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June FCPA Compliance Digest | BONUS: Global Anti-Corruption and Anti-Money Laundering News

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June FCPA Compliance Digest | BONUS: Global Anti-Corruption and Anti-Money Laundering News

I love writing articles where I get to discuss companies making history. PetroTiger has been exonerated from criminal FCPA prosecution by the DOJ. That’s only happened once before, in the case of Morgan Stanley. Unfortunately, the good news doesn’t last long, as IAP Worldwide ponies up several million dollars to settle its FCPA penalty, and Electrobras is investigating whether or not it may have violated the FCPA or the BCCA.

In this month’s digest, I’ve also included several stories related to money laundering and corruption that you may find useful. Remember to let us know what you think! You can join the conversation by commenting on the blog and messaging us on JDSupra and Twitter.

PetroTiger Exonerated From FCPA Prosecution

PetroTiger is the new Morgan Stanley! For only the 2nd time in the history of the FCPA, the DOJ exonerated a company from FCPA prosecution, despite guilty pleas by 3 of its top exes. On June 15, the DOJ said it has opted not to bring an enforcement action against PetroTiger over FCPA violations “based on PetroTiger’s voluntary disclosure, cooperation, and remediation, among other factors.”

The decision not to pursue charges of any kind is a marked departure from most FCPA cases, in which the DOJ will give companies credit for strong compliance programs, often entering into NPAs or DPAs, which almost always come with strings attached. It’s rare that companies get complete exoneration. The DOJ’s announcement follows a guilty plea by Joseph Sigelman, the former co-CEO of PetroTiger for conspiring to pay bribes to a foreign government official in violation of the FCPA. At his plea hearing, Sigelman admitted to conspiring with co-CEO Knut Hammarskjold, former GC Gregory Weisman and others to make illegal payments of $333K to an employee of the Colombian national oil company Ecopetrol in exchange for assistance in securing a $45M oil services contract.

In November of 2013, Weisman pleaded guilty to conspiracy to violate the FCPA and to commit wire fraud. In February of 2014, Hammarskjold pleaded guilty to similar charges. The case was brought to the attention of the DOJ through a voluntary disclosure by PetroTiger, “which fully cooperated with the DOJ’s investigation,” the agency stated. Going forward, the hope is that the DOJ will continue to provide examples like the PetroTiger and Morgan Stanley cases, and continue to give guidance in situations where the government declines to prosecute.

IAP Worldwide Services Pays $7.1M Criminal Fine to Settle FCPA Offenses

Florida defense and government contracting firm IAP Worldwide Services Inc., agreed to pay a $7.1M penalty to resolve the DOJ’s investigation into an alleged conspiracy to bribe Kuwaiti officials to win a contract. A former VP of IAP, James Rama, also pleaded guilty.

In 2004, Kuwait launched a project to develop nationwide surveillance capabilities through closed-circuit television. IAP and Rama made a plan to make sure IAP would be the contractor selected for the project. In February 2006, Rama and other IAP executives and senior employees set up a shell company called Ramaco to bid on the first phase project. The plan involved concealing IAP’s role while Ramaco wrote requirements for the remainder of the project that only IAP could fulfill. Ramaco won a $4M contract for the first phase. Rama and IAP agreed to divert half of the $4M to a consultant who would bribe Kuwaiti officials for award of the next phase. Between September 2006 and March 2008, IAP and the co-conspirators paid the consultant almost $1.8M, “understanding that some or all of the funds would be used to bribe Kuwaiti government officials.” The DOJ said it entered into the NPA with AIP “based on a variety of factors, including but not limited to IAP’s cooperation.” IAP has to “review of its existing internal controls, policies and procedures, and make any necessary modifications to ensure . . . accurate record keeping and a rigorous anti-corruption compliance program.” IAP is also required to report from time to time to the DOJ “regarding remediation and implementation of the aforementioned compliance program and internal controls, policies and procedures.”

Eletrobras Investigating Possible FCPA Violations

Brazil’s state-run power company Eletrobras (not to be confused with perennial headline-grabber/national gas company Petrobras) announced in a Form 6-K filing with the SEC that it has hired law firm Hogan Lovells to evaluate whether the company may have violated the FCPA, Brazil’s anti-corruption law, the BCCA, and Eletrobras’ own Code of Ethics. Eletrobras said the internal investigation will focus on “projects in which Eletrobras companies take part in a corporate form or as minority shareholder, through special purpose entities.”

According to an earlier filing issued in May, Eletrobras said it launched the investigation following testimony given by the former CEO of Camargo Corrêa related to the Brazilian government’s ongoing investigation of corruption allegations against Brazil’s state-owned oil company Petrobras, known as “Operation Car Wash.” That testimony alleged that the CEO of Eletrobras Thermonuclear, a wholly owned subsidiary of Eletrobras, received illicit payments from a consortium of companies bidding on a power plant project. As you know from a previous FCPA digest, Brazil-based petrochemical giant Braskem also said in a filing with the SEC in April that it has launched an internal investigation into potential violations of the FCPA concerning whether two of its former executive officers made improper payments between 2006 and 2012 to Petrobras in exchange for raw-material supply agreements.

Global Anti-Corruption News

48% of Middle East Firms Have No Anti-Corruption Policy in Place

In a depressing and yet unsurprising survey, Ernst & Young has found that nearly half of Middle East businesses still do not have the basic building blocks in place for effective compliance to fight bribery and corruption, Only 52% of MENA (Middle East North Africa) respondents stated they had an anti-bribery or anti-corruption policy and code of conduct in place. The MENA survey, which polled employees of large businesses in Saudi Arabia, UAE, Oman and Egypt, found that pressure on businesses to grow revenues, together with market uncertainty and geopolitical instability, is creating increased risk in expansion opportunities and day-to-day operations. 52% of MENA survey respondents reported that management is under pressure to expand into higher risk markets; 67% of respondents said they believed offering personal gifts, entertainment or cash were justified if it helped a business survive.

Michael Adlem, MENA leader of EY’s Fraud Investigation & Dispute Services (FIDS) practice, said, “The risks of fraud, bribery and corruption are not going away. Businesses remain under intense pressure to grow and that growth can be achieved while appropriately managing the risks of fraud and corruption. Effective compliance is not a barrier to growth; it is a requirement for sustained success.” The survey also stated that despite increasing international and regulatory pressure on business ethics and their connection to global and regional economic growth, 50% of MENA respondents justified financial statement misstatement if it helped the business survive.

Big Anti-Corruption Reforms Push Forward in Mexico

Mexican President Enrique Peña Nieto signed into law constitutional reforms that will expand upon and toughen anti-corruption legislation that Mexico enacted in 2012 under the Federal Law Against Corruption in Public Procurement, which bars individuals and companies from offering money or gifts to obtain a business advantage in the procurement of public contracts with the Mexican government. In at least 2 respects, this goes beyond the FCPA: It bans bribery of foreign and domestic government officials, (the FCPA only bans bribery of foreign officials) and it bans facilitation payments, similar to the U.K. Bribery Act, but unlike the FCPA.

The new reforms also expand the range of penalties that companies can face for participating in acts of corruption. In addition to monetary penalties and debarment, companies in cases of serious violations may also be subject to forced dissolution – the government may dissolve the entity and force it to liquidate assets in Mexico. Companies that operate in Mexico should review their compliance programs in light of these new anti-corruption reforms. Mexican-based companies should consider starting to invest in compliance functions and ensure strong compliance controls, which include the usual best practices:

  • Written policies and procedures prohibiting corruption;
  • Guidance to employees on what are and are not proper payments;
  • Internal audits to check not just the strength and effectiveness of financial controls, but also compliance controls;
  • Monitoring what types of conduct third-party agents are engaged in; and
  • Conducting due diligence on third-party agents and making sure those relationships are governed by written contracts, and that expectations are clearly communicated.
  • Training, formal or informal communications from senior leadership regarding their expectations for behavior, not just of employees but of third-party agents.

German Court Rules That Commercial Bribery Does Not Exist If Person is Sole Shareholder

Ready for a mind-bender? In an interesting and recently published decision, the district court in Frankfurt Germany ruled that bribing the managing director (MD) of a limited liability company is not a criminal offense under Section 299 German Criminal Code, if the managing director is also the sole shareholder of the company. Two sales reps had offered a MD and sole shareholder of a company EUR 10K and EUR 20K as an incentive to buy a printer. The Frankfurt court refused to open trial against the 2 sales reps, stating they cannot be held liable for bribing the MD as Section 299 of the German Criminal Code was not applicable. The district court recently agreed. Why? Because Section 299 paragraph 1 German Criminal Code on commercial bribery prohibits that employees or agents of a business to accept an improper benefit for themselves or another in a business transaction as consideration for according an unfair preference to another in the competitive purchase of goods or commercial services. Section 299 paragraph 2 applies to anyone offering, promising or granting such an improper benefit to employees or agents of a business.

It’s the common opinion amongst German courts that the MD of a company is an “agent” relative to section 299, so offering the MD an improper benefit could be regarded as commercial bribery. But, is the MD of a company an “agent”, even if he is, at the same time, the sole shareholder of the company? According to the prevailing opinion in Germany, one cannot bribe the (sole) owner of a company because the law requires a “principal-agent-relationship” between the recipient of the bribe and the company. One could argue that there is no “principal-agent-relationship” between the MD /sole shareholder and his company. The district court concluded that as the MD /sole shareholder he does not qualify as agent and thus, cannot be bribed. My head hurts.

Today, In Money Laundering

I don’t always include money laundering stories in our anti-corruption digests, but these two were too noteworthy to pass up.

Deutsche Bank Investigating $6B Suspected Money Laundering

Deutsche Bank is looking into possible money laundering transactions by some of its clients in Russia which could exceed $6B. Deutsche Bank’s investigation, in its initial stages, is looking at transactions conducted over a period of years. Deutsche Bank repeated a statement from May 20, saying it had suspended a small number of traders in Moscow and was conducting an internal review, but gave no details of the reason for the suspension. “The misconduct was on the part of the client. The bank got used. The internal probe will try to determine how the bank got used,” a source said. Launderers used ‘relatively simple transactions’ conducted in different locations using the dollar and ruble currencies, a source said.

The European Central Bank, German regulator BaFin as well as the FCA and DFS have been informed about the internal investigation. The report came as Deutsche Bank strains to put a raft of legal and regulatory problems entailing billions of dollars in fines and settlements behind it and focus on delivering a new strategy that will satisfy shareholders. Germany’s Manager Magazin cited people familiar with the matter as saying that Deutsche Bank was investigating whether its employees in Moscow may have helped launder at least a triple-digit million-euro amount of money through the purchase and sale of over-the-counter derivatives in Moscow and London.

FinCEN Fines Casino $75M for ‘Egregious’ Anti-Money Laundering Offenses

Financial Crimes Enforcement Network (FinCEN) fined a Northern Mariana Islands casino $75M “for willful and egregious violations of the Bank Secrecy Act (BSA).” The Tinian Dynasty Hotel & Casino, had no anti-money laundering program. You read that correctly… and it has been operating that way since 1998. “No member of Tinian Dynasty staff was delegated responsibility for day-to-day compliance with the BSA,” FinCEN said. The casino also had no procedures designed to detect suspicious transactions or any system to independently test compliance. “Further, casino personnel were not trained in BSA recordkeeping requirements or in identifying, monitoring, and reporting suspicious activity,” according to FinCEN. The Northern Mariana Islands in the north-west Pacific Ocean are part of a territory of the US that includes Guam. During a 2013 search of the casino, law enforcement agents discovered a stack of more than 2,000 unfiled Currency Transaction Reports. “When asked about these CTRs,” FinCEN said, “the casino’s chief auditor said that he assumed that filing them was a low priority because nobody ever noticed that they were not being filed.” “Tinian Dynasty didn’t just fail to file a few reports,” FinCEN director Jennifer Shasky Calvery said. “The casino operated for years without an AML program in place.”

Compliance Meme

Source: Compliance Week’s Daily Compliance Meme on Twitter

About the Author

Pia Adolphsen, Associate Manager of Marketing Content Strategy. Pia leads content strategy at The Network. Previously, she led client advocacy and marketing initiatives in the competitive intelligence industry. She is strongly in favor of lattes, 1.0mm pens, and her Georgia Bulldogs. Connect with Pia on LinkedIn

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