Top 10 International Anti-Corruption Developments for February 2019

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 in the past month, with links to primary resources.This month we ask: What did a U.S. appellate court say about a plaintiff’s ability to bring retaliation claims based on FCPA allegations?  What long-standing foreign bribery investigations ended in the UK? What new anti-corruption and whistleblower laws were proposed in Brazil? The answers to these questions and more are here in our February 2019 Top 10 list.

1. Micronesian Official and Executive of Hawaii-based Engineering Company Charged in Connection with Bribery Scheme. On February 12, 2019, the U.S. Department of Justice (DOJ) announced charges against Master Halbert, an official in the Federated States of Micronesia’s (FSM) Department of Transportation, Communication and Infrastructure, and Frank James Lyon, the owner of a Honolulu-headquartered engineering and consulting company.  Lyon pleaded guilty in the District of Hawaii in January 2019 to violating the anti-bribery provisions of the FCPA and to paying a bribe to an agent of an organization receiving federal funds. Lyon admitted that, over a 10-year period, he and his co‑conspirators paid at least $200,000 in bribes to FSM officials, including Halbert, to obtain and retain contracts worth around $7.8 million. Halbert, who administered FSM’s aviation programs, was charged in a criminal complaint filed in the District of Hawaii on January 24, 2019 with one count of conspiracy to commit money laundering. The complaint alleges that Halbert and Lyon agreed to transport the cash bribes from the United States to FSM. Lyon is scheduled to be sentenced on May 13, 2019.
2. Florida-based Executive and Sales Representative Charged with FCPA Violations in Connection with Venezuela Bribery Scheme. On February 26, 2019, DOJ announced that the president and a former sales representative of an unidentified Miami-based company had been indicted in the Southern District of Texas for allegedly conspiring to bribe officials of Venezuela’s state-owned oil company, Petroleos de Venezuela SA (PDVSA), in order to obtain business. From 2009 to 2013, company president Franz Herman Muller Huber and sales representative Rafael Enrique Pinto Franceschi allegedly conspired to bribe three PDVSA officials in exchange for their assisting the company, a PDVSA supplier, in obtaining additional contracts, inside information, and payment on past due invoices. Muller and Pinto are also alleged to have received more than $985,000 and $285,000, respectively, in kickbacks in connection with the scheme. Muller and Pinto were charged with one count of conspiracy to violate the FCPA, one count of conspiracy to commit wire fraud, one count of conspiracy to commit money laundering, and two counts of wire fraud. Including Muller and Pinto, DOJ has announced charges against 21 individuals, 15 of whom have pleaded guilty, in connection with its ongoing investigation into alleged bribery at PDVSA. 
3. UK-based Offshore Drilling Company Discloses DOJ and SEC Declinations in Connection with Brazil Investigation. In a February 21, 2019 securities filing, Noble Corporation disclosed that DOJ and the U.S. Securities and Exchange Commission (SEC) had informed the company that they had closed their investigations into potential FCPA violations without further action. According to the filing, in 2015, the company opened an investigation after one of its commercial agents pleaded guilty in connection with an alleged bribery scheme involving Brazil’s state-owned oil company, Petróleo Brasileiro S.A. (Petrobras). The company stated that it had cooperated with DOJ, SEC, and Brazilian authorities about this matter.
4. DOJ Files $38 Million Civil Forfeiture Action in Connection with Malaysia Sovereign Wealth Fund Scandal.  On February 22, 2019, DOJ announced the filing of civil forfeiture complaints in the Central District of California seeking the forfeiture and recovery of approximately $38 million in assets associated with an alleged international conspiracy to launder funds misappropriated from Malaysian sovereign wealth fund 1Malaysia Development Berhad (1MDB). According to the complaints, from 2009 through 2015, high-level 1MDB officials and their associates misappropriated more than $4.5 billion in funds belonging to 1MDB, including more than $2.6 billion in funds raised through bond offerings in 2012 and 2013. The complaints identify assets traceable to the funds from these bond offerings, including luxury real estate in London, proceeds from the sale of luxury real estate in New York, and converted equity in a company headquartered in Kentucky. Together with civil forfeiture complaints filed in July 2016 and June 2017, the 1MDB case represents the largest action brought under DOJ’s Kleptocracy and Asset Recovery Initiative, with total assets subject to forfeiture now totaling approximately $1.7 billion. (For more on 1MDB, see our July 2016, August 2016, June 2017, December 2017, May 2018, June 2018, August 2018, and October 2018 Top 10s.)
5. Appellate Court Vacates Federal Whistleblower Retaliation Verdict Against Life Sciences Company. In February 2017, a jury in the Northern District of California found that Bio-Rad Laboratories, Inc. violated the Sarbanes-Oxley Act’s (SOX) whistleblower protections when it fired its former general counsel, Sanford Wadler, for reporting possible FCPA violations. On February 26, 2019, the Ninth Circuit Court of Appeals vacated the verdict, holding that the district court erred in instructing the jury that the statutory provisions of the FCPA constitute “rules or regulations” of the SEC for purposes of determining whether Wadler engaged in protected activity under SOX.  However, because an SEC regulation provides that “No person shall directly or indirectly, falsify or cause to be falsified, any book, record or account,” 17 C.F.R. § 240.13b2-1, the court further held that a properly instructed jury could have reasonably found that Wadler reported conduct that he reasonably believed violated that regulation.  Among other things, the court found that there was sufficient evidence to support the objective reasonableness of Wadler’s belief that the company had falsified books and records and held that SOX “generally does not require an employee to undertake an investigation before reporting his concerns. . . . Such a requirement would undermine the purpose of SOX, particularly where, as here, a general counsel reports his concerns to the Board of Directors because he believes that senior management is complicit in unlawful conduct.” Accordingly, the court remanded the case to the district court to determine whether a new trial was warranted.
6. SEC and DOJ Resolve India Bribery Allegations with U.S.-based Technology Company. On February 15, 2019, DOJ and SEC announced resolutions with a U.S.-based technology company over allegations that the company bribed Indian government officials through a third-party. Without admitting or denying the allegations, the company agreed to pay disgorgement and prejudgment interest of approximately $19 million and a civil penalty of $6 million pursuant to an SEC administrative order and agreed to pay approximately $19 million pursuant to a DOJ declination with disgorgement. On the same day that the corporate resolutions were announced, DOJ and SEC announced that they had brought FCPA charges against former employees of the company in the District of New Jersey.
7. Former Executive of British Oil Company Pleads Guilty in the UK to Iraq and Saudi Arabia Bribery Charges. On February 7, 2019, the UK Serious Fraud Office (SFO) announced that David Lufkin, a British national and the previous head of sales for Petrofac International Limited, had pleaded guilty at Westminster Magistrates’ Court in London to 11 counts of bribery, in violation of the UK Bribery Act 2010. The charges related to allegedly corrupt payments of over $51 million made by Petrofac Limited and its subsidiaries and the making of additional corrupt offers to agents to influence the award of contracts to the company worth over $730 million in Iraq and over $3.5 billion in Saudi Arabia. Lufkin has not yet been sentenced.
8. UK Serious Fraud Office Closes Two Foreign Bribery Cases. On February 22, 2019, the SFO announced that it had closed two long-running foreign bribery investigations. The SFO announced that, following further investigation, a detailed review of the available evidence, and an assessment of the public interest, it would not prosecute individuals in the Rolls-Royce bribery investigation. In January 2017, the company entered into a Deferred Prosecution Agreement (DPA) with the SFO, under which the company agreed to pay $604.8 million in connection with an indictment, suspended for the term of the agreement, which covers 12 counts of conspiracy to corrupt, false accounting, and failure to prevent bribery. In January 2019, the SFO confirmed that it had notified several unidentified individuals that they were no longer suspects in the case. The SFO also announced that, following a detailed review of the available evidence and an assessment of the public interest, it would not prosecute individuals in the GSK bribery investigation. The investigation, opened by the SFO in May 2014, focused on commercial practices by the company, its subsidiaries, and associated persons, including the company’s use of third-party advisors in China and other unnamed countries.
9. Swedish Court Acquits Former Executives of Stockholm-Based Telecommunications Company of Uzbekistan Bribery Charges. On February 15, 2019, a Swedish district court acquitted Lars Nyberg, the former CEO of Telia Company, along with two other former executives, of charges of bribery in connection with the company’s entry into the Uzbek telecommunications market. In September 2017, the company agreed to a combined penalty of $966 million to be paid to U.S., Dutch, and Swedish authorities to resolve allegations that it had paid over $330 million to an Uzbek official between 2007 and 2010 in order to enter and continue operating in the Uzbek telecommunications market. Swedish authorities charged Nyberg and two other former Telia executives the day after the resolution was announced for their alleged involvement in the bribery scheme. The court explained that the basis for the acquittal was that the prosecution had failed to prove that the official to whom the payments were made held any official position connected to the telecommunications sector.
10. Brazilian Minister of Justice Presents Anti-Crime Bill. On February 4, 2019, Brazil’s Minister of Justice, Sergio Moro, announced an anti-crime bill to establish measures against corruption, organized crime, and crimes committed with serious violence. The bill proposes changes to 14 laws covering 19 areas, including a proposed amendment to Law No. 13,608/2018 to protect whistleblowers against retaliation and establish the right of the whistleblower to preserve his or her identity. The proposed amendment provides for a reward for whistleblowers of up to 5% of the amount recovered when information provided results in recovery by the public administration. The bill also proposes changes to the Criminal Procedure Code (Decree-Law No. 3,689/1941) and Law on Administrative Improbity (Law No. 8,429/1992) to set out rules in relation to negotiated settlements and allow for cooperation or leniency agreements. Given the prominent role Brazil has played in international anti-corruption enforcement over the last several years, the progress of this bill is worth following.