Worldwide: The Asia Pacific Top Ten FCPA Enforcement Actions Of 2019

Overview

Of the record-breaking USD 2.9 billion in fines imposed by US authorities in 2019 for violations of the Foreign Corrupt Practices Act (FCPA), almost 95% involved Asia Pacific, primarily China and India, but also Indonesia, Vietnam, Thailand, and South Korea.

This year, the US Department of Justice (DOJ) and the Securities & Exchange Commission (SEC) had cases against well-known multinational corporations operating in the region, and continued their emphasis on individual accountability, announcing prosecutive actions against 35 individuals in 2019,¹ including several former Alstom executives for bribery in Indonesia; former Goldman Sachs executives in connection with Malaysian sovereign wealth fund (1MDB); and the former president, CEO, and Chief Legal officer of Cognizant accused of paying bribes in India.

Here is a roundup of the top-ten FCPA enforcement actions in Asia Pacific.

1. Telefonaktiebolaget LM Ericsson (Ericsson)

In the largest FCPA settlement to date, Ericsson, a Sweden-based telecommunications company, agreed in December to pay penalties totaling more than USD 1 billion to the SEC and DOJ to resolve allegations of FCPA violations in 16 countries, including China, Indonesia, and Vietnam. The company entered into a deferred prosecution agreement (DPA) with DOJ, consented to an injunction with the SEC, and agreed to a three-year compliance monitor. Its Egyptian subsidiary pled guilty to FCPA conspiracy charges.

Ericsson admitted that it operated a scheme that spanned five countries and 17 years. In China, it made payments to agents, consultants, and other service providers to fund gifts, travel, and entertainment for state-owned telecommunication company officials to win their business. In Vietnam and Indonesia, Ericsson's local subsidiary paid a consulting company to create off-the-books slush funds, using code names and creating sham transactions and invoices.

Takeaway: According to DOJ, Ericsson did not receive full credit for cooperation and remediation because of the seriousness and scope of the misconduct, its failure to disclose allegations of corruption, to produce certain materials in a timely manner, and to adequately discipline employees as part of its remediation.  

2. Fresenius Medical Care AG (FMC)

In March, FMC, a German-based company that provides dialysis equipment and services, agreed to pay more than USD 231 million in penalties, disgorgement, and prejudgment interest, pursuant to an SEC cease and desist order and a non-prosecution agreement (NPA) with DOJ, which also required a two-year monitorship. FMC admitted that it paid bribes for years in 17 countries, including China.  

Takeaway: DOJ found that FMC did not qualify for a declination under the Corporate Enforcement Policy (CEP), although it submitted a voluntary self-disclosure (VSD) because of the breadth of the bribery and because the company "did not timely respond to certain requests by the [DOJ] and, at times, did not provide fulsome responses to requests for information."

3. Microsoft

Another example of a well-known multinational company running into the FCPA buzzsaw was Microsoft's July 2019 settlement with DOJ and the SEC for a total of USD 25.3 million to resolve alleged bribery in four countries, including Thailand. Microsoft Corp. resolved its liability with the SEC, paying disgorgement and prejudgment interest, for actions of its overseas subsidiaries. The SEC found that Microsoft's subsidiary in Thailand funded technology equipment and travel to government officials through slush funds maintained by third party vendors and resellers. 

While Microsoft did not receive credit for a VSD, it did get credit from both the SEC and DOJ for its full cooperation and remedial measures.

Takeaway: A reminder that incorporation of financial data of a foreign subsidiary into the parent corporation's books and records is sufficient to trigger the books and records provision in the FCPA.

4. Samsung Heavy Industries

In November 2019, Samsung, a South Korean engineering company, agreed to enter into a DPA with DOJ to pay penalties of more than USD 75 million, half of which would be paid to Brazilian authorities, for FCPA violations by its US subsidiary uncovered as part of the larger investigation of Petrobras, a state-owned entity. Samsung Heavy Industries admitted that its subsidiary paid commission payments to an intermediary knowing that some would be used for bribes to encourage Petrobras to enter into a contract to charter a drill ship Samsung was selling to a US company.  

Takeaway: DOJ asserted its jurisdiction against a South Korean company that bribed officials in Brazil, based on the involvement of the company's US branch office.

5. Lawrence Hoskins

On November 8, 2019, a jury convicted UK citizen Lawrence Hoskins, a former Alstom executive, on bribery and money-laundering in Indonesia. The conviction was based on DOJ's proof that Hoskins, who had never stepped foot in the United States, had acted as an agent for a "domestic concern," Alstom's US subsidiary. Two other Alstom executives, whose guilty pleas were announced in 2019, testified in the Hoskins trial.

Takeaway: The US Court of Appeals for the Second Circuit had narrowed the jurisdictional bases for liability for non-US persons in 2018, ruling against DOJ's expansive reading of the FCPA to include conspiracy. Despite that appellate setback, DOJ will use Hoskins' conviction to pursue non-US defendants as agents, where they would not otherwise be covered by the FCPA.

6. Cognizant Technology Solutions

Cognizant resolved allegations of bribes paid through a contractor to Indian government officials for building permits in February. The resolution involved an SEC cease and desist order with a civil fine of USD six million, as well as disgorgement and prejudgment interest of USD 19 million. DOJ issued a "declination with disgorgement" letter, requiring an additional USD three million disgorgement of profits (outside the SEC's statute of limitations), based on its VSD, cooperation, and remediation. DOJ and the SEC also charged the CEO and Chief Legal Officer for their approval of the bribery. The COO separately settled charges with the SEC in September 2019, paying a USD 50,000 penalty and agreeing to cooperate.

Takeaway: DOJ declined prosecution, despite the involvement of senior management, an aggravating factor according to the CEP, which could have negated the mitigative benefits of the VSD.

7. Other DOJ Declinations

Misonix (in June and August) and PAR Technology (in May) announced in their SEC filings that DOJ and SEC had concluded their investigations and decided not to bring charges. Both companies voluntarily disclosed the violations, fully cooperated, and undertook remedial measures. Misonix had disclosed misconduct by a distributor of the company's products in China. PAR disclosed it had made payments to customs officials in China and other actions in Singapore that lacked proper documentation.

Three other companies received declinations from DOJ but were penalized by the SEC.

• In August, Juniper Networks, a California-based tech company, entered into an SEC cease and desist order and agreed to pay a USD 11.7 million civil penalty. Two of Juniper's Chinese subsidiaries allegedly paid for government officials' travel, obtaining approval based on false trip agendas.
• In September, Quad/Graphics, a Wisconsin marketing company, paid almost USD 10 million to the SEC, to resolve allegations that its Chinese subsidiary used sham sales agents to make improper payments to government officials. The company had voluntarily disclosed, cooperated, and remediated.
• Also, in September, Westport Fuel Systems, a Canadian fuel technology company, and its former CEO resolved charges of bribery of a public official in China by paying USD four million and USD 120,000 respectively to the SEC. The company had allegedly transferred shares of stock to a Chinese private equity fund in which the government official held an interest.

Takeaway: Timely self-disclosure, full cooperation with authorities, and swift and appropriate remedial measures are factors that can increase the likelihood of receiving a DOJ declination.

8. Individual Accountability

In addition to Cognizant's C-suite and Westport's CEO, other individuals were held accountable for bribery in Asia, including:

9. Tourism Authority of Thailand

In January, DOJ dismissed an indictment against the former governor of Thailand's tourism authority, Juthamas Siriwan, and her daughter. The duo was charged in 2009 with laundering bribes they had received from Gerald and Patricia Green, film producers who sought Thai film festival contracts. For ten years, the Siriwans had fought extradition because the FCPA does not extend to bribe recipients, a limitation DOJ had attempted to overcome by charging money laundering. The US court considering the propriety of those charges stayed the Siriwans' motion to dismiss, while Thailand decided to prosecute the two, who were convicted and sentenced to 50 and 44 years. The Greens had been sentenced to six months following their FCPA convictions.

Takeaway: While DOJ did not obtain judicial approval in this early attempt to address demand-side bribery, the agency has increasingly asserted money laundering charges against foreign officials not otherwise subject to the FCPA, in addition to tax violations, mail and wire fraud, and other ancillary offenses. Similar FCPA-adjacent indictments were prevalent in 2019, and bribe recipients should expect further scrutiny in the future.

10. Princelings

After five years of investigations, two banks resolved charges related to their hiring of relatives of public officials in China. Deutsche Bank paid USD 16 million to the SEC in August for allegedly employing relatives at the request of executives of state-owned enterprises, with whom the bank was seeking business. In September, Barclays paid USD 6.3 million to the SEC related to allegations of hiring their clients' relatives by its Asia Pacific subsidiaries.

Takeaway: While hiring relatives of government officials is not prohibited, precautions should be taken to ensure their qualification, supervision, and insulation from influence over business opportunities.     

Conclusion 

In 2019, we saw some of the largest fines in the history of FCPA enforcement as well as the affirmation of the wide jurisdictional reach of the law. With a continued focus of DOJ on China, we anticipate the Asia Pacific region to remain a hot spot for FCPA enforcement in 2020. Companies will need to carefully consider how to investigate and remediate potential violations of the FCPA and whether to self-disclose those potential violations to US authorities in order to benefit from mitigation credit in any potential enforcement action.

Footnotes

1. This number includes 30 actions against 27 individuals announced for the first time in 2019, but also follow-on convictions and sentences in cases announced prior to 2019.  

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