Magyar Telekom, Deutsche Telekom Settle FCPA-Related Actions

By Squire Patton Boggs on Posted in Commercial Bribery, Foreign Corrupt Practices Act, Germany, Telecommunications

Magyar Telekom Plc and its majority owner Deutsche Telekom AG have agreed to pay a total of approximately $95 million in penalties arising from alleged violations of the anti-bribery and books and records provisions of the Foreign Corrupt Practices Act (“FCPA”) stemming from conduct in Macedonia and Montenegro.

Conduct

  • Between 2005 and 2006, former executives of Magyar Telekom allegedly entered into sham contracts with third parties, including a Cypriot shell company, with the intent of funneling such contracted funds to Macedonian government officials in exchange for business and operating advantages in the country.  Such contracts were recorded as legitimate expenses in the company’s books and records.  Specifically, the company purportedly induced government officials to delay the introduction of a competitor into the Macedonian market and reduced tariffs imposed on one of its subsidiaries.
  • Magyar Telekom is similarly alleged to have entered into erroneously-recorded sham contracts with the intent of forwarding bribes to Montenegran government officials, in exchange for which it received government assistance in facilitating its acquisition of a state-owned telecommunications company.

Penalties

  • Magyar Telekom agreed to pay $59.6 million pursuant to a two-year deferred prosecution agreement with the Department of Justice (“DOJ”) and $31.2  million to resolve a civil complaint brought by the Securities and Exchange Commission (“SEC”) arising from these transactions.  Deutsche Telekom entered into a two-year non-prosecution agreement with the DOJ pursuant to which it agreed to pay a $4.4 million penalty.

Notes

  • The DOJ pursued charges against Deutsche Telekom in spite of the fact that it arguably had no direct involvement or oversight in the actions of the Magyar Telekom executives implicated in the conduct at issue.
  • The SEC has brought a civil action against several former Magyar Telekom executives in connection with this purported conduct, which remains ongoing at this time.

Aon settles FCPA enforcement actions with DOJ, SEC

By Squire Patton Boggs on Posted in Commercial Bribery, Foreign Corrupt Practices Act

Aon Corp., an Illinois-based world leader in risk management, insurance, and reinsurance brokerage services, has entered into a Non-Prosecution Agreement (“NPA”) with the Department of Justice (“DOJ”) and has settled a civil action brought by the Securities and Exchange Commission (“SEC”) stemming from alleged violations of the anti-bribery, books and records, and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”).

Conduct

  • Between 1983 and 2007, A group of Aon’s subsidiaries are alleged to have made over $3.6 million in improper payments to secure or retain business in Costa Rica, Egypt, Vietnam, Indonesia, the United Arab Emirates, Myanmar, and Bangladesh, a portion of which were made directly or indirectly to government officials in these countries.  Aon is alleged to have failed to accurately record these payments in its books and records or to maintain adequate internal controls to detect and prevent these payments.
  • The improper payments at issue fell into two categories: (1) training, travel, and entertainment for employees of foreign government-owned clients and third parties and (2) payments made to third-party facilitators.  Under the first category, Aon or its predecessor, while serving as insurance broker for an Egyptian government-owned company, allegedly funded U.S. trips for company employees that included a disproportionate amount of leisure activities and lasted longer than the business component would justify; the company’s books and records did not accurately reflect the true nature of these payments.  As to the second category, Aon subsidiaries purportedly made payments to third parties without taking steps to ensure that the money did not pass to government officials.  Some of the payments to third parties also appeared not to come in response to any legitimate services, raising the suspicion that such third-party payments were merely fronts for payments to government officials.

Penalties

  • Pursuant to its settlement with the SEC, Aon agreed to pay disgorgement of $11,416,814 in profits and $3,128,206 in prejudgment interest, totaling $14,545,020.  The company also consented to entry of a final judgment permanently enjoining future books and records and internal controls violations under the FCPA.  As part of the NPA, Aon agreed to a $1.764 million criminal fine and to boost its compliance, bookkeeping, and internal controls programs.

Notes

  • In its press release announcing the NPA, the DOJ commended Aon for its “extraordinary cooperation with the Department, including its thorough investigation of its global operations and complete disclosure of facts to the Department, and its early and extensive remediation.”
  • In spite of the seemingly corrupt nature of the improper payments at issue, the SEC’s complaint did not allege anti-bribery violations on Aon’s part.

 

Second Circuit Confirms Conscious Avoidance Test

By Squire Patton Boggs on Posted in Foreign Corrupt Practices Act, UK Bribery Act

On Wednesday, the U.S. Court of Appeals for the Second Circuit upheld Frederic Bourke’s bribery conviction.

This decision is the culmination of investigations and court proceedings that began in 2000.  Mr. Bourke, who co-founded handbag maker Dooney & Bourke, was convicted in November 2009 for violations under the FCPA after his business partner Viktor Kozeny allegedly paid millions of dollars in bribes to get the government of Azerbaijan to privatise its state-owned oil company.  Prosecutors said that Bourke knew or “consciously avoided” learning that Kozeny had bribed the Azeri leaders when he invested.  Bourke was sentenced to one year and a day in prison.

In its 27-page Judgment, the Second Circuit ruled that “a rational juror could conclude that Bourke deliberately avoided confirming his suspicions” about the bribes and “this same evidence may also be used to infer that Bourke actually knew about the crimes.”

The Bourke decision reaffirms that a defendant may be convicted of a bribery offence even if it is concluded that he had no actual knowledge of the bribe but it is believed that he did not try hard enough to learn the truth, “conscious avoidance”. The Courts will consider all of the circumstantial evidence surrounding your knowledge of the specific conduct to infer that you knew about the bribe, for example, your knowledge of general corruption in the country and of the briber’s reputation for “shady dealings”.

Whilst under the FCPA it is necessary to prove actual knowledge or “conscious avoidance”, this is not so under the UK Bribery Act section 7 corporate offence of “failing to prevent bribery”.   Under this section a commercial organisation will be strictly liable for an offence if there is evidence to prove that a person associated with the organisation has committed an offence under the Act, whether with or without the knowledge of directors, management or others.  The only defence available is one of proving that the organisation had adequate procedures in place to prevent bribery.

The message is clear that companies and individuals cannot turn a blind eye and expect to escape liability.

Federal Judge Reverses Lindsey Manufacturing Convictions, Dismisses Indictments

By Squire Patton Boggs on Posted in Courts, Foreign Corrupt Practices Act

Back in May, we brought you news of the first Foreign Corrupt Practices Act (“FCPA”) jury verdict rendered against a corporate defendant in the case of Lindsey Manufacturing, Inc. (“Lindsey Manufacturing”), which stood accused of bribing and conspiring to bribe representatives of a state-owned Mexican utility through a third party intermediary. A jury convicted Lindsey Manufacturing, Keith Lindsey (the company’s president), and Steve Lee (the company’s CFO), among others, for violations of and conspiracy to violate the FCPA.

Following more than six months of intensive argument from all parties involved, presiding Judge Howard Matz has issued a regretful yet blistering order in which he ruled that the underlying indictments should be dismissed and the convictions vacated on grounds of prosecutorial misconduct.

Judge Matz’s order recites a veritable litany of transgressions that the government committed throughout the course of the litigation, finding that the government “allowed a key FBI agent to testify untruthfully before the grand jury, inserted material falsehoods into affidavits submitted to magistrate judges in support of applications for search warrants and seizure warrants, improperly reviewed e-mail communications between one Defendant and her lawyer, recklessly failed to comply with its discovery obligations, posed questions to certain witnesses in violation of the Court’s rulings, engaged in questionable behavior during closing argument and even made misrepresentations to the Court.”

As discussed in our prior analysis of the case, the only previous instance of a trial for a corporate defendant accused of FCPA violations, the 1990-91 trial of Harris Corporation and certain of its executives, ended in acquittals for the defendants; in light of Judge Matz’s order, the government is now zero for two in prosecuting trials against corporate defendants under the Act.

Given the high-stakes nature of the case, the government is virtually certain to appeal Judge Matz’s ruling to the Ninth Circuit Court of Appeals. The Judge’s order thus more likely represents the end of the beginning than the beginning of the end of this already protracted litigation.

Review of Australian laws on bribery of a Commonwealth and foreign public official

By Gabriel Colwell on Posted in Australia

The following is a guest post from associate Nicole Matraiin Squire Patton Boggs’ Perth, Australia office.

The Australian Attorney General’s Department is looking to change some of the key points to Australia’s laws on bribery of a Commonwealth and foreign public official (found in Division 141 and 70 of the Criminal Code Act 1995 (Cth)).

According to the Public Consultation Paper from the Australian Government Attorney-General’s Department, Criminal Justice Division, dated 15 November 2011, the proposed changes include:

(a)  deleting the defence of facilitation payments;

(b)  clarifying that although bribery is an offence irrespective of the value of the benefit offered or given, a court may consider the value where value alone suggests a benefit is not legitimately due;

(c)  making it unnecessary to identify the particular public official; and

(d)  removing the requirement that the bribe was provided ‘dishonestly’, as opposed to being committed intentionally.

Companies would be well advised to take note of these suggested changes.  If these changes are implemented into Australian law, companies would need to revisit their internal compliance systems to ensure that all relevant stakeholders follow the Australian bribery and corruption laws.

Companies have an opportunity to comment on the proposed changes, with the Australian Government having called for submissions by 15 December 2011.

Six year jail term for first person convicted under the UK Bribery Act

By Squire Patton Boggs on Posted in UK Bribery Act

Back in September 2011, we reported on this blog how the first proceedings under the UK Bribery Act 2010 had been commenced against a Court clerk who had accepted money from various people to help them avoid prosecution for motoring offences. Mr Patel, the Court clerk, was charged with requesting and receiving a bribe intending to improperly perform his functions, an offence under section 2 of the Bribery Act 2010.

Mr Patel faced a maximum sentence of 10 years imprisonment and / or an unlimited fine under the Bribery Act, but life imprisonment for the offence of misconduct in a public office, with which he was also charged. Mr Patel was sentenced on Friday (18 November 2011) to 3 years for the Bribery Act offence and 6 years for misconduct in a public office. The sentences will run concurrently.

Although this case did not involve a corporate and so provided no indication as to the level of sentences that may be imposed for the corporate offence of failing to prevent bribery, the case does show that the Courts are willing to impose tough sentences, including imprisonment, on those engaged in bribery. It is likely that other cases will follow in the near future.   

Haiti Teleco Defendant Receives Record-Breaking Sentence for FCPA Violations

By Squire Patton Boggs on Posted in Foreign Corrupt Practices Act, Haiti, Telecommunications

As detailed in a previous blog post, a federal jury convicted Joel Esquinazi and Carlos Rodriguez, two former executives of Terra Telecommunications Corp. (“Terra”), earlier this year on all counts for their roles in a scheme to pay bribes to Haitian government officials at the state-owned Telecommunications D’Haiti S.A.M (Haiti Teleco).

Federal District Judge Jose E. Martinez has passed sentence and, in the process, has set a new sentencing record for an FCPA-related offense; Defendant Esquinazi was sentenced to a record-shattering 15-year prison term, eclipsing the previous 7.25-year record set with the sentencing of Charles Jumet in April 2010. Co-defendant Rodriguez received a seven-year sentence. The defendants must also forfeit $3.09 million to the government.

Taken together with the previously-discussed failed foreign-official challenge in this case, the enormity of the sentences imposed, particularly Esquinazi’s, will almost inevitably give rise to an appeal to the Eleventh Circuit in the coming months.

Corporate hospitality – what does the Bribery Act allow?

By Squire Patton Boggs on Posted in UK Bribery Act

The Bribery Act 2010 came into force on 1 July 2011 and prohibits both private commercial bribery and bribery of foreign public officials. It also introduces a corporate offence of failing to prevent bribery.

The Act raises many questions, one of which being: are gifts and corporate hospitality bribes?

The Guidance published by the Ministry of Justice in relation to the Act states that any bona fide hospitality, promotion or business expenditure which seeks to improve the image of an organisation, better present its products or services, or establish cordial relations will not be prohibited by the Act and in fact is recognised as an established and important part of doing business.  The Government therefore does not intend for the Act to prohibit “reasonable and proportionate” hospitality and promotional expenditure incurred in “good faith” for these purposes.

In the Guidance, Lord Chancellor Kenneth Clarke has assured businesses that the Act does not stop them getting to know their clients by taking them to events like Wimbledon, Twickenham or the Grand Prix. The Quick Start Guide, also published by the Ministry of Justice, provides some further examples of what is allowed, and states that tickets to sporting events, taking clients to dinner, offering gifts to clients as a reflection of your good relations or paying for reasonable travel expenses in order to demonstrate your goods or services to clients will not amount to bribery as long as they are reasonable and proportionate for your business.

The Act is not designed to stop marketing, but to stop the giving, offering, soliciting or receiving of financial advantages that change behaviour inappropriately. The hospitality / gift should therefore not place the recipient under any obligation or create an expectation. Relevant factors to consider in determining whether hospitality or gifts could be seen as bribes include:

  • The context of the gift / hospitality – A gift given to celebrate a deal is likely to be less controversial than a gift given to an official who is in the process of considering a tender.
  • Whether the gift / hospitality is linked to the business, e.g. does it better present the business’ products?
  • The nature of the relationship between the business and the guest, the position of the guest in their organisation and whether the hospitality is limited to the person with whom the organisation does business of whether the invitation extends to their families.
  • The nature of the benefits which may be secured.
  • The value of the gifts – Whether the recipient is able or likely to purchase something of comparable value from his/her own resources reasonably routinely. Cash gifts should never be given.
  • Whether a reasonable person would regard the entertainment / gift as unduly extravagant.
  • Whether there is transparency, for example is the recipient and / or giver obliged to report it to their employer, and it is recorded.
  • The standards or norms applying in a particular sector, for example, it being customary in a particular sector for every manufacturer to take clients to a specific overseas event.
  • Whether the gift / hospitality is a one off or given frequently

Gifts and hospitality are still a grey area, but gifts that are of a large financial sum, or hospitality that is of a large financial value may arouse suspicion. In general, the higher the expenditure or more lavish the hospitality provided, the greater the inference that it may be intended to influence the granting of business or a business advantage in return.

Businesses should establish and disseminate appropriate standards for hospitality and promotional or other similar expenditure. The organisation should have a policy in relation to this and it may be that financial limits on hospitality or gifts and requirements for reporting are imposed. Businesses should not feel that they need to stop hospitality and gifts but should satisfy themselves that they are proportionate and are provided for the right reasons.

Allianz SE to settle SEC charges linked to bribes in Indonesia

By Squire Patton Boggs on Posted in Foreign Corrupt Practices Act

Europe’s largest insurance company, Germany-based Allianz SE, apparently is about to limit damages sustained by United States Securities and Exchange Commission (SEC) investigations.

The insurer had been under US investigation for its possible involvement in two major bribe cases.

The first case began after allegations gave rise to suspicion that Allianz employees were involved in bribe payments at a joint venture company in Indonesia. Apparently the payments were made with the intention of being awarded contracts related to the insurance of major infrastructure projects. To avoid charges for violating the Foreign Corrupt Practices Act (FCPA) Allianz is expected to agree to pay fines in the range of $ 7-10 millions to settle the case. While there was no statement from SEC an Allianz spokesman confirmed settlement negotiations regarding the matter.

The second case that directed SEC’s attention towards Allianz became public in September 2010. Allianz holds the majority of the shares in manroland AG, the world’s second largest printing press manufacturer, while about 25 % of the shares are being held by MAN AG – a German engineering company which was incidentally involved in legal proceedings because of accusations of corruption itself. Manroland officials came under suspicion of having authorized bribe payments through a Swiss subsidiary. The incident transpired when internal examinations revealed payments were made without duly documentation. Since the destination of the payments has not been determined yet, German prosecutors are investigating for tax offenses.

Although Allianz itself is not under investigation in Germany, SEC scrutinized the events, showing the recent tendency of the agency to pay particular attention to holding foreign investors responsible for corruption at controlled companies.

However according to people involved in the process SEC does not intend to charge Allianz for the incidents involving manroland AG – in what might have been a policy-making case, which would have been of particular interest for future proceedings. For the first time SEC instigated investigations against a foreign company for conduct at companies it has majority stakes in. Also the controversial questions of the case regarding the range of competence of SEC will remain unanswered. Concerning this matter the case would have been particularly instructive for prospective proceedings since the agency claimed jurisdiction over Allianz SE despite the fact the insurer was listed on NYSE only until 2009.

Among others one reason for refraining from pressing charges allegedly were difficulties SEC experienced in trying to obtain incriminating documents since German corporate and data protection law impedes the enforcement of their surrendering.

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