Last month, attorneys from around the world descended upon Buenos Aires to tango with criminal justice and anti-corruption experts at the International Bar Association’s 22nd Annual Transnational Crime Conference.  Conference highlights included remarks from distinguished members of the Argentine government, including the Minister of Justice and Human Rights, President of the Financial Information Unit, and Supreme Court President.  These officials focused their comments on criminal justice reforms in Argentina, the role of regulators and the judiciary in establishing and inspiring confidence in the rule of law, and the hope that such efforts would improve Argentina’s reputation in the global fight against graft and corruption.

Panelists and attendees also discussed similar efforts across the globe, cross-border cooperation, and collateral issues to consider when representing clients subject to international anti-corruption inquiries or enforcement actions. Of note were discussions regarding the following:

Evolving Mechanisms for Detecting and Penalizing Corruption  

  1. Increased use of money laundering statutes and administrative remedies.

Although most anti-corruption laws around the world criminalize the payment of bribes to government officials, the receipt of bribes (passive bribery) is conspicuously absent from laws like the U.S. Foreign Corrupt Practices Act (“FCPA”).  As a result, beneficiaries of bribes have traditionally escaped FCPA liability.  However, panelists noted, recent years have seen an increase in anti-money laundering prosecutions and civil administrative actions targeting profits from corrupt dealings that otherwise fall outside the reach of traditional anti-bribery paradigms.  Using money laundering statutes, U.S. prosecutors were able to prosecute officials working for Venezuela’s state-owned energy company, Petroleos de Venezuela, S.A., who accepted bribes from several U.S. executives (themselves prosecuted under the FCPA).

Panelists noted that more than €2 billion in anti-money laundering fines were assessed globally in 2018 alone, calling banks not yet penalized for money laundering issues “the exception and not the norm.”  Another new norm is the decoupling of predicate offenses (i.e., conduct generating illegal proceeds) from allegations that such proceeds were in fact “laundered,” allowing prosecutors to bring intentional and negligent money laundering cases.  Panelists also warned that lawyers were being targeted more than ever as negligent money launderers, based on the sources of client payments.
Continue Reading Highlights from Transnational Crime Conference: Expanding Anti-Corruption Enforcement & Cross-Border Cooperation

The U.S. Supreme Court recently handed down a win for the SEC and private securities litigants, significantly broadening the scope of primary liability under Rule 10b-(5).  In Lorenzo v. SEC, the Court held that liability under Rules 10b-5(a) and (c)—which make it unlawful to employ a scheme to defraud or engage in any practice that operates as a fraud—is not limited only to those who make false or misleading statements as contemplated under sister-section Rule 10b-(5)(b), but may also extend to those who disseminate such statements made by others knowing they are false or misleading.

Background

This case arose from an SEC enforcement action brought against Francis Lorenzo, Director of Investment Banking for a New York broker-dealer.  The SEC alleged that, in connection with a $15 million debt offering, Lorenzo sent emails to prospective investors that significantly overstated the value of the investment.  It was undisputed that the emails were sent at the direction of Lorenzo’s boss, who supplied all the content and “approved” the messages.  It was also undisputed that Lorenzo knew that statements regarding the value of the investment were false or misleading.

The SEC concluded that, by knowingly sending false statements from his email account, Lorenzo directly violated SEC Rule 10b–5 and related provisions of the securities law, including Sections 10(b) of the Exchange Act of 1934 and Section 17(a)(1) of the Securities Act of 1933.  Rule 10b-5 makes it unlawful to: (a) employ a device, scheme, or artifice to defraud, (b) make an untrue statement of a material fact, or (c) engage in an act, practice, or course of business which does or would operate as a fraud or deceit in connection with the purchase or sale of securities.

Lorenzo appealed, contending he had no liability under Rule 10b–5 because under the Supreme Court’s ruling in Janus Capital Group, Inc. v. First Derivative Traders, liability for false statements was limited only to the “makers” of those statements as contemplated by Rule 10b–5(b), defined only as those with “ultimate authority” over the statements’ content and communication.  One who simply prepares or publishes a statement on behalf of another, as Lorenzo saw his role, fell outside of the scope of primary liability under Janus.  The D.C. Circuit agreed that since Lorenzo’s boss directed him to send the emails, supplied their content, and approved them for distribution, Lorenzo did not “make” the statements, and thus could not be held primarily liable for a Rule 10b-5(b) violation. But, the D.C. Circuit sustained the SEC’s finding of primary liability under Rules 10b-5(a) and (c) for knowingly disseminating statements he knew to be false, even though he did not “make” the statements himself.

The Supreme Court’s Ruling

On appeal to the Supreme Court, Lorenzo advanced two main theories, both of which the Supreme Court flatly rejected.
Continue Reading Forward at Your Own Risk – U.S. Supreme Court Expands the Scope of Rule 10(b)-5 Liability

As Mexico works towards implementing its new National Anti-Corruption System, the largest foreign bribery case in history, arising out of Brazil, serves to highlight historic weaknesses in Mexican anti-corruption efforts and just how necessary the National Anti-Corruption System will be to help combat corruption in Mexico.

The Odebrecht and Braskem Plea Agreement

In December 2016, Brazilian construction conglomerate Odebrecht S.A. (“Odebrecht”) (along with Brazilian petrochemical company, Braskem S.A. (“Braskem”)) pleaded guilty to making hundreds of millions of dollars in corrupt payments to government officials in order to secure business, preferential tax treatment, and other commercial benefits. The companies agreed to pay a combined total penalty of $3.5 billion to resolve charges with authorities in the United States, Brazil, and Switzerland, but admitted that their conduct spanned numerous countries throughout Latin America and the world, including Angola, Argentina, Brazil, Colombia, the Dominican Republic, Ecuador, Guatemala, Mexico, Mozambique, Panama, Peru, and Venezuela. With respect to Mexico, Odebrecht admitted to paying approximately $10.5 million in bribes to Mexican government officials in exchange for public works contracts between 2010 and 2014, and realizing over $39 million in benefits as a result. According to public records, all of Odebrecht’s public works projects in Mexico during that time were commissioned by state-owned oil company Petróleos Mexicanos (“Pemex”).
Continue Reading Investigation into Odebrecht Bribes in Mexico Highlights Need For Prompt Implementation of New National Anti-Corruption System

President Donald Trump’s nominee for chairman of the U.S. Securities and Exchange Commission, Jay Clayton, testified before the Senate Banking Committee during his confirmation hearing on March 23, 2017.  In this two-part series, we recap the highlights of Clayton’s testimony regarding potential enforcement priorities and policy changes.

READ PART ONE HERE

Mexico’s new anti-corruption system, which was signed into law by President Enrique Peña Nieto on July 18, 2016, builds on constitutional reforms passed in May 2015 and is designed to increase oversight of public officials to deter corruption at all levels of the Mexican government. The laws establish new responsibilities and stricter penalties applicable to public servants and all private parties (domestic and foreign) doing business in Mexico, and for the first time in Mexican legal history, applies to companies and the officers, directors, and employees acting on their behalf.  Coupled with last week’s unsealing of U.S. Department of Justice (DOJ) charges against six individuals who pleaded guilty in an aviation bribery scheme—including two Mexican public officials—Mexican government officials and corporate actors appear to be situated squarely within the enforcement cross-hairs of both U.S. and Mexican anti-corruption authorities as 2017 begins.
Continue Reading Anti-Corruption Scrutiny in Mexico Expands

The Securities and Exchange Commission (SEC) recently announced an administrative settlement with Apex Fund Services (US) Inc., a firm providing administrative services to private funds, based on its alleged failure to heed red flags and correct faulty accounting by two private equity managers.

The SEC alleged that, in carrying out its contractual fund administration functions,

In late 2015 and early 2016, Central American countries such as Panama, Guatemala, and Honduras have seen a sharp rise in anti-corruption sentiment, and in turn, investigation and enforcement. In these and other Central American countries, public outrage over alleged graft, bribery, and abuses of power at the highest levels of government has all but forced control of and accountability for corruption to the forefront of national agendas, and by all indications, the news and attention that anti-corruption issues have received in Central America will remain high for the foreseeable future.

In Panama, for instance, former President Ricardo Martinelli was accused of inflating contracts worth $45 million to purchase dehydrated food for a government social program, using public funds to run an illegal political espionage ring, and accepting kickbacks from foreign military contractors. After the allegations surfaced, Panamanian labor union members marched on the presidential palace in Panama City, the Panamanian Electoral Tribunal stripped Martinelli of his constitutional immunity, and the Panamanian Supreme Court appointed a special prosecutor to investigate the allegations. Although Martinelli fled the country shortly after the allegations surfaced, he now faces charges related to the political espionage allegations.
Continue Reading Anti-Corruption Efforts Taking Center Stage in Central America

Given the prevalence of corruption and graft issues in
various Latin American countries , it may come as a surpriselegal document
to some that many of Latin America’s most notoriously “corrupt”
countries have actually enacted fairly extensive anti-corruption
laws in recent years, even as compared to the U.S. Foreign Corrupt Practices Act (“FCPA”).

For instance, the Federal Law against Corruption for Public Procurement (Ley Federal Anticorrupción en Contrataciones Publicas), which went into effect in Mexico in June 2012, prohibits the payment and the acceptance of bribes for the purpose of obtaining unfair benefits or advantages in connection with public and commercial contracts, and outlaws the use of “facilitation” payments of any kind. Similarly, the Brazilian Clean Companies Act (Law no. 12.846/2013), which officially took effect on January 29, 2014, applies a strict liability standard against companies for acts of corruption (including foreign and domestic bribery) performed for their benefit, and gives the government authority to seize a company’s assets or preclude it from winning future contracts. Colombia also enacted an anti-corruption law (Law No. 1474 of 2011) with both anti-bribery and books and records provisions applicable to governmental officials and private persons in 2011, and launched the world’s first “High Level Reporting Mechanism” (“HLRM”) in April 2013 to address the demand-side of corruption in public procurement.

Despite these developments, the perception of corruption in Latin America has remained relatively constant. Experts posit that this stagnation arises not from a shortage of anti-corruption legislation at authorities’ disposal, but rather, from the overall reluctance of many Latin American countries to enforce anti-corruption laws that do exist. Indeed, the Organization for Economic Co-operation and Development (“OECD”) expressed concern for the “still low level of enforcement of foreign bribery in Brazil” following implementation of the Clean Companies Act, and similar observations have been made regarding the Federal Law against Corruption for Public Procurement in Mexico.
Continue Reading Will New Anti-Corruption Legislation Lead to Stronger Enforcement Activity in Latin America?