On April 14, 2020, the U.S. Department of Justice made a long-awaited move towards enhanced transparency into the corporate compliance monitorship selection process in launching a new webpage that lists the names of all independent compliance monitors for the Fraud Section’s thirteen active monitorships. Seven of the active monitorships are associated with the FCPA Unit,
American Indian Tribes and “Foreign Officials” Under the FCPA
One of the many challenges companies face when assessing their Foreign Corrupt Practices Act (“FCPA”) liability is determining whether a potential business partner constitutes a “foreign government official” under the FCPA. From a definitional perspective, the FCPA is far from a model of clarity on this point. See 15 U.S.C. § 78dd-2(h)(2)(A).
By way of example, consider the compliance sandbars companies must circumnavigate to determine whether (and when) providing something of value to “traditional authorities” (including First Nations, Métis and Inuit peoples) could impose FCPA liability. This question often arises when U.S.-based companies are asked to make donations to American Indian tribes with whom they interact, or to do favors for individual members of a tribe. For instance, a tribal elder may ask that a company doing business with the tribe employ a certain tribal member, or provide an internship to the chief’s son, etc. Under such circumstances, companies might find themselves evaluating the contemplated transaction through the amorphic lens of the FCPA.
Understanding the Definitional Challenge
Going back to basics, the FCPA’s anti-bribery provisions define a “foreign official” as:
[A]ny officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization. 15 U.S.C. § 78dd-2(h)(2)(A).
Do American Indian tribes fit under this definition? While there is little guidance on this analysis outside the United States (see this helpful article by my colleagues on that issue), there is even less in the context of American Indian tribes, even though they possess much-discussed “sovereign status” in the United States. This is both surprising and concerning.
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Highlights from Transnational Crime Conference: Expanding Anti-Corruption Enforcement & Cross-Border Cooperation
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
- 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.
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Revisiting Agency Liability Under the FCPA Post-Hoskins
In United States v. Hoskins, 902 F.3d 69 (2d Cir. 2018) the Second Circuit held that a non-resident foreign national cannot be criminally liable for aiding and abetting or conspiring to violate the FCPA unless the government can establish that such an individual acted as an agent of one of the categories of persons subject to liability as a principal.
Background
The DOJ charged Lawrence Hoskins, a British national and former Alstom UK executive based in Paris, with FCPA and money-laundering violations. The government alleged that Hoskins had approved payments to consultants that were funneled to Indonesian officials to secure a $118 million infrastructure contract with a state-owned power company. Hoskins was never physically present in the U.S., but he called and emailed alleged conspirators who themselves were present in the U.S., and Hoskins authorized payments from Alstom S.A. to the consultants, one of whom had a Maryland bank account.
Hoskins moved to dismiss charges alleging indirect FCPA violations—i.e., that he aided and abetted or conspired to violate the FCPA—arguing that he did not fall within the narrowly-circumscribed group of people for whom the FCPA prescribes liability: American companies, citizens, and their employees and agents, as well as foreign persons acting on American soil. The lower court agreed with Hoskins and dismissed Count I of the indictment. On appeal, the question for the Second Circuit was whether Hoskins could be charged as either a conspirator or an accomplice to the asserted FCPA violations, despite not falling within the categories of persons subject to liability as a principal. The Second Circuit concluded that the statute’s text, combined with its legislative history and the presumption against extraterritoriality, compelled the conclusion that foreign nationals who act abroad and lack a direct connection to one of the categories of persons subject to principal FCPA liability cannot be liable as accomplices or conspirators.
Agency Liability Post-Hoskins
Hoskins creates some uncertainty regarding FCPA prosecutions of individuals or entities who could not be charged as principals. The decision creates a stronger jurisdictional defense for companies that are subject to DOJ or SEC actions solely based on their business association with a U.S. concern. Under the Second Circuit opinion, it will take more than mere conspiracy or assistance to bring such entities within the scope of liability.
It is also likely that investigators will put more emphasis on developing evidence of agency relationships between principal violators and entities otherwise unreachable under Hoskins. Indeed, the court in Hoskins held that the government could present agency evidence and pursue Hoskins as an agent of, for example, Alstom S.A.’s U.S.-based subsidiary. Prosecutors may also attempt to broaden the traditional definitions of agency under the FCPA, particularly as agency theory becomes a critical link to reach now unreachable defendants.
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SEC’s Polycom FCPA Settlement Leaves Unanswered Questions
On December 26, 2018, the Securities and Exchange Commission (“SEC”) announced a settlement with communications technology firm Polycom, Inc. (“Polycom” or the “Company”) for violating the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (“FCPA”) in connection with a scheme to bribe Chinese government officials. Under the settlement, Polycom agreed to pay the SEC approximately $12.5 million in disgorgement and prejudgment interest and a civil money penalty of $3.8 million. The Polycom settlement illustrates the liability that can arise from reliance on third-party agents such as distributors, but—as explored below—also presents a missed opportunity for the SEC to provide some clarifying guidance for companies looking to avoid similar outcomes.
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Monitoring the Monitors: DOJ Ordered to Disclose Info on Monitor Selections
Last month, a D.C. federal judge ordered the Department of Justice to turn over the names of prospective monitors nominated to oversee the corporate compliance programs of fifteen companies found to be in violation of the Foreign Corrupt Practices Act (FCPA). While recognizing that these individuals have “more than a de minimis privacy interest in their anonymity,” the court found that any such privacy interest was outweighed by the public’s interest in learning their identities.
In April 2015, journalist Dylan Tokar filed a FOIA request seeking records related to the review and selection of corporate compliance monitors in FCPA settlement agreements between DOJ and fifteen corporate defendants. Tokar, a reporter for the trade publication Just Anti-Corruption, hoped these records would shed light on the monitor selection process, including whether DOJ had been abiding by the guidelines for monitor selection set forth in its 2008 Morford Memorandum. The Memorandum, which establishes several principles to avoid potential and actual conflicts of interest and address concerns of cronyism, prescribes the consideration of “at least three qualified monitor candidates” whenever practicable. Accordingly, Tokar requested the names of the three monitor candidates and their associated firms for fifteen cases.
More than eighteen months later, DOJ provided Tokar with a table purportedly responding to his request, but redacted the names of the monitor candidates who were nominated but not selected, as well as their affiliated firms in some cases. DOJ asserted that these redactions were necessary and justified under FOIA Exemptions 6 and 7(C), which exempt from disclosure certain information that would constitute an “unwarranted invasion of personal privacy.”
After both parties cross-moved for summary judgment, the court concluded that the redactions were improper and ordered DOJ to release the candidates’ names. It found that while DOJ had demonstrated sufficient privacy interests to warrant coverage under Exemptions 6 and 7(C)—as it was “plausible that these individuals would prefer to have their consideration and ultimate[] non-selection withheld from the public’s view”—these interests were outweighed by the public’s interest in disclosure. The court agreed with Tokar that without disclosure of the candidates’ names, it would be “difficult (if not impossible) to know whether either the government or the corporate entity under investigation is taking advantage of the selection process in a manner that undermines the objectives of the DPA” and the principles delineated in the Morford Memorandum.
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DOJ’s FCPA Policy Puts Companies on Notice Regarding Electronic Communications
As cybersecurity concerns move more companies to batten down employee use of external email accounts and other websites through blocking software and other measures, the DOJ’s recently issued FCPA Corporate Enforcement Policy—now incorporated in the U.S. Attorneys’ Manual—unequivocally states that companies seeking full cooperation credit from DOJ in FCPA cases must ensure that employees are prohibited “from using software that generates but does not appropriately retain business records or communications,” among other business-record retention measures. Even setting aside the difficulties in policing “old” technology such as personal email accounts and text messaging on employee-owned devices, the constant evolution and emergence of new electronic messaging platforms will undoubtedly create significant challenges for companies seeking to satisfy DOJ’s expectations.
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DOJ Highlights Disclosure Incentives Under New FCPA Enforcement Policy
The DOJ recently took another step to encourage corporate self-disclosure for FCPA violations through the announcement of a new FCPA Enforcement Policy based on the eighteen month FCPA Pilot Program. The DOJ’s Pilot Program proved to be successful—the FCPA Unit received over 30 voluntary disclosures in the 18-month period the Pilot was in place—compared to only 18 voluntary disclosures in the previous 18-month period, according to Deputy Attorney General Rosenstein. The new Enforcement Policy contains many of the same incentives as the Pilot Program, with a few added benefits to sweeten the deal for corporations hoping to avoid hefty FCPA fines.
Presumption of Declination. Building on the cooperation credit offered under the Pilot Program—and barring aggravating circumstances—corporations will receive a presumption that the DOJ will resolve the case through a declination if they 1) voluntarily self-disclose; 2) fully cooperate; and 3) timely and appropriately remediate. The Enforcement Policy delineates the DOJ’s expectations as to each of these requirements, many of which track the Pilot Program. Evaluation of compliance programs, for example, will vary depending on the size and resources of a business and includes factors such as fostering a culture of compliance; dedicating sufficient resources to compliance activities; and ensuring that experienced compliance personnel have appropriate access to management and to the board.
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U.K. Court Orders Disclosure of Internal Investigation Documents to Criminal Prosecutors
In a controversial ruling, London’s High Court has held that interview notes and other documents created by outside legal counsel and forensic accountants as part of an internal investigation into foreign bribery allegations are not protected by the legal professional privilege. While the appeals process is already underway, the May 8th decision by the Honourable Mrs Justice Andrews is a noteworthy victory for the U.K.’s Serious Fraud Office (SFO), an agency akin to the U.S. Department of Justice (DOJ).
Eurasian Natural Resources Corporation (ENRC), the U.K. division of a multinational mining conglomerate operating in the Middle East and Africa, is the subject of an ongoing SFO criminal investigation. At times, ENRC appears to have been in a cooperation posture with the SFO; but earlier this year, the SFO filed a petition seeking to force ENRC to produce documents the company claimed were privileged. The London High Court agreed with the SFO, ruling that almost all of the documents at issue were not privileged and should be disclosed to the SFO.
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Investigation into Odebrecht Bribes in Mexico Highlights Need For Prompt Implementation of New National Anti-Corruption System
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”).
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