Parallel DOJ and SEC Foreign Corrupt Practices Act enforcement actions against issuers based on the same core conduct are common. However, such actions are coordinated and announced on the same day.
In a highly unusual development, late yesterday the DOJ announced an FCPA action against Las Vegas based on the same core conduct at issue in the SEC’s April 2016 FCPA enforcement action against Las Vegas Sands. (See here and here prior posts).
Quite frankly, I can’t recall another instance of this happening.
But then again some strange things are happening in the final weeks and days of the Obama administration before existing DOJ officials exit. (See this Wall Street Journal article titled “Obama Administration Races To Finish Probes, Wring Payments From Firms” noting that in the past approximate week the U.S. has reached settlements worth approximately $20 billion).
Adding to the intrigue is that Sheldon Adelson (founder, chairman and chief executive officer of Las Vegas Sands) is a major Republican contributor.
The Statement of Facts in this non-prosecution agreement concern the same conduct alleged in the SEC’s April 2016 enforcement action. Specifically, under the heading “Summary of Conduct,” the NPA states:
“Between in or around 2006 and 2009, Sands, through its Macao- and PRC-based subsidiaries, transferred approximately $60 million to Consultant for the purpose of promoting Sands’ business and brands.
Several of Sands’ contracts with and payments to Consultant had no discernible legitimate business purpose, Sands senior executives were repeatedly warned about the Consultant’s dubious business practices and the high risk of Sands’ transactions with Consultant, and by at least early 2008, certain senior Sands executives knew that over $700,000 paid to Consultant by Sands subsidiaries had simply disappeared.
Nevertheless, Sands continued to engage Consultant for work on behalf of Sands, with knowledge of the same Sands senior executives, and did not take steps to provide reasonable assurances about the Company’s use and disbursement of funds and assets. In particular, Sands failed to carry out enhanced due diligence on all of Consultant’s myriad companies, and did not insist on the appropriate documentation, approvals, or justifications for the payments to Consultant, even after Sands had become aware of Consultant’s failure to account for sums of over $700,000 paid by Sands and Consultant’s business practices.”
Under the heading “Payments for Sponsorship of Chinese Basketball Team,” the NPA states in pertinent part:
“Consultant was first retained by Sands in the fall of 2006, having been introduced to Sands through a high-level person with the PRC’s China Liaison Office in Macao. VML Executive [Venetian Macao Limited (“VML”) was a wholly owned subsidiary of Sands until 2009, when it became a subsidiary of Sands China Limited (“SCL”), of whose shares Sands owns 70.1%. VML carried out casino operations for Sands in the Macao Special Administrative Region of the People’s Republic of China (“Macao”)] strongly advocated that-Sands retain Consultant, asserting that Consultant’s connections in the PRC would be very useful in Sands’ efforts to expand its business into the PRC.
In or around early 2007, Sands sought to acquire a professional basketball team in the Chinese Basketball Association (“CBA”) to increase interest in Sands’ existing casino operations in Macao. When Sands learned that, as a gaming company, it could not own a CBA team under the league rules, Sands arranged for Sands to fund Consultant’s purchase of the team, and for Sands to simply appear as the team “sponsor.”
To that end, in or around 2007 a Sands WFOE paid approximately $7 5 million to companies controlled by Consultant to acquire the CBA team and two junior teams. In so doing, the Sands WFOE violated Sands policies and procedures, including because the contractual documentation underlying the wire transfers between the Sands WFOE and the Consultant entity did not accurately reflect the identities of the parties to the transactions.
Following these payments, Sands Finance Employee began to raise concerns about the lack of transparency of, and failure to follow, proper accounting procedures and company policies in the transactions between Sands and Consultant entities, and also about the actions taken by VML Executive that appeared to show a disregard for internal controls.”
Under the heading “Acquisition of the ‘Beijing Building’ and Basement,” the NPA states in pertinent part:
“Sands promotional strategy in the PRC also included pursuing a joint venture to develop a resort facility with a Chinese state-owned travel agency (“Chinese SOE”). As part of its collaboration, Sands agreed in December 2006 to acquire from the Chinese SOE several floors of a large building in Beijing.
Between in or around July 2007 and February 2008, Sands, through its WFOEs, acquired a controlling interest in a company that Consultant had set up to purchase the Beijing building floors. The transactions, amounting to approximately $42 million, were between Sands’ WFOEs and the Consultant entities, and none of the payments was approved by a Sands employee with sufficient authorization to approve the amounts paid.
Separate and apart from the core Beijing building transaction, in or around mid- 2007, Consultant demanded that Sands pay Consultant a large up-front amount, purportedly so that Consultant could secure Sands’ title to the building’s unfinished basement.
On or about August 6, 2007, VML Executive sent an email to Sands Executive 1 suggesting that Consultant could use Consultant’s connections in Beijing to secure the title, and that Consultant had asked for an upfront payment of approximately $1.4 million to obtain title to the basement. In response, Sands Executive 1 instructed Sands Executive 2 and VML Executive to ensure that Sands’ outside counsel was consulted.
On or about August 19, 2007, Sands’ outside counsel sent an email to, among others, VML Executive, Sands Executive 1, and Sands Executive 2, raising the specter of potential FCPA issues with the proposed payment and questioning the legality of how Consultant would obtain the basement permit.
Around the same time and over the following months, Sands Finance Employee sent multiple emails to Sands Executive 2 expressing similar concerns about giving Consultant an advance payment for the basement.
Despite all of the foregoing, and notwithstanding the fact that, among other things, Consultant had never provided documentation showing Consultant had even purchased the basement from the Chinese SOE, much less legally obtained title, on or about April 9, 2008, a Sands WFOE wired approximately $3.6 million to one of Consultant’s companies, as a prepayment for a five-year lease of the basement.”
Based on the above, and other miscellaneous “subsequent payments to consultant,” Las Vegas Sands agreed to pay a $6.96 million criminal penalty.
In the three-year NPA, the DOJ lists the following factors:
(a) the Company did not receive voluntary disclosure credit because it did not voluntarily and timely disclose to the Fraud Section the conduct described in the Statement of Facts …;
(b) the Company received full credit for its cooperation with the Fraud Section’s investigation, including conducting a thorough internal investigation, sharing in real-time facts discovered during the internal investigation and sharing information that would not have been otherwise available to the Fraud Section, making regular factual presentations to the Fraud Section, facilitating interviews of certain foreign witnesses, and voluntarily collecting, analyzing, and organizing voluminous evidence and information to the Fraud Section in response to requests, including translating key documents;
(c) the Company provided to the Fraud Section all relevant facts known to it, including information about the individuals involved in the conduct described in the attached Statement of Facts and conduct disclosed to the Fraud Section prior to the Agreement;
(d) the Company no longer employs or is affiliated with any of the individuals implicated in the conduct at issue in the case; engaged in extensive remedial measures, including revamping and expanding its compliance and audit functions and programs and making significant personnel changes, including the retention of new leaders of its legal, compliance, internal audit, and financial gatekeeper functions; established a new Board of Directors Compliance Committee, updated its Code of Business Conduct, the Anti-Corruption Policy, and relevant policy guidelines; and developed and implemented enhanced financial controls, screening of third parties and new hires, anti-corruption training, and electronic procurement and contract management system;
(e) the Company has committed to continue to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth in Attachment B to this Agreement (Corporate Compliance Program);
(f) the Company resolved with the U.S. Securities and Exchange Commission (the “SEC”) through an Administrative Proceeding filed on or about April 7, 2016, regarding conduct substantially overlapping with that at issue here (the “SEC Resolution”), and agreed to pay a civil penalty of $9 million;
(g) in connection with the SEC Resolution, the Company has retained an independent compliance consultant, and agreed that it will submit copies of all reports of the independent compliance consultant to the Fraud Section within three calendar days of the Company’s receipt of such reports until the completion of the independent compliance consultant’s engagement, followed by self-reporting to the Fraud Section pursuant to the terms described herein and in Attachment C;
(h) the nature and seriousness of the offense, in particular a willful failure by then executives of the Company to implement adequate internal accounting controls in connection with significant payments to companies associated with a consultant in a region known to be high risk for corruption, without appropriate due diligence of certain entities, consistent monitoring of or justifications for payments, and proper approvals and documentation, even after certain then-senior executives of the Company had been notified about the consultant’s business practices and failure to account for over $700,000; and
(i) accordingly, after considering (a) through (h) above, the Company received an aggregate discount of 25% off the bottom of the U.S. Sentencing Guidelines fine range.”
Laurence Urgenson (Mayer Brown) represented Las Vegas Sands.
FCPA Institute - Phoenix (Jan. 11-12, 2018)
A unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills through active active. Learn more, spend less. CLE credit is available.