Difference between revisions of "Foreign bribery and FCPA violations"

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='''Recent SEC and DOJ Anti-Bribery FCPA Enforcement Actions'''=
The SEC and DOJ, which are the agencies charged with enforcing the FCPA, have aggressively pursued foreign bribery cases. Since the enactment of the FCPA, the agencies have prioritized the Act and have imposed substantial fines on companies for violations. Examples include:
* On January 9, 2014, ALCOA paid [https://www.sec.gov/news/press-release/2014-3 $175 million] in disgorgement to the SEC and [https://www.justice.gov/opa/pr/alcoa-world-alumina-agrees-plead-guilty-foreign-bribery-and-pay-223-million-fines-and $223 million] in criminal fines and forfeiture to the DOJ for bribing government officials in Bahrain.
* On September 29, 2016, Och-Ziff Capital Management Group LLC agreed to pay nearly [https://www.sec.gov/news/pressrelease/2016-203.html $200 million] in disgorgement to the SEC and a criminal penalty of more than [https://www.justice.gov/opa/pr/och-ziff-capital-management-admits-role-africa-bribery-conspiracies-and-agrees-pay-213 $213 million] to the DOJ to settle charges that the hedge fund violated the FCPA by using intermediaries and business partners to pay bribes to government officials in Africa.
* On November 17, 2016, JPMorgan Chase agreed to pay [https://www.sec.gov/news/pressrelease/2016-241.html $264 million] in sanctions to the SEC, DOJ and Federal Reserve Board of Governors for a client-referral hiring program called the “Sons and Daughters Program.” This program was expressly designed to hire candidates referred by client executives and government officials. By employing these referrals, the bank was able to win business that generated millions in revenues. From 2006 to 2013, JPMorgan ''did not deny a single referral'' from the program. This enforcement action represents the third time the SEC has fined a company for hiring officials’ relatives in violation of FCPA. Andrew Ceresney, SEC Enforcement Division Chief, has indicated that the SEC will continue to sweep the referral hiring practices.
* On December 21, 2016, engineering conglomerate Odebrecht and Braskem agreed to pay a total of [https://www.justice.gov/opa/pr/odebrecht-and-braskem-plead-guilty-and-agree-pay-least-35-billion-global-penalties-resolve $3.5 billion] in a record FCPA settlement with U.S., Brazilian, and Swiss authorities. Beginning in 2001, the companies used a hidden business unit to pay hundreds of millions of dollars in bribes to corrupt foreign officials in the Petrobras corruption scandal. Investors brought a class action suit against the Brazilian oil giant Petrobras as result of the scandal, which settled for [https://www.foxbusiness.com/features/petrobras-to-pay-3-billion-wsj $3 billion].
* On December 22, 2016, Teva Pharmaceutical Industries Ltd. agreed to pay [https://www.sec.gov/news/pressrelease/2016-277.html $519 million] to the SEC and DOJ to settle U.S. charges that it violated the FCPA by paying bribes in its operations in Ukraine, Mexico, and Russia. The U.S. has extensively enforced the FCPA on pharmaceutical firms over the years, especially in countries with national health systems. In these countries, doctors are considered “public officials” for FCPA purposes, which dramatically increases their exposure to FPCA violations. Also in 2016, pharmaceutical giants GlaxoSmithKline, AstraZeneca, and Novartis all settled cases involving FCPA violations.
* On January 16, 2017, Rolls-Royce agreed to pay [https://www.justice.gov/opa/pr/rolls-royce-plc-agrees-pay-170-million-criminal-penalty-resolve-foreign-corrupt-practices-act $809 million] to the DOJ to settle allegations of a long-running scheme to bribe government officials in exchange for government contracts. The settlement proceeds were split between the UK, the United States, and Brazil. The Department of Justice reported that it received nearly $170 million. Read more [https://www.bbc.com/news/business-41911961 here].
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* On January 18, 2017, medical device company Orthofix International agreed to pay more than $14 million to the SEC to settle charges that it made improper payments to doctors at government-owned hospitals in Brazil in order to increase sales and improperly booked revenue causing the company to materially misstate financial statements from at least 2011 to Q1 2013.
* On July 27, 2017, oil field service company Halliburton agreed to pay $29.2 million to the SEC to settle charges that it violated the books and records and internal accounting controls provisions of the FCPA by failing to conduct competitive bidding and awarding lucrative oilfield services contracts to a specific local company owned by a former Halliburton employee who was a friend and neighbor of the government official who would ultimately approve the award of the contracts. Halliburton outsourced more than $13 million worth of business to the local company.
* On September 21, 2017, telecommunications provider Telia Company AB agreed to pay $965 million to settle charges that it offered and paid at least $330 million in bribes to enter the Uzbek telecommunications market. According to the SEC’s order, Telia paid the bribes through a shell company that was controlled by an Uzbek government official who was in a position to exert significant influence over other Uzbek officials, causing them to take official actions to benefit Telia’s business in Uzbekistan.
* On November 29, 2017, SMB Offshore, a company specializing in manufacture and design of offshore oil drilling equipment, agreed to pay $238 million to resolve charges that the company bribed foreign officials in Brazil, Angola, Equatorial Guinea, Kazakhstan and Iraq for government contracts. According to the DOJ, the company paid more than $180 million to middlemen while knowing that the money would go towards bribing officials. The scheme involved some of the highest-level executives within the company and lasted for more than a decade (1996-2012). The company entered into a deferred prosecution agreement.
* On December 22, 2017, Keppel Offshore & Marine Ltd. (KOM) and its U.S. subsidiary agreed to pay approximately $422 million to resolve charges that it violated the FCPA by paying millions to public officials in Brazil to win contracts with the Brazilian state-owned oil company Petrobras.  According to the information filed in the Eastern District of New York, the bribery scheme yielded $350 million in profits. KOM used agreements with consulting companies to facilitate the bribe payments to obtain business from Petrobras and conceal the bribes.  KOM is paying approximately to U.S. regulators and the remaining amount to enforcement authorities in Singapore and Brazil.
* On April 30, 2018, Panasonic agreed to pay $143 million to resolve charges of FPCA and accounting fraud violations involving its global avionics business. According to the SEC’s order, Panasonic offered a lucrative consulting position to a government official at a state-owned airline to induce the official to help Panasonic in obtaining and retaining $700 million in business from the airline. In addition, the SEC found that Panasonic fraudulently overstated net income by more than $82 million for the fiscal year ending June 30, 2012, by prematurely recognizing revenue on an agreement. Panasonic accomplished the fraud by backdating the agreement and providing misleading information to its external auditor.
* On July 5, 2018, the SEC announced that Credit Suisse Group AG agreed to pay $30 million to the SEC and $47 million to the DOJ to resolve charges that it violated the anti-bribery and internal accounting provisions of the FCPA. According to the SEC’s order, between at least 2007 and 2013, Credit Suisse provided valuable employment to the relatives and friends of certain foreign government officials as a personal benefit to the requesting officials in order to obtain or retain investment banking business or other benefits for the bank. This quid pro quo arrangement resulted in multiple deals and substantial profits for Credit Suisse. Specifically, the SEC found that in a six-year period, Credit Suisse offered to hire more than 100 individuals referred by or connected to foreign government officials, resulting in millions of dollars of business revenue.
* On August 27, 2018, Legg Mason Inc. paid approximately $34 million to resolve an SEC charge that a subsidiary Permal Group Inc. partnered with Société Générale S.A., to solicit business from state-owned financial institutions in Libya by paying bribes through an intermediary.  Société Générale paid the Libyan Intermediary approximately $26.25 million for supposed “introductory” services and Lybian financial institutions purchased seven structured notes linked to funds managed by Permal that were worth approximately $950 million.  Legg Mason agreed to disgorge approximately $27.6 million of ill-gotten gains and pay $6.9 million in prejudgment interest.
* On September 4, 2018, the SEC announced that Paris-based pharmaceutical company, Sanofi, agreed to pay more than $25 million to resolve charges that its subsidiaries made corrupt payments to win business. According to the SEC’s order, the schemes involved bribing government officials and healthcare providers in order to be awarded tenders and to increase prescriptions of its products. The SEC’s press release indicated that the Commission will continue to focus on bribery in connection with pharmaceutical sales as it remains as a significant problem.
* On September 12, 2018, United Technologies Corporation (UTC) agreed to pay $13.9 million to resolve charges that it violated the FCPA by paying Azerbaijani officials to facilitate the sales of elevator equipment for public housing in Baku and as part of a kickback scheme to sell elevators in China.  The scheme in Azerbaijan involved the use of sham subcontractors and intermediaries to make improper payments. According to the order, the violation in China entailed UTC, through its joint venture, making unsupported payments to a sales agent, “disregarding the high probability that at least some of the money would be used to make unlawful payments to a Chinese official to obtain confidential information to sell engines to a Chinese state-owned airline.”  UTC self-reported the misconduct and timely provided facts developed during its internal investigation.
* On December 6, 2019, Ericsson agreed to pay over $1 billion to resolve FCPA violations arising out of the Company’s scheme to make and improperly record tens of millions of dollars in improper payments around the world for approximately 17 years. That amount includes $540 million that will be paid to the SEC for disgorgement and prejudgment interest. According to a Department of Justice press release, Ericsson used third party agents and consultants to make bribe payments to government officials and/or to manage off-the-books slush funds. These agents were often engaged through sham contracts and paid pursuant to false invoices, and the payments to them were improperly accounted for in Ericsson’s books and records.
* On June 25, 2020, pharmaceutical company Novartis agreed to pay $346 million to settle SEC and DOJ charges that the company violated the FCPA. According to the SEC’s press release announcing the settlement, between 2012 and 2016 “Novartis or its former subsidiary Alcon Inc. engaged in schemes to make improper payments or to provide benefits to public and private healthcare providers in South Korea, Vietnam, and Greece in exchange for prescribing or using Novartis or Alcon products.”
='''Foreign Bribery and FCPA Violations in Real Estate, Construction and Infrastructure'''=
According to EY’s 2017 Report on Bribery, the “real estate, construction, and associated industries are among the sectors with the highest level of corruption risk.” Indeed, the report reveals that 13% of companies in EY’s 2016 Global Fraud Survey “thought that bribery was ‘common practice’ in the industry.” By 2025, EY predicts that global infrastructure spending will reach $9 trillion, more than doubling the 2012 spending of $4 trillion.
In the report, EY identifies “corruption pressure points” that explains why the risk of corruption is so high in the industry. Two of the pressure points listed are:
Bribe takers – the ultimate decision-making control is generally assigned to a small group of individuals in the public sector. This provides many opportunities for solicitation by public officials.
Bribe givers – most projects require additional help (local subcontractors, consultants and agents) who may be willing to pay bribes to secure business or obtain permits.
Finally, the report highlights that two-thirds of the foreign bribery cases in 2014 occurred in only five sectors: extractive (19%), construction (15%), transportation and storage (15%), information and communication (10%), and manufacturing (8%). Due to the rise in enforcement, we expect to see continued focus on these industries.
='''CFTC Enforcement of FCPA'''=
Some FCPA violations also implicate the Commodity Exchange Act, i.e., bribery can give rise to liability for fraud, manipulation, false reporting, or a number of other types of violations under the CEA and CFTC regulations. According to a CFTC whistleblower alert, foreign corrupt practices may include:
Corrupt practices that alter the prices in commodity markets that drive U.S. derivatives prices;
Bribes employed to secure business in connection with regulated activities like trading, advising, or dealing in swaps or derivatives, paid out of funds investors believed were being used to invest; or
Corrupt practices used to manipulate benchmarks that serve as the basis for related derivatives contracts, as prices that are the product of corruption might be falsely reported to benchmarks.