On August 14, the U.S. Court of Appeals for the Second Circuit affirmed a district court’s holding that the Dodd-Frank Act’s antiretaliation provision does not apply extraterritorially. Liu Meng-Lin v. Siemens AG, No. 13-4385, 2014 WL 3953672 (2nd Cir. Aug. 14, 2014). A foreign worker was allegedly fired by his foreign employer for internally reporting violations of U.S. anti-corruption rules, which he claimed violated the antiretaliation provision of the Dodd-Frank Act. This provision prohibits an employer from firing or otherwise discriminating against any employee who makes a disclosure that is required or protected under Sarbanes-Oxley or any other law, rule, or regulation subject to the SEC’s jurisdiction. The court first determined that the facts alleged in the complaint revealed “essentially no contact with the United States” and rejected an argument that the foreign company voluntarily subjected itself to U.S. securities laws by listing its securities on the New York Stock Exchange. The court also held that, given the longstanding presumption against extraterritoriality and the absence of any “explicit statutory evidence that Congress meant for the provision to apply extraterritorially,” the cited provision does not apply to purely foreign-based claims.
BuckleySandler hosted a webinar, Dealing with PEPs: AML & Corruption Risks, on December 18, 2014 as part of its ongoing FinCrimes Webinar Series. Panelists included Mary Butler, Deputy Chief, International Unit, at the Asset Forfeiture & Money Laundering Section, Criminal Division at the U.S. Department of Justice; Paul Dougherty, Managing Director of the anti-money laundering program for the United States and Canada at Bank of America; and Noreen Fierro, Vice President and Chief Compliance Officer of the Group Insurance Division of Prudential Financial. The following is a summary of the guided conversation moderated by Jamie Parkinson, partner at BuckleySandler, and key take-aways you can implement in your company.
Key Tips and Take-Aways:
- Make sure that the organization has appropriate procedures in place to identify Politically Exposed Persons (PEPs) and that those procedures appropriately explain how a PEP is defined by the institution.
- Understand the different global standards for PEP compliance and, where appropriate, have country-specific policies and procedures to manage onboarding and monitoring.
- Encourage cooperation among the different financial crime compliance disciplines within your institution to assist in identifying and monitoring PEPs.
On July 23, Thomas Baxter, General Counsel for the New York Federal Reserve Bank, in public remarks at a risk management conference, questioned the FCPA’s “exception for ‘facilitating or expediting payments’ made in furtherance of routine government action.” Mr. Baxter stated that “official corruption is a problem that some U.S. financial institutions have found challenging during the last year,” and suggested that those problems could derive from an organizational value system undermined by the facilitating payments exception. Mr. Baxter acknowledged that the exception “is grounded in a practical reality,” but expressed his preference for a zero tolerance standard. He explained that “when an organizational policy allows some types of official corruption . . ., this diminishes the efficacy of compliance rules that are directed toward stopping official corruption.” He urged U.S. financial institutions to foster organizational value systems that “go beyond black-letter U.S. law” with regard to official corruption. Mr. Baxter made these comments in the context of a broader speech on organizational culture and its impact on compliance in which he also suggested that foreign banks’ recent sanctions and tax evasion compliance woes could be explained by a difference in the corporate values of foreign and U.S. banks and their employees when it comes to laws designed to support broader U.S. public policy.
On May 16, the U.S. Court of Appeals for the Eleventh Circuit became the first circuit court to define “instrumentality” under the FCPA. U.S. v. Esquenazi, No. 11-15331 (11th Cir. May 16, 2014). The FCPA generally prohibits bribes to a “foreign official” defined as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof.” Two individuals appealed their convictions and sentences imposed for FCPA and related violations, arguing that the telecommunications company whose employees they were alleged to have bribed in exchange for relief from debt owed to that company was not, as the government asserted and a jury found, an “instrumentality” of a foreign government. As the court explained, “instrumentality” is not defined in the FCPA, and no circuit court has yet offered a definition. The court held that, based on the statutory context of the term following amendment of the FCPA in 1998 to implement the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, an instrumentality is “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” The court explained that to determine control, triers of fact should consider (i) the foreign government’s formal designation of the entity; (ii) whether the government has a majority interest in the entity; (iii) the government’s ability to hire and fire the entity’s principals; (iv) the extent to which the entity’s profits, if any, go directly into the governmental fisc, and the extent to which the government funds the entity if it fails to break even; and (v) the length of time those indicia have existed. The court added that the factors to consider in determining whether an entity performs a function of the government include: (i) whether the entity has a monopoly over the function it exists to carry out; (ii) whether the government subsidizes the costs associated with the entity providing services; (iii) whether the entity provides services to the public at large in the foreign country; and (iv) whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function. In this case, the court determined that the telecommunications company at issue was an instrumentality under the FCPA, and after applying that decision to the convicted individuals’ specific challenges, affirmed their convictions and sentences.
On April 14, the DOJ and the SEC announced additional charges in a previously announced case against employees of a U.S. broker-dealer related to an alleged “massive international bribery scheme.” The DOJ announced the arrest of the CEO and a managing partner of the New York-based U.S. broker-dealer on felony charges arising from an alleged conspiracy to pay bribes to a senior official in Venezuela’s state economic development bank in exchange for the official directing financial trading business to the broker-dealer. The SEC, whose routine compliance examination detected the allegedly illegal conduct, announced parallel civil charges against the same two executives. Broker-dealer employees charged earlier in the case pleaded guilty last August for conspiring to violate the FCPA, the Travel Act, and anti-money laundering laws, as well as for substantive counts of those offenses, relating, among other things, to the scheme involving bribe payments. In November 2013, the Venezuelan bank senior official pleaded guilty in Manhattan federal court for conspiring to violate the Travel Act and anti-money laundering laws, as well as for substantive counts of those offenses, for her role in the scheme.
Recently, the DOJ issued its first opinion release of 2014 regarding application of the FCPA. In this instance, an investment bank and securities issuer who was a majority shareholder of a foreign financial services company sought the DOJ’s opinion with regard to the bank’s purchase of the remaining minority interest from a foreign businessman who now serves as a senior foreign official. The DOJ determined that based on the facts and representations described by the requestor, the only purpose of the payment to the official would be consideration for the minority interest. The DOJ explained that although the FCPA generally prohibits an issuer from corruptly giving or offering anything of value to any “foreign official” in order to assist “in obtaining or retaining business for or with, or directing business to” the issuer, it does not “per se prohibit business relationships with, or payments to, foreign officials.” In this situation, the DOJ determined, based on numerous, fact-intensive considerations, that the transfer of value as proposed would not be prohibited under the FCPA. The DOJ found no indications of corrupt intent, citing, among other things, the proffered purpose to sever the parties’ existing financial relationship to avoid a conflict of interest, and the use of a reasonable alternative valuation model. The DOJ also determined the bank demonstrated that the parties would appropriately and meaningfully disclose their relationships before the sale closed, and that the bank would implement strict recusal and conflict-of-interest-avoidance measures to prevent the shareholder/foreign official from assisting the bank in obtaining or retaining business. As with all Opinion Releases under the FCPA, the DOJ cautioned that the opinion has no binding application to any other party.
On March 19, the DOJ announced that Marubeni Corporation, a Japanese trading company, agreed to plead guilty to violating the FCPA by participating in a seven-year scheme to bribe high-ranking government officials in Indonesia to help the company secure a contract for a power project. The DOJ charged that to conceal the bribes, the company and a consortium partner retained two consultants purportedly to provide legitimate consulting services on behalf of the power company and its subsidiaries in connection with the project. The DOJ asserted, however, that the primary purpose for hiring the consultants was to use them to pay bribes to Indonesian officials.The eight-count criminal information against the company included one count of conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) and seven counts of violating the FCPA. As part of its plea, the company admitted its criminal conduct and agreed to pay a criminal fine of $88 million, subject to the district court’s approval. Sentencing is scheduled for May 15, 2014. Two years ago, the company entered a deferred prosecution agreement and agreed to pay $54.6 million to resolve allegations it acted as an agent for a joint venture in a scheme to bribe Nigerian officials.
On January 6, the DOJ announced that two former CEOs of an oil and gas services company had been charged for their alleged involvement in a scheme to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA), and for other related offenses. The DOJ also revealed that the company’s former General Counsel (GC) had entered a guilty plea on bribery and fraud charges related to the alleged schemes. According to two separate Criminal Complaints that were filed in the U.S. District Court for the District of New Jersey, the former CEOs allegedly paid bribes to a Colombian official for his assistance in securing approval of a contract valued at approximately $39 million. They were also charged with attempting to defraud members of the company’s board through their attempts to secure kickbacks for themselves as part of an effort to acquire another firm. The Information filed against the former GC provided further details on the bribery and kickback schemes.
On December 20, the DOJ and the SEC announced separate enforcement actions against a major U.S. agribusiness firm and one of its foreign subsidiaries. In the DOJ action filed in the U.S. District Court for the Central District of Illinois, a foreign subsidiary of the U.S. corporate parent pleaded guilty to a single count of conspiracy to violate the anti-bribery provisions of the FCPA, and agreed to pay $17.8 million in criminal fines. The plea agreement resolved allegations that the subsidiary paid bribes through intermediary firms to Ukrainian government officials in exchange for over $100 million in value-added tax (VAT) refunds. The DOJ also entered into a non-prosecution agreement with the U.S. parent to resolve claims that the company failed to implement internal controls sufficient to prevent and detect FCPA violations. Under that agreement, the company must periodically report on its compliance efforts, and continue implementing enhanced compliance programs and internal controls. The SEC’s parallel civil enforcement action resolved charges that the parent firm’s lack of sufficient anti-bribery compliance controls, which contributed to FCPA violations by foreign subsidiaries that generated over $33 million in illegal profits. The U.S. parent corporation consented to entry of a judgment that requires the company to disgorge the illegal profits plus $3 million in interest. The judgment also permanently enjoins the parent company from violating the relevant parts of the Exchange Act and requires compliance reporting for a three-year period.
On December 10, the DOJ announced that a German engineering and services company agreed to resolve charges that it violated the FCPA by bribing government officials of the Federal Republic of Nigeria to obtain and retain contracts related to the Eastern Gas Gathering System (EGGS) project. The settlement is the most recent of several related to that project, and the charges are based on activities that occurred over a three-year period beginning a decade ago. In a criminal information filed in the U.S. District Court for the Southern District of Texas, the DOJ charged that the company, as part of a joint venture, conspired to make corrupt payments totaling more than $6 million to Nigerian government officials to assist in obtaining and retaining contracts. Through the joint venture the companies submitted inflated bids to cover the cost of paying bribes to Nigerian officials. The company entered into a deferred prosecution agreement, in which it admitted to the alleged conduct, agreed to pay a $32 million penalty, and consented to enhance its internal controls and retain an independent corporate compliance monitor for at least 18 months.
On October 22, the DOJ and the SEC announced parallel criminal and civil actions against a U.S. company for allegedly violating the FCPA by paying bribes and falsifying documents in connection with selling ATMs to bank customers in China, Indonesia, and Russia. The federal authorities allege that from 2005 to 2010 the company provided approximately $1.8 million of value to employees of its bank customers in China and Indonesia, including state-owned banks, in the form of payments, gifts, and non-business travel. The company allegedly attempted to disguise the benefits by routing the payments through third parties designated by the banks and by recording leisure trips for bank employees as “training” expenses. The government also alleges that from 2005 to 2009, the company entered into false contracts with a distributor in Russia for services that the distributor was not performing. Instead, the distributor allegedly used the approximately $1.2 million in payments to bribe employees of privately-owned Russian banks to secure ATM-related contracts for the company. The company entered into a deferred prosecution agreement with the DOJ, agreeing to pay a $25.2 million penalty, and it consented to a final judgment in the SEC action, pursuant to which it will disgorge approximately $22.97 million, inclusive of prejudgment interest. The company agreed to implement numerous specific changes to its internal controls and compliance systems and to retain a compliance monitor for at least 18 months. The government acknowledged the company’s voluntary disclosure, cooperation, and extensive internal investigation.
On October 24, the SEC released a cease-and-desist order that resolves FCPA allegations against a Michigan-based medical technology company. The SEC alleged that the company’s subsidiaries in five different countries—Argentina, Greece, Mexico, Poland, and Romania—bribed doctors, health care professionals, and other government officials to obtain or retain business. The alleged activities involved approximately $2.2 million in direct payments, travel and conference expenses, and donations to a university associated with a foreign official made over a four-and-a-half year period. The SEC investigation found that the payments were incorrectly described as legitimate expenses in the company’s books and records and were described as, among other things, charitable donations, consulting and service contracts, travel expenses, commissions, and legal expenses. Without admitting the allegations, the company agreed to disgorge approximately $7.5 million in profits obtained through the alleged activities, and to pay a $3.5 million civil penalty plus an additional $2.3 million in pre-judgment interest.
On May 29, the DOJ and the SEC announced that a French oil and gas company will pay nearly $400 million to resolve allegations that the company made illegal payments through third parties to an Iranian official in exchange for oil and gas concessions. The penalty is the third largest FCPA penalty ever obtained by federal authorities. The company entered a deferred prosecution agreement to resolve one count each of (i) conspiracy to violate the anti-bribery provisions of the FCPA, (ii) violating the internal controls provision of the FCPA, and (iii) violating the books and records provision of the FCPA, as detailed in a criminal information filed in the Eastern District of Virginia. Pursuant to the DPA, the firm will pay a $245.2 million penalty, cooperate with the DOJ and foreign law enforcement to retain an independent corporate compliance monitor for a period of three years, and continue to implement an enhanced compliance program and internal controls designed to prevent and detect FCPA violations. A separate SEC Order resolves parallel civil charges and requires, among other things, that the company to disgorge $153 million in illicit profits.
The Supreme Court recently sharply narrowed the potential application of the Alien Tort Statute (ATS), which allows foreign plaintiffs to bring civil actions in U.S. district courts for torts committed in violation of the law of nations or a treaty of the United States. Kiobel v. Royal Dutch Petroleum Co., No. 10-1491, 2013 WL 1628935 (Apr. 17, 2013). Foreign plaintiffs traditionally have sought to use the ATS to hold firms liable for alleged human rights abuse committed by foreign governments. Here, a district court dismissed several claims brought by Nigerian nationals who alleged that several non-U.S. oil companies had aided and abetted the Nigerian government in committing human rights violations. On interlocutory appeal, the Second Circuit dismissed the entire complaint, reasoning that the law of nations does not recognize corporate liability. The Supreme Court unanimously affirmed on different grounds, focusing on when courts can recognize a cause of action under the ATS for violation of the law of nations occurring in a non-U.S. sovereign territory. The Court held that the presumption against extraterritorial jurisdiction applied to claims under the ATS, and nothing in the statute rebutted that presumption; even where claims touch and concern the territory of the United States, they must do so with sufficient force to displace the presumption against extraterritorial application, which requires more than mere corporate presence. The Court’s ruling further limits the risk that foreign plaintiffs might expand ATS claims into new industries, including by bringing claims against financial institutions for global financial crime such as fraud and money laundering, or for financing projects during which alleged human rights abuses are committed.
On April 9, New York Governor Andrew Cuomo announced legislation to broaden the scope of public corruption crimes and enhance enforcement. The law would add and increase penalties for individuals found to have misused public funds and permanently bar those convicted of public corruption offenses from (i) holding any elected or civil office, (ii) lobbying, (iii) contracting, (iv) receiving state funding, or (v) doing business with New York, directly or through an organization. The new crimes would include bribery of a public servant, corrupting the government, and failure to report public corruption. The law also would create new penalties for certain offenses, such as fraud, theft, or money laundering, if the offense involves state or local government property. Finally, the law would extend the statute of limitations that would apply for non-government employees working in concert with government employees, and would limit the immunity available to a witness who testifies before a grand jury investigating fraud on government or official misconduct, allowing authorities to prosecute such a witness if the prosecutor develops evidence other than, and independent of, the evidence given by the witness.