fcpa year in review - 2017 predictions (dunst,...

FCPA Year in Review and What to Watch for in 2017Lee DunstKim Parker

February 1, 2017- Strafford CLE Seminar

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Agenda

I. FCPA BasicsII. Recent Trends in Enforcement III. Recent Legal DevelopmentsIV. Predictions for 2017

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I. FCPA Basics

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FCPA Basics§ The Foreign Corrupt Practices Act

− Prohibits bribery of foreign government officials− Requires public companies to maintain accurate records and have vigorous

internal controls§ The FCPA applies to:

− publicly traded companies in the U.S.− companies incorporated or based in the U.S.− officers, employees, and agents of such companies− U.S. nationals and residents wherever they may be− any person who furthers foreign bribery while “in” the U.S.

§ Enforced by:− Department of Justice (including the FBI)− Securities and Exchange Commission

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FCPA Basics§ Two Key Provisions

‒ Anti-bribery provisions: § Prohibit giving, offering, promising, or authorizing

anything of value to non-U.S. government officials in order to obtain or retain a business advantage

‒ Accounting provisions:§ Must maintain effective internal controls§ Must keep accurate books and records

§ Not just corporate accounting ledgers; includes underlying support for transactions

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FCPA: Consequences of ViolationCompanies§ Internal/external investigations§ Criminal/civil fines and profit

disgorgement§ Compliance monitors§ Suspension or debarment from

doing business with U.S. government and/or international institutions

§ Private lawsuits§ Reputational harm§ Disruption of business

Individuals§ Imprisonment § Civil and criminal fines

(employer may not pay)§ Loss of job or other employment

action§ Debarment from serving as an

officer or director of U.S.-listed company

§ Reputational harm

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II. Recent Trends in Enforcement

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Anti-Corruption Enforcement Trends

þ Increased Resources=Increased Enforcement Riskþ Focus on China/Latin America þ Aggressive Focus on Individualsþ DOJ FCPA Pilot Programþ Cross-Border Enforcementþ Continued Risks Related to Hiring Practices, T&E

and Giftsþ Renewed Focus on Financial Services and Pharma


Increased Resources

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DOJ has committed additional resources to FCPA enforcement

DOJ FCPA unit has 31 prosecutors

Hired 10 new FCPA

prosecutors in 2016

Appointed first ever FCPA compliance

expert

3 new FBI squads

devoted to FCPA

investigations


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Increased Risk of Enforcement

§ U.S. FCPA investigations continue at a rapid pace− SEC indicated early on that 2016 would be “very busy year”− Record-breaking year for number of settlements− 32 SEC settlements and 21 DOJ settlements − Reports of over 200 cases still under investigation

§ SEC whistleblower reporting has increased− Dodd-Frank whistleblower program creates incentives to

report to SEC− International Game Technology – first case based solely on

retaliation for whistleblower reporting


FCPA Enforcement Actions Per Year (2007-2016)

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0

5

10

15

20

25

30

35

40

45

50

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

18

20

26

48

23

11

1917

10

2120

13 14

2625

12

89

10

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Number of FCPA Enforcement Actions Per Year

DOJ ActionsSEC Actions


2017 Enforcement Action Cases (To Date)

§ Las Vegas Sands Corp.§ Orthofix International§ Rolls-Royce plc§ Sociedad Quimica y Minera de Chile S.A.§ Zimmer Biomet Holdings§ Mundelez International, Inc.§ Joo Hyun Bahn et al.

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Leading Enforcement Actions

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*BAE pleaded guilty to non-FCPA conspiracy charges of making false statements and filing false export licenses, but the alleged false statements concerned the existence of thecompany’s FCPA compliance program, and the publicly reported conduct concerned alleged corrupt payments to foreign officials.

Four of the top ten largest monetary settlements in FCPA history were reached in 2016. All but two were reached after 2010.

No. Company Total Resolution DOJ Component SEC Component Date

1 Siemens AG $800,000,000 $450,000,000 $350,000,000 12/15/20082 Alstom S.A. $772,290,000 $772,290,000 -- 12/22/20143 KBR/Halliburton $579,000,000 $402,000,000 $177,000,000 2/11/20094 Teva Pharmaceuticals $519,000,000 $283,000,000 $236,000,000 12/22/2016

5 Odebrecht S.A. & Braskem S.A. $419,800,000 $354,800,000 $65,000,000 12/21/2016

6 Och-Ziff $412,000,000 $213,000,000 $199,000,000 9/29/2016

7 BAE Systems* $400,000,000 $400,000,000 -- 2/4/20108 Total S.A. $398,200,000 $245,200,000 $153,000,000 5/29/20139 VimpelCom $397,600,000 $230,100,000 $167,500,000 2/18/2016

10 Alcoa $384,000,000 $223,000,000 $161,000,000 1/9/2014


Key Geographic Areas

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China:§ 60% of FCPA cases brought by the

SEC between October 2015 and October 2016

§ All 5 pharmaceutical companies

Latin America:§ Operation Car Wash in Brazil has

triggered a wave of enforcement actions§ Predicted increase; “several cases in the

pipeline.” (Brockmeyer)


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Focus on Individuals§ Yates Memo (Sept. 9, 2015):

− Focus on individuals from the start of the investigation.− Company must provide DOJ with “all relevant facts” relating

to individual misconduct to be eligible for cooperation credit§ But company may still be eligible even if it cannot identify

culpable individuals given the relevant facts

− Absent extraordinary circumstances or approved departmental policy, DOJ will not release culpable individuals from liability when resolving a matter with a corporation

− Civil attorneys encouraged to pursue civil enforcement against individuals despite an individual’s ability to pay


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Focus on Individuals: DOJDOJ resolved FCPA charges with 9 individuals in 2016:

EBRD• Dmitrij Harder pleaded guilty in

relation to bribes paid to an official at the European Bank for Reconstruction and Development

PDVSA• Three individuals pleaded guilty in

connection with a scheme to secure energy contracts from the Venezuela state-owned energy company• Roberto Enrique Rincon-Fernandez • Moises Abraham Millan Escobar• Abraham Jose Shiera-Bastidas

Och-Ziff• Samuel Mebiame pleaded guilty in

relation to bribes paid to African officials in return for obtaining mining rights for a joint venture involving the hedge fund

Mexican Aviation• Four individuals pleaded guilty in

connection with bribes paid to Mexican aviation officials:• Douglas Ray• Victor Hugo Valdez Pinon• Kamta Ramnarine • Daniel Perez


Focus on Individuals: DOJ

§ On January 10, 2017, DOJ indicted three individuals on FCPA charges in relation to a scheme to pay $2.5 million in bribes to close the sale of a commercial building in Vietnam to a Middle Eastern sovereign wealth fund‒ Father and son Ban Ki Sang and Joo Hyun Bahn

§ Brother and nephew of former United Nations Secretary General Ban Ki-Moon

‒ San Woo§ Malcolm Harris, the individual who allegedly set up the scheme, was

charged with wire fraud and other charges

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Focus on Individuals: SEC

§ SEC has said it will continue to focus on charging individuals, including foreign nationals− Individuals made up 25% of the SEC’s

enforcement docket in 2016− Och-Ziff Capital Management Group (Sept.

2016): two executives settled SEC charges§ Daniel Och (CEO) – paid $2.2 million§ Joel Frank (CFO) – penalty may be assessed


New DOJ FCPA Pilot Program

§ One year pilot program announced April 5, 2016§ Goal: encourage voluntary self-disclosure by being more

transparent about benefits of disclosure and cooperation§ Requirements:

‒ Voluntary self-disclosure‒ Full cooperation ‒ Remediation and disgorgement

§ Generally disclosure and cooperation must be timely and proactive

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New DOJ FCPA Pilot Program

§ If all three requirements are met:‒ Up to 50% off the bottom of the Sentencing Guidelines

range‒ No compliance monitor (if compliance program effective)‒ Potential declination of prosecution

§ If cooperation and remediation but no voluntary disclosure:‒ Up to 25% off the bottom of the Sentencing Guidelines

range

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Pilot Program in Action § DOJ has issued 5 declinations under the Program:

– Nortek– Akamai– Johnson Controls– HMT– NCH

§ For HMT and NCH, DOJ announced declinations noting that the companies had met the requirements of the Pilot Program, but the companies agreed to pay disgorgement


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Pilot Program: Weighing the Factors

Results• 30% below the bottom

of the Guidelines range• No independent

compliance monitor

Results• 25% above the low end

of the Guidelines range• Compliance monitor

for 27 months


Importance of Cooperation: Award of Cooperation Credit

§ JPMorgan (Nov. 2016)‒ Regular factual presentations‒ Produced documents in a timely manner‒ Made employees available for interviews

§ General Cable (Dec. 2016)‒ Produced documents without implicating foreign

privacy laws§ VimpelCom (Feb. 2016)

‒ Prompt acknowledgment of wrongdoing

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Importance of Cooperation:Loss of Cooperation Credit

§ Teva Pharmaceuticals (Dec. 2016)‒ Overbroad assertions of privilege‒ Failed to produce on timely basis

§ PTC (Feb 2016)‒ Did not disclose certain facts until DOJ raised them

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Comparative SEC Approach

SEC is not bound by the DOJ Pilot

Program

• Declined 3 cases in 2016 but without a public record explaining its conclusion

• SEC has publicly stated that disclosure is required for NPA or DPA

• SEC pursued 3 cases in 2016 where DOJ publicly declined under the Pilot Program

Key Energy (Aug. 2016) – $5 million

• Thorough cooperation with the SEC investigation• Remedial measures:

• suspension of payments to third parties • review of vendors• financial controls• new business opportunities protocol• new controllers• in-person compliance visits• changes to company compliance policies• coordinated exit of all markets outside North

America and Mexico

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SEC Cooperation Credit

§ Award of cooperation credit‒ Johnson Controls, Inc. (Sept. 2016)

§ Provided “real-time” downloads of employee interviews§ Made foreign employees available for interviews§ When the company caught an employee shredding documents, quickly

secured the office to preserve documents‒ SAP (Feb. 2016)

§ Facilitated employee interview without alerting the employee to the investigation

§ Initiated a third party audit of the local partner involved§ Loss of cooperation credit

‒ Anheuser-Busch InBev (Sept. 2016)§ Did not respond to subpoenas in a timely manner§ Made broad assertions of privilege


Cross-Border Enforcement

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§ Cooperation and information-sharing among governments on the rise

§ Sizeable share of penalties paid to foreign jurisdictions

§ Key issues in multi-jurisdictional enforcement:− Divergent interests − Different approaches to internal investigations− Coordinated settlements− Knock-on and “me too” resolutions− Data privacy − Elevated debarment concerns


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Resolution: VimpelCom (2016)

§ Feb. 2016: Amsterdam-based VimpelCom Ltd. and a subsidiary agreed to pay approximately $795 million to settle enforcement actions with the DOJ, the SEC, and Dutch authorities.‒ Of the $795 million, VimpelCom paid almost $398 million to Dutch

prosecutors.

§ VimpelCom made over $100 million in improper payments to Uzbek officials to continue operating in the Uzbek telecommunications market


Resolution: Odebrecht / Braskem (2016)

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§ Dec. 2016: Brazilian conglomerate Odebrecht and petrochemical company Braskem announced a $3.5 billion global settlement related to the Operation Car Wash corruption scandal.‒ Largest foreign bribery penalty in history‒ $420 million paid to settle charges in the United States

§ Odebrecht will pay $260 million§ Subsidiary Braskem will pay the DOJ and SEC $160 million

‒ Majority of the penalty will go to Brazilian authorities‒ Remainder will go to Swiss authorities


Cross Border Bribery Enforcement: Not Just the FCPA

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§ On December 13, 2016, Argentine sports marketing company Torneos y Competencia settled wire fraud conspiracy charges related to FIFA corruption.‒ No FCPA charges filed but detailed allegations of bribery of soccer

officials at CONMEBOL and FIFA ‒ Paid $113 million in forfeiture and criminal penalties‒ Agreed to implement enhanced internal controls and a corporate

compliance program‒ Received 45% reduction on fine for

substantial cooperation


Continued Risks – Hiring and Favors

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§ Qualcomm (Mar. 2016) –‒ Paid $7.5 million to settle charges related to hiring the relatives of

Chinese officials who were deciding whether to select Qualcomm’s mobile technology products

§ Bank of New York Mellon (Aug. 2015) –‒ First case charging a bank under the FCPA, Bank of New York Mellon

paid $14.8 million to settle SEC charges that it bribed sovereign-wealth-fund officials with internships for relatives


Continued Risks – Hiring and Favors

§ In the “Sons and Daughters” matter, JPMorgan Chase paid $264M to the SEC, DOJ, and Federal Reserve to settle charges related to hiring relatives and friends of Chinese officials to win banking deals

§ “[A]warding prestigious employment opportunities to unqualified individuals in order to influence government officials is corruption, plain and simple.” ‒ Former Assistant Attorney General Leslie Caldwell

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Continuing Risks – Charitable Contributions

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Nu Skin (2016)§ Charitable contributions and recommendation letters may form the basis

of charges:‒ Nu Skin Enterprises agreed to pay $766,000 to the SEC to settle

internal controls and books and records charges.‒ Based on a $150,000 payment to a charity set up by a high-ranking

Chinese official.‒ At the official’s request, the company also facilitated obtaining college

recommendation letters to U.S. universities for the official’s child.


Continued Risks – Gifts and Travel

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§ Olympus (Mar. 2016) –‒ Paid $22.8 million to settle charges that it provided cash, money

transfers, travel, and free or heavily discounted equipment to Latin American officials

‒ The company kept a spreadsheet of illegal gifts§ AstraZeneca (Aug. 2016) –

‒ Paid $5.5 million to settle charges it made improper payments to doctors in China and Russia through cash and gifts

‒ Sales staff used fake tax receipts and fake or inflated invoices


Resolution – PTC (2016)

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§ PTC paid $28 million to DOJ and SEC to settle charges related to gifts, travel, and excessive entertainment provided to Chinese SOE officials.‒ Value of gifts, travel, and entertainment generally ranged from $50 to

$600‒ Gifts included small electronics (e.g., cell phones, iPods, and GPS

systems), gift cards, wine, and clothing


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Risks for Financial Institutions

§ Och-Ziff Capital Management (Sept. 2016) – first time a hedge fund has settled FCPA charges‒ $142 million to resolve charges based on payments of

high ranking government officials across Africa for access to and preference for investment opportunities.

§ JPMorgan Chase (Nov. 2016) – entered into a cease-and-desist order with the Fed, the first time that agency has sought fines for an FCPA violation

§ Several others under investigation



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Och-Ziff Capital Management Group LLC

First FCPA action against a hedge fund and one of the first against a financial services firm.

Allegations that the New York-based alternative asset manager paid bribes, through its agents, to government officials in a number of countries in Africa, including Libya and the Democratic Republic of the Congo (DRC). The transactions at issue in the investigation included an investment by a sovereign wealth fund (Libyan Investment Authority) in the Och-Ziff funds, an investment in a real estate development company in Libya, an Africa joint venture investment platform, and a margin loan to a borrower in the DRC.

§ DOJ settlement:

§ DPA with Och-Ziff, the parent company, related to violations of FCPA anti-bribery, record-keeping, and internal controls provisions; $213 million penalty; 3-year independent monitor.

§ Guilty plea for subsidiary, OZ Africa Management GP, LLC, for one count of conspiracy to violate the FCPA.

§ SEC settlement: Cease-and-desist order with Och-Ziff, the parent company, and OZ Management LP, for violations of the FCPA and Investment Advisers Act; $199 million disgorgement; 3-year independent monitor.



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Och-Ziff Capital Management Group LLC

§ SEC settlements with individuals:

§ CEO: Cease-and desist order, on neither admit-nor-deny basis, for being a cause of books and records violations; $2.2 million disgorgement.

§ CFO: Cease-and-desist order, on neither admit-nor-deny basis, for being a cause of books and records and internal controls violations; determination of any monetary penalty deferred.

• Charges against senior executives despite lack of knowledge of bribes and advice that it was not illegal to transact with borrower, because executives approved loans despite risk of corruption.

Samuel Mebiame

Relatedly, in August, a Gabonese national and son of former Gabon prime minister was arrested and charged with conspiracy to bribe government officials in various African countries, to help obtain mining rights for a joint venture involving Och-Ziff. In December 2016, Mebiame pled guilty to conspiracy to violate the FCPA. Sentencing may be in 2017.



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• Emerging markets, such as Africa, present heightened corruption risk both as a source of capital and investment opportunities.

• Heightened risk of liability based on conduct by portfolio companies, borrowers, and joint venture partners.

• Heightened standards for anti-corruption due diligence on partners, counterparties, and third parties.

• Risk to firm for conduct of individual employees, notwithstanding policies, procedures, and training.

• Risk to senior executives for decision-making roles in high-risk transactions.

• Limited protection from legal advice—consultation with counsel on mitigation of corruption risk does not per se protect against liability.

• Significance of reputational risk.

Key Lessons from the Och-Ziff Settlement


Risks for Pharmaceutical Companies

§ February 2016: SEC’s Kara Brockmeyer said that the commission is “going back to the pharma industry after a break for a period of years.”

§ Recent Examples:‒ GSK, SciClone, Novartis, AstraZeneca

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III. Recent Legal Developments


Disgorgement

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§ Disgorgement‒ Circuits split over whether disgorgement to SEC subject to five-year

statute of limitations§ S.E.C. v Graham, 823 F.3d 1357 (11th Cir. 2016): Disgorgement

subject to statute of limitations§ Kokesh v. S.E.C. (10th Cir. 2016): Disgorgement not a penalty

subject to the statute of limitations§ Supreme Court granted cert. petition in Kokesh on January 13,

2017


Jurisdiction Over Foreign Nationals

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§ United States v. Hoskins (D. Conn. Mar. 16, 2016)– Court denied DOJ's motion to reconsider its 2015 ruling that

non-resident foreign nationals are not subject to the FCPA unless they were agents of a domestic concern or acted "while physically present" within the United States

– Lawrence Hoskins charged with conspiring to violate or aiding and abetting a violation of the FCPA:– Not in the US– Not a US citizen

− Court held non-resident foreign national could not be subject to criminal liability under the FCPA solely on the basis of a conspiracy or accomplice theory.

§ DOJ has appealed to the Second Circuit


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IV. Predictions for 2017


Predictions for 2017

§ President Donald Trump (May 2012)‒ FCPA is a “horrible law and it should be changed”‒ “This country is absolutely crazy” to prosecute violations in Mexico

and China‒ Puts U.S. business at a “huge disadvantage”

§ Jay Clayton (nominee as SEC Chair)‒ Chaired New York City Bar Association Committee on International

Business Transactions‒ December, 2011 report urged “re-evaluation” of U.S. enforcement in

light of “lighter touch” by non-U.S. authorities, noting that “the continued unilateral and zealous enforcement of the FCPA by the U.S. may not be the most effective means to combat corruption globally”

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Contact Information

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Lee DunstPartnerGibson, Dunn & Crutcher, LLPNew York, New York

Tel: +1 [email protected]

Kimberly A. ParkerPartnerWilmerHaleWashington, D.C.

Tel: +1 [email protected]

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