Top Ten International Anti-Corruption Developments for November 2016

By MoFo’s FCPA and Global Anti-Corruption Team

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: What effect will the U.S. presidential election have on FCPA enforcement? How did a financial institution’s employment practices result in an FCPA enforcement action? What effect will the new French anti-corruption law have on U.S. and French enforcement efforts? The answers to these questions and more are here in our November 2016 Top Ten list:

1. Donald Trump Elected President, Nominates Senator Jeff Sessions as Attorney General.

On November 8, 2016, Donald Trump was elected president. Almost immediately, speculation began as to what FCPA enforcement will look like under the Trump administration. In a November 9, 2016 article, Professor Peter Henning predicted that “one area that is likely to continue to thrive [under the Trump administration] is the enforcement of the Foreign Corrupt Practices Act . . . . It is unlikely that Mr. Trump would want to be seen as going soft on corruption after some of his rhetoric during the campaign, so the [FCPA] is likely to remain a featured player in white-collar enforcement.” In contrast, in a November 10, 2016 blog post, Professor Matthew Stephenson expressed skepticism that the Trump administration would make FCPA enforcement “a significant priority, or would devote substantial resources to this area.” The divergence in these views highlights an important point: No one really knows exactly how FCPA enforcement will develop over the next four years. Trump’s November 18, 2016 selection of Alabama Senator Jeff Sessions to be the next Attorney General did not necessarily provide any clarity. Senator Sessions appeared to take a tough stance on prosecuting corporate crime during the confirmation hearings for Deputy Attorney General James Cole in 2010—stating that he did not think that any corporation was “too big to fail” and that “I was taught, if they violated the law, you charge them. If they did not violate the law, you do not charge them”—but he has been relatively silent on the FCPA. And we do not yet know whom Trump will nominate to lead DOJ’s Criminal Division, which oversees the Fraud Section, in which DOJ’s FCPA Unit is housed. That pick is likely to have a more direct influence on FCPA enforcement than either Trump or Sessions. Here is our take: Although Trump was critical of the FCPA in a 2012 interview, the law was not raised during the election, and the ramp-up in FCPA enforcement actually began under the previous Republican administration. FCPA enforcement will likely change at the margins, as it does with every change in leadership at DOJ, even during the same administration. For example, the use of NPAs and DPAs to resolve FCPA cases could decrease in light of Senator Sessions’ opinions on charging corporations “if they violated the law” and not charging them if they did not. But, in a very real sense, it is the career prosecutors, enforcement attorneys, and special agents who do the daily work that builds FCPA cases. As long as they continue to do that work, FCPA enforcement will continue.

2. Deputy Attorney General “Optimistic” that Focus on Individual Accountability in FCPA Cases Will Continue Under Trump Administration.

In a November 30, 2016 speech at the American Conference Institute’s 33rd International Conference on the FCPA, Deputy Attorney General Sally Yates stated that she is “optimistic” that DOJ’s focus on individual accountability would continue under the Trump administration. In September 2015, DOJ released the Yates Memo, which outlined six specific policy steps to increase DOJ’s efforts to hold individuals accountable for corporate wrongdoing. In November 2015, DOJ amended the United States Attorneys’ Manual (USAM) to conform it to the Yates Memo. During her speech, Yates stated that, “[f]rom the beginning, our goal [with the Yates Memo] was to develop and institutionalize mechanisms to ensure that, across the Department, we consistently investigate and prosecute corporate cases as effectively as possible.” According to Yates, the mechanisms put in place following the Yates Memo “were designed to help our agents and attorneys develop information about individual wrongdoers as early as possible during an investigation[.]” Yates stated that these efforts have been supplemented by the Fraud Section’s FCPA Pilot Program and the National Security Division’s export control and sanctions program, and by work done by the Civil Division to clarify and refine its approach in civil enforcement matters. Yates also announced that DOJ is launching a new website with resources relating to the Department’s policies on individual accountability and answers to some of the most frequently asked questions that it receives. Yates reported that DOJ is pleased with how prosecutors and companies have responded to DOJ’s emphasis on individual accountability and, as noted above, stated that she is “optimistic” that the emphasis on individual accountability will continue under the next administration. According to Yates, “individual accountability isn’t a Democratic principle or a Republican principle, but is instead a core value of our criminal justice system that perseveres regardless of which party is in power.” Yates expects that a higher percentage of resolutions in the coming years will be accompanied by criminal or civil actions against individuals, noting that a significant number of investigations currently underway will not be resolved until well into the next administration.

3. Head of DOJ Criminal Division Opines that FCPA Pilot Program Is Resulting in More Voluntary Disclosures.

In a November 3, 2016 speech at the George Washington University Law School, Leslie Caldwell, the Assistant Attorney General for DOJ’s Criminal Division, expressed her view that the FCPA Pilot Program, intended to encourage companies to self-report potential FCPA violations, is “having an effect.”  Caldwell described the Pilot Program as one of the Criminal Division’s efforts to be more transparent about its “expectations and the consequences of corporate misconduct” as a way to promote “lawful corporate behavior.”  According to Caldwell, the Pilot Program is designed “to enable companies to make more rational decisions” when deciding whether to disclose potential foreign corrupt activity by making clear that “a decision not to disclose wrongdoing will result in a significantly different outcome than if the company had voluntarily disclosed the conduct and cooperated.” Caldwell credited the one-year program, announced in April 2016, with “an uptick in the number of companies coming in to voluntarily disclose potential FCPA violations.”  Caldwell raised the possibility that this was because the Pilot Program offered “very real upsides” for self-disclosure and full cooperation, namely a company’s potential eligibility for an “outright declination” under the Program’s criteria. Caldwell did not provide any statistics regarding the “uptick” in self-disclosures (in our experience, DOJ does not keep such statistics). Instead, she pointed to the increased number of declination letters that DOJ has publicized over the last six months as proof that declinations are an “attainable result for companies that come in and cooperate.”  While declinations are indeed possible, it appears from the language of the declination letters that all of those matters had been disclosed to the Department prior to the announcement of the Pilot Program (all five letters that have been published state that the declinations are “consistent with,” rather than “made pursuant to,” the FCPA Pilot Program). Moreover, we think that requiring that companies receiving declinations be publicly named (as opposed to anonymized declinations) and requiring that “companies disgorge the proceeds of bribery in order to be eligible for the full benefits, including possible declination, of the program” (a very different result than the declination that accompanied the Garth Peterson case in April 2012) could actually discourage companies from coming forward. Nevertheless, we recognize the difficult tradeoffs that come with efforts to increase corporate self-disclosure and cooperation, and we continue to think it laudable that the Criminal Division has recognized the difficult choices that companies have to make and welcome its continuing efforts to increase transparency in corporate charging decisions.

4. Financial Services Firm Resolves Hiring-Related FCPA Allegations.

On November 17, 2016, DOJ, SEC, and the Board of Governors of the Federal Reserve System announced that JPMorgan Chase & Co. and its Hong Kong-based subsidiary JPMorgan Securities (Asia Pacific) Limited had agreed to pay a total of more than $264 million to resolve allegations that the subsidiary’s “Sons and Daughters” hiring program violated the FCPA. According to the three agencies, the program was designed to help the company gain advantages by providing prestigious jobs and internships to less qualified candidates who were connected to government officials and private clients who had the ability to influence the award of banking deals. The parent company agreed to pay approximately $130.5 million in disgorgement and interest to the SEC and to pay a civil penalty of approximately $62 million to the Federal Reserve, while the subsidiary reached an NPA with DOJ under which it agreed to pay a criminal penalty of $72 million. Because the resolution took the form of an NPA, DOJ did not explain under what theory it held the subsidiary liable for the commercial bribery allegations set out in the agreement. By emphasizing in the press release that the subsidiary’s employees “misused compliance questionnaires to justify and paper over” the hiring decisions, it appears that DOJ might have proceeded under the theory that the employees circumvented the company’s internal accounting controls, a relatively aggressive theory often pursued by SEC, but not as often by DOJ, to reach commercial bribery. The resolution also highlights the agencies’ apparent belief that H.R. policies constitute part of a company’s system of internal accounting controls.

5. FCPA Charges Added to United Nations Bribery Case.

On November 22, 2016, DOJ filed additional charges against Ng Lap Seng, a Chinese national and real estate developer accused of bribing former U.N. General Assembly President John Ashe. The superseding indictment added charges under the FCPA alleging that Ng and his assistant, Jeff Yin, bribed the Dominican and Antiguan ambassadors to the U.N. Ng was initially charged in October 2015 with bribing and conspiring to bribe an official of an organization receiving federal funding, rather than with violating the FCPA. Following a November 23, 2016 hearing, on December 2, 2016, Ng moved to strike the superseding indictment.[1] In his motion, Ng argues that the superseding indictment does not allege any new facts, but instead recasts facts already alleged as violations of the FCPA in what it claims is “a radical shift in the government’s theory of the case.”[2] Ng argues that he was originally charged with bribing Ashe through a facilitator and co-conspirator, Francis Lorenzo. Lorenzo was the former deputy U.N. ambassador from the Dominican Republic who pleaded guilty to federal charges in March 2016.[3] The superseding indictment, however, alleges that both Lorenzo and Ashe are “foreign officials” under the FCPA and therefore Ng violated the FCPA by bribing both Lorenzo and Ashe.[4] Ng argues that the filing of the superseding indictment only two months before his January 23, 2017 trial date is “egregious,” particularly because the government has been aware of these facts since at least July 2016.[5] As we noted in our October 2015 and August 2016 alerts, Ng initially could have been charged with violating the FCPA because Ashe would be considered a “foreign official” under that statute. United States District Judge Vernon Broderick appeared to agree, remarking at the November 2016 hearing that “[t]he facts I think could have supported an FCPA charge being made at an earlier date.”

6. End of a Monitorship, DPA, NPA, and Investigation.

In November 2016, we learned that three FCPA enforcement actions and one FCPA investigation had concluded.

• Life Sciences Company’s NPA Expires. On November 2, 2016, Bio-Rad Laboratories, Inc., announced in its Form 10Q filing that DOJ and SEC had informed the company that the agencies did not intend to extend its NPA, which was set to expire on November 2, 2016. In November 2014, Bio-Rad resolved an SEC and DOJ investigation into payments made to Russian, Vietnamese, and Thai government officials between 2005 and 2010. Under the terms of the NPA, Bio-Rad paid a $14.35 million fine and was required to enhance its compliance program, though it was not required to install an independent monitor.

• DOJ Moves to Dismiss DPA with French Oil Company. On November 4, 2016, DOJ moved a federal court in the Eastern District of Virginia to dismiss Total SA’s May 29, 2013 DPA. In 2013, Total agreed to pay $245.2 million to resolve DOJ charges that it violated the FCPA by paying an Iranian official $60 million for access to oil and gas fields. Total also agreed to disgorge $153 million to SEC. The DPA (and the SEC order) required that Total install an independent monitor for a period of three years to oversee changes to its compliance program. The DPA was initially scheduled to expire in June 2016, but the original monitor died in May 2015, and the DPA was extended to allow for a replacement to take over. The replacement monitor issued his final report in July 2016, certifying that Total had met its DPA obligations.

• Monitorship of ATM and Security-System Manufacturer Completed. On November 14, 2016, Diebold, Inc., announced in its Form 10Q filing that its DPA and independent monitorship expired on October 29, 2016. In October 2013, DOJ and SEC brought FCPA enforcement actions against Diebold in connection with allegations that the company had bribed officials at Chinese state-owned and controlled banks. As part of its DPA with DOJ, Diebold was required to retain an independent corporate monitor to review its compliance program, internal accounting controls, recordkeeping, and financial reporting policies and procedures relating to the FCPA and other applicable anti-corruption laws, in addition to paying a $25.2 million penalty. On October 24, 2016, Diebold’s corporate monitor certified to SEC and DOJ that Diebold’s compliance program was reasonably designed and implemented to prevent and detect violations of anti-corruption laws. Under the terms of the DPA, within 30 days of the DPA’s expiration, DOJ will seek dismissal of the October 2013 criminal information filed against Diebold.

• Fracking Supply Company Announces SEC Investigation Completed. On November 17, 2016, Fairmount Santrol Holdings Inc., an Ohio-based provider of high-performance sand and sand-based products for hydraulic fracking, disclosed in its Form 8K filing that on November 3, 2016, SEC had informed it that its investigation into potential FCPA violations had concluded and that SEC did not intend to pursue an enforcement action. Fairmount had disclosed the investigation in its 2015 Form 10K filing, stating that SEC was investigating potential violations of the FCPA and other securities laws relating to Fairmount’s international operations.

7. Further Developments in FIFA Investigation.

• Former Venezuelan Soccer Federation President Pleads Guilty. On November 10, 2016, DOJ announced that former Venezuelan soccer federation president Rafael Esquivel pleaded guilty to multiple racketeering and corruption charges in connection with multiple bribery schemes related to the awarding of contracts for the media and marketing rights to international soccer tournaments. In May 2015, Esquivel was one of the 14 defendants charged in the initial FIFA indictment. Esquivel was the president of the Venezuelan soccer federation from 1988 to 2015, as well as vice president of CONMEBOL, the South American soccer confederation. According to court filings and facts presented during the plea proceeding, Esquivel used his influence to obtain millions of dollars in bribe payments from sports marketing companies for steering media and marketing rights for soccer tournaments to these companies. As part of his plea, Esquivel also agreed to forfeit more than $16 million. Esquivel faces a maximum sentence of 20 years’ imprisonment for each of the seven counts to which he pleaded guilty.

• Former CONMEBOL President Moves to Dismiss Indictment. On November 21, 2016, former CONMEBOL president Juan Angel Napout moved to dismiss charges against him related to the corruption investigation into FIFA.[6] In December 2015, Napout was one of 16 defendants charged in the FIFA superseding indictment. Napout’s November 21 motion argues that the charges against him should be dismissed for lack of extraterritorial jurisdiction.[7] Criticizing his indictment as a “significant overreach and selective distortion of the facts,” Napout claims that DOJ failed to properly allege that Napout engaged in any criminal conduct within a U.S. territory or that impacted the United States.[8] He argues that none of the racketeering, wire fraud, and money-laundering conspiracies alleged against him occurred in the United States or relied upon the U.S. banking system.[9] Prior to Napout’s motion to dismiss, DOJ filed a motion on November 16, 2016, seeking to clarify the scope of privileges asserted by Napout.[10] Napout, as the president of CONMEBOL, has sought to claim privilege over a number of records obtained from CONMEBOL headquarters. DOJ has argued that any privilege related to CONMEBOL records belongs to CONMEBOL—not Napout—and that Napout has not sufficiently evidenced a common-interest privilege between him and counsel to CONMEBOL.

8. SEC Releases Annual Whistleblower Report.

On November 15, 2016, SEC released its 2016 Annual Report on the Dodd-Frank Whistleblower Program. The number of whistleblower tips received by SEC in Fiscal Year 2016 exceeded 4,000 for the first time ever and has grown more than 40 percent since FY 2012. Six of the ten largest whistleblower awards since the program’s inception were made during FY 2016, and in total SEC awarded more than $57 million to 13 whistleblowers. SEC reported that it continues to receive tips from individuals throughout the United States, as well as from individuals in 67 foreign countries. FCPA allegations accounted for 238 of the 4,218 tips, an increase from the 186 FCPA-related tips in FY 2015. The Report also highlighted SEC’s enforcement efforts against companies for using confidentiality, severance, and other restrictive agreements to impede whistleblowers, including proceedings instituted against a company for entering into a separation agreement with strict confidentiality provisions with an employee who reported concerns about potential FCPA violations. SEC continues to advocate for a broad interpretation of Dodd-Frank’s anti-retaliation provisions, and the Report noted that SEC brought its first standalone retaliation case in September 2016.

9. United States Returns Graft Fugitive to China to Face Charges.

On November 16, 2016, U.S. Immigration and Customs Enforcement (ICE) returned Xiuzhu Yang, a former Chinese official considered the country’s most wanted fugitive, to Chinese custody. According to news reports, Yang, a former deputy director of the construction bureau of eastern China’s Zhejiang Province, fled China in April 2003 after Chinese investigators began investigating her alleged embezzlement. Chinese authorities allege that Yang generated approximately $39 million in illegal income through construction projects that she oversaw. Since fleeing China, Yang has lived in Hong Kong, Singapore, France, the Netherlands, and Italy, sometimes under false identities. She entered the United States in 2014, seeking asylum, and was detained by ICE in June 2014 for entering the United States using a fraudulently obtained Netherlands passport. The return of Yang is the latest in a string of successes for China, which has made the apprehension of fugitive corrupt officials a priority since President Xi Jinping took power in 2012. Since 2012, 363 fugitive officials have been apprehended. Following meetings with Chinese officials in the United States, Yang agreed to voluntarily withdraw her asylum application and return to China, in exchange for assurances of more lenient treatment. Yang’s brother, Yang Jijun, who is also accused of corruption charges, returned to China late last year. The return of Yang also reflects increasing cooperation between the United States and China with respect to international law enforcement. While the United States and China have no extradition treaty, officials have worked through the Joint Liaison Group on Law Enforcement Cooperation to cooperate in the return of fugitives and the freezing of assets. Increased cooperation between China and the United States could have a dramatic effect on international anti-corruption enforcement and is a trend to watch.

10. France Adopts Comprehensive New Anti-Corruption Law.

On November 8, 2016, France adopted new anti-corruption legislation establishing a new enforcement agency, imposing legal obligations on certain companies to adopt internal anti-corruption procedures, introducing a DPA-like mechanism for resolving anti-corruption investigations, and providing for the protection of whistleblowers. The new enforcement agency, “l’agence française anti corruption” or AFA, will review companies’ anti-corruption programs and has the power to request documents as part of its review. Certain companies—those with at least 500 employees, or those that belong to a group of companies whose parent company is headquartered in France and have a workforce of at least 500 employees, and revenues in excess of € 100 million—are required to implement certain internal anti-corruption procedures to prevent and detect corruption in France and abroad. Companies suspected of violations may avoid prosecution and criminal sanctions by entering into the functional equivalent of a DPA (called a convention judiciaire d’intérêt public)—an agreement with a court requiring the payment of a public fine, the implementation of an internal compliance program to be overseen by the new agency for three years, or both. (In March 2016, the provision permitting DPAs had been removed from an earlier version of the bill, but it was later reintroduced.)  The law also imposes financial penalties for retaliation against whistleblowers and expands the definition of a whistleblower. French companies have been the target of numerous large enforcement actions in the United States, including three of the Top Ten largest FCPA resolutions of all time and significant resolutions involving sanctions and money-laundering charges. A contributing factor to this phenomenon is the perception that France has not done enough to police its own companies. For example, in December 2014, the OECD Working Group on Bribery called attention to French authorities’ “lack of initiative in cases involving French enterprises and proven or presumed instances of foreign bribery.” It will be interesting to see whether the introduction of a DPA-like mechanism in France results in an increase in domestic enforcement, and a corresponding decrease in U.S. enforcement, against French companies.

[1] United States v. Seng, No. 15 Cr. 00706 (VSB) (S.D.N.Y. Dec. 2, 2016), ECF No. 332.

[2] United States v. Seng, No. 15 Cr. 00706 (VSB) (S.D.N.Y. Dec. 2, 2016), ECF No. 333.

[3] Id.

[4] Id.

[5] Id.

[6] United States v. Napout, No. 15 Cr. 252 (S-1) (PKC) (E.D.N.Y. Nov. 21, 2016), ECF No. 491.

[7] United States v. Napout, No. 15 Cr. 252 (S-1) (PKC) (E.D.N.Y. Nov. 21, 2016), ECF No. 491-1.

[8] Id.

[9] Id.

[10] United States v. Napout, No. 15 Cr. 252 (S-1) (PKC) (E.D.N.Y. Nov. 16 , 2016), ECF No. 482.