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On October 11, Assistant Attorney General Brian A. Benczkowski issued a memorandum to the DOJ’s Criminal Division that revises the framework for assessing when DOJ will require a corporate monitor as part of a resolution.
Under the revised framework, Criminal Division attorneys must now consider whether the company’s “remedial measures” or changes to “corporate culture” are enough to protect against future misconduct. For instance, “[w]here misconduct occurred under different corporate leadership” that has since left the company, a monitor may not be needed. Criminal Division attorneys must also consider not just the monetary costs to the company of imposing a corporate monitor, but also the burden to the company’s operations, and should impose a monitor only when a “clear benefit” would outweigh the costs and burdens.
As AAG Benczkowski remarked in a speech given the day after the memorandum was issued, the new corporate monitor policy is based on the “foundational principle” that “the imposition of a corporate monitor is never meant to be punitive,” and a corporate monitor ultimately “will not be necessary in many corporate criminal resolutions.”
The memorandum also refines the monitor selection process with the goal of, as AAG Benczkowski described in his speech, ensuring “that the process is fair,” that the “best candidate” is selected, and that “even the perception of any conflicts of interest” is avoided.
In late September, Meng Hongwei, the Chief of Interpol at the time and a former Vice Minister of China’s national police, reportedly went missing during a trip home to China. According to his wife, Meng’s last known communication was a text message to her containing a knife emoji and an instruction to “wait for my call.” According to reports, after Meng’s wife, French authorities, and Interpol issued public pleas, Chinese authorities disclosed this week that Meng has been detained pursuant to a government investigation into bribery and other allegations. Meng abruptly resigned his post at Interpol and has not been available for comment.
Meng’s detention is notable due to his international stature as Interpol chief, however, he is just the latest in a string of high-ranking Chinese officials to reportedly have been swept up in widespread graft investigations by the Governing Communist Party under President Xi Jingping. A release from the Ministry of Public Security reportedly claims that Meng’s arrest demonstrates that “there is no privilege and no exception before the law.” It goes on to state: “Anyone who violates the law must be severely punished. We must resolutely uphold the authority and dignity of the law, bearing in mind that the red line of the law cannot be overstepped. . . It is necessary to make the legal system a ‘high-voltage line’ of electricity.”
On October 3, 2018, Steven Peiken, Co-Director of the SEC’s Division of Enforcement, offered remarks at a white collar crime conference in New York City, discussing a range of issues related to FCPA compliance and enforcement. For example, likely responding to increasing criticism about the relatively few enforcement cases that have been brought by the SEC in recent years, Peiken addressed questions regarding the Enforcement Division’s effectiveness and efficiency metrics, noting that the Division is moving away from quantitative measurements of success to more qualitative metrics, such as whether retail investors are adequately protected and whether the agency is “keeping pace with technological change.”
In addition, Peiken addressed the impact of the Supreme Court’s decision in Kokesh v. SEC, which held that disgorgement awards are punitive in nature and subject to a five year statute of limitations under 28 U.S.C. § 2462. Peiken stated: “The impact of Kokesh has been felt across our enforcement program. A few months ago, we calculated that Kokesh led us to forego seeking approximately $800 million in potential disgorgement in filed and settled cases. That number continues to rise.”
Peikin concluded his remarks by noting that the Enforcement Division cannot continue to rely upon quantitative metrics to determine success, such as the size of awards and penalties. Instead, the Division must adopt “a nuanced and qualitative evaluation of our overall impact on achieving our investor and market integrity protection mission.” These remarks suggest that the rate of new actions and investigations filed by SEC’s Enforcement Division may not keep pace with recent years, and that the Division may instead be relying on impact cases or those that satisfy the more qualitative metrics Peikin described, when measuring success going forward.
On September 27, Deputy Assistant Attorney General Matthew Miner gave a speech that provided clarification of DOJ enforcement policies, continuing to emphasize voluntary disclosure and underscoring the notion that companies should view DOJ “as partners, not adversaries.” In his speech, Miner announced that DOJ’s FCPA Corporate Enforcement Policy is not limited to just FCPA violations, and that DOJ “will also look to these principles in the context of mergers and acquisitions that uncover other types of potential wrongdoing,” encouraging companies that discover such wrongdoing to voluntarily disclose it. Miner also pointed to recent published declinations, and noted that declinations under DOJ’s Policy can still be appropriate even when “aggravating circumstances” are present. Miner also referenced the increase in “global enforcement and cooperation with foreign authorities” and emphasized DOJ’s “Anti-Piling On Policy.”
Based on media reports, DOJ’s Fraud Section is reportedly investigating some part of Major League Baseball (MLB) for possible FCPA violations related to recruitment of international players, particularly related to immigration issues for players from Latin America. Reports indicate that the investigation was initiated when a MLB whistleblower provided the FBI with information and documents last year during spring training. Since then, several witnesses have reportedly already been subpoenaed and testified before a federal grand jury in connection with the investigation.
A spokesperson for the MLB stated that the organization had not been contacted by federal authorities regarding an investigation, and the two franchises that appear to be most at issue declined to comment to the media on the matter.
On September 28, the DOJ announced that a former CEO and a former executive of oil services company SBM Offshore, N.V. (SBM) had been sentenced to prison and fined for their roles in a scheme to bribe foreign government officials in Brazil (at Petrobras), Angola (Sonangol), and Equatorial Guinea (GEPetrol) in exchange for oil-services contracts. In November 2017, the former CEO of SBM, Anthony “Tony” Mace, and a former sales and marketing executive at SBM USA, Robert Zubiate, each had pleaded guilty to one count of conspiracy to violate the FCPA. Mace was sentenced to 36 months in prison and a fine of $150,000 for authorizing payments in furtherance of the bribery scheme, and Zubiate was sentenced to 30 months in prison and a fine of $50,000 for using a third-party sales agent to pay bribes to Petrobras officials.
SBM itself entered into a $238 million three-year deferred prosecution agreement and its subsidiary, SBM USA, pleaded guilty to one count of conspiracy to violate the FCPA.
Prior Scorecard coverage of the company can be found here.
On September 28, the SEC announced a settlement with a Michigan-based medical device company, Stryker Corp., to resolve the SEC’s charges of books and records and internal controls violations. According to the order, the company agreed to pay a $7.8 million penalty and accepted the imposition of an independent compliance consultant to resolve allegations that Stryker’s Indian subsidiary failed to maintain accurate books and records, and that Stryker’s internal controls were inadequate to identify possible improper payments related to the sale of its products in India, China, and Kuwait.
This is the second enforcement action the SEC has brought against Stryker in recent years. In a prior action in October 2013, Stryker paid over $13.2 million in penalties, disgorgement, and interest to settle charges of FCPA violations for bribing doctors, health care professionals, and other government-employed officials in Argentina, Greece, Mexico, Poland, and Romania.
On September 27, 2018, the DOJ announced that Petrobras, the Brazilian state-owned oil company, had entered into a Non-Prosecution Agreement with the DOJ, as well as settlement agreements with the SEC and Brazilian authorities, and agreed to pay a total $853.2 million in penalties to all jurisdictions. Under the terms of the settlement, DOJ and SEC will each receive 10 percent of the penalty amount, with Brazilian authorities receiving the remaining 80 percent.
As part of the settlement, Petrobras admitted that its Executive Board members “were involved in facilitating and directing millions of dollars in corrupt payments to politicians and political parties in Brazil,” while directors were “involved in facilitating bribes that a major Petrobras contractor was paying to Brazilian politicians.” The conduct included bribes related to several refineries, as well as shipyard and drillship contracts, as well as payments to “stop a parliamentary inquiry into Petrobras contracts.”
Petrobras’ penalty reflects a 25 percent discount off the low end of the applicable U.S. Sentencing Guidelines due to its cooperation and remediation. While the company did not voluntary disclose its conduct, it cooperated with authorities by disclosing the findings of its internal investigation, providing document discovery, and facilitating the interview of foreign witnesses. It also took remedial measures by replacing its Board of Directors and Executive Board, as well as implementing reforms in its policies and procedures.
In addition to the criminal penalty, the SEC announced that Petrobras agreed to an administrative order requiring it to pay almost $1 billion in disgorgement and prejudgment interest. However, Petrobras received full credit for payments it already made to resolve a class action for $2.95 billion earlier this year. The net result is that Petrobras will not have to pay any additional funds to the SEC in the separate disgorgement action.
Prior ScoreCard coverage of the Petrobras and related investigations can be found here.
On September 25, 2018, the SEC announced a settlement of FCPA charges against the former CEO of Chilean-based chemical and mining company Sociedad Química y Minera de Chile, S.A. (SQM) for $125,000. According to the SEC, over the course of seven years, SQM’s then-CEO Patricio Contesse González “caused SQM to make nearly $15 million in improper payments to Chilean political figures and others connected to them.” Contesse agreed to the settlement without admitting the findings in the SEC’s order. According to the SEC’s order, Contesse signed false certifications related to financial reporting in the United States.
Last year, SQM agreed to pay $30 million to settle parallel DOJ and SEC charges against the company. That settlement demonstrated the jurisdictional reach of U.S. government enforcement of the FCPA – while SQM is a Chilean company with no U.S. operations, it is registered with the SEC as a foreign private issuer.
On September 14, a New York federal district court granted class certification to a group of shareholder investors suing an American hedge fund management firm and two of its senior executives on the grounds that the investors were misled about a government investigation into the company’s activities in Africa. In finding that the proposed class met all the requirements for certification, the court certified a class of investors that held some of the more than 100 million outstanding shares between February 2012 and August 2014, the time period in which the firm allegedly violated the Securities Exchange Act. Plaintiffs claim that the firm told investors it was not under any pending judicial or administrative proceeding that might have a material impact on the firm, when in fact it was under DOJ and SEC investigation over allegations that its employees were bribing government officials in Africa. The allegations against the firm were made public in 2014 media reports detailing government scrutiny into its dealings in Africa.
Click here for prior FCPA Scorecard’s coverage of this matter.
- Valerie L. Hletko to discuss "Forecasting litigation and settlement trends in the mortgage servicing and fair lending context" at the American Conference Institute National Forum on Residential Mortgage Regulatory Enforcement & Litigation
- Michelle L. Rogers and Jonice Gray Tucker to discuss “Building a govt affairs program; Government investigations” at the TechGC National Summit
- Tina Tchen to deliver keynote address at the American Bar Foundation Montgomery Summer Research Diversity Fellowship 30th Anniversary Celebration
- Douglas F. Gansler to discuss "Privacy, security and protection of your assets in contracts; Security exercises and tactical measures" at the TechGC National Summit
- H Joshua Kotin will discuss federal regulatory developments in mortgage lending and servicing at the Mortgage Bankers Association of Arkansas Fall Conference
- Kate Shrout to discuss "Conducting workplace investigations" at the TechGC National Summit
- Kathryn R. Goodman to discuss "HECM servicing policies and updates" at the National Reverse Mortgage Lenders Association Annual Meeting & Expo
- Fredrick S. Levin to discuss "Reverse mortgage litigation trends" at the National Reverse Mortgage Lenders Association Annual Meeting & Expo
- Melissa Klimkiewicz to speak at the "Digital marketing compliance roundtable" at the National Reverse Mortgage Lenders Association Annual Meeting & Expo
- Hank Asbill to discuss "The role of the media in white collar criminal investigations and the Mueller probe" at the American Bar Association White Collar Crime Town Hall
- John C. Redding to discuss "Regulatory compliance update" at PowerSports Finance
- Matthew P. Previn to discuss "Enforcement trends: Who is doing what and how?" at the Cambridge Forums Inc. Forum on Consumer Finance Litigation & Enforcement
- Jonice Gray Tucker to discuss "Protect yourself from a CFPB investigation" at the National Association of Settlement Purchasers Conference
- Tina Tchen to deliver keynote address at the American Bar Association Professional Success Summit
- Andrea K. Mitchell to discuss "Developments in fair lending law" at the Mortgage Bankers Association Summit on Diversity and Inclusion
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "New CDD Rule: Pitfalls in compliance" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference