Large Multinational Financial Services Company Settles FCPA Charges Relating to Internships

On August 18, the SEC announced a settlement with a large multinational financial services company over allegations that the company had violated the FCPA by giving internships to family members of government officials working at a Middle Eastern sovereign wealth fund in hopes of retaining or gaining more business from that fund. The order entered as part of the settlement quoted emails between company employees purportedly demonstrating that the company gave the internships in hopes of keeping and growing the business relationship with the fund. The SEC also alleged that the company gave the internships to the family members without requiring that they pass through the competitive screening process the company typically requires for interns. Finally, the SEC alleged that the company had inadequate controls to prevent the improper hiring of relatives of government officials. The company paid $14.8 million to settle the charges, with $8.3 million in disgorgement, $1.5 million in pre-judgment interest, and a $5 million penalty.

The company previously disclosed in January 2015 that it had received a Wells Notice concerning possible FCPA violations in connection with the internships. The settlement follows earlier press reports of a broad SEC investigation into bank hiring practices in Asia, and appears to be the first settlement resulting from the investigation.

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Former SAP Executive Pleads Guilty to Paying “Necessary” Bribes

On August 12, the DOJ and SEC announced joint enforcement actions against software giant SAP International’s former head of Latin American sales, Vicente Garcia. Garcia pleaded guilty to conspiracy to violate the FCPA and will be sentenced on December 16, 2015 in the Northern District of California. The DOJ alleges that SAP paid bribes to Panamanian officials to secure software license sales in late 2009, using sham contracts and fake invoices. Garcia “admitted that he believed paying such bribes was necessary” to secure the contracts.

The SEC simultaneously issued an administrative cease and desist order against Garcia describing a scheme by which Garcia, in violation of SAP’s internal controls, gave discounts to a local business partner to generate excess earnings, which were used to create the slush fund used to pay at least $145,000 in bribes to secure approximately $3.7 million in sales. Garcia and others also arranged to receive kickbacks from the sales. Garcia agreed to pay disgorgement of the kickbacks he received plus prejudgment interest, totaling $92,395.

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PetroChina Class Action Dismissed

On August 3, a federal district court in New York dismissed with prejudice a securities class action suit filed against Chinese oil and gas company PetroChina Co. Ltd. The suit alleged that statements in the company’s 2011 and 2012 financial statements claiming the company was in compliance with its internal rules and securities regulations were false or misleading. The plaintiffs filed the suit after the Chinese government announced that it was investigating four of the company’s top executives for corruption.

The court dismissed the complaint in its entirety, finding that the plaintiffs failed to allege any acts of bribery or corruption that predated the filing of the 2011 and 2012 financial statements. The court wrote: “[T]his Court is not requiring that Plaintiffs allege a detailed account of the particular illicit deals that PetroChina officials were allegedly engaged in. Plaintiffs are required, nonetheless, to establish—at a bare minimum—that the underlying fraud took place during the time period covered by the purportedly false public statements and that someone at PetroChina knew or had reason to know about it.”

Similar class action suits against Wal-Mart and Avon have also been dismissed in the past year.

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SEC Sues 32 Defendants Involved in Insider Trading Operation; DOJ Files Criminal Charges Against Leaders

On August 10, the SEC filed a complaint against 32 defendants in the District of New Jersey for their alleged involvement in an international scheme to profit from stolen, confidential information regarding corporate earnings announcements. According to the SEC, the defendants hacked at least two newswire services’ computer servers to retrieve unpublished corporate press releases, subsequently using it to make trades generating over $100 million in profits. The SEC further asserted that the two leaders of the scheme designed a “secret web-based location to transmit the stolen data to traders in Russia, the Ukraine, Malta, Cyprus, France, and three U.S. states, Georgia, New York, and Pennsylvania.” The SEC contends that, for five years, the two leaders of the scheme (i) disguised their identity by posing as newswire service employees, using proxy servers, and/or using backdoor access-modules; and (ii) recruited traders by making a video that displayed their ability to steal earnings information prior to public release. In return for information, the traders paid the hackers either a percentage of the profits obtained from trading the stolen information, or a flat fee. The SEC Director called the scheme “one of the most intricate and sophisticated trading rings [the agency has] ever seen.” The U.S. Attorneys’ offices for New Jersey and the Eastern District of New York also announced criminal charges against nine of the same defendants, including the two leaders of the scheme.

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OFAC Announces Settlement Agreement with Insurance Company

On August 6, OFAC announced a $271,815 settlement with a New York-based insurance company with an overall focus on marine insurance and related lines of business, professional liability insurance, and commercial umbrella and primary and excess casualty businesses. According to OFAC, from May 8, 2008 to April 1, 2011, the company and its London branch office, “issued global protection and indemnity (“P&I”) insurance policies that provided coverage to North Korean-flagged vessels and covered incidents that occurred in or involved Iran, Sudan, or Cuba—some of which led to the payment of claims.” The company’s willingness to engage with OFAC-sanctioned countries resulted in 48 alleged violations of Foreign Assets Control Regulations, Executive Order 13466 of June 26, 2008, North Korea Sanctions Regulations, Iranian Transactions and Sanctions Regulations, Sudanese Sanctions Regulations, and Cuban Asset Control Regulations. OFAC stated that (i) the company did not maintain a formal compliance program at the time it issued the P&I insurance policies; and (ii) the company’s London office personnel “misinterpreted the applicability of OFAC sanctions regulations.” The final settlement amount reflects the fact that managers and supervisors knew or had reason to know that the majority of the insurance policies and claims payments at issue involved OFAC-sanctioned countries; the company is a commercially sophisticated financial institution; and it did not have a formal OFAC compliance program in place at the time the apparent violations occurred. Mitigating factors included the company’s cooperation with OFAC’s investigation; lack of prior enforcement action; and its remedial action plan to implement a sufficient OFAC compliance program.

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Vantage Drilling Self-Reports Potential FCPA Violation

On August 4, Vantage Drilling Company, an international offshore drilling contractor, acknowledged that an overseas agent had entered into plea discussions with Brazilian authorities and provided evidence in the ongoing corruption investigation focused on Petrobras. Vantage acknowledged that the agent had purportedly provided evidence related to a former director of Vantage and Petrobras. The company disclosed that it had opened an internal investigation and self-reported the matter to the DOJ and the SEC.

The Brazilian corruption investigations into Petrobras and its affiliates and counterparties continue to expand with no end in sight, and the expected related U.S. investigations are beginning to be disclosed.

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Former Derivatives Trader Convicted and Sentenced in U.K. on Libor Manipulation Charges, Also Facing Criminal Charges in U.S.

On August 3, a jury in the United Kingdom convicted former derivatives trader Tom Hayes on eight counts of fraud for his role in the manipulation of the London Interbank Offered Rate (Libor) for Japanese Yen. Hayes was subsequently sentenced to 14 years in prison. Prosecutors had argued that Hayes, a former trader at two international banks, had asked traders at his bank who were responsible for submitting the bank’s daily Libor submissions for publication – as well as submitters at other banks and brokers involved in the Libor process – to raise or lower their submissions for the Yen Libor from 2006 to 2010 to help Hayes increase the profit on his trades. Hayes was the first individual to be tried in U.K. courts for Libor manipulation, with some of Hayes’ alleged co-conspirators set to go to trial in late September. Hayes is also facing criminal charges for the same conduct in the U.S.

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OFAC Provides Guidance to Financial Institutions to Help Comply with Crimea Sanctions Regulations

On July 30, OFAC issued a “Crimea Sanctions Advisory,” highlighting certain actions that have been used to circumvent or evade U.S. sanctions involving the Crimea region as described in Executive Order 13685. The Advisory provides guidance to U.S. persons and persons engaging in business activities in or through the United States, directing them to implement appropriate internal controls relative to their OFAC sanctions risk profile. Specifically with respect to financial transactions, OFAC noted that “certain individuals or entities have engaged in a pattern or practice of repeatedly omitting originator or beneficiary address information” from SWIFT messages. OFAC advised that U.S. financial institutions should be “cautious” when processing payment instructions that fail to disclose complete address information when engaging in transactions involving an individual or entity that has previously omitted information of Crimean individuals or entities. OFAC offered three examples of risk mitigating measures: (i) ensure that transaction monitoring systems include appropriate search terms corresponding to major geographic locations in Crimea and not simply references to “Crimea”; (ii) request additional information from entities that previously violated or attempted to violate U.S. sanctions on Crimea; and (iii) clearly communicate U.S. sanctions obligations to international partners and discuss OFAC sanctions compliance expectations with correspondent banking and trade partners.

In addition to issuing the Crimea Sanctions Advisory, OFAC updated its Specially Designated Nationals List and Sectoral Sanctions Identifications List with additional designations.

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OFAC Levies Penalty for Violations of the Iranian Transactions and Sanctions Regulations

On July 29, OFAC announced that it levied a $82,260 civil penalty against Blue Robin, Inc. for violating certain provisions of the Iranian Transactions and Sanctions Regulations. According to OFAC, from 2009 through 2010, Blue Robin conducted 33 transactions valued at over $200,000, where Blue Robin imported web development services from PersiaBMW, an Iranian company. The services rendered by PersiaBMW were used to develop web-based systems and applications to streamline online business processes and operations for Blue Robin’s customers. In its consideration of the penalty amount, OFAC determined that “Blue Robin acted recklessly because it knew it was importing services from an Iranian company over a period of more than five years, it sent payments through unlicensed money exchangers instead of through traditional commercial banking channels, and it appears that the company did not take any steps to research the legality of funds transfers to Iran or the importation of services from Iran until after it lost contact with its unlicensed money exchanger.” Nevertheless, due to Blue Robin’s self-disclosure and substantial cooperation with OFAC’s investigation, the penalty amount imposed against Blue Ribbon was below the base penalty amount for the violations.

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SEC Subpoenas Flowserve Corporation Related to FCPA Investigation

On July 30, Flowserve Corporation, a global supplier of industrial pumps, valves, and seals, disclosed that the SEC had issued a subpoena in connection with an investigation of potential FCPA violations. Flowserve revealed earlier this year that it had terminated an employee of an overseas subsidiary for conduct that violated its Code of Business Conduct and “may have violated” the FCPA. It self-reported the matter to the SEC and the DOJ and has now completed an internal investigation. Flowserve stated that it “currently believe[s] that this matter will not have a material adverse financial impact,” but that there are no assurances that it will not be subjected to penalties and additional costs.

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SEC Drops Investigation of NCR Corporation

On July 28, NCR Corporation, a leading global provider of ATM machines, announced that the SEC had decided not to pursue an enforcement action following an investigation of the company’s FCPA compliance. In 2013, the company disclosed that an anonymous whistleblower had alleged various FCPA and other violations in China, the Middle East (including Syrian sanctions issues), and Africa. The company stated that it had investigated internally and determined the allegations to be without merit. The company then disclosed the matter to the SEC and the DOJ, both of whom requested additional information. The company did not provide an update regarding the status of the DOJ’s inquiries.

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Mead Johnson Nutrition Settles SEC FCPA Charges for $12 Million

On July 28, Mead Johnson Nutrition Co. (“Mead”), an infant formula maker, agreed to pay $12.03 million to settle civil FCPA charges with the SEC. The SEC alleged that a majority-owned subsidiary in China used discounts given to third-party distributors to make over $2 million in bribes from 2008 to 2013 to healthcare professionals at state-owned hospitals, to get them to push the use of Mead’s products to new mothers, reaping profits of over $7 million. The SEC also alleged that the subsidiary’s books and records were false as a result of the improper payments, and were then consolidated into the parent company’s books and records; Mead’s internal controls were also alleged to be deficient. Mead did not admit or deny liability.

Of note, the settlement came through the SEC’s administrative process, continuing the trend at the SEC of sending cases to its internal decision-makers instead of to a federal court. The alleged facts also highlight the danger of directing the activities of third-party distributors (here, related to the use of discounts provided to them).

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FinCEN Issues Advisory on FATF’s List of Jurisdictions with AML/CFT Deficiencies

On July 20, FinCEN issued an advisory to financial institutions with updates to the Financial Action Task Force’s (FATF) list of jurisdictions containing strategic anti-money laundering/counter-terrorist financing (AML/CFT) deficiencies. According to FinCEN’s Advisory, on June 26, FATF updated two documents to reflect changes that have the potential to affect U.S. financial institutions’ due diligence obligations and risk-based policies, procedures, and practices. The first document, the FATF Public Statement, identifies jurisdictions that are subject to Enhanced Due Diligence or countermeasures due to the jurisdiction’s AML/CFT deficiencies. Revisions to the FATF Public Statement include the removal of Ecuador from the Public Statement because of progress in addressing its FATF action plan. Ecuador now appears on the list of jurisdictions requiring general due diligence. The second document to be updated, Improving Global AML/CFT Compliance: On-going Process, identifies new jurisdictions with AML/CFT deficiencies. Bosnia and Herzegovina have been downgraded to the Improving Global AML/CFT Compliance: On-going Process document due to its “strategic deficiencies in its AML/CFT regime.” However, the country has made a “high-level political commitment” to work with FATF and regional authorities to address their deficiencies. Indonesia was removed from the listing and monitoring process, according to the Advisory, for “its significant progress in establishing the legal and regulatory framework to address all or nearly all of its strategic AML/CFT deficiencies.”

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FIFA Investigation Update: First FIFA Official Extradited to United States

On July 15, after 50 days of detention, a high-ranking FIFA official widely reported to be former FIFA Vice President Jeffrey Webb was extradited from Switzerland to the United States. Webb ultimately agreed to be extradited despite initially contesting his extradition at a hearing following his arrest. Six other FIFA officials arrested in connection with DOJ’S corruption investigation are continuing to fight extradition. The Swiss Federal Office of Justice is overseeing the extradition proceedings.

All seven officials were formally indicted by the DOJ on May 27.

Previous BuckleySandler coverage of this investigation can be found here

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LBI Enters Into DPA and Former Executives Plead Guilty to Resolve DOJ FCPA Investigation

On July 17, the DOJ announced that Louis Berger International Inc. (“LBI”) had agreed to enter into a Deferred Prosecution Agreement to resolve the DOJ’s FCPA investigation into the New Jersey-based construction management company’s operations in India, Indonesia, Vietnam, and Kuwait.  LBI also agreed to pay a $17.1 criminal penalty.  LBI admitted that it bribed foreign officials to secure government construction management contracts around the world.  According to the company’s admissions regarding a conspiracy to violate the anti-bribery provisions of the FCPA, from 1998 to 2010, LBI concealed $3.9 million in corrupt payments through various methods, including (i) using inflated and fictitious invoices that were used for the payments of bribes through intermediaries, and (ii) paying fictitious “commitment fees,” “counterpart per diems,” “marketing fees,” and “field operation expenses.”

Under the terms of the DPA, the DOJ will defer criminal prosecution of LBI for a period of three years and the company will retain an independent compliance monitor for three years.  In addition, Richard Hirsch of the Philippines and James McClung of the United Arab Emirates, both former executives of LBI, each pleaded guilty to one count of conspiracy to violate the FCPA and one substantive count of violating the FCPA.  They are scheduled to be sentenced on Nov. 5, 2015. Continuing its recent trend, the DOJ emphasized the company’s self-disclosure and cooperation, as well as remediation efforts.

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