DOJ Continues Targeting of Corruption through AML Laws and Alternate Statutes – Lessons for Compliance and Due Diligence

Pillsbury Winthrop Shaw Pittman LLP

As the Biden Administration commits to crack down on corruption, recent enforcement actions show the DOJ continues a longstanding trend of relying on AML laws and other alternate statutes to prosecute corruption cases, with lessons for internal compliance and due diligence.

TAKEAWAYS

  • AML statutes are used to prosecute corruption cases and extend the reach of the FCPA, as are the Travel Act, wire fraud and RICO
  • The White House has outlined a policy of aggressive anti-corruption efforts and is allocating resources for future enforcement.
  • For businesses and investors, it is important to account for authorities beyond the FCPA in compliance and due diligence.

The U.S. Department of Justice (DOJ) continues to rely on anti-money laundering statutes to prosecute corruption cases that may not fit into the framework of the Foreign Corrupt Practices Act (FCPA). In a recent example of such a prosecution, the DOJ charged two former Bolivian government officials and three U.S. citizens with money laundering violations for their roles in a bribery scheme to secure a Bolivian government contract for a U.S. company. As alleged in Criminal Complaints filed in the U.S. District Court for the Southern District of Florida, the defendants conspired to commit money laundering under 18 U.S.C. § 1956(h), with the underlying offenses including violations of the FCPA and bribery offenses against a foreign nation.

While the FCPA is the most well-known U.S. anti-corruption statute, its anti-bribery provisions generally apply only to U.S. citizens or corporations, limiting the DOJ’s ability to bring FCPA charges against foreign individuals and corporations involved in bribery schemes. In an effort to aggressively pursue anti-corruption enforcement, U.S. prosecutors have turned to a set of statutes with more expansive jurisdictional reach to target corruption around the world where there is a U.S. nexus. Anti-money laundering (AML) statutes are among the most important tools available to prosecutors to reach corruption outside the U.S., and prosecutors can also extend the reach of the FCPA by supplementing or replacing FCPA charges with charges under the RICO Act, the Travel Act, and the wire fraud statute, among other statutes.

This aggressive use of non-FCPA statutes in corruption cases is consistent with the Biden Administration’s prioritization of anti-corruption enforcement. On June 3, 2021, the White House outlined a policy of aggressive anti-corruption enforcement in its “Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest.” In light of the DOJ’s efforts to expand anti-corruption enforcement using non-FCPA statutes, an understanding of the FCPA is simply no longer enough to ensure compliance with anti-corruption laws. Companies and investors can best prepare themselves for effective compliance when they understand how the DOJ uses legal authorities beyond the FCPA as tools for anti-corruption enforcement.

Applying AML Mechanisms to Enforce Anti-Corruption

The recent charges filed in the Southern District of Florida offer an example of how the DOJ may use AML statutes under 18 U.S.C. §§ 1956 and 1957 to prosecute corruption around the world. While the DOJ alleges that all five men conspired to violate FCPA’s anti-bribery provisions, none have been charged with violating the FCPA—instead, the DOJ has charged all five men with one count of conspiracy to commit money laundering.

The money laundering statutes criminalize the use of U.S. financial institutions to facilitate or conceal proceeds from certain underlying unlawful activities, even when the underlying criminal activity occurs abroad and the only activities occurring in the United States are bank transfers. According to the DOJ Complaints, between November 2019 and April 2020, the three Americans paid $602,000 in bribes to Bolivian government officials so the Florida-based company of one of the individuals would obtain or retain a $5.6 million contract from the Bolivian Ministry of Defense for the supply of tear gas and other non-lethal equipment. These funds were allegedly laundered through the U.S. financial system through multiple payments sent between bank accounts in Florida and Bolivia, with $582,000 paid to one of the charged Bolivian government officials, and an additional $20,000 paid to a Bolivian Defense Ministry co-conspirator. The specified unlawful activities supporting the AML conspiracy charges are violations of the FCPA, as well as bribery in violation of the laws of Bolivia (certain crimes against foreign nations can serve as predicate offenses for 18 U.S.C. §§ 1956 and 1957).

This is at least the third instance in 2021 in which the DOJ has raised bribery allegations pursuant to the FCPA without charging a violation of the FCPA, and it follows other high-profile examples of the use of AML statutes for international corruption, such as the ongoing FIFA-related indictments (which have now evolved to include RICO allegations). By charging a bribery scheme as a money laundering conspiracy, the DOJ is able to reach conduct by non-U.S. citizens who facilitate or receive bribe payments outside the United States, even if they never take any action conduct in the United States, so long as the scheme involved the payments routed through U.S. financial institutions.

In the other two cases, DOJ similarly alleged a bribery scheme, but limited its charges to money laundering violations. First, in February 2021, two Ecuadorian citizens were accused of paying nearly $2.6 million in bribes to local police pension fund officials in exchange for the fund’s investment business but charged with laundering these payments through U.S.-based companies and bank accounts. Then, in March 2021, a Canadian citizen residing in the Bahamas was accused of paying millions of dollars in bribes to Ecuadorian government officials in exchange for improper business advantages but charged with money laundering for both the promotion and concealment of those payments. The complaints can be found here and here.

Travel Act

The Travel Act is another statute that the DOJ may use to prosecute bribery and corrupt activities in U.S. interstate and foreign commerce. It has the additional feature of being able to reach commercial bribery in addition to official bribery in certain circumstances. The Travel Act also allows DOJ to go after the use of communications and travel infrastructure to conduct bribery—such as international or interstate travel, phone calls or wire transfers—a more expansive set of potential chargeable conduct than that covered by the FCPA.

In March 2021, a dual U.S.-Venezuelan dual citizen and former procurement manager at an international energy utility company pleaded guilty to money laundering charges in connection with his role in a bribery scheme involving Venezuela’s Petróleos de Venezuela SA (PDVSA). In a December 2020 superseding indictment, DOJ had alleged Travel Act violations as an additional specified unlawful activity attached to these money laundering violations. This case is part of a wider investigation of bribery and other criminal activity within PDVSA, which has included charges against 28 other individuals with 22 guilty pleas.

Expanding Enforcement Options and Offering Longer Sentences

As the Biden Administration tackles corruption as a key element of its national security strategy, prosecutors will continue to rely on AML statutes to pursue U.S. anti-corruption policy goals. There are a number of reasons why alternate statutes can be attractive to prosecutors and strengthen the long arm of extraterritorial enforcement.

First, 18 U.S.C. §§ 1956 and 1957 target financial transactions where the funds are known to relate to some unlawful activity or derive from a long list of specified unlawful activities that cover a broad range of conduct criminalized by both the United States and foreign laws. Those specified unlawful activities include both violation of the FCPA and violations of foreign anti-bribery laws. Both violations of the FCPA and Bolivian bribery laws are alleged in the Bolivia case pending in the Southern District of Florida, and while prosecutors generally must prove the predicate offenses, there is some greater flexibility in showing that each defendant did some overt act in furtherance of a money laundering conspiracy with knowledge of the underlying unlawful conduct. Prosecutors must still prove that the underlying FCPA violation or violation of Bolivian law occurred. In other corruption cases, predicates such as wire fraud or the Travel Act may be more suitable to the facts of the case. Regardless of the predicate violation underlying the money laundering charge, AML statutes help prosecutors expand their jurisdictional reach beyond traditional FCPA charges because of their focus on transactions and banking activity, as well as the breadth of predicate violations linking the funds to unlawful activity. By basing charges on the use of U.S. financial institutions, rather than the underlying criminal scheme, prosecutors can avoid jurisdictional hurdles that might otherwise prevent prosecution of certain defendants under the FCPA.

Second, the criminal AML statutes offer longer maximum sentences. While Congress recently expanded the statute of limitations for FCPA violations from five to ten years, 18 U.S.C. §§ 1956 and 1957 sentences violators for ten to twenty years and sets fines up to $500,000, or twice the amount of the property involved in transaction, whichever is more.

Compliance—Beyond the FCPA

The breadth of laws applicable to enforce foreign corruption demonstrate that for businesses and investors, it is important to account for more than the FCPA in compliance and due diligence. For investment, deal and transaction due diligence, as well as ongoing internal compliance and training, it is important to account for exposure to liability under alternate statues. Existing FCPA compliance plans and training materials can be bolstered by encompassing the criminal AML statues and other statues such as the Travel Act, RICO and bank or wire fraud which target corruption.

Similarly, these types of prosecutions reinforce that AML compliance is not limited to the regulatory oversight of financial institutions. It is common for companies to assume that if they are not banks, money transmitters, credit card companies, casinos or other categories of financial institutions, they do not need to account specifically for AML compliance. However, 18 U.S.C. §§ 1956 and 1957 may apply broadly to all persons acting within U.S. interstate and foreign commerce and can create exposure where companies or investors transact or bank in relation to unlawfully derived funds.

*We would like to thank summer associate Arielle Heffez for her significant contribution to this alert.

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DISCLAIMER: 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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