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 will be the impact of the first coordinated foreign bribery resolution between French and U.S. authorities? Who has been appointed to lead the UK Serious Fraud Office? What changes are being proposed to the U.S. Securities and Exchange Commission’s whistleblower program? The answers to these questions and more are here in our June 2018 Top Ten list.
1. DOJ Announces First Coordinated Foreign Bribery Resolution with France. On June 4, 2018, the U.S. Department of Justice (DOJ) announced that French financial services company Société Générale S.A. (SocGen) and its wholly owned subsidiary, SGA Société Générale Acceptance N.V. (SGA), had agreed to pay a combined total of $860 million in criminal penalties to resolve charges by U.S. and French authorities that it bribed Libyan officials during the Gaddafi regime and manipulated LIBOR. Between 2004 and 2009, SocGen paid over $90 million in commissions to a Libyan “broker,” who allegedly paid portions of the commissions to high-level Libyan officials to secure thirteen investments and one restructuring from Libyan state-owned financial institutions worth approximately $3.66 billion in total. SocGen agreed to pay a total criminal penalty of $585 million to DOJ in connection with the bribery scheme, pursuant to a deferred prosecution agreement (DPA) filed in the Eastern District of New York against the parent company and a guilty plea by the subsidiary. Half of this penalty will be paid to French authorities and credited by DOJ, marking the first coordinated resolution with French authorities in a foreign bribery case. DOJ declined to impose a monitor, citing significant remediation and ongoing monitoring by L’Agence Française Anticorruption. SocGen also agreed to pay $475 million in regulatory penalties and disgorgement to the Commodity Futures Trading Commission in connection with the alleged LIBOR scheme. Building on recent reforms in its anti-corruption regime (see our March 2016 and November 2017 Top Tens for more), France’s involvement in this foreign bribery prosecution could mark a major turning point in international anti-corruption efforts. France has long been criticized for failing to prosecute its own companies for foreign bribery, often leaving the United States to fill the void.
2. UK Serious Fraud Office Charges Monaco-based Consulting Companies in Iraq Bribery Investigation. On June 28, 2018, the UK Serious Fraud Office (SFO) announced that it had commenced criminal proceedings against Unaoil Ltd. and Unaoil Monaco SAM as part of an ongoing prosecution involving alleged corruption in Iraq. Unaoil Ltd. was summonsed with two offenses of conspiracy to give corrupt payments to secure the award of a contract worth $733 million to Leighton Contractors Singapore PTE Ltd for the construction of two oil pipelines in southern Iraq. Unaoil Monaco SAM was summonsed with two offenses of conspiracy to give corrupt payments to secure the award of contracts in Iraq to its client SBM Offshore NV. In November 2017, the SFO charged two Unaoil executives and two former SBM executives in relation to the alleged corrupt payments to secure the award of contracts in Iraq to SBM, and in May 2018, the SFO charged the same two Unaoil executives in relation to alleged corrupt payments to secure the contract to Leighton Contractors Singapore PTE Ltd. The companies are scheduled to appear in Westminster Magistrate’s Court in London on July 18, 2018.
3. New Director of UK Serious Fraud Office Named. On June 4, 2018, the UK Attorney General announced that Lisa Osofsky has been appointed as the new Director of the SFO. Osofsky has over 30 years’ experience in financial crime in the United States and the United Kingdom. She began her career as a U.S. federal prosecutor dealing with white collar crime and prosecuted over 100 cases on behalf of the U.S. government. She also spent five years as the Deputy General Counsel and Ethics Officer at the Federal Bureau of Investigation, three years as the Money Laundering Reporting Officer at Goldman Sachs International, and seven years in the Corporate Investigation Division of Control Risks. Osofsky comes to the SFO from Exiger’s London office, where she has been leading the firm’s investigative, compliance, and assurance activities. Her tenure starts on September 3, 2018, for a renewable term of five years. Mark Thompson, who was appointed as Interim Director at the end of April 2018, will return to his position as Chief Operating Officer at the SFO.
4. Update on Corruption Prosecutions Involving Aruban and Honduran Nationals.
Aruban Official Sentenced to Three Years’ Imprisonment and Restitution of Over $1.3 Million. On June 27, 2018, DOJ announced that Egbert Yvan Ferdinand Koolman, a former official of Aruban state-owned telecom Servicio di Telecommunicacion di Aruba N.V. (Setar), was sentenced in the Southern District of Florida to three years in prison and ordered to pay over $1.3 million in restitution following his April 2018 guilty plea to one count of conspiracy to launder $1.3 million in bribe payments he received from individuals and companies located in the United States and abroad in exchange for using his position at Setar to award lucrative mobile phone and accessory contracts.
Honduran National Pleads Guilty to Laundering Over $1 Million in Honduran Kleptocracy Proceeds. On June 28, 2018, DOJ announced that Carlos Zelaya, a Honduran national, had pleaded guilty in the Eastern District of Louisiana to one count of conspiracy to commit money laundering. In May 2018, Zelaya was charged with conspiring with his brother, the former Executive Director of the Honduran Institute of Social Security, to launder $1.3 million in bribe payments from two Honduran businessman, as well as profits he obtained from lucrative Honduran government contracts using his brother’s high-ranking official position.
5. U.S.-based Investment Firm Resolves Libya Bribery Allegations with DOJ. On June 4, 2018, DOJ announced that a U.S.-based investment firm had entered into a non-prosecution agreement and agreed to pay $64.2 million to resolve allegations that the firm, through a subsidiary, participated in the same Gaddafi-era Libyan bribery scheme alleged in the SocGen case. Between 2004 and 2010, the subsidiary partnered with SocGen to solicit business from state-owned financial institutions in Libya. The subsidiary managed seven of the investments allegedly obtained corruptly as a result of payments to the Libyan “broker.” The $64.2 million payment includes a penalty of $32.625 million and disgorgement of $31.617 million. According to the DOJ press release, the latter amount “will be credited against disgorgement paid to other law enforcement authorities within the first year of the agreement.” This likely foreshadows an eventual Securities and Exchange Commission (SEC) resolution for the firm.
6. OECD Working Group on Bribery Releases Phase 4 Reports Focusing on Germany and Norway. On June 21, 2018, the Organisation for Economic Co-operation and Development (OECD) Working Group on Bribery released reports on Germany and Norway’s enforcement of the OECD Anti-Bribery Convention. All parties to the Convention are subject to a rigorous peer review process, Phase 4 of which focuses on the evaluated country’s enforcement of the Convention and considers the country’s particular challenges and positive achievements. The first Phase 4 reports (focusing on the UK and Finland) were released in March 2017.
With respect to Germany, the Working Group found that Germany “is among the highest enforcers of the Anti-Bribery Convention” and commended it for “its focus on holding culpable individuals liable.” But the Working Group raised concerns about Germany’s low corporate enforcement rate and inconsistent approach to holding companies liable across the different states in Germany. The Working Group also noted that Germany could improve its penalty and whistleblower regimes.
With respect to Norway, the Working Group recognized that the country’s law enforcement institutions have “demonstrated commitment and ability in combating foreign bribery,” but warned that Norway’s new Penal Code “could create obstacles to enforcement.” The Working Group expressed concern that the Code could narrow jurisdiction over foreign bribery committed by Norwegians abroad. The Working Group also recommended that certain areas of the law should be clarified to enhance the effectiveness of corporate liability, including in relation to the operations of foreign subsidiaries and other intermediaries.
7. Federal Judge Holds that Certain Corporate Monitorship Documents Cannot be Withheld Under FOIA Exemptions. On June 13, 2018, U.S. District Judge Rudolph Contreras of the District Court for the District of Columbia ruled that DOJ could not withhold certain documents related to Siemens’ FCPA compliance monitorship under the Freedom of Information Act (FOIA). Judge Contreras found that the FOIA exemptions DOJ claimed were overbroad and ordered DOJ to reexamine its redactions and withholdings of other documents related to the monitorship. The litigation began in 2014 when 100Reporters, an investigative news organization, sued DOJ over the Department’s denial of its FOIA request for documents related to the Siemens monitorship, which was imposed in 2008 as part of the company’s landmark $800 million FCPA resolution. The Court found that certain documents, including nearly all of the monitor’s annual work plans and the identities of the monitorship team, were not protected by FOIA’s confidential commercial information exemption because “the monitor’s process and methodology are not ‘instrumental’ to Siemens’ commercial interests.” In contrast, the court found that the monitor’s annual reports fell under FOIA’s deliberative process exemption because they contained the monitor’s analysis of the company’s compliance efforts. If upheld on appeal, the Siemens FOIA case could have implications beyond the FCPA context, wherever a monitorship requirement has been imposed.
8. U.S. Supreme Court Holds that SEC Administrative Law Judges are Subject to the Constitution’s Appointments Clause. On June 21, 2018, in Lucia v. Securities & Exchange Commission, the U.S. Supreme Court held in a 7-2 decision that SEC administrative law judges (ALJs) are “officers of the United States,” subject to the Constitution’s Appointments Clause (Art. II, § 2, cl. 2), because they exercise significant authority in hearing and ruling on disputes, and therefore must be appointed by the president or head of the agency, rather than hired by SEC staff through the civil service process. The Court’s decision reverses the D.C. Circuit’s August 2016 holding that SEC ALJs are employees who did not have to be appointed in conformance with the Appointments Clause. The immediate practical impact of the decision is that petitioner Raymond Lucia, who was found liable by an SEC ALJ of one count of violating the Investment Advisors Act of 1940, will receive a new hearing before “a properly appointed official.” The long-term practical impact of the decision with respect to the SEC remains to be seen. On November 30, 2017, SEC ratified its prior appointment of certain ALJs and directed ALJs to review their actions in all open administrative proceedings to determine whether to ratify those actions, in an effort to resolve constitutionality concerns. Although Lucia argued that the Commission’s ratification order was invalid, the Court declined to address that argument and ruled only that a different, “properly-appointed” ALJ must hear Lucia’s case in the new hearing. Although not an FCPA case, Lucia is important because most settled SEC FCPA resolutions are filed as administrative proceedings.
9. SEC Pursues Legislative and Regulatory Amendments.
SEC Chairman Asks Congress to Expand SEC Power to Claw Back Ill-Gotten Gains. On June 21, 2018, SEC Chairman Jay Clayton testified before the U.S. House of Representatives’ Committee on Financial Services, asking for expanded authority to recover funds and return them to investors, even in cases where a fraud is “well-concealed and stretches beyond the five-year limitations period applicable to penalties.” Clayton’s request was in reaction to the Supreme Court’s June 2017 decision in Kokesh v. SEC, which limited SEC to a five-year statute of limitations when seeking disgorgement. Such an amendment could have significant implications for disgorgement in FCPA cases, as suspected FCPA violations are often discovered near or after the five-year limitations period.
SEC Proposes Amendments to Whistleblower Rules. On June 28, 2018, SEC voted to propose amendments governing its whistleblower program, subject to public comment. One of the proposed amendments would ensure that whistleblowers are eligible to receive awards if their tips lead to a DPA or NPA with DOJ or a settlement agreement entered into by SEC outside of the context of a judicial or administrative proceeding. In light of the prevalence of DPAs and NPAs in FCPA cases, this amendment could significantly expand the amounts of the awards available to whistleblowers in foreign bribery cases. The proposed amendments would also, among other things, establish a uniform definition of “whistleblower” and afford anti-retaliation protection to individuals who report a claim to SEC “in writing.” The latter proposals are in response to the U.S. Supreme Court’s February 2018 decision in Digital Realty Trust, Inc. v. Somers, which overturned portions of SEC’s previous whistleblower rules. These amendments could incentivize whistleblowers (and whistleblower attorneys) to report claims to SEC rather than internally in order to obtain anti-retaliation protection.
10. Malaysian Taskforce Freezes Over 400 Bank Accounts in Connection with Sovereign Wealth Fund Investigation. Last month, we discussed the role of the 1Malaysia Development Berhard (1MDB) corruption investigation in bringing about the electoral defeat of Malaysia’s now former Prime Minister, Najib Razak, and the increased pace of the investigation in Malaysia. On June 29, 2018, a special taskforce of the Malaysian government investigating alleged misappropriation from 1MDB confirmed that it had frozen bank accounts owned by the United Malays National Organization (UMNO), the political party previously led by Najib. UMNO is alleged to have received funds from 1MDB when Najib was party leader. The taskforce claimed to have frozen more than 400 bank accounts belonging to numerous individuals and companies, with funds totaling $273 million, which it believes are linked to the misappropriation and misuse of 1MDB funds. The Malaysian police have also stated that jewelry, luxury watches, and other items valued at up to $274 million were seized from Najib’s residences. 1MDB, which was created by the Malaysian government to promote economic development in Malaysia through global partnerships and foreign direct investment, is being investigated for money laundering in several countries, including the United States, Switzerland, and Singapore. (See our July 2016, August 2016, June 2017, December 2017, and May 2018 Top Tens for more on 1MDB.)