In the first half of 2022, the US Department of Justice entered into two corporate settlements and the US Securities and Exchange Commission entered into three corporate settlements to resolve charges under the Foreign Corrupt Practices Act. The settlements include a $1.1 billion global agreement that a commodity trading and mining firm reached with authorities in the United States, United Kingdom and Brazil—countries that have been cooperating extensively in international corruption cases.
The DOJ this year also has unveiled new criminal charges against and guilty pleas by several individuals for alleged participation in international bribery schemes. In April, DOJ won a seven-week trial jury against a former investment banker found to have conspired to violate the FCPA and to launder misappropriated funds from 1MDB, a Malaysian sovereign wealth fund.
Recent prosecutions, as well as policy initiatives, highlight how the US government is using not just the FCPA, but also money laundering, sanctions, and other laws, to combat corruption. Attorney General Merrick Garland and Deputy Attorney General Lisa Monaco both have been touting DOJ initiatives to combat the corruption of Russian oligarchs—a continuing US national security priority as Russia's war in Ukraine rages on.
We cover these developments and more below.
FCPA Enforcement Updates
Enforcement Against Companies
In the first half of 2022, DOJ announced resolutions of two corporate FCPA cases. Most recently, on May 24, Glencore International A.G. and Glencore Ltd. entered guilty pleas and agreed to pay a total of over $1.1 billion to resolve investigations into FCPA violations and a commodity price manipulation scheme. DOJ reported that the guilty pleas were "part of coordinated resolutions with criminal and civil authorities in the United States, the United Kingdom, and Brazil." Glencore acknowledged improper payments made to secure oil contracts, avoid government audits, and get a lawsuit dismissed. For its part, the US Commodity Futures Trading Commission (CFTC) entered into a parallel settlement with Glencore to resolve civil charges related to the manipulation of oil prices.
On April 20, 2022, Illinois-based Stericycle, Inc., a provider of medical waste and other services, agreed to pay more than $84 million to DOJ, SEC, and Brazilian authorities to resolve corruption-related charges. Stericycle entered into a three-year deferred prosecution agreement with DOJ and consented to an SEC administrative order finding that it had violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. According to DOJ's press release, Stericycle admitted that it "caused hundreds of bribe payments to be made to officials at government agencies and instrumentalities in Brazil, Mexico, and Argentina to obtain and retain business and to secure improper advantages in connection with providing waste management services . . . . Co-conspirators tracked the bribe payments through spreadsheets and described the bribes through code words and euphemisms, such as 'CP' or 'commission payment' in Brazil; 'IP' or 'incentive payment' in Mexico; and 'alfajores' (a popular cookie) or 'IP' in Argentina."
Both Stericycle and Glencore agreed to retain independent compliance monitors under their settlements with the US government.
On March 18, 2022, DOJ issued a declination letter to Jardine Lloyd Thompson Group Holdings Ltd. (JLT) pursuant to DOJ's FCPA Corporate Enforcement Policy. DOJ stated that it would not prosecute JLT, despite evidence that the company knowingly made payments to be used as bribes to obtain and retain contracts with a state-owned and -controlled surety company in Ecuador. DOJ determined that a declination was appropriate based on, among other factors, JLT's voluntary disclosure of misconduct, full cooperation with DOJ's investigation, timely remediation, and disgorgement of $29 million in profits.
The SEC has reached two other corporate settlements of FCPA charges this year. As reported on the Commission's website:
- "KT Corporation—The largest South Korean Telecommunications company agreed to pay more than $6.3 million to settle charges that it violated the books and records and internal accounting controls provisions of the FCPA in connection with improper payments for the benefit of government officials in Korea and Vietnam." (2/17/2022)
- "Tenaris—A Luxembourg-based global manufacturer and supplier of steel pipe products, agreed to pay more than $78 million to resolve charges that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA in connection with a bribery scheme involving its Brazilian subsidiary." (6/2/22)
In other news related to FCPA enforcement against corporations, Russian telecommunications company Mobile TeleSystems Public Joint Stock Company (MTS)—which paid $850 million in penalties to settle an FCPA case with DOJ and SEC in 2019—disclosed on March 3, 2022 that it voluntarily agreed to extend an independent compliance monitorship with both agencies by one year.
Enforcement Against Individuals
DOJ has continued to press charges against individuals for FCPA violations, money laundering, and wire fraud in connection with international bribery schemes. For example, DOJ this has year has announced:
- Two Former Senior Venezuelan Prosecutors Charged for Receiving Over $1 Million in Bribes (3/8/22)
- Former Coal Company Vice President Arrested and Charged with Foreign Bribery, Money Laundering, and Wire Fraud (3/31/22)
- Former Comptroller General of Ecuador Indicted for Alleged Bribery and Money Laundering Scheme (3/29/22)
In February, DOJ announced that aFormer Executive Director of International Adoption Agency Pleads Guilty to Fraudulent Adoption Scheme.
In April, after a seven-week trial, a New York jury convicted Roger Ng, a former Goldman Sachs investment banker, of conspiracy to pay bribes and circumvent the bank's internal accounting controls in violation of the FCPA and conspiracy to commit money laundering. Ng's conviction concerned the misappropriation of funds from Malaysia's state-owned investment and development fund, 1Malaysia Development Berhad (1MDB), and the related payment of bribes to government officials in Malaysia and the United Arab Emirates.
Before his trial, Ng had moved to dismiss the charge that he conspired to circumvent his employer's internal accounting controls in violation of the FCPA. Ng argued that the government offered no evidence that he circumvented internal accounting controls, which, in his view, refer to "a limited and defined set of controls" that provides "reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles."
According to Ng, these accounting controls "are to be distinguished from legal, risk-management, compliance, and other controls."
A US District Court Judge in the Eastern District of New York denied the motion to dismiss, agreeing with the government that the term "accounting controls" in the FCPA encompasses all those procedures that further the FCPA's enumerated purposes, including ensuring that "transactions are executed in accordance with management's general or specific authorization."
In other news relating to DOJ prosecutions, according to recent reports, DOJ has decided not to re-try two individuals—Joseph Baptiste, a former US army colonel, and Richard Boncy, a lawyer—whose 2019 convictions on FCPA conspiracy and other charges had been thrown out based on ineffective assistance of counsel.
The SEC has not filed any new FCPA charges against individuals so far this year. However, in June 2022, a US District Court Judge in the Southern District of New York entered default judgement against Jerry Li, a Chinese national and the former managing director of US-based Herbalife Nutrition Ltd.'s Chinese subsidiary, after he failed to respond to the SEC's 2019 complaint alleging that he violated the FCPA.
The SEC's ability to enforce the FCPA through administrative proceedings recently has been called into question by the US Court of Appeals for the Fifth Circuit. In May, a Fifth Circuit panel held in Jarkesy v. SEC, a non-FCPA case, that administrative enforcement proceedings before the SEC's Administrative Law Judges are unconstitutional. Specifically, the panel's majority opinion determined that administrative proceedings deprive the accused of the Seventh Amendment right to a jury trial, constitute an improper delegation of legislative authority, and are adjudicated by ALJs with "considerable power" that is not subject to sufficient oversight by the president.
The Fifth Circuit's decision conflicts with decisions by other circuit courts, which have rejected similar constitutional challenges to SEC administrative proceedings.
- DOJ Opinion Release Relating to Extortion and Duress: In January, DOJ published Opinion Procedure Release 22-1, expressing views on when extortion or duress may provide a defense to liability under the FCPA. The Opinion Release was requested by a US-based ship owner facing a demand for payments that would be made "to avoid imminent and potentially serious harm to the captain and the crew" of a vessel detained by foreign government officials. DOJ said that it would not prosecute the ship owner under the facts presented, because a payment to avoid imminent and potentially serious physical harm would not have the "corrupt intent" necessary for a criminal violation of the FCPA.
- End of DOJ's "China Initiative:" Citing civil rights concerns, Assistant Attorney General Matthew Olsen announced in February that DOJ was terminating the so-called "China Initiative" originally established in 2018 by then-Attorney General Jeff Sessions. The DOJ official made clear, however, that the US government would continue to investigate and prosecute violations of export control, sanctions, espionage, and other federal laws, and would promote the "freedom of expression and democracy against corrupt and repressive forces." For more analysis from Arnold & Porter, see DOJ Ends Trump-Era China Initiative.
- Task Force KleptoCapture: As previewed during President Biden's State of the Union Address, Attorney General Merrick Garland announced the launch of "Task Force KleptoCapture in March. According to DOJ, the Taskforce Will Surge Federal Law Enforcement Resources to Hold Accountable Corrupt Russian Oligarchs. More analysis from Arnold & Porter can be found here and here.
- Deputy Attorney General Describes Sanctions "as the new FCPA:" In a June speech, Deputy Attorney General Lisa Monaco spoke about how "[t]he growth of sanctions enforcement follows the path that the FCPA traveled before it." "Both FCPA and sanctions enforcement," she said, "are relevant to an expanding number of industries. They have extended beyond just U.S. actions to an increasingly multilateral enforcement regime. And they both reward companies that develop the capacity to identify misconduct within the organization, and then come forward and voluntarily disclose that misconduct to the department."
- US State Department Appoints Coordinator on Global Anti-Corruption: On July 5, 2022, the US State Department named Richard Nephew as Coordinator on Global Anti-Corruption. According to Secretary of State Anthony Blinken, Mr. Nephew and his team "will strengthen U.S. government alignment on anti-corruption issues and work closely with international partners to advance U.S. anti-corruption policy. Part of this effort includes leading the State Department's implementation of the first-ever U.S. Strategy on Countering Corruption, and advancing efforts through the Summit for Democracy...." Mr. Nephew previously worked on sanctions policy within the US government and in academia.
Collateral and Related Civil Litigation
Issues surrounding FCPA compliance continue to spawn civil litigation, including claims based on contract, defamation, securities fraud, and whistleblower laws. Courts this year have made rulings in a number of those cases. For example:
- In January 2022, a US District Court Judge in the Eastern District of New York granted a motion for summary judgment in a business dispute concerning alleged bribery in China. The court ruled that defendant Misonix, Inc. (Misonix) did not breach its contract with plaintiff Cicel Science & Technology Co., Ltd. (Cicel), because evidence of the plaintiff's illegal conduct in performance of the parties' contract for distribution of Misonix's products in China rendered that contract unenforceable. Additionally, the court held that Misonix did not defame Cicel by truthfully disclosing in a Form 8-K filing with the SEC that it had contacted the SEC and DOJ "to voluntarily inform both agencies that the [c]ompany may have had knowledge of certain business practices of the independent Chinese entity that distributes its products in China, which practices raise questions under the Foreign Corrupt Practices Act. . . ."
- In March 2022, the US Court of Appeals for the DC Circuit declined to review the SEC's denial of whistleblower awards to two individuals who had provided the Commission with information relating to a successful FCPA enforcement action. According to the SEC, the individuals were not entitled to whistleblower awards because the information they provided did not "lead to" to the enforcement action. Specifically, the SEC determined that the information did not fit within any of the three fact patterns set forth in Rule 21F-4(c), a regulation implementing the SEC's whistleblower program pursuant to the Dodd-Frank Act. The DC Circuit panel deferred to the SEC's interpretation of its own regulation.
- In March 2022, the US Court of Appeals for the Second Circuit affirmed a district court's dismissal of a putative class-action securities fraud suit against Russian telecommunications company MTS and certain of its executives. Plaintiffs had alleged that MTS's financial statements misrepresented key facts concerning the company's $850 million settlement of FCPA charges in 2019. The Second Circuit agreed with the lower court that the plaintiffs had not adequately pleaded particular facts giving rise to the "strong inference" of "scienter" necessary to sustain a claim for securities fraud under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. According to the Second Circuit, the alleged accounting violations could not, standing alone, support a securities fraud claim, and various disclosures made by MTS supported "the more reasonable inference that MTS executives did not seek to conceal the company's potential liability under the FCPA."
- In a pair of decisions issued in March 2022, the US Court of Appeals for the Sixth and Seventh Circuits affirmed district court dismissals, on forum non coveniens grounds, of cases brought in the United States by Instituto Mexicano del Seguro Social (IMSS) against US medical product companies. IMSS, an agency of the Mexican government, had asserted a variety of claims against these corporations in relation to the alleged bribery of Mexican government officials to facilitate the sale of medical products in Mexico. The Sixth and Seventh Circuit panels both ruled that Mexican courts were a more appropriate forum for IMSS's cases and that the United Nations Convention Against Corruption did not preclude dismissal of the US suits on the basis of forum non conveniens.
Selected International Updates
- United Kingdom: On June 21, 2002, the UK Serious Fraud Office (SFO) announced that it had secured the conviction of Glencore Energy (UK) on seven counts of bribery relating to efforts to secure preferential access to oil in connection with the company's operations in a number of African countries. Moreover, as reported in Arnold & Porter's UK Economic Crime Group: Enforcement Update, earlier this year the Attorney General began an independent review into the SFO's handling of the Unaoil bribery case, and the Metropolitan Police Service secured its first conviction for failure to prevent bribery.
- South Africa: In June 2022, South Africa's Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector including Organs of State—also known as the Zondo Commission or State Capture Commission—released the final volume of its report, concluding a four-year-long investigation. While the report primarily addresses domestic corruption, it also implicates several US- and Europe-based multinational firms involved in sectors ranging from transportation to finance to law.
- China: In April, the Supreme People's Procuratorate (SPP), China's highest national prosecution authority, announced the nationwide expansion of a pilot program for dealing with corporate crime. The pilot program, which launched in 2020, enables companies to negotiate with local procuratorates for more lenient treatment, including non-prosecution, based on implementation of compliance measures. Also in early 2022, the SPP and other Chinese government agencies jointly issued further guidance on the evaluation of corporate compliance: the Trial Measures for the Compliance Development, Evaluation and Examination of Enterprises Involved in Criminal Cases and the Trial Measures for the Appointment of Professionals for Third-Party Evaluation Mechanism.
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