Tag: corruption

Biden Administration Issues New Government-Wide Anti-Corruption Strategy

On Dec. 7, 2021, the White House published a government-wide policy document entitled “United States Strategy on Countering Corruption” (“Strategy”). The Strategy implements President Biden’s National Security Memorandum from earlier in 2021, which declared international corruption a threat to U.S. national security.

The Strategy is notable for several reasons:

First, the Strategy focuses not just on the “supply side” of foreign bribery and corruption—that is, companies acting in violation of the Foreign Corrupt Practices Act (FCPA)—but also on the “demand side” of the equation, namely corrupt foreign officials and those who assist them. It promises to pair vigorous enforcement of the FCPA with efforts to hold corrupt leaders themselves accountable, via U.S. money laundering laws, economic sanctions, and visa restrictions.

Second, the Strategy specifically calls out the role of illicit finance in facilitating and perpetuating foreign corruption, promising “aggressive enforcement” against those who facilitate the laundering of corrupt proceeds through the U.S. economy. Professional gatekeepers such as lawyers, accountants, and trust and company service providers are specifically identified as targets of future scrutiny. The Strategy also promises to institute legislative and regulatory changes to address anti-money laundering (AML) vulnerabilities in the U.S. financial system. These promised changes include:

  • Finalizing beneficial ownership regulations, and building a national database of beneficial owners, as mandated by the Anti-Money Laundering Act of 2020.

  • Promulgating regulations designed to reveal when real estate is used to hide ill-gotten gains. Contemporaneously with the White House’s issuance of the Strategy, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an Advance Notice of Proposed Rulemaking (ANPRM), inviting public comment on its plan to apply additional scrutiny to all-cash real estate transactions.

  • Prescribing minimum reporting standards for investment advisors and other types of equity funds, which are currently not subject to same AML program requirements as other financial institutions.

Third, the Strategy calls for a coordinated, government-wide response to corruption, and it contemplates a role not only for law enforcement and regulatory agencies but also for agencies such as the Department of State and Department of Commerce, which is to establish its own new anti-corruption task force. It remains to be seen if the increased scope of anti-corruption efforts called for by the Strategy will result in new or additional penalties for persons and entities perceived as corrupt or as facilitating corruption, but the Strategy may place an additional premium on corporate anti-corruption compliance.

Individuals and entities operating in sectors traditionally associated with corruption and/or AML risk should consider taking the following steps in response to the Strategy. These considerations apply not only to U.S. persons and businesses but also to anyone who may fall within the broad purview of the FCPA, U.S. money laundering statutes, and other laws with extraterritorial reach:

  • Increase due diligence for any pending or future transactions in jurisdictions where potentially corrupt actors or their designees play a role in awarding government contracts. Ensure any payments are the result of arms-length transactions based on legitimate financial arrangements.

  • Professional gatekeepers should become familiar with the particular risks associated with the industries in which they operate. While AMLA made it clear that lawyers, accountants, and real estate professionals will come under increased scrutiny based on the risk profile of their clients, the Strategy increases the likelihood that law enforcement will devote additional resources in this sometimes-overlooked area.

  • Given the increased role the State Department will continue to play in the anticorruption space based on the National Defense Authorization Act and the Strategy, companies doing business in or with countries vital to U.S. foreign policy goals should remember that in addition to the individual leaders of these countries, government institutions and lower-level officials could create risk and will be closely watched. Though the U.S. government often talks about specific government officials, the Strategy appears to take a broader approach.

  • Businesses should continue to examine and reexamine third-party risk with an emphasis on preventing potential problems before they occur. Additional resources and increased cooperation between and among government agencies may lead to additional investigations and enforcement actions, so compliance programs should be updated where necessary.

Article By Kyle R. Freeny and Benjamin G. Greenberg of Greenberg Traurig, LLP

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©2021 Greenberg Traurig, LLP. All rights reserved.

New Sheriff In Town As Rolls-Royce Pays Record Penalty For Foreign Bribery And Corruption

Rolls-RoyceOn 17 January 2017, the UK Serious Fraud Office (“SFO”),[1] the US Department of Justice (“DOJ”),[2] and the Brazilian Ministério Público Federal (“MPF”) announced an $800 million global settlement with Rolls-Royce plc and Rolls-Royce Energy Systems Inc., (together, “Rolls-Royce”) resolving allegations of a long-running scheme to bribe foreign officials in South America, the Middle East, Eastern Europe, and Asia in exchange for assistance in obtaining government contracts. In addition to the payment of disgorgements and fines – the largest ever imposed under the UK’s Bribery Act 2010 (“UK Bribery Act”) – Rolls-Royce has agreed to implement a number of compliance measures and reporting requirements pursuant to deferred prosecution agreements (“DPAs”) with UK, US, and Brazilian authorities. The joint settlement, which was spearheaded by the SFO, heralds a new era in global cooperation and coordination in the enforcement of bribery and corruption laws.

Unprecedented simultaneous tripartite global penalty

Under its DPA with the SFO, Rolls-Royce will pay a penalty of over £497 million (US $612 million), comprising disgorgement of profits of £258 million and a financial penalty of £239 million (US $294 million), plus interest. In addition, Rolls-Royce will pay approximately £13 million (US $16 million) to reimburse the SFO’s full investigation and litigation costs.

In the US, Rolls-Royce has agreed to pay a criminal penalty of nearly $170 million (UK £138 million) for conspiring to violate the Foreign Corrupt Practices Act (“FCPA”) by having paid bribes in excess of $35 million between 2000 and 2013. The penalty reflects a 25-percent reduction from the bottom of the US Sentencing Guidelines fine range and a credit of more than $25 million (UK £20 million) in recognition of the fine paid in Brazil. The settlement with the DOJ falls within the top fifteen largest FCPA settlements of all time.

In Brazil, Rolls-Royce has agreed to a fine of approximately $25 million, reflecting $12 million in profits received from contracts with Brazil’s state-run oil company, Petrobras, $6 million paid in kickbacks paid to intermediaries, and a fine equal to the amount of kickbacks.

DPAs – more than just a fine

In the UK, DPAs are voluntary agreements which result in the suspension of a prosecution in return for the offending company meeting certain obligations including that the company must account for its conduct before a criminal court. The terms of the DPA must be approved by a judge as fair, reasonable, proportionate, and in the interests of justice. A DPA is not available to individuals. Upon review, on 17 January 2017, Sir Brian Leveson, sitting as a judge in the Crown Court, approved the Rolls-Royce DPA noting that the financial penalty was “broadly comparable to a fine that a court would have imposed on conviction following a guilty plea.”[3]

In addition to payment of the fine, under the UK DPA, Rolls-Royce is required to continue the independent compliance review of its approach to anti-bribery and anti-corruption which commenced in January 2013 when Rolls Royce appointed independent lawyer, Lord Gold, to conduct the review. Lord Gold has already produced two interim reports and is due to produce a third report by the end of March 2017. Rolls-Royce has agreed to provide the SFO with Lord Gold’s third report and produce a written Implementation Plan setting out how it will give effect to the third report’s recommendations and any other outstanding recommendations not yet implemented in the first and second reports. Rolls-Royce must implement or have sustainment plans to execute the Implementation Plan to the satisfaction of Lord Gold within 2 years of its commencement. Once the Implementation Plan is complete, Rolls-Royce must obtain a final report from Lord Gold and provide it to the SFO.

In addition to these compliance measures, Rolls Royce has agreed to continue its cooperation with the SFO including the disclosure of all relevant information and material in its possession, custody or control, which is not protected by legal professional privilege, in respect of its activities and those of its present and former directors, employees, agents, consultants, contractors and sub-contractors. It must also use its best efforts to make available for interview, as requested by the SFO, present or former officers, directors, employees, agents and consultants of Rolls-Royce.

Much like in the UK, DPAs in the US set the terms by which prosecutors will decline to pursue a case against the offending company. The DOJ agreed that it will not pursue a criminal or civil case against Rolls-Royce, provided that, within three years, the company pays the $170 million penalty, cooperates fully with US and foreign authorities in all matters related to corrupt payments, implements a compliance program that meets the elements identified in the DPA, and annually reports to the DOJ regarding remediation and implementation of its compliance program. Among other requirements, Rolls-Royce must develop and maintain policies and procedures addressing particular risk areas (e.g., gifts, entertainment, travel, political contributions and charitable donations) through periodic risk-based review, assign one or more senior corporate executives for implementation and oversight of the policies and procedures, implement periodic training and compliance certifications, establish an effective system for internal reporting and investigation, and institute risk-based due diligence and compliance requirements for all agents and business partners. The DPA does not provide any protection against the prosecution of individuals.

Brazilian law empowers the relevant authorities to enter into agreements (“leniency agreements”) with entities that have cooperated with the authorities’ investigations. By satisfying the conditions of the agreements, companies may face lower fines or lesser sanctions. Rolls-Royce reportedly provided the MPF with the results of an internal investigation in early 2015 and agreed to cooperate with Brazilian authorities. The terms of its agreement with the MPF also impose measures designed to ensure that the company enhances its existing compliance programs.

Cooperation can be a mitigating factor

Rolls-Royce’s cooperation with and accountability to regulators appears to have factored into the global settlement. In the UK, the court acknowledged that, despite not initially self-reporting its conduct, Rolls-Royce cooperated extensively with the SFO since 2012, and “[c]ould not have done more to expose its own misconduct.”[4] This extensive cooperation was one of the primary reasons the court concluded that the DPA was in the interests of justice and a relevant factor in mitigation when assessing the value of the agreed penalty. However, the UK settlement does not conclude the matter in its entirety. As noted by the court, the SFO will continue to investigate the conduct of current and former Rolls-Royce employees. These individuals are afforded no protection from prosecution under the DPA and, given the wide-ranging allegations documented in the DPA’s statement of facts, more charges seem likely.

The US also acknowledged Rolls-Royce’s cooperation throughout the government investigation, including its thorough internal investigation, numerous factual presentations, and producing witnesses for interviews. Going forward, Rolls-Royce must continue to cooperate for three years under the terms of its settlement with the DOJ, and must promptly report any evidence or allegations of past or new FCPA violations, truthfully disclose all factual information, provide documents or evidence requested by the DOJ, and use its best efforts to make current and former officer, directors, employees and agents available for interviews or testimony.

SFO led investigation – A new trend?

To date, the US has irrefutably been the global leader in investigating and enforcing anti-bribery and anti-corruption offences. In 2016, twenty-seven companies paid approximately $2.48 billion to resolve criminal and civil FCPA enforcement matters with the DOJ and the Securities and Exchange Commission. In contrast, the SFO has been criticised for failing to undertake comprehensive investigations capable of securing high-profile convictions under the UK Bribery Act. This has led many commentators to conclude that the UK Bribery Act is less effective than the FCPA, despite the fact it is more extensive than the FCPA in terms of its jurisdictional reach and the conduct it prohibits.

Rolls-Royce’s DPA with the SFO is only the third of its kind endorsed by English courts. In each instance, courts have emphasized the importance of self-reporting. Indeed, Sir Brian Leveson noted in his judgment endorsing the Rolls-Royce settlement that a “DPA will likely incentivise the exposure and self-reporting of wrong doing by organisations in similar situations to Rolls-Royce. This is of vital importance in the context of the investigation and prosecution of complex corruption cases in bringing more information to the attention of law enforcement agencies so that crimes can be properly investigated, and prosecuted effectively. Furthermore, the effect of the DPA is to require the company concerned to become a flagship of good practice and an example to others demonstrating what can be done to ensure ethical good practice in the business world.”[5]

The Rolls-Royce settlement may also signal a new trend in global anti-bribery and anti-corruption enforcement. It is the single largest individual investigation the SFO has conducted to date, spanning a four year period, with over 30 million documents reviewed, and numerous arrests and interviews of current and former Rolls-Royce employees (taken both voluntarily and under compulsion). Additionally, the settlement follows in the footsteps of VimpleCom’s $795 million resolution with US and Dutch authorities in 2016, having been reached with the assistance of law enforcement officials in several jurisdictions, including Austria, Germany, the Netherlands, Singapore and Turkey. The scope of the SFO’s investigation and its cooperation with other global law enforcement agencies, together with the resulting penalty, should be a warning to businesses operating internationally that they may face scrutiny from several global regulators simultaneously and expect intense scrutiny of world-wide conduct.

Gone are the days of US authorities being the lone sheriff in town, policing foreign companies that have contacts in the US but consoling themselves to non-intervention by the home countries. Rather, companies must be aware that there are now consequences for non-compliance on their home turf as well. As the SFO and other foreign authorities demonstrate the will to pursue bribery and corruption cases, the US may allow the countries in which corrupt companies are domiciled to police those practices at home.

ARTICLE BY Jodi L. Avergun, Steven Baker, Bret A. Campbell, Joseph V. Moreno, Jenna Rennie & Janaki Tampi of Cadwalader, Wickersham & Taft LLP
© Copyright 2017 Cadwalader, Wickersham & Taft LLP

[1]   See SFO Case Information, Rolls-Royce PLC (17 January 2017), available athttps://www.sfo.gov.uk/cases/rolls-royce-plc/.

[2]   See Press Release, Rolls-Royce plc Agrees to Pay $170 Million Criminal Penalty to Resolve Foreign Corrupt Practices Act Case (17 January 2017), available athttps://www.justice.gov/opa/pr/rolls-royce-plc-agrees-pay-170-million-criminal-penalty-resolve-foreign-corrupt-practices-act.

[3]   See Serious Fraud Office v Rolls Royce PLC Rolls-Royce Energy Systems Inc [2017] at paragraph 63, available at https://www.judiciary.gov.uk/wp-content/uploads/2017/01/sfo-v-rolls-royce.pdf 

[4]   See Serious Fraud Office v Rolls Royce PLC Rolls-Royce Energy Systems Inc [2017] at paragraph  38, available at https://www.judiciary.gov.uk/wp-content/uploads/2017/01/sfo-v-rolls-royce.pdf. 

[5] See Serious Fraud Office v Rolls Royce PLC Rolls-Royce Energy Systems Inc [2017] at paragraph  60, available at https://www.judiciary.gov.uk/wp-content/uploads/2017/01/sfo-v-rolls-royce.pdf.