GLOBAL INVESTIGATIONS AND COMPLIANCE

FCPA Q1 2017 - QUARTERLY REPORTBy Ellen Zimiles, Rich Kando, Jay Perlman, John Loesch, and Alex Shea

I. FCPA Q1 REPORT – QUARTERLY EVENTSDuring the recently completed first quarter of 2017, the Department of Justice

(“DOJ”) and the Securities and Exchange Commission (“SEC”) resolved a

combined six matters. Financial penalties and disgorgement ordered in these

actions exceeded $257 million. While the conduct in these cases does not

necessarily appear to be unique in any way, the cases clearly illustrate that

enforcement is industry agnostic – the six cases represent five different industries.

The cases also show that cooperation amongst international regulators and

prosecutors continues to increase and that international enforcement authorities

are taking a more active role in resolving enforcement actions.

The DOJ announced that the one-year Foreign Corrupt Practices Act (“FCPA”)

Pilot Program would continue, pending a review, and also published a document

entitled “Evaluation of Corporate Compliance Programs,” which provides guidance

on topics and questions that the DOJ’s Fraud Section has frequently found

relevant in evaluating a corporate compliance program. While these actions

perhaps signal that FCPA enforcement will continue to be a high priority with

the new administration, and with new leadership at both the DOJ and the SEC, it

will be interesting to watch whether the number of enforcement actions trends

upward or downward as the year progresses.

II. ENFORCEMENT ACTIVITY IN Q1 2017

A. Mondelēz International Inc.

On Jan. 6, Cadbury Limited (“Cadbury”) and Mondelēz International, Inc.

(“Mondelēz”) (NYSE: MDLZ) agreed to pay a $13 million SEC civil penalty to

resolve charges related to the retention of an agent by a subsidiary, Cadbury India

Limited (“Cadbury India”).1 In February 2010, Mondelēz acquired Cadbury and

its subsidiaries, including Cadbury India. Between February 2010 and July 2010,

Cadbury India retained an agent to help obtain certain licenses and approvals

for a chocolate factory in Baddi, India. During this time period, Cadbury India

obtained some of the licenses and approvals and the agent submitted five

invoices to Cadbury India for preparing license applications. However, the license

applications were actually prepared by Cadbury India instead of the agent. As

a result of improperly recording the phony invoices, Cadbury India’s books and

records did not accurately and fairly reflect the nature of the services provided by

the agent. In addition, Cadbury did not have adequate FCPA compliance controls

at Cadbury India. For example, Cadbury India did not conduct adequate due

diligence on the agent or appropriately monitor the activities of the agent. The

1. SEC Order Instituting Cease and Desist Proceedings, In the Matter of Cadbury Limited and Mondelēz International, Inc. (Jan. 6, 2017) (File No. 3-17759).

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SEC administrative order found that Cadbury violated

the FCPA by failing to keep accurate books, records, and

accounts, and failing to devise and maintain adequate

internal accounting controls. Mondelēz was found to be

responsible for Cadbury’s violations as its acquirer.

B. Biomet, Inc.

On Jan. 12, Biomet, Inc. (“Biomet”) (NYSE: ZBH)

agreed to pay approximately $30 million to the SEC

and DOJ related to its breach of a 2013 deferred

prosecution agreement involving FCPA violations

and to resolve additional FCPA offenses in Brazil and

Mexico.2 The penalties included a DOJ criminal fine of

approximately $17.5 million, SEC disgorgement and

interest of approximately $6.5 million, and an SEC

civil penalty of $6.5 million. Biomet also agreed to the

retention of an independent compliance monitor for

three years.

In March 2012, Biomet entered into a deferred

prosecution agreement with the DOJ and paid the

SEC and DOJ approximately $22 million in penalties.

Despite entering into the agreement, Biomet knowingly

and willfully continued to use a prohibited third-party

Brazilian distributor, and failed to implement an adequate

system of internal accounting controls at a subsidiary in

Mexico despite “employees and executives having been

made aware of red flags suggesting that bribes were

being paid.”3

Also as part of the 2012 deferred prosecution

agreement, Biomet agreed to retain an independent

compliance consultant to provide recommendations

to Biomet. As Biomet was implementing the

recommendations made by the consultant, it learned

about potential additional undisclosed FCPA violations

in Brazil and Mexico. Biomet allowed its Mexican

subsidiary to bribe Mexican customs officials to

facilitate the importing and smuggling of unregistered

and mislabeled dental products during the relevant

period of the 2012 deferred prosecution agreement.

Biomet notified the independent compliance

consultant and the SEC in 2013.

C. Sociedad Quimica y Minera de Chile S.A.

On Jan. 13, Chilean-based chemical and mining

company Sociedad Quimica y Minera de Chile S.A.

(“SQM”) (NYSE: SQM) agreed to pay a total of $30.5

million to resolve criminal and civil FCPA charges.4

SQM entered into a deferred prosecution agreement

(“DPA”) with the DOJ and agreed to pay a criminal

penalty of $15.5 million. As part of the DPA, SQM

is required to retain an independent corporate

compliance monitor for two years, with a third year

of mandatory self-reporting. SQM also agreed to pay

a $15 million civil penalty to settle the SEC’s charges.

The SEC order alleges that SQM knowingly failed to

implement internal controls to ensure that payments

executed by its officers and executives from an

account they controlled were actually for services

received and compliant with Chilean law. Between

2008 and 2015, SQM donated to dozens of foundations

closely tied to or controlled by Chilean politicians

and paid nearly $15 million to vendors despite a lack

of evidence that goods or services were actually

received. SQM falsified its books and records to hide

the improper payments to politicians and vendors by

recording them as consulting and professional fees.

D. Rolls-Royce PLC

On Jan. 17, Rolls-Royce PLC (“Rolls-Royce”) agreed

to pay approximately $800 million in a multinational

resolution with the DOJ, the UK Serious Fraud Office

(“SFO”), and the Brazilian Ministério Público Federal

(“MPF”), including $170 million, $599 million, and

$25 million, respectively, for violating the FCPA and

its equivalent in the UK and Brazil.5 Rolls-Royce was

accused of issuing more than $35 million in bribes to

foreign officials in exchange for government contracts

between 2000 and 2013. As part of the global

settlement, Rolls-Royce agreed to enter into a three-

year deferred prosecution agreement with the DOJ

and a five-year deferred prosecution agreement with

the SFO.6 In the DOJ enforcement action and the SFO

resolution, Rolls-Royce admitted to bribing officials in

Angola, Azerbaijan, Brazil, China, India, Indonesia, Iraq,

Kazakhstan, Malaysia, Nigeria, Russia, and Thailand, in

return for multiple government contracts. For example,

in Kazakhstan, Rolls-Royce paid commissions of

approximately $5.4 million to advisers from 2009 to

2012, knowing that some of the commissions would be

used for bribing foreign officials involved in building

a pipeline between Kazakhstan and China. Rolls-

Royce also hired a local Kazakh distributor, knowing

it was beneficially owned by a high-ranking Kazakh

2. SEC Order Instituting Cease and Desist Proceedings, In the Matter of Biomet, Inc. (Jan. 12, 2017) (File No. 3-17771); Press Release, U.S. Dept. of Justice, Zimmer Biomet Holdings Inc. Agrees to Pay $17.4 Million to Resolve Foreign Corrupt Practices Act Charges (Jan. 12, 2017).

3. Ibid.

4. SEC Order Instituting Cease and Desist Proceedings, In the Matter of Sociedad Quimica y Minera de Chile, S.A. (Jan. 13, 2017) (File No. 3-17774); Press Release, U.S. Dept. of Justice, Chilean Chemicals and Mining Company Agrees to Pay More Than $15 Million to Resolve Foreign Corrupt Practices Act Charges (Jan. 13, 2017).

5. Press Release, U.S. Dept. of Justice, “Rolls-Royce PLC Agrees to Pay $170 Million Criminal Penalty to Resolve Foreign Corrupt Practices Act Case,” (Jan. 17, 2017).

6. Press Release, Serious Fraud Office, “SFO Completes £497.25m Deferred Prosecution Agreement with Rolls-Royce PLC,” (Jan. 17, 2017).

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official with influence over Rolls-Royce’s business.

Paul Abbate, the assistant director in charge of the

FBI’s Washington, D.C., field office, said that the

investigation is a “tremendous example of the central

importance of working cooperatively alongside our

international partners to achieve a fair and meaningful

resolution.”7

E. Orthofix International N.V.

On Jan. 18, Orthofix International N.V. (“Orthofix”)

(NASDAQ: OFIX) agreed to pay the SEC approximately

$6.1 million to resolve FCPA violations (books and

records, and internal controls) in Brazil, including

disgorgement and prejudgment interest of

approximately $3.2 million and a $2.9 million civil

penalty.8 Orthofix also agreed to retain an independent

compliance consultant for one year to review its FCPA

compliance program. Orthofix’s subsidiary, Orthofix

do Brasil LTDA (“Orthofix Brazil”), schemed to use

large discounts and to make improper payments

through third-party commercial representatives

and distributors to induce doctors working for

government-owned hospitals to use its products.

Orthofix Brazil used fake invoices for the purported

services, which were booked as legitimate expenses.

Orthofix was involved in a previous FCPA enforcement

action in 2012, related to its Mexican subsidiary

and improper payments to officials at government

hospitals. In that settlement, Orthofix paid the SEC and

the DOJ $7.4 million to resolve those FCPA offenses

and entered into a three-year deferred prosecution

agreement as part of the resolution.

F. Las Vegas Sands Corporation

On Jan. 19, Las Vegas Sands Corporation (“Sands”)

(NYSE: LVS) entered into a nonprosecution agreement

and agreed to pay approximately $7 million in criminal

penalties with the DOJ to resolve FCPA charges

related to conduct in the People’s Republic of China

(“PRC”) and Macao.9 Sands executives knowingly

and willfully failed to implement a system of internal

accounting controls to ensure the legitimacy of

payments to one of its business consultants. From

2006 to 2009, Sands continued to make payments

to the consultant, who assisted Sands in promoting

its brand in the PRC and Macao, despite warnings

from its finance staff and an outside auditor that

the consultant had failed to account for portions

of these funds. Sands also terminated the finance

department employee who raised concerns about the

payments. Sands received a 25 percent reduction off

the bottom of the applicable U.S. Federal Sentencing

Guidelines fine range because it fully cooperated in

the investigation and fully remediated, but did not

self-disclose. In an April 2016 settled administrative

proceeding related to the same conduct, Sands agreed

to pay the SEC a civil penalty of $9 million and to

retain an independent compliance consultant.

III. WHAT THE ENFORCERS ARE SAYINGThe first quarter of 2017 ushered in the President Donald

Trump administration and new leadership at the DOJ.

President Trump has previously called the FCPA a “horrible

law,” so it will be interesting to watch whether the Trump

administration will do anything different either legislatively

or in how the DOJ enforces the law. At least in the near

term, it appears unlikely that there will be any immediate

changes. During the confirmation process, Attorney

General Jeff Sessions stated that he will enforce all federal

laws, including the FCPA. Similarly, President Trump’s pick

to lead the SEC, Jay Clayton, during the confirmation

process indicated his support for continued enforcement

of the FCPA.

On Feb. 8, 2017, the DOJ Fraud Section published (with

little fanfare or public announcement) a document entitled

“Evaluation of Corporate Compliance Programs” (the

“Guidance”).10 The stated purposes of the Guidance are

to provide guidance on topics and questions that the

Fraud Section “has frequently found relevant in evaluating

a corporate compliance program” and to serve as a

roadmap in applying the Filip Factors.

The Guidance notes that many of the topics discussed

are contained in the U.S. Attorneys’ Manual; U.S. Federal

Sentencing Guidelines; DOJ/SEC FCPA Resource Guide;

Organization for Economic Cooperation and Development

(“OECD”) Guidance on Internal Controls, Ethics and

Compliance and OECD Anti-Corruption Ethics and

Compliance Handbook, so from that perspective there is

really no new information. The value in the Guidance lies in

the fact that it synthesizes and centralizes the information

that the DOJ considers when evaluating a corporate

compliance program and serves as a “drill down” to the

Hallmarks of an Effective Compliance Program section of

the DOJ/SEC FCPA Resource Guide.

7. Ibid.

8. SEC Order Instituting Cease and Desist Proceedings, In the Matter of Orthofix International N.V. (Jan. 18, 2017) (File No. 3-17800).

9. Press Release, U.S. Dept. of Justice, “Las Vegas Sands Corporation Agrees to Pay Nearly $7 Million Penalty to Resolve FCPA Charges Related to China and Macao,” (Jan. 19, 2017).

10. U.S. Department of Justice Criminal Division Fraud Section, Evaluation of Corporate Compliance Programs, https://www.justice.gov/criminal-fraud/page/file/937501/download

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Acting SEC Chairman Michael Piwowar spoke at

the annual SEC Speaks Conference in Washington,

D.C., and provided his views on corporate penalties.

He indicated that the “forgotten investor” must be

considered when it comes to assessing civil monetary

penalties on corporations in enforcement actions. For

example, in a financial reporting fraud, there are often

billions of dollars of market capitalization losses when

the fraud is discovered by the market and it is “the

innocent investors who are so often the primary victims

of the fraud.” Piwowar recognized that every case is

different and he would support corporate penalties in

certain circumstances, like FCPA cases. Citing academic

literature, Piwowar stated that “there is evidence that

when [FCPA] violations are revealed to the market, the

stock price does not always fall, and may even increase.”11

Deputy Assistant Attorney General Trevor McFadden

delivered remarks at the Global Investigations Review

Conference in Washington, D.C., and provided a history

of the FCPA as it reaches its 40th anniversary. He pointed

out how the FCPA “has been vigorously enforced over

time, and that this enforcement has evolved over time.”

McFadden said that the DOJ is committed to enforcing

the FCPA – “The fight against official corruption is a

solemn duty of the Justice Department, each generation

of department leaders and line prosecutors takes up

this mantle from their predecessors, regardless of party

affiliation.” He also stated that the DOJ Criminal Division

will continue to focus on individuals and work closely with

law enforcement partners both in the U.S. and abroad to

bring FCPA violators to justice.12

At the American Bar Association White Collar Crime

Conference in Miami, Fla., Daniel Kahn, chief of the FCPA

Unit in the DOJ Fraud Section, provided a 2016 year-

in-review. According to Kahn, there were two major

takeaways from 2016: (1) Increased coordination and

cooperation with foreign authorities; and (2) increased

11. Michael S. Piwowar, Acting SEC Chairman, Remarks at the “SEC Speaks” Conference 2017: Remembering the Forgotten Investor, Washington, D.C. (Feb. 24, 2017).

12. Trevor N. McFadden, Deputy Assistant Attorney General, Remarks at the Global Investigations Review Conference, Washington, D.C. (Feb. 16, 2017).

13. Daniel Kahn, Chief of DOJ Fraud Section FCPA Unit, Remarks during FCPA panel discussion at American Bar Association National Institute on White Collar Crime, Miami, Fla. (March 9, 2017).

14. Kenneth A. Blanco, Acting Assistant Attorney General, Remarks at American Bar Association National Institute on White Collar Crime, Miami, Fla. (March 10, 2017).

transparency. Kahn said that foreign enforcement

authorities have been stepping up and prosecuting

international corruption. He cited the VimpelCom,

Odebrecht, Rolls-Royce, and Embraer cases as examples.

He said that by working together on global resolutions to

cases, the DOJ can mitigate the “piling-on problem” by

crediting fines and penalties paid in other jurisdictions.

As far as improved transparency goes, Kahn cited the

Pilot Program and the DOJ-issued Q&A guidance on

compliance programs. Looking ahead to 2017, Kahn said

to expect more of the same. In addition, he said that the

FCPA Unit will be focusing more attention on individuals

and trying to move cases to resolution more quickly.13

Acting Assistant Attorney General Kenneth A. Blanco

also spoke at the ABA White Collar Crime Conference.

Blanco spoke of the “increasingly international scope

of the Criminal Division’s white collar enforcement

efforts” and that “the emerging trend” is an “increase

in multijurisdictional prosecutions of criminal conduct,

particularly when that conduct is transnational in nature

and when several countries have prosecutorial authority

over it.” Blanco cited Vimpelcom, Odebrecht, and Rolls-

Royce as examples, and said that the global effort to

prosecute corruption is not slowing down. As part of its

international cooperation, the DOJ, where appropriate,

“seek(s) to reach global resolutions that apportion

penalties between the relevant jurisdictions so that

companies seeking to accept responsibility for their

prior misconduct are not unfairly penalized for the same

conduct by multiple agencies.” Blanco also pointed out

that the one-year Pilot Program for FCPA cases ends on

April 5, 2017. He said that the DOJ will begin an evaluation

process to review the “utility and efficacy of the Pilot

Program, whether to extend it, and what revisions, if any,

we should make to it.” Until any final determination is

made, Blanco said that the Pilot Program will continue “in

full force.”14

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CONTACTS

ELLEN ZIMILESManaging DirectorFinancial Services Advisory and ComplianceSegment Leader and Head of Global

Investigations and Compliance 212.554.2602 ellen.zimiles@navigant.com

JOHN LOESCHDirectorGlobal Investigations and Compliance 202.973.3235john.loesch@navigant.com

JAY PERLMANDirectorGlobal Investigations and Compliance202.973.3220jay.perlman@navigant.com

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