In recent months, the U.S. Department of Justice (DOJ) and Securities & Exchange Commission (SEC) have announced several notable penalties for violations of the U.S. Foreign Corrupt Practices Act (FCPA). The FCPA prohibits bribery of foreign government officials and requires issuers of securities on U.S. exchanges to keep and maintain accurate books and records and robust internal controls.
We have summarized a few of these enforcement actions below to serve as a reminder of the various ways in which companies can fall afoul of the FCPA.
Goldman Sachs Pays Largest-Ever FCPA Penalty
In October 2020, Goldman Sachs Group Inc. (Goldman Sachs) agreed to a $3.3 billion penalty to resolve allegations that the company and its Malaysian subsidiary violated the FCPA by making payments to a Malaysian sovereign wealth fund 1Malaysia Development Berhad (1MDB). This represents the largest-ever FCPA penalty imposed on a company.
The DOJ and SEC alleged that senior employees of Goldman Sachs used a third-party intermediary to bribe high-ranking government officials in Abu Dhabi and Malaysia. The improper payments were allegedly made by Goldman Sachs to assist with efforts to obtain business from 1MDB.
Goldman Sachs entered into a deferred prosecution agreement with the DOJ under which the company agreed to pay a criminal fine of $2.3 billion. Interestingly, Goldman Sachs is obligated to pay only $1.27 billion of the total fine to the DOJ: it was agreed that the remaining fine amount will be paid to the SEC and enforcement authorities in Hong Kong, Singapore, and the United Kingdom.
In connection with the same fraud scheme, in November 2018, the former chairman of Goldman Sachs in Southeast Asia pleaded guilty in the United States to two counts of conspiring to launder money and violate the FCPA in connection with the 1MDB scheme. He forfeited nearly $44 million as part of his plea and is cooperating with U.S. regulators. In addition, a former managing director of Goldman Sachs and head of investment banking for the company’s Malaysian subsidiary has been charged by the DOJ with conspiring to launder money and to violate the FCPA. He was extradited from Malaysia to face these charges and is scheduled to stand trial in March 2021.
Finally, in July 2018, the Malaysian government issued a warrant for arrest for Low Taek Jho, the alleged architect of the 1MDB scheme. In October 2018, Low was indicted by the DOJ for conspiracy to violate the FCPA’s anti-bribery and internal controls provisions, and conspiracy to commit money laundering. Low has failed to appear in U.S. court; his current whereabouts are unknown.
Florida Company Pays Penalty for Bribing Officials of State-Owned Oil Companies
In September 2020, Sergeant Marine Inc. (Sergeant Marine), an asphalt company based in Florida, entered into a guilty plea for conspiracy to violate the FCPA and agreed to pay a criminal fine of $16.6 million. The company also committed to improve its corporate compliance program and report on those efforts to DOJ annually for three years.
Notably, while the DOJ calculated the “appropriate” criminal penalty to be $90 million in this matter, the fine was ultimately reduced by more than $73 million due to the company’s inability to pay. As stated in the plea agreement, the DOJ “determined that a criminal fine greater than $16,600,000 would substantially threaten the continued viability of the Company….” This financial hardship might be at least part of the reason that the company was not required to engage a monitor.
According to the DOJ, Sargeant Marine paid millions of dollars in bribes to foreign officials in Brazil, Ecuador, and Venezuela to obtain contracts to sell asphalt to the countries’ state-owned and/or state-controlled oil companies. The DOJ asserted that Sargeant Marine entered into fake consulting agreements with intermediaries in each country. Those intermediaries would send fake invoices for consulting services to Sargeant Marine, which would then make payments to shell companies controlled by the intermediaries. The intermediaries would keep a commission for themselves and use the rest of the money to pay bribes.
Deutsche Bank Violates FCPA in China, Italy, Saudi Arabia
On January 8, 2021, Deutsche Bank agreed to pay more than $130 million to settle with the DOJ and the SEC over alleged violations of the FCPA’s internal controls and books and records provisions resulting from payments to representatives of government officials as part of a “business development” initiative. Interestingly, the DOJ charged Deutsche Bank under a conspiracy theory related to the bank’s books and records and internal controls as opposed to under the anti-bribery provisions of the FCPA. (The DOJ also charged the bank on a conspiracy theory related to wire fraud.) The SEC charged Deutsche Bank for violations of the internal controls provisions of the FCPA.
According to the deferred prosecution agreement between the DOJ and the bank, the bank hired “Business Development Consultants” to try to obtain and retain business. The DOJ asserted that some of these consultants were acting on behalf of foreign officials. The DOJ also noted that Deutsche Bank hired a local judge in Italy to try to win business. And the bank purportedly concealed the payments in its books and records by labeling such payments as “referral fees” or “consultancy” payments.
U.S. Government Continues to Impose Big Penalties for FCPA Violations
Penalties for violating the FCPA continue to be substantial. As these enforcement actions remind us, companies that conduct business internationally must routinely review the adequacy of their anti-corruption compliance programs, including through regular compliance audits and assessments. Such proactive measures can help companies identify problems early, and mitigate the risk of an FCPA investigation.
If you have any questions about how these recent enforcement actions may affect you or your business, please contact the authors.
The authors would like to thank law clerk Ramon Ryan for his valuable assistance on this article.