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Friday Roundup


Standard Bank roundup, recent FCPA sentences, scrutiny alert, and for the reading stack.  It’s all here in the Friday roundup.

Standard Bank Roundup

A roundup within the Friday roundup.

The development of the month so far was the U.K. (and related) enforcement action against Standard Bank – a first in two regards.

(i) the first use of Section 7 of the Bribery Act (the so-called failure to prevent bribery offense) in a foreign bribery action; and

(ii) the first use of a deferred prosecution agreement in the U.K..

  • This post highlighted “what” was resolved – an alleged violation of Sec. 7 of the Bribery Act for failure to prevent bribery.
  • This post highlighted “how” the enforcement action was resolved – the U.K.’s first deferred prosecution agreement.
  • This post highlighted the creativity of the SEC in also bringing an enforcement action against Standard Bank.
  • This post highlighted the thoughts of others about the enforcement action.

Recent FCPA Sentences

In 2013 and 2014 the DOJ brought FCPA and related charges against various individuals associated with broker dealer Direct Access Partners in connection with alleged improper payments to Maria Gonzalez (V.P. of Finance / Executive Manager of Finance and Funds Administration at Bandes, an alleged Venezuelan state-owned banking entity that acted as the financial agent of the state to finance economic development projects).

Recently, Tomas Clarke and Ernesto Lujan were sentenced after pleading guilty to FCPA and related offenses.

Lujan was sentenced to two years in prison, followed by three years of supervised release, and consented to a $18.5 million forfeiture “representing the proceeds and property involved in the commission of the offenses alleged.”

Clarke was also sentenced to two years in prison, followed by three years of supervised release, and consented to a $5.8 million forfeiture “representing the proceeds and property involved in the commission of the offenses alleged.”

Previously, Benito Chinea and Joseph DeMeneses were sentenced to four years in prison and consented to $3.6 million and $2.7 million forfeiture.

Scrutiny Alert


The company which has been under FCPA scrutiny since 2011 recently disclosed:

“As initially disclosed in our Annual Report on Form 10-K for the fiscal year ended July 31, 2011, we identified certain transactions involving our Danish subsidiary BK Medical ApS, or BK Medical, and certain of its foreign distributors, with respect to which we have raised questions concerning compliance with law, including Danish law and the U.S. Foreign Corrupt Practices Act, and our business policies. These have included transactions in which the distributors paid BK Medical amounts in excess of amounts owed and BK Medical transferred the excess amounts, at the direction of the distributors, to third parties identified by the distributors. We have terminated the employment of certain BK Medical employees and also terminated our relationships with the BK Medical distributors that were involved in the transactions. We have concluded that the transactions identified to date have been properly accounted for in our reported financial statements in all material respects. However, we have been unable to ascertain with certainty the ultimate beneficiaries or the purpose of these transfers. We have voluntarily disclosed this matter to the Danish Government, the U.S. Department of Justice, or DOJ, and the SEC, and are cooperating with inquiries by the Danish Government, the DOJ and the SEC. We believe that the SEC, DOJ, and Danish Government have substantially completed their investigation into the transactions at issue. We are continuing our discussions with the SEC and have commenced discussions with the DOJ and Danish Government concerning a possible resolution of these matters. During the three months ended July 31, 2015, we accrued a $1.6 million charge in connection with a settlement proposal that we made to the SEC, which proposal was rejected by the SEC. In the first quarter of fiscal 2016, the SEC and DOJ made separate settlement proposals that would include payments in the aggregate amount of approximately $15 million. We are uncertain whether the Danish Government will seek to impose sanctions or penalties against us. We further believe that, under Danish law, amounts paid to the SEC and/or the DOJ would be taken into account in determining penalties that may be sought by the Danish Government. There can be no assurance that we will enter into any settlement with the SEC, the DOJ or the Danish Government, and the cost of any settlements or other resolutions of these matters could materially exceed our accruals. During the three months ended October 31, 2015 and 2014, we incurred inquiry-related costs of approximately $0.03 million and $0.8 million, respectively, in connection with this matter.”

Reading Stack

This Law360 article by Gerry Zack (Managing Director in BDO’s global forensics practice) titled “Implicit Bias – the Hidden Investigation Killer” caught my eye.

“Everyone carries a variety of biases around with them on a daily basis. Yet, many people are confident they can set their biases aside when it comes time to perform a workplace investigation, even referring to the final product as an “unbiased investigation.” But science has repeatedly proven that we aren’t nearly as good at setting our biases aside as we’d like to think  …”

The article touches upon affinity bias, confirmation bias, and priming.

Having conducted numerous internal investigations around the world (in the FCPA context and otherwise), I think there is merit to the issues discussed in the article – issues that contribute to the divide between the DOJ and SEC “processing” corporate FCPA internal investigations and the general struggles of the enforcement agencies proving FCPA offenses in the context of an adversarial proceeding.


From outgoing SEC Commissioner Luis Aguilar – “Commissioner Aguilar’s (Hopefully) Helpful Tips for New SEC Commissioners.”


A good weekend to all.

Checking In On SEC v. Straub Et Al

Checking In

In the FCPA’s history, the SEC has never prevailed when put to its ultimate burden of proof in a Foreign Corrupt Practices Act enforcement action.

As highlighted in this previous post, in 2002 the S.D. of Texas dismissed an SEC complaint against Eric Mattson and James Harris.  The enforcement action involved alleged goodwill payments to an Indonesian tax official for a reduction in a tax assessment.  The SEC claimed that the FCPA’s unambiguous language plainly encompassed the goodwill payment and the issue before the Court was whether the plain language of the FCPA prohibited goodwill payments for the purpose of reducing a tax assessment.  The Court rejected the SEC’s arguments and concluded that the payments at issue to the Indonesian tax official did not violate the FCPA because it did not help Mattson’s and Harris’s employer (Baker Hughes) “obtain or retain business.”  See here for the court’s Memorandum and Order.

As highlighted in this previous post, in 2013 the S.D. of New York dismissed an SEC complaint against Herbert Steffen.  In dismissing the case against the German national, the judge concluded, as an initial threshold matter, that personal jurisdiction over Steffen exceeded the limits of due process.  The judge stated, in pertinent part, as follows.

“If this Court were to hold that Steffen’s support for the bribery scheme satisfied the minimum contacts analysis, even though he neither authorized the bribe, nor directed the cover up, much less played any role in the falsified filings, minimum contacts would be boundless.  […] [U]nder the SEC’s theory, every participant in illegal action taken by a foreign company subject to U.S. securities laws would be subject to the jurisdiction of U.S. courts no matter how attenuated their connection with the falsified financial statements.  This would be akin to a tort-like foreseeability requirement, which has long been held to be insufficient.”

In SEC v. Jackson, an enforcement action involving Noble executives, the SEC was close to having to prove its case at trial, but the SEC offered to settle the case on the eve of trial on terms very favorable to the defendants after its motion for summary judgment was denied and the judge raised several questions about the SEC’s case. (See here and here for prior posts).

That leaves SEC v. Straub as the only “active” SEC FCPA enforcement action. As highlighted in this previous post, in February 2013 the S.D. of New York denied the motion to dismiss of Elek Straub, Andras Balogh and Tamas Morvai (all foreign nationals formerly associated with Magyar Telekom) in an SEC FCPA case concerning an alleged bribery scheme in Macedonia. (Note – when a trial court denies a motion to dismiss it does not mean that the plaintiff has prevailed, it only means that the case will continue).

Recently, the parties provided the court updates on anticipated summary judgment motions.

This defense letter focuses on statute of limitations, use of interstate commerce, and personal jurisdiction.

As to statute of limitations, the motion will argue that the Supreme Court’s 2013 statute of limitations decision in Gabelli v. SEC (see here for the prior post – an opinion issued after the above mentioned February 2013 motion to dismiss) warrants summary judgment.  The motion will further argue that facts reveal that two of the defendants were physically present in the U.S. in 2005 after the time the SEC’s claims “first accrued” and thus the action filed in December 2011 is time-barred.

As to the use of interstate commerce, the letter states:”Discovery has not demonstrated that Straub or Morvai made any use of the instrumentalities of U.S. interstate commerce, nor has it demonstrated that a single innocent e-mail sent by Balogh that independently, unknowingly, and fleetingly passed through a server in the U.S. was sent “in furtherance” of any alleged bribery scheme.”  As stated in the letter, “the viability of the SEC’s FCPA claim, against all three Defendants, therefore is dependent on a single e-mail transmission, between one Defendant in Hungary and one of his colleagues in Macedonia, which attaches an unsigned copy of a legitimate – albeit nonbinding – understanding between the two main shareholders of MakTel. Discovery has not supported the SEC’s allegations that this e-mail was sent in furtherance of an alleged bribery scheme, nor has it supported the conclusion that one e-mail sent by Balogh would implicate his co-defendants.”

As to personal jurisdiction, the summary judgment motion will argue that the defendants lack sufficient minimum contacts with the U.S. to justify exercise of personal jurisdiction.  [Note, this was the basis on which the SEC’s complaint against Steffen was dismissed].  According to the letter, “limited management and sub-certification representations which occurred in Hungary [should not] support a conclusion of minimum contacts with the U.S. in light of the fact that all of the alleged conduct occurred in Hungary and Macedonia.”

This SEC letter also focuses on statute of limitations, interstate commerce and personal jurisdiction.

As to statute of limitations, the letter ignores the Gabelli decision regarding when claims first accrue and states, “between 2006, when the defendants’ scheme ended, and the filing of the SEC’s complaint in December 2011, not one of the defendants set foot in the U.S.”

As to interstate commerce, the letter states.  “There is no genuine issue that defendant Balogh used electronic mail in furthernace of the bribe scheme by attaching drafts of the Protocol, the Letter of Intent, and copying of consulting contracts with third-party intermediaries.  The e-mails were sent from locations outside the United States, but were routed through and stored on network servers located within the United States.  The email messages sent by Balogh to a co-conspirator’s “” email account have been identified, authenticated, and traced to Balogh’s computer.  Balogh has not denied sending them.  Further, a witness from Microsoft will testify that during the relevant time all of its Hotmail servers were located within the United States.  As a result, all e-mail messages sent to addresses would necessarily have been routed through U.S. interstate commerce.”

As to personal jurisdiction, the letter states: “The factual record fully supports the Court’s exercise of personal jurisdiction over the defendants.There is no genuine issue that the defendants did, in fact, execute the management representation letters and sub-certifications alleged in the complaint. There is no genuine dispute that the defendants, all sophisticated senior corporate executives, were on notice that their representations were made in connection with the company’s filings with the SEC.

As noted in the SEC’s letter, in addition to moving for summary judgment on the above issues, the SEC will also move affirmatively for judgment on its claims that the defendants violated Rule 13b2-1 (falsifying accounting records) and Rule 13b2-2 (making false representations to an auditor).

See here and here for the SEC and defendants’ reply letters.

Guilty Pleas In Broker-Dealer Enforcement Action

This previous post highlighted the May FCPA enforcement action against Tomas Clarke (an Executive Vice President of broker-dealer Direct Access Partners (DAP) who worked out of the company’s Miami office) and Alejandro Hurtardo (a back-office employee of DAP in Miami) in connection with an alleged bribery scheme involving an alleged “foreign official” at Bandes, an alleged Venezuelan state-owned banking entity that acted as the financial agent of the state to finance economic development projects.  As noted here, in June, Ernesto Lujan (a managing partner at DAP and a branch manager of its Miami offices) was also charged in connection with the same alleged bribery scheme.

Last week, the DOJ announced that Lujan, Hurtardo and Clarke pleaded guilty.

Typically FCPA defendants plead guilty to reduced charges compared to the original charging documents, however the above defendants all pleaded guilty (see here, here and here for the plea agreements) to the original six charges:  (i) conspiring to violate the FCPA, to violate the Travel Act, and to commit money laundering; (ii) violating the FCPA; (iii) violating the Travel Act; (iv) committing money laundering; (v) conspiring to obstruct justice; and (vi) conspiring to violate the FCPA.

As noted in the DOJ release, the informations (see here and here) to which the defendants pleaded guilty also included additional allegations concerning another alleged state-owned banking entity in Venezuela.  Specifically, the DOJ alleged that:

“Banfoandes Bank, including its 2009 successor, Banco Bicentenario, was a state-owned and state-controlled economic development bank of the [Republic of Venezuela].  It operated under the direction of the Venezuelan People’s Ministry of Planning and Finance.  Banfoandes acted as a financial agent of the Venezuelan government in order to promote economic and social development by, among other things, offering credit to low-income Venezuelans.  Bandoandes was an ‘agency’ and ‘instrumentality’ of a foreign government, as those terms are used in the FCPA.  […]  [T]he Banfoandes Foreign Official’ served as a vice president of Banfoandes who, among other things, was responsible for some of Banfoandes’s foreign investments.”

As noted in the DOJ release, Lujan and Clarke are scheduled to be sentenced on Feb. 11, 2014 and Hurtardo is scheduled to be sentenced on March 6, 2014.  Given the plea agreements, the sentences are likely to be among the longest FCPA sentences ever imposed.

SEC Examination Leads To Criminal FCPA Charges Against Bond Traders

It is one of the more unusual origins of a Foreign Corrupt Practices Act enforcement action.

In November 2010, the SEC conducted a periodic examination of Direct Access Partners LLC (“DAP”), a broker-dealer registered with the SEC.  DAP’s Global Markets Group (“DAP Global”) primarily executed fixed income trades for customers in foreign sovereign debt.  One of its customers was Bandes, an alleged Venezuelan state-owned banking entity that acts as the financial agent of the state to finance economic development projects.

According to the DOJ and SEC, the SEC examination lead to the discovery of a “fraud that was staggering in audacity and scope” (see here for the SEC release).  A component of the alleged fraud included payments by Tomas Clarke (a DAP Executive Vice President who worked out of the company’s Miami office) and Alejandro Hurtado (a back-office employee of DAP in Miami) to Maria Gonzalez (V.P. of Finance / Executive Manager of Finance and Funds Administration at Bandes).  According to this DOJ criminal complaint, Gonzalez oversaw Bande’s trading by DAP.

According to the criminal complaint, Clarke, Hurtado and others “directed kickback payments” to Gonzalez “in exchange for Gonzalez steering Bandes business to [DAP] and authorizing Bandes to execute bond trades with [DAP].  According to the complaint, between 2008 and 2010 “Gonzalez received at least $3.6 million in payments through insiders and affiliates of [DAP].  According to the complaint, during this time period, “with Gonzalez both acting as the authorized trading contact in regard to [DAP] and managing the relationship between Bandes and [DAP], Bandes directed substantial business to [DAP] and carried out bond transactions that resulted in [DAP] generating tens of millions of dollars in revenue.”  The criminal complaint alleges various payments made or authorized by Clarke and Hurtado to an account in Switzerland held in the name of Gonzalez and/or a company owned in part by Gonzalez.

Based on the above core set of conduct, the criminal complaint charges Clarke and Hurtado with the following offenses:  conspiracy to violate the FCPA, substantive FCPA violations, conspiracy to violate the Travel Act, substantive Travel Act violations, conspiracy to commit money laundering, and substantive money laundering violations.

Gonzalez, the alleged “foreign official,” was charged with conspiracy to violate the Travel Act, substantive Travel Act violations, conspiracy to commit money laundering, and substantive money laundering violations.  (For other examples of “foreign officials” being criminally charged with non-FCPA offenses in connection with an FCPA enforcement action, see here and here).

In this DOJ release, Acting Assistant Attorney General Mythili Raman stated as follows.  “Today’s announcement is a wake-up call to anyone in the financial services industry who thinks bribery is the way to get ahead.  The defendants in this case allegedly paid huge bribes so that foreign business would flow to their firm.  Their return on investment now comes in the form of criminal charges carrying the prospect of prison time.  We will not stand by while brokers or others try rig the system to line their pockets, and will continue to vigorously enforce the FCPA and money laundering statutes across all industries.”

As noted in the DOJ release, “the government [also] filed a civil forfeiture action … seeking the forfeiture of assets held in a number of bank accounts associated with the scheme, including several bank accounts located in Switzerland.  The forfeiture complaint also seeks the forfeiture of several properties in the Miami area related to Hurtado that were purchased with his proceeds from the scheme.”

The above core conduct also resulted in this SEC civil complaint against Clarke and Hurtado (and others) charging a variety of non-FCPA securities law violations.

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