Designed for busy in-house counsel, compliance professionals, and anti-corruption lawyers, this newsletter summarizes some of the most important international anti-corruption law and case developments from the past month, with links to primary resources. This month we ask: Has an appellate court decision caused the United States to fall out of compliance with the Organisation for Economic Co-operation and Development (OECD) Anti-Bribery Convention? Which high‑profile industry is in the crosshairs of Chinese corruption authorities? How has Russia’s invasion of Ukraine prompted transparency measures in the United Kingdom? The answers to these questions and more are here in our August 2022 Top 10.

On August 12, 2022, the U.S. Court of Appeals for the Second Circuit affirmed District of Connecticut Judge Janet Bond Arterton’s post-trial acquittal of former Alstom executive Lawrence Hoskins on all Foreign Corrupt Practices Act (FCPA) counts related to an alleged scheme to bribe Indonesian officials to secure a power plant project for an Alstom subsidiary in Connecticut. This is the second time the Second Circuit has weighed in on the case. In August 2018, the Second Circuit held that in order to convict Hoskins, a non-U.S. person employed by a UK subsidiary of a French engineering company who did not travel to the United States during the scheme, of violating the FCPA, the U.S. Department of Justice (DOJ) would have to prove at trial that he was an “agent” of the Connecticut subsidiary. In November 2019, a federal jury found that DOJ had made that showing and convicted Hoskins of FCPA (and money laundering) charges. However, in February 2020, Judge Arterton granted Hoskins’ motion for acquittal on the FCPA charges (but not the money laundering charges), finding that the Connecticut subsidiary did not exercise sufficient control over Hoskins’s actions to establish an agency relationship. A divided Second Circuit panel agreed. According to the majority, “[w]hile there is some evidence that Hoskins supported API [the Connecticut subsidiary] in his working relationship with the corporation, it is not sufficient to establish that API exercised control over the scope and duration of its relationship with Hoskins. Without this control over the relationship, there can be no finding of a principal‐agent relationship within the meaning of the FCPA.”

 

According to the dissent, however, “[t]o prove the existence of an agency relationship under the circumstances of this case, the Government was not required to show that API could cut Hoskins out of the scheme entirely. It had to prove only that API could terminate his involvement—and thus revoke his authority—at least in part.” The dissent believed that the Government had made that more limited showing and would have reversed the district court’s order. The dissent also expressed concern that allowing Hoskins to avoid liability for his actions “creates an incentive that Congress could not have wanted: U.S. companies will be motivated to organize themselves to avoid exercising control over the employees of foreign affiliated companies who engage in bribery overseas.” The dissent expressed additional concern that the majority’s ruling could put the United States in violation of the OECD Anti‑Bribery Convention. (See our November 2020 Top 10 for more on the OECD’s review of whether the first Hoskins decision violated the Anti-Bribery Convention.)

 

DOJ has asked the Second Circuit for additional time to consider requesting en banc reconsideration of the panel’s decision. If not overturned on rehearing, the second Hoskins decision will likely dissuade DOJ from bringing FCPA “agency” charges against certain foreign nationals, at least in the Second Circuit, and will force DOJ to turn to other charges, such as money laundering and wire fraud, that require a different jurisdictional nexus to the United States.

On August 19, DOJ announced that a federal jury in the District of Columbia had convicted the Former Director of Operations of the U.S. Navy’s Military Sealift Command Office in South Korea, Fernando Xavier Monroy, for conspiracy to commit bribery and lying to U.S. federal investigators. DOJ alleged that Monroy conspired with the captain of the USNS Charles Drew, James Driver, to steer business and pass confidential and proprietary U.S. Navy emails and information to the owner of DK Marine, a South Korea-based company that provided services to the U.S. Navy. In exchange, Monroy allegedly accepted bribes from the company’s owner in the form of cash and trips to the Philippines and Thailand, entertainment, meals, and sex workers. The jury also convicted Monroy for repeatedly lying to special agents of the Defense Criminal Investigative Service (DCIS) and Naval Criminal Investigative Service (NCIS) during a voluntary interview in July 2019. Monroy is scheduled to be sentenced on November 18, 2022.

On August 24, 2022, DOJ announced that Rixon Rafael Moreno Oropeza, a Venezuelan national, had been indicted in the Southern District of Florida in connection with a bribery and money laundering scheme. According to DOJ, from 2015 through 2019, Oropeza engaged in a scheme to obtain multimillion-dollar contracts from Petropiar, a joint venture between Venezuela’s national oil company, Petróleos de Venezuela, S.A. (PDVSA), and an American oil company, by paying bribes to senior officials at the joint venture. As part of the scheme, Oropeza allegedly agreed to pay $1 million to a senior official in the Venezuelan government in exchange for the appointment of a senior official in the procurement division of Petropiar, and sent millions of dollars in payments to senior Petropiar officials from accounts he controlled in South Florida. DOJ alleges Oropeza received over $30 million in payments on contracts from the Venezuelan joint venture and used those proceeds to purchase real estate, a private jet, and luxury vehicles in South Florida.

On August 23, 2022, DOJ announced that it planned to return to Nigeria approximately $23 million in forfeited assets traceable to corruption and money laundering by former Nigerian dictator Sani Abacha and his co-conspirators. According to DOJ, the money will be used to support the construction of a bridge, an expressway, and a road in Nigeria. To date, DOJ has repatriated approximately $334.7 million related to this case. On August 31, 2022, DOJ announced the sharing of approximately $686,000 in forfeited criminal proceeds to the Republic of Peru linked to the corruption and bribery of former Peruvian President Alejandro Celestino Toledo Manrique by a Brazil-based global construction conglomerate. The forfeited assets represent the proceeds from the sale of Maryland real estate that Toledo and his family allegedly purchased with bribe money.

On August 12, 2022, the U.S. Department of State announced the decision to designate Paraguayan Vice President Hugo Velazquez and Yacyretá Bi-National Entity Legal Counsel Juan Carlos Duarte for involvement in “significant corruption,” including bribery of a public official and interference in public processes. Duarte, a close personal and professional associate of Vice President Velazquez, allegedly offered a bribe to a Paraguayan public official in order to obstruct an investigation that threatened the Vice President and his financial interests. Immediately following the designation decision, Velasquez announced he would resign from his position as Vice President and that he would no longer run for election as Paraguay’s President in the country’s upcoming elections. Velazquez later indicated that he had temporarily withdrawn his resignation pending the receipt of information from the U.S. government about the alleged bribe.

On August 11, 2022, the Inter-American Development Bank (IDB) announced it would debar the Brazilian Sociedad Anónima de Obras y Servicios Copasa do Brasil for 18 months based on allegations of $1 million in bribes paid between 2013 and 2015 to a public official in connection with road construction contracts in Brazil. IDB stated that one of the company’s managers was aware that the public official had solicited bribes but did not report the misconduct to the authorities. A different company manager then authorized bribe payments and concealed them by misrepresenting project expenses. According to IDB, the company fully cooperated with the investigation and received a significantly reduced sanction reflected in the Negotiated Resolution Agreement. As part of the settlement terms, the company agreed to not contest its responsibility for the conduct of both managers and to provide regular reports on its compliance programs via an independent compliance consultant.

On August 17, 2022, Japanese prosecutors arrested Haruyuki Takahashi, a former member of the 2020 Tokyo Olympics organizing committee. Between 2017 and 2021, Takahashi allegedly received approximately $360,000 in bribes from Aoki Holdings, an operator of an office wear chain in Japan, in return for providing the company with favorable treatment during the Olympics sponsorship and licensing process. The company designed the uniforms for the Japanese Olympic and Paralympic teams, considered by many as a surprise choice given that other countries contracted with sportswear and fashion brands to design their teams’ uniforms. Prosecutors stated that three company officials made more than 50 payments to accounts controlled by Takahashi, a former senior managing director at a multinational advertising conglomerate. After a series of raids in July 2022 at his home and office, Takahashi was formally charged on September 6, 2022.

On August 25, 2022, India’s Central Bureau of Investigation (CBI) announced that it had arrested Gautam Khaitan on suspicion of funneling approximately $5.76 million in bribe payments from various subsidiaries of Embraer S.A., a Brazilian aircraft manufacturer, to UK-based middleman Vipin Khanna. The CBI alleged that Khanna used these funds as kickbacks in order to facilitate a $210 million deal in 2008 between the aircraft manufacturer and India’s Defence Research and Development Organisation for three EMB-145 aircraft fitted with airborne early warning and control systems. The agency originally began its investigation in September 2016 following reports by a Brazilian newspaper that the company used middlemen to broker deals in Saudi Arabia and India. India’s Enforcement Directorate then launched a separate probe which concluded that Khaitan played an instrumental role in laundering the proceeds of the $5.76 million. Khaitan remains in judicial custody. In October 2016, Embraer resolved related allegations with U.S. and Brazilian authorities. (For another example of an Indian prosecution following an FCPA enforcement action, see our August 2015 and September 2015 Top 10s.)

On August 9, 2022, China’s Central Commission for Discipline Inspection (CCDI) announced investigations of potential graft and other financial misconduct by current and former executives at Sino IC Capital, the company responsible for managing China’s semiconductor investment fund (also known as the Big Fund). Du Yang (former director), Liu Yang (former general manager), and Yang Zhengfan (deputy manager), are the most recent targets of the CCDI’s current investigation, but the agency previously said it was investigating former Big Fund leader Ding Wenwu and his predecessor Lu Jun for similar misconduct. Founded in 2014, the Big Fund was created to strengthen China’s domestic semiconductor industry and achieve parity with U.S. and South Korean manufacturing capabilities. The Big Fund has traditionally kept investment standards outside of the public eye, but continuing crackdowns may indicate a need for greater transparency and accountability, and companies involved in the semiconductor industry in China should monitor this investigation closely.

On August 1, 2022, the Register of Overseas Entities (the “Register”) came into force in the UK through the new Economic Crime (Transparency and Enforcement) Act 2022 (the “Act”). The Register is held by Companies House and requires overseas entities that own land or property in the UK, or who want to buy, sell, or transfer property or land in the UK, to declare their beneficial owners and/or managing officers. Failure to comply with the Act could result in fines of up to £2,500 per day or a term of imprisonment of up to five years, in addition to restrictions on buying, selling, transferring, leasing, or charging property or land in the UK. Proposals to establish some type of register have been proposed in the UK for some time (see, for example, our discussion of the UK Anti‑Corruption Strategy 2017-2022 in our December 2021 Top 10), but the Act that established the Register was passed in response to Russia’s February 2022 invasion of Ukraine. Even before the invasion, certain components of the UK government had been concerned about the impact of Russian corruption in the UK. (See, for our example, our discussion of a report by the UK Parliament Foreign Affairs Committee in our May 2018 Top 10.) Other countries, including the United States, have similarly taken steps to promote the disclosure of beneficial ownership as an anti-corruption measure. (See our discussion of U.S. efforts in our December 2020 Top 10.) Some critics of the Register say that it does not go far enough and should require disclosure of the true owners of UK land and property, not just of those owned by companies.