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: When was the last time the U.S. Department of Justice (DOJ) issued a Foreign Corrupt Practices Act (FCPA) Opinion Procedure Release? What did the Council of Europe have to say about Russia’s progress in combatting corruption within its legislative, judicial, and prosecutorial functions? Which U.S.-based companies resolved FCPA investigations involving China and Mexico? The answers to these questions and more are here in our September 2020 Top 10.
1. DOJ Issues its First FCPA Opinion Procedure Release in Nearly Six Years. On August 14, 2020, DOJ issued its first FCPA Opinion Procedure Release since November 2014, in response to a request from a U.S.-headquartered investment advisor concerning a proposed fee payment to a subsidiary of a foreign government-owned investment bank. The FCPA opinion procedure enables certain entities and individuals, including U.S. “domestic concerns,” to request an opinion from DOJ regarding whether certain specific, prospective—not hypothetical—conduct conforms with DOJ’s enforcement policy regarding the anti-bribery provisions of the FCPA. DOJ releases the typically anonymized opinions to provide non-binding guidance on its FCPA enforcement practices. In this case, the investment advisor (the “Requestor”) worked over a two-year period with a subsidiary of a foreign investment bank (the “Country B Office”) to purchase a portfolio of assets. After failing to agree with Country B Office on a price for the assets, the Requestor enlisted the services of an unaffiliated U.S.-based finance company, although the Country B Office also continued its efforts on behalf of the Requestor. When the Requestor ultimately closed the transaction, the Country B Office sought a fee of $237,500 for its work on behalf of the Requestor. The Requestor asked DOJ whether payment of the fee would violate the anti-bribery provisions of the FCPA, given that the Country B Office is an “instrumentality of a foreign government” and its employees are “foreign officials” under the FCPA. DOJ determined that because (1) the payment would be to the Country B Office, (2) there was no indication that the payment would be diverted to an individual, and (3) the Requestor sought and received specific, legitimate services from the Country B Office for which it sought to make a commercially reasonable payment, the proposed payment does not reflect a corrupt intent to influence a foreign official. As a result, DOJ stated it did not intend to take enforcement action under the FCPA in response to the Requestor’s payment of the fee. Over the past decade, many companies have concluded that seeking an opinion from qualified outside counsel as to whether a particular transaction will violate the FCPA is less cumbersome, and potentially less risky, than seeking an opinion from DOJ. This opinion procedure release shows that, under certain circumstances, companies might still prefer to receive more formal assurance that DOJ will not pursue an enforcement action based on a proposed transaction.
2. U.S.-based Consumer Loan Company Resolves Mexico Bribery Allegations with SEC. On August 6, 2020, the U.S. Securities and Exchange Commission (SEC) announced that World Acceptance Corporation had agreed to pay $17.8 million in disgorgement, $1.9 million in prejudgment interest, and a civil penalty of $2 million to resolve alleged violations of the FCPA’s anti-bribery and accounting provisions involving Mexico. According to the SEC order, the company’s former Mexican subsidiary paid $4.1 million in bribes to Mexican government and union officials for the ability to provide loans to government employees and to obtain timely repayment of the loans. The subsidiary allegedly deposited money into bank accounts linked to the Mexican officials and paid an intermediary to distribute “bags of cash” as payments to the officials. The SEC found that the parent company failed to implement internal accounting controls and “the appropriate tone at the top regarding internal audit and compliance” necessary to detect and prevent these types of bribe payments. Concurrently, DOJ issued a declination letter saying that it would not separately prosecute this matter, based on the company’s voluntary self-disclosure of the misconduct, cooperation with the investigation, remediation efforts, and other factors.
3. U.S.-based Nutrition Company Resolves China Bribery Allegations with DOJ and SEC. On August 28, 2020, DOJ and SEC announced that Herbalife Nutrition Ltd. had agreed to resolve allegations that the company and its wholly owned subsidiaries in China violated the FCPA’s accounting provisions by falsifying books and records related to improper payments to Chinese officials. According to DOJ and SEC, the companies conspired over a 10-year period to falsify books and records related to corrupt payments and other benefits provided to Chinese government officials to promote and expand Herbalife’s business in China by obtaining direct selling licenses, influencing governmental investigations, and removing negative reports from state-controlled media. The parent company was ordered to pay $58.7 million in disgorgement and $8.6 million in prejudgment interest under the SEC administrative order and agreed to pay a criminal penalty of $55.7 million as part of a three-year deferred prosecution agreement (DPA) with DOJ filed in the Southern District of New York. DOJ did not require a guilty plea from the Chinese subsidiary, possibly because it charged two of the subsidiary’s former executives, Yanliang Li and Hongwei Yang, with violations of the FCPA’s anti-bribery and accounting controls provisions in November 2019.
4. DOJ and OFAC Respond to Corruption Involving Uganda and Poland Adoptions. On August 14, 2020, DOJ announced a 13-count indictment filed in the Northern District of Ohio charging three women—two American employees of the now-defunct European Adoption Consultants (EAC) agency and one Ugandan attorney—for their alleged roles in a scheme to bribe Ugandan officials and defraud U.S. adoptive parents, U.S. authorities, and a Polish regulatory authority. The charges included violations of the FCPA, money laundering, mail fraud, and false statements, among others. The indictment alleges that Debra Parris of Texas and Dorah Mirembe of Uganda bribed Ugandan social welfare officials, judges, and other court officials to corruptly procure the adoption of Ugandan children, including some who were not properly determined to be orphaned, by American families. The indictment further alleges that Parris and Margaret Cole of Ohio concealed information regarding adoption abuses from U.S. and Polish entities with responsibility for intercountry adoptions. Three days later, on August 17, 2020, the U.S. Department of the Treasury’s Office of Foreign Asset Control (OFAC) announced it was imposing sanctions under the Global Magnitsky Human Rights Accountability Act against four Ugandans who were part of the scheme—two Ugandan judges who allegedly received bribes, the Ugandan lawyer charged in the DOJ indictment, and the lawyer’s husband. The alleged adoption scheme was first revealed in August 2019 when EAC’s former manager, Robin Longoria, pleaded guilty in August 2019 to FCPA and fraud charges in what appeared to be the first FCPA enforcement action involving international adoption.
5. Former Procurement Official at PDVSA Subsidiary Charged in Bribery and Money Laundering Scheme. On August 6, 2020, DOJ announced that money laundering charges had been unsealed in the Southern District of Texas against Jose Luis De Jongh Atencio (“De Jongh”), a former procurement official at Citgo Petroleum Company, a Houston-based subsidiary of Venezuela’s national oil company, Petróleos de Venezuela SA (PDVSA). De Jongh, a dual U.S.-Venezuelan citizen, allegedly laundered bribes he received in exchange for helping two businessmen, Jose Manuel Gonzalez Testino and Tulio Anibal Farias Perez, and their related companies secure business advantages from Citgo and PDVSA. Gonzalez was arrested in August 2018 and pleaded guilty to related charges in February 2020, while Faris was indicted and pleaded guilty in February 2020. De Jongh allegedly directed the bribe payments to bank accounts in the name of shell companies in Panama and Switzerland, and then laundered the proceeds through U.S. bank accounts, using most of the funds to purchase real property in Texas. In addition to the payments, De Jongh allegedly received gifts such as tickets to a 2014 World Series Game, Super Bowl XLIX, and a U2 concert. The DOJ press release noted that De Jongh is the 27th individual to be charged in the ongoing U.S. government investigation into bribery at PDVSA. (For more on the PDVSA investigation, see our December 2015, March 2016, June 2016, October 2016, January 2017, October 2017, February 2018, April 2018, July 2018, August 2018, September 2018, October 2018, November 2018, December 2018, February 2019, May 2019, August 2019, September 2019, November 2019, January 2020, and February 2020 Top 10s.)
6. Two Guilty Pleas in PDVSA Joint Venture Bribery Scheme. On August 20, 2020, Lennys Rangel, a former procurement chief of Petrocedeño, a joint venture between PDVSA and two European oil companies, pleaded guilty in the Southern District of Florida to one count of conspiracy to commit money laundering. Rangel allegedly received bribes from various contractors to secure contracts with the joint venture. On August 25, 2020, former Petrocedeño and PDVSA general counsel Edoardo Orsoni pleaded guilty to one count of conspiracy to commit money laundering in connection with the same alleged scheme.
7. U.S. Consultant Pleads Guilty in Connection with Attempt to Interfere in 1MDB Investigation. On August 17, 2020, Nickie Lum Davis was charged in an illegal lobbying effort on behalf of a fugitive Malaysian financier to influence the U.S. administration to quash an investigation into alleged corruption and money laundering involving 1Malaysia Development Berhad (1MDB), a Malaysian sovereign wealth fund. Davis pleaded guilty on August 31, 2020, to one count of aiding and abetting a violation of the Foreign Agents Registrations Act (FARA) for failing to register her relationship with the Malaysian financier in the lobbying effort. According to DOJ, Davis was offered an $8 million retainer fee to lobby the U.S. government, including efforts to secure meetings with the President of the United States, the Attorney General, and other high-level officials, to convince DOJ to drop its civil forfeiture proceedings and criminal investigation into 1MDB. The lobbying attempt was ultimately unsuccessful. (For more on the 1MDB case, see our July 2016, August 2016, June 2017, December 2017, May 2018, June 2018, August 2018, October 2018, February 2019, May 2019, December 2019, April 2020, and July 2020 Top 10s.)
8. U.S. and UK End Corruption Investigations Into U.S.-Based Engineering Company. In its financial results published on August 6, 2020, KBR Inc. disclosed that DOJ and SEC had informed the company that they had closed their investigations in connection with KBR’s interactions with Unaoil, the Monaco oil consultancy under investigation in the United States and the United Kingdom for allegedly assisting multinational companies in procuring business through bribery. The company further disclosed that the UK’s Serious Fraud Office (SFO) had informed the company that its investigation into the company is no longer focused on allegations of corruption involving Unaoil, although some lines of inquiry remain open. The SFO announced the commencement of criminal proceedings against Unaoil in June 2018, while the former CEO and COO of Unaoil pleaded guilty in October 2019 in the Southern District of Texas to charges in connection with a bribery scheme to secure contracts on behalf of major multinational clients in nine countries in Africa, the Middle East, and Central Asia. (For more on the Unaoil investigation, see our November 2017, May 2018, June 2018, December 2018, July 2019, March 2020, and May 2020 Top 10s.)
9. Council of Europe Urges Russia for More Anti-Corruption Progress; Anti-Corruption Opposition Leader in Russia Apparently Poisoned Two Days Later
- On August 18, 2020, the Group of States Against Corruption (GRECO), the anti-corruption body of the Council of Europe, published its latest Compliance Report on the Russian Federation regarding corruption prevention for members of parliament, judges, and prosecutors. GRECO determined that Russia had satisfactorily or partially implemented 18 of the 22 recommendations from GRECO’s Fourth Round Evaluation Report on Russia, adopted in 2017. Among other things, GRECO noted that Russia still needs to strengthen the transparency of its legislative process, include contacts with third parties and post-employment restrictions in its legislative codes of ethics, strengthen conflict of interest provisions in its judicial code of ethics, limit immunity of judges to functional immunity, and strengthen prosecutorial independence.
- On August 20, 2020, two days after the GRECO report was released, opposition leader and prominent critic of corruption within the Putin government Alexey Navalny was reportedly hospitalized after a suspected poisoning. Nalvalny fell ill on a flight returning to Moscow from Siberia, where he had been campaigning against Putin’s United Russia Party and highlighting allegations of corruption against a Siberian politician and property developer. Navalny was flown to Germany from Russia after his family demanded his transfer. German doctors concluded Navalny was poisoned with the Soviet-era Novichok nerve agent, leading to suspicions that the Russian government was involved. In late August, Russian prosecutors reportedly stated that they saw no need for a criminal investigation into Navalny’s illness, dismissing allegations of Kremlin involvement as “hot air.”
10. Kazakhstan President Instructs Government to Step Up Anti-Corruption Efforts. On August 21, 2020, Kazakhstan President Kassym-Jomart Tokayev urged the government to tighten anti-corruption measures in the country during a meeting that focused on efforts to curb corruption. Tokayev listed the fight against corruption as one of the top priorities for Kazakhstan’s development. According to Tokayev, fighting corruption is particularly important amid the COVID-19 pandemic, which increased the risk that funds allocated to support the economy would be embezzled. Tokayev called for major improvements and asked the public and non-government organizations to be involved in anti-corruption efforts. In January 2020, Kazakhstan became the first Asian member of GRECO, the anti-corruption body of the Council of Europe.