What’s New in Anticorruption Enforcement

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Several noteworthy occurrences have kept anticorruption enforcement in the headlines. Here are some of the recent developments that we are following.

JPMorgan-China Case

According to the New York Times, the Securities and Exchange Commission (“SEC”) is investigating potential bribery issues stemming from alleged abuses in JPMorgan’s “Sons and Daughters” hiring program in China.1 As reported in the paper, JPMorgan implemented the Sons and Daughters program in 2006 amidst pressure from within China to hire the children of prominent families. The program had been designed to aid compliance with U.S. anti-bribery laws by creating a separate hiring track for potentially well-connected hires, and subjecting those applicants to a rigorous, transparent hiring process. According to the Times, the SEC’s anti-bribery unit has begun investigating the program and has recently requested additional information regarding two 2007 hires: the son of the Chairman of the Everbright Group and the daughter of a high-ranking official at China Railway. Both China Railway and Everbright are state-owned entities, and consequently, the SEC would consider the officers involved to be covered government officials under the Foreign Corrupt Practices Act (“FCPA”). The SEC is reportedly investigating whether the investment bank procured significant new business shortly after hiring the two officers’ children.

The news coverage of this case has generated much discussion, as it raises questions for any company hiring overseas regarding where the lines are, and how to avoid similar scrutiny. There seems to be no suggestion in this case that the two former employees were not qualified, that that their positions were shams, or that they took any actions in their respective individual capacities to secure business for JP Morgan.

Analyzing the case under the FCPA, while there is no bright-line rule against hiring friends or family of foreign government officials, it is true that giving something of value to the family member of a government official could be deemed giving something to the government official. The DOJ-SEC FCPA enforcement guide, released about a year ago to much fanfare, specifies that the definition of a “thing of value” is broad and includes things given to family members: “[c]ompanies . . . may violate the FCPA if they give payments or gifts to third parties, like an official’s family members, as an indirect way of corruptly influencing a foreign official.” But what if a company could prove that an official’s child was the best candidate for a bona fide job that it needed to fill? Could it then argue that it was not actually giving anything of value in making the hire? Or what if the child were estranged from the government official? In that case, the company could certainly argue that the hire was not a thing of value going to the official.

Under almost any analysis, the inquiry will be very fact-intensive, and will focus on the existence of a corrupt intent to influence a government official or obtain an improper advantage by making the hire. It is not a per se violation to hire of the child of an official, but doing so turns the inquiry towards the circumstances and purpose of the hire.

Turning back to JP Morgan, it will be interesting to see whether the SEC believes it has evidence that any jobs were given with the intent to influence government officials. The publicly available information about the case suggests that the SEC believes the two hiring decisions in question led to increased business contacts between JPMorgan and certain Chinese entities linked to the fathers of the new hires. So far, the SEC has apparently limited its investigation to these two specific hiring decisions, and is not investigating the Sons and Daughters program more broadly.

Although it is too early to draw many conclusions from the case, the investigation is a reminder of several important themes pertaining to anticorruption compliance. First, as suggested above, the “thing of value” in a bribery case can take many different forms. It does not have to be money or an expensive, flashy gift. Second, doing business in areas known for corruption will subject a company to more, rather than less, scrutiny. The fact that “things are like that” in a country is inculpatory, not exculpatory in the view of the U.S. Government. Third, while there may be fewer FCPA cases involving the most obvious forms of bribery, as the statute of limitations is making it more difficult to reach back to a time when the FCPA was not vigorously enforced and thus more often overlooked, the U.S. Government is committed to enforcing the statute today to reach less overt forms of bribery.

U.K. Bribery Act Charges against Sustainable Agro

On August 14, 2013, the U.K.’s Serious Fraud Office (“SFO”) brought its much-anticipated first prosecution under the U.K. Bribery Act, when it charged three former directors of Sustainable Agro Energy, and an affiliated financial advisor, in connection with an alleged ponzi scheme in which the defendants allegedly tricked U.K. investors into purchasing shares in biofuel-related investments in Cambodia. All four defendants face charges of conspiracy to commit fraud and conspiracy to furnish false information to investors. Three of the defendants also face charges of “making and accepting a financial advantage” under the UK Bribery Act. The Cambodian government is also pursuing a number of criminal charges based on the same transactions.

Although the case is only in its infancy, one notable feature of the SFO’s first bribery prosecution is that the bribery charges seem to be relegated to a supporting role, part of a larger, transnational fraud prosecution. This may suggest that the SFO sees the U.K. Bribery Act as a mechanism to gain leverage over defendants in complex fraud cases as well as (or rather than as) a stand alone enforcement tool. In any case, while a milestone, the possibility that the volume of charges induces the defendants to plead guilty, or that the fraud and conspiracy charges take center at trial, may reduce the likelihood that the SFO’s inaugural case yields useful precedent.

It remains unclear what accounts for the continued dearth of prosecutions under the UK Bribery Act. Cynics might suggest that it signifies that, despite the considerable attention surrounding the stringent Act, it is still “business as usual” in the UK. Cautious compliance personnel, however, will recall that it took many years for the FCPA to be vigorously enforced.

The First Conviction under the CFPOA

On August 15, 2013, the Ontario Superior Court found Nazir Karigar guilty of one count of “agreeing to offer bribes” to foreign officials in violation of the Canadian Corruption of Foreign Public Officials Act (“CFPOA”), the Canadian version of the FCPA. In the first-ever prosecution and conviction in court under the CFPOA, Mr. Karigar was convicted of agreeing to pay hundreds of thousands of dollars in bribes to Air India officials and to India’s Minister of Civil Aviation in an unsuccessful bid to win a contract to provide the Air India with facial recognition technology.

Apart from the fact that it represents the first judicial decision interpreting the CFPOA, Karigar is notable in that it mirrors two developments in the FCPA. First the Court rejected the defendant’s argument that the CFPOA required the Crown to prove the identity of the foreign official to be bribed, or that the Crown prove what became of the improper payment. This is consistent with recent judicial decisions holding that the FCPA allows for liability even where there are no specific details about the recipients of a bribe. Second, Karigar was convicted despite failing to procure the contract through improper payments. Although the decision did not analyze this particular issue, the implication is that CFPOA, like the FCPA, does not require bribes be successful to give rise to culpability.

The Karigar conviction represents a trend toward more vigorous enforcement of the CFPOA by Canadian authorities, which has included investigations of and guilty pleas by multiple Canadian companies, as well as investigation and prosecutions of several individuals. This stepped-up enforcement is consistent as well with last summer’s amendments broadening the scope of the CFPOA.

While Canada has been under the radar in terms of anticorruption enforcement, with the UK for example garnering more headlines, the stepped-up Canadian enforcement is an important development for U.S. companies to watch, particularly in light of the very significant extent of cross-border business with Canada, and the extent of cooperation between U.S. and Canadian law enforcement authorities. 

1Jessica Silver-Greenberg and Ben Protess, JPMorgan Hiring Put China’s Elite on an Easy Track, August 29, 2013, here.