Top Ten International Anti-Corruption Developments For September 2017

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 nearly billion dollar case did the U.S. Department of Justice (DOJ), Securities and Exchange Commission (SEC), Sweden, and the Netherlands resolve? What country is considering adding deferred prosecution agreements (DPAs) as an additional enforcement tool? How have countries lived up to their anti-corruption pledges in the year since a major international anti-corruption event in the UK? The answers to these questions and more are here in our September 2017 Top Ten list.

1. Sweden-Based Telecommunications Company Resolves Uzbek Bribery Allegations; Former Executives Charged in Sweden. On September 21, 2017, DOJ and SEC announced that Telia Company AB and its Uzbek subsidiary, Coscom LLC, had agreed to resolve allegations that they had paid over $330 million to an Uzbek official between 2007 and 2010 in order to enter and continue operating in the Uzbek telecommunications market. According to the allegations, the bribes were paid to a shell company controlled by the Uzbek official under the guise of payments for lobbying and consulting services that were never performed and generated over $2.5 billion in revenue and $457 million in profits. The official is reportedly Gulnara Karimova, the daughter of former Uzbek President Islam Karimov. The parent company, a former issuer, entered into a deferred prosecution agreement (DPA) with DOJ and agreed to an administrative cease-and-desist order with SEC, while the Uzbek subsidiary agreed to plead guilty to conspiring to violate the FCPA’s anti-bribery provisions. The agencies also announced that the resolution had been coordinated with Dutch and Swedish authorities, for a total combined penalty of approximately $966 million. This is the second corporate resolution involving similar allegations, following a coordinated resolution by U.S. and Dutch authorities with VimpelCom in February 2016. On September 22, 2017, Swedish prosecutors charged three of Telia’s former executives—former CEO Lars Nyberg, former Eurasian business head Tevo Kivisaari, and an unnamed former manager—in connection with the alleged Uzbek bribery scheme. All three defendants deny the charges, the maximum sentence for which is six years’ imprisonment. No trial date has been set.

2. Massachusetts-Based Diagnostic Testing Equipment Maker Resolves Colombia and India FCPA Allegations. Pursuant to an SEC administrative order dated September 28, 2007, Alere Inc. agreed to resolve allegations that its subsidiaries in Colombia and India made improper offers and payments through distributors or consultants to foreign government officials to secure sales of its equipment in violation of the FCPA’s accounting provisions. According to the order, the misconduct in Colombia began prior to Alere’s acquisition of its subsidiary and while the customer was private and continued post-acquisition and after the Colombia Ministry of Health took over the customer—the order thus presents interesting issues with regard to M&A transactions and commercial bribery. The order also resolved alleged revenue recognition problems and tax accounting errors that had led the company to issue several restatements. In total, the company, without admitting or denying the allegations, agreed to pay a civil monetary penalty of $9.2 million, disgorgement of approximately $3.3 million (approximately $3.2 million of which was attributable to the alleged misconduct in Colombia from 2011-2013), and approximately $500,000 in prejudgment interest.

3. Former Alstom Executive Sentenced for FCPA Conviction. On September 25, 2017, District of Connecticut Judge Janet Bond Arterton sentenced former Alstom executive Frederic Pierucci to 30 months’ imprisonment following his July 2013 guilty plea to one count of violating the FCPA and one count of conspiracy to violate the FCPA in connection with a scheme to bribe Indonesian officials to secure a lucrative power generation contract. Charges against Pierucci were originally unsealed in April 2013 after Pierucci, a French national, was arrested upon his arrival at JFK International Airport in New York.

4. Former Miami Telecom Executive Sentenced for FCPA Conviction. Also on September 25, 2017, Southern District of Florida Judge Jose Martinez sentenced former Cinergy executive Amadeus Richers to 53 months’ imprisonment following his July 2017 guilty plea to one count of violating the FCPA in connection with a scheme to bribe officials at Haiti’s state-owned telecommunications company for various benefits. Richers, a Brazilian national, was originally charged in 2011 but had been considered a fugitive until his arrest in Panama and eventual extradition to the United States in February 2017. The 53 month term of imprisonment represented time Richers had already served, primarily in Panama as he awaited extradition. Richers is the ninth individual to have been sentenced by Judge Martinez in the Haiti Teleco case. One of the other defendants, Joel Esquenazi, received the longest term of imprisonment in FCPA history, 15 years.

5. Logistics and Freight Operations Company and Six Employees Convicted of Angola Bribery Charges in the UK. On September 26, 2017, the UK Serious Fraud Office (SFO) announced that F.H. Bertling Ltd, a UK-based subsidiary of Germany’s Bertling Group, and six of its current and former employees had pleaded guilty to conspiracy to make corrupt payments to an agent of Sonangol, Angola’s national oil company, in connection with a contract worth approximately $20 million. The SFO also announced that another individual defendant had been acquitted by a jury at Southwark Crown Court on September 21, 2017. The SFO had originally announced the charges in July 2016.

6. World Bank Debars Australian Construction Company for Conduct in South Asia. On September 28, 2017, the World Bank announced a Negotiated Resolution Agreement (NRA) that debars SMEC International Pty. Ltd. for 12 months for alleged misconduct in South Asia, including allegedly inappropriate payments made in relation to World Bank-financed projects in India and Sri Lanka. The NRA also covers four subsidiaries based in Bangladesh, India, and Sri Lanka for periods varying from 6 to 30 months. The companies could also face cross-debarment by other multilateral development banks under the Agreement for Mutual Enforcement of Debarment Decisions, signed in 2010. Although the World Bank’s announcement did not contain detailed factual allegations, reports suggest that it had been investigating a sewerage project in Sri Lanka and a power plant project in Bangladesh.

7. Canadian Government Publishes DPA Consultation. On September 25, 2017, the Government of Canada announced that it would begin seeking public feedback to consider the possibility of introducing a Canadian DPA regime as an additional tool for prosecutors to address corporate crime. In an accompanying discussion paper, the Canadian Government noted that the United States and UK have DPA regimes in place, that France had adopted a DPA-like mechanism for anti-corruption investigations in November 2016, and that the Australian Ministry of Justice was considering the possibility of a DPA regime. (See our November 2016 and April 2017 Top Tens for more on DPA-related developments in France and Australia.) The discussion paper considers differences between the different regimes, potential advantages and disadvantages of a DPA regime, and other policy issues. The consultation period is scheduled to close on November 17, 2017.

8. Transparency International Analyzes Success of 2016 UK Anti-Corruption Summit. In May 2016, the UK hosted an international anti-corruption summit in London aimed at establishing a united global response to corruption. The summit resulted in a series of promises made by the 43 countries and 6 international organizations that attended. On September 19, 2017, Transparency International (TI) published a tracker “show[ing] how countries are keeping anti-corruption summit promises.” TI praised Spain and Indonesia for having been the most successful in living up to their promises but cited the United States, Switzerland, Japan, and the UK as having left important promises unfulfilled.

9. SEC Leadership Vow to Continue FCPA Enforcement. During a September 5, 2017 Roundtable on SEC Enforcement and Examination Priorities at the New York University School of Law, SEC Chairman Jay Clayton and SEC Co-Enforcement Director Steve Peikin stated that SEC would continue to enforce the FCPA. Repeating a theme from his confirmation hearings, Chairman Clayton noted the rise in international anti-corruption efforts since 2011, when he helped write a paper for the New York City Bar Association criticizing the United States for “unilateral and zealous enforcement of the FCPA.” Chairman Clayton went on to state that there would be no dramatic shift in SEC priorities, and Co-Director Peikin stated that FCPA enforcement would continue into the future.

10. Former Brazilian Presidents Hit with New Corruption Charges; Federal Prosecution Service Undergoes Change in Leadership. On September 5, 2017, former Brazilian presidents Luiz Inácio Lula da Silva and Dilma Rousseff, along with other senior Workers’ Party members, were charged with running a criminal organization that allegedly generated approximately $450 million in criminal proceeds involving Petrobras, Brazil’s state-owned oil company, and the Brazilian National Development Bank. Rousseff was removed from office in May 2016, but, unlike many other Brazilian politicians, had previously avoided charges related to the massive investigation into alleged misconduct at Petrobras known as Operation Lava Jato (Car Wash). The charges against Lula and Rousseff were brought by the Brazilian Federal Prosecution Service (MPF) under the leadership of prosecutor general Rodrigo Janot. On September 18, 2017, Janot was replaced in that position by Raquel Dodge. Dodge was appointed by current Brazilian president Michel Temer, who has himself been accused of corruption. It will be interesting to see how the MPF changes under Dodge’s leadership and, in particular, whether her appointment will affect the course of Lava Jato.

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 the following: How will leadership changes in key posts at the United States Securities and Exchange Commission (SEC), United States Department of Justice (DOJ), and World Bank affect anti-corruption enforcement? Will Australia begin using deferred prosecution agreements to resolve corporate criminal enforcement actions? And how did the UK expand its use of deferred prosecution agreements? The answers to these questions and more are here in our April 2017 Top Ten list.

1. Leadership Changes in Key Anti-Corruption Positions.

• New Acting Head of SEC’s FCPA Unit Named. On April 4, 2017, SEC announced that Charles Cain, a longtime enforcement attorney and current deputy chief of the FCPA Unit, had been named acting chief of the FCPA Unit. During his tenure in the SEC’s FCPA Unit, Cain has handled and supervised numerous major FCPA cases, including the Magyar Telekom case discussed below. Cain has also represented SEC before the OECD’s Working Group on Bribery. With his substantial policy and enforcement experience, as well as his long tenure with SEC, Cain will be an able steward of the FCPA Unit. Cain replaces Kara Brockmeyer, who had been chief of the FCPA Unit since 2011.

• Prosecutor with FCPA Experience Confirmed as Deputy Attorney General. On April 26, 2017, Rod Rosenstein was confirmed as Deputy Attorney General, the number two position at DOJ. Rosenstein has significant experience with white collar and public corruption cases, including FCPA cases. As the U.S. Attorney in Maryland since 2005, Rosenstein teamed with DOJ’s FCPA Unit to bring charges against Asem Elgawhary, Vadim Mikerin, and others for FCPA-related conduct. A career prosecutor who has served under presidents of both parties, Rosenstein’s appointment as Deputy Attorney General has been seen as another indication that FCPA enforcement will continue to be a priority for DOJ under the new administration.

• World Bank Veteran to Change Positions. On April 27, 2017, the World Bank announced that, effective July 1, 2017, Pascale Helene Dubois would become the new head of the World Bank Group’s Integrity Vice Presidency, known as INT, which is an independent unit within the World Bank Group that investigates and pursues sanctions related to allegations of fraud and corruption in World Bank Group‑financed projects. Dubois joined the World Bank in 1997 and currently serves as the World Bank’s Chief Suspensions and Debarment Officer. Dubois is well known in the anti-corruption community and has long been a thought leader in this space. In her current post, she has worked to increase transparency and due process at the World Bank generally and in the Office of Suspension and Debarment specifically. As the World Bank has played an increasingly significant role in combating transnational bribery, Dubois’s work and that of INT has helped foster greater cooperation between the World Bank and law enforcement agencies around the world.

2. United States Attorney General Emphasizes Importance of FCPA Enforcement, Compliance Programs, and Individual Prosecutions.

In remarks delivered during the Compliance Initiative Annual Conference on April 24, 2017, Attorney General Jeff Sessions “ma[d]e clear . . . that under my leadership, the Department of Justice remains committed to enforcing all the laws. That includes laws regarding corporate misconduct, fraud, foreign corruption and other types of white-collar crime.” Sessions noted that, although he had focused on violent crimes and immigration crime in the early days of his tenure, “focusing on these challenges does not mean we will reduce our efforts in other areas.” Sessions specifically focused on FCPA enforcement, which he called “critical” to creating an “even playing-field for law-abiding companies.” Said Sessions: “We will continue to strongly enforce the FCPA and other anti-corruption laws.” Sessions also emphasized the importance of corporate compliance programs and of prosecuting individuals for corporate crimes. Sessions’ comments, which echoed longstanding Department policies, appeared to be designed to counter concern in some corners that DOJ would not pursue white-collar crimes under the Trump Administration.

3. British Grocer Enters into Deferred Prosecution Agreement with UK Serious Fraud Office.

On April 10, 2017, following a two-year investigation, the UK SFO confirmed it had entered into a DPA with Tesco Stores Limited related to false accounting charges. In October 2014, the British supermarket giant revealed it had overstated its profits by a quarter of a billion pounds. In March 2017, Tesco PLC disclosed in a London Stock Exchange Announcement that, if the DPA were approved by the court, Tesco Stores Limited would pay a £128,992,500 penalty and comply with other requirements set forth in the DPA. Sir Brian Leveson, president of the Queen’s Bench Division, approved the DPA. The Financial Conduct Authority (FCA) simultaneously announced that Tesco PLC and Tesco Stores Ltd. had committed market abuses and ordered Tesco PLC to pay an estimated £85 million to investors who were net purchasers of Tesco shares or listed bonds during the period of the misstated accounts. Although they do not involve bribery allegations, the simultaneous resolutions are nevertheless notable for practitioners in the anti-corruption space in several respects. First, this is the SFO’s first DPA involving an offense other than bribery, showing an increasing willingness by the SFO to use this tool to resolve cases. Second, the FCA’s order marks the first time that the agency has used its powers under Section 384 of the Financial Services and Markets Act to require a listed company to pay restitution for committing abuse on the market. Third, the simultaneous SFO and FCA announcements indicate an increased level of cooperation between the two agencies.

4. Brazilian Construction Company Sentenced.

On April 17, 2017, Eastern District of New York Judge Raymond J. Dearie sentenced Brazilian construction and engineering company Odebrecht S.A. to pay a fine of $93 million in connection with its December 2016 guilty plea to conspiring to violate the FCPA’s anti-bribery provisions in connection with approximately $788 million in bribes allegedly paid to officials in twelve, mostly Latin American, countries to secure contracts. The ultimate fine was considerably less than the company was originally slated to pay: At the time of the guilty plea, DOJ stated that the company agreed to pay up to $2.6 billion, ten percent of which ($260 million) would be paid to the United States. However, DOJ stated in an April 11, 2017, sentencing memorandum[1] that, after conducting an “inability to pay” analysis in conjunction with Brazilian authorities, it had determined that the company did not have the ability to pay the full $2.6 billion penalty and should be required to pay only $93 million to the United States. Judge Dearie agreed and found that the reduced fine was appropriate under the circumstances.

5. Colorado-Based Mining Company Reports SEC Declination.

On April 17, 2017, Newmont Mining Corporation announced in a securities filing that it had received a letter from SEC in which the agency stated that it had decided not to recommend an enforcement action. The company first disclosed that it was under investigation for possible FCPA violations in April 2016. Although no details regarding the locus of the investigation were made public, the company had active mining operations in Australia, Ghana, Indonesia, Peru, Suriname, and the United States at the time of the announcement. To date, DOJ has not publicly stated its intentions with regard to the matter.

6. Engineering Firm and Its Executive Debarred by World Bank for Bribery in Southeast Asia.

On April 6, 2017, the World Bank Group announced the debarment of Denmark-based Consia Consultants ApS and its managing director. According to the World Bank, INT’s investigation revealed evidence that the company made payments to officials to influence contract awards in connection with the World Bank-financed Strategic Road Infrastructure Project in Indonesia. The World Bank stated that the company further failed to disclose its agreement and commissions paid to its agent in connection with the project and misrepresented the availability of key staff it has claimed would be assisting with the execution of its technical assistance contract under the project. The World Bank also said it found evidence that the company made corrupt payments in Vietnam in connection with the Hanoi Urban Transport Development Project, in addition to fraudulent misconduct relating to the Second Northern Mountain Poverty Reduction Project. The World Bank debarred the company for 14 years and its managing director for 3.5 years. The company could also face cross-debarment by other Multilateral Development Banks under the Agreement of Mutual Recognition of Debarments, signed in 2010.

7. Former Diplomat Pleads Guilty to FCPA Charges in United Nations Bribery Case, While Judge Denies Motion to Dismiss FCPA Charges against Another Defendant.

On April 28, 2017, Francis Lorenzo, a former deputy ambassador from the Dominican Republic, pleaded guilty in the Southern District of New York to conspiring to violate the FCPA and to pay and receive bribes and gratuities in a bribery scheme allegedly involving Ng Lap Seng, a Chinese national and real estate developer accused of bribing former U.N. General Assembly President John Ashe. Lorenzo pleaded guilty to related charges in 2016 and is expected to testify against Seng at trial, currently set to begin May 30, 2017. Two days before Lorenzo’s guilty plea, on April 26, 2017, Southern District of New York Judge Vernon S. Broderick denied Seng’s motion to dismiss FCPA and related charges against him, finding that the superseding indictment sufficiently presented the essential facts underlying the charges and that the prosecution had made sufficient disclosures concerning the nature of the charged offenses by other means, including through the various complaints filed in the case, extensive discovery, agent affidavits, and a written response to Seng’s letter request for a bill of particulars.

8. Telecom Executives Agree to SEC Penalties.

On April 24, 2017, SEC announced that former Magyar Telekom executives Elek Straub and Andras Balogh had agreed to pay $250,000 and $150,000 in civil penalties, respectively, in connection with their March 2017 agreement to resolve civil FCPA charges brought against them by SEC in 2011. In addition, the former CEO and former chief strategy officer, both Hungarian citizens, agreed to five-year bans on serving as an officer or director of any SEC-registered public company. In February 2017, a third former Magyar executive, Tamas Morvai, agreed to pay $60,000 to resolve related charges. SEC alleged that the three former executives violated or aided and abetted violations of the FCPA’s anti-bribery, books and records, and internal controls provisions by using “sham consultancy contracts with entities owned and controlled by a Greek intermediary” to make payments of approximately $5.3 million that they knew or should have known would be passed on to Macedonian officials.

9. Australian Government Publishes DPA Consultation.

In April 2017, the Australian Government took comments on a public consultation paper that outlined a proposed model for a Deferred Prosecution Agreement (DPA) scheme, described as “a key focus of the Australian Government’s consideration of options to facilitate a more effective and efficient response to corporate crime by encouraging greater self-reporting by companies.” The Australian Minister of Justice first announced Australia’s intentions to consider instituting a DPA scheme in March 2016. On March 31, 2017, the Minister of Justice released the public consultation paper on Australia’s DPA scheme. The public consultation period closed on May 1, 2017, with 18 responses having been received from a broad range of stakeholders, including academics, law firms, civil society, and some of Australia’s largest companies.

10. Former South Korean President Charged With Bribery.

In March 2017, South Korean President Park Geun-Hye was arrested in connection with a corruption scandal that had led to her impeachment in December 2016. On April 17, 2017, Park was formally charged with bribery, coercion, abuse of power, and leaking state secrets. Ms. Park’s trial, as well as the election that will determine her successor, are both expected to take place in May 2017.

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