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 will the election of Joe Biden as president of the United States impact Foreign Corrupt Practices Act (FCPA) enforcement? How busy was the U.S. Securities and Exchange Commission (SEC) with FCPA-related tips in 2020? How strong are foreign bribery enforcement efforts in the United States and the Netherlands? The answers to these questions and more are here in our November 2020 Top 10.
1. Joe Biden Elected President of the United States. On November 3, 2020, Joseph R. Biden Jr. defeated incumbent Donald J. Trump in the U.S. presidential election. When Trump was elected president in November 2016, we predicted that, despite his historical criticism of the statute, FCPA enforcement likely would not change significantly under his administration. In our view, this was largely because of factors such as historic bipartisan support for FCPA enforcement and the fact that the DOJ prosecutors, SEC enforcement attorneys, and federal law enforcement agents who do the daily work to build FCPA cases are career officials. Our prediction proved largely correct. In fact, as we noted in October 2020, rather than decreasing, FCPA settlement amounts broke successive records in 2019 and 2020. Although we don't yet know whom President-Elect Biden will choose to fill key leadership positions at the Justice Department, we expect that FCPA enforcement will continue to thrive under the Biden administration because of these same structural factors, among others. (For more on our analysis of FCPA enforcement under the Trump administration and our predictions for FCPA enforcement under the Biden administration, listen to our MoForecast podcast episode on the FCPA.)
2. OECD Working Group on Bribery Lauds the United States' “Strong” Foreign Bribery Enforcement Record. On November 17, 2020, the OECD Working Group on Bribery announced the results of its Phase 4 evaluation of the United States' implementation of the OECD Anti-Bribery Convention. All parties to the Convention are subject to a rigorous peer review process, Phase 4 of which focuses on the evaluated country's enforcement of the Convention and considers the country's particular challenges and positive achievements. The Working Group “commended” the United States for “a significant upward trend in [anti-bribery] enforcement” and for “the prominent role it plays globally in combating foreign bribery.” The report “praised” the United States for its sustained commitment to enforcing the foreign bribery offense, its key role in promoting the implementation of the Anti-Bribery Convention, and its role in coordinating multijurisdictional foreign bribery investigations and building capacity in its foreign partners. The report attributed the U.S. success to its expertise and resources in investigating and prosecuting foreign bribery, its use of a broad range of offenses in foreign bribery cases, the effective use of non-trial resolution mechanisms (such as deferred and non-prosecution agreements), and the development of published policies to incentivize corporate cooperation. The Working Group had very little in terms of criticism of, or significant recommendations for, the United States. On one issue that has been heavily covered in previous Top 10s, the Working Group appears to agree with DOJ that the Hoskins decision violates the Anti-Bribery Convention. It will be interesting to see whether this comment from the Working Group has any impact on the current appeal in Hoskins (see, e.g., our October 2020 Top 10) or any future cases.
3. OECD Working Group on Bribery Recognizes Increased Foreign Bribery Enforcement by the Netherlands. On November 5, 2020, the OECD Working Group on Bribery announced the results of its Phase 4 evaluation of the Netherlands' implementation of the OECD Anti-Bribery Convention. The report favorably noted that foreign bribery enforcement ramped up in the Netherlands following the establishment of specialized investigative and prosecutorial teams and that the Netherlands has a strong framework for international cooperation. Nevertheless, the Working Group expressed concern that the Netherlands has concluded only a small number of cases in relation to the size and risk profile of the Dutch economy and failed to adequately protect whistleblowers. Among other things, the Working Group recommended that the Netherlands provide guidance on self-reporting and cooperating with Dutch authorities and amend the Whistleblower Authority Act. In an interesting comparison, an October 2020 report by Transparency International was highly critical of the Netherlands' foreign bribery enforcement efforts.
4. SEC Developments.
- SEC Releases Annual Whistleblower Report. On November 16, 2020, SEC released its annual report to Congress regarding its Whistleblower Program. The report highlighted that FY 2020 was historic in numerous respects. The Commission awarded approximately $175 million to 39 individuals in FY 2020, both high water marks for any given fiscal year in the program's 10-year history. The awards in FY 2020 included a nearly $50 million award, the largest amount ever awarded to one individual under the program, and the Office of the Whistleblower processed more claims and issued more Final Orders in FY 2020 than in any other year of the program. The Commission received the highest number of whistleblower tips ever—over 6,900—in FY 2020, a 31% increase from the previous high number in FY 2018. The tips were received from individuals in 78 countries outside the United States and from every state in the Union. According to the report, SEC received 208 FCPA-related tips in FY 2020, a slight increase from the number it received in FY 2018 and FY 2019. As it always does, the annual Whistleblower Report serves to remind companies to ensure that their reporting mechanisms, anti-retaliation policies, and investigation procedures are up-to-date and equipped to handle whistleblower reports.
- Two SEC Commissioners Criticize “Expansive” Use of FCPA's Internal Accounting Controls Provision. On November 13, 2020, two SEC Commissioners, Hester Peirce and Elad Roisman, voted against a settled action, arguing that the application of the FCPA's internal accounting controls provision in that case “risks uprooting the core concept of ‘internal accounting controls' from the language, statutory context, and history of Section 13(b)(2)(B)” and “exceeds [that Section's] limited scope.” In the settled action, the Commission found that management's “abbreviated and informal process” to evaluate the materiality of certain acquisition discussions resulted in a “deficient understanding” of the facts and circumstances by its legal department in connection with a share repurchase plan. According to the dissenting Commissioners, Section 13(b)(2)(B) should not be thought of as a “generic ‘internal controls' provision” or be used “to second-guess management's decision processes on matters that do not directly implicate the accuracy of a company's accounting and financial statements.” Reviewing the FCPA's legislative history and background, the dissenting Commissioners called into question whether Section 13(b)(2)(B) is intended to encompass “ethics or legal compliance policies, or … any of the other myriad corporate policies and practices that are very important in every corporation, but that do not implicate accounting.” Although the settled action was ultimately approved by the Commission, the dissent echoes changes made to the internal accounting controls section in the second edition of DOJ and SEC's joint publication, “A Resource Guide to the U.S. Foreign Corrupt Practices Act” (the “Guide”), released in July 2020. As we noted then, the agencies prominently added the word “accounting” back into the second edition's discussion of the FCPA's “internal accounting controls” provision and explained that “a company's internal accounting controls are not synonymous with a company's compliance program.” It will be interesting to see whether the dissent and the changes to the Guide portend a narrower application of the FCPA's internal accounting controls provision.
5. Brazilian Aircraft Manufacturer's FCPA DPA Dismissed. On November 25, 2020, Southern District of Florida Judge James Cohn dismissed all FCPA charges against Embraer SA stemming from the deferred prosecution agreement (DPA) it entered into with DOJ in October 2016. The Court found that Embraer had fully complied with all of its obligations under the DPA, including implementing an enhanced compliance program, consenting to an independent compliance monitor, and paying a monetary penalty of approximately $107 million. As discussed in a June 2020 securities filing, the original term of the DPA was extended 90 days in order to allow the monitor to complete his work. In April 2020, the monitor delivered his final report to DOJ and SEC, finding that Embraer's compliance program was reasonably designed and implemented to detect and prevent violations of anti-corruption laws.
6. World Bank Debars German Water-Maintenance Company for Alleged Bribery in Myanmar. On November 4, 2020, the World Bank Group announced that Berky GmbH would be debarred for two years and six months. According to the announcement, the company was found to be involved in collusive, fraudulent, and corrupt practices in connection with the Ayeyarwady Integrated River Basin Management Project in Myanmar. Among other things, the Bank found that the company had failed to disclose the commission paid to a local Myanmar agent in its initial bid and in a later amendment to the contract and had provided a trip for three officials from the project management unit to improperly influence their acceptance of the equipment provided by the company. The sanction period was ultimately reduced because the company provided “extraordinary cooperation and [took] voluntary remedial actions.”
7. UK SFO Recovers Funds Allegedly Related to Brazilian Bribery Scheme. On November 12, 2020, the UK Serious Fraud Office (SFO) announced that it had reached a £1.2 million civil settlement with Julio Faerman over his ownership of a £4.25 million apartment in London, which the SFO suspected had been partly purchased with corrupt funds. Faerman previously admitted to acting as an agent and paying bribes to win contracts for Dutch company SBM Offshore NV in Brazil. In January 2019, the SFO secured a property freezing order over Faerman's apartment to prevent it from being sold while the investigation proceeded, as well as a Disclosure Order to allow the SFO to trace commissions that Faerman used to purchase the property. In its announcement, the SFO acknowledged the cooperation it received from the Office of the Attorney General of Switzerland and the Dutch Fiscal Intelligence and Information Service (FIOD). (For more on this case, see our UK Quarterly Review from September 2020.)
8. Venezuela Update.
- Dual Venezuelan-Italian Citizen Charged in Connection with Alleged PDVSA Bribery Scheme. On November 25, 2020, DOJ announced that Natalino D'Amato had been indicted in the Southern District of Florida on 11 counts of money laundering stemming from an alleged scheme to bribe officials from Venezuela's national oil company, Petroleos de Venezuela (PDVSA), in order to secure lucrative contracts for his companies. D'Amato's companies received approximately $160 million through South Florida bank accounts, a portion of which D'Amato allegedly used to bribe the Venezuelan officials. D'Amato remains at large in Venezuela.
- Oil Executive Challenges DOJ “Instrumentality” Theory. In August 2020, DOJ announced that money laundering charges had been unsealed in the Southern District of Texas against former Citgo Petroleum Company procurement official Jose Luis De Jongh Atencio (“De Jongh”). DOJ alleged that De Jongh had laundered bribes he received in exchange for helping two business executives and their related companies secure business advantages from Citgo and its indirect parent company, PDVSA. On November 13, 2020, De Jongh asked Judge Gray Miller to order prosecutors to provide additional detail as to how they will prove that Citgo is an “instrumentality” of the Venezuelan government for purposes of the FCPA. This issue is critical to proving that De Jongh was a “foreign official” under the FCPA and, hence, that he laundered proceeds of an FCPA violation. (De Jongh concedes in the letter that he received bribes from vendors and then conducted financial transactions.) On November 18, 2020, DOJ responded that it is not required to provide De Jongh with “a precise roadmap of the evidence, witnesses, and documents with which [it] intends to prove its case at trial, including the specific details regarding how [it] will establish that Citgo was an instrumentality of the Venezuelan government.” Regardless of the outcome of this specific motion, the underlying question of whether Citgo can be considered an instrumentality of the Venezuelan government under the FCPA will be an important issue to watch.
- U.S. Oil Executives Convicted in Venezuela. In an interesting twist to the De Jongh fact pattern, on November 26, 2020, six U.S. Citgo executives, known as the “Citgo 6,” were sentenced to prison in Venezuela after being convicted of embezzlement in connection with a proposal to refinance approximately $4 billion of Citgo Petroleum Corporation bonds in exchange for a 50% stake in the company. Gustavo Cardenas, Jorge Toledo, Jose Luis Zambrano, Alirio Zambrano, and Tomeu Vadell, all Citgo vice presidents and U.S. citizens, were sentenced to eight years and 10 months' imprisonment, while Jose Pereira, Citgo's former president and a permanent resident of the United States, was sentenced to 13 years' imprisonment. According to reports, in November 2017, the Citgo 6 were summoned to a budget meeting in Caracas, where they were arrested by military intelligence officers. The trial of the Citgo 6 began in August 2020 and was closed to the media.
9. Mexico Update.
- Spain Agrees to Extradite Steel Company Executive to Mexico. On November 13, 2020, Spain's high court rejected an appeal by Alonso Ancira, chairman of the board of Altos Hornos de Mexico (AHMSA), opening the way for his extradition to Mexico to face corruption charges. Ancira was arrested in Spain in May 2019 for allegedly bribing Emilio Lozoya, the former chief executive of Mexico's state oil company, Petroleos Mexicanos (“Pemex”), in connection with Pemex's 2014 purchase of a fertilizer plant from AHMSA. Lozoya himself was arrested on Mexican tax fraud and bribery charges in Spain in February 2020 and extradited to Mexico in July 2020. The Lozoya case is significant, as he has implicated several former Mexican presidents and other former high-ranking Mexican officials in alleged corruption schemes. Spain's high court rejected Ancira's claim that he was a victim of political prosecution.
- Mexico Signals Move to Block Corruption Prosecutions in the United States. On November 19, 2020, Mexican Foreign Relations Secretary Marcelo Ebrard reportedly announced that Mexican officials accused of corruption would from now on be prosecuted in Mexico, not in the United States. The announcement followed the October 2020 arrest—and release one month later—of former Mexican General Salvador Cienfuegos in Los Angeles on charges of accepting bribes from a drug cartel. From 2012 to 2018, Cienfuegos, while leading Mexico's efforts against drug cartels, allegedly accepted bribes from the H-2 cartel in exchange for ensuring that military actions were undertaken only against the cartel's rivals. Cienfuegos' arrest was met with outrage from the Mexican government, with some reports suggesting that Mexico had threatened to expel DEA agents from the country. Cienfuegos was indicted under seal in 2019 but released after Eastern District of New York Judge Carol Bagley Amon granted the government's motion to dismiss the charges against him on November 18, 2020.
10. China Reports on Its Efforts to Repatriate Corrupt Fugitives. On November 9, 2020, the Communist Party of China's Central Commission for Discipline Inspection (CCDI) and the National Supervisory Commission reported that, from 2014 to June 2020, China had repatriated 7,831 fugitives, including 60 of its 100 most-wanted corruption fugitives, from more than 120 countries and regions. This represents a huge uptick since March 2017, when the CCDI reported that a total of approximately 2600 fugitives had been returned to China. Nevertheless, some have observed that China's efforts have been hampered by recent tension between China and the United States, which China believes to be among the most favored destinations for its high-profile fugitives. Indeed, in late October 2020, DOJ announced that it had charged eight individuals in the Central District of California for conspiring to act as illegal Chinese agents in connection with an effort to “harass, stalk, and coerce certain residents of the United States to return to the PRC as part of a global, concerted, and extralegal repatriation effort known as ‘Operation Fox Hunt.'” In November 2020, the Security and Intelligence Service of Canada, another allegedly favored destination for Chinese fugitives, similarly criticized China for using threats and intimidation to coerce targets in Canada to return to China.
Originally Published by Morrison & Foerster, December 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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