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With Chi Guilty Verdict, Focus Shifts To Kinemetrics And Guralp Systems

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The DOJ recently announced that Heon-Cheol Chi (Chi) of South Korea, “the Director of South Korea’s Earthquake Research Center at the Korea Institute of Geoscience and Mineral Resources (KIGAM) was convicted … following a four-day jury trial of laundering bribes that he received from two seismological companies based in California and England through the U.S. banking system.”

As noted here, according to court documents the companies are Kinemetrics (a California company that designs technologies, products, and solutions for monitoring earthquakes and their effects on people and structures) and Guralp Systems Ltd. (a U.K. company that designs, manufactures and delivers products, services, systems and solutions for a wide range of applications for the seismological research community as well as the the oil & gas, civil engineering and energy sectors.)

With the Chi guilty verdict, focus shifts to Kinemetrics and Guralp Systems and when asked if there would be an FCPA enforcement action against these companies a DOJ spokesperson informed me via e-mail that “the investigation is ongoing.”

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FCPA Enforcement Actions Against Foreign Companies From OECD Convention Peer Countries

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2016 was a record-breaking year for Foreign Corrupt Practices Act enforcement, both in terms of the number of core corporate actions resolved as well as overall settlement amounts.

As highlighted in this post, much of the largeness of 2016 FCPA enforcement resulted from corporate enforcement actions against foreign companies. (For purposes of this post, a foreign company means the “residence” of the corporate parent company and not for instance, Analogic’s foreign subsidiary or JPMorgan’s foreign subsidiary being offered up to resolve the DOJ prong of the corporate enforcement action). 

Specifically, of the 27 corporate enforcement actions from 2016, 11 (41%) were against foreign companies (based in many instances on mere listing of securities on U.S. markets and in a few instances on sparse allegations of a U.S. nexus in furtherance of an alleged bribery scheme). Even more dramatic, of the net $2.27 billion settlement amounts from 2016 corporate enforcement actions, approximately $1.44 billion (63%) resulted from enforcement actions against foreign companies.

Given that all of the foreign companies that resolved 2016 FCPA enforcement actions were from peer OECD Convention countries, the question should be asked whether these FCPA enforcement actions represented a proper use of the FCPA – at least from a policy standpoint.

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Rolls-Royce Resolves $170 Million FCPA Enforcement Action

Rolls

If you were scoring at home, the last few weeks of the Obama administration were quite active for Foreign Corrupt Practices Act enforcement. But then again this was expected.

First it was the $13 million joke of an enforcement action against Mondelēz International, Inc. on January 9th. Then it was the $30.4 million Biomet became an FCPA repeat offender enforcement action on January 12th. Then it was no U.S. nexus, no problem $30.5 million enforcement action against Sociedad Quimica y Minera de Chile S.A on January 13th. Then it was the DOJ’s announcement (summarized in this post) on January 17th that U.K. based Rolls-Royce plc agreed to pay the U.S. net approximate $170 million (including an unusual component never before seen in FCPA enforcement) to resolve an FCPA enforcement action concerning conduct in Thailand, Brazil, Kazakhstan, Azerbaijan, Angola and Iraq. Then it was $6 million Orthofix Int’l also became an FCPA repeat offender enforcement action on January 18th. Then in the finals hours of the Obama administration it was unusual $7 million enforcement action against Las Vegas Sands (headed by major Republican donor Sheldon Adelson who was front and center at Trump’s inauguration) based on the same core conduct as the SEC’s enforcement action against the company nine months earlier.  Individual FCPA enforcement actions (here and here) were sprinkled in as well.

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How A Foreign Non-Issuer Company Can Become Subject To The FCPA’s Anti-Bribery Provisions

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This recent report suggests that Angelica Rivera, wife of Mexico President Enrique Pena Nieto, is using a luxury property in Florida bought by a company (Grupo Pierdant) that is expected to bid for lucrative Mexican government contracts. According to the report, Grupo Pierdant has also paid the property tax on an additional Florida property bought by a holding company set up by Rivera.

This post uses the recent report to review how a foreign non-issuer company (such as Grupo Pierdant) can become subject to the FCPA’s anti-bribery provisions.

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Danish Subsidiary Exposes Analogic To $14.9 Million Enforcement Action

analogic

Yesterday the DOJ and SEC announced (see here and here) a parallel Foreign Corrupt Practices Act enforcement action against medical device manufacturer Analogic Corp. and BK Medical ApS (Analogic’s Danish subsidiary) in which the entities agreed to pay approximately $14.9 million.

The conduct at issue involved alleged improper payments by BK Medical, primarily in Russia through distributors, and the government alleged that BK Medical took various steps to conceal its conduct from Analogic.

The enforcement action involved a DOJ non-prosecution agreement with BK Medical in which the company agreed to pay a $3.4 million criminal penalty and an SEC administrative order against Analogic in which the company agreed to pay approximately $11.5 million in disgorgement and prejudgment interest. In connection with the same administrative order, the SEC also announced that “Lars Frost, BK Medical’s former Chief Financial Officer, agreed to pay a $20,000 civil penalty to settle charges that he knowingly circumvented the internal controls in place at BK Medical and falsified its books and records.

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