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 foreign bribery enforcement in the United States in 2020 compare to global enforcement trends? What guidance did the UK Serious Fraud Office (SFO) provide regarding deferred prosecution agreements (DPAs)? What changes are being contemplated for China's commercial bribery laws? The answers to these questions and more are here in our October 2020 Top 10.
1. FCPA Settlement Amounts Break Record. With three FCPA enforcement actions in October 2020 (see here, here, here, here, and here), this year became the largest ever for FCPA settlement amounts, with resolutions totaling nearly $6 billion. The aggregate amount recovered in 2020 to date more than doubles the previous high of $2.9 billion set in 2019. There are some notable facts underlying this year's numbers. First, approximately $5 billion, or 83%, of the settlement amounts in 2020 are attributable to just two resolutions. Second, a significant portion of the nearly $6 billion was actually paid to non-U.S. enforcement authorities and credited against the U.S. fine amounts under the Piling On policy of the U.S. Department of Justice (DOJ). If such penalties are factored out of the 2019 and 2020 numbers above, the totals become closer to $2.65 billion and $2.66 billion, respectively, which would still make 2020 the all-time record holder for total settlement amounts. That the last two years have set successive high-water marks for FCPA settlement amounts is particularly remarkable given that many people (not us!) predicted that FCPA enforcement would decrease dramatically under the Trump administration.
2. Transparency International Reports Dip in Global Foreign Bribery Enforcement. Despite the record-breaking year in the United States, Transparency International (TI) reported on October 13, 2020 that “[f]ewer of the world's biggest exporters are actively investigating and punishing companies paying bribes abroad.” The report, entitled “Exporting Corruption 2020: Assessing Enforcement of the OECD Anti-Bribery Convention,” found that active enforcement significantly decreased since 2018, with only the United States, the UK, Switzerland, and Israel continuing to actively enforce their foreign bribery laws. According to the report, Canada, China, Hong Kong, India, Japan, Mexico, the Netherlands, and South Korea had the worst track records, while Germany, Italy, and Norway saw significant declines in enforcement. On the other hand, the report found that France and Spain had improved their performance. TI made a number of recommendations to try to reverse the downward trend, including strengthening laws and enforcement systems to handle complex international corruption cases, increasing liability of parent companies for the actions of their subsidiaries, and ending secrecy in ownership of companies, which impedes foreign bribery investigations.
3. Chicago-Based Spirits Producer Resolves India FCPA Allegations with DOJ. One of the three FCPA resolutions mentioned in #1 above is particularly notable because of the lengthy and unusual disconnect in the timing of parallel FCPA resolutions brought by DOJ and the Securities and Exchange Commission (SEC). On October 27, 2020, DOJ announced that Beam Suntory Inc. had agreed to pay $19.6 million pursuant to a DPA filed in the Northern District of Illinois to resolve allegations that its Indian subsidiary bribed Indian government officials in exchange for approving a license to bottle a line of products. DOJ further alleged that the company falsified its books and records and failed to implement and maintain an adequate system of internal accounting controls. The DOJ resolution was finalized more than two years after the company's July 2018 resolution with SEC, in which the company agreed to pay $8.2 million in combined disgorgement, prejudgment interest, and civil penalties. At the time, we speculated that DOJ had declined prosecution, potentially because it appeared from the SEC resolution that there might not have been jurisdiction to bring an anti-bribery charge against the parent company. According to DOJ's press release, however, the delay was attributable to the company, which “did not seek to coordinate a parallel resolution with the department.” Because of this, DOJ did not give the company credit for the money it paid to SEC, but DOJ did award the company a 10 percent reduction off the bottom of the U.S. Sentencing Guidelines fine range for its remediation and cooperation.
4. Former Nuclear Transportation Executive Sentenced to Four Years for Bribing a Russian Official. On October 29, 2020, DOJ announced that Mark Lambert was sentenced to four years' imprisonment following his November 2019 conviction on FCPA and wire fraud charges related to an alleged scheme to pay more than $1.5 million in bribes to a Russian official in exchange for lucrative contracts for transporting uranium. Lambert was the co-president of Transport Logistics International, a Maryland-based nuclear transportation company that reached a related corporate resolution with DOJ in March 2018. Vadim Mikerin, an official at a subsidiary of Russia's State Atomic Energy Corporation (TENEX), the sole supplier and exporter of Russian uranium and uranium enrichment services to nuclear power companies worldwide, pleaded guilty to related charges in August 2015 and was also sentenced to four years in prison. In February 2020, Lambert unsuccessfully sought a post-trial acquittal on the wire fraud charges.
5. Judge Denies Motion to Dismiss FCPA Charges against Former Brazilian Chemical Company Executive. On October 22, 2020, Eastern District of New York Judge Raymond J. Dearie denied former Braskem CEO Jose Carlos Grubisich's motion to dismiss FCPA anti-bribery, FCPA accounting, and money laundering charges related to an alleged scheme to bribe public officials in Brazil to secure contracts for the construction of a plastics plant and the purchase of a chemical used in petrochemical operations.1 The court rejected Grubisich's argument that the FCPA anti-bribery conspiracy count was impermissibly duplicitous, finding that the charged conspiracy “is fairly characterized as a [single] continuing scheme to bribe foreign officials in order to obtain and retain business for” Grubisich's former employer and a related company. According to the court, the “two alleged bribes have much in common. They were made at Defendant's direction, negotiated by the same Braskem director (Co-Conspirator 2), effected by the same method of transfers through the . . . [shell] Entities and the . . . [internal Division] that were characterized as commission payments, and resulted in payment to the same two officials in order to influence contract negotiations with one entity, Petrobras [Brazil's national oil company].” The court rejected Grubisich's argument that he withdrew from the FCPA books-and-records conspiracy, holding that this defense presents issues of fact to be determined by the jury. The court also rejected numerous arguments regarding the money laundering charges, including an extraterritoriality challenge. Despite its ruling, the court described the motion as a “robust attack” that “raise[s] issues that may warrant critical attention after an evidentiary record has been established.” (See our November 2019 Top 10 for more on Grubisich's arrest and our December 2016 Top 10 for more on the Braskem corporate resolution.)
6. Debate Over DOJ's FCPA Agency Theory Continues. In a case that has centered on how DOJ may use agency theory to pursue foreign nationals for FCPA violations, two non-profit organizations filed amicus briefs in October 2020 attacking DOJ's definition of the word “agent.” In November 2019, a jury in the District of Connecticut convicted former Alstom executive Lawrence Hoskins of being an agent of the company's Connecticut-based subsidiary in connection with an alleged scheme to bribe Indonesian officials for a power plant project, in violation of the FCPA and other statutes. In February 2020, the presiding judge overturned the FCPA convictions on the grounds that DOJ had failed to adduce sufficient evidence to prove the principal's “control,” one of the three elements of any agency relationship. The government appealed the acquittal to the Second Circuit in July 2020. In October, The International Academy of Financial Crime Litigators filed an amicus brief, arguing that DOJ's definition of “agent” was inconsistent with the “common-sense” meaning of the word in the FCPA context, which they maintain means a “fixer” or a local individual who “do[es] the dirty work.” The National Association of Criminal Defense Lawyers argued in its amicus brief that the word “agent” should be construed narrowly pursuant to the presumption against extraterritoriality. As we discussed previously, DOJ may face an uphill battle in bringing FCPA charges based on “agency” theory, which is an inherently fact-intensive inquiry. (For more on Hoskins, read our August 2015, March 2017, August 2018, and May 2019 Top 10s and our March 2020 client alert.)
7. SFO Releases New Guidance on DPAs. On October 23, 2020, the SFO updated the SFO Operational Handbook to include a chapter on DPAs. The additional chapter provides comprehensive guidance as to what the SFO considers when deciding whether to invite a company to negotiate a DPA. Among other things, the SFO expects companies to self-report suspected wrongdoing “within a reasonable period of time of the offending conduct coming to light” and generally expects companies to admit guilt with respect to the charged offenses. The guidance also sets out various terms which may be proposed in an SFO DPA, including the requirement to implement a robust compliance program, the payment of a significant fine, and disgorgement of profits. Although the Handbook is for internal use only, it offers further transparency on how the SFO approaches DPAs and should prove useful for companies facing an SFO investigation.
8. Aircraft Refurbishing Company Enters into DPA with SFO. On October 30, 2020, the SFO announced that it had secured court approval to enter into a DPA with Airline Services Limited. In entering into the DPA, the company accepted responsibility for three counts of failing to prevent bribery, contrary to section 7 of the UK Bribery Act (UKBA), arising from the company's use of a Germany-based agent to win three contracts, together worth over £7.3 million, to refit commercial airliners over a period from 2011 to 2013. The company commenced an internal investigation in 2014 and self-reported the issue in July 2015 to the SFO, which opened an investigation in December 2015. Under the terms of the DPA, the company is required to pay nearly £3 million, consisting of a financial penalty of £1,238,714.31, disgorgement of £990,971.45 in profits from the three contracts, and a contribution to the SFO's costs of £750,000. The financial penalty takes into account a discount of 50% to reflect the company's early self-reporting and cooperation with the SFO in its investigation. The DPA did not contain compliance-related obligations, likely because the company will be wound up after it fulfills the terms of the DPA.
9. China Contemplates Changes to Commercial Bribery Law. On October 13, 2020, the 22nd Meeting of the Standing Committee of the 13th National People's Congress heard a report on the status of revising the eleventh draft of the Amendments to the Criminal Law of the People's Republic of China. The first draft of the amendments was published on July 3, 2020. The second draft has been released for public opinion. One of the key amendments will be to Article 163, “Bribery to Non-State Staff,” which prohibits “employees of a company, an enterprise, or other entities” from “using the convenience of their positions to request or illegally accept properties or benefits.” The amendment will add more detailed sentencing guidelines and raise the maximum criminal penalty from 15 years' imprisonment to life imprisonment in cases where “the amount is particularly large or involving other aggravating circumstances.” Another key amendment will be to Article 161, which prohibits “companies with public disclosure obligations” from “providing false accounting and financial reports to, or concealing material information, from shareholders and the public.” The proposed amendment increases the maximum term of imprisonment for the responsible managers from three years to ten years. These proposed amendments are the latest signal of the Chinese government's intent to enhance its policing of the business environment.
10. #2020. As with every aspect of life, the coronavirus pandemic continues to impact the anti-corruption sphere. In March 2020, we discussed the impact of the pandemic on anti-corruption enforcement efforts and, in April 2020, we discussed warnings from the OECD Working Group on Bribery regarding the potential for increased corruption in the public health sector as it responds to the pandemic. In October 2020, we saw instances of coronavirus-specific forms of corruption. On October 15, 2020, it was reported that a Brazilian senator was caught hiding money in his underwear and “between his buttocks” during a police investigation into the diversion of public funds intended to fight the coronavirus. Just over a week later, on October 23, 2020, it was reported that a Chinese national was sentenced to four weeks in prison for attempting to bribe a Singapore police officer who had taken him into custody for twice failing to wear his face mask properly. As we approach 2021, let's hope that these types of corruption become a historical footnote.
1 Memorandum & Order, United States v. Grubisich, 19-cr-102 (RJD), ECF No. 69 (E.D.N.Y. Oct. 22, 2020).
Originally Published by Morrison & Foerster, November 2020
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.
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