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Medical Device Subsidiary Agrees to DPA with DOJ Related to Health Care Bribes
On March 1, a Miami-based medical device company entered into a deferred prosecution agreement (DPA) to resolve charges of conspiracy to violate the FCPA and violating the FCPA in connection with improper payments and benefits to health care practitioners at government-owned facilities in Central and South America. The company, which is a majority-owned subsidiary of the United States’ largest distributor of endoscopes and related medical equipment, agreed to pay a $22.8 million penalty and admitted its criminal conduct.
According to the company’s admissions, from 2006 through August 2011, it “designed and implemented a plan to increase medical equipment sales in Central and South America by providing personal benefits, including cash, money transfers, [ ] travel, free or heavily discounted equipment, and other things of value to certain health care practitioners” employed at government-owned health care facilities. The improper payments totaled nearly $3 million, which resulted in the recognition of more than $7.5 million in profits.
Under the terms of the DPA, the DOJ will defer criminal prosecution for a period of three years and the company will appoint a compliance monitor and implement numerous compliance measures. In reaching the resolution, the DOJ gave the company a 20 percent reduction on its penalty as a result of its cooperation, which included “conducting an extensive internal investigation, translating documents, and collecting, analyzing, and organizing voluminous evidence and information.” However, in assessing the penalty, the DOJ noted that the company did not voluntarily disclose the misconduct in a timely manner.
Massachusetts-Based Technology Company and Two Chinese Subsidiaries Pay $28 Million to Settle Civil and Criminal FCPA Charges; SEC Uses First DPA With Individual
On February 16, the SEC and DOJ announced a settlement with a Massachusetts-based technology company for violations of the FCPA. The technology company and two Chinese subsidiaries agreed to pay $28 million to settle the parallel civil and criminal actions, with the technology company paying approximately $13.5 million in disgorgement and prejudgment interest to settle the SEC’s charges, and its two Chinese subsidiaries paying approximately $14.54 million in penalties in a Non-Prosecution Agreement with the DOJ.
The company admitted that its subsidiaries in Shanghai and Hong Kong provided non-business related travel and other improper payments to Chinese government officials to win business. Specifically, from 2006 to 2011, the two subsidiaries provided nearly $1.5 million to Chinese officials in improper travel, gifts, and entertainment. The Chinese officials were employed by state-owned entities that were customers of the technology company. The travel and entertainment expenses included overseas trips to visit the technology company’s facilities, including cooperate headquarters in Massachusetts, but the majority of the time on the trips was spent on recreational excursions unrelated to the purported business purpose. For example, the company paid for Chinese officials to visit New York, Las Vegas, San Diego, Los Angeles, and Honolulu, as well as guided tours, golfing, and other leisure activities during those trips. Employees of the company’s subsidiaries also provided gifts to the Chinese officials, including cell phones, iPods, gift cards, wine, and clothing. The payments were recorded in the company’s books and records as legitimate commissions or business expenses.
As part of the investigation, the SEC also entered into its first Deferred Prosecution Agreement (DAP) with an individual in an FCPA case. The SEC announced that it would wait three years to bring any FCPA charges against a former employee of one of the subsidiaries, Yu Kai Yuan, because of the cooperation he provided during the SEC’s investigation.
Amsterdam-Based Telecommunications Company Pays $795 Million to Settle FCPA Charges Both in US and Abroad
On February 18, an Amsterdam-based telecommunications company and its Uzbek subsidiary reached a global settlement with the SEC, DOJ, and Dutch regulators Openbarr Ministerie (OM) and the Fiscal Intelligence and Investigation Service (FIOD), in which the telecommunications company will pay more than $795 million to resolve FCPA violations in Uzbekistan. The Amsterdam-based telecommunications provider was charged with bribing an Uzbek government official related to the President of Uzbekistan in exchange for government-issued licenses. Between 2006 and 2012, the telecommunications company and its subsidiary made more than $114 million in bribe payments through an entity affiliated with the Uzbek official and disguised approximately half a million dollars as charitable donations made to charities affiliated with the Uzbek official.
The terms of the settlement require the telecommunications company to pay $397.5 million to Dutch regulators, $230.1 million to the DOJ, and $167.5 million to the SEC; it must also retain an independent corporate monitor for three years. DOJ also filed a forfeiture proceeding, seeking more than $550 million held in Swiss bank accounts which it alleged were funds that the Amsterdam-based telecommunications company and two other telecommunications companies used to bribe and/or launder the bribe payments to the Uzbek official. This forfeiture complaint follows the DOJ’s earlier forfeiture complaint filed on June 29, 2015, seeking forfeiture of more than $300 million in funds held in Belgium, Luxembourg, and Ireland.
Germany-Based Software Company Settles Bribery Case with SEC for $3.7 Million
On February 1, the SEC agreed to a $3.7 million settlement with a Germany-based software company regarding allegations that it violated the FCPA regarding the payment and offer of bribes to senior Panamanian government officials. The settlement, stemming from the actions of the company's former executive Vincente Garcia who pleaded guilty last August to one count of conspiracy to violate the FCPA, found that the company lacked appropriate internal controls to detect the illegal activity. According to the SEC, Garcia arranged the sale of heavily discounted software licenses and used the savings to create a “slush fund.” The money in this fund was then used to pay bribes and kickbacks.
The SEC order also found that the company lacked sufficient internal controls to prevent the violations. While the company did not admit or deny the findings, it consented to the cease-and-desist order and agreed to disgorge $3.7 million in profits plus prejudgment interest of $188,896.
California-Based Pharmaceutical Company Settles with SEC Regarding FCPA Offenses in China
On February 4, the SEC settled FCPA allegations with a California-based pharmaceutical company with a cease and desist order finding that the company violated the FCPA’s anti-bribery, books and records, and internal controls provisions related to activities in China. The SEC found that from at least 2007 to 2012, employees of the company’s subsidiaries gave money and gifts to Chinese officials (including employees of state-owned hospitals) in order to boost sales. The SEC further found that the company failed to devise and implement a sufficient system of internal accounting controls and lacked an effective anti-corruption compliance program.
The company consented to the SEC’s order without admitting or denying the charges and agreed to pay $12.8 million to resolve the charges, including a $2.5 million penalty, the disgorgement of $9.426 million in profits, and $900,000 in prejudgment interest. The company will also provide status reports to the SEC for the next three years regarding remediation efforts and new anti-corruption compliance measures. The company simultaneously announced that the DOJ had declined to pursue any additional action.
Oil and Gas Company Files Lawsuit Against Drilling Partners Challenging Post-FCPA Settlement Reticence
On January 11, a Houston-based oil and gas company filed suit in the U.S. District Court for the Southern District of Texas against its drilling partners in the company’s Guinean operations. The company claims that the drilling partners have unjustly delayed performing the work called for by their operating agreement because of uncertainty over whether the government of Guinea would terminate its drilling agreement with the company in light of the FCPA investigation into the company. That investigation was resolved by a declination letter issued by DOJ in May 2015 and a settlement with the SEC in October 2015. (See previous InfoBytes coverage of that investigation here and here.) The company is seeking a ruling that the drilling partners are in violation of the operating agreement and an order forcing them to fulfill their obligations.
In a November 2015 SEC filing, the company reported a complete lack of operating revenue and warned that further delays in fulfilling requirements imposed by the government of Guinea could result in a loss of the company’s concession to drill in the country. This case illustrates the potential business risks posed by an FCPA investigation—even if it is resolved on relatively favorable terms.
Former Executive Sentenced for Conspiracy to Bribe Panamanian Government Officials
On December 16, the U.S. District Court for the Northern District of California sentenced a former regional director of a Pennsylvania-based software and technology company for his involvement in a conspiracy to bribe Panamanian government officials to obtain technology contracts. U.S. District Judge Charles R. Breyer sentenced Vicente Eduardo Garcia to 22 months in prison for his role in the bribery scheme. In August 2015, Garcia pleaded guilty to conspiracy to violate the FCPA, admitting that in 2009 he and others conspired to bribe two Panamanian government officials directly and a third official through an agent in order to obtain a contract to provide a Panamanian state agency with a technology upgrade package. Garcia and his co-conspirators used sham contracts and false invoices to conceal the bribes, and Garcia personally received over $85,000 for arranging the bribes. Garcia previously settled with the SEC and agreed to pay disgorgement of $85,965 plus prejudgment interest.
Former Russian Government Official Sentenced For Nuclear Energy Conspiracy Involving FCPA Violations
On December 15, a former Russian government official, Vadim Mikerin, was sentenced to 48 months in prison for conspiracy to commit money laundering in connection with $2 million in bribe payments he accepted to award government contracts with a Russian state-owned nuclear energy corporation. U.S. District Judge Theodore D. Chuang of the District of Maryland also ordered Mikerin, who resides in Maryland, to forfeit $2.1 million. Between 2004 and October 2014, Mikerin received bribe payments intended to improperly influence him in his role as a key official at a subsidiary of a Russian state-owned nuclear energy corporation and to secure improper business advantages for U.S. companies that did business with the subsidiary. Mikerin admitted that, in connection with the FCPA violations, he conspired with others to transmit approximately $2,126,622 from the United States to shell company bank accounts in Cyprus, Latvia and Switzerland. Mikerin also admitted to using consulting agreements and code words to conceal the bribes. Two of Mikerin’s co-conspirators – Daren Condrey and Boris Rubizhevsky – also pleaded guilty to conspiracy charges and are awaiting sentencing.
Massachusetts-Based Imaging Company Discloses Settlement Offer to End FCPA Investigations
In a quarterly securities filing made on December 9, a Massachusetts-based manufacturer of airport security equipment, disclosed that the SEC and DOJ have made separate proposals to end their FCPA investigations into the company that would include payments totaling approximately $15 million. The company had previously announced in a September 2015 press release that it had offered the SEC $1.6 million to settle the SEC’s FCPA investigation of the company. The company’s 10-Q disclosed that the SEC rejected that offer. The company stated that it remains in discussion with the SEC and DOJ about settlement and is also discussing a settlement with the Danish government concerning a resolution of these matters.
The company previously reported that the DOJ and SEC had “substantially” completed their investigations of potential bribery involving transactions by the company’s Danish subsidiary. The transactions at issue involved distributors paying the subsidiary more than was owed, and the subsidiary then allegedly transferring the excess money to third parties identified by the distributors. At the time of its 2011 disclosure of the potentially problematic transactions, the company stated that it had not ascertained the ultimate beneficiaries or purpose of the transfers.
Former New York-Based Broker-Dealer Executives Sentenced to Two Years in Prison
Two former executives of a now-defunct New York-based broker-dealer were each sentenced to two years in prison for their roles in a bribery scheme involving a Venezuela’s state-owned economic development bank. On December 8, Tomas Clarke, the former Miami-based senior vice president of the broker-dealer, was sentenced to two years in prison and ordered to forfeit nearly $5.8 million for his role. On December 4, Ernesto Lujan, the former managing partner at the broker-dealer’s Miami office, was sentenced to two years in prison and ordered to forfeit $18.5 million. The pair pleaded guilty in August 2013 in the U.S. District Court for the Southern District of New York to conspiracy to violate the FCPA, the Travel Act, and to commit money laundering, as well as substantive counts of these offenses.
The broker-dealer earned more than $60 million in commissions from trades placed by the Venezuela’s state-owned economic development bank over a five year period. To obtain that business, the broker-dealer paid millions of dollars in bribes to an official, Maria De Los Angeles Gonzalez De Hernandez (Gonzalez), at the development bank, often routing them through third parties and offshore bank accounts in Switzerland and elsewhere. Clarke and Lujan are two of five former broker-dealer executives to plead guilty in connection with this case. In March, two other former executives, including the broker-dealer’s former CEO, were each sentenced to four years in prison. One other former executive, who pleaded guilty in August 2013, has yet to be sentenced. Gonzalez, who pleaded guilty in November 2013 in the U.S. District Court for the Southern District of New York to conspiracy to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses, also is awaiting sentencing.