United States: FCPA And Jail – Are Corporate Officers Really At Risk?

On Oct. 31, James McClung, a former Louis Berger International Inc. executive, self-surrendered to the Bureau of Prisons to begin his year-and-a-day sentence for violations of the Foreign Corrupt Practices Act (FCPA). McClung, the senior vice president for the New Jersey- based construction management firm, was responsible for the company's operations in India and later in Vietnam. McClung and another former Louis Berger executive pleaded guilty in June 2015 to FCPA charges in connection with a scheme to bribe foreign officials in India and Vietnam to secure their assistance in awarding business to the company. McClung was sentenced on July 7, 2016 in New Jersey federal court by District Judge Mary L. Cooper.

McClung's prison sentence for FCPA violations cannot be described as unique, as he is in the company of a growing number of individuals – both U.S. citizens and foreign nationals – who have received prison sentences for FCPA violations in recent years. Importantly, McClung's prosecution came before the Department of Justice (DOJ) began ratcheting up its FCPA prosecution efforts over the last year, most recently with the launch of its new Pilot Program in April and the Yates Memorandum in September 2015.

With this increased focus on prosecution of FCPA violations and the DOJ's renewed commitment to bring these violations to light, a question arises as to whether individuals, separate and apart from the companies for which they work, are really at risk as targets of investigation – and the answer is plainly yes. A quick review of DOJ statistics over the last few years reveals an alarming trend of individual prosecutions of both U.S. citizens and foreign nationals, with prison sentences ranging from a few months to 15 years for FCPA violations. On Dec. 16, 2015, Vincent Eduardo Garcia, a former regional director of the technology company SAP International Inc., was sentenced to 22 months in prison for his role in a scheme to bribe Panamanian officials to secure the award of government technology contracts.

Garcia, a U.S. citizen residing in Miami, pleaded guilty to one count of conspiracy to violate the FCPA. In his plea, Garcia admitted that in late 2009, to secure a multimillion- dollar contract for SAP, he conspired with others to bribe two Panamanian government officials directly and a third through an agent, making use of sham contracts and false invoices to disguise the true nature of the bribes. Garcia's prison sentence was not his only penalty as he also paid $85,965 plus prejudgment interest in disgorgement to the Securities and Exchange Commission (SEC).

Garcia was certainly not alone in 2015. Several employees of the New York-based broker-dealer Direct Access Partners were also sentenced to prison time in 2015. Benito Chinea and Joseph DeMeneses received four-year sentences, Jose Alejandro Hurtado received a three- year sentence, and Ernesto Lujan and Tomas Alberto Clarke Bethancourt received two-year sentences, all in connection with their scheme to bribe a senior official in Venezuela's state economic development bank, Banco de Desarrollo Económico y Social de Venezuela (Bandes).

The prison sentences received by individuals in FCPA cases date back further than 2015 and extend to more than just a few years of imprisonment. In October 2011, Joel Esquenazi, former president of Terra Telecommunications Corp., was given a 15-year sentence for his role in a scheme to pay bribes to Haitian government officials at Telecommunications D'Haiti S.A.M. (Haiti Teleco), a state- owned telecommunications company. In 2010, Charles Paul Edward Jumet, former vice president of Ports Engineering Consultants Corp., was sentenced to 87 months in prison for paying bribes to former Panamanian government officials to secure maritime contracts. These prison sentences have also been imposed on foreign nationals. In 2012, Manuel Caceres, a citizen of Honduras and a lawful permanent resident of the U.S., received a 23-month sentence for bribes to government officials in Honduras in connection with his role as the vice president of business development for Miami-based telecommunications company Latin Node Inc.

The DOJ is not alone in its increased efforts to investigate and prosecute individuals for violations of the FCPA. In 2010, the SEC's Enforcement Division created a specialized unit to further enhance enforcement of the FCPA, and it has brought many enforcement actions to date, including against individual defendants. In September 2016, CEO Daniel Och of Och-Ziff Capital Management Group agreed to pay nearly $2.2 million to settle SEC charges in connection with the payment of bribes to high-level government officials in Africa. Also in 2016, Jun Ping Zhang, the former chairman/CEO of Harris Corp.'s subsidiary in China, agreed to pay a $46,000 penalty for violating the FCPA by facilitating a bribery scheme that provided illegal gifts to Chinese government officials in order to obtain business for the company. The action against Zhang is particularly notable as the SEC pursued only the individual, declining to bring an enforcement action against Harris Corporation due to the company's fulsome cooperation. And just like with DOJ prosecutions, foreign nationals find themselves as the targets of these SEC enforcement actions. Mikhail Gourevitch, a dual Canadian and Israeli citizen and a former engineer at Nordion Inc., agreed to settle FCPA charges with the SEC this year by paying $100,000 in disgorgement, $12,950 in prejudgment interest and a $66,000 penalty. In 2011, the SEC charged seven former Siemens executives for their involvement in the company's bribery scheme to retain a $1 billion government contract to produce national identity cards for Argentine citizens. Of the seven defendants, five were German citizens and two were Argentine citizens.

The DOJ and SEC have made clear that they intend to take individuals' FCPA violations more seriously, and their prosecutions and enforcement actions demonstrate that the threat is real. Clearly, the response to this threat cannot be to wait until a government investigation surfaces. Employees must be proactive and take steps to mitigate risks now, including concretely documenting the propriety of their actions, paying attention to red flags, and complying fully with the company's compliance policies. Additionally, if questions remain, the employee should insist on securing and documenting legal advice from counsel specializing in FCPA matters.

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