Subscribe to our FinCrimes Update for news about the Foreign Corrupt Practices Act and related prosecutions and enforcement actions.
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 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.
On September 12, the SEC announced that United Technologies Corporation (UTC) agreed to pay $13.9 million to settle FCPA charges related to payments made through a subsidiary in connection with the sales of elevator and airline equipment in Azerbaijan and China. According the SEC’s Order, from 2012 through 2014, the Connecticut-based company, through its wholly owned subsidiary Otis Elevator Company, made illicit payments to Azerbaijani officials to facilitate the sales of elevator equipment.
The Order also included other conduct that both the DOJ and SEC have focused on in recent years, including the use of agents and gifts and entertainment. For example, the Order detailed conduct by UTC and a joint venture partner from 2009 to 2013 in which an agent in China received improper commissions totaling $55 million in connection with the company’s attempt to win airline business in China. The Order also found that the company, from 2009 through 2015, improperly “provided trips and gifts to various foreign officials in China, Kuwait, South Korea, Pakistan, Thailand, and Indonesia” in order to obtain business. UTC consented to the SEC’s order without admitting or denying the findings that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA.
ING settles corrupt practices case in the Netherlands for approximately $900 million and receives SEC declination
On September 4, the Netherlands-based financial services company ING Groep, N.V. announced in its Form 6-K filing that it had agreed to pay a penalty of $782 million and disgorgement of $115 million to resolve corruption charges by the Dutch Public Prosecution Service (“DPPS”). The DPPS charges related to ING’s prevention of money laundering, client on-boarding, and corrupt practices. ING acknowledged its “serious shortcomings in the execution of customer due diligence policies to prevent financial economic crime” and “regrets that these shortcomings enabled customers to misuse accounts.”
On September 5, following the settlement with the DPPS, ING announced in a new Form 6-K filing that it received a formal notification from the SEC that it had concluded its own FCPA investigation and did not intend to recommend an enforcement action. ING first disclosed the SEC investigation in March 2017. The response from the SEC is consistent with the new policy against so-called piling on issued by DOJ in May 2018. The policy is intended to encourage coordination among enforcement authorities to avoid duplicative penalties. See previous FCPA Scorecard coverage here.
On September 4, Ensco PLC, a London-based offshore drilling company, announced in its Form 8-K filing that the DOJ and the SEC will not take action against the company, ending their investigations into alleged corruption related to a drilling services agreement between Pride International LLC (“Pride”), an acquired subsidiary, and Petrobras, the Brazilian state-owned oil company. According to the filing, the SEC letter stated that the agency “did not intend to recommend any enforcement action” related to the alleged irregularities. The DOJ letter acknowledged Ensco’s full cooperation in the investigation.
On September 4, the SEC announced that French pharmaceutical company Sanofi S.A. had agreed to pay $25.2 million to settle FCPA charges related to payments made by company employees to healthcare professionals in Kazakhstan and the Middle East. According to the SEC’s order, from 2011 to 2015, employees of Sanofi’s subsidiaries acted to provide things of value to foreign officials and healthcare professions “in order to improperly influence them and increase sales of Sanofi products.” Employees generated the funds for the illicit payments by submitting fake reimbursement claims for, among other things, travel and entertainment expenses, product samples, and clinical trial and consulting fees.
The SEC found that Sanofi violated the internal accounting controls and recordkeeping provisions of the FCPA. Sanofi agreed to pay a civil penalty of $5 million, $17.5 million in disgorgement, and $2.7 million in prejudgment interest, without admitting or denying the SEC’s findings.
According to the press release, the chief of the SEC’s FCPA Unit, Charles Cain, called out bribery in the pharmaceutical industry as a continued significant problem.
On August 27, the SEC issued an administrative order settling allegations against Maryland-based investment manager Legg Mason which remained outstanding after the company’s June 4 NPA with the DOJ. The June 4 NPA resolved claims of FCPA violations in Libya and included a criminal penalty of $32.6 million and disgorgement of $31.6 million [see prior FCPA Scorecard coverage here]. The SEC order stated that Legg Mason’s actions were in violation of the internal accounting controls provision of the Securities Exchange Act of 1934. The SEC settlement did not include a seprate penalty beyond the disgorgement already agreed to in June, and pre-judgment interest.
- Tina Tchen to deliver keynote address at the American Bar Association Professional Success Summit
- Jeffrey P. Naimon and Jonice Gray Tucker to discuss "Enforcement and litigation trends" at the American Bankers Association General Counsel Meeting
- Andrea K. Mitchell to discuss "Developments in fair lending law" at the Mortgage Bankers Association Summit on Diversity and Inclusion
- David S. Krakoff to discuss "The DOJ corporate enforcement policy and your disclosure calculus one year in: Are companies benefitting?" at the American Conference Institute International Conference on the Foreign Corrupt Practices Act
- Moorari K. Shah to discuss "Legal & regulatory issues" at the Opal Group Marketplace Lending & Alternative Financing Summit
- Jonice Gray Tucker to discuss "Hot topics in 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
- Daniel P. Stipano to discuss "Anti-money laundering/OFAC compliance" at the Institute of International Bankers U.S. Regulatory/Compliance Orientation Program