In a surprising break from past trends for US enforcement of the Foreign Corrupt Practices Act (FCPA), none of the five corporate enforcement actions resolved by the US Department of Justice (DOJ) in 2022, and only two of the six cases resolved by the Securities & Exchange Commission (SEC), involved Asia Pacific countries. Not so surprising, however, were the number of individuals arrested, convicted, or sentenced who were connected to DOJ corporate actions of long ago. And while the DOJ undertook some corporate enforcement housecleaning (declinations and dismissals), some new investigations announced this year that involve Asia Pacific indicate that attention to the region remains. Finally, we discuss two cases establishing important FCPA precedent arising from conduct in Asia, just to meet our Top Ten numbers.
Here are 2022's top ten FCPA enforcement actions in the Asia-Pacific region.
1. KT Corporation
On February 11, 2022, South Korea-based telecommunications company KT Corporation agreed to pay USD 6.3 million to settle SEC civil charges that the company violated FCPA books and records and internal accounting controls provisions by providing improper payments to Vietnamese and South Korean government officials. According to the SEC, the scheme included inflated bonuses and gift cards which were cashed out for setting up a slush fund for gifts to government officials and lawmakers overseeing the telecommunication industry. Besides, KT also made charitable payments to unregistered organizations established by "close associates" of high-level South Korean government officials.
Takeaway: The allegations reflect the power of the books and records and internal accounting control provisions applicable to issuers, including non-US issuers, particularly in countries with higher corruption risks. For a more detailed analysis, please see Steptoe's blog on this enforcement action.
2. Oracle Corporation
On September 27, 2022, American technology giant Oracle Corporation agreed to settle SEC FCPA violations for more than USD 23 million, 10 years after its first FCPA settlement involving its India subsidiary in 2012. According to the SEC, between 2016 and 2019, Oracle subsidiaries in India, Turkey, and the UAE, created and maintained slush funds to bribe foreign officials and their families in return for business. The bribery included excessive discounts, marketing reimbursement, as well as travel and accommodation expenses for attending technology conferences or taking side trips.
Takeaway: For companies with subsidiaries or for those that conduct business through third parties, efforts should be made to enhance training and communications surrounding company compliance issues, anti-corruption, and internal controls.
3. Ng Chong Hwa (Roger Ng)
On April 8, 2022, a federal grand jury convicted Ng Chong Hwa (a.k.a "Roger Ng"), a Malaysian national and former Goldman Sachs managing director, on three FCPA conspiracy and money laundering charges. In the long-running 1 Malaysia Development Berhad (1MDB) case, Ng conspired with others between 2009 and 2014, to launder billions of dollars, including funds 1MDB raised in 2012 and 2013 through three bond transactions it executed with Goldman Sachs. Ng coordinated with his conspirators to circumvent Goldman Sachs' internal accounting controls for business contracts. For further background, see our The Top Ten Asia-Pacific FCPA Enforcement Actions for 2019 and 2020.
Takeaway: Ng's case, started under the last administration and woven together by the prosecutors as an intricate tale of "glory and greed," is illustrative of the current trend in FCPA enforcement strategies to target not only corporate entities but also the individuals responsible for corrupt payments.
4. Leonard Francis ("Fat Leonard")
On September 21, 2022, Leonard Francis, a Malaysian defense contractor nicknamed "Fat Leonard" was arrested in Venezuela after fleeing before his sentencing in California for an extensive bribery scheme that lasted more than a decade and involved dozens of US Navy officers. The bribery scheme was operated through Francis' Singapore-based company, Glenn Defense Marine Asia, which provided port services to the US Navy's ships and submarines in the Pacific Ocean. Francis pleaded guilty in 2015, and as part of his plea deal, he helped prosecutors secure 33 convictions, including four of five Navy officers convicted in June 2022 for accepting luxury travel, elaborate dinners, and prostitutes from Francis in exchange for classified information about the Navy's ship schedules.
Takeaway: Francis' company's bidding price and rates were less than one-third of its competitor, but was secured by lavish gifts with a value of up to USD 100,000 paid to officers without internal controls.
5. Cary Yan & Gina Zhou
On December 1, 2022, two Marshal Island nationals pleaded guilty to FCPA conspiracy and now face maximum five year sentences. Between 2016 and 2020, Cary Yan and Gina Zhou used their New York-based NGO, which also claimed affiliation with the United Nations, to pay bribes (interest-free loans, trips to Hong Kong and New York) to high-level government officials in the Republic of the Marshall Islands, to pass certain legislation that would carve out a Hong Kong-like semi-autonomous region in the Marshall Islands - a largely empty coral atoll almost deserted after nuclear testing. Yan and Zhou succeeded in getting the legislation sponsored in 2018, but it was rejected by the then-RMI President.
Takeaway: The two were arrested when their plane landed in New York but they pleaded guilty before trial just two months later. Conseqently, just who stood to benefit from and was bankrolling this scheme will remain unknown unless RMI takes action, as there are still some limits to the FCPA's extraterritorial reach.
6. Yanliang (Jerry) Li
On June 27, 2022, in the Herbalife investigation, the SEC obtained a USD 550,092 default judgment against Yanliang (Jerry) Li, former managing director of the Chinese subsidiary of Herbalife Nutrition Ltd. For over a decade, beginning in 2006, Li falsified company expense reports concealing bribes to Chinese government officials to obtain direct selling licenses and to curtail government investigations of the company's business practices. Herbalife Nutrition Ltd. resolved related allegations with the DOJ and SEC in August 2020.
7. New Investigations
Among the record low FCPA investigations disclosed, below are Asia-based matters:
Ideanomics, Inc., a US-based company that conducts its operations globally, disclosed an ongoing internal investigation into its China operations that may involve possible FCPA-related misconduct, but without any indication of having reported the investigation to regulators.
Boston Scientific Corporation, a biomedical and biotechnology engineering firm and multinational manufacturer of medical devices, disclosed an internal investigation in response to a whistleblower letter alleging FCPA violations in Vietnam. The company is currently cooperating with the US government agencies for an independent investigation of this matter, after receiving a subpoena from the DOJ.
8. Declination, Closure, and Legacy
Cisco Systems, Inc. (Cisco): On February 22, 2022, Cisco announced that the SEC and the DOJ had declined to take action against the company for potential FCPA violations. Cisco's FCPA violations were characterized as a scheme by former employees in China to make or direct payments to "various third parties, including employees of state-owned enterprises."
Panasonic Avionics Corporation (PAC): On March 11, 2022, the US District Court for the District of Columbia granted the DOJ motion to dismiss the charges against PAC, a subsidiary of the Japan-based electronics company Panasonic Corporation as it had fulfilled its obligations under a 2018 deferred prosecution agreement (DPA). Panasonic paid USD 137.4 million in criminal penalties for a scheme to retain consultants for improper purposes and conceal payments to third-party sales agents, in violation of the accounting provisions of the FCPA.
Telefonaktiebolaget LM Ericsson (Ericsson): On December 14, 2022, Swedish telecommunications giant Ericsson announced that the DOJ had extended its monitorship until June 2024. The mandatory monitor was imposed as part of a 2019 international bribery settlement for corruption that involving "at least five countries," including China, Vietnam, and Indonesia. Since entering into the DPA, DOJ has claimed that Ericsson has twice failed to comply with the settlement terms: first, in October 2021 for allegedly withholding information from the DOJ, and later in March 2022 for allegedly failing to disclose subsequent violations.
Safran S.A.: On December 21, 2022, French aerospace defense company Safran received a declination from the DOJ, and agreed to disgorge USD 17.9 million in profits for its US subsidiary's bribery to a China-based business consultant for train lavatory contracts with the Chinese government between 1999 and 2015, before Safran acquired the subsidiary. The DOJ declined prosecution because of Safran's timely and voluntary self-disclosure of the misconduct, its "full and proactive" cooperation and remediation, and its effort to enhance its anti-corruption training and compliance program.
9. United States v. Coburn
On May 4, 2022, New Jersey federal district judge Kevin McNulty unsealed a decision ordering Cognizant Technology Solutions Corp. (Cognizant) to produce unredacted versions of memoranda and notes from its FCPA internal investigation into two of its former executives facing trial on 12 counts of bribery in India. Cognizant had resolved its liability with the SEC and the DOJ in 2019, following the internal investigation. The court had ruled in early February 2022 that Cognizant and its outside counsel had waived privilege and work product protection over the documents by disclosing details of the investigation to the DOJ.
Takeaway: Part of Cognizant's cooperation included its counsel's providing detailed accounts of 42 privileged witness interviews of 19 company employees, which were "sweeping in scope" and could constitute a "read out" to prosecutors of specific portions of its memoranda of the interviews. The Cognizant decisions highlight the risks in preserving privileges that companies must consider when cooperating with government investigations, especially when there could be potential collateral litigations in relation to the same matter.
10. Hoskins II
On August 12, 2022, the US Court of Appeals for the Second Circuit affirmed the district court's acquittal of defendant Lawrence Hoskins, a British citizen who was alleged to have supported Alstom Power Inc. (API), the US subsidiary of French multinational corporation Alstom S.A. in a bribery scheme in Indonesia. In Hoskins I, the Court dismissed Hoskins' conviction under the conspiracy and accomplice theories of FCPA liability, as Hoskins was not employed by API nor had he traveled to the United States during the relevant period. In Hoskins II, the prosecution had proceeded with the case under an agency theory of liability, but the Court, over a dissenting opinion, ruled that the evidence presented at trial was insufficient for a reasonable jury to find that Hoskins was an "agent" within the meaning of the statute.
Takeaway: The implications of Hoskins I and Hoskins II are significant, as there is real potential for an entire class of non-US employees of multinational companies who may be intimately involved in providing support for US companies' operations worldwide. Given the divergence in approaches between courts in different circuits, the extent of the FCPA's extraterritorial reach to foreign nationals is far from settled, and we will be closely following relevant future developments. For detailed analysis, please see Steptoe's blog post.
Asia-Pacific FCPA-based internal investigations and enforcement actions continued to be challenging in 2022, given Covid constraints and the time and resources required, particularly for individual liability. Nonetheless, the enforcement actions opened in 2022 and the on-going efforts to prosecute individuals and corporations in the region do not signal a pivot away from the Asia-Pacific. Characterization of bribery as a national security issue coincides with the national security focus on China and elsewhere in the region. Accordingly, the volatile regulatory and geopolitical environment should cause companies in the region generally to continue to enhance their compliance programs and foster a culture of compliance, particularly in their Asia Pacific subsidiaries.
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