initially focused on Ace Magashule, secretary general of the African National Congress, and Mosebenzi Joseph Zwane, the former minister of mineral resources.  According to prosecutors, the dairy farm project was intended to help black farmers but instead funneled $21 million to business allies of the African National Congress.  As part of the investigation, prosecutors seized $21 million from three brothers known to be family friends and political allies of South Africa's former President Jacob Zuma, who was ousted in February 2018 in connection with corruption allegations.

CONCLUSION

As is our semiannual tradition, over the following weeks Gibson Dunn will be publishing a series of enforcement updates for the benefit of our clients and friends as follows:
  • Tuesday, July 10 – 2018 Mid-Year Update on Corporate NPAs and DPAs;
  • Wednesday, July 11 – 2018 Mid-Year False Claims Act Update;
  • Thursday, July 12 – Developments in the Defense of Financial Institutions;
  • Friday, July 13 – 2018 Mid-Year Class Actions Update;
  • Monday, July 16 – 2018 Mid-Year UK White Collar Crime Update;
  • Tuesday, July 17 – 2018 Mid-Year Media and Entertainment Update;
  • Wednesday, July 18 – 2018 Mid-Year Securities Litigation Update;
  • Thursday, July 19 – 2018 Mid-Year Government Contracts Litigation Update;
  • Monday, July 23 – 2018 Mid-Year UK Labor & Employment Update;
  • Tuesday, July 24 – 2018 Mid-Year Shareholder Activism Update;
  • Thursday, July 26 – 2018 Mid-Year Healthcare Compliance and Enforcement Update – Providers;
  • Friday, July 27 – 2018 Mid-Year Securities Enforcement Update; and
  • Wednesday, August 1 – 2018 Mid-Year FDA and Health Care Compliance and Enforcement Update – Drugs and Devices.

The following Gibson Dunn lawyers assisted in preparing this client update: F. Joseph Warin, John Chesley, Richard Grime, Christopher Sullivan, Jacob Arber, Elissa Baur, Josh Burk, Ella Alves Capone, Claire Chapla, Grace Chow, Stephanie Connor, Daniel Harris, William Hart, Patricia Herold, Korina Holmes, Derek Kraft, Miranda Lievsay, Zachariah Lloyd, Lora MacDonald, Andrei Malikov, Michael Marron, Jesse Melman, Steve Melrose, Jaclyn Neely, Jonathan Newmark, Nick Parker, Jeffrey Rosenberg, Rebecca Sambrook, Emily Seo, Jason Smith, Pedro Soto, Laura Sturges, Karthik Ashwin Thiagarajan, Caitlin Walgamuth, Alina Wattenberg, Oliver Welch, Oleh Vretsona, and Carissa Yuk.

Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding these issues.  We have more than 110 attorneys with FCPA experience, including a number of former federal prosecutors and SEC officials, spread throughout the firm's domestic and international offices.  Please contact the Gibson Dunn attorney with whom you work, or any of the following leaders and members of the FCPA group: Washington, D.C. F. Joseph Warin - Co-Chair (+1 202-887-3609, fwarin@gibsondunn.com) Richard W. Grime (+1 202-955-8219, rgrime@gibsondunn.com) Patrick F. Stokes (+1 202-955-8504, pstokes@gibsondunn.com) Judith A. Lee (+1 202-887-3591, jalee@gibsondunn.com) David P. Burns (+1 202-887-3786, dburns@gibsondunn.com) David Debold (+1 202-955-8551, ddebold@gibsondunn.com) Michael S. Diamant (+1 202-887-3604, mdiamant@gibsondunn.com) John W.F. Chesley (+1 202-887-3788, jchesley@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) Stephanie Brooker (+1 202-887-3502, sbrooker@gibsondunn.com) M. Kendall Day (+1 202-955-8220, kday@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Adam M. Smith (+1 202-887-3547, asmith@gibsondunn.com) Oleh Vretsona (+1 202-887-3779, ovretsona@gibsondunn.com) Christopher W.H. Sullivan (+1 202-887-3625, csullivan@gibsondunn.com) Courtney M. Brown (+1 202-955-8685, cmbrown@gibsondunn.com) Jason H. Smith (+1 202-887-3576, jsmith@gibsondunn.com) Ella Alves Capone (+1 202-887-3511, ecapone@gibsondunn.com) Pedro G. Soto (+1 202-955-8661, psoto@gibsondunn.com) New York Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Joel M. Cohen (+1 212-351-2664, jcohen@gibsondunn.com) Lee G. Dunst (+1 212-351-3824, ldunst@gibsondunn.com) Mark A. Kirsch (+1 212-351-2662, mkirsch@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Lawrence J. Zweifach (+1 212-351-2625, lzweifach@gibsondunn.com) Daniel P. Harris (+1 212-351-2632, dpharris@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) Laura M. Sturges (+1 303-298-5929, lsturges@gibsondunn.com) Los Angeles Debra Wong Yang - Co-Chair (+1 213-229-7472, dwongyang@gibsondunn.com) Marcellus McRae (+1 213-229-7675, mmcrae@gibsondunn.com) Michael M. Farhang (+1 213-229-7005, mfarhang@gibsondunn.com) Douglas Fuchs (+1 213-229-7605, dfuchs@gibsondunn.com) San Francisco Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) Thad A. Davis (+1 415-393-8251, tadavis@gibsondunn.com) Marc J. Fagel (+1 415-393-8332, mfagel@gibsondunn.com) Charles J. Stevens - Co-Chair (+1 415-393-8391, cstevens@gibsondunn.com) Michael Li-Ming Wong (+1 415-393-8333, mwong@gibsondunn.com) Palo Alto Benjamin Wagner (+1 650-849-5395, bwagner@gibsondunn.com) London Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com) Charlie Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com) Sacha Harber-Kelly (+44 20 7071 4205, ) Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com) Steve Melrose (+44 (0)20 7071 4219, smelrose@gibsondunn.com) Paris Benoît Fleury (+33 1 56 43 13 00, bfleury@gibsondunn.com) Bernard Grinspan (+33 1 56 43 13 00, bgrinspan@gibsondunn.com) Jean-Philippe Robé (+33 1 56 43 13 00, jrobe@gibsondunn.com) Audrey Obadia-Zerbib (+33 1 56 43 13 00, aobadia-zerbib@gibsondunn.com) Munich Benno Schwarz (+49 89 189 33-110, bschwarz@gibsondunn.com) Michael Walther (+49 89 189 33-180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33-130, mzimmer@gibsondunn.com) Hong Kong Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Oliver D. Welch (+852 2214 3716, owelch@gibsondunn.com) São Paulo Lisa A. Alfaro - Co-Chair (+55 (11) 3521-7160, lalfaro@gibsondunn.com) Fernando Almeida (+55 (11) 3521-7095, falmeida@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, CA 90071 Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

June 14, 2018 |
Revisions to the FFIEC BSA/AML Manual to Include the New CDD Regulation

Click for PDF On May 11, 2018, the federal bank regulators and the Financial Crimes Enforcement Network ("FinCEN") published two new chapters of the Federal Financial Institution Examination Council Bank Secrecy Act/Anti-Money Laundering Examination Manual ("BSA/AML Manual") to reflect changes made by FinCEN to the CDD regulation.[1]  One of the chapters replaces the current chapter "Customer Due Diligence – Overview and Examination Procedures" ("CDD Chapter"), and the other chapter is entirely new and contains an overview of and examination procedures for "Beneficial Ownership for Legal Entity Customers" to reflect the beneficial ownership requirements of the CDD regulation ("Beneficial Ownership Chapter").[2] The new CDD Chapter builds upon the previous chapter, adds the requirements of the CDD regulation, and otherwise updates the chapter, which had not been revised since 2007.  The Beneficial Ownership Chapter largely repeats what is in the CDD Rule.  Both new chapters reference the regulatory guidance and clarifications from the Frequently Asked Questions issued by FinCEN on April 3, 2018 (the "FAQs").[3]  

Other Refinements to the CDD Regulation May Impact the BSA/AML Manual

Implementation of the CDD regulation is a dynamic process and may require further refinement of these chapters as FinCEN issues further guidance.  For instance, in response to concerns of the banking industry, on May 16, 2018, FinCEN issued an administrative ruling imposing a 90-day moratorium on the requirement to recertify CDD information when certificates of deposit ("CDs") are rolled over or loans renewed (if the CDs or loans were opened before May 11, 2018).  FinCEN will have further discussions with the banking industry and will make a decision whether to make this temporary exception permanent within this 90-day period (before August 9, 2018).[4] In his May 16, 2018, testimony at a House Financial Services Committee hearing on "Implementation of FinCEN's Customer Due Diligence Rule," FinCEN Director Kenneth Blanco suggested that FinCEN may be receptive to refinements as compliance experience is gained with the regulation.  Director Blanco also indicated that there will be a period of adjustment for compliance with the regulation and that FinCEN and the regulators will not engage in "gotcha" enforcement, but are seeking "good faith compliance."

Highlights from the New Chapters

  • Periodic Reviews:  The BSA/AML Manual no longer expressly requires periodic CDD reviews, but suggests that regulators may still expect periodic reviews for higher risk customers.  The language in the previous CDD Chapter requiring periodic CDD refresh reviews has been eliminated.[5]Consistent with FAQ 14, the new CDD Chapter states that updating CDD information will be event driven and provides a list of possible event triggers, such as red flags identified through suspicious activity monitoring or receipt of a criminal subpoena.  Nevertheless, the CDD Chapter does not completely eliminate the expectation of periodic reviews for higher risk clients, stating:  "Information provided by higher profile customers and their transactions should be reviewed . . . more frequently throughout the term of the relationship with the bank."Although this appears to be a relaxation of the expectation to conduct periodic reviews, we expect many banks will not change their current practices.  For a number of years, in addition to event driven reviews, many banks have conducted periodic CDD reviews at risk based intervals because they have understood periodic reviews to be a regulatory expectation.
  • Lower Beneficial Ownership Thresholds:  Somewhat surprisingly, there is no expression in the new chapters that consideration should be given to obtaining beneficial ownership at a lower threshold than 25% for certain high risk business lines or customer types.  The new Beneficial Ownership Chapter simply repeats the regulatory requirement stating that:  "The beneficial ownership rule requires banks to collect beneficial ownership information at the 25 percent ownership threshold regardless of the customer's risk profile."  The FAQs (FAQ 6 and 7) refer to the fact that a financial institution may "choose" to apply a lower threshold and "there may be circumstances where a financial institution may determine a lower threshold may be warranted."  We understand that specifying an expectation that there should be lower beneficial thresholds for certain higher risk customers was an issue that was debated among FinCEN and the bank regulators.For a number of years, many banks have obtained beneficial ownership at lower than 25% thresholds for high risk business lines and customers (e.g., private banking for non-resident aliens).  Banks that have previously applied a lower threshold, however, should carefully evaluate any decision to raise thresholds to the 25% level in the regulation.  If a bank currently applies a lower threshold, raising the threshold may attract regulatory scrutiny about whether the move was justified from a risk standpoint.  Moreover, a risk-based program should address not only regulatory risk, but also money laundering risk.  Therefore, banks should consider reviewing beneficial ownership at lower thresholds for certain customers and business lines and when a legal entity customer has an unusually complex or opaque ownership structure for the type of customer regardless of the business line or risk rating of the customer.
  • New Accounts:  The new chapters do not discuss one of the most controversial and challenging requirements of the CDD rule, the requirement to verify CDD information when a customer previously subject to CDD opens a new account, including when CDs are rolled over or loans renewed.  This most likely may be because application of the requirement to CD rollovers and loan renewals is still under consideration by FinCEN, as discussed above.
  • Enhanced Due Diligence:  The requirement to maintain enhanced due diligence ("EDD") policies, procedures, and processes for higher risk customers remains with no new suggested categories of customers that should be subject to EDD.
  • Risk Rating:  The new CDD Chapter seems to articulate an expectation to risk rate customers:  "The bank should have an understanding of the money laundering and terrorist financing risk of its customers, referred to in the rule as the customer risk profile.  This concept is also commonly referred to as the customer risk rating."  The CDD Chapter, therefore, could be read as expressing for banks an expectation that goes beyond FinCEN's expectation for all covered financial institutions in FAQ 35, which states that a customer profile "may, but need not, include a system of risk ratings or categories of customers."  It appears that banks that do not currently risk rate customers should consider doing so.  Since the CDD section was first drafted in 2006 and amended in 2007, customer risk rating based on an established method with weighted risk factors has become a best and almost universal practice for banks to facilitate the AML risk assessment, CDD/EDD, and the identification of suspicious activity.
  • Enterprise-Wide CDD:  The new CDD Chapter recognizes the CDD approach of many complex organizations that have CDD requirements and functions that cross financial institution legal entities and the general enterprise-wide approach to BSA/AML long referenced in the BSA/AML Manual.  See BSA/AML Manual, BSA/AML Compliance Program Structures Overview, at p. 155.  The CDD Chapter states that a bank "may choose to implement CDD policies, procedures and processes on an enterprise-wide basis to the extent permitted by law sharing across business lines, legal entities, and with affiliate support units."

Conclusion

Despite the CDD regulation, at its core CDD compliance is still risk based and regulatory risk remains a concern.  Every bank must carefully and continually review its CDD program against the regulatory requirements and expectations articulated in the BSA/AML Manual, as well as recent regulatory enforcement actions, the institution's past examination and independent and compliance testing issues, and best practices of peer institutions.  This review will help anticipate whether there are aspects of its CDD/EDD program that could be subject to criticism in the examination process.  As the U.S. Court of Appeals for the Ninth Circuit recently recognized, detailed manuals issued by agencies with enforcement authority like the BSA/AML Manual "can put regulated banks on notice of expected conduct."  California Pacific Bank v. Federal Deposit Insurance Corporation, 885 F.3d 560, 572 (9th Cir. 2018).  The BSA/AML Manual is an important and welcome roadmap although not always as up to date, clear or detailed as banks would like it to be. These were the first revisions to the BSA/AML Manual since 2014.  We understand that additional revisions to other chapters are under consideration.
   [1]   May 11, 2018 also was the compliance date for the CDD regulations.  The Notice of Final Rulemaking for the CDD regulation, which was published on May 11, 2016, provided a two-year implementation period.  81 Fed. Reg. 29,398 (May 11, 2016).  https://www.gpo.gov/fdsys/pkg/FR-2016-05-11/pdf/2016-10567.pdf. For banks, the new regulation is set forth in the BSA regulations at 31 C.F.R. § 1010.230 (beneficial ownership requirements) and 31 C.F.R. § 1020.210(a)(5).    [2]   The new chapters can be found at: https://www.ffiec.gov/press/pdf/Customer%20Due%20Diligence%20-%20Overview%20and%20Exam%20Procedures-FINAL.pdfw  (CDD Chapter) and https://www.ffiec.gov/press/pdf/Beneficial%20Ownership%20Requirements%20for %20Legal%20Entity%20CustomersOverview-FINAL.pdf (Beneficial Ownership Chapter).    [3]   Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions, FIN-2018-G001.  https://www.fincen.gov/resources/statutes-regulations/guidance/frequently-asked-questions-regarding-customer-due-0.  On April 23, 2018, Gibson Dunn published a client alert on these FAQs.  FinCEN Issues FAQs on Customer Due Diligence Regulationhttps://www.gibsondunn.com/fincen-issues-faqs-on-customer-due-diligence-regulation/. FinCEN also issued FAQs on the regulation on September 29, 2017. https://www.fincen.gov/sites/default/files/2016-09/FAQs_for_CDD_Final_Rule_%287_15_16%29.pdf.    [4]   Beneficial Ownership Requirements for Legal Entity Customers of Certain Financial Products and Services with Automatic Rollovers or Renewals, FIN-2018-R002.  https://www.fincen.gov/sites/default/files/2018-05/FinCEN%20Ruling%20CD%20and%20Loan%20Rollover%20Relief_FINAL%20508-revised.pdf    [5]   The BSA/AML Manual previously stated at p. 57:  "CDD processes should include periodic risk-based monitoring of the customer relationship to determine if there are substantive changes to the original CDD information. . . ."
Gibson Dunn's lawyers  are available to assist in addressing any questions you may have regarding these developments.  Please contact any member of the Gibson Dunn team, the Gibson Dunn lawyer with whom you usually work in the firm's Financial Institutions practice group, or the authors: Stephanie L. Brooker - Washington, D.C. (+1 202-887-3502, sbrooker@gibsondunn.com) M. Kendall Day - Washington, D.C. (+1 202-955-8220, kday@gibsondunn.com) Arthur S. Long - New York (+1 212-351-2426, along@gibsondunn.com) Linda Noonan - Washington, D.C. (+1 202-887-3595, lnoonan@gibsondunn.com)

© 2018 Gibson, Dunn & Crutcher LLP

Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

May 10, 2018 |
Webcast: FCPA M&A: Identifying and Mitigating Anti-Corruption Risk In Cross-Border Transactions

International M&A increasingly implicates the U.S. Foreign Corrupt Practices Act (FCPA) and other anti-bribery laws, which are proliferating in major economies around the world. Gibson Dunn panelists, including partners in the U.S., Europe and Asia, examine FCPA risks associated with cross-border transactions, discuss ways in which these issues arise, and offer strategies for mitigating anti-corruption risks and successfully completing the deal. View Slides [PDF] https://player.vimeo.com/video/269270081

PANELISTS:

Michael S. Diamant is a partner in Gibson Dunn’s Washington, D.C. office and a member of the firm’s White Collar Defense and Investigations Practice Group. He also serves on the firm’s Finance Committee. His practice focuses on white collar criminal defense, internal investigations, and corporate compliance. Mr. Diamant has broad white collar defense experience representing corporations and corporate executives facing criminal and regulatory charges. He has represented clients in an array of matters, including accounting and securities fraud, antitrust violations, and environmental crimes, before law enforcement and regulators, like the U.S. Department of Justice and the Securities and Exchange Commission. Mr. Diamant also has managed numerous internal investigations for publicly traded corporations and conducted fieldwork in nineteen different countries on five continents. Mr. Diamant also regularly advises major corporations on the structure and effectiveness of their compliance programs. Lisa A. Fontenot is a corporate partner in Gibson Dunn’s Palo Alto office and a member of the firm’s Mergers and Acquisitions Practice Group. She counsels clients across a variety of industries, including some of the world’s leading technology companies and innovative startups, with particular experience in the telecom, media and technology (TMT) sectors. Ms. Fontenot counsels clients as to M&A matters with over 20 years’ extensive experience representing both U.S. and foreign strategic buyers and sellers successfully completing cross-border acquisitions, joint ventures and investments. Ms. Fontenot also represents private equity/venture capital investors in connection with their investment in, and equity dispositions of, portfolio companies and related securities matters. Stephen I. Glover is a partner in Gibson Dunn’s Washington, D.C. office and Co-Chair of the firm’s Mergers and Acquisitions Practice Group. Mr. Glover has an extensive practice representing public and private companies in complex mergers and acquisitions, joint ventures, equity and debt offerings and corporate governance matters. Mr. Glover’s clients include large public corporations, emerging growth companies and middle market companies in a wide range of industries. He also advises private equity firms, individual investors and others. Benno Schwarz is a German-qualified partner in Gibson Dunn’s Munich office and a member of the firm’s International Corporate Transactions and White Collar Defense and Investigations Practice Groups. Mr. Schwarz has many years of experience in the area of corporate anti-bribery compliance, especially issues surrounding the enforcement of the US FCPA and the UK Bribery Act as well as Russian law. Fang Xue is Chief Representative of Gibson Dunn’s Beijing office and a member of the firm’s Corporate Department and its Mergers and Acquisitions and Private Equity Practice Groups. Ms. Xue has broad-based corporate and commercial experience. She has represented Chinese and international corporations and private equity funds in cross-border acquisitions, private equity transactions, stock and asset transactions, joint ventures, going private transactions, tender offers and venture capital transactions, including many landmark deals among those.