In order to provide an overview for busy in-house counsel and compliance professionals, we summarize below some of the most important international anti-corruption developments from the past month, with links to primary resources. This month we ask: How did the Organization for Economic Cooperation and Development’s (OECD) Working Group on Bribery respond to the COVID-19 pandemic? What are the most recent developments in the long-running global investigation into alleged corruption in international soccer? Why did a London court dismiss an Unexplained Wealth Order targeting allegedly tainted funds used to purchase tony London real estate? The answers to these questions and more are here in our April 2020 Top 10.
1. OECD Warns of Risks Bribery Poses to Global Pandemic Response. Last month, we discussed the impact that COVID-19 was already having on anti-corruption enforcement, as well as concerns expressed by some watchdog groups that endemic corruption in policing, healthcare, and other services could compromise governmental responses to COVID-19. On April 22, 2020, the OECD Working Group on Bribery expressed similar concerns, urging that “[t]he Global response to the coronavirus pandemic must not be undermined by bribery.” The Working Group warned that the pandemic “can create environments that are ripe for corruption,” which has “the potential to undermine the global response to tackle the crisis.” Noting that “[m]any of the detected cases of foreign bribery have occurred in the health industry,” the Working Group warned that bribery can divert vital equipment and medicines away from their intended purposes and endanger public services. The Working Group urged that “all actors respect the rule of law and transparency to ensure the most efficient and effective distribution of [health and pharmaceutical] products” and committed to “examine the possible impact and consequences of the coronavirus pandemic on foreign bribery, as well as solutions to help countries strengthen their anti-bribery systems.”
2. Italian Oil Company Resolves Algeria FCPA Allegations. On April 17, 2020, the U.S. Securities and Exchange Commission (SEC) announced that Eni S.p.A. had agreed to resolve allegations that it violated the Foreign Corrupt Practices Act’s (FCPA) books and records and internal accounting controls provisions. According to the SEC order, between 2007 and 2010, the company’s minority-owned and controlled subsidiary paid approximately €198 million to an intermediary that assisted with obtaining multiple contracts from Algeria’s state-owned oil company. SEC alleged that the intermediary directed a portion of the payment it received to Algerian government officials. The company neither admitted nor denied SEC’s findings. In October 2019, the company announced that the U.S. Department of Justice (DOJ) had closed its parallel investigation.
3. SEC Charges Former Financial Services Company Executive with Ghana FCPA Violations. On April 13, 2020, the SEC announced charges against Asante Berko, a former executive of a UK-based financial services company, for allegedly violating the FCPA’s anti-bribery provision and federal securities laws. The complaint, filed in the Eastern District of New York, alleges that in 2015 and 2016, the executive developed and carried out a scheme to bribe Ghanaian government officials to help a Turkish energy company win a power plant contract. According to the SEC announcement, compliance personnel for the UK company’s publicly traded parent “took appropriate steps to prevent the firm from participating in the [allegedly improper] transaction and it is not being charged.”
4. Former Power Company Sales Manager and Government Cooperator Sentenced for Indonesia FCPA Conviction. On April 13, 2020, District of Connecticut Judge Janet Bond Arterton sentenced Larry Puckett, a former regional sales manager of Alstom’s subsidiary in Connecticut, to time served, 100 hours of community service, and a $5,000 fine. In 2013, Puckett agreed to plead guilty to conspiring with former Alstom executive Lawrence Hoskins and others to bribe Indonesian officials to secure a state power plant project. Puckett testified against Hoskins at trial, leading to Hoskin’s conviction in November 2019 and 15-month term of imprisonment, imposed in March 2020. (See our client alert for an in-depth look at the Hoskins case.) Due to the COVID-19 pandemic, the sentencing was conducted through videoconference.
5. More Charges in FIFA Bribery Investigation. We covered various aspects of the long‑running investigation into allegations of corruption in international soccer in our May 2015, December 2016, November 2017, February 2018, and February 2020 Top 10s. There were several notable developments in the global investigation in April 2020.
- Media Executives and Sports Marketing Company Charged with Fraud and Money Laundering in Connection with FIFA Bribery Case. On April 6, 2020, the US Attorney’s Office for the Eastern District of New York announced the unsealing of a 53‑count third superseding indictment, charging two former sports marketing executives at 21st Century Fox Inc., a former co-CEO of a Spanish media company, and a Uruguayan sports marketing company with wire fraud, money laundering, and related counts, including Racketeer Influenced and Corrupt Organizations (RICO) conspiracy, in connection with DOJ’s investigation and prosecution of corruption in international organized soccer. According to the indictment, the defendants, Hernan Lopez, Carlos Martinez, Gerard Romy, and Full Play Group S.A., allegedly participated in a scheme to pay millions of dollars in bribes to officials at The Fédération Internationale de Football Association’s (FIFA) continental confederations in Central and South America in exchange for broadcasting rights and other media and marketing rights to various soccer events. The superseding indictment also contained additional charges against certain defendants who had previously been indicted but not yet extradited to the United States.
- Israeli Bank Enters NPA to Resolve Money Laundering Charges in FIFA-Related Conspiracy. On April 30, 2020, DOJ announced a three-year non-prosecution agreement (NPA) with Bank Hapoalim B.M., Israel’s largest bank with international operations, and its wholly owned Swiss subsidiary to allegations of their involvement in conspiring with sports marketing executives to launder more than $20 million in bribes and kickbacks for officials at FIFA and other soccer federations. Under the NPA, the bank agreed to forfeit $20,733,322 and pay a fine of $9,329,995. On the same day, DOJ’s Tax Division announced separate resolutions with the bank and the same subsidiary to resolve charges related to allegations that they conspired with U.S. taxpayers and others to hide more than $7.6 billion in more than 5,500 secret Swiss and Israeli bank accounts.
- Swiss FIFA Prosecution Faces Set Back. On April 27, 2020, the first trial in Switzerland’s investigation into corruption in international soccer ended without a judgment. Former German Football Association (DFB) executives Theo Zwanzinger, Wolfgang Niersbach, and Horst Schmidt and former Swiss FIFA official Urs Linsi were accused of fraud and misleading the DFB about a $10 million payment, which was allegedly used to buy votes supporting Germany’s 2006 FIFA World Cup bid. Trial on the fraud charges began on March 9, 2020, but was adjourned due to COVID-19 concerns. Before the trial could resume, the 15-year statute of limitations for fraud charges based on that payment expired. The expiration of the statute of limitations also effectively ended the case against German soccer legend Franz Beckenbauer, who was the head of the World Cup organizing committee when Germany was named host for the 2006 World Cup.
6. Update on UK Criminal Procedure.
- SFO Confirms End of DPA with British Multinational Grocer. On April 10, 2020, the UK Serious Fraud Office (SFO) announced that it had confirmed to the courts that Tesco Stores Limited had fulfilled the terms of its deferred prosecution agreement (DPA) with the SFO. In April 2017, SFO entered into the three-year DPA with the company in connection with false accounting charges. Fulfilling the terms under the DPA, the company paid the SFO a financial penalty of £128,992,500 and costs of £3,069,951. According to the Notice of Discontinuance, the SFO also confirmed that the company had fully cooperated with the SFO and implemented accounting controls. The SFO has entered into seven DPAs to date, and the Tesco DPA was the third that had concluded with terms fulfilled. Although not a foreign bribery case, the Tesco DPA—and its successful completion—offer important guidance as to how DPA practices are evolving in the United Kingdom.
- London High Court Discharges Third Ever Unexplained Wealth Order. The Criminal Finances Act 2017, which entered into force in January 2018, introduced unexplained wealth orders (UWOs) to the United Kingdom. UWOs, which require those suspected of corruption to explain the sources of their wealth, may be issued on the request of UK regulators against property valued in excess of £50,000 if the respondent is a politically exposed person (PEP). UWOs have been used on a handful occasions since their introduction. (See our October 2018 Top 10 for a discussion of the first use of a UWO by the UK’s National Crime Agency (NCA).) On April 8, 2020, London’s High Court discharged UWOs brought by the NCA against companies that owned three London properties linked to relatives of Nursultan Nazarbayev, the former president of Khazakhstan. The NCA had alleged that the properties, worth approximately £80 million, were bought with money illegally earned by Rakhat Aliyev, Nazarbayev’s son and a former Kazah official himself, but the court disagreed that the NCA had satisfied its burden to prove that the homes were bought with illicit funds. The NCA reportedly intends to appeal the decision. Given that this was the third ever UWO brought in the United Kingdom, this case will provide important early guidance on how and when UK enforcement agencies can use UWOs—and how the targets of such orders may defend against them.
7. DOJ Announces Repatriation of $300 Million to Malaysia in Connection With 1MDB. On April 14, 2020, DOJ announced that it had repatriated to Malaysia approximately $300 million in funds allegedly misappropriated from 1Malaysia Development Berhad (1MDB), Malaysia’s sovereign wealth fund. DOJ’s ongoing effort to recover 1MDB-related funds is already the largest to date under DOJ’s Kleptocracy Asset Recovery Initiative and the largest civil forfeiture ever concluded by the Department. According to the announcement, DOJ has recovered or assisted in the recovery of over $1 billion in assets associated with 1MDB and has returned or assisted Malaysia in recovering over $600 million.
8. Inter-American Development Bank Debars Brazilian Construction Company. On April 24, 2020, the Inter-American Development Bank (IDB) announced a 37-month debarment of Andrade Gutierrez Engenharia S.A. (AG Engenharia) related to allegations of corrupt practices in connection with four contracts financed by the IDB under the Estrada Nova Watershed Sanitation Program and the Igarapes de Manaus Environmental and Social Programs in Brazil. According to admissions in a Negotiated Resolution Agreement, the company agreed to make illicit kickback payments to Brazilian government officials in exchange for obtaining IDB-financed contracts. Based on the values of the underlying contracts, the corrupt payments were potentially as high as $60 million. Separately, Brazilian authorities investigated AG Engenharia as part of Operation Car Wash (also known as Lava Jato). In December 2018, the company settled bribery allegations, including those related to IDB-financed contracts, by paying about $381.5 million to the Brazilian government.
9. Asian Development Bank Releases 2019 Annual Report on Anticorruption and Integrity. On April 6, 2020, the Office of Anticorruption and Integrity (OAI) at the Asian Development Bank (ADB) released its 2019 Annual Report. According to the report, in 2019, ADB debarred 69 firms and 62 individuals, in addition to imposing temporary suspensions and taking other remedial actions, for violating ADB’s Anticorruption Policy. ADB cross-debarred 153 firms and 20 individuals in response to other Multilateral Development Banks’ notices of debarment. The report also touted the OAI’s improved efficiency in complaints assessment and investigative processes and its adoption of a new case management system. According to the report, OAI achieved a 16% increase in complaints assessed and closed (219 complaints) and a 93% increase in completed investigations of integrity violations (110 investigations).
10. Colombia Officially Enters the OECD. In January 2012, Colombia joined the OECD Anti‑Bribery Convention and became part of the Working Group on Bribery. At the time, however, the country was not a full member of the OECD. On April 28, 2020, OECD announced that Colombia formally became its 37th member country. Columbia is the seventh country that has joined the OECD since 2010. OECD accession is an increasingly rigorous review process, including technical reviews by OECD committees in various policy areas to evaluate a country’s willingness and ability to implement relevant OECD legal instruments, including the Anti-Bribery Convention. This review process often results in a series of recommendations to align the candidate country further to OECD standards and best practices. Following the completion of the technical process, the OECD Council makes the decision on inviting the candidate country to become a member. Colombia began this process in 2013, which included in-depth review of Colombia’s legislation, politics, and practices, and subsequent alignment with OECD standards. In the foreign bribery area, Colombia completed its Phase 3 evaluation in December 2019. Colombia is the third Latin American OECD member country, after Mexico and Chile. A fourth Latin American country, Costa Rica, began the accession process in April 2015.
 United States v. Larry E. Puckett, Case No. 19-cr-150, ECF No. 49 (D. Conn Apr. 13, 2020).
In order to provide an overview for busy in-house counsel and compliance professionals, we summarize below some of the most important international anti-corruption developments from the past month, with links to primary resources. This month we ask: What changes did the U.S. Department of Justice’s (DOJ) Criminal Division make in how monitors are selected and imposed in corporate criminal resolutions? Who was the target of the UK’s first unexplained wealth order? What did the Organization for Economic Cooperation and Development (OECD) have to say about Mexico’s foreign bribery enforcement efforts? Which leader of an international law enforcement organization was arrested by Chinese authorities for alleged bribery? The answers to these questions and more are here in our October 2018 Top 10 list.
1. DOJ Criminal Division Announces Updated Guidance on Monitorships and the End of the Compliance Counsel Position.
- DOJ Criminal Division Provides Updated Guidance on Monitorships. On October 12, 2018, Brian Benczkowski, the Assistant Attorney General (AAG) for DOJ’s Criminal Division, announced a new memorandum regarding the imposition and selection of monitors for business organizations involved in Criminal Division cases (the “Benczkowski Memo”). The Benczkowski Memo closely tracks the Criminal Division’s previous guidance memorandum from 2009, including the basic structure for selecting a monitor, but also expressly incorporates certain practices developed by the Criminal Division’s Fraud Section since 2009 and includes some important changes and clarifications. Of note, the Benczkowski Memo explicitly directs Criminal Division attorneys—which includes the FCPA unit—to consider whether the scope of the monitor’s role is “appropriately tailored to avoid unnecessary burdens to the business’s operations” when determining whether to impose a monitor. In cases where a monitor is imposed, the resolution agreement must now include an explanation of “the monitorship’s scope.” As discussed in our recent Client Alert, these and other aspects of the Benczkowski Memo are welcome additions because they help address the issue of “scope creep” and provide more transparency in the monitorship selection process.
- DOJ Criminal Division Will Not Replace Compliance Counsel. In his October 12, 2018 remarks, Benczkowski also announced that the Criminal Division would not hire a “single compliance counsel” to replace Hui Chen, who resigned from the Fraud Section in June 2017. According to Benczkowski, “While this approach [of hiring a single compliance counsel housed in the Fraud Section] had its benefits, there are inherent limitations in having the locus of our compliance expertise consolidated in a single person in a single litigating section.” Benczkowski also expressed concern that a person holding this position “will inevitably and quickly feel a strong pull to the private sector.” Instead, Benczkowski said that the Criminal Division would build upon the achievements of the former compliance counsel “through a combination of diverse hiring and the development of targeted training programs” in both the Fraud Section and the Money Laundering and Asset Recovery Section (MLARS).
2. United States and Malaysia Bring Charges in Malaysian Sovereign Wealth Fund Scandal. Over the last two years, we have reported several times on developments related to 1Malaysia Development Berhad (1MDB), Malaysia’s sovereign wealth fund, including the parallel investigations being conducted by authorities in Malaysia, the United States, Singapore, and Switzerland into alleged bribery and embezzlement involving the fund.
- Three Charged in United States in Connection with Alleged 1MDB Scheme. On October 3, 2018, DOJ announced that Taek Jho (also known as Jho Low) and Ng Chong Hwa (also known as Roger Ng) had been charged in the Eastern District of New York with conspiring to violate the FCPA’s anti-bribery provisions and to launder billions of dollars embezzled from 1MDB. Ng was also charged with an FCPA accounting violation for allegedly circumventing the internal accounting controls of a “major New York-headquartered financial institution,” reported to be Goldman Sachs. DOJ simultaneously announced that former bank executive Tim Leissner had pleaded guilty to related money laundering and FCPA anti-bribery and accounting charges and agreed to forfeit almost $44 million. (Malaysian authorities charged Low with related charges in August 2018.) According to the recently unsealed indictments (available here and here), the three defendants diverted more than $1 billion from a $6 billion bond underwriting for 1MDB, laundering the money through accounts that were beneficially owned and controlled by the individuals themselves and 1MDB officials. These funds were then used to invest in luxury real estate, buy art at auction, and fund major Hollywood films, including The Wolf of Wall Street. The three defendants also allegedly bribed officials in Malaysia and Abu Dhabi to obtain and retain lucrative business for the financial institution, including two bond deals.
- Additional Charges Brought Against Former Prime Minister and Others in Malaysia. On October 4, 2018, Rosmah Mansor, the wife of former Malaysian Prime Minister Najib Razak, was charged in Malaysia with 17 offenses, including money laundering and tax evasion, in connection with the 1MDB investigation. According to prosecutors, Rosmah, nicknamed the “Malaysian Imelda Marcos,” directly engaged in money laundering transactions. On October 25, 2018, Najib and Mohd Irwan Serigar Abdullah, Malaysia’s former treasury secretary, were charged in Malaysia with six counts each of criminal breach of trust involving government funds of approximately $1.6 billion. According to prosecutors, the misappropriated money was intended for the airport in Kuala Lumpur and a cash aid program. This was the third set of charges filed against Najib, who was also charged in July and August 2018 with criminal breach of trust, corruption, and money laundering offenses. All three defendants have pleaded not guilty.
3. Dual U.S. and Haitian Citizen Charged with Violating the FCPA in Haiti Port Project Scheme. On October 30, 2018, DOJ announced that Roger Richard Boncy had been charged in the District of Massachusetts with conspiring to violate the FCPA, Travel Act, and the money laundering statutes, and with violating the Travel Act, in connection with his alleged role in a scheme to bribe senior Haitian government officials for approval of an $84 million port development project in Haiti. Boncy’s alleged co-conspirator, Joseph Baptiste, was charged in the superseding indictment with the same crimes. Baptiste had previously been indicted for the same scheme in October 2017, and his trial is scheduled to begin on December 3, 2018. According to the DOJ press release, during a meeting with undercover agents posing as investors in the port development project, Boncy and Baptiste allegedly explained that they planned to launder money through a Maryland-based non-profit set up by Baptiste under the guise of helping Haiti’s impoverished residents. Also, in intercepted telephone calls, the pair was heard discussing bribing the aide to a senior official in Haiti in exchange for authorizing the project. As we noted when Baptiste was arrested in August 2017, this case demonstrates that DOJ continues to use a broad range of law enforcement tactics, including undercover agents and wiretaps, to investigate and prosecute FCPA violations.
4. PDVSA-related Sentencing and Convictions. In October 2018, one defendant was sentenced and two defendants pleaded guilty in DOJ’s sprawling investigations into alleged bribery and embezzlement at Venezuela’s state-owned oil company, Petróleos de Venezuela S.A. (PDVSA).
- Former Bank Executive Sentenced to 10 Years’ Imprisonment. On October 29, 2018, DOJ announced that Matthias Krull, a former managing director and vice chairman at Julius Baer, had been sentenced in the Southern District of Florida to 120 months in prison for his role in an alleged $1.2 billion scheme to launder funds embezzled from PDVSA. Krull was also ordered to pay a $50,000 fine and a forfeiture money judgment of $600,000. A German national and Panamanian resident, Krull was arrested in July 2018 and pleaded guilty to one count of conspiracy to commit money laundering in August 2018. The funds at issue were allegedly laundered through a sophisticated chain of money managers, brokerage firms, banks, and real estate investment firms around the globe.
- Former PDVSA Executive Director of Financial Planning Pleads Guilty. On October 31, 2018, DOJ announced that Abraham Edgardo Ortega had pleaded guilty in the Southern District of Florida to one count of conspiracy to commit money laundering. According to DOJ, Ortega accepted $5 million in bribes to give priority loan status to a French company and a Russian bank, which were both minority shareholders in PDVSA joint ventures, and $12 million in bribes for his participation in an embezzlement scheme involving a loan and foreign-exchange contract. Sentencing is scheduled for January 9, 2019.
- Former PDVSA Procurement Officer Pleads Guilty. On October 30, 2018, DOJ announced that Ivan Alexis Guedez had pleaded guilty in the Southern District of Texas to one count of conspiracy to commit money laundering. According to DOJ, Guedez accepted bribes to direct business toward a Miami-based supplier and concealed the payments through false invoices and a Swiss bank account held in the name of a shell company. Guedez is the 15th defendant convicted in this particular investigation and is scheduled to be sentenced on February 20, 2019.
5. Target of UK’s First Unexplained Wealth Order Revealed. The Criminal Finances Act 2017, which entered into force in January 2018, introduced unexplained wealth orders (UWOs) to the UK. As discussed in our Client Alert at the time, UWOs, which require those suspected of corruption to explain the sources of their wealth, may be issued on the request of UK regulators against property valued in excess of £50,000 if the respondent is a politically exposed person (PEP). On October 10, 2018, the reporting restrictions on the UK’s first UWO expired, and the identity of the target, Zamira Hajiyeva, was revealed. Hajiyeva is the wife of Jahangir Hajiyeva, the former chairman of the Bank of Azerbaijan, who is currently serving a 15-year sentence in Baku following his conviction for embezzlement, abuse of office, and fraud. Hajiyeva allegedly purchased three properties and a golf course and spent a combined total of £16 million at English luxury retailer Harrods during the course of a decade. Because a UWO raises the presumption of illegitimacy, Hajiyeva will now be required to provide the National Crime Agency with proof that the money she used was legitimate or else the property will be the subject of an order for recovery under the Proceeds of Crime Act 2002. As explained in our recent Client Alert, the use of UWOs so soon after they were introduced suggests that they may become a more common tool for UK regulators.
6. SFO Seeks to Recover Proceeds of Alleged Uzbekistan Corruption. On October 3, 2018, the SFO announced that it had issued a claim for civil recovery in the High Court under Part 5 of the Proceeds of Crime Act 2002. The claim concerns several assets, including three UK properties, which the SFO alleges were obtained using the proceeds of corrupt deals in Uzbekistan involving Gulnara Karimova and Rustam Madumarov. Karimova, the daughter of former Uzbek president Islam Karimov, is reported to have received hundreds of millions of dollars in bribes from Swedish and Dutch telecom companies in exchange for helping them enter and continue to operate in the Uzbek telecommunications market. According to reports, Madumarov was Karimova’s boyfriend and bought luxury properties in London worth more than £17 million using shell companies. The SFO stated that a directions hearing will be listed in due course.
7. OECD Criticizes Mexico’s Foreign Bribery Enforcement Record. On October 19, 2018, the OECD Working Group on Bribery released its Phase 4 evaluation of Mexico’s implementation of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the “Anti-Bribery Convention”). Citing Mexico’s failure to prosecute even a single case involving the bribery of foreign public officials, the Working Group stated that Mexico needs to give more priority to foreign bribery enforcement. According to the Working Group, “This is a cause for significant concern, especially given the export driven nature of the Mexican economy, and because its exports include high-risk sectors for corruption, such as extractives, manufacturing and agricultural products.” The Working Group further noted that Mexico could enhance its implementation of the Anti-Bribery Convention by enacting reforms under the National Anti-Corruption System, the implementing legislation for which was signed into law in July 2016. Among other things, the Working Group recommended that Mexico “urgently” nominate a Special Anti-Corruption Prosecutor, appoint judges to the Federal Court of Administrative Justice, appoint the Attorney General pursuant to the new constitutional mechanism, and implement the new Anti-Bribery Protocol. On a more positive note, the Working Group recognized that Mexico had successfully amended its foreign bribery offense to comply with the Anti-Bribery Convention and had introduced successor liability into its criminal corporate liability framework.
8. China Detains Interpol Chief in Bribery Investigation. On October 5, 2018, the president of the International Police Agency (Interpol), Hongwei Meng, was reported missing after returning to China in late September. Just before midnight local time on October 7, 2018, China’s Central Commission for Discipline Inspection (CCDI) and the recently established National Supervisory Commission (NSC) released a one-sentence announcement on their joint website confirming Meng’s detention: “Vice-minister of Public Security Hongwei Meng is currently under investigation by the Commission for suspected illegal activities.” (See our March 2018 Top Ten for more on the NSC.) A few hours later, top party officials at the Ministry of Public Security met “before dawn” and released a statement on its official website, clarifying that Meng’s alleged “illegal activities” involved “accepting bribes.” Interpol announced that Meng had resigned “with immediate effect” following his arrest and that elections for a new president to serve the remaining two years of Meng’s term would take place in mid-November 2018. Although Meng is just one of a large number of high profile people to have been arrested over the last several years in China, his arrest is particularly significant from an international anti-corruption perspective because of Interpol’s role in promoting international law enforcement cooperation.
9. New Chinese Criminal Procedure Law Provides for Default Judgments for Corruption Offenses. In April 2018, the Chinese state news agency announced that China planned to introduce default judgments to help repatriate funds taken out of the country by kleptocrats. On October 26, 2018, the National People’s Congress passed the International Criminal Judicial Assistance Act (the “Act”), a new law aimed at strengthening cross-border cooperation to combat organized crime, including corruption and bribery. The Act is part of the third amendment to China’s 1979 Criminal Procedure Law. A key feature of the Act is trial in absentia (Article 5, Chapter 3 of the amended Criminal Procedure Law), a new procedure limited to corruption and national security cases that allows for default judgments after defendants have been served with process through appropriate channels, such as international judicial assistance.
10. United Nations Releases Manual on How to Measure Corruption. On October 24, 2018, the UN Office on Drugs and Crime and the UN Development Program announced that they had published a “Manual on Corruption Surveys,” designed to help gather reliable anti-corruption data and to measure progress in anti-corruption efforts. According to the announcement, a lack of anti-corruption statistics has been identified as a gap across the peer reviews carried out through the Mechanism for the Review of Implementation of the United Nations Convention against Corruption (UNCAC). The Manual seeks to fill this gap by providing countries with methodological and operational guidelines for developing and implementing sample surveys, both among the population and among businesses, in order to measure the prevalence of bribery at the national level and to collect other relevant information on corruption. If countries adopt the Manual’s methodology and publish the results, this could create another data point for companies attempting to assess and mitigate corruption risk in countries where they do business.
Trainee solicitor in Morrison & Foerster’s London office Christopher James Lloyd contributed to the writing of this alert.
By MoFo’s FCPA and Global Anti-Corruption Team
In order to provide an overview for busy in-house counsel and compliance professionals, we summarize below some of the most important international anti-corruption developments from the past month, with links to primary resources. This month we ask: How will the Supreme Court’s limitation on the U.S. Securities and Exchange Commission’s (SEC) disgorgement authority influence FCPA enforcement? Will the U.S. Department of Justice (DOJ) continue to seek “declinations with disgorgement?” What is the latest sector to fall under the microscope in China’s ongoing anti-anticorruption campaign? The answers to these questions and more are here in our June 2017 Top Ten list.
1. Personnel Moves at DOJ’s Fraud Section.
- DOJ Compliance Counsel Departs Ahead of Schedule. In November 2015, DOJ announced that it had selected Hui Chen, formerly head of Standard Chartered’s anti-bribery and corruption compliance, for the newly created role of compliance counsel. The appointment was intended to assist prosecutors in assessing a company’s compliance program, particularly when determining the sufficiency of any remediation. Chen’s influence was seen publicly in the FCPA Pilot Program, issued by the Fraud Section in April 2016, and in the “Evaluation of Corporate Compliance Programs,” issued by the Fraud Section in February 2017, and she became a fixture at Filip Factors presentations and other compliance-related meetings at the Fraud Section. Chen’s contract was set to run until September 2017, but in early June 2017, DOJ began advertising for the position. Later in the month, it was announced that Chen had left her position as of June 23, 2017. Following her resignation, Chen posted a statement explaining that her decision was based on disagreements and concerns with the Trump Administration, the prohibition on her public speaking on compliance issues imposed by DOJ, and the limitations the Hatch Act would impose on her ability to be politically active. The addition of a compliance expert was seen by most observers as a positive development at the Fraud Section, and it is welcome news that DOJ appears intent on continuing the role in the future.
- Changes in Leadership Positions at DOJ’s FCPA Unit. In June 2017, Laura Perkins, an assistant chief in DOJ’s FCPA Unit for several years, departed the Fraud Section for private practice. As we discussed in last month’s Top Ten, FCPA Unit Assistant Chief Albert “B.J.” Stieglitz is expected to depart for a two-year detail to the United Kingdom in the near future. Meanwhile, the Fraud Section has hired two new FCPA assistant chiefs in 2017: David Johnson, a veteran of the D.C. U.S. Attorney’s Office and SEC who tried a securities fraud case with FCPA Unit Deputy Chief Dan Kahn in 2014, and Chris Cestaro, who transferred to the FCPA Unit in 2014 following a successful run in the Fraud Section’s Health Care Fraud Unit. While Perkins and Stieglitz’s expertise will be missed by the close-knit FCPA Unit, the unit has added two more talented prosecutors in Johnson and Cestaro to the management ranks.
2. U.S. Supreme Court Limits SEC’s Ability to Obtain Disgorgement. On June 6, 2017, in Kokesh v. SEC, the U.S. Supreme Court unanimously held that SEC’s ability to disgorge allegedly ill-gotten gains from defendants was subject to the five-year statute of limitation set out in 28 U.S.C. § 2462 for suits brought by the government to enforce “any civil fine, penalty, or forfeiture.” The court held that disgorgement operates as a “penalty” within the meaning of that statute. The ruling reverses an August 2016 appellate court opinion and resolves a circuit split. (Interestingly, in the May 2016 decision that caused the circuit split, the appellate court held that disgorgement constituted “forfeiture” within the meaning of Section 2462.) It also deals a potentially significant blow to SEC’s FCPA enforcement efforts. SEC had consistently argued that disgorgement was an equitable remedy not subject to any statute of limitations. This gave SEC the ability to reach alleged misconduct from the distant past, an important tool in FCPA investigations, which tend to be lengthy and tend to involve conduct occurring years in the past. Although Kokesh may provide companies with more leverage in some FCPA investigations, we will likely see countermeasures from SEC. For example, SEC may increase the pressure to move more quickly in FCPA investigations, rely on tolling agreements more heavily, and make more use of its authority to seek civil penalties for conduct that is not time barred.
3. DOJ Continues to Pursue “Declinations with Disgorgement.” “Declinations with disgorgement” were first announced as an enforcement tool in DOJ’s April 2016 FCPA Pilot Program, and it was unclear whether they would survive the change in administration. Two resolutions brought in June 2017 suggest they are here to stay—at least for the time being.
- U.S.-based Units of German Oil and Gas Supplier Receive Declination with Disgorgement in Connection with Georgia Bribery Allegations. On June 16, 2017, in its first public FCPA action under the Trump Administration, DOJ’s FCPA Unit published a letter it sent to Linde North America Inc. and Linde Gas North America LLC declining to prosecute the companies in connection with payments allegedly made by Spectra Gases, a New Jersey-based company acquired by Linde in 2006, to Republic of Georgia officials to ensure continuity of business. The letter further stated that Linde agreed to disgorge and forfeit a combined $11.2 million in connection with the investigation. The letter highlighted the companies’ timely and voluntary self-disclosure, comprehensive internal investigation, compliance program enhancement, and full remediation, including termination of the employees involved in the misconduct and withholding of payments owed to certain executives.
- Boston-based Construction Company Receives Declination with Disgorgement in Connection with India Bribery Allegations. On June 29, 2017, DOJ revealed that it had also resolved its second public FCPA action under the Trump Administration as a declination with disgorgement. In a letter to CDM Smith Inc., DOJ’s FCPA Unit declined to prosecute the company in connection with $1.18 million in improper payments allegedly made by its Indian subsidiary to Indian government officials in connection with securing highway and water project construction contracts from 2011 through 2015. The company agreed to disgorge $4,037,138, pursuant to the terms of the letter agreement. In reaching its decision, DOJ cited the company’s timely and voluntary self-disclosure, thorough and comprehensive investigation, full cooperation, compliance program enhancements, and termination of all executives and employees involved in the misconduct.
4. Guilty Plea in Vietnam Skyscraper Case. In January 2017, DOJ announced charges against four individuals, including the brother and nephew of former UN Secretary General Ban Ki-moon, in the Southern District of New York for allegedly conspiring to bribe a foreign official in connection with a deal to sell Vietnam’s tallest skyscraper. On June 21, 2017, DOJ announced that one of the defendants, Malcolm Harris, had pleaded guilty to wire fraud and money laundering charges in connection with his role as middleman in the scheme. According to DOJ, Harris convinced his co-defendants to send him $500,000 to pay an upfront bribe to a foreign official who could purportedly influence the sale of the skyscraper; in reality, Harris did not have a relationship with the foreign official and instead stole the money, which he spent on “lavish personal expenses, including rent for a luxury penthouse apartment in Williamsburg, Brooklyn.” Harris, who faces up to 30 years’ imprisonment in connection with his guilty plea, is scheduled to be sentenced on September 27, 2017.
5. FIFA Releases Internal Investigation Report Following Additional Guilty Pleas in U.S. Prosecution. In June 2017, two more individuals pleaded guilty to charges arising from DOJ’s sprawling investigation into the Fédération Internationale de Football Association (FIFA), which has been the subject of client alerts, updates, and advice.
- Former Guatemalan Judge Pleads Guilty to Wire Fraud. On June 2, 2017, Hector Trujillo, former judge of the Constitutional Court of Guatemala and general secretary of the Guatemalan soccer federation from 2009 to 2015, pleaded guilty to one count of wire fraud and one count of wire fraud conspiracy for his role in awarding lucrative media and marketing rights to the Guatemalan national soccer team’s home World Cup qualifier matches in exchange for hundreds of thousands of dollars. He faces a maximum sentence of 20 years’ imprisonment for each of the two counts for which he pleaded guilty. Trujillo also agreed to forfeit $175,000.
- Former Swiss Bank Managing Director Pleads Guilty to Money Laundering Charge. On June 15, 2017, Jorge Luis Arzuaga, an Argentine citizen and former Swiss private banker, pleaded guilty to money laundering charges for his role in facilitating millions of dollars in bribes to soccer officials, including the late president of the Argentinian soccer federation. From 2010 through 2015, Arzuaga used his position to facilitate bribes by opening bank accounts for shell companies on behalf of soccer officials and transferring funds to officials and their families in exchange for bonus payments. Arzuaga received approximately $1,046,000 in payments and agreed to forfeit that amount.
- FIFA Releases Internal Investigation Report. On June 27, 2017, FIFA released a 400-page plus report of its internal investigation into allegations of corruption surrounding the selection of Russia and Qatar to host the 2018 and 2022 World Cup tournaments, respectively. Although the newly released report is much more detailed than the 42-page “summary” report released in 2014, Russia and Qatar are not expected to be stripped of the rights to host the tournaments. FIFA’s decision to release the report, or at least the timing of the release, appears to have been motivated by a German newspaper’s announcement that it intended to publish a leaked version of the report on June 27, 2017.
6. DOJ Files Forfeiture Complaint in Connection with Alleged Malaysia Bribery Scheme. On June 15, 2017, DOJ announced the filing of civil forfeiture complaints seeking to recover approximately $540 million in assets associated with an alleged international conspiracy to launder funds misappropriated from a Malaysian sovereign wealth fund. The complaints supplement complaints filed in July 2016 arising from the same matter seeking more than $1 billion. Together, the complaints represent the largest action brought under DOJ’s Kleptocracy Asset Recovery Initiative. According to the complaints, from 2009 through 2015, more than $4.5 billion in funds belonging to 1Malaysia Development Berhad (1MDB), an entity designed by the Malaysian government to further Malaysian economic development, was allegedly misappropriated by high-level officials of 1MDB and their associates. Officials at 1MDB, along with their relatives and others, allegedly diverted more than $4.5 billion in 1MDB funds using fraudulent documents and representations and laundered the funds through a series of complex transactions and shell companies with bank accounts located in the United States and abroad. The funds were allegedly used to purchase, among other things, a 300 foot luxury yacht valued at over $260 million, certain movie rights, high-end properties, tens of millions of dollars of jewelry, and artwork. A portion of the proceeds was also allegedly used in an elaborate, Ponzi-like scheme to create the false appearance that an earlier 1MDB investment had been profitable. Malaysian press has reported that the forfeiture actions have caused significant political turmoil, with the governing party denying the allegations and the opposition party organizing protests.
7. Multilateral Development Bank Official Sentenced by UK Court. In the first indictment of 2015, Pennsylvania-based business executive Dimitrij Harder was charged with bribing senior officials at the European Bank for Reconstruction and Development (“EBRD”) to secure millions of dollars of business in development projects in Eastern Europe. After losing several motions, including a challenge regarding the EBRD’s status as a “public international organization” within the meaning of the FCPA, Harder pleaded guilty in April 2016. On June 20, 2017, a UK court sentenced former EBRD banker Andrey Ryjenko to six years’ imprisonment for conspiring to make or accept corrupt payments and money laundering in connection with the Harder scheme. According to the facts presented to the sentencing court, Ryjenko introduced Harder to a number of businesses in former Soviet states to help them apply for EBRD funding. Once the applications were approved, Harder transferred approximately $3.5 million, representing half of his consultancy fees, to Ryjenko through accounts held in the name of Ryjenko’s sister. The Harder-Ryjenko case is an excellent example of cooperation between development banks and law enforcement authorities in multiple jurisdictions. Indeed, the sentencing court and Crown Prosecution Service both credited the assistance they received from U.S. authorities—which included making Harder available to testify via videoconference—for the successful prosecution of Ryjenko.
8. OECD Working Group on Bribery Calls for Increased Foreign Bribery Enforcement in Czech Republic. On June 22, 2017, the OECD Working Group on Bribery released its Phase 4 evaluation report of the Czech Republic. The Working Group called for the Czech Republic, which has yet to prosecute a case involving the bribery of foreign public officials despite its exports in the machinery and defense materials sectors, to “strengthen its efforts to detect, investigate and prosecute foreign bribery.” Nevertheless, the Working Group also recognized improvements made by the Czech Republic over the last several years and its “strong determination to improve its system for combating foreign bribery.” (See our March 2017 Top Ten for more discussion of the Phase 4 evaluation process.)
9. Brazil’s President Charged with Accepting Bribes. On June 26, 2017, Brazil’s President, Michel Temer, was indicted on corruption charges in connection with allegations that he accepted millions of dollars in bribes from a Brazilian meat-packing company in exchange for resolving tax issues and facilitating loans from state-run banks on the company’s behalf. The allegations followed the release of a secret recording between Temer and a company executive in which Temer apparently offered money to buy the silence of Eduardo Cunha, a member of Temer’s party currently serving a 15-year sentence for corruption. (See our May 2017 discussion of these allegations.) Temer, the first sitting Brazilian president to be charged with a crime, became president in May 2016, after his predecessor, Dilma Rousseff, was removed from office to stand trial for impeachment. Rousseff’s predecessor, Luiz Inacio Lula da Silva, has also been charged with numerous crimes (see, for example, our December 2016 Top Ten). Under Brazilian law, the lower house of Congress (the Chamber of Deputies) must now vote on whether to allow a trial against Temer to move forward, with a two-thirds majority required to permit a trial. It appears that Temer may have sufficient votes to resist trial, at least for the time being. However, Brazilian prosecutors are also expected to bring additional charges against him in the coming months.
10. Chinese Anti-Corruption Efforts Continue with Inspection of 31 Major Universities. According to the Chinese press, Chinese authorities recently concluded a political and disciplinary inspection of 31 major universities, including Peking and Tsinghua universities, as part of its continued anti-corruption efforts. Findings from the inspection were reported to the Communist Party of China’s Central Committee on June 28, 2017. According to the report, universities were found to have permitted the private use of public vehicles, banquets at the public expense, and unauthorized overseas business trips. Additionally, the report identified certain university functions, such as university construction projects and management of research funds, as high risk for potential graft. This continued anti-corruption focus is particularly important for those companies engaged in business or research with Chinese universities or affiliated companies.