D.O.J. TARGETING FOREIGN BRIBES AND THE OFFICIALS RECEIVING THEM WHISTLEBLOWERS EMERGING

 

 

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Foreign bribes made by U.S. companies to foreign officials or their relatives to get business  is a major focus of prosecutions by the Department of Justice—including bribes to Russian and Chinese officials. Prosecutions also include foreign corporations trading on a U.S. stock exchange.  The penalties are getting larger and more cases are being generated by whistleblowers with inside information on their employers. For example, last year, Teva Pharmaceutical a global generic drug maker paid $519 million to settle charges that it bribed officials in Russia, the Ukraine and in Mexico. The same year, Braskem S.A. the Brazilian based petrochemical maker paid $957 million for hiding millions of dollars in illicit bribes paid to the Brazilian government officials to win business. Bribes of foreign officials violates the Foreign Corrupt Practices Act (FCPA).Mount Sunapee lease holder Och-Ziff pays $413 million to settle foreign bribes concerning African diamonds and mining rights

Now, there is an additional target for foreign bribes; the foreign officials who take or arrange the bribes often in the form of wire transfers. While the Forieg Corrupt Practices Act (FCPA) does not apply to the bribe recipient, there are many other laws which are being used against them, including wire and mail fraud. In July of this year, federal prosecutors here were successful in prosecuting a South Korean government official when he was found guilty of laundering bribery proceeds in the United States. In this case, the official who was the Director of South Korea’s Earthquake Research Center was said to have demanded over one million dollars in bribe payments from two companies in exchange for providing them with business in Korea. This was the second prosecution this year of a foreign official for taking a bribe and laundering it here. The first involved a former Minister of Mines and Geology of the Republic of Guinea who was convicted by a federal jury in a scheme of laundering bribes paid to him by a Chinese fund.

While previously it was only the company  paying the bribes that was pursued by the S.E.C. or D.O.J..  That has now changed. The interesting question is what will this mean for doing business in Russia and China where the official taking the bribe may find themselves in court in the United States, when there is jurisdiction for prosecution due to wire transfers or sending the funds back to the U.S.? Over the past ten years, there have been scores of settlements arising from foreign bribes by U.S. companies in Russia, China, Mexico and elswhere. In the case of Russia, recent press reports have suggested that many bribes paid in Russia may be indirectly tied to Russian President Vladimir Putin through his friends and business associates. See The “Panama Papers”.Panama Papers still revealing on Sergei Roldugin and the secrets of Putin wealth

ENTER THE PANAMA PAPERS

In June of last year, when the “Panama Papers” were released and an analysis of the records from a Panamanian law firm showed that offshore companies connected to Sergey Roldugin, one of Putin’s oldest friends, profited from various banks and other companies inside of Russia. Some of the companies were set up in the British Virgin Islands (BVI) or in Panama and others in Cyprus. Roldugin for example is connected to a company called Sandalwood Continental Ltd.Panama Papers Sandalwood in the BVI. That company bought shares in Bank Rossiya in St. Petersburg.  Before these papers were released, the private movement of funds in Russia and the control by Putin was pretty much hidden. That’s how the DOJ’s new focus on prosecution of the bribe takers is connected.

HERE IS THE MAJOR POINT OF THIS ARTICLE

Now, the DOJ can unveil the financial inner workings of Russian funds . Jurisdiction is generally obtained if the funds are wired from here or controlled through a US company with foreign subsidiary. Indeed the DOJ and SEC  already have significant data to cross reference, concerning the bribe takers fro previously settled  cases. Combined with the thousands of pages of released documents in the Panama Papers there is a pathway to critical information analysis about money flows and control of funds in Russia.

Here is what I mean: On June 21, 2016, the Securities and Exchange Commission issued a press release announcing that a Massachusetts based medical device manufacturer Analogic Corporation and its wholly owned Danish Subsidiary agreed to pay $15 million to settle a civil and criminal action involving foreign bribes including funneling of about $20 million o third parties including individuals in Russia and apparent shell companies in Belize, the British Virgin Islands, Cyprus and Seychelles. The cease and desist order released, described generally the moneys paid to a Russian distributor. However, the Order does not name the recipients or detail trading where the moneys went. See Order: https://www.sec.gov/litigation/admin/2016/34-78113.pdf .   “The transactions routinely involved fictitious invoices issued by BK Medical at inflated prices, overpayments to BK Medical from the distributors’ excess funds to unknown third parties all over the world for unknown reasons….The Russian distributor, located in Moscow, was BK Medical’s largest distributor by revenue. 11. Then, at some point weeks or months later, the Russian distributor would direct BK Medical to make a wire payment out of the excess funds to a third party that was otherwise unknown to BK Medical. BK Medical complied with the directives, despite not knowing the purpose of the payments or the nature of the payees. a. The directive often came in the form of an email or fax with only the payee’s wire information and the amount. The payees ranged from apparent shell corporations located in places like Belize, the British Virgin Islands, Cyprus, and Seychelles, to specific individuals in Russia. …13. In total, during at least the period December 2001 to early 2011, BK Medical served as a conduit for at least 180 of these payments…with its Russian distributor totaling appriximately $16.1 million….Analogic recorded approximately $21.6 million in revenue in sales to its Russian distributor.” The Order was signed by Brent J. Fields, Secretary. While it appears that the exact recipient of the funds were not known, the wire locations and numbers exist in the SEC’s investigative files and hence within DOJ and one would hope that further investigation was conducted by the FBI or the CIA. This is just one case. The volume of information obtained by our government during enforcement actions involving foreign bribes is enormous. According to one report, separately, the DOJ and SEC brought FCPA related charges against twenty-seven individuals in 2016. The 2016 FCPA corporare enforcement actions netted sanctions totaling $6 billion. While the FCPA does not apply to recipients of the bribes and foreign officials cannot be charged with the substantive offense there are many other laws which can and do apply and which are being used, including mail  and wire fraud, tax fraud, and money laundering laws which are used to pursue the recipients of the bribes.

In 2016, five of the major FCPA cases taken involved Russia: 1) Nordion; 2)Novartis; 3)AstraZeneca; 4) Analogic; 5)Teva and 6) VimpelCom.

As mentioned, in the Analogic case, funds were directed to be sent to The British Virgin Islands and Cyprus. According to reports on the Panama Papers, Sandalwood Continental, with connections to Sergey Roldugin is located in the BVI and has dne business which Horwich TRading Ltd in Cyprus. The RCB Bank is located in Cyprus.

All of this, combined with our unique law called The False Claims Act (FCA), anyone, including any foreign national with unique and detailed information, can bring an action on behalf of the United States revealing foreign bribes in violation of the FCPA in Russia or any other country. The law allows the whistleblower to collect a reward of up to 30% of what the U.S. recovers in its actions against anyone disclosed to be involved in the bribing schemes.

Jeffrey Newman represents whistleblowers