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What Viable Criminal Charges Against Guralp Systems Did The DOJ Actually “Decline”?

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This July 2017 post highlighted the criminal conviction of 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) for “laundering bribes that he received from two seismological companies based in California and England through the U.S. banking system.”

The prior post noted that attention now turns to Kinemetrics (the California company) and Guralp Systems Ltd. (the U.K. company).

Recently, the DOJ quitely released this substantively vague so-called declination letter concerning Guralp Systems. However, as highlighted below it is difficult to analyze just what viable criminal charges against Guralp Systems that the DOJ actually “declined” to prosecute.

In FCPA speak, Guralp Systems is a “person other than an issuer or domestic concern” and thus can only be subject to the FCPA’s anti-bribery provisions under the so-called dd-3 prong of the statute. This portion of the FCPA has the most demanding jurisdictional element found in the FCPA that being “while in the territory of the United States, corruptly to make use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance of an” improper payment scheme.” (emphasis added).

As highlighted by the below text of the so-called declination letter, there is no mention how this required FCPA element was met regarding Guralp Systems. In the DOJ’s press release announcing the Chi verdict, the DOJ stated:

“According to the evidence presented at trial, between at least 2009 and 2015, Chi abused his official position at KIGAM to demand and receive over $1 million in bribes from two seismological companies in exchange for providing them with unfair business advantages in the South Korean seismological market. In particular, the trial evidence showed that Chi advocated the purchase and use of equipment from these two companies by KIGAM and other South Korean customers, and he provided these companies with market intelligence and inside information, including confidential information about their competitors and the KIGAM bidding process. The evidence also showed that Chi directed that his bribe payments be paid in cash or wired to his personal bank account in Glendora, California.” (emphasis added).

However, this alone is insufficient to satisfy dd-3’s “while in the territory of the U.S.” jurisdictional prong as it relates to Guralp Systems. For instance, in the Africa Sting case, a federal court judge rejected such an expansive jurisdictional theory as applied to a foreign national (see here) and recently the U.S. Supreme Court questioned such expansive jurisdictional theories as applied to foreign companies. (See here).

The text of the DOJ’s letter to Guralp Systems’ counsel Matthew Reinhard (Miller & Chevalier) states:

“I write regarding the investigation by the U.S. Department of Justice, Criminal Division, Fraud Section and the U.S. Attorney’s Office for the Central District of California (collectively, the “Department”) into your client, Guralp Systems Limited (“GSL” or the “company”), concerning possible violations of the Foreign Corrupt Practices Act (“FCPA”), and U.S. money laundering statutes resulting from GSL’s payments to Heon-Cheol Chi (“Chi”), the director of the Earthquake Research Center at the Korea Institute of Geoscience and Mineral Resources. Based upon the information known at this time and consistent with the FCPA Corporate Enforcement Policy, the Department has closed its inquiry into GSL, notwithstanding evidence of violations of the FCPA arising from GSL’s payments to Chi.

The Department has reached this conclusion for a number of reasons, including GSL’s voluntary disclosure of the misconduct to the Department, significant remedial efforts undertaken by GSL, GSL’s substantial cooperation with the Department’s investigation, and the fact that GSL, a U.K. company with its principal place of business in the U.K., is the subject of an ongoing parallel investigation by the U.K.’s Serious Fraud Office for violations of law relating to the same conduct and has committed to accepting responsibility for that conduct with the SFO. GSL’s cooperation with the Department included the voluntary production of relevant documents and information relevant to the Department’s investigation. GSL’s voluntary disclosure of the misconduct and its cooperation assisted the Department with the prosecution of Chi for violating the U.S. money laundering statute.

If the Department learns of additional information, or if the circumstances noted above change, it may reopen its inquiry.”

As highlighted in this prior post, in the Corporate Enforcement Policy the DOJ defined “declination” as follows.

“A declination pursuant to the FCPA Corporate Enforcement Policy is a case that would have been prosecuted or criminally resolved except for the company’s voluntary disclosure, full cooperation, remediation, and payment of disgorgement, forfeiture, and/or restitution.  If a case would have been declined in the absence of such circumstances, it is not a declination pursuant to this Policy.  Declinations awarded under the FCPA Corporate Enforcement Policy will be made public.”

However as stated above, there is no information in the public domain to support a viable criminal prosecution of Guralp Systems. If there is, the DOJ should inform the public about the specifics because its vague letter above certainly does not and thus undermines the DOJ’s oft-repeated statement that it is committed to transparency in its FCPA enforcement decision.

*****

Last week, the U.K. Serious Fraud Office announced:

“Dr Cansun, Guralp founder and Andrew Bell, Managing Director, both formerly employed by Güralp Systems Limited, will appear at Westminster Magistrates’ Court on Monday, 20th August 2018.

The two men have both been charged by requisition, with conspiracy to make corrupt payments contrary to Section 1 of the Criminal Law Act 1977 and Section 1 of the Prevention of Corruption Act 1906.

The SFO alleges that the two men conspired to corruptly make payments to a public official and employee of the Korea Institute of Geoscience and Mineral Resources (KIGAM).

The announced charges come after a criminal investigation by the SFO into conduct at Güralp Systems that began on 3rd December 2015.

The alleged activity occurred between April 2002 and September 2015.

Guralp Systems Limited is an engineering company specialising in the production of seismic testing equipment. […] The SFO’s investigation into Güralp Systems Limited began on 3rd December 2015 – it had not previously been announced.”

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