This recent post highlighted former Goldman Sachs executive Ng Chong Hwa (Roger Ng’s) motion to dismiss a criminal indictment against him in connection with his alleged involvement in bribery schemes involving various Malaysian and Abu Dhabi officials in connection with 1Malaysia Development Berhad (1MDB), Malaysia’s state-owned and state-controlled investment development company.
As highlighted in the prior post, Ng argues that the DOJ’s case against him suffers from several factual errors and legal deficiencies such as whether he was an agent of an “issuer” as well as the proper scope of the internal controls provisions.
Recently, the DOJ filed a response brief stating in pertinent part:
“The Indictment properly alleges that the defendant’s crimes took place in the Eastern District of New York, and details specific acts in furtherance of those crimes for all three counts in the Eastern District of New York. The Indictment properly alleges that the defendant participated in a years-long conspiracy to bribe foreign government officials in violation of the FCPA, and further alleges both the specific issuer—Goldman Sachs Group—that provides the jurisdictional basis for the count, as well as the defendant’s status as an employer and agent of that issuer. The Indictment properly alleges that the defendant circumvented the internal accounting controls of Goldman Sachs Group, along with relevant “transactions” “assets” and “internal accounting controls,” and the underlying section of the statute is not unconstitutionally vague. And finally, the Indictment properly alleges that the defendant engaged in a money laundering conspiracy with three objects, and the money laundering statute clearly covers, without limitation, felony violations of the FCPA.
As highlighted in the prior post, Ng argues that “by creating the non-existent entity it calls “U.S. Financial Institution #1” as a combination of Goldman Sachs Group, Inc., an issuer of U.S. securities, and other Goldman Sachs entities which are not issuers, the Government eliminates from the jury’s consideration a statutory element of FCPA bribery, specifically that Ng must be an employee or agent of an issuer.
In response, the DOJ stated:
“The defendant asks the Court to dismiss Count One of the Indictment, which alleges his participation in a conspiracy to violate the anti-bribery provisions of the FCPA, because, he argues, the Indictment does not identify an “actual issuer” that employed the defendant or on whose behalf the defendant worked as an agent. Although styled as a motion to dismiss, the defendant’s argument is really an attempt to litigate the sufficiency of evidence he believes will be offered at trial. Such an inquiry is inappropriate on a motion to dismiss. Because the detailed allegations in the Indictment, including those specific to Count One, go far beyond the “language of the statute charged and state the time and place (in approximate terms) of the alleged crime,” the Court should deny his motion.
Both the issuer and the defendant’s relationship to it track the statutory language of the FCPA. That is enough at this stage.
The government will prove at trial that the defendant was, in fact, an employee and agent of an issuer—Goldman Sachs Group—as there is ample evidence supporting that fact. To the extent that the defendant wants to argue that there is insufficient evidence for the jury to find that he was an employee or agent of Goldman Sachs Group (for example, as he suggests, that he was actually an employee or agent of another entity during the relevant time period), he is free to do so. But those are arguments for trial, not a basis to dismiss the Indictment.”
Regarding internal controls, as highlighted in the prior post Ng argues:
“[T]he bribes alleged in this case were paid from stolen 1MDB funds, not Goldman funds. These bribes did not involve any of Goldman’s funds and therefore had nothing to do with Goldman’s internal accounting controls. By charging Ng in Count Two with conspiring to circumvent Goldman’s internal accounting controls, the Government seeks to radically expand the term “internal accounting controls” to encompass factors wholly unrelated to the financial accounting of Goldman’s assets and transactions.”
In response, the DOJ stated (certain internal citations omitted):
“The defendant asks the Court to dismiss Count Two, which charges the defendant with conspiring to circumvent the internal accounting controls of Goldman Sachs Group. In support of his motion, he makes two principal arguments: (1) the allegations do not involve a “transaction” or “assets” of an “issuer” as defined by the FCPA, and (2) Section 78m(b)(2)(B) is unconstitutionally vague as applied to the defendant because, if the internal accounting controls specified in the statute are not tied to an issuer’s transactions or use of assets, then the provision lacks ascertainable standards and fails to give notice to the accused. As set forth below, the defendant’s arguments misread the Indictment and are premature.
As with Count One of the Indictment, Count Two more than satisfies the pleading requirements of Rule 7 and the Constitution by tracking the statutory language and providing additional specific information regarding the defendant’s criminal conduct. In addition to stating the time and place of the alleged crime, the Indictment provides detailed allegations regarding the nature of the criminal conduct. And as with Count One, there can be no question that the 34-page Indictment provides the defendant with ample notice and specificity regarding the alleged conspiracy to circumvent U.S. Financial Institution #1’s internal accounting controls. .
According to the defendant, because the Indictment fails to allege any relevant “transactions,” “assets” or “internal accounting controls” of an “issuer” under the FCPA, he could not have violated or conspired to violate the FCPA’s internal accounting controls provision. Each part of this argument fails.
First, as discussed in detail above, the Indictment clearly alleges an “issuer” as defined in the FCPA—U.S. Financial Institution #1. As a result, the first prong of the defendant’s argument fails. Second, the detailed explanation of the criminal conduct in the Indictment describes, among other things, three bond “transactions” that were “underwritten” by U.S. Financial Institution #1 for various 1MDB subsidiaries, which form the basis of the bribe and kickback scheme. While the Indictment does not define “underwritten,” the balance of the discussion of the criminal scheme makes it clear that, in the first instance, U.S. Financial Institution #1 used its own assets to purchase all of the bonds at issue in the three bond transactions discussed in the Indictment.
As alleged, and as the government will prove at trial, for each relevant bond transaction, U.S. Financial Institution #1 transferred its own assets to the accounts of the respective 1MDB subsidiaries as an initial step in the overall scheme. After causing those transactions to occur, members of the conspiracy used the same funds in furtherance of the scheme by causing and directing additional transactions to pay bribes to the foreign officials and kickbacks to themselves, after laundering the funds through multiple shell companies owned and controlled by the co-conspirators. The Indictment further alleges that, as part of the scheme, the co-conspirators built in excess amounts over and above the cost of the assets identified as the purpose for the bond issuances and used the built-in excess to pay bribes to foreign officials and kickbacks to the co-conspirators. This allowed the co-conspirators, including the defendant, to conceal from management of U.S. Financial Institution #1 that bribes and kickbacks would be paid in relation to each bond transaction, and to circumvent internal accounting control functions implemented by U.S. Financial Institution #1 to identify and detect potential criminal conduct in connection with the bond transactions.
At the core of the defendant’s argument is his unsupported assertion that the “bribes did not involve any of Goldman’s funds and therefore had nothing to do with Goldman’s internal accounting controls.” In making this argument, the defendant appears to suggest that, for purposes of establishing criminal liability for circumventing internal accounting controls (or conspiring to do so) in connection with a bribery scheme, the “transactions” or “assets” must flow directly from the issuer to the bribe or kickback recipient, as opposed to indirectly through a third party. Nothing in the statute, however, supports such a narrow interpretation, requiring that only the direct payment of bribes or kickbacks to an intended recipient by an issuer would implicate the issuer’s internal accounting controls. Such a reading of the statute would lead to absurd results, particularly where, as here, the co-conspirators – including employees and agents of the issuer, such as the defendant – caused the very transactions and use of assets that flowed from the issuer (U.S. Financial Institution #1) to the third parties and thereafter to the bribe and kickback recipients (including themselves). The defendant’s suggestion that any intervening transfer of funds from U.S. Financial Institution #1 to the 1MDB subsidiaries, and thereafter to shell companies controlled by members of the conspiracy, somehow breaks the chain of criminal conduct runs completely counter to the plain language of the statute.
Third, even though the Indictment adequately tracks the statutory language and provides additional details about the implication of U.S. Financial Institution #1’s assets in the charged transactions, the FCPA internal accounting controls provision, in fact, does not require that the issuer’s assets be used at all. One subsection of the FCPA’s internal accounting controls provision—15 U.S.C. § 78m(b)(2)(B)(i)—makes no mention of “assets” at all, but rather focuses solely on “transactions” and the requirement that an issuer devise and maintain internal accounting controls sufficient to provide reasonable assurances that “transactions are executed in accordance with management’s general or specific authorization.” A logical reading of “transactions” would include not only transactions relating to direct bribe payments from an issuer to a foreign official or kickback procured by an employee of the issuer, but also any indirect transaction involving the issuer related to the bribe or kickback payment, including through third parties in order to conceal the bribes or kickbacks. There is nothing in the plain language of the FCPA that supports the defendant’s assertion that internal accounting controls can only be implicated where an issuer uses its own funds to pay a bribe directly to a foreign official, and the defendant’s effort to read such a restriction into the statute should be rejected.
Likewise, the defendant’s suggestion that, to prove a circumvention of internal accounting controls, the government must also establish the falsification of a particular book or record of the company, is entirely misplaced and conflates the “books and records” provision of the FCPA and the “internal accounting controls” provision of the FCPA. The plain language of the statute—15 U.S.C. §§ 78m(b)(2)(B) and (b)(5)—does not support the defendant’s argument that specific allegations of a false book or record entry is a prerequisite to proving a circumvention of internal accounting controls. Indeed, the text of Section 78m(b)(2)(B) supports the exact opposite, as two subsections speak only of the requirement that issuers maintain a system of controls to ensure that management authorizes execution of transactions and access to assets. See 15 U.S.C. §§ 78(b)(2)(B)(i) and (iii). The focus in these subsections is not on actual entries into the books and records, it is on management control. See World Wide Coin Investments Ltd., 567 F. Supp. at 750.
Although a false book or record entry may be strong evidence of an individual circumventing internal accounting controls, such evidence is not required to meet the elements of a criminal violation. This differentiates Count Two from a violation of the “books and records” provision of the FCPA under 15 U.S.C. §§ 78m(b)(2)(A) and (b)(5). Had the defendant been charged under that alternate provision, a false record of the sort noted by the defendant would be required; however, because that is not the charge at issue in this case, the existence of such a record is irrelevant.
The cases on which the defendant relies in attempting to equate the FCPA’s internal accounting controls provision with the books and records provision are unavailing. For example, in United States v. Peterson, the defendant pled guilty to conspiracy to circumvent the internal accounting controls provision of the FCPA by concealing from and making false representations to the management of his company (an issuer) about the extent of a Chinese official’s involvement in a real estate transaction and using shell companies owned and controlled by the co-conspirators, including Peterson, to effect the bribes to the Chinese official. In discussing Peterson’s guilty plea, the defendant attempts to narrowly characterize the entirety of Peterson’s offense as being limited to causing “the company’s accounting [to] list the transaction with the wrong entity and having the company’s asset accounting wrongly list the distributions as going to the government instrumentality instead of the government official.” That narrow view, however, ignores other relevant facts relating to the circumvention of the company’s internal accounting controls by Peterson and his coconspirators, including their misrepresentations regarding certain aspects of the transaction at issue and efforts to conceal the foreign official’s involvement in the transaction.
The Indictment in this case more than adequately alleges that U.S. Financial Institution #1 had internal accounting controls that were required to review and approve transactions involving the issuer, including the three 1MDB bond transactions.
The Indictment further alleges that U.S. Financial Institution #1’s internal accounting controls were overseen and enforced by the legal and compliance groups, which “worked in conjunction with, and as part of, various committees, in reviewing transactions, including the three 1MDB bond deals, for approval.” The Indictment further alleges that the defendant and his co-conspirators circumvented these control functions by concealing information and making misrepresentations relating to the involvement of Low as an intermediary in the transactions and the payment of bribes and kickbacks in relation to the transactions. Ultimately, these will be fact issues for the jury to determine based on the evidence to be introduced at trial. At this stage, because the Indictment is sufficiently pled as to Count Two, the defendant’s motion to dismiss that count should be denied.
In addition to arguing that the allegations in the Indictment do not involve a “transaction” or “assets” of an issuer, the defendant also seeks dismissal on the basis that the internal accounting controls alleged in the Indictment are purportedly not “accounting” controls, but rather “compliance preferences.”. In making each of these arguments, however, the defendant again attempts to litigate the sufficiency of the government’s evidence on a motion to dismiss, and he asks the Court to bypass the jury’s function as a factfinder with respect to Count Two and obtain summary dismissal based on his own skewed perspective of the evidence to be offered at trial. As an element of the offense, the jury must evaluate, among other things, U.S. Financial Institution #1’s internal accounting controls and if the defendant conspired to circumvent them. As explained above with respect to Count One, questions relating to whether “transactions” or “assets” of the issuer were involved and questions as to whether the controls at issue are internal “accounting” controls are left to the jury to decide and are not a sufficient basis for pre-trial dismissal.
The government will prove at trial that the defendant did, in fact, conspire to circumvent U.S. Financial Institution #1’s internal accounting controls. If the defendant wishes to argue at trial that the government failed to provide sufficient evidence that he conspired to circumvent U.S. Financial Institution #1’s internal accounting controls, then he is free to do so at the appropriate time and after the evidence has been presented to the jury.”
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