United States: Top 10 International Anti-Corruption Developments For August 2018

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 a landmark judicial decision limit the jurisdictional reach of the Foreign Corrupt Practices Act (FCPA)? Why did the U.S. Department of Justice (DOJ) decline to prosecute a U.K.-based engineering company that is also being investigated by the U.K. Serious Fraud Office (SFO)? Which company was debarred by the World Bank for its alleged activities in Africa? The answers to these questions and more are here in our August 2018 Top 10 list.

1. Appellate Court Limits FCPA Jurisdiction. In an August 24, 2018 decision in United States v. Hoskins, the United States Court of Appeals for the Second Circuit restricted DOJ’s ability to charge overseas defendants with conspiring to violate, or aiding and abetting a violation of, the FCPA. The case involves an alleged scheme by Alstom S.A. and its subsidiaries, including Connecticut-based Alstom Power, Inc., to bribe Indonesian officials to secure a $118 million power construction contract. The appellee, Lawrence Hoskins, was a non-U.S. citizen who worked for Alstom’s UK subsidiary in France. Although the indictment alleges that his co-conspirators took several acts in furtherance of the conspiracy in the United States and casts Hoskins as a critical member of the conspiracy—among other things, Hoskins is alleged to have played a role in selecting and paying the two consultants who were hired to deliver bribes to the Indonesian officials—DOJ conceded that Hoskins himself never stepped foot within the United States in furtherance of the conspiracy. The court held that, unless DOJ can prove at trial that Hoskins was an “agent” of a domestic concern, Hoskins is outside of the FCPA’s jurisdictional reach and cannot, therefore, be charged with conspiratorial or accessorial liability under 18 U.S.C. § 371 or 18 U.S.C. § 2. According to the court, “Congress did not intend for persons outside of the statute’s carefully delimited categories to be subject to conspiracy or complicity liability.” The court also held, however, that “the government’s intention to prove that Hoskins was an agent of a domestic concern places him squarely within the terms of the statute . . . .” Although the court’s ruling limits DOJ’s ability to use conspiracy and complicity theories to charge overseas defendants who do not act in the United States with FCPA violations, it remains to be seen what practical impact the ruling will have given that DOJ may still charge overseas defendants as “agents” of domestic concerns and issuers. The court declined to express any “views on the scope of agency under the FCPA,” leaving the precise contours of that critical issue undecided. (For more on Hoskins, read our August 2015 and March 2017 Top 10s.)

2. Barbados-based Insurance Company Enters into “Declination with Disgorgement” with DOJ. In an August 23, 2018 letter, DOJ informed Insurance Corporation of Barbados Limited that it was closing its investigation into potential FCPA violations by the company “[c]onsistent with the FCPA Corporate Enforcement Policy.” According to the letter, DOJ determined that, in August 2015 and April 2016, the company had paid $36,000 in bribes to Donville Inniss, then a member of the Parliament of Barbados and the country’s Minister of Industry, International Business, Commerce, and Small Business Development in exchange for assistance in obtaining two government contracts. Inniss, a U.S. legal permanent resident, allegedly arranged to receive the bribe payments in the United States. The company agreed to disgorge the profits from the two contracts of $93,940.19.

3. DOJ Declines to Prosecute UK-Based Engineering Company, While the UK SFO Charges the Company’s Former Executives for Alleged Bribery in Korea. In an August 20, 2018 letter, DOJ informed Guralp Systems Limited that it had closed its investigation into potential FCPA violations by the company “consistent with the FCPA Corporate Enforcement Policy.” According to the letter, DOJ determined that there was evidence that the company had violated the FCPA when it made payments to Heon-Cheol Chi, the director of the Earthquake Research Center at the Korea Institute of Geoscience and Mineral Resources. Following a four-day jury trial in the Central District of California, Chi was convicted in July 2017 of laundering bribes that he received from two seismological companies in California and England. In a twist to prior declinations that had been announced under the FCPA Corporate Enforcement Policy and its predecessor, the FCPA Pilot Program, DOJ did not require the company to disgorge profits as part of the declination. Rather, DOJ cited the company’s assistance in the prosecution of Chi and the fact that the company “is the subject of an ongoing parallel investigation by the U.K.’s Serious Fraud Office [SFO] for violations of law relating to the same conduct and has committed to accepting responsibility for that conduct with the SFO” as two factors warranting declination. Although DOJ’s declination letter does not cite the Department’s “Piling On” policy, the declination is consistent with that policy, which was announced in May 2018. On August 17, 2018, the SFO charged Guralp’s founder and former managing director with conspiracy to corruptly make payments to Chi.

4. U.S.-based Car Rental Company Discloses DOJ and SEC Declinations for Brazil FCPA Investigation. In an August 6, 2018 securities filing, the Hertz Corporation disclosed that the U.S. Securities & Exchange Commission (SEC) and DOJ had informed the company that they had closed their investigations into potential FCPA violations without further action. According to an August 2016 securities filing, the company identified and self-reported to enforcement authorities activities in Brazil that might raise issues under the FCPA. In the recent filing, the company announced that it was continuing to cooperate with Brazilian authorities.

5. Brazil-based Electric Company Discloses DOJ Declination. In an August 13, 2018 market announcement, Centrais Eletricas Brasileiras S.A., also known as Eletrobras, disclosed that DOJ declined to prosecute the company for potential FCPA violations. Eletrobras disclosed to investors in 2015 that it had uncovered evidence of potential bribery and overbilling since 2008 in connection with construction contracts in Brazil. According to the market announcement, the company is negotiating a resolution with SEC.

6. China-based Biopharmaceutical Company Discloses SEC Declination. In an August 20, 2018 press release, Sinovac Biotech announced that SEC had concluded its investigations into possible FCPA and securities laws violations. A 2016 report by financial research boutique GeoInvesting alleged that court documents showed that a Sinovac executive had bribed an official at the China Food and Drug Administration. After some of its salespeople were referenced in Chinese court cases against officials at the Chinese Center for Disease Control, Sinovac also investigated potential bribery involving its sales personnel. An investor lawsuit brought against the company in July 2017 related to the China Food and Drug Administration allegations was voluntarily dismissed in September 2017.

7. U.S.-based Investment Firm Resolves Libya Bribery Allegations with SEC. On August 27, 2018, SEC announced that a U.S.-based investment firm had agreed to pay approximately $34 million in disgorgement and prejudgment interest to resolve allegations that it violated the FCPA’s internal accounting controls provisions in connection with its subsidiary’s use of an intermediary to bribe Libyan government officials in order to secure investments from Libyan state-owned financial institutions. The SEC did not impose a civil penalty in light of the firm’s June 2018 resolution with DOJ.

8. Slovenia-based Infrastructure Provider Debarred by World Bank for Bribery Allegations involving the Democratic Republic of Congo. On August 22, 2018, the World Bank announced that Flycom d.o.o. had agreed to a Negotiated Resolution Agreement to resolve allegations that the company engaged in corrupt practices in relation to a project designed to improve the transmission of electricity in the Democratic Republic of Congo (DRC). According to the World Bank, the company made improper payments between 2010 and 2014 to a consultant engineer in connection with contracts that the company received under the Southern Africa Power Market Project. The debarment makes the company and its affiliates ineligible to participate in World Bank-financed projects for 18 months. It may also affect the company’s ability to engage with other multilateral development banks as the sanctions qualify for cross-debarment.

9. Update on PDVSA-Related Individual Prosecutions.

  • Former Managing Director of Swiss Bank Pleads Guilty to Billion-Dollar Money Laundering Scheme. On August 22, 2018, DOJ announced that a former managing director and vice chairman of Swiss bank Julius Baer had pleaded guilty to one count of conspiracy to commit money laundering. According to DOJ, Krull admitted to assisting his clients, including Francisco Convit Guruceaga, who was indicted on money laundering charges on August 16, 2018, in designing a scheme to embezzle monies from Venezuela’s national oil company, Petroleos de Venezuela SA (PDVSA). DOJ alleged that, in 2016, Krull was enlisted to help his co-conspirators launder the proceeds of a currency exchange scheme that was used to embezzle approximately $1.2 billion from PDVSA from December 2014 through May 2015. The money laundering conspiracy allegedly used Miami, Florida, real estate and sophisticated false-investment schemes to conceal the origin of the funds. Krull was arrested in July 2018 and is scheduled to be sentenced on October 29, 2018. FINMA, the Swiss financial regulator, is reportedly investigating the bank in connection with the PDVSA allegations.
  • Venezuelan Business Executive Charged with Conspiring to Violate the FCPA. On August 1, 2018, DOJ announced the arrest of Jose Manuel Gonzalez Testino on charges of making corrupt payments to a PDVSA official in exchange for business opportunities that included directing new contracts to Gonzalez’s companies, being prioritized over other vendors for receipt of payments, and awarding PDVSA contracts to Gonzalez’s companies in U.S. dollars instead of Venezuelan bolivares. The criminal complaint alleges that Gonzalez and a co-conspirator paid at least $629,000 in bribes to a former PSDVSA official who has not been named. Thus far, 17 individuals have been charged, 12 of whom have pleaded guilty, in relation to this investigation. (See our July 2018 Top 10 for more).

10. Developments in Malaysian Sovereign Wealth Fund Scandal. Following elections in May 2018, which saw former Prime Minister Najib Razak unseated, Malaysia has moved ahead with charges against some of the key players in the 1MDB scandal. (See our July 2016, August 2016, June 2017, December 2017, May 2018, and June 2018 Top 10s for more on 1MDB). Parallel investigations are ongoing in the United States, Switzerland, and Singapore.

  • Former Prime Minister of Malaysia Charged with Money Laundering.  On August 8, 2018, the Malaysian prosecutor charged Najib with three counts of money laundering. These charges, each of which carries a potential 15-year prison sentence, are linked to three transactions totaling approximately $10 million from 1MDB to Najib’s personal bank accounts. In July, Najib was charged with three counts of criminal breach of trust and one count of corruption. He has pleaded not guilty to all charges.
  • Criminal Charges Filed Against Malaysian Financier. On August 24, 2018, eight charges of money laundering were filed against Low Taek Jho, also known as Jho Low, a Malaysian financier who was allegedly a close acquaintance of Najib. Low’s father, Low Hock Peng, was also charged with one count of money laundering. Warrants for arrest were issued for both individuals, but their whereabouts are currently unknown.
  • Fire Sale of Seized $250 Million Superyacht. On August 24, 2018, a Malaysian court granted an application to sell a $250 million luxury yacht, alleged to have been purchased using illicit proceeds related to 1MBD. The Indonesian government handed over the superyacht, named Equanimity, to the Malaysian government earlier in August. Malaysian authorities confirmed that they are looking to sell the asset due to the high cost of maintenance.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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James M. Koukios
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