Corporate bribery settlement payments, guilty pleas set US records in 2019; SEC transparency rule on track for 2020

31 December 2019 00:00

After a year that set a record for corporate settlements of Foreign Corrupt Practices Act violations, the US is preparing new laws and regulations that would increase corporate transparency in a push to reduce corruption.

Further, the US Department of Justice's top criminal prosecutor said the DOJ set records in FCPA enforcement on other fronts.

In 2019, the DOJ Criminal Division's FCPA Unit "publicly announced more charges against individuals, 34, than in any other year in history," said Brian Benczkowski, assistant attorney general for the criminal division. It also "publicly announced more guilty pleas by individuals, 30, than ever before.

"This number of individual prosecutions in 2019 is not an outlier or a statistical anomaly," he said. "Rather, it is part of the Department's continued dedication to holding individual wrongdoers accountable across the board."

— $1.6 billion in FCPA settlements —

The DOJ also imposed a record sum of financial settlements in corruption cases. FCPA resolutions with the DOJ cost corporations $1.6 billion in fines, disgorgement and prejudgment interest — higher than the $1.3 billion in 2016.

The DOJ often participated in financial settlements that involved payments to other agencies involved with the case. Benczkowski said $2.8 billion was recovered "globally through coordinated settlements."

The most recent was the Dec. 6 FCPA resolution with Swedish telecommunications company Ericsson, which paid $520 million in criminal penalties to the DOJ as well as $540 million to the US Securities and Exchange Commission.

Russian telecom MTS agreed to pay an $850 million criminal fine to resolve FCPA matters. The DOJ credited MTS $100 million for payments in a related civil matter brought by the SEC.

TechnipFMC entered a deferred prosecution agreement and paid a criminal fine of $296 million, $81 million of which went to the US, with the remainder going to Brazil.

— Walmart —

Walmart in June agreed to $282 million in settlements with the DOJ and the US Securities and Exchange Commission to settle charges it violated the FCPA in Mexico, Brazil, China and India; the retail giant paid $144 million to the SEC and $138 million to the DOJ. Also, as part of the settlement, its Brazilian subsidiary, WMT Brasilia, pleaded guilty to FCPA violations.

Walmart in 2011 announced an internal investigation of possible FCPA violations, and the next year, the New York Times published a critical article on the firm's use of third-party intermediaries to obtain government permissions needed to build stores in Mexico.

As the company negotiated with the DOJ and the SEC to resolve the case, it also beefed up its compliance program and training for its worldwide operations. Since starting the probe, Walmart has spent more than $1 billion on legal fees associated with the case and subsequent compliance enhancements.

— Goldman Sachs and 1MDB —

Another record set in 2019 was a forfeiture settlement the DOJ reached to recover assets bought with funds embezzled from 1MDB, the Malaysian development fund.

In November, a US District Court judge in California consented to forfeiture of real estate, an aircraft, a yacht and other assets that DOJ says a Malaysian financier, Jho Low, bought with money embezzled from 1MDB. The Justice Department said they are worth $700 million.

In July 2016, the DOJ began filing forfeiture actions against assets bought with funds embezzled from the Malaysian development fund; other conspirators in the scheme have already surrendered assets named in the forfeiture complaints.

The DOJ is also readying cases or sentencings against Goldman Sachs directors in the case. One director, Roger Ng, is set to be tried in May, and another, Tim Leissner, who has pleaded guilty, is to be sentenced in June.

The investment bank itself is pursuing negotiations to settle its legal liabilities. Reports have emerged that a settlement could be announced in January, but Goldman Sachs said it wouldn't speculate on the outcome of settlement talks. Goldman Sachs and present and former executives, such as former Chief Executive Officer Lloyd Blankfein, have been sued by shareholders alleging misrepresentation of the fraud.

— Hoskins and extraterritorial jurisdiction —

The Nov. 8 conviction of Lawrence Hoskins on FCPA charges gave the DOJ a jury victory in a case that tested the reach of US laws outside the US. Hoskins, a British national working in France for Alstom, was convicted of seven FCPA counts and five money-laundering counts for his role in bribing officials in Indonesia to obtain a contract. A US subsidiary of Alstom played a direct role in paying money through intermediaries to Indonesian officials, and Hoskins approved those payments — albeit from abroad.

In 2015, US District Judge Janet Arterton ruled that the DOJ couldn't argue solely that Hoskins, a foreign national, was a conspirator in the bribery scheme and allowed Hoskins to argue that the DOJ must prove he was an agent of the US subsidiary to be convicted of FCPA charges. The DOJ lost an interlocutory appeal of Arterton's ruling.

Hoskins has moved that Arterton reverse the convictions or order a new trial. "Even when viewed in the light most favorable to the government, the evidence admitted at trial was insufficient for any rational trier of fact to find that the government has proven Mr. Hoskins's guilt," his attorneys said in a Nov. 29 motion.

— Corporate transparency —

US lawmakers are moving forward on legislation and rules that would increase corporate transparency — or at least, increase transparency of companies to law enforcement, regulators and compliance officers if not to the public as a whole.

The US House Oct. 23 passed the Corporate Transparency Act, which would require that the beneficial owners of corporations or limited liability companies disclose and identify themselves at the time companies are registered. The US Treasury's Financial Crimes Enforcement Network would maintain a database that could be accessed by law enforcement agencies investigating specific crimes, or by financial institution compliance officers conducting due diligence on customers or accounts.

The bill has been proposed repeatedly by Rep. Carolyn Maloney, a New York Democrat, in response to concerns that corrupt actors are hiding ill-gotten gains or terrorist funds in US assets controlled by anonymous shell companies. These shell companies have been used in the US to funnel bribe money or receive the profits of bribe-tainted contracts.

The Senate Banking Committee is considering a companion bill. An American Bankers Association lobbyist and others have recently said the committee may take up the bill soon.

Last week, the SEC voted 3-2 to propose a rule that would require oil, gas and mining firms to disclose annually the payments that they make to governments for royalties, concessions, permits and other privileges of extracting resources. A similar rule, required by Section 1504 of the 2010 Dodd-Frank Act, already has been promulgated and struck down twice; a US District Court judge overturned the rule, and then Congress disapproved it by resolution.

The new proposed rule would allow companies to file the disclosures privately to the SEC and would also allow them to aggregate expenses for an entire country. Previous rules allowed public disclosure, and required reporting on the contract level. Businesses have said the stricter reporting requirements would harm them competitively by requiring disclosure of too much proprietary information. Critics of the new proposed rule, who include the two Democratic commissioners who voted against it, say the changes from the previous version will water down its effectiveness.

Oil, gas and mining firms often operate in countries with high corruption risks and often are accused of paying bribes to corrupt national and local officials to obtain extraction privileges. Disclosure of payments to the US government has been recommended as a way to shed light on payments for extraction rights and dissuade or expose corruption.

When the proposed rule is published in the Federal Register, it will be open for public comment for 60 days.

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