Overview
Whether the purported "strong pipeline" of US Foreign Corrupt Practices Act (FCPA) cases was clogged in 2021 by COVID, the Biden administration transition, or the downward trend in company disclosures, the total of only four corporate enforcement actions between the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) can only be described as a trickle. And yet, even in this small sample size, there is an Asia-Pacific nexus to three of the cases. This focus highlights the need to include the region in any compliance review and internal investigation regardless of where the initial violations arise.
Beyond those three cases, there were other interesting FCPA developments relevant to Asia, including the closure of several long-running deferred prosecution agreements (DPAs) and a declination, a few sentences imposed on high-profile individuals, and massive whistleblower rewards linked to cases based in the region. Additionally, new investigations were disclosed involving Asia-based companies or conduct. Finally, to reach the all-important Top Ten quota, we include some developments in law that will impact how these cases are investigated and prosecuted in 2022 and beyond.
Here are 2021's top-ten FCPA enforcement actions involving the Asia-Pacific region.
1. Deutsche Bank AG
On January 8, 2021, Deutsche Bank AG agreed to pay a combined penalty and disgorgement of more than USD 122.9 million pursuant to a three-year DPA with the DOJ and a Cease and Desist Order with the SEC for FCPA violations in China and other countries. According to the SEC, in China, the bank hired a consultant, without conducting the required due diligence, to establish a clean-energy investment fund with a Chinese government entity. The consultant, a “senior advisor” to the regional government with which the fund was to be established and a "close friend" of the government official whose approval was needed, submitted invoices, including for gifts and entertainment to government officials which did not comply with the bank’s internal controls.
The bank had disclosed in a 2017 SEC filing that the SEC and DOJ were investigating its engagement of finders and consultants, in addition to its hiring practices in Asia-Pacific. It resolved the latter in August 2019 when it paid the SEC USD 16 million.
Takeaway: It is not accurate to characterize Deutsche Bank as a "repeat offender" as the conduct underlying both settlements occurred in the same time period and the investigations were conducted in parallel, although settled separately. The delay in the second settlement was more likely due to the complexity of the business consultant investigation and additional agencies involved. It is clear that the bank benefitted from a comprehensive "one-and-done" investigation that covered the gamut of potential FCPA violations. This allowed the bank to focus on full remediation and compliance measures required under the first DPA. The agencies credited this and the bank’s full cooperation with the current investigation, including making foreign-based employees available for interviews in the United States and producing overseas documentation.
2. Amec Foster Wheeler Ltd (AFWL)
On June 25, 2021, AWFL, a UK-based engineering company, announced a global settlement with the DOJ and SEC, as well as Brazilian regulators and the UK Serious Fraud Office (SFO), agreeing to pay fines, penalties, and disgorgement of USD 177 million in total (including US offsets). While the US agencies focused on conduct in Brazil (Unaoil), the UK SFO alleged a broader pattern of paying officials to win oil contracts in India and Malaysia, as well as other countries, in violation of the UK Bribery Act. In approving the UK DPA, the judge noted that the conduct had been known and ignored by AFWL since 2007, through two corporate takeovers, until finally resolved as part of the Petrobras investigation.
Takeaway: Pre- and post-acquisition due diligence was lacking in each merger, but the ultimate parent company avoided legal liability, though not financial liability, due to its cooperation, remediation, and strong compliance program. The chief of the SEC's FCPA unit warned, "The potential for a new market cannot be a siren's song that overwhelms good corporate governance."
3. WPP
On September 24, 2021, WPP, the world's largest advertising group, based in London, agreed to pay USD 19.2 million in penalties and disgorgement to the SEC for bribes paid by its subsidiaries in India, China, and other countries. According to the SEC, following the acquisition of localized agencies in high-risk markets, WPP failed to exercise adequate oversight over the largely autonomous local CEOs, made their pay contingent on hitting sales goals that could only be met by continuing to pay bribes, undertook no pre-or post-acquisition due diligence, had no compliance department, and ignored at least seven anonymous complaints of bribery and other warning signs in India alone. In India, third-party vendors were used to create slush funds, including an entirely fictitious advertising campaign, yet a 2015 investigation by an auditing firm, acting at the direction of the Indian subsidiary's management, was closed with no further action. In China, a vendor successfully overcame tax exposure and an audit by making payments and gifts to tax officials.
Takeaway: Besides the usual reminder of the need for due diligence, compliance infrastructure, and adequate oversight of newly-acquired far-flung subsidiaries, the case raises issues related to unwise pay incentives, the risk of allowing bribery participants to direct/shape the investigation, and the need for experienced international legal counsel when serious red flags arise.
4. Individual Enforcement Actions
Heidi Hong Piao: On March 5, 2021, the last participant in the scheme to bribe the late former president of the UN General Assembly was sentenced to time served. In 2016, Piao pled guilty to, among other misconduct, funneling bribes on behalf of Chinese real estate billionaire Ng Lap Seng to obtain clearance to build a convention center in Macau. Piao agreed to cooperate against her co-conspirators, as well as Patrick Ho, convicted of an unrelated bribery scheme.
Deck Won Kang: On May 19, 2021, Kang was sentenced to three years' probation and forfeiture of USD 1.5 million following his guilty plea, admitting that he made payments to a high-ranking official in the Korean Navy and a procurement official in exchange for non-public information in order to obtain and retain sales contracts. Kang had already served two years in a South Korean prison.
Enrico DeGuzman: On September 3, 2021, the 28th defendant in the "Fat Leonard" investigation, US Marine Corps Colonel DeGuzman pled guilty to accepting gifts, meals, and entertainment to use his official position to assist a Singapore-based company to win US Navy business. Trial of the remaining defendants is scheduled for February 2022.
5. Whistleblower Awards
Of the SEC's record-breaking USD 370 million whistleblower awards in 2021, at least two were granted in connection with FCPA-related Asia-Pacific corporate enforcement actions.
Panasonic: In May 2021, the SEC awarded USD 28 million to a non-employee whistleblower who provided information that resulted in two investigations, subsequently identified as relating to the 2018 USD 280 million DOJ and SEC settlement with Panasonic Avionics Corporation (PAC), a US subsidiary of a Japanese electronics company. Interestingly, the whistleblower’s information about PAC's wrongdoing involved countries not involved in the ultimate FCPA charges nor was there, according to the SEC, "a strong nexus" with those charges. Accordingly, the award was "only" 10%.
Juniper: In August 2021, the SEC awarded USD 3.5 million for "new information that caused the SEC to expand an existing investigation into a new geographic area." The investigation related to the 2019 USD 11.7 million SEC settlement with Juniper Networks for official travel paid for by Juniper's China and Russia subsidiaries. The SEC awards an automatic 30% of the total sum for awards of USD 5 million or less.
6. New Investigations
Among the record low FCPA investigations disclosed by companies were these Asia-based matters:
Cisco Systems reported its internal investigation and voluntary disclosure to the SEC and DOJ of payments by now-former employees in China to third parties, including employees of PRC state-owned enterprises.
Toyota Motor Co., the Japanese car manufacturer, reported to and was cooperating with the DOJ and SEC in an investigation of anti-bribery violations related to its Thai subsidiary.
Koninklijke Philips, a Dutch-based health technology company, disclosed the expansion of its investigation of compliance concerns in China and Brazil to include Bulgaria as well.
Scania, a Swedish subsidiary of Volkswagen, admitted in response to media inquiries that it had disclosed to VW's external monitor the results of an internal investigation of potential bribery to win public bus contracts in India, but asserted that it had no obligation to report to regulators.
Smith & Nephew, a UK-based medical device company, disclosed an SEC investigation of possible anti-bribery violations in India in an SEC filing.
Grab, the Singapore-based delivery company that operates in Southeast Asia, announced in connection with its SPAC merger its voluntary disclosure of potential FCPA violations in one of its countries of operation to DOJ.
Bombadier, a Canadian aircraft manufacturer, disclosed that it had opened an internal investigation related to the procurement of a Bombadier plane by Garuda Indonesia airline whose CEO was convicted for taking kickbacks. The SFO opened its investigation in 2020 and in February 2021, DOJ requested documents and information regarding the Garuda transaction.
Edwards Lifesciences disclosed that it is investigating and has disclosed to DOJ and the SEC potential FCPA violations related to grants and payments in Japan.
7. Declination
Pactiv Evergreen: In May and in August 2021, Pactiv Evergreen announced that the DOJ and SEC, respectively, had expeditiously closed their investigations of the company. The company had made its disclosure in September 2020, followed by a report in February 2021, that its Shanghai operations had occasionally provided nominal-value gift cards to PRC government regulators and SOE employees, as well as certain other noncompliant gift, travel, and entertainment benefits.
8. Closures
Several companies, covered in previous editions of this Top Ten report, successfully completed their highly-publicized DPAs and emerged successfully from DOJ oversight.
Zimmer Biomet Holdings: In February 2021, DOJ dismissed the last FCPA charges against the medical device manufacturer, following successful completion of two DPAs, in 2012 and 2017.
Panasonic: In March 2021, PAC successfully concluded its two-year monitorship pursuant to its 2018 DOJ and SEC settlement, described above.
Keppel Offshore & Marine: In June 2021, FCPA charges were dismissed against Singapore-based oil rig builder Keppel, following its compliance with the 2017 two-year DPA requirements.
9. Relevant Developments in China
In January 2021, China communicated its key areas of focus for increased anti-corruption enforcement efforts (the financial sector, state-owned enterprises, and law enforcement) and its anti-corruption priorities (state-based investment projects, infrastructure construction, project approval, state-owned enterprise reform, public resource allocation, and scientific research management). See January 24, 2021, Chinese Communist Party’s Central Commission for Discipline Inspection (CCDI) communique.
Interestingly, while the January CCDI communique pushed for international cooperation, China later made such cooperation more difficult by enacting its Data Security Law (DSL) and Personal Information Protection Law (PIPL). These new laws impose a new government approval requirement for transfer of such data stored in China in response to requests from judicial or enforcement agencies outside of China. The DSL and PIPL, together with the International Criminal Judicial Assistance Law, the State Secrets Law, and the Cybersecurity Law, establish a framework to govern cross-border transfers of information and material that, in addition to penalties, could also result in a higher risk of parallel investigations and enforcement.
Finally, of note, was the September 8, 2021, CCDI anti-bribery guideline that includes a blacklist for companies and individuals who offer or pay bribes in China, an extension of China’s usual focus on bribe takers, i.e., government officials and SOE employees. The guidelines also present the possibility of follow-on prosecutions in companies who admit to bribery in China to other authorities, so-called "carbon copy" prosecutions.
10. Relevant Developments in the United States
The Biden Administration declared "combating corruption" to be a "core US national security interest" in the June 3, 2021, National Security Study Memorandum and "surged resources" to the DOJ Fraud Section, including additional prosecutors and an embedded FBI unit.
Congress, too, provided enhanced enforcement tools through passage of the Anti-Money Laundering Act, as part of the National Defense Authorization Act for FY 2021. This legislation expands the authority of DOJ and Treasury to subpoena overseas records of a non-US bank that uses the US correspondent banking system, subject to penalties, court action, and exclusion from the US banking system for non-compliance. This sets up a direct conflict with the PRC data protection laws described above.
Conclusion
The true strength of the existing FCPA pipeline, and whether it continues to include the Asia-Pacific region or pivots elsewhere, will be revealed in 2022. It generally takes three to four years to complete an investigation and reach a resolution in these cases. So, too, will we see whether the professed aim of multi-government coordination gives rise to impactful cases or is stymied by data protection laws and blocking statutes. Compiling a Top Ten List of Asia-Pacific FCPA cases should not be this hard!
