In an order dated August 29, 2019, and unsealed earlier this month, Judge Nicholas Garaufis of the U.S. District Court for the Eastern District of New York issued a significant ruling on the application in the FCPA context of the Mandatory Victims Restitution Act (the "MVRA"). Judge Garaufis agreed with a group of former investors in the Canada-incorporated mining company Africo Resources Ltd. ("Africo") that they qualified as victims under the MVRA because they had incurred losses as a result of bribes paid by OZ Africa Management GP, LLC ("OZ Africa") to Congolese officials in order to secure control of a Congolese mine.1 As such, the former Africo investors may be entitled to restitution from OZ Africa.

Restitution claims are unusual after FCPA settlements and typically have not succeeded. Such claims are usually brought by the foreign instrumentality whose employee(s) had been bribed. For example, Venezuela's state-owned oil company ("PDVSA") is currently seeking $600 million in restitution based on the corrupt schemes engaged in by PDVSA employees; that motion has been opposed by DOJ.2 Similarly, after the Alcatel Lucent settlement in 2011, the Costa Rican electrical utility sought restitution under the Crime Victims' Rights Act.3 This claim was rejected, at DOJ's urging, because the supposed "victim" was actually a co-conspirator.4

Africo is in a different position because it was not a party to the bribe transaction. Its successful claim for restitution may embolden others, further complicating corporate FCPA settlements as companies weigh uncertain litigation risks stemming from a broad and often unclear pool of competitors and third parties that may seek to claim victim status and restitution under the MVRA.

Background

The restitution claims arise from a 2016 resolution in which Och-Ziff Capital Management Group LLC – the parent company of OZ Africa – paid $412 million to settle enforcement actions with DOJ and the SEC. OZ Africa pled guilty to an FCPA violation as part of those settlements.5

The Och-Ziff settlement papers described a scheme lasting from 2006 to 2008, in which agents of Och-Ziff allegedly bribed Congolese officials in exchange for beneficial court rulings. As a result of this scheme, Africo lost control over the Kalukundi mine and OZ Africa took over.6 The restitution theory put forth by the Africo former investors is that they "lost a promising opportunity" and any potential value therefrom. The U.S. enforcement agencies and OZ Africa both opposed an order of restitution.

Judge Garaufis held that the fact that OZ Africa had already entered its guilty plea was not a bar to ordering restitution and that the Africo investors qualified as victims under the MVRA – though he acknowledged their claims are relatively removed from the underlying harm. He explicitly rejected OZ Africa's argument that only Africo, and not its former shareholders, could claim victim status under the MVRA, seemingly based on his finding that Africo is a "defunct" company. OZ Africa has since moved for reconsideration, arguing that Judge Garaufis based his ruling on a factual error and that Africo is not, in fact, a defunct company.7

Though Judge Garaufis has yet to rule on the motion for reconsideration, he did order additional briefing by the parties to determine the appropriate restitution calculation. The 50 former investors in Africo claim that their stake would have been worth $1.8 billion had development proceeded without Och-Ziff 's corrupt practices. It is unclear at this stage how much any actual restitution amount would be, though Judge Garaufis stated that restitution should be calculated based not on "the full projected value" of the mine investment, but rather "on the value of these mining rights, as of either 2006-2008 or the present day."

The Underlying Facts

In 2006, Africo indirectly held a 75% interest in the Kalukundi mining rights, with the other 25% held by a DRC state-owned entity. During that year, Africo's rights were expropriated and auctioned off in order to satisfy an ex parte default judgment obtained by a former Africo employee. Africo did not learn that its rights had been expropriated until April 2007, at which point it fought the expropriation in the DRC courts. Unbeknownst to Africo, a DRC official allegedly orchestrated the expropriation in order to convey the interest in Kalukundi to Dan Gertler, an Israeli billionaire who held other interests in the DRC mining sector.

"It is possible that this decision will embolden companies affected by FCPA schemes, such as competitors and third parties, to seek victim status under the [Mandatory Victims Restitution Act]."

The transaction structure is complicated. At a high level, Gertler and OZ Africa were negotiating the acquisition of Kalukundi rights as well as an investment by OZ Africa in one of Gertler's special-purpose entities. In turn, that special-purpose entity planned a bid to take over Africo, which required the approval of the Africo shareholders. Gertler allegedly paid bribes to DRC officials, including to judges, in order to ensure that Africo did not obtain a favorable decision regarding the expropriation of Africo's rights to Kalukundi, at least prior to the scheduled vote by Africo shareholders on whether to accept the takeover bid by Gertler's company. Africo shareholders accepted the takeover in June 2008. Ultimately, no decision on the expropriation was given because the takeover rendered the case moot.

The Restitution Decision

The dispute over restitution between the Africo investors and OZ Africa focused on: (1) whether restitution could be ordered after the court had accepted OZ Africa's guilty plea; and (2) whether the Africo investors met the definition of "victim" under the MVRA. Judge Garaufis answered both questions in the affirmative. As to the first issue, Judge Garaufis reasoned that while the court had already accepted OZ Africa's guilty plea, it "has not yet accepted the parties' plea agreement."

Footnotes

1. Mem. & Order, United States v. OZ Africa Management GP, LLC, 16-515 (E.D.N.Y. Aug. 29, 2019), ECF No. 51.

2. See Motion for Victim Status and Restitution by Republic of Venezuela as to Abraham Edgardo Ortega, United States v. Guruceaga et al, 1:18-cr-20685 (S.D. Fl. Apr. 2, 2019), ECF No. 87; Response in Opposition, Guruceaga (May 17, 2019), ECF No. 99.

3. 18 U.S.C. § 3771(d)(3). The CVRA is not itself a substantive statutory basis for an order of restitution. See, e.g., In re Her Majesty the Queen in Right of Canada, 785 F.3d 1273, 1275 (9th Cir. 2015). Rather, the CVRA's mandate of "full and timely restitution as provided in law" simply ensures compliance with the already existing restitution statutes, including the VWPA and the MVRA. Id. at 1275–76 (noting that "full and timely restitution as provided by law" means reliance on restitution statutes independent of the CVRA).

4. See United States v. Alcatel Lucent, S.A., Document 43, "Government's Response to ICE's Petition for Victim Status and Restitution" at 6 ("[W]hile ICE officials and ICE itself could not be charged with extortion or bribery, it does not mean that ICE officials and ICE itself were not, in fact, involved in – and responsible in part for – the criminal conduct."); In re Instituto Costarricense de Electridad, Case No. 11-12707-G (11th Cir. June 17, 2011). See also Bruce E. Yannett, Philip Rohlik, and David M. Fuhr, "Victim or Villain: A Costa Rican State Entity's Claim for Restitution from Alcatel," FCPA Update, Vol. 2, No. 11 (June 2011), www.debevoise.com/insights/publications/2011/06/fcpa-update.

5. U.S. Dep't of Justice, "Och-Ziff Capital Management Admits to Role in Africa Bribery Conspiracies and Agrees to Pay $213 Million Criminal Fine" (Sept. 29, 2016); U.S. Sec. & Exch. Comm., "Och-Ziff Hedge Fund Settles FCPA Charges" (Sept. 29, 2016).

6. Deferred Prosecution Agreement, United States v. Och-Ziff Capital Management Group LLC, 16-516, A-8 (E.D.N.Y. Sep. 29, 2016).

7. Mem. In Support of Def.'s Mot. For Reconsideration, United States v. OZ Africa Management Group, LLC, 16-515 (E.D.N.Y. Sep. 6, 2019), ECF No. 55.

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