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: How does the U.S. Department of Justice (DOJ) evaluate corporate compliance programs? Which country set up a new anti-corruption court, and will it be effective? What new efforts are being taken to counter maritime corruption? The answers to these questions and more are here in our April Top 10 list.
- DOJ Updates Guidance on Evaluation of Corporate Compliance Programs. On April 30, 2019, Assistant Attorney General Brian Benczkowski announced the release of an updated version of DOJ's " Evaluation of Corporate Compliance Programs" guidance (the "revised Guidance"), a document that provides insights into how federal prosecutors will evaluate compliance programs when conducting or resolving a corporate investigation. The revised Guidance doubles the length of the original document, which was released quietly in February 2017, and broadens its applicability to the entire Criminal Division, as opposed to just the Division's Fraud Section. Most notably, the revised Guidance provides companies with additional details regarding how prosecutors will be thinking about compliance programs when conducting or resolving corporate investigations, and will be useful to companies as they benchmark their own compliance programs against DOJ's expectations. The revised Guidance also highlights certain key principles of corporate compliance programs, including ensuring that the program is well designed, assessing whether the program is being implemented effectively, and asking whether the company's compliance program works in practice. This revision comes in the wake of the Criminal Division's October 2018 decision not to hire a dedicated compliance counsel and to instead implement Division-wide training programs to train all of its prosecutors on compliance issues. The revised Guidance also follows DOJ's March 2019 revisions to its FCPA Corporate Enforcement Policy, which appear (at least in part) to have been made to address concerns from the business community aiming to comply with the policy. For more on the revised Guidance, please see our client alert.
- Debate Over Meaning of "Agent" Under FCPA Intensifies Ahead of Hoskins Trial. On April 12, 2019, former Alstom executive Lawrence Hoskins filed a reply memorandum in support of his motion asking the court for jury instructions on the definition of "agent" under the FCPA.1 In August 2018 the U.S. Court of Appeals for the Second Circuit held that, unless DOJ can prove at trial that Hoskins, a non-U.S. person working for a subsidiary of a non-U.S. company outside of the United States, was an "agent" of a domestic concern, he cannot be convicted of conspiring with or assisting others in violating the FCPA. As we noted at the time, the court declined to express any "views on the scope of agency under the FCPA," leaving the precise contours of that critical issue undecided. Hoskins and DOJ agree that the district court should use a common law definition for "agent," including that an agent is controlled by a person or company that it performs a service for, but disagree on how to apply the definition to Hoskins. DOJ argues for a looser instruction on the meaning of control, including that it may be inferred circumstantially and from the words and actions of the parties involved. DOJ also argues that the agent relationship need not be a formal agreement between principal and agent. In contrast, Hoskins argues that an agent of one corporation is not necessarily also an agent of an affiliate corporation unless a separate agency relationship with that affiliated corporation is established. Hoskins also argues that DOJ should be required to show that Alstom's U.S. subsidiary had the right to control his conduct, including supervising his work and terminating his services. Hoskins is scheduled to go to trial in September 2019. (For more on Hoskins, read our August 2015, March 2017, and August 2018 Top 10s.)
- Federal Court Finds FCPA Investigation Documents Protected by Attorney-Client Privilege. On April 11, 2019, a federal court in the Eastern District of New York held that documents created by external counsel during an internal investigation into potential FCPA violations are protected by the attorney-client privilege. The court ruled that Misonix Inc., a U.S. medical device maker, did not have to produce to Cicel (Beijing) Science & Tech. Ltd., a Chinese manufacturer, documents created by its external counsel during an internal investigation into potential FCPA violations by Cicel. The court rejected Cicel's argument that the documents were not privileged because external counsel had been hired to make findings of fact, not to provide legal advice, holding that fact-finding is a crucial part of determining proper legal advice and that the two roles are not mutually exclusive. The ruling was made in a civil suit alleging wrongful termination of an exclusive distributor contract, but the court's holding more broadly highlights the need to take appropriate safeguards to ensure that internal investigations remain privileged.
- Ecuadorian Executive Pleads Guilty to Laundering PetroEcuador Bribery Money. On April 4, 2019, Ecuadorian businessman Gustavo Trujillo pleaded guilty to one count of conspiracy to commit wire fraud and one count of money laundering relating to a scheme to launder bribe money paid to former PetroEcuador officials in exchange for contracts with the state-owned oil company.2 According to his guilty plea, Trujillo, the beneficial owner of Madison Assets LLC, used approximately $2.9 million in proceeds from a PetroEcuador contract obtained through bribery to pay certain clients of a real estate venture. This is the sixth guilty plea obtained by DOJ relating to bribery at PetroEcuador. Trujillo is scheduled to be sentenced on July 24, 2019. A seventh defendant, Frank Chatburn Ripalda, has pleaded not guilty to FCPA violations and is scheduled to go to trial in September 2019. (For more on the PetroEcuador prosecutions, read our April 2018, September 2018, and November 2018 Top 10s.)
- Micronesian Official Pleads Guilty to Laundering Bribery Proceeds. On April 2, 2019, DOJ announced that Master Halbert had pleaded guilty to a money laundering charge involving bribes made to secure contracts from the government of the Federated States of Micronesia (FSM). Halbert, an official with the FSM's Department of Transportation, Communications and Infrastructure who administered the FSM's aviation programs, allegedly accepted bribes between 2006 and 2016 to steer engineering and project management contracts to a Hawaii-based engineering and consulting company owned by Frank James Lyon. Halbert and Lyon allegedly agreed that the bribe payments would be transported from the United States to FSM, in violation of the federal money laundering statutes. Lyon pleaded guilty in January 2019 to being involved in the payment of at least $200,000 in bribes to FSM officials. Halbert is scheduled to be sentenced on July 29, 2019.
- Former Interpol President Formally Arrested on Bribery Charges in China. On April 24, 2019, China's Supreme People's Procuratorate announced that it had formally arrested former International Police Agency (Interpol) President Hongwei Meng based on charges that he accepted bribes. Meng was initially detained in September 2018 by China's Central Commission for Discipline Inspection (CCDI) and the National Supervisory Commission (NSC) for his alleged "illegal activities." In March 2019, Meng was expelled from public office in China, where he had served as a Vice Minister of Public Security, and from China's Communist Party. The CCDI has claimed that Meng abused his office to support his family's "extravagant lifestyle," including his wife's use of his authority for personal benefit. Meng's wife, who has lived in France with their two sons since Meng's detention in September 2018, has claimed that Meng's human rights are being violated and that she is not sure if he is still alive. Meng is among a group of high-ranking Chinese officials caught in President Xi's crackdown on graft and corruption.
- OECD Urges Russia to Step Up Fight Against Foreign Bribery. On April 24, 2019, the Organization for Economic Cooperation and Development (OECD) Working Group on Bribery issued a statement reiterating its request for Russia to "urgently focus" on the investigation and prosecution of alleged cases of foreign bribery. According to the Working Group, in the seven years since ratifying the OECD Anti-Bribery Convention, Russia has failed to investigate or prosecute a single case involving the bribery of foreign public officials. A high-level mission from the Working Group met with Russian officials on April 18 and 19, 2019, to discuss deficiencies in Russia's anti-bribery legislation and enforcement efforts. The mission was led by Drago Kos, Chair of the Working Group, and included experts from Austria, Denmark, Italy, Poland, Slovenia, Sweden, and the United States, along with members of the OECD Secretariat. According to Kos, "Russia must focus its immediate efforts on filling in the legal gaps identified by the Working Group, and stepping up the investigation and prosecution of alleged cases of foreign bribery." Noting that Russia could also improve its interagency cooperation in the fight against corruption, Kos welcomed Russia's initiative to set up a multi‑agency task force led by the Minister of Justice, Alexander Konovalov, to strengthen antibribery enforcement. The outcomes of the mission will be discussed at the next Working Group on Bribery meeting in June 2019. For more on the OECD's past criticism of Russia's foreign bribery enforcement record, see our October 2016 and October 2017 Top 10s.
- Ukraine Announces New Anti-Corruption Court. On April 11, 2019, former Ukrainian President Petro Poroshenko announced the creation of the High Anti-Corruption Court, a special court set up to try corruption cases. Poroshenko also announced the appointment of 38 new judges to the court. The long-anticipated anti-corruption court was established as part of Ukraine's $3.9 billion loan program with the International Monetary Fund, with the goal of fighting systemic corruption in the Ukrainian government. The announcement came ten days before Ukraine's presidential runoff election, in which Poroshenko lost by a landslide to Volodymyr Zelenskiy, a comedian with no prior political experience. The timing of the court's establishment was criticized as a last-minute attempt by Poroshenko to deflect criticism based on a military embezzlement scheme allegedly involving his top associates and a factory controlled by Poroshenko.
- International Maritime Organization (IMO) Sets Anti-Corruption Agenda. Following its April 8–12, 2019 meeting, the IMO's Facilitation Committee reported that it would include maritime corruption as a regular work item on its agenda. The IMO is the United Nations' (UN) specialized agency with responsibility for the safety and security of shipping and the prevention of marine and atmospheric pollution by ships. According to the IMO, the decision to pursue an anti-corruption agenda followed a submission by several countries and non-governmental organizations that "proposed the development of IMO Guidelines and/or a Code of Best Practice, with the aim of addressing the problem of maritime corruption and reducing the impact on global trade, improving port governance and reducing adverse consequences on seafarers." The IMO guidance is expected to be completed in 2021 and should align IMO regulations and requirements for the maritime industry with the United Nations Convention Against Corruption (UNCAC). Since the Maritime Anti-Corruption Network established an anonymous reporting system in 2011, more than 28,000 instances of maritime corruption have been reported. The IMO guidance, therefore, has the potential to significantly enhance international anti-corruption efforts.
- Argentina Seeks Greater Alignment with International Anti-Corruption Conventions. On April 10, 2019, the Argentinian government approved the implementation of a National Anti-Corruption Plan (NAP) to be executed between 2019 and 2023. The NAP's stated goal is to consolidate Argentina's efforts in line with the international conventions against corruption, organized crime, and money laundering of the UN, the Organization of American States (OAS), and the OECD. Priorities include strengthening systems for contracting public works and procurement of goods and services by the government, including for state-owned enterprises such as port authorities, sanitation, and railway operations. The NAP also provides for the creation of an Advisory Council that will include private sector experts and civil society organizations to help in the implementation of its initiatives. The Argentine executive has stated that it hopes these initiatives will be replicated by provincial and local governments across Argentina. As we have noted previously, despite country-specific variations in anti-corruption laws and challenges, international conventions have resulted in an increasing level of standardization in anti-corruption efforts in Latin America. The NAP is further evidence of this trend.
1 Reply Memorandum in Support of Lawrence Hoskins's Motion in Limine to Instruct the Jury Regarding the Meaning of the Term "Agent" in the Foreign Corrupt Practices Act, United States v. Hoskins, No. 3:12-cr-238 (JBA) (D. Conn. Apr. 12, 2019), ECF No. 481.
2 Information, United States v. Trujillo, No. 1:19-cr-00134-CBA (E.D.N.Y. Apr. 4, 2019), ECF No. 5.
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.
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