United States: Red Notice Newsletter August 2018


$34 Million SEC Settlement for Legg Mason

On August 27, 2018, the Securities and Exchange Commission (SEC) announced that Legg Mason Inc. will pay more than $34 million to settle an investigation related to the conduct of a subsidiary in Libya. This resolution comes after Legg Mason agreed to pay $64.2 million to settle an investigation by the Department of Justice (DOJ) into the same conduct. The Libya investigations were previously covered in the June 2018 edition of Red Notice.

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On August 24, 2018, the U.S. Court of Appeals for the 2nd Circuit affirmed in part a ruling from the U.S. District Court of Connecticut and held that conspiracy liability to violate the Foreign Corrupt Practices Act (FCPA) does not extend to a foreign individual if the foreign individual never entered the United States to commit the alleged misconduct and the foreign individual did not operate as an agent, employee, shareholder, director or officer of a U.S. company or citizen. Lawrence Hoskins, a U.K. citizen and retired executive of a subsidiary of the French company Alstom SA, challenged DOJ's view that the FCPA applied to Hoskins as a result of his alleged supervisory role over U.S. individuals who allegedly made corrupt payments to facilitate a contract for a power plant in Indonesia. Three other Alstom executives were also charged, and these three individuals – all of whom worked for Alstom's Connecticut based subsidiary – have pleaded guilty. Hoskins, on the other hand, was employed at Alstom UK, worked in France, and never traveled to the U.S. for the alleged corrupt scheme. The 2nd Circuit held that, as a foreign national without any relevant U.S. presence, Hoskins could not face liability under the FCPA merely by virtue of the suggestion that he was involved in a wider conspiracy as an accessory. The three judge panel held that Congress carefully designated the categories of foreign nationals designed to be held liable under the FCPA, and DOJ's articulated theory of liability did not place Hoskins into any of those categories. Breaking with the District Court, the 2nd Circuit held that Hoskins could nevertheless be found liable for conspiracy based on other codefendants' illicit acts in the U.S. if he were determined to be an agent of the U.S.based subsidiary. DOJ has suggested that it intends to pursue this theory of FCPA liability against Hoskins, who is also facing four counts of money laundering and one count of conspiracy to commit money laundering.

In December 2014, Alstom SA pleaded guilty as part of an enforcement action that included the Indonesia conduct and agreed to pay a criminal penalty of $772 million.

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DOJ Issues Declination to Insurance Corporation of Barbados Limited

On August 23, 2018, DOJ issued a declination to Insurance Corporation of Barbados Limited (ICBL), a Barbados based insurance company. In its declination, DOJ alleges that ICBL made approximately $36,000 in improper payments to a Barbadian government official in return for approximately $687,000 in total premiums for insurance contracts, for which the firm made approximately $94,000 in net profits.

DOJ identified the official as Donville Inniss, a former member of the Parliament of Barbados and the Ministry of Industry, International Business, Commerce and Small Business Development of Barbados. DOJ alleges that, in exchange for the improper payments, Inniss leveraged his position as the Minister of Industry to enable ICBL to obtain two government contracts. Inniss was initially indicted in the U.S. District Court for the Eastern District of New York in March 2018. He was arrested in Florida on August 6, 2018, and pleaded not guilty to his charges at his arraignment on August 23, 2018.

The declination references DOJ's recent amendment to its FCPA Corporate Enforcement Policy, adopting the April 2016 Pilot Program, that creates a presumption that companies that voluntarily disclose an FCPA violation fully which cooperate in an ensuing investigation and, timely and appropriately remediate, will receive a declination from DOJ. Consistent with the policy, the declination cites seven factors in DOJ's decision to close its investigation: (1) ICBL's timely self disclosure; (2) ICBL's "thorough and comprehensive investigation"; (3) ICBL's continued cooperation with DOJ's investigation; (4) ICBL's voluntary agreement to disgorge; (5) ICBL's enhancement of its compliance program and internal accounting controls; (6) ICBL's remediation, including the termination of involved employees; and (7) "the fact that the Department has been able to identify and charge the culpable individuals."

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Former Brazil Soccer Official Sentenced to Four Years in Prison

On August 22, 2018, José Maria Marin, the former president of the Brazilian soccer federation, was sentenced to four years in prison after he was convicted of conspiratorial racketeering, wire fraud and money laundering at trial in the Eastern District of New York. Marin, who also served on several Fédération Internationale de Football Association standing committees, was further ordered to pay $1.2 million in restitution and to forfeit $3.3 million in corrupt payments. During trial, the government presented evidence that Marin engaged in a conspiracy to offer and receive tens of millions of dollars in illicit payments and kickbacks involving media and sports marketing companies and soccer officials related to several South American and Brazilian soccer tournaments.

Marin's prosecution is part of a larger sports corruption probe launched by the U.S. Attorney's Office for the Eastern District of New York, as reported by Red Notice in February 2018.

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New Developments in PDVSA Case

On August 22, 2018, Matthias Krull, a former managing director and vice chairman of Swiss bank Julius Baer Group Ltd., pleaded guilty to one count of conspiracy to commit money laundering of funds embezzled from Venezuela's state owned energy company, PDVSA. Krull, a German national and resident of Panama, admitted that he sought to launder more than $1 billion in funds through Miami real estate and other investments to conceal the source of the funds. Red Notice has extensively covered the PDVSA investigation to date, including in its July and February 2018 editions, in which DOJ has charged 17 individuals, 12 of whom have pleaded guilty thus far.

In addition, on July 31, 2018, DOJ filed and unsealed an indictment charging Jose Manuel Gonzales Testino with conspiring to pay and providing corrupt payments to a former official at PDVSA in exchange for the award of contracts and preferential treatment in violation of the FCPA. Gonzalez, a U.S.Venezuelan citizen, is alleged to have paid more than $600,000 in bribes, together with a coconspirator.

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SEC Ends Investigation into Potential FCPA Violations by Chinese Biopharmaceutical Products Provider

On August 20, 2018, Sinovac Biotech Ltd. announced that the SEC had ceased its investigation into possible violations of the FCPA by the company. In May 2017, the SEC issued subpoenas to Sinovac, a Chinese based provider of biopharmaceutical products, after Sinovac announced that it was conducting an internal investigation into allegations of corrupt payments to public officials in China. Specifically, Sinovac had received allegations that its CEO Weidong Yin had made illicit payments to a public official at China's food and drug agency in order to gain approval for a clinical trial. Sinovac did not comment on the status of a parallel investigation being conducted by DOJ.

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UK Enforcement Agency Charges Engineering Company Executives While DOJ Declines to Prosecute Company

On August 17, 2018, the U.K. Serious Fraud Office (SFO) announced charges against two former employees of Güralp Systems Limited, a U.K. based engineering company that produces seismic testing equipment, for allegedly making corrupt payments to a South Korean government official. SFO charged Dr. Cansun Güralp, founder of Güralp Systems, and Andrew Bell, the managing director of the company, for allegedly conspiring to make corrupt payments to HeonCheol Chi, the former director of the South Korean Institute of Geoscience and Mineral Resources. Chi is currently serving a 14month sentence in the U.S. for laundering corrupt payments that he received through a U.S. bank. Güralp Systems has been under investigation by SFO since December 2015 for allegedly corrupt contracts in South Korea.

On August 20, 2018, DOJ issued Güralp Systems a declination notice, advising the company that it had closed its inquiry and did not intend to prosecute "notwithstanding evidence of violations of the FCPA." Regarding the rationale for its declination, DOJ cited the FCPA Corporate Enforcement Policy; Güralp Systems' voluntary disclosure of the matter; its cooperation in DOJ's investigation, including in the prosecution of Chi; and significant remedial efforts taken by Güralp Systems, as well as the parallel investigation by SFO into the company.

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Colombia's Former Top AntiGraft Prosecutor Pleads Guilty to Conspiracy

On August 14, 2018, before U.S. District Judge Ursula Ungaro in the Southern District of Florida, Luis Gustavo Moreno Rivera, the former National Director of AntiCorruption in Colombia, pleaded guilty to conspiracy to launder money in order to promote foreign bribery. Moreno admitted that he engaged in a corrupt scheme in which he traveled to Miami, Florida, in 2016 in order to solicit bribes from a former Colombian governor under investigation by Moreno's agency in Colombia. Moreno sought a total of nearly $200,000 USD in improper payments in exchange for a promise to provide the governor with statements from witnesses testifying against him and to ultimately direct prosecutors' attention away from the case. The governor was, in fact, a cooperating source of information for the U.S. government and acted in coordination with the Drug Enforcement Administration during interactions with Moreno. Moreno's attorney, Leonardo Luis Pinilla Gomez, was also arrested and pleaded guilty as part of the conspiracy.

As reported by Red Notice in July 2017, Moreno was arrested in Colombia and extradited to Miami last year. Both Moreno and Pinilla are scheduled to be sentenced in November 2018.

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India Amends AntiCorruption Law

On July 26, 2018, India's revised anticorruption law, The Prevention of Corruption (Amendment) Act, 2018 (the "Law") came into effect after unanimous approval by the parliament. The most important changes include (1) revising the definition of bribery, (2) expanding the scope of the Law to cover both commercial organizations and those who corruptly provide or promise to provide an undue advantage to a public official, and (3) requiring approval before investigating former or current government officials.

One major revision under the Law appears in the definition of "bribery," in which corruptly offering or receiving a "valuable thing" is replaced with "undue advantage." In addition, previously, commercial organizations could be found to only have abetted corruption and could not be held liable in their own right. Commercial entities can now be liable if employees or any "person associated with" the organization promises to give any undue advantage for obtaining or retaining business; however, commercial entities are afforded a defense if they can show a well developed compliance program. The Law also now expressly imposes liability on those who offer an undue advantage, along with any third party intermediaries, without regard to whether the offered undue advantage was accepted or not. Another major revision of the Law is to provide a shield for current and former government officials by requiring investigating agencies to get prior approval before initiating an investigation into such officials.

Among other amendments, the Law provides a defense of coercion to those making corrupt payments if those individuals report the issue to authorities within seven days, and provides that those offering or receiving an undue advantage are subject to a maximum punishment of seven years in prison and a fine.

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Anticorruption Spotlight: World Bank Announces of Two Debarments

On August 22, 2018, the World Bank announced the 18month debarment of Flycom d.o.o., a Slovenian infrastructure services provider, based on improper payments made by Flycom on a World Bank project in the Democratic Republic of Congo. Flycom made the payments to a consultant from 2010 to 2014 related to contracts that it obtained on the project. The company received a reduced period of debarment due to its ongoing cooperation, and has agreed to develop and implement an integrity compliance program before its debarment is lifted.

On August 1, 2018, the World Bank also announced the debarment of Chinese IT company Jiangsu Zhidehuatong Information Technology Co., Ltd. ("Trachtech"), related to a World Bank project in China. Trachtech was deemed to have committed fraudulent practices after it falsified a document included in its procurement bid in order to disguise a failure to meet tender requirements. Trachtech received a reduced period of debarment of 15 months after receiving credit for cooperation and taking voluntary remedial actions.

These debarments qualify for cross­debarment by other Multilateral Development Banks under the Agreement of Mutual Recognition of Debarments that was signed on April 9, 2010. The list of all World Bank debarred entities and individuals is available here.

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