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April 17, 2017

Top Ten International Anti-Corruption Developments for December 2014


Top Ten International Anti-Corruption Developments for December 2014

In order to provide an overview for busy in-house counsel and compliance professionals, we summarize below some of the most important international anti-corruption developments in the past month with links to primary resources. December has traditionally been a busy month for the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) as they attempt to wrap up Foreign Corrupt Practices Act (FCPA) cases. This year was no exception with multiple blockbuster corporate resolutions closing in on nearly $1 billion in penalties and disgorgement combined with a series of guilty pleas from former executives. Not to be outdone, enforcement agencies around the world also announced major cases and developments. Here is our December 2014 Top Ten list:

1. Alstom SA Pleads Guilty and Agrees to a $772 Million Fine. In a press release on December 22, 2014, DOJ announced that Alstom pleaded guilty to a two-count criminal information, which charged the company with FCPA violations arising from the bribery of officials in Indonesia, Saudi Arabia, Egypt, and the Bahamas. The enforcement action involved a guilty plea by Alstom, which was a publicly traded company until 2004, to violating the accounting provisions of the FCPA and another guilty plea by Alstom’s Swiss subsidiary to violating FCPA’s anti-bribery provisions. The enforcement action included two separate three-year Deferred Prosecution Agreements (DPAs) for two U.S. subsidiaries of Alstom. In announcing the resolution, DOJ said Alstom paid more than $75 million in bribes from 2000 to 2011 to secure $4 billion in contracts, which resulted in profits of approximately $300 million. As a result, Alstom will pay a criminal fine of $772 million to resolve the charges. This penalty is the biggest criminal fine ever levied for FCPA offenses and the second biggest FCPA enforcement action overall, just behind the $800 million fine and disgorgement in the Siemens case almost exactly six years ago. The addition of Paris-based Alstom means three of the top ten biggest FCPA cases now involve French companies.

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$135 million. The Justice Department’s release did highlight Avon’s cooperation with DOJ, which
included conducting an extensive internal investigation, voluntarily making U.S. and foreign
employees available for interviews, and collecting, analyzing, translating, and organizing
voluminous evidence. Avon Products, Inc. issued this release in connection with the agreements.
One aspect of the Avon matter not mentioned in the resolution documents was the substantial
cost of the internal investigation, which by last year was reported to have exceeded $300 million.
• Dallas Airmotive Inc. Enters $14 Million DPA with DOJ for FCPA Violations in Latin
America. On December 10, 2014, DOJ announced that Dallas Airmotive agreed to pay a $14
million penalty related to FCPA violations. Dallas Airmotive, a privately held company, provides
aircraft engine maintenance, repair, and overhaul services. The company, based in Grapevine,
Texas, admitted to FCPA anti-bribery violations in connection with bribes paid to Latin American
government officials in order to secure lucrative government contracts. A criminal information
was filed in federal court as part of a three-year DPA. The charges allege that between 2008 and
2013 Dallas Airmotive bribed officials of the Brazilian Air Force, the Peruvian Air Force, the Office
of the Governor of the Brazilian State of Roraima, and the Office of the Governor of the San Juan
Province in Argentina. DOJ alleged that Dallas Airmotive used a variety of methods to pay the
bribes, which included entering into agreements with front companies tied to foreign officials,
making payments to third parties, and directly providing gifts to officials.
• Bruker Pays $2.4 Million to Settle SEC FCPA Charges. On December 15, 2014, SEC charged
Bruker Corporation with violating the FCPA’s accounting provisions by providing improper
payments and non-business related travel to Chinese government officials responsible for buying
the company’s products. Bruker, a publicly traded Massachusetts-based scientific instruments
company, self-reported the misconduct and provided cooperation during SEC’s investigation.
According to SEC, Bruker made about $1.7 million in profits from bribe-tainted contracts with
state-owned enterprises. Kara Brockmeyer, Chief of SEC’s FCPA Unit, stated in the release:
“Bruker’s lax internal controls allowed employees in its China offices to enter into sham
‘collaboration agreements’ to direct money to foreign officials and send officials on sightseeing
trips around the world. The company has since taken significant remedial steps to revise its
compliance program and enhance internal controls over travel and contract approvals.” Bruker
paid $2.4 million to settle the charges, including disgorgement and prejudgment interest, as well
as a $375,000 penalty. When determining the settlement, the SEC “considered the remedial acts
promptly undertaken by Bruker and the significant cooperation it afforded to the Commission
staff.” The full administrative order can be found here. No DOJ action was announced.
3. Three Defendants in FCPA-Related Cases Plead Guilty:
• Asem Elgawhary Pleads Guilty in Overseas Corruption Case. On December 4, 2014, Asem
Elgawhary, the former Principal Vice President of Bechtel Corporation and General Manager of
the Power Generation Engineering and Services Company, pleaded guilty to mail fraud, money
laundering, and tax-related charges in connection with a $5.2 million kickback scheme intended

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to manipulate the bidding process for state-run power contracts in Egypt. In his plea, Mr.
Elgawhary admitted to accepting a total of $5.2 million from three power companies, including
kickbacks from Alstom, which were separately referenced in the matter against Alstom. The
kickbacks were paid by the companies to secure inside information on the bidding process, and
resulted in a competitive and unfair advantage. The power companies and their consultants paid
more than $5 million into various off-shore bank accounts under the control of Mr. Elgawhary, a
portion of which he used to purchase a house for $1.6 million in cash. He is scheduled to be
sentenced in March 2015.
• Two Former Broker-Dealer Executives Plead Guilty. On December 17, 2014, the former chief
executive officer and an ex-managing director of U.S. broker-dealer Direct Access Partners LLC
pleaded guilty to bribing an official of a state-owned Venezuelan bank in exchange for bond
trading business. Benito Chinea and Joseph De Meneses admitted to bribing Maria De Los
Angeles Gonzalez De Hernandez, a former senior official in Venezuela’s state economic
development bank, BANDES. After receiving at least $5 million in bribes from 2008-2010, Ms.
Gonzalez directed work to Direct Access generating more than $60 million in commissions.
Messrs. Chinea and De Meneses entered their pleas before Judge Denise Cote in the Southern
District of New York. Each pleaded guilty to one count of conspiracy to violate the FCPA and the
Travel Act. Messrs. Chinea and De Meneses have also agreed to pay $3.6 million and $2.7
million in forfeiture, respectively, which amounts represented their earnings from the bribery
scheme. Messrs. Chinea and De Meneses were the fifth and sixth defendants to plead guilty in
the matter. Sentencing is scheduled for March 27, 2015.
4. Battles Continue in Pending FCPA Cases in Connecticut and New Jersey. While three FCPA-
related defendants may have pleaded guilty in December, two defendants continue to contest their
charges, and both cases should be followed closely.
• District Court Denies Former Alstom Executive’s Motion to Dismiss. On December 29,
2014,1 in United States v. Hoskins, the Honorable Janet Bond Arterton denied the defendant’s
Motion to dismiss, which contained the following arguments: (1) a statute of limitations and
withdrawal defense; (2) an argument based on the statutory interpretation of the meaning of the
term “agent” in the FCPA; (3) a claim that the FCPA was unconstitutionally vague as applied to
the defendant; (4) the lack of extraterritoriality under the FCPA to non-U.S. citizens; and (5) an
argument that there was no venue for the money laundering charges in Connecticut. In rejecting
the defendant’s motion to dismiss, however, the district court left open a number of the
defendant’s challenges until the evidentiary record is developed at trial. If the case proceeds to
trial, which is scheduled for June 2, 2015, these issues will likely be re-raised at the close of the
government’s case-in-chief.
1 Ruling on Defendant’s Motion to Dismiss the Indictment, United States v. Hoskins, No. 3:12CR238 JBA, 2014 WL 7385131 (D. Conn. Dec.
29, 2014).

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• Judge Rejects and Defers Arguments by Former PetroTiger Co-CEO. On December 30,
2014, the Honorable Joseph E. Irenas heard arguments on five motions in United States v.
Sigelman case: the defendant’s motion to suppress (and accompanying motion to seal
documents filed in support of the suppression motion), motion to dismiss FCPA charges, motion
to dismiss the honest services charges, and motion to strike surplusage from the indictment. The
court denied four of the five motions and deferred its ruling on the motion to dismiss the honest
services charges.2 Trial is currently set for April 20, 2015.
5. Foreign Bribery Enforcement Abroad:
• Brazil Charges Thirty-Six in Connection with Petrobras Corruption Scandal. On December
11, 2014, Brazilian prosecutors filed criminal charges against 36 people for their alleged
involvement in a kickback scheme at Brazil’s largest company, Petrobras, a majority state-owned
oil company. Twenty-three executives from Brazil’s biggest construction companies were among
those charged. The companies involved in the scandal include: Camargo Corrêa SA, Engevix,
Galvão Engenharia, Mendes Júnior, OAS, and UTC Engenharia S.A. According to reports, the
scheme potentially involves millions in bribes and numerous politicians. The main informant in
the case has also alleged that President Dilma Rousseff knew of the scheme and purportedly
allowed her political party to benefit from it. The charges filed against the individuals include
corruption, money laundering, and organized crime. This is definitely a case to watch and
certainly highlights Brazil’s increasing anti-corruption efforts.
• UK Printing Company and Two Employees Convicted After Trial in London. On December
22, 2014, the Serious Fraud Office (SFO) announced that, following a trial at Southwark Crown
Court, Smith & Ouzman and two of its employees, Christopher John Smith (chairman) and
Nicholas Charles Smith (sales and marketing director), were convicted of making £395,074 in
corrupt payments to officials in Kenya and Mauritania to win contracts. Two other employees
were acquitted. Sentencing is set for February 12, 2015. This marks the second conviction at
trial for the SFO in 2014 following the convictions of two former Innospec executives in June.
These two trial victories are no doubt good news to Director David Green CB QC in the wake of
the SFO’s case collapsing at trial against Victor Dahdaleh a year ago.
• Rheinmetall AG Reaches $46 Million Settlement with German Prosecutors. On December
10, 2014, Rheinmetall AG, a German-based auto parts maker and defense contractor released a
statement that one of its subsidiaries, Rheinmetall Defense Electronics (RDE), reached a $46
million settlement with German prosecutors to resolve allegations of bribery related to arms sales
in Greece. RDE was accused of failing to detect and prevent suspicious payments to sales
partners due to inadequate internal controls. Rheinmetall AG has approximately 21,000
employees and is headquartered in Düsseldorf.
2 Order Denying Defendant’s Motion to Suppress, Motion to Seal, Motion to Dismiss FCPA Charges, and Motion to Strike Suplassage [sic]
from the Indictment, United States v. Sigelman, Crim. No. 14-263 (D.N.J. Dec. 30, 2014), ECF No. 135.

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• Aberdeen-Based Company Pays £172,200 to Scotland’s Prosecution Service for Corrupt
Conduct in Kazakhstan. On December 17, 2014, Scotland’s Prosecution Service announced
that its Civil Recovery Unit recovered £172,200 from International Tubular Services Limited (ITS),
an Aberdeen-based oil and gas company. ITS admitted that “it had benefited from corrupt
payments made by a former Kazakhstan-based employee to secure additional contractual work
from a customer in Kazakhstan.” In announcing the matter, the Prosecution Service remarked
that “[t]he bribery and corruption was discovered when the company was being sold,” highlighting
once again the need for appropriate anti-corruption due diligence as part of M&A transactions.
6. Transparency International Releases its Corruption Perceptions Index for 2014. On December 3,
2014, Transparency International launched its 20th Annual Corruption Perceptions Index (CPI) for 2014.
The Index draws on 12 surveys covering expert assessments and views of business people, and ranks
175 countries/territories by their perceived levels of public sector corruption from 0 (very corrupt) to 100
(very clean). Highlights from the 2014 Index include the fact that China (with a score of 36), Turkey (45),
and Angola (19) saw the biggest decline, with a drop of 4 or 5 points despite average economic growth of
more than 4% over the last four years. Also noteworthy was Denmark’s top performance in 2014 with a
score of 92. North Korea and Somalia shared last place, both scoring 8.
7. OECD Releases Report on Foreign Bribery. On December 2, 2014, the Organization for Economic
Cooperation and Development (OECD) released its first-ever global analysis of crime and bribery of
foreign officials and on December 10, 2014, the OECD, in conjunction with the World Bank and the
International Bar Association, hosted a forum discussing it in depth. The Report measures the crime of
transnational corruption based on analysis of data emerging from foreign bribery enforcement actions
concluded since the establishment of the OECD Anti-Bribery Convention in 1999. In total, 427
transnational bribery cases were reviewed. A few of the key takeaways from the report include:
• Intermediaries were involved in 3 out of 4 foreign bribery cases.
• Almost two-thirds of cases occurred in four sectors: mining (19%); construction (15%);
transportation and storage (15%); and information and communications (10%).
• In most cases (57%), bribes were paid to win public procurement contracts, followed by clearance
of customs (6%) and attempts to gain preferential tax treatment (6%).
• In 41% of cases, management-level employees paid or authorized the bribe, whereas chief
executives were involved in 12% of cases.
• Nearly 70% of the cases studied were settled, often involving a civil or criminal fine.
According to the Report, governments around the world should strengthen sanctions, make settlements public,
and reinforce protection of whistleblowers as part of greater efforts to tackle bribery and corruption. The
overwhelming use of intermediaries also demonstrates the need for more effective due diligence and oversight of
corporate compliance programs. While the data has a number of limits and the observations will be critiqued in
the months to come, the Report was an excellent first step in analyzing enforcement data across countries.

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8. Pemex Sues Hewlett-Packard and its Mexican Subsidiary. On December 2, 2014, Petróleos
Mexicanos (Pemex) filed a civil RICO lawsuit in the wake of HP’s $108 million FCPA resolution with DOJ
and SEC earlier this year. Pemex is Mexico’s state-owned oil and gas company, and the allegations from
HP’s FCPA resolution earlier this year alleged improper conduct involving Pemex officials. Pemex now
seeks damages arising from the allegedly corrupt contracts. Pemex’s lawyers allege that HP’s faulty
internal controls enabled the bribes and corruption, which purportedly routed approximately $6 million in
business to HP. Pemex is seeking disgorgement or restitution and treble damages under the RICO
statute, as well as injunctions to bar future FCPA violations by HP and force the company to investigate
whether any other contracts were granted as a result of corruption. This most recent case highlights the
risks of civil actions following in the wake of FCPA resolutions with government enforcement agencies.
9. The World Bank Hosted the Third Biennial Meeting of the International Corruption Hunters
Alliance (ICHA). On December 8-10, 2014, the World Bank hosted the ICHA 2014 at its headquarters in
Washington, D.C. As part of his work as President of United for Wildlife, Prince William, the Duke of
Cambridge, joined the World Bank Group President, Jim Yong Kim at the opening session. Prince
William addressed more than 300 corruption experts, heads, and senior members of anti-corruption and
prosecuting agencies and representatives of international organizations from more than 120 countries. At
the meeting, he announced the founding of a new task force to shut down illegal wildlife trade routes, as
he urged action on the illegal wildlife trade, what he called one of the most insidious forms of corruption.
President Kim remarked that corruption is not only a threat to sustainable development, but also to the
goals of ending extreme poverty and boosting shared prosperity. He further added, “Corruption may very
well be one of the most blatant expressions of inequality in our society.”
10. The Potential Perils of FOIA Request After Producing Documents to the Government. On
December 8, 2014, a three-judge D.C. Circuit panel heard arguments by Chiquita Brands International
Inc. seeking to keep SEC from responding to Freedom of Information Act (FOIA) requests by producing
23 boxes of materials produced to SEC during the course of a foreign bribery investigation a decade
earlier. Chiquita, which is embroiled in a multi-district litigation in the Southern District of Florida brought
by 6,000 Colombian citizens under the Alien Tort Act who want to hold the company liable for payments it
made to Colombian paramilitary groups, called the payments “extortion” and said they were necessary to
keep its workers safe. Now, the D.C. Circuit must decide if SEC should—or should not—produce the
records in response to FOIA requests, which Chiquita claims are exempt from production under 5 U.S.C.
§ 552(b)(7)(B). Chiquita resolved an FCPA matter in 2001 involving payments by its subsidiary, through
a third-party customs broker, to Colombian customs officials, and later pleaded guilty in 2007 for making
payments to the United Self Defense Forces of Colombia, or AUC, a designated terrorist organization.
The case serves as a reminder that, even when confidential treatment is sought, later FOIA requests
could lead to disclosure and, therefore, whenever producing materials to government agencies, a
company must be circumspect and thoughtful in its approach.

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As 2014 comes to an end, and 2015 starts, one thing appears clear: DOJ and SEC show no signs of slowing
down. A decade into their enhanced enforcement of the FCPA, and in spite of transitions at DOJ’s Criminal
Division and SEC’s Division of Enforcement, the 2014 FCPA enforcement record reflects the continuing priority of
FCPA enforcement, ever-increasing international cooperation, and sustained efforts to investigate and prosecute
companies and businesspeople for FCPA (and related) violations.

For more information, please contact:
Washington, D.C.
Charles E. Duross
[email protected]

Adam S. Hoffinger
[email protected]

San Francisco
Paul T. Friedman
[email protected]

Stacey M. Sprenkel
[email protected]
New York
Carl H. Loewenson, Jr.
[email protected]

Ruti Smithline
[email protected]
Berlin
Thomas Keul
[email protected]

Hanno Timner
[email protected]
Hong Kong
Timothy W. Blakely
[email protected]

Singapore
Daniel P. Levison
[email protected]

Beijing
Sherry Xiaowei Yin
[email protected]
Tokyo
James E. Hough
[email protected]
London
Kevin Roberts
[email protected]

Paul T. Friedman
[email protected]

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Because of the generality of this update, the information provided herein may not be applicable in all situations
and should not be acted upon without specific legal advice based on particular situations. Prior results do not
guarantee a similar outcome.

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