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: What changes did the U.S. Department of Justice's (DOJ) Criminal Division make in how monitors are selected and imposed in corporate criminal resolutions? Who was the target of the UK's first unexplained wealth order? What did the Organization for Economic Cooperation and Development (OECD) have to say about Mexico's foreign bribery enforcement efforts? Which leader of an international law enforcement organization was arrested by Chinese authorities for alleged bribery? The answers to these questions and more are here in our October 2018 Top 10 list.
1. DOJ Criminal Division Announces Updated Guidance on Monitorships and the End of the Compliance Counsel Position.
- DOJ Criminal Division Provides Updated Guidance on Monitorships. On October 12, 2018, Brian Benczkowski, the Assistant Attorney General (AAG) for DOJ's Criminal Division, announced a new memorandum regarding the imposition and selection of monitors for business organizations involved in Criminal Division cases (the "Benczkowski Memo"). The Benczkowski Memo closely tracks the Criminal Division's previous guidance memorandum from 2009, including the basic structure for selecting a monitor, but also expressly incorporates certain practices developed by the Criminal Division's Fraud Section since 2009 and includes some important changes and clarifications. Of note, the Benczkowski Memo explicitly directs Criminal Division attorneys—which includes the FCPA unit—to consider whether the scope of the monitor's role is "appropriately tailored to avoid unnecessary burdens to the business's operations" when determining whether to impose a monitor. In cases where a monitor is imposed, the resolution agreement must now include an explanation of "the monitorship's scope." As discussed in our recent Client Alert, these and other aspects of the Benczkowski Memo are welcome additions because they help address the issue of "scope creep" and provide more transparency in the monitorship selection process.
- DOJ Criminal Division Will Not Replace Compliance Counsel. In his October 12, 2018 remarks, Benczkowski also announced that the Criminal Division would not hire a "single compliance counsel" to replace Hui Chen, who resigned from the Fraud Section in June 2017. According to Benczkowski, "While this approach [of hiring a single compliance counsel housed in the Fraud Section] had its benefits, there are inherent limitations in having the locus of our compliance expertise consolidated in a single person in a single litigating section." Benczkowski also expressed concern that a person holding this position "will inevitably and quickly feel a strong pull to the private sector." Instead, Benczkowski said that the Criminal Division would build upon the achievements of the former compliance counsel "through a combination of diverse hiring and the development of targeted training programs" in both the Fraud Section and the Money Laundering and Asset Recovery Section (MLARS).
2. United States and Malaysia Bring Charges in Malaysian Sovereign Wealth Fund Scandal. Over the last two years, we have reported several times on developments related to 1Malaysia Development Berhad (1MDB), Malaysia's sovereign wealth fund, including the parallel investigations being conducted by authorities in Malaysia, the United States, Singapore, and Switzerland into alleged bribery and embezzlement involving the fund. (See our July 2016, August 2016, June 2017, December 2017, May 2018, June 2018, and August 2018 Top 10s for more on 1MDB).
- Three Charged in United States in Connection with Alleged 1MDB Scheme. On October 3, 2018, DOJ announced that Taek Jho (also known as Jho Low) and Ng Chong Hwa (also known as Roger Ng) had been charged in the Eastern District of New York with conspiring to violate the FCPA's anti-bribery provisions and to launder billions of dollars embezzled from 1MDB. Ng was also charged with an FCPA accounting violation for allegedly circumventing the internal accounting controls of a "major New York-headquartered financial institution," reported to be Goldman Sachs. DOJ simultaneously announced that former bank executive Tim Leissner had pleaded guilty to related money laundering and FCPA anti-bribery and accounting charges and agreed to forfeit almost $44 million. (Malaysian authorities charged Low with related charges in August 2018.) According to the recently unsealed indictments (available here and here), the three defendants diverted more than $1 billion from a $6 billion bond underwriting for 1MDB, laundering the money through accounts that were beneficially owned and controlled by the individuals themselves and 1MDB officials. These funds were then used to invest in luxury real estate, buy art at auction, and fund major Hollywood films, including The Wolf of Wall Street. The three defendants also allegedly bribed officials in Malaysia and Abu Dhabi to obtain and retain lucrative business for the financial institution, including two bond deals.
- Additional Charges Brought Against Former Prime Minister and Others in Malaysia. On October 4, 2018, Rosmah Mansor, the wife of former Malaysian Prime Minister Najib Razak, was charged in Malaysia with 17 offenses, including money laundering and tax evasion, in connection with the 1MDB investigation. According to prosecutors, Rosmah, nicknamed the "Malaysian Imelda Marcos," directly engaged in money laundering transactions. On October 25, 2018, Najib and Mohd Irwan Serigar Abdullah, Malaysia's former treasury secretary, were charged in Malaysia with six counts each of criminal breach of trust involving government funds of approximately $1.6 billion. According to prosecutors, the misappropriated money was intended for the airport in Kuala Lumpur and a cash aid program. This was the third set of charges filed against Najib, who was also charged in July and August 2018 with criminal breach of trust, corruption, and money laundering offenses. All three defendants have pleaded not guilty.
3. Dual U.S. and Haitian Citizen Charged with Violating the FCPA in Haiti Port Project Scheme. On October 30, 2018, DOJ announced that Roger Richard Boncy had been charged in the District of Massachusetts with conspiring to violate the FCPA, Travel Act, and the money laundering statutes, and with violating the Travel Act, in connection with his alleged role in a scheme to bribe senior Haitian government officials for approval of an $84 million port development project in Haiti. Boncy's alleged co-conspirator, Joseph Baptiste, was charged in the superseding indictment with the same crimes. Baptiste had previously been indicted for the same scheme in October 2017, and his trial is scheduled to begin on December 3, 2018. According to the DOJ press release, during a meeting with undercover agents posing as investors in the port development project, Boncy and Baptiste allegedly explained that they planned to launder money through a Maryland-based non-profit set up by Baptiste under the guise of helping Haiti's impoverished residents. Also, in intercepted telephone calls, the pair was heard discussing bribing the aide to a senior official in Haiti in exchange for authorizing the project. As we noted when Baptiste was arrested in August 2017, this case demonstrates that DOJ continues to use a broad range of law enforcement tactics, including undercover agents and wiretaps, to investigate and prosecute FCPA violations.
4. PDVSA-related Sentencing and Convictions. In October 2018, one defendant was sentenced and two defendants pleaded guilty in DOJ's sprawling investigations into alleged bribery and embezzlement at Venezuela's state-owned oil company, Petróleos de Venezuela S.A. (PDVSA).
- Former Bank Executive Sentenced to 10 Years' Imprisonment. On October 29, 2018, DOJ announced that Matthias Krull, a former managing director and vice chairman at Julius Baer, had been sentenced in the Southern District of Florida to 120 months in prison for his role in an alleged $1.2 billion scheme to launder funds embezzled from PDVSA. Krull was also ordered to pay a $50,000 fine and a forfeiture money judgment of $600,000. A German national and Panamanian resident, Krull was arrested in July 2018 and pleaded guilty to one count of conspiracy to commit money laundering in August 2018. The funds at issue were allegedly laundered through a sophisticated chain of money managers, brokerage firms, banks, and real estate investment firms around the globe.
- Former PDVSA Executive Director of Financial Planning Pleads Guilty. On October 31, 2018, DOJ announced that Abraham Edgardo Ortega had pleaded guilty in the Southern District of Florida to one count of conspiracy to commit money laundering. According to DOJ, Ortega accepted $5 million in bribes to give priority loan status to a French company and a Russian bank, which were both minority shareholders in PDVSA joint ventures, and $12 million in bribes for his participation in an embezzlement scheme involving a loan and foreign-exchange contract. Sentencing is scheduled for January 9, 2019.
- Former PDVSA Procurement Officer Pleads Guilty. On October 30, 2018, DOJ announced that Ivan Alexis Guedez had pleaded guilty in the Southern District of Texas to one count of conspiracy to commit money laundering. According to DOJ, Guedez accepted bribes to direct business toward a Miami-based supplier and concealed the payments through false invoices and a Swiss bank account held in the name of a shell company. Guedez is the 15th defendant convicted in this particular investigation and is scheduled to be sentenced on February 20, 2019.
5. Target of UK's First Unexplained Wealth Order Revealed. The Criminal Finances Act 2017, which entered into force in January 2018, introduced unexplained wealth orders (UWOs) to the UK. As discussed in our Client Alert at the time, UWOs, which require those suspected of corruption to explain the sources of their wealth, may be issued on the request of UK regulators against property valued in excess of £50,000 if the respondent is a politically exposed person (PEP). On October 10, 2018, the reporting restrictions on the UK's first UWO expired, and the identity of the target, Zamira Hajiyeva, was revealed. Hajiyeva is the wife of Jahangir Hajiyeva, the former chairman of the Bank of Azerbaijan, who is currently serving a 15-year sentence in Baku following his conviction for embezzlement, abuse of office, and fraud. Hajiyeva allegedly purchased three properties and a golf course and spent a combined total of £16 million at English luxury retailer Harrods during the course of a decade. Because a UWO raises the presumption of illegitimacy, Hajiyeva will now be required to provide the National Crime Agency with proof that the money she used was legitimate or else the property will be the subject of an order for recovery under the Proceeds of Crime Act 2002. As explained in our recent Client Alert, the use of UWOs so soon after they were introduced suggests that they may become a more common tool for UK regulators.
6. SFO Seeks to Recover Proceeds of Alleged Uzbekistan Corruption. On October 3, 2018, the SFO announced that it had issued a claim for civil recovery in the High Court under Part 5 of the Proceeds of Crime Act 2002. The claim concerns several assets, including three UK properties, which the SFO alleges were obtained using the proceeds of corrupt deals in Uzbekistan involving Gulnara Karimova and Rustam Madumarov. Karimova, the daughter of former Uzbek president Islam Karimov, is reported to have received hundreds of millions of dollars in bribes from Swedish and Dutch telecom companies in exchange for helping them enter and continue to operate in the Uzbek telecommunications market. According to reports, Madumarov was Karimova's boyfriend and bought luxury properties in London worth more than £17 million using shell companies. The SFO stated that a directions hearing will be listed in due course.
7. OECD Criticizes Mexico's Foreign Bribery Enforcement Record. On October 19, 2018, the OECD Working Group on Bribery released its Phase 4 evaluation of Mexico's implementation of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the "Anti-Bribery Convention"). Citing Mexico's failure to prosecute even a single case involving the bribery of foreign public officials, the Working Group stated that Mexico needs to give more priority to foreign bribery enforcement. According to the Working Group, "This is a cause for significant concern, especially given the export driven nature of the Mexican economy, and because its exports include high-risk sectors for corruption, such as extractives, manufacturing and agricultural products." The Working Group further noted that Mexico could enhance its implementation of the Anti-Bribery Convention by enacting reforms under the National Anti-Corruption System, the implementing legislation for which was signed into law in July 2016. Among other things, the Working Group recommended that Mexico "urgently" nominate a Special Anti-Corruption Prosecutor, appoint judges to the Federal Court of Administrative Justice, appoint the Attorney General pursuant to the new constitutional mechanism, and implement the new Anti-Bribery Protocol. On a more positive note, the Working Group recognized that Mexico had successfully amended its foreign bribery offense to comply with the Anti-Bribery Convention and had introduced successor liability into its criminal corporate liability framework.
8. China Detains Interpol Chief in Bribery Investigation. On October 5, 2018, the president of the International Police Agency (Interpol), Hongwei Meng, was reported missing after returning to China in late September. Just before midnight local time on October 7, 2018, China's Central Commission for Discipline Inspection (CCDI) and the recently established National Supervisory Commission (NSC) released a one-sentence announcement on their joint website confirming Meng's detention: "Vice-minister of Public Security Hongwei Meng is currently under investigation by the Commission for suspected illegal activities." (See our March 2018 Top Ten for more on the NSC.) A few hours later, top party officials at the Ministry of Public Security met "before dawn" and released a statement on its official website, clarifying that Meng's alleged "illegal activities" involved "accepting bribes." Interpol announced that Meng had resigned "with immediate effect" following his arrest and that elections for a new president to serve the remaining two years of Meng's term would take place in mid-November 2018. Although Meng is just one of a large number of high profile people to have been arrested over the last several years in China, his arrest is particularly significant from an international anti-corruption perspective because of Interpol's role in promoting international law enforcement cooperation.
9. New Chinese Criminal Procedure Law Provides for Default Judgments for Corruption Offenses. In April 2018, the Chinese state news agency announced that China planned to introduce default judgments to help repatriate funds taken out of the country by kleptocrats. On October 26, 2018, the National People's Congress passed the International Criminal Judicial Assistance Act (the "Act"), a new law aimed at strengthening cross-border cooperation to combat organized crime, including corruption and bribery. The Act is part of the third amendment to China's 1979 Criminal Procedure Law. A key feature of the Act is trial in absentia (Article 5, Chapter 3 of the amended Criminal Procedure Law), a new procedure limited to corruption and national security cases that allows for default judgments after defendants have been served with process through appropriate channels, such as international judicial assistance.
10. United Nations Releases Manual on How to Measure Corruption. On October 24, 2018, the UN Office on Drugs and Crime and the UN Development Program announced that they had published a "Manual on Corruption Surveys," designed to help gather reliable anti-corruption data and to measure progress in anti-corruption efforts. According to the announcement, a lack of anti-corruption statistics has been identified as a gap across the peer reviews carried out through the Mechanism for the Review of Implementation of the United Nations Convention against Corruption (UNCAC). The Manual seeks to fill this gap by providing countries with methodological and operational guidelines for developing and implementing sample surveys, both among the population and among businesses, in order to measure the prevalence of bribery at the national level and to collect other relevant information on corruption. If countries adopt the Manual's methodology and publish the results, this could create another data point for companies attempting to assess and mitigate corruption risk in countries where they do business.
Trainee solicitor in Morrison & Foerster's London office Christopher James Lloyd contributed to the writing of this alert.
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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