SEC Declines FCPA Action for Brookfield in Brazil

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The SEC has declined to proceed with an enforcement action after an investigation into allegations of bribery by employees of Brookfield Asset Management’s Brazil subsidiary, according to the Wall Street Journal.

Blockbuster Year Predicted for the FCPA in 2014

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Less than two months in to the new year, individuals are already predicting a massive year for prosecutions and settlements in Foreign Corrupt Practices Act cases, according to the South China Morning Post. The Foreign Corrupt Practices Act was passed in 1977 to halt bribery of foreign officials by United States companies. It also requires public companies to maintain accurate books and records as well as an effective system of internal accounting controls.

The year started off with a large, $384 million dollar settlement by Alcoa. One of its majority-owned units pleaded guilty to bribing members of Bahrain’s royal family and officials. A consultant hired by the unit bribed government officials in order to retain a contract with state-owned Aluminum Bahrain.

This announcement was followed up in late January by a decision from an Administrative Law Judge at the SEC who censured the Chinese affiliates of Big Four accounting firms KPMG, Deloitte Touche Tohmatsu, PricewaterhouseCoopers and Ernst & Young. They cited Chinese law in refusing to provide audit work papers to regulators conducting accounting fraud investigations of their clients. The decision prohibits the units from conducting audits on U.S. listed companies for six months. It is suspended pending the outcome of their appeal.

The Department of Justice has begun a criminal investigation into conduct by six major financial firms in Libya, according to Compliance Week. The Libyan Investment Authority invested up to $1 billion in Goldman Sachs, JPMorgan Chase, Credit Suisse, Societe Generale and Och-Ziff Capital Management. Goldman has been under investigation by the SEC since at least 2011.

Finally, Avon has just increased its settlement reserve for a FCPA investigation conducted by the SEC and DOJ to $89 million. It estimated settlement negotiations may impose liability of up to $132 million for bribery to Chinese officials. According to Bloomberg, the company has spent more than $300 million in its internal investigation and compliance reviews over the past five years. Chinese and U.S. authorities are investigating other major corporations for bribery as well.

New investigations by the SEC into bribery overseas could also be strengthened by the SEC Whistleblower program. The SEC has reported an increase in tips from international whistleblowers. Foreign tips are eligible for an award the same as tips submitted domestically.

Eric L. Young and the attorneys of McEldrew Young Purtell Merritt represent whistleblowers submitting tips to the SEC. If you would like to report a violation of the Foreign Corrupt Practices Act, please call Eric at 1-800-590-4116 or fill out the contact form to schedule a free, confidential consultation with one of our FCPA whistleblower attorneys.

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FCPA Report: Little Bribery by WalMart Outside India

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The Wall Street Journal is reporting that internal and government investigations into suspected violations of the Foreign Corrupt Practices Act (FCPA) by Wal-Mart Stores have not turned up the evidence of a massive bribery scheme that many commentators expected. Instead, the FCPA investigation discovered millions of dollars in improper payments to Indian officials to speed goods through customs or secure real estate permits but most of these payments were in small amounts of between $5 and $200.

However, there is still time for additional evidence to be uncovered before government officials make up their mind as to the potential size of any fine for the FCPA violations. One event that might alter the landscape of potential penalties would be if a whistleblower came forward with additional evidence and testimony concerning. The SEC whistleblower program incentivizes individuals with the promise of rewards of between 10 and 30 percent of monetary sanctions over $1 million that result from the information provided.

This series of events happened during the Government’s investigation into Countrywide. One of the mortgage whistleblowers in the case came forward with information about the Hustle loan program after the government investigation did not reveal the major misconduct.

The Government investigation of Walmart started in 2012 following public revelations by the New York Times and involved two dozen attorneys, investigators and agents at the DOJ, SEC, FBI and IRS. The results of the federal investigation reportedly match the results of the company’s own investigation.

Wal-Mart has spent more than $650 million as part of its investigation and efforts to bolster compliance. Initially starting in Mexico, it expanded to include, at a minimum, China, India and Brazil. Siemens AG, which paid $800 million to settle the investigations by the DOJ and SEC into its own bribery charges, reportedly spent more than $1 billion on its investigation and global remediation.

The article predicts that the potential government fine of WalMart will be well below previous estimates. In 2012, a Business Insider article calculated how the penalty imposed on the world’s largest retailer could reach over $13 billion. Instead, the Wall Street Journal surmised that because most of the bribery occurred in India and the company earned little profits in the country, there would be a relatively limited fine.

The WSJ story also suggests that there may not be any criminal charges against executives of Wal-Mart. Following the New York Times story concerning the potential cover up of millions of dollars of bribery in Mexico, this seemed unlikely. A grand jury was convened in the case but the status of it was not revealed by the article.

If you have evidence of bribery by a publicly traded corporation, contact one of our FCPA whistleblower attorneys for assistance reporting it to the U.S. Government. An attorney can be reached via our contact form or by calling 1-800-590-4116.

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Board Directors Liable for Whistleblower Retaliation and other SEC News

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There’s been a number of stories recently in the news that would be of interest to securities whistleblowers and potential whistleblowers.  We thought we would briefly recap the ones happening this week which we haven’t previously covered.

Individual Board of Directors Can Be Liable for Whistleblower Retaliation under Dodd-Frank

A decision in an anti-retaliation lawsuit by a FCPA whistleblower in the Northern District of California has held that Dodd-Frank’s SEC whistleblower protections can impose liability on individuals for their actions in contravention of the law. The Court concludes that Congress intended for Dodd-Frank’s protections to be at least as extensive the protections afforded by the Sarbanes-Oxley Act.

Earlier in the opinion, the Court determined that a whistleblower could hold individually liable a member of the corporation’s board of directors as an agent under Section 1514(a) of SOX.

The court opinion also reveals publicly the inner workings of the company’s internal FCPA investigation that led to the $55 million fine by the SEC and the Justice Department in November 2014. The General Counsel of the company identified China as an area of risk after the company began an investigation into potential bribery in other Southeast Asian Countries. However, two internal investigations by an external law firm led to reports that the company was not violating the law. According to the complaint, the General Counsel revealed problems with the internal investigations and was fired for concluding that management was turning a blind eye to the potential violations.

JPMorgan Settlement Looms for $200+ Million

JPMorgan has agreed to settle for more than $200 million the SEC investigation into insufficient disclosures to clients regarding its conflict of interest when selling its own bank products to private-banking clients. However, the settlement has been stalled for several weeks as the two sides argue over whether a waiver should be granted to allow the bank to sell stocks and bonds via private placements.

Certain bad actors are disqualified from underwriting private placements as a result of violations of the federal securities laws. In the past, the SEC has routinely grants waivers to the disqualification. However, over the past few months, the Commission has taken a harder stance and resisted granting such waivers.

IBM Accounting Fraud?

The SEC has opened an investigation into revenue recognition by IBM into certain deals in the United States, Britain and Ireland. IBM announced the investigation to shareholders yesterday after learning about it in August. The SEC previously investigated the company’s cloud computing business for revenue recognition issues in 2013. The securities regulator closed that investigation with recommending an enforcement action.

There may be more announcement of actions like this one in the future. The SEC has made tackling accounting fraud a significant priority. Additionally, the Financial Accounting Standards Board issued a new revenue recognition standard in May 2014. As that standard is fully implemented over the next few years, it is expected to have a significant impact on financial reporting and ambiguities in the law may further heighten the likelihood of enforcement actions against companies.

Another Credit Ratings Agency Settles

At the tail end of the financial crisis, a credit rating agency, DBRS, published its surveillance methodology. However, according to the settlement with the SEC, DBRS failed to conduct its credit rating analysis according to the terms of that methodology for the next three years and it failed to publish changes to the document pursuant to the methods contained therein.

DBRS is regulated by the Rating Agency Act as a nationally recognized statistical rating organization (NRSRO). The SEC order found violations of numerous provisions of the federal securities laws related to its NRSRO application, annual certification and resources/internal controls. The company agreed to pay a penalty of nearly $3 million and disgorge rating surveillance fees of nearly $3 million.

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Telia Settles FCPA Bribery Investigation for $965 Million


The United States has concluded its third-largest FCPA enforcement action with a settlement of $965 million in total penalties (including Dutch and Swedish penalties) by Telia Company AB and its subsidiary, Coscom. The Acting U.S. Attorney of the Southern District of New York called it “one of the largest criminal corporate bribery and corruption resolutions ever.”

Next FCPA Investigation From Brazil: Eletrobras


Eletrobras, the tenth largest power utility company in the world and the largest electricity provider in Brazil, has hired a law firm to investigate potential violations of the Foreign Corrupt Practice Act. For those that have been paying attention to the bribery scandals involving the country generally and Petrobras specifically, this should not be a big surprise.

Media attention may have shifted away from Brazil momentarily because of the breaking news over the FIFA corruption scandal. But the pendulum should swing back to the Latin American country soon. It seems that corruption is everywhere there.

Eletrobras delayed its annual report in April because of allegations that the chief executive of Eletronuclear, its subsidiary, took bribes. The investigation by law firm Hogan Lovells is focused on contracts with construction companies implicated in the Brazilian Government’s investigation and other large contracts entered into by the company.

The FCPA Blog is predicting that Petrobras and Eletrobras could yield a substantial number of enforcement actions by the SEC or the DOJ. Since they are publicly traded in the United States, they are subject to the FCPA, the U.S. anti-bribery law. And as state-owned enterprises, any individual or company that bribed them in order to obtain or retain a contract or other business would also violate the FCPA. So the potential is there for these two disclosures to kickstart enforcement actions against many other companies, if the corruption was widespread.

Are you considering blowing the whistle on bribery by a publicly traded company? Review our FCPA whistleblower guide and then contact one of our SEC whistleblower attorneys to have your questions answered. An attorney can be reached by our contact form or by phone at 1-800-590-4116.

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The FCPA Under Attorney General Jeff Sessions

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Attorney General Jeff Sessions reaffirmed the Justice Department’s commitment to enforce the Foreign Corrupt Practices Act (FCPA) spoke last Monday in a speech at the Ethics and Compliance Initiative Annual Conference. Statements by President Trump before running for office ridiculing the anti-bribery law had put the administration’s enthusiasm for enforcing the law into doubt.

Crackdown on Corruption, State-Owned Enterprises in China

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The Chinese Government’s anti-corruption campaign has targeted its highest ranking official so far, charging former security chief Zhou Yongkang with bribery, abuse of power and intentional disclosure of state secrets. Bloomberg reports that Chinese President Xi’s anti-graft investigations have identified a large number of state officials in the past two years at various levels of the Communist Party.

The investigation into corruption in China in 2015 will also include investigating 26 key state-owned enterprises in various industries. The South China Morning Post reports that a nationwide audit found more than $6 billion in public funds and state capital had been misused.

China also plans to overhaul its state-owned enterprise system in order to boost its economy and disconnect the ties between their role as regulator and their ownership of the entities. China will reportedly consolidate some of the larger SOEs as part of its “Made in China 2025” strategy. State-owned enterprises in China manage more than 25 trillion yuan, which is roughly $4 trillion in U.S. dollars. The Wall Street Journal reports that industrial state-owned firms average less than half of the return on equity of their private counterparts.

For U.S. companies and issuers in China, it doesn’t look like this change will remove their status as state owned enterprises so interactions with them will continue to put the company at risk for violations of the Foreign Corrupt Practices Act. According to the January 2015 count by FCPA Blog, there were 40 corporate investigations into possible FCPA issues in the country.

There has even been some speculation that changes to the corporate structure could actually increase the risk of problems for U.S. companies as it becomes less clear which joint ventures or new public companies have ties to the state or the new asset managers. This prospect brings with it the risk of penalties for violations by the Securities and Exchange Commission and/or the Department of Justice.

There is also the potential for large fines coming out of China. Last year, China fined GlaxoSmithKline nearly $500 million from its suspected bribery of Chinese authorities.

China isn’t the only country trying to clean up the way business is done with its government recently. Brazil is looking into multi-billion dollar corruption allegations at Petrobras and in its tax department. South Africa also recently announced an investigation into a $3 billion train contract awarded to Bombardier, a Canadian transportation company.

We represent individuals with information about corruption and suspected FCPA violations. The SEC whistleblower program authorizes rewards for certain individuals if the terms and conditions of the law are met. For additional information, please contact one of our FCPA whistleblower attorneys.

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Brazil: Where were the FCPA Whistleblowers?

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Brazil may be the next hotbed of FCPA activity for the SEC and, based on early reports, there wasn’t an uptick in the number of international whistleblowers tips coming from the country concerning suspected violations. If the goal of the SEC whistleblower program is to alert regulators to areas of concern before they become public knowledge, then this disconnect should be concerning.

The Foreign Corrupt Practices Act bars U.S. companies and U.S. issuers from making payments to foreign officials to obtain or retain business. It also prohibits the lack of internal accounting controls that allows employees, subsidiaries and intermediaries to make prohibited payments. Five years ago, the Dodd-Frank Act authorized rewards to whistleblowers who provide information about FCPA and other securities law violations to the U.S. Securities and Exchange Commission.

The FCPA Blog keeps track of the countries where companies have disclosed internal investigations into potential FCPA violations. On the January 2015 list, Brazil was #2 overall. It received mentions in the disclosures by ten companies. Only China had it beat (and substantially so) with 40 mentions by businesses.

The news coming out of Brazil suggests that this number has the potential to explode upward. The Brazil government is now looking into allegations concerning two multi-billion dollar corruption scandals. State owned oil giant Petrobras has been in the news for a couple months now. But only last week, authorities there announced a tax fraud scheme involving the tax appeals board at the Finance Ministry. The government is investigating seventy companies across a number of different injuries for bribing tax officials.

Brazil is also spending substantially to get ready for the Olympics, and corruption has been suspected in some of these contracts as well. Bilfinger, a German engineering firm covered by a deferred prosecution agreement in 2013 with the Justice Department for FCPA violations in Nigeria, said that the company discovered possible compliance violations related to its provision of monitor walls for security centers.

It seems only a matter of time before US companies come forward based on their activities in Brazil. Although the corruption scandal has predominately involved Brazilian companies, other international companies with operations in Brazil have disclosed problems and investigations. InBev disclosed it was under investigation by Brazilian authorities for hiring a former government official. The SEC also extended the deferred prosecution agreement for orthopedic device manufacturer Biomet last month in light of the company’s disclosure of potential additional violations related to the company’s operations in Brazil and Mexico.

Our SEC whistleblower attorneys throughly analyze the reports released by the SEC Whistleblower Office every year.  We now have three full years of data on the countries of origins under the securities whistleblower law. During Fiscal Years 2012 to 2014, there have been only 13 tips from individuals located in Brazil. This data, because of the fiscal calendar of the U.S. Government, runs from October 1, 2011 through the end of September 2014.

With only 13 tips, Brazil is not even the leading country in South America and substantially behind its BRIC peers. Argentina (22) and Mexico (14) both are head of Brazil. India (120), China (111) and Russia (32) outpace the country by a wide margin.

If the goal of the whistleblower program is to provide early warning to regulators about problem areas, then we would have expected this to be an area of high activity over the past few years. Given the reports of widespread corruption in Brazil, that is not being disclosed should have been reported.

At the end of last year, we posted about the OECD Working Group on Bribery report on whistleblowing in Brazil. The report commented on the lack of investigations opened by Brazil as a result of whistleblowers. It offered a cultural aversion to and suspicion of the government as possible explanations.

There are two additional possible explanations for the lack of tips to the SEC whistleblower program besides the obvious possibility that US and multinational companies simply aren’t engaged in bribery in the country. It may be that individuals aren’t aware of it. The publicity about the program here in the United States doesn’t necessarily reach the general Portuguese-speaking public in Brazil. Additionally, some of those fully informed about the option might choose to decline to participate because of the lack of extraterritorial application of the anti-retaliation provisions offered by the Dodd-Frank Act.

There are many other potential explanations for the difference between the number of tips received by the SEC and the number of news stories about corruption coming out of the country, including the possibility that U.S. and multinational corporations operating in Brazil haven’t actually been involved in the bribery of public officials. The SEC whistleblower program is also still in its infancy. The 5 year anniversary of the Dodd-Frank Act is this year and the securities regulator is still getting the word out.

So it is far too early to draw any firm conclusions in this area. It is simply a preliminary hypothesis based on the news reports that we have seen and the data that has been provided by the U.S. Government. If you have other thoughts, our FCPA whistleblower attorneys would love to hear them.

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BNY Mellon Fined for Internships; Ford Investigated for Russian Customs Bribes

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Bank of New York Mellon has agreed to pay $14.8 million to settle the SEC investigation into possible violations of the Foreign Corrupt Practices Act regarding internships it provided to family members of sovereign wealth fund officials.

The SEC accused BNY Mellon of hiring the family members to win or keep investment contracts involving the sovereign wealth fund assets. Their internship programs are highly competitive and the investment bank did not apply the normal rigorous process to applicants related to individuals qualifying as foreign officials under the FCPA. BNY Mellon neither admitted nor denied the charges in the settlement.

Investment banks have been under investigation since 2011 when the SEC began its industry-wide bribery investigation by seeking information from multiple banks within its jurisdiction. Goldman and Deutsche Bank have also disclosed investigations into their hiring practices.

In other FCPA news, the SEC is reportedly investigating Ford for Russian customs bribes. The SEC has joined a German investigation into bribes by U.S. automaker Ford and German freight company Schenker into suspected bribery at the port of St. Petersburg in Russia. According to Reuters, the port is known for long delays and the alleged bribes were to speed the passage of containers through Russian customs. As a U.S. issuer trading on the New York Stock Exchange, Ford must comply with the terms of the Foreign Corrupt Practices Act.

Questions about this or other FCPA issues? We have put together an informational guide for FCPA whistleblowers that may answer your question. If you have need additional information, contact one of our FCPA whistleblower attorneys. We can also assist you in reporting your evidence of bribery by a publicly traded company or other covered entity to the Securities and Exchange Commission. Please contact an attorney via our contact form or call 1-800-590-4116.

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