Turkey: 2019 FCPA Enforcement Actions And Highlights

So far, 2019 has seen less activity in terms of enforcement actions under the Foreign Corrupt Practices Act ("FCPA"), compared to 2018. In 2019, the United States Department of Justice ("DOJ") took a total of 22 enforcement actions, ¹ and the Securities and Exchange Commission² ("SEC") took a total of 11 enforcement actions.³

DOJ Declination Decisions

The DOJ had been investigating violations of the FCPA by Quad/Graphics Inc. ("Quad"), due to the fact that it had uncovered evidence relating to Quad's Peruvian subsidiary paying or promising to pay over USD 1 million to third-party intermediaries, which were partly used to pay bribes to Peruvian government officials for securing printing contracts with government agencies, minimizing penalty payments related to delayed execution of contracts with government agencies and owed tax payments. In September 2019, the DOJ announced that it would decline to proceed with the prosecution of Quad, on the grounds that Quad had voluntarily self-disclosed and fully cooperated with the investigation, and because it did not have any prior criminal history, and had agreed to disgorge to the SEC for the full amount of its ill-gotten gains.

In February 2019, the DOJ announced its declination decision pertaining to Cognizant Technology Solutions Corporation ("Cognizant"). Per the announcement, the DOJ had found that Cognizant had authorized its agents to pay around USD 2 million in bribes to government officials in India, in exchange for securing and obtaining a statutorily required planning permit in connection with the development of an office park in India, in addition to other projects that were also located in India. The DOJ declined Cognizant's prosecution on the grounds that Cognizant had voluntarily self-disclosed and fully cooperated with the investigation, and because it did not have any prior criminal history, operated an existing and effective compliance program, had fully remedied the situation, and had agreed to disgorge the amount that had been saved by the company by paying bribes.

DOJ Enforcement Actions – Highlights

In March 2019, the DOJ closed its investigation with regard to Fresenius Medical Care AG & Co. KGaA ("Fresenius"), a German-based provider of medical products and services. Fresenius admitted to knowingly and wilfully failing to implement reasonable internal accounting controls over its financial transactions and to maintain books and records that accurately and fairly reflected their transactions in Angola, Saudi Arabia, Spain, Turkey, Morocco and other countries in West Africa. Fresenius had also been involved in bribery schemes relating to bribing public health and government officials in order to win business in Angola and Saudi Arabia from 2007 to 2016. Fresenius agreed to pay a total of USD 231 million for criminal penalties and disgorgement in order to resolve both SEC and DOJ investigations.

In March 2019, the DOJ closed its investigation with regard to Mobile TeleSystems PJSC ("MTS"), a Russian-based telecommunications provider. According to the DOJ's report, MTS's wholly owned Uzbek subsidiary, Kolorit Dizayn Ink LLC ("Kolorit"), paid USD 420 million in bribes to an Uzbeki government official through equity transactions with the government official, sham contracts, and in the form of charitable contributions or sponsorships at the direction of the government official, in exchange for a telecommunications license and other government benefits in Uzbekistan, which generated more than USD 2.4 billion in revenues. MTS and Kolorit agreed to pay a combined penalty of USD 850 million to the DOJ to resolve the charges, in addition to the USD 100 million to be paid to the SEC to resolve the charges regarding MTS's violations of anti-bribery, books and records, and internal accounting control provisions.

In June 2019, the DOJ closed its investigation with regard to the wholly owned Hungarian subsidiary of Microsoft Corporation, Microsoft Magyarorszag Szamitastechnikai Szolgaltato es Kereskedelmi Kft ("Microsoft"). According to the report, from 2013 to June 2015, one senior executive and also other employees of Microsoft falsely represented that they had to apply steep discounts in order to sell software licenses and related products to resellers who were bidding to sell the licenses to the Hungarian government. However, the lower prices were not passed on to the government customers, and were instead retained in the Microsoft records and subsequently used to fund corrupt payments to government officials. Microsoft agreed to pay a criminal penalty of more than USD 8.7 million to resolve the FCPA violations.

In June 2019, the DOJ closed its investigation with regard to Walmart Inc. ("Walmart") and WMT Brasilia S.a.r.l. ("Walmart Brazil"), Walmart's subsidiary based in Brazil, on the grounds that they had failed to operate an adequate anti-corruption compliance program for more than a decade. Accordingly, Walmart personnel who were responsible for implementing and maintaining the company's internal accounting controls were aware of certain compliance failures, including those relating to potentially improper payments to government officials. The internal controls failures allowed Walmart's foreign subsidiaries in Mexico, India, China and Walmart Brazil to hire third-party intermediaries without establishing sufficient controls to prevent those third-party intermediaries from making improper payments to government officials. Walmart Brazil, despite repeated findings in internal audit reports that such controls had been lacking, continued to retain and renew contracts with third-party intermediaries without conducting the required due diligence. Walmart Inc. and its Brazil-based subsidiary agreed to pay approximately USD 137 million to the DOJ and more than USD 144 million to the SEC, to resolve their violations of the FCPA.

SEC Enforcement Actions – Highlights

In May 2019, a Brazil-based telecommunications company, namely Telefonica Brasil S.A. ("TB"), paid a civil penalty of USD 4,125,000 to settle the SEC's charges for violating the FCPA's provisions on books and records and internal accounting controls, arising from the company's failure to devise and maintain sufficient internal accounting controls over a hospitality program that the company had hosted in connection with the 2014 World Cup and the 2013 Confederations Cup. According to the SEC, TB provided tickets and hospitality to government officials who were directly involved with, or in a position to influence, legislative actions, regulatory approvals, and business dealings involving TB.

In August 2019, Deutsche Bank AG ("Deutsche Bank") agreed to pay a civil penalty of more than USD 16 million to settle the SEC's civil charges for violating the FCPA by hiring relatives of foreign government officials upon foreign officials' request, in order to improperly influence them in connection with its investment banking business.

In August 2019, Juniper Networks, Inc. ("Juniper"), a California-based networking and cyber security solutions company, paid the SEC a penalty of USD 11,700,000 to settle the SEC's charges for violating the FCPA's provisions on books and records and internal accounting controls. According to the SEC, certain sales employees of Juniper's Russian subsidiary secretly agreed with third-party distributors to fund leisure trips for customers, including government officials through the use of off-book accounts.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in December 2019. A link to the full Legal Insight Quarterly may be found here

Footnotes