U.S. doubles down on anti-corruption efforts
Last June, President Biden branded corruption “a risk to our national security.” He called for an interagency review of the government’s ability to fight corruption, which resulted in the first ever comprehensive United States Strategy on Countering Corruption (the Strategy).
The Strategy is driven by an understanding that corruption is increasingly global in nature and fueled in part by transnational illicit finance and criminal networks that exploit deficiencies in anti-money laundering and countering of financing of terrorism (AML/CFT) systems and processes. Specific concerns include the use of anonymous shell companies, real estate transactions and other opaque transactions to hide illicit financing.
The Strategy outlines five pillars around which the government is organizing its anti-corruption efforts:
Modernizing, coordinating, and resourcing U.S. government efforts to better fight corruption.
Curbing illicit finance.
Holding corrupt actors accountable.
Preserving and strengthening the multilateral anti-corruption architecture.
Improving diplomatic engagement and leveraging foreign assistance resources to advance policy objectives.
With its top leadership positions now largely filled, the Biden administration is ready to execute this strategy. Efforts to increase U.S. anti-corruption resources include the administration’s request that Congress increase appropriations for the U.S. Department of Treasury’s Financial Crimes Enforcement Network. This would enable it to build a new beneficial ownership data system that would make information available to certain law enforcement officials. The Strategy further calls for the U.S. Department of Treasury to publish regulations: (1) related to the beneficial ownership database; and (2) establishing new reporting requirements for real estate transactions in order to diminish the ability of corrupt actors to launder proceeds through U.S. real estate.
The Strategy also calls on the Department of Justice (the DOJ) to employ new tools to prosecute money-laundering crimes. These would include expanded subpoena power for certain financial records held abroad and financial incentives to report on Bank Secrecy Act violations. It also signals a focus on criminal misuse of cryptocurrency, a continued commitment to aggressive enforcement of the Foreign Corrupt Practices Act (FCPA) and expanded efforts to recover assets held in U.S. financial institutions that are the proceeds of corrupt acts. Toward this end, the Department of Treasury will establish a whistleblower program to make payments to individuals who provide information that leads to the identification and recovery of such assets. The U.S. Strategy also includes multiple efforts to enhance cooperation with other countries and to bolster the anti-corruption efforts of partner governments and multilateral institutions.
The U.S. has made a specific commitment to focus on rooting out anti-bribery and corruption in the Northern Triangle countries – Guatemala, El Salvador, and Honduras through the Northern Triangle Anticorruption Task Force announced in June 2021. This task force is focused on investigations, prosecutions and asset recovery efforts related to corruption in the region and is expected to employ the FCPA as well as efforts to return assets recovered from foreign corrupt officials to those harmed by the corruption.
Recent U.S. enforcement activity in the aerospace and defense industries highlight the continued cooperation between U.S. enforcers and foreign partners. In addition, they reflect the Biden administration’s stated intent to aggressively employ enforcement tools beyond FCPA charges such as money laundering charges and sanctions enforcement. (You may find our Sanctions Navigator a useful toolkit.)
In May of 2021, three U.S. citizens and two Bolivian nationals were arrested and charged with conspiracy to commit money laundering in a bribery and money laundering scheme. The criminal complaints alleged that bribes were paid to Bolivian officials to secure a contract with the Bolivian Ministry of Defense. Two of the defendants ultimately entered guilty pleas pursuant to a criminal information to conspiracy to commit a violation of the FCPA, and two more entered guilty pleas to conspiracy to commit money laundering. The fifth and final defendant was indicted on multiple counts related to money laundering and is currently set to go to trial on May 23, 2022. This case illustrates DOJ’s willingness to bring money laundering charges where the underlying unlawful activity was a violation of the FCPA. Expect DOJ to continue to bring money laundering charges in cases in which a violation of the FCPA is alleged, especially in light of the Strategy outlined by the Biden administration to combat and deter corruption.
In June of 2021, a UK-based global engineering company entered a 3-year deferred prosecution agreement (DPA) with the DOJ agreeing to pay over $18 million. The DPA resolved criminal charges related to bribes paid to officials in Brazil in order to secure a contract to design a gas-to-chemicals plant. The company also settled related charges with the UK’s Serious Fraud Office (SFO) and with the Ministério Público Federal (MPF), the Controladoria-Geral da União (CGU), and the Advogado-Geral da União (AGU) in Brazil. In a related civil matter, a subsidiary agreed to settle charges brought by the U.S. Securities and Exchange Commission by paying disgorgement and prejudgment interest totaling approximately $22.7 million.
Anti-corruption enforcement in the U.S. will also be shaped by recent policy changes at the DOJ. Deputy Attorney General (DAG) Lisa O. Monaco recently underscored the importance of prosecuting individuals who commit and profit from corporate crimes. In addition, she announced three policy changes, that will (1) condition corporate cooperation credit on disclosure of information about all potentially relevant individuals – as opposed to just those “substantially involved” in the misconduct; (2) direct prosecutors to consider the full criminal, civil and regulatory record of corporate defendants when deciding on appropriate resolutions; and (3) give prosecutors more freedom to require the imposition of independent monitors. More details about these changes are available here.
These policy changes should be cause for companies, who have a prior criminal, civil or regulatory conviction or action against it, to re-double their efforts to ensure their compliance programs are reviewed for effectiveness as the penalties for running afoul of U.S. laws could have a devastating effect. And companies that operate across borders should also anticipate that U.S. enforcers will cooperate with law enforcement agencies in other jurisdictions and track key developments in jurisdictions in which they operate.
Bribery and corruption enforcement developments around the globe
Many of the priorities reflected in the U.S. Strategy are similar to those being embraced by other enforcement-committed countries. In June 2020, the United Nations held a special session to galvanize political will to fight corruption. The G7 issued a statement of support and in September through which members:
Renewed their commitments to regional and global cooperation among law enforcement authorities.
Committed to strengthen support for the International Anti-Corruption Coordination Centre.
Highlighted their efforts to strengthen registries of company beneficial ownership information in order to better detect illicit finance generated by corruption, environmental crimes and international organized crime.
Committed to take concrete actions to prevent real estate property transactions from being used to launder money or to finance criminal activity.1
For its part, the UK Serious Fraud Office (SFO) indicated that it plans to continue to use DPAs to resolve complex corporate fraud. The SFO has entered 12 DPAs since 2014, and its appetite for resolving complex corporate fraud through DPAs remains strong. In June 2021, Director of the SFO Lisa Osofsky penned an editorial in The Times defending the DPA regime.
Ms. Osofsky explained some of the legal challenges that make it hard to secure convictions for corporate crimes. She noted that “[w]hile we can’t put offending companies behind bars. . . Under a deferred prosecution agreement, companies must co-operate with the SFO, repay the proceeds of crime, pay a fine and demonstrate changes to prevent further wrongdoing.”
Weeks later, the SFO announced two more DPAs involving Bribery Act offenses. Half the DPAs entered into by the SFO were agreed in 2020–2021, bringing in around £1 billion for the UK Treasury. Convictions of corporations have been obtained too. Most notably, in October 2021 the SFO entered into a plea deal with Petrofac, resulting in payment of over £75 million in fines, costs, and confiscation. SFO has been less successful prosecuting individuals involved in the underlying wrongdoing giving rise to a DPA.
On continental Europe, many European countries are working to implement the EU Whistleblower Directive, which sets uniform minimum standards to protect whistleblowers. These efforts are likely to shape corporate policies in 2022 and beyond. Companies operating in EU member states should note the EU Commission’s recent interpretation of the directive, which our colleagues recently discussed in depth here.
An uneven, rapidly changing enforcement landscape prevails in Latin America. On the one hand, emergency hiring processes that emerged during the Covid-19 pandemic resulted in public scandals of corruption in almost every country. Some turned into public investigations. On the other hand, during this period, we have seen efforts to increase transparency and corporate liability with the enactment of new laws. It also remains to be seen whether U.S. attempts to bolster anti-corruption efforts in Latin America, specifically in Mexico and in the Northern Triangle, will have a significant impact. Read more about these trends here.
There is expanding scrutiny of bribery and corruption in China and elsewhere in Asia. In the past year, Chinese regulators increasingly investigated public and commercial bribery, with a special emphasis on sales promotion programs in the private sphere as part of a broader effort to combat corruption and anti-competitive behavior. China has also put new rules in place that highlight the government’s commitment to confront corruption. In addition, China continues to be an area of focus for U.S. enforcement activity. Our colleagues examine these developments as well as compliance challenges posed by COVID-19 here.
There are also noteworthy trends in both Indonesia and Australia. During remote work that followed the pandemic, Indonesian lawyers have seen an increase in law enforcement activity related to fictitious projects, embezzlement, and fund misappropriation cases. While we expect enforcers in Indonesia to be active in 2022, in neighboring Australia, the pandemic appears to have slowed many reforms designed to intensify anti-bribery and corruption enforcement. Australia is under pressure to do more to regulate and deter bribery and corruption. Our colleges provide more detail and guidance about these developments here.
As examined in greater detail by colleagues here, bribery and corruption in Africa remain a problem. But there are signs that latent anti-corruption laws are being enforced and some African nations are taking steps toward legislating more comprehensive anti-corruption laws. In addition, a number of effective transnational initiatives to tackle bribery and corruption are under way in Africa.
Pressure to strengthen anti-corruption enforcement around the world continues to build, but the commitment and strength of enforcement varies across borders. In the year ahead, we expect to see continuing growth in cross-border cooperation among nations that are committed enforcers, which could in turn impact companies in the aerospace and defense industry.
Authored by Ann Kim and Liam Naidoo.