Top Ten International Anti-Corruption Developments for February 2018

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: Which countries came out on top—and at the bottom—in this year’s Transparency International Corruption Perceptions Index? How did the U.S. Supreme Court limit whistleblower protections? Which company resolved a foreign bribery case with German prosecutors? What are the latest developments in South Korea’s presidential corruption scandal? The answers to these questions and more are here in our February 2018 Top Ten list.

1. Transparency International Releases Annual Corruption Perceptions Index. On February 21, 2018, Transparency International (TI) released its annual Corruption Perceptions Index (CPI) for 2017. The CPI, which measures the perceived levels of public sector corruption in 180 countries and territories, provides one of the major data-points used by compliance officers, outside counsel, and enforcement officials in assessing the anti-corruption risk of doing business in particular countries. New Zealand took over the top spot from Denmark as 2017’s least corrupt country. (See our discussion of last year’s CPI.) Denmark fell to number two. Somalia came in last place, with Syria and South Sudan just above it. Notably, Brazil, which fell from being ranked 69 to 76 in 2016, fell even further in the rankings to 96, potentially due to continued revelations and findings from the ongoing investigation into alleged corruption involving national oil company Petroleo Brasiliero SA (Petrobras). As we discuss in this February 2018 client alert, the Asia-Pacific region continues to reflect high variance in CPI scores, along with varied anti-corruption enforcement practices. According to TI, several countries have improved their scores since last year, including the United Kingdom, which moved up from 10 to 8 in the rankings, as well as Côte d’Ivoire and Senegal. However, two-thirds of all countries still scored below 50, the mid-point between “perceived to be highly corrupt” (0) and “perceived to be very clean” (100). TI considers scores below 50 to indicate that a country has a “serious corruption problem.”

2. Venezuela Bribery Prosecution Adds Five More Defendants, Continues Trend of Money Laundering Charges Against Foreign Officials. On February 12, 2018, the Department of Justice announced charges filed in the Southern District of Texas against five former Venezuelan government officials for their alleged participation in an international money laundering and bribery scheme involving over $27 million in bribes made to secure energy contracts from the Venezeulan national energy company, Petroleos de Venezuela S.A. (PDVSA). The PDVSA investigation has resulted in 10 guilty pleas to date. (See our November 2017 client alert for our most recent coverage.) Notably, DOJ has charged both bribe payers and bribe recipients in connection with this investigation. Although foreign officials cannot be charged with violating the FCPA, two of the most recently indicted former PDVSA officials are charged with laundering the proceeds of alleged FCPA violations. DOJ has successfully used this legal theory in the past. In 2013, Maria Gonzalez (a former official of a Venezuelan state development bank, BANDES) pled guilty in the Southern District of New York to money laundering and commercial bribery offenses, and was sentenced in January 2016. In February 2015, the Eleventh Circuit affirmed the conviction of Jean Rene Duperval, a former Haitian telecommunications official, convicted in the Southern District of Florida of laundering the proceeds of FCPA and wire fraud violations. DOJ appears to be using money laundering charges against foreign officials with greater frequency and, thus far, with sustained success at trial: In May 2017 and July 2017, respectively, two foreign officials, Mahmoud Thiam (a former Minister of Mines and Geology in the Republic of Guinea) and Heon-Cheol Chi (Director of South Korea’s Earthquake Research Center), were convicted of laundering millions of dollars in bribe payments. Many in the business community have welcomed DOJ’s focus on the demand side of foreign bribery, but the increase in money laundering prosecutions against current and former foreign officials could result in additional legal challenges, especially where the alleged “specified unlawful activity” is an FCPA violation. This latest round of charges reinforces the PDVSA prosecution as a case to watch.

3. Three Corporate FCPA Investigations Result in Declinations. In February 2018, three companies announced that DOJ and/or the Securities and Exchange Commission (SEC) had decided to end FCPA investigations without charges.

• California-Based Networking Products Developer Discloses DOJ Declination. In a February 9, 2018 securities filing, Juniper Networks disclosed that it had received a letter from DOJ notifying the company that the Department had closed its investigation into possible FCPA violations without taking any action against the company and acknowledging the company’s cooperation in the investigation. The company noted in the securities filing that SEC’s investigation had not yet been resolved.
• Ohio-Based Data Analytics Company Discloses DOJ and SEC Declinations. In a February 26, 2018 securities filing, Teradata Corp. disclosed that DOJ and SEC had informed the company that they had closed their investigation into FCPA allegations without pursuing enforcement actions against the company. Teradata had voluntarily disclosed to DOJ and SEC potentially improper travel, gifts, and other expenses in Turkey in February 2017.
• Texas-Based Oil and Gas Services Firm Discloses DOJ and SEC Declinations. In a February 28, 2018 securities filing, Exterran Corp. disclosed that DOJ and SEC had concluded their investigations of potential FCPA violations without taking any enforcement action. According to the company, the two-year investigation concerned accounting errors and possible irregularities involving its business in the Middle East. The company disclosed that the SEC is continuing to investigate the circumstances giving rise to the restatement.

4. Panamanian Sports Apparel Licensee Pleads Guilty in FIFA Corruption Case. On February 21, 2018, DOJ announced that Mimo International Imports and Exports, Inc. had pleaded guilty in the Eastern District of New York to charges of wire fraud conspiracy in connection with an agreement to bribe Eduardo Li, who was president of the Costa Rican soccer federation (FEDEFUT) at the time. The company admitted that, in 2014, it agreed to pay Li $500,000 to terminate a sponsorship agreement between Mimo and FEDEFUT so that Mimo would receive a multimillion-dollar rescission fee. The agreement involved meetings in the United States, and the company ultimately paid over $300,000 of the agreed amount in U.S. currency before Li was arrested in May 2015. Li pleaded guilty in October 2016 to racketeering conspiracy, wire fraud, and wire fraud conspiracy charges in connection with accepting the bribe and other conduct. The company was sentenced to pay $500,000 in restitution to FEDEFUT and a $900,000 fine.

5. Two FCPA-Related RICO Lawsuits Filed. In February 2018, two FCPA-related civil RICO suits were filed. While FCPA-related plaintiff suits are increasingly common, they more often take the form of shareholder derivative actions or securities fraud class actions.

• Investor Manager Files Second Civil Suit Against Singapore-Based Oil Rig Builder. On February 6, 2018, various funds managed by EIG Global Energy Partners (EIG) filed a RICO suit in the Southern District of New York against Singapore-based Keppel Offshore & Marine Ltd. for its role in an allegedly long-running bribery scheme involving Brazilian national oil company Petrobas.[1] As discussed below, the alleged scheme was the subject of a global resolution in December 2017 with U.S., Singaporean, and Brazilian authorities. The lawsuit alleges that Keppel engaged in a RICO conspiracy to commit predicate acts of Travel Act violations, money laundering, and wire fraud, causing plaintiffs to lose the entirety of a $221 million investment in a Brazilian company with whom Keppel contracted to build drillships. EIG first sued Keppel and several other defendants, including Petrobas, in 2016, alleging a civil fraud conspiracy, among other claims. On March 30, 2017, the district court dismissed the civil conspiracy claim. In the new suit, EIG is seeking treble damages of at least $663 million, plus attorneys’ fees.
• Houston-Based Energy Company Files RICO Suit Against Former Venezuelan Government Officials. On February 16, 2018, Harvest Natural Resources and HNR Energia B.V. (collectively “Harvest”) filed a civil suit in the Southern District of Texas against two former presidents of Venezuela’s national oil company, PDVSA, and others allegedly involved in soliciting bribe payments. The plaintiffs allege violations of RICO and federal and state antitrust laws.[2] The civil complaint was filed just days after DOJ announced charges against five former Venezuelan officials in connection with a bribery scheme involving PDVSA, discussed above. Harvest claims that it suffered harm when the Venezuelan government withheld approval for Harvest to sell its Venezuelan energy assets to buyers in 2013 and 2014 after the company refused four bribe demands. Harvest alleges that it was forced to sell the same assets at a loss of $470 million.

6. SCOTUS Limits Dodd-Frank Whistleblower Protections. On February 21, 2018, the Supreme Court unanimously held in Digital Realty Trust, Inc. v. Somers that Dodd-Frank’s anti-retaliation provision does not protect whistleblowers who report securities laws violations internally to their employer but not externally to SEC. The plaintiff in the case, Somers, was fired shortly after he reported an alleged securities law violation to his senior management. Somers filed suit, arguing that Dodd-Frank’s anti-retaliation provisions prohibited the company from firing him in retaliation for his report. The Court rejected Somers’s argument, reasoning that the clear language of Dodd-Frank’s anti-retaliation provision required that a person must first provide “information relating to a violation of the securities laws to the Commission,” pursuant to section 15 U.S.C. § 78u-6(a)(6). The Court also noted that the statute’s definition of whistleblower was consistent with Congress’s aim to encourage reporting to SEC. Although not an FCPA case, this holding has broad implications for internal reporting of foreign bribery and other violations. Indeed, several prior cases, including the Bio-Rad and Asadi cases, have involved internal reports of alleged FCPA violations. Internal whistleblowers remain protected under the Sarbanes-Oxley Act, but that statute provides less protection against retaliation than Dodd-Frank. Although a victory for the company, Somers could result in more whistleblower complaints being made to SEC, as employees—and whistleblower lawyers—seek to maximize the possibility that they will be protected under Dodd-Frank. Companies therefore should take steps to ensure that their whistleblower policies and procedures, including anti-retaliation policies, appropriately encourage internal self-reporting.

7. German Unit of French Aerospace Company Pays €81.25 Million Penalty for Negligent Breach of Supervisory Duties. On February 9, 2018, the Munich Prosecutor’s Office announced the resolution of its nearly six-year investigation of Airbus’s German subsidiary Airbus Defense and Space GmbH. As described in our client alert, the company was penalized in connection with an alleged agreement to sell 18 Eurofighter aircraft to Austria for roughly €2 billion in 2003 in exchange for certain offset deals Airbus was to create for Austrian companies in return. In a statement announcing the resolution, German prosecutors indicated that they had not found evidence of bribery but that they had identified roughly €100 million in payments to two UK shell companies for “unclear purposes,” made while evading internal control systems at the company. According to prosecutors, this resulted from a “negligent breach of supervisory duties.” The penalty imposed on the company consisted of an administrative fine of €250,000 and disgorgement of €81 million. The company received credit for cooperating fully with the prosecution, conducting a fulsome internal investigation, and undertaking significant remediation. Taken together, these measures gave the prosecution “reason to believe such events will not happen again.” Although it remains unclear exactly how much credit the company received for these measures, the penalty imposed was below expert predictions of a fine well above €100 million. Airbus remains under investigation in Austria for the 2003 Eurofighter deal and is also separately under investigation by UK and French authorities—the Serious Fraud Office and the French Parquet National Financier— for suspected corruption and bribery in its UK-based civil aviation arm.

8. Canadian Government Publishes Report Showing Support for DPAs. Following a comment and discussion period in the Fall of 2017, the Canadian Government published a report on February 24, 2018, regarding a possible Canadian deferred prosecution agreement (DPA) regime. The report found that the majority of participants supported a Canadian DPA regime and believed DPAs could be a useful tool for prosecutors to address corporate criminal wrongdoing. Most participants were in favor of limiting the use of DPAs to serious financial crimes and of using the United Kingdom DPA system, with clear prosecution guidelines and the mandatory publication of DPAs, as a model. Some participants did not believe DPAs were necessary and expressed concerns that DPAs could be viewed as favoring large companies over small companies and individuals. Although the comment period regarding Canada’s Integrity Regime and possible adoption of DPAs is closed, the report notes that the Government of Canada remains committed to hearing from interested parties on these issues. No policy changes have been implemented to date, but the consistency of the feedback combined with the growing interest in DPAs worldwide (see our April 2017, September 2017, and November 2017 for discussions of other countries’ interest in DPAs) may suggest that a Canadian DPA regime is near. Given the frequent use of DPAs to resolve FCPA violations in the United States, such a development would likely be significant for the future of foreign bribery prosecutions in Canada.

9. Former Executives of Singapore-based Oil Rig Builder Arrested. On February 2, 2018, it was reported that six former executives had been arrested by Singaporean authorities in connection with their investigation of Keppel Offshore & Marine Ltd. Among the executives was Tay Kim Hoc, former president and chief executive of the company’s Brazil unit, who was arrested by Singapore’s Corrupt Practices Investigation Bureau (CPIB) and subsequently released on bail. The remaining five executives, whose names and roles were not disclosed, are also reportedly out on bail. In December 2017, Keppel and its U.S. subsidiary agreed to pay a $422 million combined penalty to U.S., Singaporean, and Brazilian authorities to resolve allegations that they paid over $55 million in bribes to Brazilian officials between 2001 and 2014 to win contracts with Petrobas and another Brazilian entity. As part of that resolution, a guilty plea by a former senior member of Keppel’s U.S. subsidiary was also unsealed. The Keppel arrests are not the first foreign follow-on arrests to occur in the wake of an FCPA corporate resolution. For example, between July and August 2015, Indian authorities reportedly arrested four individuals for their alleged involvement in a bribery scheme involving Louis Berger International, which had entered into a DPA with DOJ in July 2015. With more coordination between international law enforcement agencies in bribery investigations, this might become a more common occurrence.

10. Developments in South Korean Bribery Prosecutions. February 2018 saw several new developments in the bribery scandal associated with former South Korean president Park Geun-hye. On February 5, 2018, a South Korean appeals court freed Lee Jae-yong, acting chairman of Samsung, after reducing his five-year prison term to two and a half years and then suspending it. In August 2017, Lee was convicted and sentenced to five years’ imprisonment on various charges including bribery, embezzlement, and concealment of criminal proceeds, in connection with large donations to foundations run by Choi Soon-il, a close friend and advisor to the former president. The appeals court reduced the amount recognized as bribe payments by Lee to $3.3 million, characterizing Lee as a “passive” provider of bribes who was intimidated by former President Park. On February 13, 2018, Choi herself was convicted and sentenced to 20 years in prison and a $16.6 million fine for corruption, influence-peddling, and abuse of power. On the same day, the chairman of Korean conglomerate Lotte Group, Shin Dong-bin, was sentenced to two years and six months in prison for providing $6.5 million to Choi in exchange for government favors. Finally, on February 27, 2018, South Korean prosecutors requested a 30-year prison term and $110 million fine for former president Park Geun-Hye, who was impeached in December 2016 and subsequently charged and tried with bribery, coercion, abuse of power, and leaking state secrets. The court has not yet rendered its verdict in the case.

[1] See Complaint, EIG Energy Fund XIV LP et al. v. Keppel Offshore & Marine Ltd., No. 1:18-cv-01047 (S.D.N.Y. Feb. 6, 2018), ECF No. 1.

[2] See Complaint, Harvest Natural Resources, Inc., et al. v. Juan Jose Mendoza Garcia et al., No. 4:18-cv-00483 (S.D. Tex. Feb. 16, 2018), ECF No. 1.