MDO Partners Featured in Daily Business Review 

on Business Valuations
 

■ ■ ■  February 10, 2016

 

 

In the last four months of 2016, the U.S. Department of Justice (DOJ) and the U.S. Securities Exchange Commission (SEC) have demonstrated their seriousness about combating corruption through aggressive enforcement and significant fines under settlements in high-profile cases under the Foreign Corrupt Practices Act (FCPA), many of which are summarized in this Alert, including:
 

• TEVA Pharmaceutical Settles FCPA Charges for $519 Million

• Odebrecht and Braskem Fined $3.5 Billion for Bribery

• JP Morgan Resolves Hiring-Related FCPA Violations for $264 Million

• Embraer Settles Multiple Bribery Violations for $206 Million

• GlaxoSmithKline Enters Cease-Desist Order and Pays $20 Million for FCPA Violations

• Hedge Fund Settles $412 Million Fine for FCPA Violations

• DOJ Issues Declinations for HMT and NCH under Pilot Program

• InBev Settles FCPA Violations and Whistleblower Retaliation for $6 Million

• Nu Skin Settles FCPA Violations for Charitable Donations in China

TEVA Pharmaceutical Settles FCPA Charges for $519 Million

On December 22, 2016, Teva Pharmaceutical Industries Limited agreed to pay more than $519 million to settle civil and criminal charges that it violated the FCPA by making influential payments to government officials in order to increase its market share and obtain regulatory and formulary approvals, favorable drug purchase and prescription decisions in Russia, Ukraine, and Mexico. The SEC alleged that Teva "failed to devise and maintain proper internal accounting controls to prevent the company's payments of bribes to win business."  Teva allegedly concealed the bribes as legitimate payments to distributors. Eric I. Bustillo, Director of the SEC's Miami Regional Office noted that "while distributors can help companies navigate complex regulatory environments and provide valuable industry relationship, they also can create significant corruption risks for companies." Under the deferred prosecution agreement Teva must retain an independent corporate monitor for at least three years.

 

Odebrecht and Braskem Fined $3.5 Billion in Bribery Fines

On December 21, 2016, two major Brazilian companies were fined $3.5 billion in connection with bribery charges levied in the United States, Brazil, and Switzerland against Odebrecht, a global construction company, and Braskem, a Brazilian petrochemical firm. Officials say that the combined penalties may reach $4.5 billion, making this the largest foreign bribery case ever. The companies methodically paid about $788 million to government officials involving more than 100 projects in twelve countries through its Division of Structured Operations, which "effectively functioned as a bribe department within Odebrecht and its related entities," according to the DOJ.  When foreign officials receive bribes, they threaten our national security and the international free market system in which we trade," said FBI Assistant Director in Charge William Sweeney. "Just because they're out of our sight, doesn't mean they're beyond our reach."

 

JP Morgan Resolves Hiring-Related FCPA Violations for $264 Million

On November 17, 2016, JPMorgan Chase & Co. and its Hong Kong-based subsidiary agreed to pay a total of more than $264 million to resolve violations of the anti-bribery, books and records, and internal controls provisions of the FCPA. From 2006 until 2013, JPMorgan had provided over 200 valuable jobs and internships to relatives and friends of executives of its clients, prospective clients, and government officials in the Asia-Pacific Region. These jobs and internships were given in order to obtain or retain investment banking business or other benefits for the company. Although many of JPMorgan's clients are not government entities, many are state-owned entities, and therefore, the executives were considered government officials under the FCPA. The SEC stated that employees knew that this hiring practice was illegal, but withheld key information so that the prospective employees and interns would pass compliance review. The SEC stated, "JPMorgan failed to devise and maintain a system of internal accounting controls around its hiring practices." The SEC considered JPMorgan's significant remediation efforts, including the enhancement of its global anti-corruption compliance program, when determining to accept the settlement offer.

 

Embraer Settles Multiple Bribery Violations for $206 Million

On October 24, 2016, Embraer reached settlements and agreed to pay $206 Million in fines with the DOJ, the SEC and Brazilian authorities in connection with schemes involving the bribery of government officials in the Dominican Republic, Saudi Arabia and Mozambique, and to pay millions more in falsely recorded payments in India via a sham agency agreement. Embraer entered into a three-year deferred prosecution agreement (DPA) to resolve the case with the DOJ.  As part of the DPA, Embraer admitted to its involvement in a conspiracy to violate the FCPA's anti-bribery and books and records provisions and to its willful failure to implement an adequate system of internal accounting controls. Embraer agreed to pay a criminal penalty; continue to cooperate with the department's investigation; enhance its compliance program; implement an adequate system of internal accounting controls, and retain an independent corporate compliance monitor for a term of three years. Embraer also reached a settlement with the SEC. With the cooperation of U.S. authorities, Brazilian authorities have charged 11 individuals for their alleged involvement in Embraer's misconduct.  Saudi Arabian authorities have charged two individuals for their alleged involvement in Embraer's misconduct. 

 

GlaxoSmithKline Enters Cease-Desist Order and Pays $20 Million for FCPA Violations

On September 30, 2016, GlaxoSmithKline, a U.K. pharmaceutical company (GSK), entered into a Cease-Desist order to settle alleged internal controls and books and records violations of the FCPA related to its China-based subsidiary and China-based joint venture.  GSK did not admit or deny the SEC findings that employees and agents of its subsidiary and joint venture provided various things of value, such as gifts, travel, and entertainment, to Chinese healthcare professionals. The SEC stated that in addition to GSK paying a $20 million civil penalty, GSK will provide periodic reports to the SEC for a two-year term, regarding the "status of its remediation and implementation of compliance measures."

 

Hedge Fund Settles $412 Million Dollar Fine for FCPA Violations

On September 29, 2016, Och-Ziff Capital Management Group, a New York-based hedge fund, agreed to pay the DOJ and SEC a total of $412 million to settle civil and criminal FCPA violations related to bribes paid to officials in several African countries. The settlement also requires Och-Ziff to retain a compliance monitor for three years.  Och-Ziff's Founder and CEO, Daniel Och and Chief Financial Officer, Joel Frank, also settled related SEC administrative proceedings, including payment of almost $2.2 million, for findings that they contributed to the FCPA violations by ignoring risks, and inaccurately recording the bribes. In order to strengthen its anti-corruption program and controls, the company stated that it has made "a substantial investment to enhance its compliance personnel and infrastructure." 

 

DOJ Issues Declinations for HMT and NCH under Pilot Program

On September 29, 2016, the DOJ published two declinations (Letters) under the FCPA Pilot Program for violations of the FCPA in favor of (i) HMT LLC, a company that manufactures, supplies, and services aboveground liquid storage tanks for the petroleum, oil, and gas industries, and (ii) NCH Corporation, an industrial supply and maintenance company. The DOJ investigations found that HMT, through its employees and agents paid bribes to Venezuelan and Chinese government officials to influence their decisions regarding current and future purchasing and thereby securing over $2 million in net profits.  The DOJ found that NCH's Chinese subsidiary illegally provided things of value to Chinese government officials in order to influence the officials' purchasing decisions.

 

The Letters described some of the factors that the DOJ based its decision to close each investigation. Although the Companies' disgorgement was relative to the profits made by each HMT and NCH, the factors related to the DOJ's decision were similar and included: (1) timely, voluntary self-disclosure of the matters described above; (2) thorough and comprehensive global investigation of the matter; (3) full cooperation in this matter (including its provision of all known relevant facts about the individuals involved in or responsible for the misconduct) and its agreement to continue to cooperate in any ongoing investigations of individuals; (4) agreement to disgorge to the Department all profits it made from the illegal conduct; (5) steps taken and continues to take to enhance its compliance program and its internal accounting controls; and (6) full remediation.

 

InBev Settles FCPA Violations and Whistleblower Retaliation for $6 Million

On September 28, 2016, the SEC announced a $6 million settlement with Belgium-based brewing company, Anheuser-Busch InBev (InBev), for violations of the FCPA books and records and internal controls provisions.  The SEC determined that InBev's Indian joint venture made improper payments to government officials through third-party sales promoters to obtain beer orders and increase brewery hours. When an employee of InBev's subsidiary, internally raised concerns of payments made to such promoters, the employee was terminated. Further, the separation agreement prohibited the whistleblower from reporting the illegal conduct.  According to the SEC, InBev "recorded improper payments by its sales promoters in India as legitimate expenses in its financial accounting, and then exacerbated the problem by including language in a separation agreement that chilled an employee from communicating with the SEC." As part of its settlement, InBev amended its standard separation agreement allowing separated employees to report possible violations to government agencies without informing the company.

 

Nu Skin Settles FCPA Violations for Charitable Donations in China

On September 20, 2016, Nu Skin Enterprises Inc. was found by the SEC to have violated the books and records provision and internal control provisions of the FCPA. Nu Skin's Chinese subsidiary made a charitable donation in exchange for an official's influence and a favorable outcome in an investigation by a Chinese government agency. Although the Chinese subsidiary disclosed the contribution to Nu Skin, it failed to disclose the connection of the donation to the investigation.  The SEC concluded that: "Nu Skin U.S. did not ensure that adequate due diligence was conducted by Nu Skin China with respect to charitable donations to identify links to government or political party officials to prevent payments intended to improperly influence such persons in violations of the company's anti-corruption policy and the FCPA." Ultimately, Nu Skin settled with the SEC for $765,000.

 

With record-setting fines being levied in the billions of dollars, coupled with the DOJ and SEC's increased resources and aggressive enforcement, it is more critical than ever for companies to establish and assess Anti-Corruption Compliance Programs to mitigate the risks of FCPA violations. MDO Partners encourages companies to evaluate whether they have any FCPA violations and consider whether participating in the FCPA Pilot Program is advisable. Our attorneys and advisors have extensive experience advising clients on the FCPA and effective Anti-Corruption Compliance Programs in over 30 countries, including Latin America.

 

About MDO Partners

 

MDO Partners is a boutique law firm that focuses on Corporate, International, and Real Estate Law, as well as Global Compliance and Business Ethics. The firm is comprised of a solid team of attorneys and advisors with more than 100 years of combined experience who are committed to the business goals and best interests of their clients. The firm delivers value-added services of the highest caliber, and serves as a trusted advisor to its clients with a practical and business-savvy approach. For more information on MDO Partners, please visit www.mdopartners.com

 

If you have questions or comments regarding this Alert, please contact the attorney or advisor listed below.

 

Richard Montes de Oca

Managing Partner

305.704.8452

rmontes@mdopartners.com

 

Javier Jaramillio

Compliance Advisor

786.295.6644

jjaramillo@mdopartners.com