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 is the latest guidance from the Department of Justice (DOJ) on corporate compliance programs? What did a newly-appointed DOJ official say about the future of FCPA enforcement efforts? What was the outcome of a foreign bribery prosecution in Canada? The answers to these questions and more are here in our February 2017 Top Ten list.
1. DOJ Publishes New Guidance on Evaluating Corporate Compliance Programs.
On February 8, 2017, DOJ’s Fraud Section published an “Evaluation of Corporate Compliance Programs.” The stated purpose of the guidance is to provide a list of “some important topics and sample questions that the Fraud Section has frequently found relevant in evaluating a corporate compliance program.” The guidance provides a list of 11 topics that DOJ finds relevant in assessing the effectiveness of compliance programs when undertaking an investigation. The list includes such topics as Analysis and Remediation of Underlying Misconduct; Senior and Middle Management; Confidential Reporting and Investigation; and Incentives and Disciplinary Measures. The guidance contains 119 specific questions a prosecutor might ask in the context of an investigation, for example, “[h]as the company reviewed and audited its compliance program in the area relating to the misconduct, including testing of relevant controls, collection and analysis of compliance data, and interviews of employees and third-parties?” The guidance focuses not just on remediation procedures in the context of misconduct, but also relevant policies and procedures and their operation prior to any misconduct having occurred. As such, it can provide useful direction for companies not only undertaking or responding to investigations but also designing or enhancing compliance programs, or simply wishing to benchmark an existing compliance program against the government’s expectations. This is the first guidance publicly issued by the Fraud Section since President Trump took office. The content is consistent with prior guidance, such as the factors listed in the FCPA Resource Guide and Pilot Program, and also reflects the influence of the Fraud Section’s Compliance Counsel, Hui Chen.
2. Former Executive of Hungary-Based Telecom Company Resolves FCPA Claims with SEC.
On February 8, 2017, Tamas Morvai, a former executive of Magyar Telekom Plc, agreed to pay a $60,000 civil penalty to settle civil FCPA charges brought against him and two other Magyar Telekom executives in 2011. According to the SEC complaint, Morvai, along with Elek Straub and Andras Balogh, violated the FCPA by authorizing €4.875 million in bribes to Macedonian officials in 2005 and 2006 to prevent the introduction of a competitor to the Macedonian telecommunications market and to receive other regulatory benefits. In September 2016, Southern District of New York Judge Richard J. Sullivan rejected the defendants’ claim that SEC had failed to allege a sufficient jurisdictional nexus for the charges, ruling that the defendants’ actions in connection with Magyar Telekom’s EDGAR filings satisfied the FCPA’s jurisdictional requirements. In reaching the settlement, Morvai neither admitted nor denied the allegations. Straub and Balogh are scheduled to begin trial on May 8, 2017. In 2011, Magyar Telekom resolved related allegations with SEC and DOJ by agreeing to pay $31.2 million in disgorgement and prejudgment interest and a $59.6 million criminal penalty.
3. Fugitive in Haiti Teleco Case Appears in Miami Federal Court.
On February 24, 2017, Amadeus Richers, the former general manager of Miami-based Cinergy Telecommunications, appeared in the Southern District of Florida to answer to FCPA and money laundering charges brought against him in a January 2012 superseding indictment. Richers and two other former Cinergy executives, Washington Vasconez Cruz and Cecilia Zurita, are accused of paying bribes to a series of Haitian officials in order to receive favorable treatment from Teleco, the state-owned and state-controlled telecommunications company of Haiti. All three have been considered fugitives since they were first charged in July 2011. The circumstances of Richers’ arrest were not readily apparent on the face of the docket. In March 2012, a Miami federal jury convicted former Teleco official Jean Rene Duperval of laundering bribes that he received from Cinergy and another Miami-based telecommunications company in exchange for various benefits, including reduced telecommunication rates. The Supreme Court denied Duperval’s petition for certiorari in January 2016. Eight other individuals were also convicted in connection with the Haiti Teleco investigation.
4. Austrian Appeals Court Approves Extradition of Ukrainian Billionaire to United States in Connection with India FCPA Allegations.
On February 21, 2017, an Austrian appeals court approved the extradition of Dmitry Firtash to the United States to face accusations that he conspired to pay at least $18.5 million in bribes to government officials in India to allow the mining of titanium minerals, in violation of the FCPA and other statutes. The decision reverses an April 2015 lower court ruling that extradition was improper because the charging decision was politically motivated. Firtash was indicted in 2013 in the Northern District of Illinois and was arrested in 2014 in Vienna, where he has resided ever since. Shortly after the appellate court decision, Firtash was taken into custody on a European arrest warrant related to a separate request by Spain, apparently on money laundering charges. Firtash’s arrest on the second warrant raises the possibility that he may be extradited to Spain rather than to the United States.
5. Texas-Based Oil Exploration Company Announces DOJ Declination in Angolan FCPA Investigation.
On February 9, 2017, Cobalt International Energy, Inc. issued a press release announcing that it received a letter from DOJ advising that the Department had closed its FCPA investigation into the company’s Angola operations. The investigation, along with a related SEC investigation, began in 2011 following allegations of a connection between senior Angolan officials and two Angola-based companies assigned to Cobalt’s exploration group in Angola. Despite having received a Wells Notice in August 2014, Cobalt announced in January 2015 that it had received a termination letter from SEC.
6. Jury Awards Life Sciences Company’s Former General Counsel nearly $11 Million in Whistleblower Retaliation Suit.
On February 3, 2017, a jury in the Northern District of California found that Bio-Rad Laboratories, Inc. violated the Sarbanes-Oxley Act’s whistleblower protections when it fired its former general counsel, Sanford Wadler, for reporting possible FCPA violations. According to Wadler’s June 2015 retaliation complaint, Wadler reported to the company’s audit committee in 2013 that he suspected the company had violated the FCPA in China. He was fired later that year. Wadler argued that he was fired for blowing the whistle, while the company argued he would have been fired anyway due to frequent outbursts, a lack of understanding of the company’s operations in China, and poor FCPA compliance in general. The jury agreed with Wadler, finding that his report to the board was protected whistleblower activity and was a substantial motivating reason for his termination. The jury awarded Wadler $2.9 million in back pay and stock compensation, and another $5 million in punitive damages. Because back pay damages are doubled, the total award amounted to $10.8 million. Prior to trial, United States Magistrate Judge Joseph Spero rejected the company’s October 2016 motion to exclude evidence and testimony by Wadler on the grounds that his claims are “inextricably intertwined” with its privileged and confidential information.
7. Foreign Bribery Prosecution Ends in Acquittals in Canada.
On February 10, 2017, two former SNC-Lavalin executives and a Bangladeshi-Canadian businessman were acquitted in Ontario Superior Court of charges that they had violated the Corruption of Foreign Public Officials Act by scheming to bribe Bangladeshi officials in connection with a multibillion-dollar contract to build the Padma Multipurpose Bridge. In January 2017, the Superior Court excluded evidence derived from a wiretap that the Royal Canadian Mountain Police had obtained based on information provided by the World Bank, which the court found amounted to uncorroborated speculation, gossip, and rumor. The prosecution elected to present no other evidence against the defendants, resulting in their acquittals. In 2014, the same Superior Court justice had ordered the World Bank to produce its investigative file in connection with the defendants’ motion challenging the wiretap. That order was reversed by the Canadian Supreme Court in April 2016 in a strongly worded opinion extolling the importance of cooperation between the World Bank and national law enforcement authorities. Canadian prosecutors had previously dropped charges against two other defendants. Although clearly a setback to Canada’s foreign bribery enforcement efforts, Canadian prosecutors were successful in their first ever COFPA prosecution, securing the conviction of Nazir Karigar in 2013 for plotting to bribe Indian officials to win a contract to provide security technology to a state-owned airline.
8. “Panama Papers” Lawyers Arrested in Panama.
On February 9, 2017, Panamian authorities reportedly raided the offices of Mossack-Fonseca, the law firm at the center of the Panama Papers controversy, and on February 11, 2017, reportedly arrested the name partners of the firm. Jurgen Mossack and Ramon Fonseca were taken into custody and formally detained in Panama City on money laundering charges related to “Operation Car Wash,” a sweeping investigation into alleged bribery involving Brazil’s state-owned oil company, Petróleo Brasileiro S.A. (“Petrobras”). Panama’s Attorney General reportedly highlighted that the one-year investigation that led to the arrests has been aided by prosecutors in Brazil, Colombia, Ecuador, Peru, Switzerland, and the United States, demonstrating the continued international reach of what began as a domestic corruption investigation in Brazil.
9. New Deputy Assistant Attorney General Discusses the “Continuity and Evolution” of FCPA Enforcement.
On February 16, 2017, Trevor McFadden, the newly appointed deputy assistant attorney general (DAAG) of DOJ’s Criminal Division, delivered keynote remarks at a conference in Washington, DC, in which he “highlight[ed] the continuity and evolution” of FCPA enforcement. After tracing the history of FCPA enforcement through the 1980s and 1990s, McFadden, likely seeking to underscore the bipartisan nature of FCPA enforcement, noted that the “most robust period of FCPA enforcement” began under President George W. Bush and continued under President Barack Obama. McFadden also stressed the institutionalized nature of FCPA enforcement, pointing to DOJ’s FCPA Unit (which he noted had grown to 31 attorneys since its formation in 2005), the FBI’s dedicated FCPA squads, and increased international cooperation. McFadden made three points regarding the future of FCPA enforcement: (1) Attorney General Sessions has said that DOJ will continue to enforce the FCPA and corruption laws generally; (2) Attorney General Sessions has said that DOJ will continue to hold individuals accountable, meaning that DOJ will continue to prosecute individuals for FCPA violations; and (3) three mitigating factors—self-disclosure, cooperation, and remediation—will continue to guide DOJ’s prosecution decisions and its efforts to further compliance goals. Although President Trump has yet to nominate anyone to lead the Criminal Division, McFadden’s responsibilities as DAAG include oversight of the Criminal Division’s Fraud Section, which has sole jurisdiction over criminal FCPA enforcement. For those wondering what FCPA enforcement will look like under the Trump administration, McFadden’s remarks provide at least one data point suggesting that FCPA enforcement may change at the margins but is unlikely to go away.
10. SEC Resource Extraction Disclosure Rules Repealed.
On February 14, 2017, President Trump signed into law a joint resolution of Congress that vacated SEC’s rules requiring resource extraction disclosures. The rules, mandated by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act and announced by SEC in June 2016, required resource extraction issuers to disclose payments made to governments for the commercial development of oil, natural gas, or minerals. (An earlier version of the rules was vacated in 2013 by the U.S. District Court for the District of Columbia.) The rules, similar to Canada’s Extractive Sector Transparency Measures Act (see our client alert) and several European initiatives, were designed to increase transparency and decrease corruption in the extractive industry. Critics argued that the rules went beyond SEC’s core mission and put American companies at a disadvantage. During a February 24, 2017 speech, SEC Acting Chairman Michael S. Piwowar said that he had asked the SEC staff “to take a fresh look at the rule mandate to determine how we can comply with our statutory obligations in a manner that better aligns with our core mission.”
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