Overview
The US Department of Justice (DOJ) and the Securities & Exchange Commission (SEC) went back to the well again in 2020, dipping into Asia for more than half of their corporate enforcement actions. Seven of the ten DOJ criminal enforcements and four of the nine SEC actions involved companies operating in the Asia-Pacific region, including China, Malaysia, Hong Kong, Singapore, Taiwan, Sri Lanka, Indonesia, and Vietnam. Also of note were the actions taken against a few individuals relating to the Alstom prosecution, and final resolutions for others, as well as two key declinations for companies accused of paying bribes to regional government officials.
Here are 2020's top ten FCPA enforcement actions in the Asia-Pacific region.
1. Airbus SE
On January 31, Airbus SE agreed to pay more than USD 3.9 billion to US, UK, and French authorities for bribing government officials and non-governmental airline executives around the world. In the Deferred Prosecution Agreement (DPA), Airbus admitted that it made payments to a business partner to use as bribes to Chinese government officials for approval of aircraft purchases by state-owned and controlled airlines. Because some of the Airbus products involved defense articles and defense services, Airbus' failure to disclose the political contributions, commissions, or fees associated with these sales also violated the US International Traffic in Arms Regulations (ITAR).
In a global settlement, Airbus paid USD 592 million for the FCPA and ITAR violations, which was partially offset by the USD 2.31 billion paid to the Parquet National Financier of France for bribery in China and other countries, and the equivalent of USD 1.09 billion to the UK Serious Fraud Office for bribery in Malaysia, Sri Lanka, Taiwan, Indonesia, and Ghana.
Takeaway: Compliance personnel of companies operating in certain industries should pay attention not only to potential FCPA and money laundering breaches, but also other relevant regulatory obligations triggered by the concealment of such corrupt payments.
2. Cardinal Health, Inc.
On February 28, Cardinal Health agreed to pay the SEC USD 8.8 million in disgorgement, prejudgment interest, and civil penalties under a cease and desist order to resolve violations of the FCPA books and records and internal control provisions. The SEC found that Cardinal Health's internal controls failed to stop employees of the company's former China subsidiary from making improper payments from its marketing accounts to promote the products of a third-party company to government-employed healthcare and retail workers who had influence over procurement decisions. The SEC also found that because the profits the third-party company derived from these improper payments were shared with Cardinal Health, it had failed to maintain complete and accurate books and records regarding the marketing accounts.
Takeaway: A US issuer operating overseas through a subsidiary on behalf of a third company is still subject to US regulatory requirements.
3. Novartis AG & Alcon, Inc.
On June 25, Novartis AG, its Greek subsidiary, and Alcon Pte Ltd., a former subsidiary of Novartis based in Singapore, agreed to pay more than USD 345 million to resolve criminal and civil FCPA violations in Greece, Vietnam, and South Korea. Novartis AG paid USD 112 million to settle SEC charges relating to violations of the books and records and the internal accounting control provisions; the current and former subsidiaries agreed to three-year DPAs, paying USD 225 million and USD 8.9 million to the DOJ, respectively.
The companies' conduct included paying bribes through third-party medical journals disguised as honoraria, making improper payments through "consultants" to healthcare providers to increase sales of prescription drugs and lenses, and reimbursing travel to international conferences. Novartis AG, a repeat offender, was also faulted for merely rebranding, rather than halting, Alcon’s consultancy program after their 2011 merger (e.g., patient education, margin reconciliation costs).
Takeaway: Same song, second verse—international travel, distributors, pre-and post-acquisition due diligence, and successor liability issues continue to affect the life science industry.
4. Herbalife
On August 28, Herbalife agreed to pay more than USD 123 million to resolve FCPA charges with the DOJ and SEC. Herbalife admitted that its subsidiaries in China made payments and provided meals, gifts, and other benefits to government officials to obtain sales licenses and curtail government investigations, in addition to providing benefits to state-owned media to remove negative coverage. Employees submitted fake invoices and false expense reports, and Herbalife falsely maintained Sarbanes-Oxley sub-certification letters in its books, records, and accounts. According to the SEC cease and desist order, the internal audit director dismissed a board member's query about high reimbursements as being within "tolerance."
Takeaway: For US issuers, effective implementation of internal control policies is essential to compliance with the FCPA.
5. Goldman Sachs Group, Inc. and Goldman Sachs (Malaysia) Sdn. Bhd.
On October 22, Goldman Sachs Group Inc. and a Malaysian subsidiary resolved criminal and civil FCPA charges with the SEC and DOJ relating to the 1Malaysia Development Berhad (1MDB) scandal. The approximately USD 2 billion Goldman Sachs paid to US authorities is the highest penalty ever paid in an FCPA case, and this in addition to the USD 3.1 billion the company paid to UK, Hong Kong, Malaysia, and Singapore authorities. According to Goldman Sachs' DPA, the SEC cease and desist order, and the plea agreement of Goldman Sachs' Malaysian subsidiary, the company admitted that it knowingly and willfully conspired through agents and employees to pay more than USD 1.6 billion to government officials and their relatives and earned more than USD 600 million in underwriting and advisory fees. The SEC found that Goldman Sachs failed to maintain sufficient internal accounting controls in these bond offerings, and that the company’s books and records did not accurately reflect key facts relating to these transactions. The DOJ found that Goldman Sachs' control functions failed to block the involvement of Malaysian businessman, Jho Low, the alleged mastermind of the 1MDB scheme, even after certain associated risks of his involvement were identified.
Takeaway: US authorities coordinated the enforcement action with Singapore and Hong Kong, including crediting fines to the Singaporean and Hong Kong authorities, a trend that is likely to continue.
6. Beam Suntory
On October 27, Beam Suntory Inc. agreed to a three-year DPA and a criminal penalty of more than USD 19 million. The company admitted that its Indian subsidiary paid bribes to Indian government officials to secure orders, obtain preferred product placement at government-run retail outlets, acquire and maintain license registrations, and facilitate distribution throughout India. Because the company did not disclose the corrupt conduct to the government in a timely fashion, and due to the involvement of high-level employees in the corrupt conduct as well as the company's failure to fully cooperate and fully remediate, the company received only a partial reduction on its penalty.
Takeaway: Proactive and full cooperation, remediation, and a timely/prompt response can be beneficial in reaching a preferred resolution with US authorities in the case of FCPA violations.
7. Prosecution of Individuals Involved in the Alstom Case
On February 18, the DOJ indicted Reza Moenaf and Eko Sulianto, both former executives of Alstom's Indonesian subsidiary, and Junji Kusunoki, a former executive at Marubeni Corporation. The DOJ alleged that the three defendants paid bribes through two "consultants" to members of the Indonesian Parliament and the president of a state-owned and controlled electricity company, to secure a construction contract for a power plant.
On February 26, a federal court partially overturned the jury conviction of Lawrence Hoskins, a former Alstom executive, determining that the US government failed to demonstrate that Hoskins was acting as an "agent" of the US subsidiary of Alstom in the corruption scheme, or that he was a "domestic concern" subject to FCPA jurisdiction. Hoskins, a British citizen who worked for the UK subsidiary of Alstom, was first charged in July 2013 with conspiracy to bribe Indonesian government officials. After years of legal wrangling including a series of setbacks restricting how DOJ can pursue non-US defendants involved in foreign corruption matters, and despite his acquittal on FCPA charges, Hoskins was sentenced in March 2020 to 15 months in prison and fined USD 30,000 based on a money laundering conviction. For more detailed analysis, please visit Steptoe's blog post.
In contrast to Hoskins' sentence, two other former employees of Alstom who cooperated with the DOJ received lighter sentences. On April 14, Edward Thiessen, a Canadian citizen, was credited for his cooperation with the DOJ's enforcement action and sentenced to time served, along with a USD 15,000 fine. On the same day, Larry Puckett, described as a "minimal participant," was sentenced to 100 hours of community service and a USD 5,000 fine.
Takeaway: While the Hoskins rulings limit the DOJ’s overall power to pursue non-US defendants in foreign corruption matters, the DOJ will continue to assert its jurisdictional weaponry.
8. Other Individual Enforcement Actions
Deck Won Kang: On December 17, Deck Won Kang pleaded guilty to violating the FCPA. Kang admitted that he paid more than USD 100,000 to a high-ranking official in the South Korean Navy and later to a procurement official in exchange for non-public information in order to obtain and retain sales contracts with the Defense Acquisition Program Administration (DAPA) of the Republic of Korea’s Ministry of National Defense.
Patrick Ho: The Second Circuit, on December 29, ruled against the appeal of the FCPA conviction of Patrick Ho, a Hong Kong businessman. Ho unsuccessfully appealed on the grounds of insufficient evidence and that the FCPA sections with which he was charged were mutually exclusive. For more detailed analysis, please see Steptoe's blog post.
9. Declinations
Uber: In January 2020, the ride-share company stated in a regulatory filing that the DOJ ended a two-year investigation into whether Uber violated the FCPA. The DOJ's FCPA investigation against Uber was first reported in August 2017, relating to allegations of improper payments in Indonesia, Malaysia, China, and India.
USANA: In July 2020, USANA disclosed in an 8-K filing that the SEC and DOJ closed their investigations of the company's 2017 voluntary disclosure of potential violations of the FCPA by its China operations.
10. Bonus: Liu v. SEC
On June 22, the US Supreme Court ruled on the SEC's use of disgorgement as a tool to resolve its investigations. While not an FCPA case, the Court's ruling was broadly applicable and may impact future FCPA resolutions. The SEC charged Charles Liu and Xin (Lisa) Wang with defrauding Chinese investors in the construction of a cancer-treatment center that the couple falsely claimed met the requirements of the EB-5 Immigrant Investment Program, and instead diverted the funds. The Court ruled that it is equitable to "deprive wrongdoers of their net profits from unlawful activity," and further provided lower courts with guidance on how to assess the disgorgement argument that an "equitable, profit based remedy must do more than simply benefiting the public at large by depriving the wrongdoer of ill-gotten gains." Finally, the Court held that there can be legitimate claims of expenses to be deducted from the profits in calculating disgorgement amounts.
Takeaway: The Liu ruling will require the SEC to conduct more thoughtful analysis in ordering disgorgement of profits. For more detailed analysis, please see Steptoe's blog post.
Conclusion
In 2020, there continued to be a number of high-profile enforcement actions by US authorities related to the FCPA in the Asia-Pacific region. We observed the continuing trend of the US government coordinating its efforts with international enforcement partners, and saw record-breaking fines. While US authorities' broad interpretation of the FCPA did encounter some pushback from the courts, there is no reason to believe that the DOJ and the SEC will stop aggressively pursuing corruption in 2021.
