Bribery Charges Dismissed Against Former Schnitzer Steel Executive

By Gabriel Colwell on Posted in China, Foreign Corrupt Practices Act, South Korea

On October 14, 2011, the DOJ dismissed bribery charges against Si Chan Wooh, the former Executive Vice President and head of Schnitzer Steel Industries, Inc.’s (“Schnitzer Steel”) Tacoma, Washington based subsidiary SSI International which oversaw Schnitzer Steel’s South Korean subsidiary, SSI Korea.

Back in 2007, Wooh previously entered into a cooperation agreement with the DOJ and pled guilty to conspiring with Schnitzer Steel to violate the FCPA based upon alleged improper payments from 1999-2004 by SSI Korea to Chinese government owned steel mills to induce scrap metal purchases.  (See original DOJ press release here.)  Based on these same alleged improper payments, in 2006, SSI pled guilty to violating the FCPA’s anti-bribery and accounting provisions and agreed to pay a $7.5 million criminal fine, and Schnitzer Steel entered into a three-year deferred prosecution agreement with the DOJ, a cease and desist order with the SEC, and agreed to disgorgement of $7.7 million. 

Wooh’s sentencing was delayed multiple times over the last four years as he and the DOJ litigated numerous procedural issues in the investigation of the case and whether Wooh should qualify as a whistleblower.  DOJ’s October 14, 2011 motion to dismiss the criminal information against Wooh cited prosecutorial discretion as the basis for the dismissal. 

SEC Issues FCPA Cease and Desist Order as to Watts Water Technologies, General Manager of Chinese Subsidiary

By Squire Patton Boggs on Posted in China, China enforcement actions, Foreign Corrupt Practices Act

The Securities and Exchange Commission (“SEC”) has issued an administrative cease and desist order as to Watts Water Technologies, Inc. (“Watts”), a water valve designer and retailer, and Leesen Chang (“Chang”), former general manager of Watts Valve Changsha Co., a wholly-owned Chinese subsidiary of Watts.

Conduct

  • Between 2006 and 2009, Chang, on behalf of Watts’s Chinese subsidiary, approved payments to employees of government-owned design institutes to obtain recommendations and establish design specifications that favored the company’s products.  These payments were improperly recorded in the subsidiary’s books and records (and subsequently incorporated into Watts’s own books and records) as sales commissions.  Such payments generated in excess of $2.7 million in profits.
  • The SEC alleged that Watts failed to implement a sufficiently rigorous FCPA compliance plan on its acquisition of the subsidiary, including deficient FCPA training for its Chinese employees.  Chang compounded the problem by refusing to allow the translation of the subsidiary’s policy that generated these payments into English, thereby preventing the U.S. parent company from learning of the conduct at issue.

Penalties

  • Watts has agreed to a payment of approximately $3.7 million, consisting of disgorgement, prejudgment interest, and a civil monetary penalty.  Chang agreed to a $25,000 civil penalty.

Notes

  • On learning of the FCPA violations at issue, Watts took prompt remedial action, including eliminating commission-based compensation for employees of the Chinese subsidiary, retaining outside counsel to draft an enhanced anticorruption compliance policy, and conducting a global anti-corruption audit.
  • Taken in conjunction with previous enforcement actions such as Rockwell Automation and ITT, this decision underscores the SEC’s recent focus on Chinese design institutes for anti-bribery investigation.

Corruption-Fighting Ethos

By Squire Patton Boggs on Posted in India

Having generated much controversy and triggered furious hunger strikes, The National reports that a revised Lokpal Bill is likely to be introduced into the Indian Parliament in November. Dr Veerappa Moily, the Union Minister for Corporate Affairs, took the opportunity to address the Indian Business Professional Council in Dubai and, whilst conceding that there was a “trust deficit” in the corporate sector, he expressed that:

“The ethos has been created to fight against corruption.”

Given the focus on all things corrupt, the Indian Central Bureau of Investigation (CBI) has been fairly active and:

  • IBNLive reports that, on Sunday, the CBI arrested 3 officials of the India Tourism Development Corporation for taking bribes to award hotel star ratings; and
  • Business Standard reports that, on Monday, the CBI searched the premises of one of India’s largest steel producers, BSE and NSE-listed JSW Steel, in connection with allegations of illegal mining activities.

Munich-based media group sues Bernie Ecclestone and Gerhard Gribkowsky for $ 171 million

By Squire Patton Boggs on Posted in Germany

According to German newspaper Münchner Merkur Munich-based media group Constantin Medien AG sued Formula One boss Bernie Ecclestone, his holding company Bambino and former board member of the Bavarian Regional Bank (BayernLB) Gerhard Gribkowsky for $ 171 million in damages. Reportedly the legal action has been filed at London’s High Court of Justice.

The plaintiff argues that in 2005 BayernLB sold Formula One-shares considerably below market value because Mr. Gribkowski was bribed by Mr. Ecclestone. Constantin estimates the actual value of the sold shares to amount for at least $ 2.8 billion whereas the shares were in fact sold for $ 814 million to their current owner, financial investor CVC. Constantin claims a manipulation of the sale performed by Mr. Gribkowsky cost EM.TV, its legal predecessor, the sum now being asserted because of lost proceeds from agreed-upon profit sharing.

A BayernLB spokesman invoked assessments of both internal and external auditors considered the agreed sale price of the shares as reasonable.

This is not the first time courts find themselves faced with the matter:

Former Chief Risk Officer of BayernLB Gribkowsky is currently being charged by Munich prosecutors with tax evasion, breach of trust and corruption. He allegedly transferred an estimated amount of $ 66 million illegally to the Bambino holding company and Mr. Ecclestone, $ 44 million of which the latter transferred back to Mr. Gribkowsky as a bribe. In return for the payment the Formula One-shares were sold way below value to CVC. Mr. Gribkowsky faces up to 10 years in prison in case of a conviction.

Also 80 year-old Mr. Ecclestone is under investigation for aiding and abetting embezzlement and bribery by Munich prosecutors.

First proceedings under UK Bribery Act 2010 commenced

By Squire Patton Boggs on Posted in UK Bribery Act

A Court clerk will appear at Southwark Crown Court on 14 October 2011 to face allegations that he accepted a bribe to influence criminal proceedings. This will be the first case brought under the UK Bribery Act 2010, which came into force on 1 July 2011.

Munir Yakub Patel, a Court clerk at Redbridge Magistrates’ Court, has been charged with requesting and receiving a bribe intending to improperly perform his functions, an offence under section 2 of the Bribery Act 2010. The reviewing lawyer for the CPS Special Crime and Counter Terrorism Division, Gaon Hart, said: “It is alleged that Patel promised an individual summonsed for a motoring offence that he could influence the course of criminal proceedings in exchange for £500, on 1 August 2011”. Mr. Patel was arrested after The Sun filmed a man apparently accepting £500 to keep a traffic penalty off a legal database.

If convicted, Mr. Patel will face an unlimited fine and up to 10 years imprisonment. Mr. Patel has also been accused of misconduct in a public office and perverting the course of justice.

Many expected the first case under the Bribery Act 2010 to be against a corporate for bribery involving large amounts of money. It seems however that if a prosecution is deemed to be in the public interest, it will be taken notwithstanding the amount of money involved.

Two Senior Executives Convicted In Haiti Teleco Bribes Case

By Gabriel Colwell on Posted in Foreign Corrupt Practices Act, Haiti, Telecommunications

Following a two week trial, on August 4, 2011, a federal jury convicted Joel Esquenazi and Carlos Rodriguez, former executives of Terra Telecommunications Corp. (“Terra”), 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).  The DOJ’s press release is here.

Conduct

  • Esquenazi was the president and Rodriguez the vice president of Miami-based Terra.  Both were convicted of one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and wire fraud, seven counts of FCPA violations, one count of money laundering conspiracy, and 12 counts of money laundering.
  • According to the DOJ, Esquenazi and Rodriguez “authorized more than $800,000 in illegal bribe payments to Haitian officials in exchange for business advantages” in violation of the FCPA.”
  • Per DOJ, the purpose of these bribes “was to obtain various business advantages from the Haitian officials for Terra, including the issuance of preferred telecommunications rates, reductions in the number of minutes for which payment was owed, and the continuance of Terra’s telecommunications connection with Haiti.”
  • The DOJ also said they “used shell companies to pay $890,00 in bribes from 2001 through 2005 to “successive directors of international relations” at Haiti Telco, and “created false records claiming that the payments were for “consulting services,” which were never intended to be performed or actually performed.”

Penalties

  • The defendants face a maximum penalty of five years in prison and a fine of the greater of $250,000 or twice the value gained or lost on the FCPA conspiracy charge. Each of the seven FCPA counts carries a maximum penalty of five years in prison and a fine of the greater of $100,000 or twice the value gained or lost.
  • The money laundering conspiracy counts carry a maximum penalty of 20 years in prison and a fine of the greater of $500,000 or twice the value of the property involved in the transactions.
  • The government is seeking forfeiture against all defendants.

Notes

  • This is just the latest entry of the DOJ’s extensive FCPA enforcement action regarding bribes allegedly paid to Haitian government officials at Haiti Teleco.  The jury verdicts rendered in this case were based upon indictments filed in December 2009.  Multiple individual defendants had already pled guilty to FCPA violations and related money laundering charges.
  • Esquenazi and Rodriguez are unique in the Haiti Teleco prosecutions in that they contested the DOJ’s charges at trial and also challenged the DOJ’s definition of “foreign official” under the FCPA.  Esquenazi and Rodriguez almost certainly will appeal both the Court’s pre-trial ruling and their convictions.
  • Additionally, whether the Court’s jury instruction on what constitutes an “instrumentality” of a foreign government under the FCPA survives appellate scrutiny is worth watching and should be instructive as to the limits of the FCPA’s jurisdictional reach.

China Mobile’s Deputy General Manager Receives Suspended Death Sentence

By Gabriel Colwell on Posted in China

The following is a guest post from Doris Chen in Squire Patton Boggs’ Shanghai Office.

Zhang Chunjiang, the former deputy general manager of China Mobile was sentenced to death by Chinese People’s Court on July 22, 2011 for the crime of bribery.  He was also the chief secretary of China Mobile’s CPC Committee and held senior positions at the Liaoning Provincial Postal Administration and China Netcom between 1994 and 2009.  The Court concluded that he took bribes totaling US$1.16 million (RMB 7.46 million).  The case was first tried by Changzhou Intermediate Court of He Bei Province where Zhang was given a death sentence with a two year reprieve, meaning he is given two years of life before his execution date, which may allow him to have the death sentence commuted to life imprisonment for good behavior.

What is a death sentence with a two year reprieve and why was Zhang sentenced to death with a reprieve?

According to the People’s Republic of China’s (PRC) Criminal Law, when a criminal is sentenced to death with a reprieve, and the criminal does not commit any intentional crimes during the period of reprieve, upon expiration of the two-year period, the sentence will be commuted to life in prison; if, in addition to no intentional crimes, the criminal has performed any major meritorious service, the sentence will be commuted to 25 years.   Alternatively, if it is determined that the criminal has committed an intentional crime during the reprieve period, the death penalty will be carried out upon approval by the Supreme People’s Court.

Reports indicate that Zhang was granted a two year reprieve because he confessed to all his crimes, the content of his confession was consistent with evidence independently recovered by police, and he surrendered the bribe payments to the police that he had received.

Was Zhang’s sentence supportable?

The verdict was made according to PRC Criminal Law Article 383, which stipulates, “Individuals who have engaged in graft with an amount of more than RMB100,000 are to be sentenced to more than 10 years of fixed-term imprisonment or life imprisonment and may, in addition, have their properties confiscated.  In especially serious cases, those offenders are to be sentenced to death and, in addition, have their properties confiscated”.  In China, a conviction for bribery will carry the same sentencing as a conviction for the crime of graft.  Because the amounts of bribes Zhang received greatly exceeded RMB100,000, the death sentence could have been imposed under the PRC law, but, in light of his confession and the return of the illegal gains, the commuting of the death sentence was permissible.

What is the public’s opinion towards the sentence by the court?

Most PRC citizens seem to consider this a fair outcome.  It reflects the Chinese government’s efforts to address corruption problems within the country even at such high levels as those occupied by Zhang.  The lawyer for Mr. Zhang, however, said he is considering an appeal to a higher court because, in his view, the sentence remains too harsh.

Indian Anticorruption Ombudsman

By Squire Patton Boggs on Posted in India

The Lokpal Bill, 2011 (PDF/541KB/40 pages), has today been introduced to the Lok Sabha (House of the People), the lower house of the Parliament of India. Its remit is to develop effective anti-corruption and grievance redressal systems so that an effective deterrent is created against corruption and to provide effective protection to whistleblowers. At its centre is the office of Lokpal, which is a combination of two Hindi words, together, meaning the protector of the people, i.e. ombudsman. However, the popular civil movement, India Against Corruption, is not satisfied that the bill goes far enough and the Times of India reports that copies of the bill shall be burnt in protest tomorrow.

Drink to This: Diageo Settles FCPA Administrative Enforcement Action

By Squire Patton Boggs on Posted in Commercial Bribery, Foreign Corrupt Practices Act, India, South Korea, Thailand

London-based Diageo, the maker of popular liquor brands such as Johnnie Walker scotch and Smirnoff vodka, has agreed to pay more than $16 million to settle an administrative action brought by the Securities and Exchange Commission (“SEC”) for violations of the books and records and internal control provisions of the FCPA.

Conduct

  • From 2003 to 2009, Diageo paid $1.7 million in bribes to hundreds of Indian government officials responsible for purchasing or authorizing the purchase of its products in the country.
  • From 2004 to 2008, Diageo similarly paid nearly $600,000 (approximately $12,000 per month) to a Thai government official for his consulting assistance on Diageo’s behalf in tax and customs disputes.
  • Diageo likewise made nearly $200,000 in payments to South Korean customs officials for their roles in influencing government decisions to grant Diageo tax rebates and for travel and entertainment expenses connected with the negotiations leading up to the government’s favorable decisions. Diageo also made hundreds of cash payments totaling more than $230,000 to South Korean military personnel to obtain and retain their business.

Penalty

  • Diageo agreed to the disgorgement of $11,306,081, prejudgment interest of $2,067,739, and an additional $3 million penalty.

Notes

  • Uncharacteristically, the Department of Justice (“DOJ”) opted not to press criminal charges against Diageo for its alleged FCPA violations.
  • Also uncharacteristic is the SEC’s decision to pursue and administrative action against Diageo, as opposed to a more typical civil enforcement action filed in federal court.
  • Diageo undertook a series of remedial measures in response to the investigation, including the termination of the responsible employees and implementing enhancements to its internal compliance program.
  • The SEC observed that Diageo’s rapid multinational expansion through mergers and acquisitions left it particularly vulnerable to FCPA violations; Diageo failed to improve the lax compliance policies of a number of its acquired subsidiaries until illicit payments had already been made.

London Insurance Broker Settles FSA Action

By Squire Patton Boggs on Posted in Corporate Finance/M&A, UK Bribery Act

Last week, one of London’s oldest insurance brokers, Willis Limited (“Willis”), was fined by the UK Financial Services Authority (“FSA”) for failing to counter the risks of bribery and corruption. The £7 million penalty was handed down to Willis in the FSA’s Final Notice (PDF/80.3KB/24 pages) on 21 July 2011.

Conduct

  • From 2005 to 2009, Willis made payments totalling £27 million to overseas third parties for assistance in winning business from overseas clients.
  • Employees failed to be adequately monitored by Willis to make sure that, when engaging an overseas third party, they conduced sufficient due diligence and recorded adequate commercial rationale for any payment.
  • Information flow to Willis’ senior management was inadequate and did not allow effective assessment in relation to mitigation of bribery and corruption.

Penalty

  • The £6.895 million penalty is a record fine to date by the FSA in relation to financial systems and controls.
  • Due to co-operation and early settlement by Willis, a 30% discount had been applied by the FSA.

Notes

  • This represents a civil sanction under Principle 3 of the FSA’s Principles for Businesses and Rule SYSC 3.2.6 R of the FSA’s Senior Management Arrangements, Systems and Controls Handbook.
  • It will be interesting to see how FSA’s regime complements or conflicts with the new UK Bribery Act 2010 (“Bribery Act”). Had the Bribery Act been in force at the time of this conduct, it is likely that these payments could have led to a criminal prosecution.
LexBlog