United States: Top Ten International Anti-Corruption Developments For August 2016

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: Which companies resolved FCPA cases in August? What is the latest in the ongoing saga of a Ukrainian billionaire that the United States is seeking to extradite from Austria for FCPA violations? How does one avoid upsetting the Securities and Exchange Commission (SEC) about whistleblower restrictions in severance agreements? The answers to these questions and more are here in our August 2016 Top Ten list:

1. Texas-Based Well Servicing Company Resolves Mexico FCPA Accounting Allegations.

On August 11, 2016, SEC announcedit had resolved allegations that Houston-based Key Energy Services, Inc. improperly recorded as legitimate consulting expenses payments made to a contract employee at the Mexican state-owned oil company, Petróleos Mexicanos (Pemex), in exchange for inside information used to negotiate contracts with Pemex. According to the SEC Order, the company did not perform due diligence on the consulting firm that received the payments and did not enter into a written agreement or contract with the firm for several years. The country manager who arranged and approved the hiring of the consulting firm "knew that the Consulting Firm had ties to the Pemex employee and that payments to the Consulting Firm were used to funnel Key Mexico funds to the Pemex employee in exchange for his assistance with obtaining Pemex business, [but] . . . never disclosed the nature of this relationship to Key Energy." The Order further alleges that there was no evidence that the consulting firm performed any legitimate services for the company. In explaining its decision to seek $5 million in disgorgement and to forego a civil penalty, SEC cited the company's "current financial condition and its ability to maintain necessary cash reserves to fund its operations and meet its liabilities," as well as its cooperation with the investigation and its remedial actions. In April 2016, the company disclosed in a securities filing that DOJ had declined to prosecute the company.

2. British Pharmaceutical Company Resolves China, Russia FCPA Accounting Allegations.

On August 30, 2016, SEC announcedthat it had resolved allegations that U.K.-based pharmaceutical company AstraZeneca PLC (AZN) had violated the FCPA's books and records and internal controls provisions when its wholly owned subsidiaries gave gifts, cash, and other items to health care providers (HCPs) at state-owned and -controlled entities in China and Russia. According to the SEC Order, AZ China employees used various means to generate cash for the improper payments, including submitting fake fapiao(tax receipts), hiring a "collusive travel vendor" to submit fake or inflated invoices, and paying speakers fees for fabricated events. SEC alleged that AZ Russia employees provided "improper incentives" to government-employed HCPs in Russia, but the Order does not describe the means by which the incentives were provided. SEC also alleged that AZ China employees made cash payments to local Chinese government officials in 2008 in exchange for "reductions or dismissals of proposed financial sanctions against the subsidiary." The company agreed to pay more than $5 million--consisting of $4.325 million in disgorgement, $822,000 in prejudgment interest, and a $375,000 civil penalty--without admitting or denying the SEC's findings. According to SEC, the company did not self-report the FCPA violations but did provide significant cooperation and take remedial measures. DOJ appears to have declined to prosecute the company. AZN is the ninth company to resolve China-related FCPA allegations with SEC during this calendar year and the fourth pharmaceutical company to settle China-related FCPA allegations with SEC in less than a year (see our October 2015, February 2016, and March 2016 Top Tensfor the others).

3. Belgian Brewing Company Discloses DOJ Declination of India Allegations.

In 2013, Belgium-based Anheuser-Busch InBev SA/NV disclosed in its securities filingsthat SEC and DOJ were investigating potential FCPA violations involving the company's Indian operations. In an August 29, 2016 securities filing, the company disclosed that it had been notified in June 2016 that DOJ had closed its investigation into the matter. The company also noted that it is continuing to cooperate with the ongoing SEC investigation and "is in discussions with the SEC to resolve this matter."

4. Former Head of Non-Profit Sentenced to Twenty Months' Imprisonment for Bribing U.N. Official.

On August 4, 2016, the U.S. Attorney's Office (USAO) for the Southern District of New York announcedthat U.S. District Judge Vernon S. Broderick had sentenced Shiwei ("Sheri") Yan to 20 months' imprisonment for paying more than $800,000 in bribes to John Ashe, the former President of the United Nations General Assembly and former Permanent Representative of Antigua and Barbuda to the U.N. Judge Broderick also ordered Yan to forfeit $300,000. Yan, a naturalized U.S. citizen and the former CEO of the Global Sustainability Foundation, pleaded guilty in January 2016to one count of bribing an official of an organization receiving federal funds (rather than to violating the FCPA, even though Ashe was a "foreign official"). According to the USAO, the bribes began in 2012 and were intended to further the interests of certain Chinese business people in Antigua. Ashe was also charged with bribery-related offenses in October 2015, but the charges were dismissed after he died in June 2016.

5. Austrian Court Refuses to Hear Challenge to U.S.-Austria Extradition Agreement in FCPA Case.

In April 2015, an Austrian court denied a request to extradite Ukrainian billionaire Dmitri 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 Austrian prosecutor's office handling the U.S. extradition request appealed the denial, but the appeal was delayed when Firtash asked Austria's Constitutional Court to rule that the U.S.-Austria extradition agreement was unconstitutional. On August 19, 2016, the Constitutional Court reportedlyconfirmed to a German media outlet that it had refused Firtash's request, opening the way for the prosecution's appeal. This is an important case to watch, as the ability to extradite foreign residents is a critical component of DOJ's efforts to prosecute individuals for FCPA violations.

6. Consultant to Company Tied to U.S. Hedge Fund Charged with Alleged African FCPA Conspiracy.

On August 16, 2016, Samuel Mebiame, a Gabon national, was arrested and charged in the Eastern District of New York with conspiracy to violate the FCPA by bribing officials in three African nations in order to obtain mining rights for a joint venture, which included an anonymized U.S. hedge fund, and one of its portfolio companies.1 According to the complaint, Mebiame "worked as a 'fixer' to obtain rights to mineral concessions in Africa by routinely paying bribes to foreign government officials." The bribes allegedly included money, cars, travel, and shopping trips, among other things. Mebiame was charged with conspiring to violate the FCPA's territorial jurisdiction provision (15 U.S.C. § 78dd-3) and allegedly "took numerous steps while in the United States in furtherance of the [bribery] scheme."

7. SEC Fines Two Companies for Severance Agreements Restricting Whistleblowing.

As noted in its 2015 Annual Report (which was released in November 2015) and reflected in the April 2015resolution with KBR, SEC's Office of the Whistleblower is focused on preventing companies from using confidentiality, severance, and other kinds of agreements to restrict an individual's ability to report potential wrongdoing to the agency. In August 2016, SEC issued two additional orders that reflect that this remains a focus for the agency. On August 10, 2016, SEC announcedthat it had resolved allegations that Atlanta-based building products distributor BlueLinx Holdings Inc. had violated federal securities laws by using severance agreements that required outgoing employees to waive their rights to monetary recovery should they file a charge or complaint with the SEC or another federal agency or else risk losing their severance payments and other post-employment benefits. On August 16, 2016, SEC announcedthat it had resolved allegations that California-based health insurance provider Health Net, Inc. had violated federal securities laws for including similar language in its severance agreements. The companies agreed to pay penalties of $265,000 and $340,000, respectively, and to provide former employees who signed such agreements with the SEC's order and a statement that the company does not prohibit former employees from seeking or accepting whistleblower awards and, in the case of BlueLinx, from communicating with SEC.

8. Important Developments in SEC Practice.

As reflected in several previous Top Tens, we have been closely following the cases challenging SEC's abilities to obtain disgorgement and to institute administrative enforcement actions because of their potential impact on how SEC brings and resolves FCPA cases. In August 2016, there were significant developments on both fronts.

  • Appellate Court Upholds Appointment of SEC Administrative Law Judges.

    On August 9, 2016, the D.C. Circuit upheld the constitutionality of SEC's use of its own Administrative Law Judges (ALJs). The central issue in Lucia v. SECwas whether SEC ALJs are "inferior officers" covered by the Constitution's Appointments Clause (Art. II, § 2, cl. 2) or "employees" that are not. Because the SEC ALJ was undisputedly not appointed as the Clause requires, the defendants argued that the administrative proceeding was an unconstitutional procedure. In an earlier challenge, the D.C. Circuit had held that defendants in SEC administrative proceedings cannot go directly to federal district court to challenge the constitutionally of such proceedings. (See our June 2016Top Ten for a discussion of this and similar decisions.) In Lucia, the constitutional challenge was ripe for review because the defendants went through the SEC administrative process before petitioning the D.C. Circuit for review: they were found liable by the ALJ of one count of violating the Investment Advisors Act of 1940 in connection with their "Buckets of Money" investment strategy, and that decision was affirmed on appeal by the Commission, which considered and rejected the constitutional challenge. The D.C. Circuit held that SEC ALJs have not been delegated the authority to "issue final decisions of the Commission" because their initial orders become final only when the Commission issues a "finality order," thereby ensuring that "politically accountable Commissioners" affirmatively determine that an ALJ's decision is "to be the final action of the Commission." Accordingly, the court held, the ALJs were employees who did not have to be appointed in conformance with the Appointments Clause. The court then affirmed the Commission's decision of liability on the merits. As the first appellate decision addressing this issue, Luciamay have an important impact on similar upcoming cases in other circuits, for example in Bandimere v. SEC, No. 15-9586 (10th Cir. filed Dec. 22, 2015).
  • Circuit Split on Limitations Period for SEC Disgorgement.

    In May 2016, in SEC v. Graham, the Eleventh Circuit held that SEC claims for disgorgement are governed by the five-year statute of limitations period set out in 28 U.S.C. § 2462 for suits brought by the government to enforce "any civil fine, penalty, or forfeiture." On August 23, 2016, the Tenth Circuit reached a contrary result, agreeing with SEC that disgorgement is an equitable remedy not subject to § 2462's five-year limitations period. In SEC v. Kokesh, SEC brought an enforcement action against Charles Kokesh more than five years after he allegedly misappropriated funds from four SEC-registered business development companies. After a New Mexico jury returned a verdict in favor of SEC, the district court entered a final judgment ordering Kokesh to, among other things, disgorge $34.9 million. Kokesh appealed, arguing that the disgorgement order was precluded by § 2462's five-year limitations period. In rejecting Kokesh's position, the Tenth Circuit expressly disagreed with the holding in Grahamthat disgorgement is a "forfeiture" under § 2462. In so holding, the Tenth Circuit joined the First, Ninth, and D.C. Circuits, further deepening a circuit split with potential ramifications for SEC FCPA enforcement actions, which typically contain a disgorgement component.

9. Petrobras Class Action Stayed in U.S. While Political Turmoil Continues in Brazil.

In February 2016, Southern District of New York Judge Jed Rakoff certified two classes of plaintiffs alleging that Petroleo Brasileiro S.A. (Petrobras), the Brazilian state-owned oil company and a U.S. issuer, violated federal securities laws by making false and misleading statements regarding a multi-year, multi-billion dollar bribery and kickback scheme. Petrobras appealed the ruling and moved for a stay of the underlying litigation. On August 2, 2016, the Second Circuit granted the motion to stay.2Meanwhile, the tumultuous political situation in Brazil continued. On August 31, 2016, Brazil's Senate voted 61 to 20 to removePresident Dilma Rousseff from office for allegedly manipulating the budget to obscure the country's ballooning deficit. Former Vice-President Michael Temer, who was made interim President upon Rousseff's suspension in May 2016, was sworn in as President later that day and will serve the remainder of Rousseff's term through 2018. Temer, however, may face legal troubles of his own, as construction magnate Marcelo Odebrecht, who was convicted in connection with the Petrobras corruption investigation in Brazil (known as Operation Car Wash), reportedlytold Brazilian prosecutors that he contributed illegal funds to Temer's 2014 re-election campaign. Brazilian federal investigators also reportedlyannounced on August 26, 2016, that they will seek corruption charges against Rouseff's predecessor, Luiz Inacio Lula da Silva (Lula). The charges relate to allegations that a construction and engineering firm paid for improvements on a beachfront property owned by Lula.

10. Chief Commissioner of the Malaysian Anti-Corruption Commission Resigns.

On August 1, 2016, Abu Kassim Mohamed, who led the Malaysian Anti-Corruption Commission (MACC) for six years, resigned, along with deputy commissioner for operations, Mohd Shukri Abdull, and deputy commissioner for prevention, Mustafar Ali. Abu Kassim had led an investigation of state investment fund 1Malaysia Development Berhad (1MDB), which (as discussed in our July 2016 Top Ten) is the target of a U.S. civil forfeiture complaint seeking forfeiture of more than $1 billion in assets allegedly connected with corruption and an international money laundering scheme. In a press conference announcingthe forfeiture action, the chief of the FBI's International Corruption Unit praised the MACC for its involvement in the investigation of 1MBD, saying the MACC showed "tremendous courage." Abu Kassim also headed the investigation of a $647 million transfer to the bank account of Malaysian Prime Minister Najib Razak. Najib was cleared of any criminal offences by Malaysia's Attorney General earlier this year. While local media has reported that Najib pressured Abu Kassim to step down, Abu Kassim deniedsuch reports, saying he requested to end his contract early. He will continue to serve as an anticorruption officer until his mandatory retirement in 2020.

Footnotes

1 United States v. Mebiame, No. 16-mj-752, Compl. (E.D.N.Y. Aug. 12, 2016).

2 Universities Superannuation Scheme Limited, et al., v. Petroleo Brasileiro S.A. Petrobras, et al., No. 14-cv-9662, ECF 761 (S.D.N.Y. Aug. 2, 2016).

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
James M. Koukios
Similar Articles
Relevancy Powered by MondaqAI
BakerHostetler
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
BakerHostetler
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions