Last week, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) announced a Foreign Corrupt Practices Act (FCPA) enforcement action, involving the waste management company, Stericycle, Inc. (Stericycle). According to the Information and Deferred Prosecution Agreement (DPA), Stericycle entered into a three-year DPA. The company was charged with two counts of conspiracy to violate (1) the anti-bribery provision of the FCPA, and (2) the FCPA’s books and records provision. Under the DPA, Stericycle agreed to a criminal penalty of $52.5 million of which the DOJ agreed to credit up to one-third of the criminal penalty against fines the company pays to authorities in Brazil in related proceedings. According to the SEC Cease and Desist Order (Order), Stericycle violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA and agreed to pay approximately $28.2 million in disgorgement and prejudgment interest. The SEC Order also provided for an offset of up to approximately $4.2 million of any disgorgement paid to Brazilian authorities. Today we consider the lessons learned.
Rapid Expansion
Similar to what we saw in the WPP enforcement action, Stericycle engaged in rapid expansion in a series of foreign jurisdiction. In this case it was Latin America. Stericycle does not seem to have made the same mistakes as WPP in holding back part of the overall acquisition payout to the owners in the locales where they purchased entities and thereby incentivizing corruption to meet sales goals. Under Stericycle, there was nothing about this same type of incentive plan used by WPP. However, Stericycle did appear to keep the former owners on as the executives in these new foreign subsidiaries without taking into account how those former owners may have done business or the risk model it entailed.
Which brings us to pre-acquisition due diligence, which is not simply looking at the financial issues involved but also considering the potential purchase from the compliance perspective. How did the companies which were purchased to form the foreign subsidiaries in Latin America do business before they were purchased? Did Stericycle review those companies from the compliance standpoint?
Moreover, and as Candice Tal, founder of Infortal, continually reminds us, due diligence is more than simply a site investigation or a couple of interviews. It should include “an in-depth background check of key executives or principal players. These are not routine employment-type background checks, which are simply designed to confirm existing information; but rather executive due diligence checks designed to investigate hidden, secret or undisclosed information about that individual.” Tal believes that such “Reputational information, involvement in other businesses, direct or indirect involvement in other lawsuits, history of litigious and other lifestyle behaviors which can adversely affect your business, and public perceptions of impropriety, should they be disclosed publicly.” Clearly, Stericycle did not engage in this level of due diligence in either the acquisitions of the entities which became Stericycle subsidiaries in Latin America, nor in their key personnel. Employees up and down the chain of an organization do not simply wake up one day and decide to engage in bribery and corruption and create a full set of records so the effectiveness of your bribery-based business process can be evaluated.
Impact of the FCPA Corporate Enforcement Policy
The Stericycle enforcement action once again demonstrates how the FCPA Corporate Enforcement Policy can benefit even the most corrupt organization and allow a significant reduction of the overall fine and penalty under the US Sentencing Guidelines. According to the DPA, Stericycle received a 25% discount off the bottom of the applicable Sentencing Guidelines fine range for its cooperation during the pendency of the investigation and the extensive remediation.
I have previously estimated Stericycle saved between $25 million to $30 million from their final criminal fine. That is certainly a significant amount and one every Chief Compliance Officer (CCO) needs to have ready to submit to your CEO to demonstrate the power of committing time and resources to both internal investigations and remediation during the pendency of the investigation.
Impact from the Lisa Monaco Doctrine
a. The Monitor
The is first FCPA enforcement action to show the full impact of the change in DOJ enforcement priorities after the Lisa Monaco speech of October 2021, in a variety of ways. The first is the imposition of a monitor. It was required under both the DPA and the Order. Interestingly, even though the company was long aware of its compliance and ethical failures and even though it had been investigating this matter since at least 2016; the company could not seem to get its collective act together enough to fully implement and test the new compliance regime set out in the DPA. The DPA stated, “despite its extensive remedial measures described above, the Company to date has not fully implemented or tested its enhanced compliance program, and thus the imposition of an independent compliance monitor for a term of two years, as described more fully below and in Attachment D, is necessary to prevent the recurrence of misconduct.” [Emphasis supplied] Clearly the DOJ (and SEC) did not trust that the company would follow through with its resolution documents obligations and was “necessary to prevent the recurrence of misconduct.”
b. Culture
One part of the Monaco speech which drew much criticism from the White-Collar defense bar and others were her remarks around culture and that the DOJ would start assessing corporate culture in the context of other fines, penalties and regulatory enforcement actions from outside the FCPA context. Many articulated fears that conduct completely unrelated to a FCPA enforcement action could form the basis of a FCPA enforcement action. Those fears were alleviated in the Stericycle DPA which stated, “the Company has some history of prior civil and regulatory settlements, but no prior criminal history”. At least at this point, no unrelated civil or regulatory actions were assessed in the context of a FCPA enforcement action.
There was and continues to be much to consider and learn from the Stericycle FCPA enforcement action. I am sure we will be revisiting it in the future.
Tag: DOJ
Earlier this week, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) announced a Foreign Corrupt Practices Act (FCPA) enforcement action, involving the waste management company, Stericycle, Inc. (Stericycle). According to the Information and Deferred Prosecution Agreement(DPA), Stericycle entered into a three-year DPA. The company was charged with two counts of conspiracy to violate (1) the anti-bribery provision of the FCPA, and (2) the FCPA’s books and records provision. Under the DPA, Stericycle agreed to a criminal penalty of $52.5 million of which the DOJ agreed to credit up to one-third of the criminal penalty against fines the company pays to authorities in Brazil in related proceedings. According to the SEC Cease and Desist Order (Order), Stericycle violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA and agreed to pay approximately $28.2 million in disgorgement and prejudgment interest. The SEC Order also provided for an offset of up to approximately $4.2 million of any disgorgement paid to Brazilian authorities. In today’s post we will consider the bribery schemes.
The Problem
According to the Order, Stericycle got into FCPA hot water when it initially entered the Latin America market in 1997 and then rapidly expanded through the acquisition of many local businesses in Argentina, Brazil, and Mexico. Stericycle operated through wholly-owned subsidiaries in Brazil (“Stericycle Brazil”), Mexico (“Stericycle Mexico”), and Argentina (“Stericycle Argentina”). The prior local business owners continued to run the operations in each country. Each country had an executive team that reported to, among others, a former Stericycle executive responsible for all of Latin America (the “LatAm Executive”). The LatAm Executive reported directly to executives at Stericycle’s corporate headquarters. If all of this sounds familiar to readers of this blog, it was this similar fact pattern which brought the UK company WPP to FCPA grief as well.
Moreover, as the company grew in Latin America through acquisition, it failed to implement even the most basic internal controls for compliance. The Order noted, “the accounting processes and systems remained mostly decentralized with neither uniformity nor proper oversight, resulting in internal control deficiencies.” To top it all off, “Stericycle had no centralized compliance department and failed to implement its FCPA policies or procedures prior to 2016.” Clearly compliance was not something that was of the least interest to the company and it clearly contributed to an overall culture of corruption as a business practice. Finally, the corporate office, in the form of the LatAm Executive, “signed and transmitted numerous sub-certification letters in which they falsely stated that they were not aware of any actual or potential material event in their region, including any actual or alleged violation of any applicable law.”
The Bribery Schemes
The bribe payments were allegedly hidden through the use of code words for bribery. ‘Little pieces of chocolate in Brazil’, ‘IP’ or incentive payments in Argentina and ‘cookies’ in Mexico. In Brazil, the bribes paid were usually a percentage of the contract value, although occasionally it was a simple fixed fee. The DPA noted, “as part of the scheme, Stericycle Brazil employees agreed upon bribe payments in return for receiving payment priority on certain invoices owed under contracts with government agencies; the bribe payments were typically a percentage of the invoice amount owed or a fixed amount. The entire Brazilian business unit was apparently in on the scam as Stericycle Brazil sales employees, who used the cash to make bribe payments to government officials in different regions.” But it was not the BD folks who were running this bribery, as the “Stericycle Brazil finance employees prepared bank orders in the names of the Stericycle Brazil sales employees, who would retrieve the money from the bank and deliver the cash funds—often through an intermediary—to government officials associated with government customers.”
But it did not even stop there. According to the Order, in 2012, “Stericycle Brazil executives formed a sham third-party vendor that purportedly provided accounts receivable collection services to Stericycle Brazil, which were never provided. Rather, the sham third-party vendor issued false invoices that Stericycle Brazil used to support the bribe payments in its books and records. Each month, Stericycle Brazil finance employees estimated the amount of cash withdrawals attributable to the bribe payments. At the end of the month, Stericycle Brazil finance employees requested false invoices from the sham third-party vendor in the amount of the preceding month’s estimated cash withdrawals used for bribes. These invoices for purported debt collection services concealed the true purpose of the payments. The invoiced amounts were recorded in Stericycle’s general ledger, and the cash withdrawals appeared in company bank statements. In 2015, a Stericycle Brazil executive formed two other sham third-party vendors to continue the same scheme.”
To top it all off, all of the above was documented in company books and records. The finance employees “maintained spreadsheets which identified the government customers receiving bribes and the corresponding amount (either a set percentage of revenue or fixed amount), and the Stericycle Brazil employee responsible for retrieving the cash and delivering the bribe payments either directly or through a third-party intermediary. The spreadsheets contained entries, organized by month and region, of both the total amount of bribes paid and the amounts of the fake invoices used to provide cover for cash withdrawals. The Stericycle Brazil finance employees stored these spreadsheets on Stericycle’s servers, and the Stericycle Brazil executives and the LatAm Executive had knowledge of the payments by, among other things, receiving one or more copies of these spreadsheets.”
Just to reiterate, the finance team was preparing fraudulent money orders for employees to cash to create a pot of money to pay a bribe. Additionally, business unit executive themselves created a sham vendor to generate false invoices to also create pots of money to pay bribes, all of which was documented in the company’s books and records. This is not some pedestrian bribery scheme. This is a business unit which has systematized bribery as a business process.
In Mexico, this same basic format was used but with a twist. There was not a sham vendor or vendors. Here the corrupt LatAm Executive formed a joint venture (JV) which the company entered into to form Stericycle Mexico. It was all documented by spreadsheets which “identified invoices from approximately 45 third-party vendors which purported to provide otherwise undocumented consulting and market research services. The spreadsheets linked invoices to payments to government officials, including the name of the customer and calculation of the bribe as a fixed amount or percentage of the customer’s invoice value. Some spreadsheets also detailed the recipient of the bribe and method of delivery (cash versus wire transfer). These spreadsheets were sent to, among others, the LatAm Executive and a Stericycle Mexico executive on Stericycle’s servers.”
In Argentina, the specific method of how the cash was generated to pay the bribes was not report. The DPA noted, the “Argentina Country Management calculated and approved bribe payments, which were typically paid in cash by Stericycle Argentina sales employees. For example, on occasions when a bribe needed to be paid, a Stericycle Argentina sales employee emailed an estimate of the bribe payment, which was typically a percentage of the underlying contract payment. Upon approval of the payment, the Stericycle Argentina sales employee obtained cash from the Stericycle Argentina office in Buenos Aires and subsequently delivered the bribe payment to the foreign official.” These payments were called “alfa” and “alfajores”, a traditional cookie popular in Argentina.
Join us tomorrow where we look at the fallout and then the comeback.
Welcome to the only roundtable podcast in compliance. In 2021, Everything Compliance was honored by W3 as a top talk show in podcasting. In this episode, we have the quintet of Jay Rosen, Jonathan Armstrong, Jonathan Marks, Karen Woody and Matt Kelly. We conclude with our fan favorite Shout Outs and Rants.
1. Jay Rosen discusses the increased antitrust enforcement by the DOJ in the healthcare arena. Rosen shouts out to Rachael Smith, Gilnet Sainvil and High-Five Man which reminded Rosen of Johnny Bank from his childhood
2. Matt Kelly takes a deep dive into the SEC proposed rules cyber security disclosure. Kelly gives a ‘mild’ rant to the SEC for proposing companies should have to disclose with 4 days after a cyber breach even if law enforcement asks a company not to do so.
3. Jonathan Armstrong looks data transfers from the EU to US and UK. Armstrong goes on his most epic rant ever using 2 funerals and a birthday party to excoriate Tory Politicians to not simply talk the talk but follow the rules when it comes to Covid-19 protocols.
4. Karen Woody wades into Elon Musk and his dalliances about investing in and potentially buying Twitter. Woody rants about the recent Declination with Disgorgement given to a MarshMac subsidiary in the UK, the Jardine Group Holdings and says this is simply a NPA and should be monikered as such.
5. Jonathan Marks discusses the difference between Tone at the Top and Conduct at the Top and why so many companies are falling short in the latter. Marks shouts out to Phillies 3rd baseman Alec Bohm who went from Phillies’ fan goat to hero with a mea culpa and SF Giants assistant coach Alyssa Nakken, who became the first female to take the field and coach in the history of MLB.
6. Fox shouts out to author Margaret Atwood and in her book The Handmaiden’s Tale, which is not a dystopian novel but a prophecy of current Texas in 2022.
The members of the Everything Compliance are:
• Jay Rosen– Jay is Vice President, Business Development Corporate Monitoring at Affiliated Monitors. Rosen can be reached at JRosen@affiliatedmonitors.com
• Karen Woody – One of the top academic experts on the SEC. Woody can be reached at kwoody@wlu.edu
• Matt Kelly – Founder and CEO of Radical Compliance. Kelly can be reached at mkelly@radicalcompliance.com
• Jonathan Armstrong –is our UK colleague, who is an experienced data privacy/data protection lawyer with Cordery in London. Armstrong can be reached at jonathan.armstrong@corderycompliance.com
• Jonathan Marks is Partner, Firm Practice Leader – Global Forensic, Compliance & Integrity Services at Baker Tilly. Marks can be reached at jonathan.marks@bakertilly.com
The host and producer, ranter (and sometime panelist) of Everything Compliance is Tom Fox the Voice of Compliance. He can be reached at tfox@tfoxlaw.com. Everything Compliance is a part of the Compliance Podcast Network.
The Department of Justice (DOJ) and Securities and Exchange Commission (SEC) announced a Foreign Corrupt Practices Act (FCPA) enforcement action. To say that the respondent company, Stericycle, Inc. (Stericycle) had a culture of non-compliance throughout its entire Latin American (LATAM) business unit belies those companies which only have a dysfunctional culture. Stericycle had a culture of corruption burned into the DNA of the LATAM business unit which was so thorough that it was documented via bribery spreadsheets and analysis of revenue based on payments of bribes in LATAM.
Yet even with this corrupt culture, Stericycle also demonstrated how a company can take advantage of the discounts available under the FCPA Corporate Enforcement Policy by extensive cooperation and remediation during the pendency of the FCPA investigation, as the criminal penalty reflects a 25% reduction off the bottom of the applicable US Sentencing Guidelines fine range.
The Stericycle enforcement action also provides insights into how the DOJ will implement the remarks made by Lisa Monaco last October on their new approach to FCPA enforcement. Finally, Stericycle agreed to a two-year corporate monitor under both the DOJ and SEC settlements. In short, there is much to unpack from this enforcement action which I will do so over the next few blog posts.
According to the Information and Deferred Prosecution Agreement (DPA), Stericycle entered into a three-year DPA. Stericycle agreed to a criminal Information, which charged the company with two counts of conspiracy to violate (1) the anti-bribery provision of the FCPA, and (2) the FCPA’s books and records provision. Stericycle agreed to a criminal penalty of $52.5 million. According to the DOJ Press Release, the DOJ agreed to credit up to one-third of the criminal penalty against fines the company pays to authorities in Brazil in related proceedings, including an amount of approximately $9.3 million to resolve investigations by the Controladoria-Geral da União (CGU) and the Advocacia-Geral de União (Attorney General’s Office). According to the SEC Press Release, Stericycle consented to the SEC’s cease-and-desist order that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA, and agreed to pay approximately $28.2 million in disgorgement and prejudgment interest. The SEC’s order provides for an offset of up to approximately $4.2 million of any disgorgement paid to Brazilian authorities.
Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division said in the DOJ Press Release, “Stericycle today accepted responsibility for its corrupt business practices in paying millions of dollars in bribes to foreign officials in multiple countries. The company also maintained false books and records to conceal corrupt and improper payments made by its subsidiaries in Brazil, Mexico, and Argentina. Today’s resolution demonstrates the Department of Justice’s continuing commitment to combating corruption and protecting the international marketplace.”
Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division said, “Today’s resolution with Stericycle shows that the FBI and our international law enforcement partners will not allow corruption to permeate domestic or international markets. The consequences of violating the FCPA are clear: Companies that bribe foreign officials for business advantage will be held accountable.” Finally, Eric I. Bustillo, Director of the SEC’s Miami Regional Office, said in the SEC Press Release, “Stericycle rapidly expanded in Latin America without any meaningful oversight or compliance measures, as evidenced by widespread bribery schemes lasting for many years in most of its Latin America operations. Companies in pursuit of global expansion cannot disregard the need for appropriate controls.” Damning words all but they had lessons for the compliance professional from this matter.
As part of the DPA, Stericycle has agreed to continue to cooperate with the department in any ongoing or future criminal investigations relating to this conduct. This could well mean additional criminal charges may be brought against any number of individuals known to the DOJ, as identified in the Information. In Brazil, the following persons, Stericycle LATAM Executives 1 & 2, Stericycle Brazilian Executives 1-3, and Stericycle Argentina Executive 1 were named in the Information. Also interesting was the active assistance of sister anti-corruption enforcement groups in Brazil and Mexico, which were both identified by the DOJ and SEC as helping.
It was also interesting to note that under the DOJ Press Release, it noted that while “Stericycle has taken extensive remedial measures, it has not fully implemented or tested its enhanced compliance program, necessitating the imposition of an independent compliance monitor for a term of two years. Stericycle agreed to continue to enhance its compliance program and to retain an independent compliance monitor for two years, followed by self-reporting to the department for the remainder of the term.”
Regarding the final settlements with the DOJ and SEC; they both agreed to their respective resolutions with Stericycle based on several factors, including, among others, the company’s failure to voluntarily and timely disclose the conduct that triggered the investigation and the nature, seriousness, and pervasiveness of the offense. Although Stericycle did not self-disclose their illegal conduct to the DOJ or SEC, they did receive full credit for cooperation with both the agency investigations and engaged in extensive remedial measures. As noted above, this led to a 25% discount off the range suggested under the Sentencing Guidelines, saving Stericycle between $25 million to $30 million from their final criminal fine.
Finally, the Stericycle FCPA enforcement action is notable for the company’s use of code words to discuss bribery in its routine emails and other business correspondence. While chocolates and incentive payments (IPs) have been used before by other companies, cookies are now added to the bribery lexicon as a moniker for payment bribes.
Join us in our next blog where we consider the bribery schemes.
Welcome to the Hughes Hubbard Anti-Corruption & Internal Investigations Practice Group’s podcast All Things Investigations. In this podcast, host Tom Fox and members of the Hughes Hubbard Anti-Corruption & Internal Investigations Practice Group will highlight some of the key legal issues involved in white collar and other investigations, both domestically and internationally. In this episode, I visit with Kenyen Brown on his journey from the US Attorney’s office to bring ESG programs and initiatives to clients to improve their businesses.
Kenyen Brown is a partner in the Washington, D.C. office of Hughes Hubbard & Reed in the White Collar & Regulatory Defense and Anti-Corruption & Internal Investigations practices. He is the former US Attorney for the Southern District of Alabama. He also served on the Senate Ethics Committee. Kenyen’s practice focuses primarily on white collar criminal litigation, compliance counseling, including matters involving internal and government investigations. In this area, Kenyen has performed compliance program reviews, audits, and risk assessments.
Key areas we discuss on this podcast are:
- Role as the US Attorney for the Southern District of Alabama.
- Role on the Senate Ethics Committee. Key accomplishments.
- Working with police departments and their communities to identify systemic racial and gender discrimination issues.
- The ‘S’ in ESG in racial and gender discrimination issues.
- The important of managing reputational through a robust ESG program.
Resources
Hughes Hubbard & Reed website
Kenyen Brown bio
Anti-Corruption and Internal Investigations Practice Group
This episode of the FCPA Compliance Report begins a special two-part series with two well-known compliance professionals. Matt Galvin, most recently the CCO at AB-InBev and Dan Kahn, former acting Deputy Assistant Attorney General of the Criminal Division, Chief of the Fraud Section, and Chief of the FCPA Unit. Dan is now in private practice at DavisPolk. In this concluding Part 2, we take a deep dive into the Lisa Monaco Speech focusing on how the DOJ might look to access corporate culture, the Speech’s effect on the Benczkowski Memo, using the Monaco Speech and other external information for internal corporate presentations and the DOJ reviewing other corporate misconduct.
Resources
Matt Galvin on LinkedIn
Dan Kahn at Davis Polk
As the NY Mets have the best record in baseball and we prepare for the celebrations of Easter and Passover, Tom and Jay are back to look at some of the week’s top compliance and ethics stories in the Ng Convicted edition.
Stories
-
- Roger Ng was convicted. Tom in the FCPA Compliance and Ethics Blog.
- Lessons from DOJ’s first cyber fraud settlement? Annie Hudgins in the FCPA Blog.
- Depression as corporate materiality issue. Dick Cassin in the FCPA Blog.
- Should CCOs be required to certify compliance programs? Mike Volkov in Corruption Crime and Compliance.
- CEO fined by SEC for impeding whistleblower. Aaron Nicodemus in Compliance Week. (sub req’d) Matt Kelly in Radical Compliance.
- How much BOD oversight of compliance is enough? Jeff Kaplan in Conflict of Interest Blog.
- Compliance in recessionary times. Jim DeLoach in CCI.
- Water and corruption. Rick Messick in GAB.
- Why should an organization disclose diversity information? Antinuke Adrian in Harvard Law School Forum on Corporate Governance.
- Data governance best practices. Eray Eliaçik in Data Economy.
Podcasts and More
- Tom visits with Matt Galvin and Dan Kahn over a 2-part podcast series. In Part 1, they talk about dealing with the DOJ during an FCPA investigation and thereafter.
- Into Star Trek, then join Tom and John Champion, who is on a 15-year mission to do a podcast on every episode of Star Trek, television, movie, and animated show on the podcast MissionLogPodcast.com. In Part 1, from TOS up to the start of TNG. In Part 2, from TNG to today.
- This month on the Compliance Life, I visit with Susan Divers, Director of Thought Leadership at LRN. In Part 1, academic life and early professional career. In Part 2, she moves to the corporate world.
- Why should you attend Compliance Week 2022? Find out on this episode of From the Editor’s Desk. Listeners get a $200 discount to CW 2022 with the code Fox200. More here.
- Join Tom and Jay at ECI Impact 2022. Listeners to this podcast can save 20% off registration
by entering discount code: TOM20 at checkout. - Welcome back, Sam Rubenfeld.
Tom Fox is the Voice of Compliance and can be reached at tfox@tfoxlaw.com. Jay Rosen is Mr. Monitor and can be reached at jrosen@affiliatedmonitors.com.
Categories
Roger Ng Verdict – Guilty
The Roger Ng Foreign Corrupt Practices Act (FCPA) trial has now concluded its jury phase. Last week the jury came back with a stunning victory for the prosecution with a guilty verdict against defendant Ng. Stewart Bishop, writing in Law360, said the jury deliberated over 16 hours over four days to arrive at the verdict. The trial, which lasted over two months, was one of the most extensive FCPA cases tried in recent memory. Probably the last such big FCPA trial were the two Gun Sting cases where two different sets of defendants were tried in 2011. The jury hung in both cases, the trial judge declared mistrials and the government eventually dismissed all pending charges against the defendants.
In the Ng case there were three clear issues the jury had to wade through to get to its verdict. The first was the veracity or lack thereof of key prosecution witness Timothy Leissner, a serial liar who was the backbone of the government’s trial testimony against Ng. As Bishop noted, “Leissner was pilloried on cross-examination over his admissions to extensive lies for years in both his professional and personal lives. He admitted to being married to two different women at the same time, twice, and lying about it. He also admitted to forging divorce documents and committing immigration fraud, as well as stealing.”
However, Leissner provided crucial testimony against Ng. Bishop noted, “Over the course of 10 days on the witness stand, Leissner said Ng was intimately involved in the scheme and placed him at a key 2012 London meeting with Low, Leissner and others in which Low laid out what government officials — including the former prime minister of Malaysia and an influential sheikh in Abu Dhabi — had to be bribed to ensure the bond deals went through.”
The second issue was the documentary evidence. The reason it was so critical was because it gave the jury evidence to convict Ng but in a way that they did not have to believe or even give any credence to the testimony of Leissner. To present this documentary evidence, the government brought forward FBI agent Eric Van Dorn, a forensic account. As reported by Patricia Hurtado and David Voreacos in Bloomberg, in this phase of the trial and perhaps most “central to the government’s case was an FBI chart showing that Leissner sent $35 million of the booty to a shell company controlled by Ng’s wife, Lim.” It was Van Dorn who explained the chart to the jury.
According to Tarani Palani, writing in The Edge, Van Dorn testified that “on March 14 that transfers of ill-gotten gains were made to entities and accounts under Tan Kim Chin, Ng’s mother-in-law. About US$35.1 million was transferred to the account of Silken Waters Victoria Square, whose beneficiary is Tan. This was effected through four separate transactions over 2012 and 2013 and stemmed from the first and third 1MDB bond deals, codenamed Project Magnolia and Catalyze.” From there, “The money transferred to Silken Waters was then funnelled through various other bank accounts that were either Tan’s bank accounts in UBS and Deutsche Bank or a joint bank account she held with her daughter, Ng’s wife Lim Hwee Bin, in OCBC Singapore and OCBC Malaysia.”
The final issue for the jury was the defense which consisted of Ng’s wife testifying to the source of this $35 million. According to Luc Cohen, writing in Reuters, “Ng’s wife, Hwee Bin Lim, testified on Monday that shortly after Ng began working for Leissner in the mid-2000s, she invested 48 million yuan – about $6 million at the time – at a Chinese company owned by the family of Leissner’s wife, Judy Chan.” It was allegedly this $6 million investment which grew into the $35 million funneled to shell companies controlled by Ng. The first problem for the defense is that Lim was “tied into knots” during her cross, according to one court watcher. But the bigger problem was that Lim, who is a corporate lawyer by professional training, had ZERO documents to back up her claims. She had no agreement with Chan regarding the original investment. She had no annual (or indeed any) statement which would show the status of the investment during the six-seven years the money was invested. Finally, she had no documents when the investment was concluding showing the arrangement was over or even the final payout.
At this point, we do not know who or what the jury believed or who or what the jury did not believe during its deliberations. The jury has not said anything save one comment which was reported by Hurtado as “outside the courtroom a juror who declined to give his name stopped briefly when asked about the outcome. “I have said all I have to say in the courtroom today with my verdict,” he said.” Not very enlightening as to what the jury may or may not have believed.
There will no doubt be an appeal of this verdict. Hurtado reported defense counsel Marc “Agnifilo said, he would challenge the conviction before Brodie, particularly on the charge Ng conspired to violate U.S. anti-bribery laws by circumventing Goldman’s internal accounting controls. During the trial, Agnifilo and prosecutors agreed this was the first time the charge had been considered by a federal jury. “We’ve never been here before — it is all brand new territory,” he said after the verdict.”
What does all this mean for the Department of Justice? First and foremost, it will excise the ghosts of the Gun Sting trial debacles. While this criminal was originally filed several years ago, it could well be a starting point for a reinvigoration of the Yates Memo and the prosecution of individuals in FCPA criminal actions as suggested by Deputy Attorney General Lisa Monaco in her speech before the ABA White Collar Section last October. Procedurally, it demonstrates that even if you have a pathological liar on the witness stand, if you present documentary or other tangible evidence which support their testimony, the jury can believe that the documents or records are not lying. Such documentary evidence can also uphold a verdict on appeal. Finally, if your defense is so implausible as to defy common sense, you had better have something other than a fanciful story and faulty memory to back it up.
But there is still the post-trial motion for significant discovery abuse by the prosecution as well as the legal issues noted above. There is still much to go on down the road.
And Timothy Leissner has yet to be sentenced. His sentencing is set for July 6.
This episode of the FCPA Compliance Report begins a special two-part series with two well-known compliance professionals. Matt Galvin, most recently the CCO at AB-InBev and Dan Kahn, former acting Deputy Assistant Attorney General of the Criminal Division, Chief of the Fraud Section, and Chief of the FCPA Unit. Dan is now in private practice at DavisPolk. In this Part 1 we take up the key issues around dealing with the DOJ including the factors which go into the decision to self-disclose, incentives and disincentives in compliance programs, internal investigations including who is involved and scoping an investigation, presenting information to the DOJ during the pendency of an investigation and negotiating the final settlement and post-resolution; including both ongoing reporting and continuing innovation in your compliance program.
Resources
Matt Galvin on LinkedIn
Dan Kahn at Davis Polk
Categories
Roger Ng Trial Goes to the Jury
The Roger Ng Foreign Corrupt Practices Act (FCPA) trial has now concluded its testimony phase, the parties have closed and the decision on freedom or not for Ng rests with the jury. The closing arguments highlighted the strengths and weaknesses of both parties’ positions in the trial. As reported by Patricia Hurtado, writing in Bloomberg, the prosecution’s closing assailed Ng’s defense based upon the testimony of Ng’s wife, Hwee Bin Lim, who testified that a “$35.1 million infusion of capital into a shell company she controlled was not a kickback for her husband in the 1MDB scheme, but was from an unrelated, legitimate business transaction.” Luc Cohen, writing in Reuters, said that “Ng’s wife, Hwee Bin Lim, later testified for the defense that the business venture was, in fact, legitimate. She said she invested $6 million in the mid-2000s in a Chinese company owned by the family of Leissner’s wife at the time, and the $35 million was her return on that investment.”
The biggest problem for the prosecution was its star witness Timothy Leissner. From his innocuous “lying a lot” admission, the government had to both depend on Leissner’s testimony and distance itself from it, largely at the same time. In the former category, Cohen wrote that “Leissner said the men (he and Ng) agreed to tell banks a “cover story” that the money was from a legitimate business venture between their wives and that Alixandra Smith, a prosecutor, said in her closing argument that other evidence backed up Leissner’s testimony.”
In the latter category, Matthew Goldstein, writing in the New York Times, said “A federal prosecutor told jurors on Monday that they had received enough evidence to convict a former Goldman Sachs banker for his role in one of the biggest international money laundering and bribery schemes even without the testimony of the government’s star witness.” He went on to note that the prosecutor claimed Leissner had selected moments of truthful testimony, writing “Mr. Leissner did not lie when he testified in federal court in Brooklyn to the key facts of the scheme, which was funded by a series of bond offerings that Goldman arranged for the 1MDB fund.”
The defense assailed Leissner and his testimony in their grueling 6-day cross examination, where Leissner “admitted to lying a lot in life. He was forced to admit to initially lying to federal agents, to his fellow partners at Goldman and to his wives and girlfriends.” At closing, Ng’s attorney “said Mr. Leissner was a man who “will lie if it suits his interest.” He said that, despite what the prosecution had said, without Mr. Leissner’s testimony the government could not connect Mr. Ng to the conspiracy to steal billions from the 1MDB fund. There is no evidence that connects Roger. There is not a dirty email. Not a bad text message.”
Interestingly, in the prosecution’s rebuttal, another prosecutor, Drew Rolle appeared to change tactics to defend and rehabilitate Leissner. Stewart Bishop, writing in Law360 said “Rolle also mounted a last-ditch defense of Leissner. Tim Leissner came in here, took the stand and told you the unvarnished truth,” Rolle said. “It was painful, but that’s what has to happen, because it’s the truth.” When you must try and rehabilitate your story witness on rebuttal, it is never a good sign.
Finally in an interesting twist, Hurtado reported that “The jury in the 1MDB conspiracy case against former Goldman Sachs banker Roger Ng has asked to review testimony from his wife that the defense says is key to its case. After seven weeks of testimony in federal court in Brooklyn, New York, the jurors deciding the fate of Goldman Sachs Group Inc.’s former head of investment banking in Malaysia made the request soon after they began their deliberations on Tuesday afternoon.” Trial lawyers and trial watchers are continually trying to read signs from the jury. It seems to me that this request means that the jury took Ng’s defense to heart through the testimony of his wife about the source of the family’s funds.
We all now have to sit back and wait for the jury to return with its verdict. If the jury comes back with a guilty verdict, it will bolster the Department of Justice’s (DOJ) attempts to hold individual actors culpable for their actions in engaging in FCPA violations and other white collar crime involving corporations. If the jury comes back with a not guilty verdict in the wake of the largest corporate FCPA fine and penalty, against Ng’s former employer Goldman Sachs, it could bode poorly for DOJ attempts to hold individuals accountable in similar cases or even other cases of fraud cases going forward. If there is a not guilty verdict in the Ng and you couple it with the recent not guilty verdict in the prosecution of Mark Forkner, the former chief technical pilot at Boeing responsible for the 737 Max, it may well point to the difficulties of trying to hold employees at large corporations responsible.
Mike Volkov said of the Forkner verdict, “Juries often bring justice to deliberations and verdicts. In the Boeing case, the jurors saw through the government’s lack of fairness – Boeing officials were not charged – only a chief technical pilot was held accountable. The fundamental flaw in this approach is that even assuming that Forkner engaged in misconduct, his actions or failures to act occurred in the context of an organization with colleagues, supervisors and other senior officials ultimately responsible for Boeing’s actions.” He concluded “Forkner’s defense attorney argued to the jury, “This was a massive corporate failure, and Boeing simply needed someone to pin it on.” The jury agreed.”
