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On September 11, a Miami-based financial advisor pleaded guilty to one count of conspiracy to commit money laundering in connection with his role in making corrupt payments to officials of Ecuador’s state-owned and state-controlled energy company, Empresa Pública de Hidrocarburos del Ecuador (PetroEcuador). He is scheduled to be sentenced on Nov. 14 in the Southern District of Florida.
Larrea is the fourth individual, including two former officials of PetroEcuador, to plead guilty in this case, which concerns efforts by an oil services contractor to make payments to PetroEcuador officials in an effort to retain existing contracts and win new business with PetroEcuador. Frank Roberto Chatburn Ripalda (Chatburn), who was charged in the same indictment as Larrea, has pleaded not guilty and is currently set to go to trial on October 15. Unlike Larrea, Chatburn’s charges include one count of conspiring to violate the FCPA and one count of violating the FCPA.
Colombia’s former anti-corruption chief pleads guilty to money laundering conspiracy related to foreign bribes
On August 14, the DOJ announced that Colombia’s former National Director of Anti-Corruption, Luis Gustavo Moreno Rivera, pleaded guilty to “participat[ing] in a conspiracy to launder money with the intent to promote foreign bribery.” A Colombian attorney, Leonardo Luis Pinilla Gomez, also pleaded guilty to the conspiracy. According to the press release, the two men admitted that they “attempted to entice a bribe” from a Colombian politician who was facing a corruption investigation by Moreno’s office by promising to provide statements made by cooperating witnesses in exchange for $34,500. Working undercover for the DEA, the politician paid the two men a $10,000 deposit of the bribe money during a June 2017 meeting in Miami. At that meeting, the two men were also recorded promising to obstruct the investigation in exchange for an additional $132,000 bribe. Cash from the deposit was found on Moreno when he boarded his flight back to Colombia. The two men were arrested in Colombia and extradited to the U.S. in May 2018. Sentencing is scheduled for November 19, 2018.
On July 25, Deputy Assistant Attorney General Matthew Miner, who oversees the Fraud Section as well as other parts of the Criminal Division, spoke at ACI’s 9th Global Forum on Anti-Corruption Compliance in High Risk Markets. His speech focused on the DOJ’s efforts to combat global corruption, with a focus on merger and acquisition activity. Miner emphasized, among other things, the efforts the Department was taking to reduce global corruption, highlighting in particular the DOJ’s permanent enshrinement of the FCPA self-disclosure program. He pointed to a recent success of that program, the DOJ’s declination of prosecution against a commercial data company for hiring-related misconduct by its recently acquired China subsidiaries, previously discussed here. Miner also discussed the Department recent “anti-piling on policy,” under which it gives credit for penalties paid to other enforcement authorities for the same misconduct. As an example of this policy, he noted how the Department credited 50% of the fine a French multinational banking and financial services company paid to French authorities for FCPA-related misconduct in a recent enforcement action.
Miner asserted that the Department would like to do a better job providing guidance to companies facing FCPA risk through mergers and acquisitions, particularly when such activity is in high-risk industries and markets. He quoted from the DOJ’s 2012 Resource Guide, noting that in an acquisition, “a successor company’s voluntary disclosure, appropriate due diligence, and implementation of an effective compliance program may also decrease the likelihood of an enforcement action regarding an acquired company’s post-acquisition conduct when pre-acquisition due diligence is not possible.” Addressing pre-acquisition diligence, Miner stated that when an acquiring company encounters corruption issues during the diligence process, it should come to the Department for guidance through its FCPA Opinion Procedures before moving forward. Miner stated that not enough companies are taking advantage of this “tremendous resource.”
Miner commented overall that with these policies and procedures, the Department hopes “to incentivize companies to invest in effective compliance programs and robust control systems to prevent misconduct and, in the event of a detected violation, to take full advantage of [the DOJ’s] enforcement approach.”
A class action against Embraer, the Brazilian aerospace firm, was recently dismissed by U.S. District Judge Richard Berman. The class action, which was brought in federal district court in New York, alleged that Embraer had failed to adequately disclose the scope and possible financial impact of ongoing corruption investigations by the DOJ and SEC, harming the company’s investors.
In granting Embraer’s motion to dismiss, Judge Berman held that the company’s disclosures were sufficient as a matter of law, and that requiring disclosures advocated by the putative class plaintiffs would effectively require reporting companies to acknowledge guilt for conduct that was still being investigated and had not yet been charged.
The underlying bribery alleged in the complaint (and being investigated by regulators) involves Embraer’s October 2016 admissions that from 2007 to 2011, company executives made payments to government officials in several countries, including the Dominican Republic, Saudi Arabia, Mozambique, and India, totaling $11.5 million. Embraer received government contracts resulting in profits over $83 million in exchange.
This decision is a clear win for publicly traded companies currently under investigation for corruption-related conduct. Had the case proceeded, companies may have faced difficult choices between making more detailed disclosures to investors regarding the potential merits of ongoing investigations and protecting themselves against incriminatory public statements about these same matters.
The SEC fined Kinross Gold Corporation $950,000 for its failure to implement and maintain adequate accounting controls at two subsidiaries in Ghana and the Islamic Republic of Mauritania. Kinross neither admitted nor denied the allegations. According to the SEC, Kinross acquired the subsidiaries in 2010 understanding that they lacked anti-corruption compliance programs. After three years of internal audits raising red flags, Kinross did implement adequate controls, however it did not maintain them. The SEC found that Kinross then awarded a contract to a sub-standard company preferred by Mauritanian officials, despite Kinross’s internal bidding and tendering procedures. Kinross also failed to conduct required due diligence when it awarded a politically connected consultant a contract to facilitate government contracts.
In what the UK’s Serious Fraud Office (SFO) is calling a first, a £4.4 million recovery from a corruption case will be returned overseas. The SFO prevailed in a trial before the UK High Court and recovered the money from Chadian diplomats, including the wife of the former Deputy Chief of the Chadian Embassy to the United States who was received the money in the form of discounted shares of Canadian oil company Griffiths Energy International, Inc. Griffiths also paid “consultancy fees” to diplomats through a front company called “Chad Oil” set up five days before the agreements with the diplomats. In exchange for the payments, Griffiths received exclusive development rights in Chad.
The case has continued for some time—Griffiths paid a C$10 million criminal fine in Canada in 2013. After Griffiths was taken over by a UK corporation, the U.S. DOJ filed an In Rem. complaint and later requested SFO assistance.
This recovery will be “transferred to the Department for International Development who will identify key projects to invest in that will benefit the poorest in Chad.”
On January 18, the Serious Fraud Office (“SFO”) confirmed the opening of an investigation of Chemring Group PLC (“Chemring”) and its subsidiary, Chemring Technology Solutions Limited (“CTSL”) into alleged bribery, corruption, and money laundering. Chemring, a UK-based company that designs and makes products in the aerospace and defense industries, stated that the investigation followed a voluntary report from CTSL relating to “two specific historic contracts.” According to Chemring, the first of these contracts was awarded before the company took over the business group being investigated, while the second contract occurred after the acquisition. Chemring stated that the company will fully cooperate with the SFO’s investigation and provide further updates.
On January 3, 2018, Petrobras announced that it has agreed to pay $2.95 billion to resolve the securities class action pending in the U.S. District Court for the Southern District of New York regarding the company’s well-known corruption scandal in Brazil. The class action claimed that investors were harmed by alleged corruption when contractors overcharged Petrobras and kicked back some of the overcharges through bribes to Petrobras officials. Under the proposed settlement, Petrobras has agreed to pay the funds in three installments. The agreement does not constitute any admission of wrongdoing or misconduct by Petrobras and Petrobras claims that this reflects its status as a victim of the acts uncovered in Operation Car Wash, as the corruption investigation in Brazil is known. The settlement agreement is still subject to approval by the District Court.
Past ScoreCard coverage related to the Petrobras corruption allegations and investigation can be found here.
The World Bank recently sanctioned two French companies for separate allegations of corruption in developing countries. On November 30, the World Bank announced that Oberthur Technologies SA, a French digital security company, was debarred for 2.5 years for “corrupt and collusive practices” related to a project that would establish a national ID system in Bangladesh. As part of its Negotiated Resolution Agreement (NRA), Oberthur acknowledged “improper payments to a sub-contractor and collusive misconduct to obtain and modify bid specifications to narrow competition and secure the award of the contract.” Oberthur was credited for its “extensive cooperation” with the World Bank’s investigation, including voluntarily acknowledging the misconduct, proactively conducting an internal investigation, holding individuals accountable, and taking “preliminary steps to improve its governance and compliance procedures.”
On December 5, the World Bank separately announced that Sediver SAS, a French manufacturing company, was debarred for two years for a “corrupt practice” related to a project that would improve electricity infrastructure in the Congo. A World Bank investigation found evidence that the company “made improper payments to an employee of a consulting company to influence a tender process.” Under the NRA, Sediver’s parent company was also “conditionally non-debarred” for an 18-month probationary period. The holding company for the entities agreed to pay €6.8 million to the Congo, and the companies agreed to develop and implement a “group-wide integrity compliance program.” The holding company was credited for its “ongoing cooperation” with World Bank investigators, “acceptance of responsibility,” and “voluntary corrective and remedial actions.”
SAP Self-Discloses Approximately $6.8 Million in Payments to Gupta Family-Related South African Entities
On October 26, SAP, a German multinational software corporation, announced that it has voluntarily disclosed commission payments of approximately $6.8 million to Gupta family-related entities to the U.S. Department of Justice and the Securities and Exchange Commission. The voluntary disclosure in July has led to an ongoing DOJ and SEC investigation into SAP’s conduct.
SAP acknowledged that between December 2014 and June 2017, contracts with Transnet and Eskom, both South African state-owned companies, were closed with the assistance of Gupta family-related entities. SAP’s internal investigation has also led to the initiation of disciplinary proceedings against three employees in South Africa. The Gupta family, which is connected to South African president Jacob Zuma, has previously denied wrongdoing associated with receiving such kickbacks. While acknowledging cooperation with the DOJ and the SEC, SAP stated that it has had no interaction with South African authorities and has not decided whether the company will approach South African authorities in the future. The U.S. investigation is ongoing and SAP has acknowledged that it has begun the process of sharing documents with authorities.