This is the second post in this year’s series examining important trends and new development in white collar law and investigations. Our previous post discussed health care enforcement. Up next: trends in tax enforcement.
As the Biden administration moves into its second year, we anticipate both an increase in U.S. anti-corruption enforcement activity, and a broader, whole-of-government approach that seeks to encourage and reward international partners for their efforts in combatting corruption. Across the globe, key actors continue to push for increasing transparency, setting rising expectations for the adoption of anti-corruption best practices and for efforts to hold corrupt actors accountable. As we discuss below, we expect that the U.S. Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”), along with law enforcement agencies outside the U.S., will follow suit. Our key takeaways:
- The Biden administration has singled out anticorruption as a “core national security interest” and “core domestic and foreign policy priority,” signaling that the administration will redouble its efforts on this front.
- Recommendations from the OECD will heighten the pressure on nations to ramp up their efforts to fight corruption within their own borders.
- The U.S. has significantly expanded its legislative and regulatory arsenal to increase corporate transparency and combat money laundering.
- U.S. enforcement actions will likely increase in 2022 as investigations in the pipeline begin to bear fruit and U.S. law enforcement agencies increasingly coordinate their investigations with their counterparts abroad.
- Reflecting similar trends globally, the EU, France, the United Kingdom, and China also implemented major enhancements to their anti-corruption regimes.
Major U.S. Policy Initiative
In December 2021, the Biden administration made a major policy announcement in its release of the U.S. Strategy on Countering Corruption, which takes an aggressive and purposeful stance, describing combatting corruption as a “core domestic and foreign policy priority” and a “core national security interest.” The administration also clarified that its “new approach” consists of five pillars: (1) expanding the commitment of U.S. resources; (2) curbing illicit finance; (3) holding corrupt actors accountable; (4) obtaining multilateral cooperation; and, (5) improving diplomatic engagement and foreign assistance. While each pillar contains familiar elements, by bringing them together into a thematic whole and presenting them as a national security priority, the administration has ramped up the level of commitment and attention to this issue.
The Strategy sets forth a variety of steps the administration will take to effectuate the five pillars. For one, it is committed to aggressively implementing and expanding the suite of U.S. anti-corruption laws. For example, it has pledged to prioritize rulemaking under the Corporate Transparency Act (“CTA”), passed last year, which imposes reporting requirements on beneficial owners of certain companies in order to hinder the ability to use shell companies to hide and launder the proceeds of corruption. The Strategy also includes additional transparency-focused regulations, reaching corruption-sensitive areas such as government procurement transactions and real estate transactions. Lastly, the Strategy notes the administration’s aim of working with Congress to expressly criminalize “demand-side” bribery – i.e., the solicitation of bribes by foreign public officials, as distinguished from the payment of bribes to them – a measure that Congress has long debated but thus far has declined to enact. (We discuss the CTA, as well as proposed legislation in Congress that would prohibit demand-side bribery, and other legislation, below.)
The administration also intends to place particular weight on anti-corruption as a factor in its decisions about how and where to deploy U.S. foreign aid. It recently established a task force at the U.S. Agency for International Development focused on this issue, currently seeks to create a similar task force at the Department of Commerce, and is launching an interagency Democracies Against Safe Havens Initiative to coordinate transnational law enforcement, sanctions, and other anti-corruption efforts. Moreover, the Strategy explicitly commits the administration to “vigorously pursue the enforcement of foreign bribery cases through the FCPA” and bring other “aggressive enforcement action.”
Updated OECD Recommendation for Further Combatting Bribery of Foreign Public Officials
Anti-corruption efforts are the forefront of other nations’ agendas in 2021 as well. Biden’s Strategy announcement came on the heels of the 2021 Recommendation for Further Combating Bribery of Public Officials in International Business Transactions (“2021 Recommendation”) by the Organization of Economic Cooperation and Development (“OECD”). Updating its last Recommendation from 2009, the OECD Recommendation presents an international consensus on issues of corruption and delineates a strategy for moving forward.
The Recommendation consists of four key components. First, the OECD instructs countries to focus on the demand-side of corrupt schemes. Rather than push nations such as the United States to expand their extra-territorial exercise of jurisdiction (a step that legislation currently pending in Congress, discussed below, would take), the OECD urges those nations whose officials solicit bribes to raise awareness of the risks of bribery, assist in the coordinated investigation of bribery solicitation, and prosecute bribery schemes domestically where necessary. In doing so, the OECD is attempting to balance the long-standing tension between what historically has been seen as inadequate local efforts to combat corruption, and the ramifications of enforcement from abroad by the United States and other aggressive external enforcers.
The three other central components of the 2021 Recommendation incorporate longstanding U.S. tools that have been less of a focus elsewhere. For example, the OECD asks that countries leverage more non-trial mechanisms, such as deferred prosecution agreements, on the rationale that incentivizing a company’s voluntary self-disclosure, cooperation with law enforcement, and remediation will aid in exposing corrupt practices, while holding companies accountable for that misconduct. The OECD also recognizes the importance of “strong and effective legal and institutional frameworks” to protect whistleblowers who report suspected acts of bribery. Finally, the OECD’s Recommendation emphasizes the importance of international cooperation, explaining that multijurisdictional cases call for a proactive approach to sharing information and evidence, and direct coordination in investigating and prosecuting corrupt actors.
The OECD also expanded its “good practice” guidance by adding more recommendations concerning internal controls, audits, and compliance incentives for companies. We expect this guidance and the OECD’s Recommendation to influence anti-corruption enforcement globally as nations continue to ramp up and coordinate their anti-corruption efforts.
The Anti-Money Laundering Act of 2020
The Anti-Money Laundering Act of 2020 (“AML”) became effective January 1, 2021 and will continue being implemented in 2022. The AML, seen by many as the most significant U.S. anti-money laundering reform in a generation, will significantly increase the tools the federal government has at its disposal in fighting corruption.
First, the CTA—one part of the AML—will allow the Federal government to compile information on the true beneficial owners of certain companies into a database that will be shared across government agencies. In December, FinCEN issued a notice of proposed rulemaking for the first of three regulations implementing the CTA. This first proposed rule defines which companies must file reports, what specific information will be included, and when each report is due. Although the CTA now limits who ultimately will be able to access the database, this law is the first step towards bringing the United States more in line with corporate disclosure requirements in other countries, and its implementation will inevitably put pressure on Congress to expand such access. For a more detailed overview of the CTA, see our prior client alert here.
The AML also expanded federal authority to subpoena non-U.S. bank records. The new law allows the government to subpoena not only any records relating to a correspondent account that a foreign bank chooses to maintain in the United States, but also permits a subpoena of accounts wholly unrelated to the non-U.S. bank’s correspondent account that are maintained outside of the United States. Moreover, the AML expressly prohibits the bank from disclosing the existence or contents of the subpoena to the bank’s account-holder. Lastly, Congress has reduced the importance of respecting compliance with non-U.S. confidentiality or secrecy laws, explaining that the non-U.S. bank may not quash or modify the subpoena solely based on the assertion that compliance would conflict with obligations under such non-U.S. laws.
Additionally, the AML has expanded whistleblower protection and awards. The law was modeled on Dodd-Frank, but has added protections for internal whistleblowers. The AML now allows for whistleblowers to obtain up to 30% of monetary sanctions awarded and removes any discretion to deny a reward if the whistleblower meets certain requirements.
One area that appears less likely than others to be the focus of rulemaking under the AML in the near term is the high-end art market, following a recent study by the U.S. Treasury Department. The study, which was mandated by the AML, concluded that while high-value art poses some risk of money laundering, there is limited evidence of terrorist financing risk. To address those risks, the study recommends that Treasury consider encouraging participants in the art market to share information, updating guidance and training for law enforcement, using recordkeeping authority to support information collection and enhanced due diligence, and applying anti-money laundering and counter-terrorism financing obligations on certain market participants. The latter two recommendations may be the subject of additional rulemaking at some point, but in view of the study, do not appear to be immediate priorities.
U.S. Enforcement Trends in 2021 and Looking Forward in 2022
Policy Statements from DOJ & SEC
The DOJ has reverted to certain Obama-era policies, raising the bar for corporate cooperation credit and imposing harsher consequences for corporate crime. First, in an October 2021 speech, Deputy Attorney General Lisa Monaco announced that the DOJ has restored prior guidance under the 2015 “Yates Memo” (named after then-Deputy Attorney General Sally Yates), which required companies to provide “all relevant facts about the individuals involved in corporate misconduct” in order to receive cooperation credit. In 2018, the DOJ under the Trump administration modified this policy to require only the identification of individuals “substantially involved in or responsible for the criminal conduct,” rather than more peripherally relevant employees. Monaco explained that the prior policy “afford[ed] companies too much discretion” in their disclosures to the government and hampered efforts to ensure accountability to individuals.
Second, Monaco reversed course on policies that tended to reduce the cost of corporate resolutions for companies. In 2018, the DOJ issued guidance that de-emphasized corporate monitorships. In particular, the guidance instructed prosecutors to reserve corporate monitors for companies that fail to demonstrate that their compliance programs are “effective and appropriately resourced at the time of resolution[.]” This will likely change in 2022, however, as Monaco made clear in her speech that “[t]o the extent that prior Justice Department guidance suggested that monitorships are disfavored or are the exception, I am rescinding that guidance.” Monaco also introduced new guidance that will require prosecutors in Foreign Corrupt Practices Act (“FCPA”) cases to consider all of a company’s previous violations, whether or not related to bribery, in determining charges and evaluating potential resolutions. Following Monaco’s speech, DOJ released a memorandum summarizing these changes to DOJ’s corporate criminal enforcement policy.
Soon after the DOJ announced these policy changes, Gary Gensler, confirmed as the SEC Chairman last year, remarked that “these changes are broadly consistent with [his] view of how to handle corporate offenders.” Thus, companies under investigation should be prepared to face greater hurdles to obtaining cooperation credit from both agencies.
The Foreign Extortion Prevention Act (“FEPA”) is one of seven bills contained in the Counter Kleptocracy Act, which was introduced in the House of Representatives in September 2021 with bipartisan support. FEPA aims to criminalize foreign officials who demand or accept bribes, filling in the gaps in the FCPA which currently only criminalizes the bribe-giver. While creative prosecutors have long used other charges, such as money laundering and the Travel Act, to go after demand-side actors, FEPA would establish a more direct, FCPA-like path.
The fate of FEPA is uncertain, as Congress considers the jurisdictional and due-process issues inherent in the extra-territorial application of U.S. laws. Even more complex are the diplomatic, foreign policy and national security issues that often arise when considering the prosecution of a foreign official. As discussed above, the OECD Recommendation that nations whose officials solicit bribes invest greater resources into internal anti-corruption efforts might lessen the pressure on the United States to prosecute foreign officials for demand-side bribery.
The other six bills in the Counter Kleptocracy Act contain a variety of possible anti-corruption advancements: (i) a bill providing for a report including a tiered ranking of countries based upon each country’s anti-corruption efforts; (ii) a bill authorizing visa bans against foreign persons engaging in corruption against a U.S. person (the “Foreign Corruption Accountability Act”); (iii) a bill creating a database of investor visa denials to be shared with other countries to prevent the abuse of investor visas by corrupt foreign officials; (iv) a bill providing for a website accounting for the amount of money “stolen from the people” of each country due to foreign corruption that has been recovered by the United States (the “Justice for Victims of Kleptocracy Act”); (v) a bill limiting the confidentiality of the denial of a visa or permit based upon the foreign national’s involvement in corruption or human rights abuse; and (vi) a bill addressing a variety of efforts to counter foreign governments’ abuse of INTERPOL records and procedures to pursue and harass political opponents.
On February 4, 2022, the House of Representatives passed the America COMPETES Act, which includes four anti-corruption bills. One bill, the Countering Russian and Other Overseas Kleptocracy Act (the CROOK Act), aligns with one of Biden’s five pillars—improving diplomatic engagement and foreign assistance—by creating an “Anti-Corruption Action Fund” to be used to support foreign states in their anti-corruption efforts. Notably, the Fund would be financed through $5 million “prevention payment[s]” required to be made by any person who resolves a FCPA charge for greater than $50 million. The COMPETES Act would also strengthen the Global Magnitsky Human Rights Accountability Act, and includes the Foreign Corruption Accountability Act and the Justice for Victims of Kleptocracy Act, both of which, as noted, were also contained in the above-mentioned Counter Kleptocracy Act.
Additionally, the ENABLERS Act was introduced on October 6, 2021 with bipartisan support. The act would expand the Bank Secrecy Act by imposing customer due diligence requirements on gatekeepers such as accountants, investment advisers, lawyers and art dealers. In particular, these gatekeepers would be required to report suspicious transactions, establish anti-money laundering programs, implement due diligence policies, procedures, and controls, and identify and verify their account holders. This bill was precipitated by pressure mounting in the wake of the Pandora Papers, a leak of almost twelve million documents revealing the movement of proceeds of corruption, which placed the United States front-and-center as a haven for corrupt proceeds.
Although the outcome of these bills remains uncertain, they fit into Congress’s recent efforts to more closely align AML enforcement with initiatives in other parts of the world.
DOJ Corporate Enforcement Actions Likely to Increase in 2022
The number of DOJ corporate enforcement actions (only three corporate resolutions) was lower in 2021 as compared to previous years. A DOJ official recently stated that companies should not expect 2022 to follow this trend, however, as there is a “very robust pipeline” of current investigations.
There are some useful lessons to take from the three corporate resolutions (involving two global banking institutions and one financial services institution). For one, these cases provide examples of large multi-national corporations that did not voluntarily self-disclose but received at least partial cooperation credit for their efforts once faced with an investigation.
Also notable was the difference in cooperation credit received. One company only received reduced credit for cooperation because it significantly delayed producing key evidence. In comparison, the others received full cooperation credit for efforts including (i) making prompt and extensive document productions to the government; (ii) facilitating interviews of foreign-based employees; (iii) providing regular updates of the company’s internal investigation to the government; and (iv) making factual presentations and highlighting key facts and documents to the government. The DOJ also credited these companies for engaging in remedial measures during the investigation, including enhancing compliance procedures, disciplining employees involved in the corruption, and providing additional compliance training.
All three companies were required to update their compliance systems in line with the requirements outlined by the DOJ. These detailed frameworks provide a window into the DOJ’s current expectations for a satisfactory compliance program, including:
- a clear and visible anti-corruption policy, addressing issues such as political contributions, facilitation payments, risk-based procedures for ongoing customer due diligence, and identification and reporting of suspicious activity;
- directors and senior management providing a strong, explicit, and visible commitment to the anti-corruption policies and at least one senior executive being assigned implementation and oversight responsibilities;
- due diligence requirements for working with third-party business partners as well as for mergers and acquisitions;
- internal controls to ensure fair and accurate books, records and accounts;
- a system for internal and confidential reporting of violations;
- sufficient employee training;
- effective enforcement and discipline; and
- periodic testing and updating of the program as appropriate.
Increasing Prosecutions of Individuals
In line with DOJ and SEC emphasis on individual accountability, 2021 saw an increase in the prosecutions of individuals, including government officials, diplomats, executives at state-owned enterprises, and others involved in corruption schemes. For example: the SEC obtained a final judgment against a former executive of a foreign-based subsidiary of a U.S. bank holding company for his role in helping his client bribe Ghanaian government officials for their approval of electrical power plant project. DOJ has maintained its long-standing focus on activity in South America and Central America, including:
- sentencing an Ecuadorian businessman as a conspirator in a bribery scheme involving PetroEcuador, a state-owned oil company (the latest in a series of prosecutions involving PetroEcuador officials and others);
- charging two Ecuadorian citizens for their involvement in a bribery and money laundering scheme involving Ecuador’s public police pension fund;
- prosecuting a dual U.S.-Venezuelan citizen and former official at Citgo, a Houston-based subsidiary of Venezuela’s state-owned energy company Petróleos de Venezuela S.A. (PDVSA), for accepting bribes and laundering bribe proceeds (to date, the DOJ has announced charges against 28 individuals, 22 of whom have pled guilty, for conduct associated with bribery schemes involving PDVSA); and
- charging multiple bank executives for diverting funds from a publicly traded company into a secret slush fund used to bribe Brazilian government officials.
Further, DOJ and the Department of Homeland Security (“DHS”) created a joint task force in 2021 to focus investigative and prosecutorial resources on current corruption and human trafficking systems in Mexico, Guatemala, El Salvador, and Honduras. These enforcement efforts parallel the State Department’s diplomatic efforts to provide support to anti-corruption work in this region.
While Congress continues to debate whether to pass legislation expressly targeting demand-side bribery, DOJ prosecutors continue to use money laundering conspiracy and other charges to reach former foreign government officials, former diplomats, and foreign nationals. For example, the DOJ used the federal money laundering statute to charge a former Bolivian minister and his chief of staff for obtaining bribes paid by a U.S. company in exchange for a $5.6 million contract from the Bolivian Ministry of Defense, where the payments were laundered through bank accounts in Florida. Similarly, two former diplomats, including a former Ambassador, from the Republic of Chad were charged with a money laundering conspiracy based on their alleged solicitation and receipt of a bribe related to procurement of oil rights in Chad.
International Enforcement Trends Looking Forward in 2022
At the end of 2020, the French parliament asked members of the French National Assembly to assess the impact of Sapin II, France’s anti-corruption law. That effort resulted in the introduction of a new bill in the French parliament in October 2021 that proposes various changes to strengthen Sapin II. These changes include expanding the reach of Sapin II’s compliance obligations to apply to French subsidiaries, regardless of where the parent company is incorporated, which are part of a group exceeding the cumulative thresholds of 500 employees and €100 million in turnover at the group level. In other words, French subsidiaries of large companies, including U.S. companies, could soon be subject to the requirements of Sapin II. This bill also broadens the scope of criminal liability, as it would include liability for a failure to supervise an employee committing a criminal offense. Further, the new bill introduces a number of other changes to encourage companies to enter into a Convention judiciaire d’intérêt public (“CJIP”), France’s equivalent of a deferred prosecution agreement.
The OECD issued a report in December 2021, reviewing and commending many of France’s recent legislative reforms. Yet the OECD was simultaneously skeptical of one aspect of this proposed bill, which the OECD described as a “proposed overhaul” of France’s anti-corruption agency, the AFA. It is unclear what impact the OECD’s concerns may have, but the OECD’s report and continuing review of France’s anti-corruption efforts will likely put pressure on France to push forward on implementing the anti-corruption changes outlined above.
In April 2021, the U.K. Government implemented a new sanctions regime aimed specifically at corruption. The Global Anti-Corruption Sanctions Regulations 2021 (“Regulations”) follow and complement the U.K.’s Global Human Rights Sanctions Regulations 2020. The Regulations are a component of the U.K. Government’s Anti-Corruption Strategy 2017-2022, as well as the Government’s broader effort to develop post-Brexit sanctions that are untethered to the EU’s sanctions regime.
The new regime, which follows an approach similar to the U.S. Global Magnitsky Program, allows for sanctions against individuals and entities that the Foreign Secretary has “reasonable grounds” to suspect are involved in “serious corruption.” On the same day that the Regulations became effective, the Foreign Secretary announced that sanctions had been imposed on 22 individuals involved in “notorious corruption” in Russia, South Africa, South Sudan and Latin America, and several more designations were announced during the year. The Regulations further strengthen already robust U.S.-U.K. cooperation. In announcing the new regime, the Foreign Office made clear that the Regulations “are being taken partly in tandem with the US,” while the U.S. Treasury Department issued a press release enthusiastically welcoming them.
On the enforcement front, the Serious Fraud Office (“SFO”), the U.K.’s chief prosecutor of foreign corruption, had a challenging year. As we reported last year, in February 2021, the U.K. Supreme Court limited the extra-territorial application of evidence-gathering sections of the Criminal Justice Act of 1987, ruling that the SFO cannot compel a foreign company that does not have a registered office in the U.K. and has never carried out business in the U.K. to produce documents located outside the U.K.
Over the past few years, the SFO has moved increasingly towards the U.S. practice of corporate bribery resolutions through Deferred Prosecution Agreements (“DPAs”) and cooperation by key individuals. While this approach has yielded some notable successes with respect to companies, it has engendered criticism from some quarters that it has not been accompanied by successful prosecution of culpable individuals.
The SFO suffered some setbacks in this area last year. Most notably, in December, the Court of Appeal, citing disclosure failures by the SFO, reversed the conviction of a former executive of energy company Unaoil for conspiring to bribe Iraqi officials to obtain oil contracts, leading the U.K.’s attorney general to open an investigation into the SFO’s handling of the case. Especially in light of the resulting pressure on the agency, we expect that the SFO will place particular emphasis on holding individuals accountable in 2022.
Like the OECD and the U.S., China announced a significant anti-corruption policy initiative this past year, which we expect will shape the anti-corruption landscape in China in the years to come. The “Opinion on Furthering the Investigation of Giving and Taking Bribes” was jointly promulgated by six Chinese government agencies in September 2021. This opinion outlines the government’s intention to focus on bribe-givers as well as bribe-takers in its anti-bribery efforts. Previously, the government had focused on the recipients of bribes but had prosecuted bribe-givers less frequently. Relatedly, the Opinion mentions the possible creation of a blacklist as a sanction for companies providing bribes in China. In addition, China introduced a non-prosecution compliance mechanism for entities facing criminal bribery charges, creating a pathway for companies to resolve charges and improve compliance.
Although seemingly tightening its internal anti-corruption enforcement, China has also introduced laws that will create more difficulties for other nations seeking to engage in cross-border investigations. In particular, China’s Data Security Law went into effect on September 1, 2021, providing that data may not be provided to other governmental law enforcement agencies without Chinese government approval. This will both slow down as well as restrict the flow of information to other nations for purposes of investigating and combatting corruption.
The European Union last year added a new weapon to its anti-corruption arsenal with the formation of the European Public Prosecutors Office (“EPPO”). The EPPO is charged with pursuing misuse of EU funds, including corruption involved in EU subsidies or contracts, which have often been directed to businesses connected to local officials. The creation of the EPPO, headed by a former anti-corruption prosecutor from Romania, is significant in that the EU previously depended on member states to prosecute such misconduct, a less than optimal approach because states often failed to pursue these cases. Though several member states have opted out of the EPPO’s jurisdiction, including Denmark, Ireland, Poland, and Hungary, the EPPO appears to be off to a vigorous start. Its anticorruption matters to date include, among others, investigations of a Croatian mayor who allegedly accepted bribes in awarding a contract for a recycling center, and a former Czech prime minister in connection with tens of millions of euros in subsidies paid to companies he formerly owned. Given similar patterns in other EU countries – particularly in Eastern Europe – we expect to see continued EPPO activity in this space during 2022.
In October 2021, the World Bank Group issued its Sanctions System annual report. The report reflected a downtick in investigations and referrals by the Bank’s Integrity Vice Presidency (“INT”), which received significantly more complaints (4,311 compared to 2,598 in fiscal 2020), but opened fewer preliminary investigations (347 compared to 429 in fiscal 2020), leading to the opening of 40 full investigations. INT also referred significantly fewer cases and settlements to the Office of Suspension and Debarment (17 and 18, respectively, versus 26 and 22 in fiscal 2020). Consistent with prior years, approximately 21 percent of INT’s referrals involved corruption, and of the 54 debarments imposed, nine were based at least in part on corrupt activity. The Bank also recognized 92 cross-debarments based on debarments by other leading multi-national development banks. INT attributed the relatively slow pace of investigative activity to travel restrictions and other limitations resulting from the COVID-19 pandemic. We anticipate the number of investigations and referrals to rebound towards previous levels as the pandemic ebbs.