The first half of 2023 produced several significant developments related to the U.S. Foreign Corrupt Practices Act (FCPA) and other global anti-corruption laws, including the SEC's largest-ever whistleblower award; an FCPA case based on domestic (not foreign) bribery; the first-ever FCPA prosecution based on a cryptocurrency bribe; a rare appeals court opinion interpreting the FCPA; and new economic sanctions linked to corruption. We cover these and other recent highlights from the world of anti-corruption enforcement.
SEC Issues Largest-Ever Whistleblower Award in Blockbuster FCPA Case
On May 5, the U.S. Securities and Exchange Commission (SEC) announced an award of nearly US$279 million to a whistleblower who, according to media reports, provided original information and assistance that led to Swedish telecommunications company Ericsson's over US$1 billion settlement with U.S. authorities in 2019 for violations of the FCPA. Interestingly, the whistleblower's information did not prompt the SEC's investigation — but it did expand the scope of the misconduct charged.
Gurbir Grewal, the Director of the SEC Division of Enforcement, said: "The size of [the] award — the highest in our program's history — not only incentivizes whistleblowers to come forward with accurate information about potential securities law violations, but also reflects the tremendous success of our whistleblower program." Under the Dodd-Frank Act, whistleblower awards can range from 10% to 30% of the money collected when the monetary sanctions exceed US$1 million.
In other news coming out of Ericsson's FCPA saga, this past March the company agreed to plead guilty and pay more than US$206 million in additional criminal penalties after breaching its 2019 deferred prosecution agreement with the U.S. Department of Justice (DOJ). According to the DOJ's press release, Ericsson failed to truthfully disclose all factual information and evidence related to potential violations of the FCPA in China, Djibouti, and Iraq. The International Consortium of Investigative Journalists has reported that leaked internal reports from Ericsson's compliance department helped bring these facts to light.
FCPA Applies to More Than Just Foreign Corruption: Individuals Convicted for Bribery of Illinois State Government Officials
On May 2, a federal jury in Chicago found four former Commonwealth Edison (ComEd) executives and associates guilty of conspiracy, bribery, and FCPA offenses related to influencing and rewarding the former Speaker of the Illinois House of Representatives to help pass legislation favorable to the electric utility company. The FCPA charges did not involve any alleged corruption of foreign officials, only corruption of Illinois state officials.
The indictment alleged that the defendants (1) conspired "knowingly and willfully to circumvent a system of internal accounting controls and to falsify any book, record, and account of Exelon and ComEd, in violation of" the FCPA accounting provisions that apply to public companies and people working on their behalf and (2) "knowingly and willfully falsified and caused to be falsified certain ComEd and Exelon books, records, and accounts, so that those books, records, and accounts did not, in reasonable detail, accurately and fairly reflect the transactions and dispositions of ComEd's and Exelon's assets," also in violation of the FCPA accounting provisions.
When ComEd settled with the DOJ back in 2020, it agreed to the filing of a one-count criminal information charging the company with bribery under 18 U.S.C. § 666. ComEd's deferred prosecution agreement included a US$200 million criminal penalty and admissions that the company "arranged jobs, vendor subcontracts, and monetary payments associated with those jobs and subcontracts, for various associates of a high-level elected official for the state of Illinois, to influence and reward the official's efforts to assist ComEd with respect to legislation concerning ComEd and its business."
The ComEd case serves as a reminder that public companies and individuals working on their behalf may be liable under the FCPA's accounting provisions, even in the absence of any "foreign corrupt practices." The case also serves as a general reminder of the risks associated with payments to lobbyists and consultants who are closely connected with elected officials and their family members.
DOJ Brings First FCPA Case for Alleged Bribery with Cryptocurrency
In March, the DOJ announced its first-ever FCPA enforcement action based on an alleged bribe with cryptocurrency. The charge — for conspiracy to violate the anti-bribery provisions of the FCPA — came in a superseding indictment against FTX founder Samuel Bankman-Fried. The DOJ alleged that the "defendant, along with co-conspirators, authorized and directed the illicit transfer of cryptocurrency then worth approximately US$40 million intended to induce and influence one or more Chinese government officials to unfreeze certain cryptocurrency trading accounts that collectively contained approximately US$1 billion in cryptocurrency, in violation of the Foreign Corrupt Practices Act." In June, the DOJ agreed to have the FCPA conspiracy and certain other post-extradition charges severed from the trial scheduled for later this year on pre-extradition charges.1
SEC Enforcement of FCPA Against Corporations Picks Up, Enforcement Against Individuals Stays Quiet
In the first half of 2023, the SEC announced more corporate settlements of civil FCPA enforcement actions than in any other six-month period since 2020. Of the five corporate settlements so far this year, three concerned bribery in African countries, one concerned bribery in Russia, and one concerned bribery in China.
The Rio Tinto plc case involved payments to a consultant to help the company retain its mining rights in Guinea; the Frank's International case involved commissions to a sales agent used to bribe an Angolan government official to influence the award of government contracts; the Gartner Inc. case involved payments to a private South African company with close ties to South African government officials who could influence the award of consulting contracts; the PokerStars case involved payments to consultants in Russia to support the company's operations and efforts to have poker legalized in Russia; and the Philips case involved the use of improper price discounts and collusion with other manufacturers to influence public tenders run by government hospital officials in China.
The settlement amounts ranged from US$4 million to US$62 million, with Philips, a repeat offender, paying the most (US$47 million in disgorgement plus a US$15 million penalty).
The SEC resolved all five of these corporate enforcement actions through administrative proceedings rather than in court. And in all five, the companies neither admitted nor denied the SEC's findings.
Interestingly, it has been over two years since the SEC last charged an individual with violating the FCPA.
Fifth Circuit Revives FCPA Cases Involving Foreign Nationals Acting Outside United States
On February 8, the U.S. Court of Appeals for the Fifth Circuit reinstated FCPA and money laundering charges against a Swiss citizen and a Swiss/Portuguese dual citizen implicated in a scheme to pay bribes to officials at Venezuela's state oil company, PDVSA.2
A U.S. district court judge in the Southern District of Texas — a popular venue for FCPA cases — had dismissed the indictment on jurisdictional and extraterritoriality grounds. But on appeal, the Fifth Circuit held, among other things, that: (1) the FCPA's extraterritorial reach was a merits question, not a subject matter jurisdiction question; (2) the government sufficiently pled that both individuals acted as agents of a domestic concern (such as a U.S. resident or company) subject to the FCPA; and (3) the common-law meaning of agent provided adequate notice of potential FCPA liability.
While reviving the government's case against both individual defendants, the Fifth Circuit opinion left several questions unanswered. For example, the appellate court did not define what it means to be an agent of a domestic concern for purposes of FCPA jurisdiction. And the Fifth Circuit did not address the government's alternative basis for FCPA liability, noting that "at this juncture, this Court neither accepts nor rejects the theory that an individual who falls outside of the actors enumerated in the FCPA can be held liable as a conspirator under a secondary-liability theory."3 (In United States v. Hoskins, 44 F.4th 140 (2d Cir. 2022), the Second Circuit had rejected this theory.)
Money Laundering Charges Continue to Accompany FCPA Enforcement, With Significant Prison Sentences
In the first half of 2023, multiple individuals were charged with and sentenced for money laundering offenses related to foreign bribery schemes. For example, in January, a grand jury in Miami indicted the former president of the Venezuelan Supreme Court under money laundering laws for accepting bribes to favorably resolve cases. In February, the DOJ charged a Connecticut man and a foreign national with violations of both the FCPA and money laundering laws for their roles in a bribery scheme involving Petrobras, Brazil's state oil company.
The former National Treasurer of Venezuela and her husband were each sentenced to 15 years in prison after being convicted of money laundering in Florida. And a former Goldman Sachs Managing Director was sentenced in the Southern District of New York to 10 years in prison after a jury found him guilty of money laundering and conspiracy to violate the FCPA.
In what seems to be a recent trend, the DOJ is charging more individuals with money laundering in cases that involve international corruption. Doing so allows the government to bring enforcement actions against defendants who may not be subject to the FCPA, which criminalizes the bribery of government (but not private-sector) officials and penalizes the givers (but not takers) of bribes. Money laundering violations also can increase prison sentences. While the FCPA provides for a sentence of up to five years for each violation of the FCPA anti-bribery provisions, federal money laundering laws can carry a sentence of up to 20 years for each violation.4
The U.S. government is not alone in using money laundering laws to combat international corruption. For example, in March, the U.K.'s Serious Fraud Office seized nearly US$8 million from an individual who had been convicted of money laundering offenses in connection with the Operation Car Wash scandal involving Petrobras.
U.S. Government Imposes More Sanctions Linked to Corruption
In the first half of 2023, the U.S. Department of Treasury's Office of Foreign Asset Control (OFAC) imposed economic and trade sanctions on individuals linked to corruption in Bulgaria, Haiti, Lebanon, Serbia, and Paraguay. OFAC has coordinated its recent efforts to tackle international corruption with other U.S. authorities, such as the Department of State, and international partners, such as the United Kingdom. Earlier this year, Deputy Attorney General Lisa Monaco once again described sanctions as "the new FCPA," impressing on an audience at the American Bar Association National Institute on White Collar Crime that the DOJ remains committed to boosting enforcement of sanctions laws, much as it has done with enforcement of the FCPA over the past 15 years.
DOJ Updates Guidance on Corporate Compliance Programs and Voluntary Disclosures
As we have reported previously, in March, the DOJ's Criminal Division announced updates to its guidance on Evaluation of Corporate Compliance Programs. The two main additions are attention to (1) how employees' compensation is tied to compliance and (2) the use of personal devices and ephemeral messaging for business communications. Relatedly, the DOJ announced a Compensation Incentives and Clawbacks Pilot Program.
Moreover, in February, the DOJ adopted a new policy setting national standards for companies to receive voluntary self-disclosure credit in corporate criminal enforcement actions brought by U.S. Attorney's Offices. The standards address what counts as voluntary disclosure, what timing is expected of the disclosure, the scope of information that must be disclosed, and the benefits of voluntary self-disclosure. For more on this policy, see our earlier Advisory.
And for more on hot topics and best practices in corporate compliance, check out our Critical Compliance video series.
*Junghyun Baek contributed to this newsletter. Mr. Baek is a graduate of Harvard Law School and is employed at Arnold & Porter's Foreign Legal Consultant Office as a Law Clerk.
Footnotes
1. See ECF 165, Order, United States v. Bankman-Fried, 22-cr-00673 (S.D.N.Y. June 15, 2023).
2. United States v. Rafoi-Bleuler, No. 21-20658 (5th Cir. Feb. 8, 2023), consolidated with United States v. Murta, No. 22-20377, available at here.
3. Id. at 11 n.6.
4. Compare 15 U.S.C. §§ 78dd-2(g)(2)(A), 78dd-3(e)(2)(A), 78ff(c)(2)(A), with 18 U.S.C. § 1956.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
