Top 10 International Anti-Corruption Developments for September 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 from the past month, with links to primary resources. This month we ask: How many FCPA enforcement actions did the U.S. Securities and Exchange Commission (SEC) bring in the final month of its fiscal year? Why did two courts reach different conclusions about the ability of alleged victims to seek restitution in FCPA cases? Is the SEC chair satisfied with his agency’s FCPA enforcement efforts? The answers to these questions and more are here in our September 2019 Top 10 list.

1. Wisconsin-Based Printing Company Resolves Chinese and Peruvian Bribery Allegations with SEC. Consistent with its typical practice, SEC ended its fiscal year with a flurry of FCPA enforcement actions. On September 26, 2019, SEC announced that Quad/Graphics, Inc., a Wisconsin-based digital and print marketing provider, had agreed to pay nearly $10 million in disgorgement, prejudgment interest, and civil penalties to resolve FCPA anti-bribery and accounting allegations involving China and Peru. According to the SEC order, the company’s Chinese subsidiary used sham sales agents to make improper payments to employees of both private and governmental customers in order to secure the subsidiary’s business in the country. The order further alleges that the company’s Peruvian subsidiary made improper payments to Peruvian government officials to win sales to government customers, to avoid penalties on existing contracts with a government customer, and to influence the outcome of a judicial proceeding with the Peruvian tax authority. The order also alleges that the Peruvian subsidiary created false records to conceal transactions with a state-controlled Cuban telecommunications company, which was subject to U.S. sanctions and export control laws. The company neither admitted nor denied the allegations. The resolution is notable in that SEC used the FCPA’s accounting provisions to reach both commercial, bribery and sanctions-related conduct. In a letter dated September 19, 2019, the U.S. Department of Justice (DOJ) informed the company that it was declining prosecution pursuant to the FCPA Corporate Enforcement Policy.

2. Canada-Based Energy Company and Its Former CEO Resolve China FCPA Allegations with SEC. On September 27, 2019, SEC announced that Westport Fuels Systems, Inc., a Canadian clean fuel-technology company headquartered in Vancouver, Canada, and its former chief executive officer, Nancy Gougarty, had agreed resolve allegations of bribing a Chinese government official. According to the SEC order, beginning no later than 2016, Westport engaged in a scheme to bribe a Chinese government official to obtain business and a cash dividend payment by transferring shares of stock in the company’s Chinese joint venture to a Chinese private equity fund in which the government official held a financial interest. According to SEC, the company concealed the identity of the Chinese private equity fund in its public filings, as well as in its books and records, by falsely identifying a different entity as the counterparty to the transaction. The corporate resolution included $2,546,000 in disgorgement and prejudgment interest, and a civil penalty of $1,500,000. In addition, Gougarty agreed to pay a civil penalty of $120,000 for causing the company’s violations, circumventing Westport’s internal accounting controls, and signing a false certification concerning the sufficiency of those controls. Neither the company nor Gougarty admitted or denied the allegations, and there was no parallel DOJ resolution. 

3. Financial Institution Resolves Hiring Allegations with SEC. On September 27, 2019, SEC announced that a financial institution had agreed to pay over $6 million in disgorgement, prejudgment interest, and civil penalties to resolve allegations that the company’s Asia Pacific Region had hired the relatives and friends of foreign government officials in order to benefit the company’s investment banking business, in violation of the FCPA’s accounting provisions. This is the most recent in a series of FCPA enforcement actions based on the hiring practices of financial institutions. See our August 2015, November 2016, July 2018, and August 2019 Top 10s for analysis of several prior enforcement actions. As we have noted, these enforcement actions reflect the enforcement agencies’ position that HR policies constitute part of a company’s system of internal accounting controls.

4. Oil and Gas Services Company Resolves Iraqi Bribery Allegations with SEC. On September 19, 2019, SEC announced that TechnipFMC plc had agreed to pay approximately $5 million in disgorgement and pretrial interest to resolve alleged violations of the FCPA’s anti-bribery and accounting provisions. TechnipFMC is the product of a 2017 merger between Technip S.A. and FMC Technologies, and the allegations involve FMC’s premerger conduct in Iraq. In June 2019, DOJ announced resolutions with the company and a U.S. subsidiary for related conduct.

5. Maryland-Based Telecommunications and Network Services Company Discloses SEC Declination. In a September 9, 2019 securities filing, Ciena Corporation disclosed that SEC staff had informed the company that the agency had closed its investigation into potential FCPA violations and did not intend to recommend any enforcement action against the company. The company also disclosed that DOJ had advised in December 2018 that it had decided to decline prosecution and close its investigation into the same matter. According to the filing, in September 2017, the company voluntarily disclosed to SEC and DOJ allegations made by one of its third-party vendors about certain questionable payments to one or more individuals employed by a customer in Southeast Asia.

6. Italy-Based Oil and Gas Company Discloses DOJ Declination. On October 1, 2019, Eni S.p.A. announced that it had received confirmation that DOJ had closed its investigation into potential FCPA violations in Algeria and Nigeria. A court in Italy had previously acquitted the company on charges related to the Algeria investigation, but the company still faces charges in Italy related to the Nigeria investigation. The company resolved a different set of Nigeria-related allegations with SEC in 2010.

7. More Charges Brought in PDVSA Bribery Investigation. On September 13, 2019, a superseding indictment[1] charging two Swiss wealth managers, Daisy Teresa Rafoi Bleuler and Paulo Jorge Da Costa Casqueiro Murta, as well as  the former president of a subsidiary of Venezuela’s state-owned oil company Petróleos de Venezuela SA (PDVSA), Javier Alvarado Ochoa, with conspiracy to violate the FCPA’s anti-bribery provisions and other offenses was unsealed in the Southern District of Texas. The superseding indictment builds on charges announced in February 2018, when several individuals, including three of the individuals charged in the superseding indictment, were accused of participating in a scheme between 2011 and 2013 in which PDVSA officials took bribes in exchange for helping vendors secure contracts and payment priority. According to the superseding indictment, the two Swiss wealth managers helped launder the proceeds of the bribery scheme through numerous financial transactions, including through international wire transfers to and from bank accounts that they opened in Switzerland, Curaçao, Dubai, and elsewhere in the names of various companies. The latest charges against the two Swiss wealth managers are in line with law enforcement’s focus on the so-called facilitators of financial crime. These new charges are also an indication of the continuing expansion of the DOJ’s bribery investigation into PDVSA. For more information about developments in the PDVSA investigation in 2019, read our February 2019, May 2019, and August 2019 Top 10s.

8. Miami Businessman Sentenced to Four Years’ Imprisonment for Paying Bribes to Venezuelan State-Controlled Electricity Company. On September 25, 2019, Luis Alberto Chacin Haddad, a Miami businessman, was sentenced to four years’ imprisonment following his June 2019 guilty plea in the Southern District of Florida to one count of conspiracy to violate the FCPA in connection with bribes he and a business partner allegedly paid to officials at Corporación Eléctrica Nacional, S.A. (Corpeolec), Venezuela’s state-controlled electricity company. Chacin and his business partner are also required to forfeit at least $5.5 million in profits, as well as property in the Miami area.

9. Courts Reach Different Conclusions Regarding Restitution Claims in FCPA Cases. Among the many things that a company must consider when contemplating whether to enter into an FCPA resolution with DOJ is the possibility that a third party may later claim victim status and seek restitution under the Mandatory Victims Restitution Act (MVRA). To date, DOJ and defendants have had success fending off such claims brought by instrumentalities of foreign governments, including another win in September 2019. But in another recent case, private shareholders claiming to be the victims of a corrupt scheme may have come up with a relatively narrow blueprint for successfully bringing a restitution claim in a criminal FCPA case. In September 2019, the defendant in that case moved a federal judge to reconsider that ruling, arguing, among other things, that it would have unintended consequences.

• Miami Magistrate Judge Recommends Denial of PetroEcuador’s Restitution Request. In November 2018, Ecuador’s national oil company, EP Petroecuador, moved the U.S. District Court for the Southern District of Florida to recognize its status as the victim of an alleged bribery and money-laundering scheme, and award it restitution under the MVRA. DOJ opposed the motion. As we noted at the time, “Petroecuador likely faces an uphill battle” because a similar claim brought by Instituto Costarricense de Electricidad (ICE), Costa Rica’s state-owned telecommunications company, had been rejected by the same court in a previous FCPA case. On September 20, 2019, Southern District of Florida Magistrate Judge Alicia Otazo-Reyes recommended that Petroecuador’s motion similarly be rejected.[2]  Following an evidentiary hearing and quoting the ICE decision, Judge Otazo-Reyes found that “the level of ‘pervasive, constant, and consistent illegal conduct’. . .  among EP Petroecuador’s principals was sufficient to preclude EP Petroecuador from being recognized as a victim under the MVRA.”  Judge Otazo-Reyes further found that EP Petroecuador had failed to establish that the defendant’s conduct was the direct and proximate cause of the harm it allegedly suffered, and that EP Petroecuador lacked standing to raise other arguments. The parties have 14 days to file written objections to Judge Otazo-Reyes’ recommendation, after which the district court will decide whether to accept it.
• Hedge Fund Challenges Judge’s Ruling That Shareholder Restitution Is Proper for FCPA Violations. In September 2016, OZ Africa Management GP, LLC, pleaded guilty to conspiring to violate the FCPA’s anti-bribery provisions in connection with an alleged bribery scheme in the Democratic Republic of Congo (DRC). As part of the guilty plea, the company admitted to participating in a bribery scheme to acquire mining assets in the DRC, including the Kalukundi copper and cobalt mine, of which Canadian mining company Africo Resources Limited had previously held a 75 percent interest. Among other things, OZ admitted that the scheme involved bribing DRC officials, including judges, to ensure that Africo lost its bid to overturn the default judgment that had resulted in Africo losing its interest in the Kalukundi mine, and to delay announcement of the decision until after a critical vote by the Africo shareholders regarding the company’s mining rights. In February 2018, shortly before OZ was about to be sentenced, about 50 shareholders who owned approximately two-thirds of Africo during the relevant time period (the “Claimants”) filed a motion requesting confirmation of victim status and an award of $1.8 billion in restitution under the MVRA. OZ and DOJ opposed the motion. In late August 2019, however, Eastern District of New York Judge Nicholas Garaufis found that the Claimants qualified as victims under the MVRA.[3]  Judge Garaufis ordered the parties to submit further briefing regarding how to calculate the appropriate restitution amount. On September 6, 2019, the day on which the parties had been ordered to submit a proposed briefing schedule, OZ moved Judge Garaufis to reconsider his August 2019 ruling.[4]  OZ argued that Judge Garaufis erred in concluding that Africo was defunct and that the company that now owns Africo would be the proper entity to claim victim status. According to OZ, “if the Court concluded that shareholders are victims merely because they own shares in a victim corporation (which is a going concern), then all shareholders would be entitled to . . . [rights under the MVRA], leaving the company without recourse.” 

10. SEC Chair Laments Perceived Lack of International Anti-Corruption Enforcement Efforts. In his September 9, 2019 remarks to the Economic Club of New York, SEC Chair Jay Clayton argued that his commission’s FCPA enforcement efforts may be having unintended consequences due to a lack of coordinated global anti-corruption enforcement efforts. Clayton acknowledged that SEC’s and DOJ’s “efforts . . .  to combat offshore corruption around the globe . . .   is important work” and stated, “To be clear, I do not intend to change the FCPA enforcement posture of the SEC.”  Clayton added, however, that he has “not seen meaningful improvement” in international cooperation in anti-corruption enforcement. According to Clayton, “We should . . .   recognize that we are acting largely alone and other countries are incentivized to play, and I believe some are in fact playing, strategies that take advantage of our laudable efforts.”  Clayton’s recent remarks harken back to 2011, when he helped write a paper for the New York City Bar Association that was critical of FCPA enforcement, largely because of what he called the “unilateral and zealous enforcement of the FCPA by the United States.”  In connection with his confirmation hearing in 2017, however, Clayton wrote that anti-corruption enforcement efforts by non-U.S. enforcement agencies “appear to be more prevalent” than they were a decade ago. (See our May 2017 Top 10 for more on Clayton’s views of the FCPA at the time of his confirmation.)  It is not clear why Clayton seems to have reverted to a less positive position on international anti-corruption efforts, but he did signal in his September 2019 remarks that he would be pressing this issue when he engages with his international counterparts.

[1] United States v. Villalobos, et al., Case No. 4:17-cr-00514, ECF No. 129 (S.D. Tex. Apr. 24, 2019).

[2] United States v. Baquerizo, Case No. 1:18-cr-20596-DOG, ECF No. 97 (S.D. Fla. Sept. 20, 2019).

[3] United States v. OZ Africa Mgmt. GP, LLC, Case No. 1:16-cr-00515-NGG, ECF No. 51 (E.D.N.Y. Aug. 29, 2019).

[4] United States v. OZ Africa Mgmt. GP, LLC, Case No. 1:16-cr-00515-NGG, ECF No. 55 (E.D.N.Y. Sept. 6, 2019).