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 from the past month, with links to primary resources. This month we ask: What is a Department of Justice (DOJ) “declination with disgorgement”? How many FCPA resolutions was the Securities and Exchange Commission (SEC) able to bring in the last month of its fiscal year? How does one avoid running afoul of South Korea’s new anti-corruption laws? The answers to these questions and more are here in our September 2016 Top Ten list:
1. DOJ Debuts “Declinations with Disgorgement.”
On September 29, 2016, DOJ released two “letter agreements” in which DOJ informed non-public companies that the agency had closed its investigations into the companies and the companies agreed to disgorge profits allegedly derived from violations of 15 U.S.C. §§ 78dd-2 and 78dd-3. According to its letter to Texas-based industrial supply and maintenance company NCH Corporation, DOJ found that, from February 2011 to mid-2013, the company’s Chinese subsidiary provided gifts, meals, and entertainment to employees of Chinese state-owned and state-controlled companies to influence purchasing decisions. The company agreed to disgorge $335,342 in profit from the allegedly resulting sales. According to its letter to Texas-based aboveground liquid storage tank provider HMT LLC, DOJ found that the company’s employees and agents bribed Venezuelan and Chinese officials, through third-party sales agents or distributors, to influence their purchasing decisions. The company agreed to disgorge $2,719,412 in profit from the allegedly resulting sales. Both letters were posted on the DOJ FCPA Unit website under “FCPA Pilot Program Declinations,” but, because the companies were publicly named and agreed to disgorge substantial sums, they do not feel like “declinations.” Rather, these “letter agreements” (a term used in both letters), appear to be examples of a new, fourth type of resolution (in addition to guilty pleas, DPAs, and NPAs) that is essentially an NPA without undertakings or admissions and with disgorgement taking the place of a Guidelines penalty. In many ways, these “declinations” are the domestic concern equivalent of an SEC cease-and-desist order in which only disgorgement is required. It will be interesting to gauge the reaction of the business community to this new type of resolution: a resolution without undertakings or admissions is more company‑friendly than a standard NPA, but the reputational and disgorgement costs could discourage non-public companies from self-disclosing potential misconduct, which was one of the stated purposes of the FCPA Pilot Program.
DOJ also posted three additional declination letters in which it informed issuers Akamai Technologies, Inc., Nortek, Inc., and Johnson Controls, Inc. that it had closed its investigations, “despite” concluding that bribery had occurred, based in part on their agreement to disgorge allegedly illegal proceeds to SEC. DOJ did not post (or has yet to post) similar letters for four of the SEC-only cases discussed below (NuSkin, AB InBev, GSK, and Harris Corporation), raising interesting questions as to whether DOJ felt it could not bring a case against those companies (e.g., for jurisdictional reasons), whether DOJ requires a company’s consent to post a declination when not seeking disgorgement itself, or whether there is simply a lag in posting to DOJ’s website.
2. New York-Based Hedge Fund Resolves Africa FCPA Allegations.
On September 29, 2016, DOJ and SEC announced that they had resolved allegations that Och-Ziff Capital Management Group LLC (“Och-Ziff”) and its subsidiary OZ Management LP (“the subsidiary”) paid bribes to officials in several African countries. The combined monetary penalty of $412 million makes this resolution the fourth largest FCPA resolution of all time, behind only the Siemens, Alstom, and KBR/Halliburton resolutions. Och-Ziff entered into a three-year Deferred Prosecution Agreement (“DPA”) with DOJ, agreeing to pay a criminal penalty of $213,055,689 in connection with two counts of conspiracy to violate the anti‑bribery provisions of the FCPA, one count of falsifying books and records, and one count of failing to implement adequate internal accounting controls. The subsidiary pleaded guilty to a conspiracy to violate the anti-bribery provisions of the FCPA. According to the DOJ press release, sentencing for the subsidiary has been set for March 29, 2017. Och-Ziff agreed to pay approximately $199 million in disgorgement and prejudgment interest to resolve SEC’s charges that it violated the FCPA’s anti-bribery and accounting provisions and that its subsidiary violated the anti-fraud provisions of the Investment Advisers Act of 1940. Och‑Ziff also agreed to a three-year monitorship. DOJ’s charging documents focus on alleged bribery schemes in the Democratic Republic of Congo (DRC) and Libya, while the SEC order also covers alleged misconduct in Chad, Niger, and Guinea, among other countries. SEC announced in its press release that Och-Ziff CEO Daniel Och and CFO Joel Frank had also resolved allegations that they caused certain of the violations. Och agreed to pay nearly $2.2 million to settle the allegations, while Frank’s penalty will be assessed at a later date; both consented to the order without admitting or denying the findings. Highlighting the ever-increasing international cooperation in foreign corruption investigations, DOJ’s and SEC’s press releases announced eight different countries had cooperated with the investigation: British Virgin Islands, Cyprus, Gibraltar, Guernsey, Jersey, Malta, Switzerland, and the UK.
3. Utah-Based Cosmetics and Nutritional Product Company Resolves China FCPA Allegations.
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