In the first half of 2022, the US Department of Justice entered
into two corporate settlements and the US Securities and Exchange
Commission entered into three corporate settlements to resolve
charges under the Foreign Corrupt Practices Act. The settlements
include a $1.1 billion global agreement that a commodity trading
and mining firm reached with authorities in the United States,
United Kingdom and Brazil—countries that have been
cooperating extensively in international corruption cases.
The DOJ this year also has unveiled new criminal charges against
and guilty pleas by several individuals for alleged participation
in international bribery schemes. In April, DOJ won a seven-week
trial jury against a former investment banker found to have
conspired to violate the FCPA and to launder misappropriated funds
from 1MDB, a Malaysian sovereign wealth fund.
Recent prosecutions, as well as policy initiatives, highlight
how the US government is using not just the FCPA, but also money
laundering, sanctions, and other laws, to combat corruption.
Attorney General Merrick Garland and Deputy Attorney General Lisa
Monaco both have been touting DOJ initiatives to combat the
corruption of Russian oligarchs—a continuing US national
security priority as Russia’s war in Ukraine rages on.
We cover these developments and more below.
FCPA Enforcement Updates
Enforcement Against Companies
In the first half of 2022, DOJ announced resolutions of two
corporate FCPA cases. Most recently, on May 24, Glencore
International A.G. and Glencore Ltd. entered guilty pleas and agreed to pay a total of
over $1.1 billion to resolve investigations into FCPA violations
and a commodity price manipulation scheme. DOJ reported that
the guilty pleas were “part of coordinated resolutions with
criminal and civil authorities in the United States, the United
Kingdom, and Brazil.” Glencore acknowledged improper payments
made to secure oil contracts, avoid government audits, and get a
lawsuit dismissed. For its part, the US Commodity Futures Trading
Commission (CFTC) entered into a parallel settlement with Glencore
to resolve civil charges related to the manipulation of oil
prices.
On April 20, 2022, Illinois-based Stericycle, Inc., a provider
of medical waste and other services, agreed to pay more than $84 million to DOJ, SEC,
and Brazilian authorities to resolve corruption-related
charges. Stericycle entered into a three-year deferred
prosecution agreement with DOJ and consented to an SEC administrative order
finding that it had violated the anti-bribery, books and records,
and internal accounting controls provisions of the FCPA. According
to DOJ’s press release, Stericycle admitted
that it “caused hundreds of bribe payments to be made to
officials at government agencies and instrumentalities in Brazil,
Mexico, and Argentina to obtain and retain business and to secure
improper advantages in connection with providing waste management
services . . . . Co-conspirators tracked the bribe payments through
spreadsheets and described the bribes through code words and
euphemisms, such as ‘CP’ or ‘commission payment’ in
Brazil; ‘IP’ or ‘incentive payment’ in Mexico; and
‘alfajores’ (a popular cookie) or ‘IP’ in
Argentina.”
Both Stericycle and Glencore agreed to retain independent
compliance monitors under their settlements with the US
government.
On March 18, 2022, DOJ issued a declination letter to Jardine Lloyd Thompson Group
Holdings Ltd. (JLT) pursuant to DOJ’s FCPA Corporate
Enforcement Policy. DOJ stated that it would not prosecute JLT,
despite evidence that the company knowingly made payments to be
used as bribes to obtain and retain contracts with a state-owned
and -controlled surety company in Ecuador. DOJ determined that a
declination was appropriate based on, among other factors,
JLT’s voluntary disclosure of misconduct, full cooperation with
DOJ’s investigation, timely remediation, and disgorgement of
$29 million in profits.
The SEC has reached two other corporate settlements of FCPA
charges this year. As reported on the Commission’s website:
- “KT Corporation—The largest South Korean
Telecommunications company agreed to pay more than $6.3 million to
settle charges that it violated the books and records and internal
accounting controls provisions of the FCPA in connection with
improper payments for the benefit of government officials in Korea
and Vietnam.” (2/17/2022) - “Tenaris—A Luxembourg-based global
manufacturer and supplier of steel pipe products, agreed to pay
more than $78 million to resolve charges that it violated the
anti-bribery, books and records, and internal accounting controls
provisions of the FCPA in connection with a bribery scheme
involving its Brazilian subsidiary.” (6/2/22)
In other news related to FCPA enforcement against corporations,
Russian telecommunications company Mobile TeleSystems Public Joint
Stock Company (MTS)—which paid $850 million in penalties to
settle an FCPA case with DOJ and SEC in 2019—disclosed on March 3, 2022 that it voluntarily
agreed to extend an independent compliance monitorship with both
agencies by one year.
Enforcement Against Individuals
DOJ Enforcement
DOJ has continued to press charges against individuals for FCPA
violations, money laundering, and wire fraud in connection with
international bribery schemes. For example, DOJ this has year has
announced:
In February, DOJ announced that aFormer Executive Director of International
Adoption Agency Pleads Guilty to Fraudulent Adoption
Scheme.
In April, after a seven-week trial, a New York jury convicted Roger Ng, a former
Goldman Sachs investment banker, of conspiracy to pay bribes and
circumvent the bank’s internal accounting controls in violation
of the FCPA and conspiracy to commit money laundering. Ng’s
conviction concerned the misappropriation of funds from
Malaysia’s state-owned investment and development fund,
1Malaysia Development Berhad (1MDB), and the related payment of
bribes to government officials in Malaysia and the United Arab
Emirates.
Before his trial, Ng had moved to dismiss the charge that he
conspired to circumvent his employer’s internal accounting
controls in violation of the FCPA. Ng argued that the government
offered no evidence that he circumvented internal accounting
controls, which, in his view, refer to “a limited and defined
set of controls” that provides “reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.”
According to Ng, these accounting controls “are to be
distinguished from legal, risk-management, compliance, and other
controls.”
A US District Court Judge in the Eastern District of New York
denied the motion to dismiss, agreeing with the government that the
term “accounting controls” in the FCPA encompasses all
those procedures that further the FCPA’s enumerated purposes,
including ensuring that “transactions are executed in
accordance with management’s general or specific
authorization.”
In other news relating to DOJ prosecutions, according to recent
reports, DOJ has decided not to re-try two
individuals—Joseph Baptiste, a former US army colonel, and
Richard Boncy, a lawyer—whose 2019 convictions on FCPA
conspiracy and other charges had been thrown out based on
ineffective assistance of counsel.
SEC Enforcement
The SEC has not filed any new FCPA charges against individuals
so far this year. However, in June 2022, a US District Court Judge
in the Southern District of New York entered default judgement
against Jerry Li, a Chinese national and the former managing
director of US-based Herbalife Nutrition Ltd.’s Chinese
subsidiary, after he failed to respond to the SEC’s 2019
complaint alleging that he violated the FCPA.
The SEC’s ability to enforce the FCPA through administrative
proceedings recently has been called into question by the US Court
of Appeals for the Fifth Circuit. In May, a Fifth Circuit panel
held in Jarkesy v. SEC, a non-FCPA case, that
administrative enforcement proceedings before the SEC’s
Administrative Law Judges are unconstitutional. Specifically, the
panel’s majority opinion determined that administrative
proceedings deprive the accused of the Seventh Amendment right to a
jury trial, constitute an improper delegation of legislative
authority, and are adjudicated by ALJs with “considerable
power” that is not subject to sufficient oversight by the
president.
The Fifth Circuit’s decision conflicts with decisions by
other circuit courts, which have rejected similar constitutional
challenges to SEC administrative proceedings.
For more on the history and future of SEC administrative
proceedings, see Arnold & Porter’s analysis here. And for more on recent SEC enforcement
and regulatory developments, see here.
Policy Announcements
- DOJ Opinion Release Relating to Extortion and
Duress: In January, DOJ published Opinion Procedure Release 22-1, expressing
views on when extortion or duress may provide a defense to
liability under the FCPA. The Opinion Release was requested by a
US-based ship owner facing a demand for payments that would be made
“to avoid imminent and potentially serious harm to the captain
and the crew” of a vessel detained by foreign government
officials. DOJ said that it would not prosecute the ship owner
under the facts presented, because a payment to avoid imminent and
potentially serious physical harm would not have the “corrupt
intent” necessary for a criminal violation of the FCPA. - End of DOJ’s “China Initiative:”
Citing civil rights concerns, Assistant Attorney General Matthew
Olsen announced in February that DOJ was terminating
the so-called “China Initiative” originally established
in 2018 by then-Attorney General Jeff Sessions. The DOJ official
made clear, however, that the US government would continue to
investigate and prosecute violations of export control, sanctions,
espionage, and other federal laws, and would promote the
“freedom of expression and democracy against corrupt and
repressive forces.” For more analysis from Arnold &
Porter, see DOJ Ends Trump-Era China Initiative. - Task Force KleptoCapture: As previewed during
President Biden’s State of the Union Address, Attorney General
Merrick Garland announced the launch of “Task Force
KleptoCapture in March. According to DOJ, the Taskforce Will Surge Federal Law Enforcement
Resources to Hold Accountable Corrupt Russian Oligarchs. More
analysis from Arnold & Porter can be found here and here. - Deputy Attorney General Describes Sanctions “as
the new FCPA:” In a June speech, Deputy Attorney General Lisa Monaco
spoke about how “[t]he growth of sanctions enforcement follows
the path that the FCPA traveled before it.” “Both FCPA
and sanctions enforcement,” she said, “are relevant to an
expanding number of industries. They have extended beyond just U.S.
actions to an increasingly multilateral enforcement regime. And
they both reward companies that develop the capacity to identify
misconduct within the organization, and then come forward and
voluntarily disclose that misconduct to the department.” - US State Department Appoints Coordinator on Global
Anti-Corruption: On July 5, 2022, the US State Department
named Richard Nephew as Coordinator on Global Anti-Corruption.
According to Secretary of State Anthony Blinken, Mr. Nephew and his
team “will strengthen U.S. government alignment on
anti-corruption issues and work closely with international partners
to advance U.S. anti-corruption policy. Part of this effort
includes leading the State Department’s implementation of the
first-ever U.S. Strategy on Countering Corruption, and advancing
efforts through the Summit for Democracy….” Mr. Nephew
previously worked on sanctions policy within the US government and
in academia.
Collateral and Related Civil Litigation
Issues surrounding FCPA compliance continue to spawn civil
litigation, including claims based on contract, defamation,
securities fraud, and whistleblower laws. Courts this year have
made rulings in a number of those cases. For example:
- In January 2022, a US District Court Judge in the Eastern
District of New York granted a motion for summary judgment in a
business dispute concerning alleged bribery in China. The court
ruled that defendant Misonix, Inc. (Misonix) did not breach its
contract with plaintiff Cicel Science & Technology Co., Ltd.
(Cicel), because evidence of the plaintiff’s illegal conduct in
performance of the parties’ contract for distribution of
Misonix’s products in China rendered that contract
unenforceable. Additionally, the court held that Misonix did not
defame Cicel by truthfully disclosing in a Form 8-K filing with the
SEC that it had contacted the SEC and DOJ “to voluntarily
inform both agencies that the [c]ompany may have had knowledge of
certain business practices of the independent Chinese entity that
distributes its products in China, which practices raise questions
under the Foreign Corrupt Practices Act. . . .” - In March 2022, the US Court of Appeals for the DC Circuit
declined to review the SEC’s denial of whistleblower awards to
two individuals who had provided the Commission with information
relating to a successful FCPA enforcement action. According to the
SEC, the individuals were not entitled to whistleblower awards
because the information they provided did not “lead to”
to the enforcement action. Specifically, the SEC determined that
the information did not fit within any of the three fact patterns
set forth in Rule 21F-4(c), a regulation implementing the SEC’s
whistleblower program pursuant to the Dodd-Frank Act. The DC
Circuit panel deferred to the SEC’s interpretation of its own
regulation. - In March 2022, the US Court of Appeals for the Second Circuit
affirmed a district court’s dismissal of a putative
class-action securities fraud suit against Russian
telecommunications company MTS and certain of its executives.
Plaintiffs had alleged that MTS’s financial statements
misrepresented key facts concerning the company’s $850 million
settlement of FCPA charges in 2019. The Second Circuit agreed with
the lower court that the plaintiffs had not adequately pleaded
particular facts giving rise to the “strong inference” of
“scienter” necessary to sustain a claim for securities
fraud under Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934. According to the Second Circuit, the alleged accounting
violations could not, standing alone, support a securities fraud
claim, and various disclosures made by MTS supported “the more
reasonable inference that MTS executives did not seek to conceal
the company’s potential liability under the FCPA.” - In a pair of decisions issued in March 2022, the US Court of
Appeals for the Sixth and Seventh Circuits affirmed district court
dismissals, on forum non coveniens grounds, of cases
brought in the United States by Instituto Mexicano del Seguro
Social (IMSS) against US medical product companies. IMSS, an agency
of the Mexican government, had asserted a variety of claims against
these corporations in relation to the alleged bribery of Mexican
government officials to facilitate the sale of medical products in
Mexico. The Sixth and Seventh Circuit panels both ruled that
Mexican courts were a more appropriate forum for IMSS’s cases
and that the United Nations Convention Against Corruption did not
preclude dismissal of the US suits on the basis of forum non
conveniens.
Selected International Updates
- United Kingdom: On June 21, 2002, the UK
Serious Fraud Office (SFO) announced that it had secured the conviction of Glencore Energy (UK) on seven counts
of bribery relating to efforts to secure preferential access to
oil in connection with the company’s operations in a number of
African countries. Moreover, as reported in Arnold &
Porter’s UK Economic Crime Group: Enforcement Update,
earlier this year the Attorney General began an independent review
into the SFO’s handling of the Unaoil bribery case, and the
Metropolitan Police Service secured its first conviction for
failure to prevent bribery. - South Africa: In June 2022, South Africa’s
Judicial Commission of Inquiry into Allegations of State Capture,
Corruption and Fraud in the Public Sector including Organs of
State—also known as the Zondo Commission or State Capture
Commission—released the final volume of its report,
concluding a four-year-long investigation. While the report
primarily addresses domestic corruption, it also implicates several
US- and Europe-based multinational firms involved in sectors
ranging from transportation to finance to law. - China: In April, the Supreme People’s
Procuratorate (SPP), China’s highest national prosecution
authority, announced the nationwide expansion of a pilot program
for dealing with corporate crime. The pilot program, which launched
in 2020, enables companies to negotiate with local procuratorates
for more lenient treatment, including non-prosecution, based on
implementation of compliance measures. Also in early 2022, the SPP
and other Chinese government agencies jointly issued further
guidance on the evaluation of corporate compliance: the Trial Measures for the Compliance Development,
Evaluation and Examination of Enterprises Involved in Criminal
Cases and the Trial Measures for the Appointment of
Professionals for Third-Party Evaluation Mechanism.
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