InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
DOJ secures additional guilty pleas in wide-ranging Venezuelan energy company case
On September 13, the DOJ announced two additional guilty pleas in its wide-ranging foreign bribery investigation into payments to officials of a Venezuela’s state-owned energy company. The first individual, a former manager of a Texas-based logistics and freight forwarding company, pleaded guilty to one count of conspiracy to violate the FCPA in connection with corruptly securing contracts, contract extensions, and favorable contract terms from the energy company. He pleaded guilty in the Southern District of Texas, as did the second individual, the energy company official who accepted the bribes, and whose guilty plea was also unsealed. As now revealed, in July 2017, the second individual pleaded guilty under seal to conspiracy to commit money laundering. Both individuals are scheduled to be sentenced in February 2019. Prior Scorecard coverage of the PDVSA matter can be viewed here.
With these guilty pleas, DOJ has now brought charges against 18 individuals as part of its investigation into bribery at the company. Fourteen individuals have pleaded guilty. Due to the limits inherent in the FCPA, the DOJ’s charges against the corrupt foreign officials such as the second individual (i.e., the energy company's employees) have been based on money laundering and not FCPA (see Prior FCPA Scorecard Coverage here and here) whereas the charges against the U.S.-based individuals who made and/or directed the corrupt payments generally have included FCPA violations (see Prior FCPA Scorecard Coverage here).
DOJ settles with apartment owner for alleged SCRA violations
On September 11, the Department of Justice announced a settlement with a Nebraska apartment complex owner resolving allegations that it violated the Servicemembers Civil Relief Act (SCRA) by unlawfully charging lease termination fees for 65 servicemembers. The complaint, which was filed on the same day as the settlement, alleges that between January 2012 and June 2017, the apartment complex owner imposed early lease termination fees, ranging from $78 to almost $1,500, on servicemembers who sought termination due to qualifying military orders under the SCRA. The settlement requires the apartment complex owner, among other things, to (i) pay more than $76,000 in damages to the 65 identified servicemembers; (ii) pay a $20,000 civil money penalty, and (iii) develop policies and procedures related to SCRA lease terminations.
London-based offshore drilling company receives double declination in FCPA investigation
On September 4, 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 an acquired subsidiary, and a 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 the company’s full cooperation in the investigation.
2nd Circuit rules that FCPA does not reach foreign individuals without their own ties to U.S.
On August 24, the U.S. Court of Appeals for the Second Circuit rejected the government’s argument for a broad interpretation of personal jurisdiction in FCPA cases, ruling that a non-resident foreign national lacking sufficient ties to a U.S. entity cannot be charged with conspiracy to violate the FCPA or with aiding and abetting an FCPA violation. The three-judge panel upheld the lower court’s finding that a British national and former French multinational rail transportation company executive (defendant-appellee), could not be charged with conspiring or aiding and abetting something he could not be directly charged with because he was “not an agent, employee, officer, director or shareholder of an American issuer or domestic concern” within the scope of the FCPA’s jurisdictional provision and had not himself taken actions inside the U.S.
The defendant-appellee was an employee of the French company’s UK subsidiary and worked for a French subsidiary. The government alleged that he was “one of the people responsible for approving the selection of, and authorizing payments to,” consultants used by the French company’s U.S. subsidiary to bribe Indonesian officials related to a power contract. The government alleged numerous U.S. acts in furtherance of the bribery (including e-mails and calls by the defendant-appellee to the U.S.), although the defendant-appellee himself never traveled to the U.S. during the scheme. The defendant-appellee was one of four executives charged in 2013 in connection with the bribes; the other three executives—all of whom worked for the U.S.-based subsidiary—a power generation equipment manufacturer (which entered into a deferred prosecution agreement)—entered guilty pleas. The company pleaded guilty in December 2014 and paid a fine of $772 million.
The charges against the defendant-appellee included a FCPA conspiracy count as well as substantive FCPA bribery violations and related money laundering charges. The District Court granted the defendant-appellee’s motion to dismiss part of the conspiracy count, ruling that if he was not alleged in that count to be a covered person under the FCPA, then the government could not impose accomplice liability either. Similarly, where the government had not alleged that the defendant-appellee ever traveled to the U.S. during the bribery scheme, then he could not be accused of conspiring to violate the provision proscribing acts by foreign nationals taken within the U.S. The District Court allowed the count to move forward where it separately alleged that the defendant-appellee was also an agent of the U.S. subsidiary, which would bring him within the FCPA’s defined reach.
The 2nd Circuit agreed with the District Court that if the defendant-appellee was not an agent of the French company’s U.S. subsidiary (something the court assumed for the purpose of the appeal only), and therefore himself covered under the FCPA, then he could not be charged with conspiracy or complicity liability. The court relied primarily on the idea that Congress enacted an “affirmative legislative policy” in the FCPA that was intended to punish some categories of defendants, taking into account considerations of extraterritoriality, while intentionally omitting others. Secondarily, the court also held that there was no “‘clearly expressed congressional intent to’ allow conspiracy and complicity liability to broaden the extraterritorial reach of the statute.” The court summed up its ruling as requiring that the government demonstrate that the defendant-appellee “falls within [a category enumerated in the FCPA] or acted illegally on American soil.”
The court did reverse the District Court’s second ruling that unless the defendant-appellee traveled to the U.S. during the bribery scheme, he could not be charged with conspiring to violate the FCPA provision covering acts by foreign nationals within the U.S. The government had indicated that it still intended, at trial on the other counts, to prove that he was an agent of the U.S. subsidiary, thereby bringing him back within the categories explicitly covered by the FCPA. (The substantive FCPA counts remaining did allege that the defendant-appellee was acting as an agent).
SEC issues administrative order against U.S.-based global investment management firm
On August 27, the SEC issued an administrative order settling allegations against a U.S.-based investment management firm, 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 the company’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 separate penalty beyond the disgorgement already agreed to in June, and pre-judgment interest.
Barbadian insurance company receives first declination with disgorgement under FCPA corporate enforcement policy
On August 23, a Barbadian insurance company received the first declination with disgorgement from the DOJ under the FCPA Corporate Enforcement Policy, which was made effective in November 2017. The conduct at issue involved payments made by the company to a Barbadian official in exchange for insurance contracts. The DOJ stated that the official, who is a U.S. legal permanent resident, laundered the payments through a New York-based company owned by a friend of the official. The declination was offered in consideration of numerous factors, including the company’s timely and voluntary disclosure of the conduct, its thorough internal investigation and cooperation with the DOJ’s investigation, its agreement to disgorge $93,900 in profits, and its efforts to enhance compliance and to remediate the matter by terminating all involved in the misconduct.
Global technology company confirms U.S. investigations into Hungarian sales operations
On August 23, the Wall Street Journal reported that a global technology company is under investigation by the DOJ and the SEC regarding whether bribes and kickbacks were paid to Hungarian officials connected to sales of the company’s products in Hungary. The company stated in response to the reporting that it had terminated four employees as well as certain business partnerships in response to its own internal probe into potential wrongdoing in the 2013 to 2014 timeframe. In SEC filings over the last couple of years, the company previously disclosed FCPA-related investigations and that it has been cooperating with related U.S. investigations, which have to date yielded no enforcement actions.
State banking supervisors ask congressional leaders for marijuana banking services clarity
On August 24, 13 state banking supervisors sent a letter asking congressional leaders “to consider legislation that creates a safe harbor for financial institutions to serve state-compliant [marijuana] business, or entrusts sovereign states with the full oversight and jurisdiction of marijuana-related activity.” According to the letter, while 31 states, the District of Columbia, and two territories have legalized medical and/or recreational marijuana use as of August 1, many financial institutions choose not serve marijuana businesses due to a perceived threat of asset forfeitures or criminal penalties. The letter notes that this results in inadequate regulation, cash transactions that are difficult to track, “a diminished ability to identify operators acting to circumvent federal and state licensing and regulatory frameworks,” and concerns for public safety. In addition, according to the state regulators, the rescission of the 2013 “Cole Memo”—which outlined the DOJ’s marijuana enforcement priorities and was relied upon by a limited number of financial institutions—has led to greater uncertainty for banks that serve marijuana businesses. The letter also discusses the Financial Crimes Enforcement Network’s 2014 guidance—which clarifies expectations under the Bank Secrecy Act for financial institutions providing services to marijuana businesses—and further stresses that “the Rohrabacher amendment prohibiting federal funds being used to inhibit state medicinal marijuana programs [is] an impermanent approach that requires a permanent resolution.”
In July, and as previously covered in InfoBytes, the New York Department of Financial Services (NYDFS) issued guidance which encouraged New York state chartered banks and credit unions to consider establishing relationships with regulated and compliant medical marijuana and industrial hemp-related businesses operating in New York. NYDFS stated it will not impose any regulatory action on a New York financial institution that establishes a relationship with a regulated marijuana business as long as the institution also complies with other applicable guidance and regulations.
International bank agrees to pay $4.9 billion in civil penalties to settle allegations of RMBS misconduct
On August 14, the DOJ announced a settlement with an international bank to resolve federal civil claims of misconduct in the bank’s underwriting and issuing of residential mortgage-backed securities (RMBS) to investors in the lead-up to the 2008 financial crisis. According to the press release, the bank allegedly violated the Financial Institutions Reform, Recovery, and Enforcement Act by, among other things, failing to accurately disclose the risk of the RMBS investments when selling the securities. Under the terms of the settlement, the bank has agreed to pay a civil penalty of $4.9 billion. The bank disputes the allegations and does not admit to any liability or wrongdoing.
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 pleaded guilty to “participat[ing] in a conspiracy to launder money with the intent to promote foreign bribery.” A Colombian attorney 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 the former director’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 the former director 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.