Lots of what FCPA Inc. churns out is fluff.
But sometimes, there is actual informed analysis and two articles recently caught my eye.
The first article discusses recent bribery-related money laundering judicial decisions and the second article provides a critical analysis of the recent so-called Monaco Memo.
Money Laundering
In this article, Morrison Foerster attorneys James Koukios and Heather Han discuss recent judicial decisions interpreting the Money Laundering Control Act – a statute often charged in connection with FCPA or FCPA related offenses. In pertinent part, the article states:
“In its pursuit of global anti-corruption enforcement efforts, the DOJ has a long history of using charges brought under the Money Laundering Control Act to supplement the FCPA. The MLCA, codified in Title 18 of the U.S. Code, Sections 1956 and 1957, prohibits certain financial transactions involving a specified unlawful activity, which is defined in the statute to cover a wide range of illegal activities, including violations of the FCPA and other countries’ official bribery statutes. According to a DOJ resource guide on the FCPA, since paying bribes to a foreign official can constitute a specified unlawful activity, “[m]any FCPA cases also involve violations of anti-money laundering statutes.”
Charging money laundering independently or in conjunction with FCPA violations in corruption cases can benefit the DOJ in multiple ways. First, because the MLCA carries higher maximum prison terms than the FCPA, adding money laundering charges raises the stakes of bribery prosecutions for individuals. Second, the MLCA provides an avenue for the DOJ to charge bribe recipients who are not punishable under the FCPA. The DOJ has long taken the position, to date unchallenged, that “although foreign officials cannot be prosecuted for FCPA violations, they can be prosecuted for money laundering violations where the specified unlawful activity is a violation of the FCPA,” as articulated in its FCPA resource guide. Since the late 2000s, the DOJ has built a successful track record of convicting bribe-receiving foreign officials who have used the U.S. banking system to process or conceal bribe payments. Third, because they have different jurisdictional requirements, money laundering charges can act as an insurance policy, or even as a substitute, when FCPA jurisdiction is in question.
This last benefit has taken on particular significance for the DOJ since the U.S. Court of Appeals for the Second Circuit’s decision in U.S. v. Hoskins in 2018. Among other things, Hoskins stands for the proposition that foreign nationals cannot be charged with violations of the FCPA’s anti-bribery provisions under accomplice or conspirator liability theories unless they fall into one of the specifically enumerated categories of defendants specified in the FCPA. In Hoskins, this meant that in order to obtain an FCPA conviction against Lawrence Hoskins, a foreign national who was working for a foreign corporation and did not travel to the U.S. at the time of the alleged offense, the DOJ had to prove that Hoskins had acted as an agent of the foreign corporation’s U.S. subsidiary. Although a jury concluded that the DOJ had made this showing, the U.S. District Court for the District of Connecticut disagreed and acquitted Hoskins on the FCPA charges post-trial. The Second Circuit recently affirmed the district court’s decision. Importantly, however, the district court denied Hoskins’ motion for acquittal on related money laundering charges, since the DOJ proved that money had been wired from the U.S. to Indonesia in furtherance of the bribery scheme. Thus, Hoskins has created an incentive for the DOJ to continue its strategy of bringing money laundering charges against foreign nationals involved in foreign bribery schemes that utilize the U.S. banking system.
Two Texas Decisions Question MLCA Extraterritoriality in Foreign Bribery Cases
In a pair of decisions issued in November 2021 and July 2022, U.S. District Court for the Southern District of Texas Judge Kenneth Hoyt called the DOJ’s charging strategy into question by dismissing FCPA and money laundering charges against two foreign defendants in the same foreign bribery case, U.S. v. De Leon-Perez, for lack of jurisdiction. Both decisions are on appeal to the U.S. Court of Appeals for the Fifth Circuit and are currently scheduled for oral argument on Oct. 6.
The Texas case involves an alleged scheme by U.S. businesses to bribe officials of Venezuela’s national oil company, Petróleos de Venezuela SA, in exchange for assistance in obtaining PDVSA contracts and receiving payment priority. As pertinent here, two non-U.S. employees of Swiss wealth management firms, Daisy Rafoi-Bleuler and Paulo Casqueiro Murta, were charged with FCPA and money laundering violations for allegedly helping to facilitate and conceal the bribery scheme by opening bank accounts outside the U.S. to receive bribe payments and by creating false paperwork to justify the payments. According to the indictment, bribe payments were wired either directly or indirectly from accounts in the U.S. to the accounts outside the U.S. that Rafoi and Murta helped open. On Nov. 12, 2021, and July 11, 2022, respectively, Judge Hoyt granted Rafoi’s and Murta’s motions to dismiss the indictment. Judge Hoyt held, in essence, that the extraterritorial application of the MLCA requires proof that the non-U.S. defendant personally conducted part of the offense while physically present in the U.S. Judge Hoyt found jurisdiction as to Rafoi lacking because, under his reading of the MLCA, “the Court has jurisdiction over a foreign person because of either her earlier presence in the United States, or her involvement in the crime while in the United States,” and there was no evidence that Rafoi ever traveled to the U.S. in furtherance of the bribery scheme. Judge Hoyt further held that the DOJ cannot use the aiding and abetting statute to circumvent this lack of jurisdiction, citing Hoskins, which addressed the extraterritorial reach of the FCPA, not the MLCA. Judge Hoyt reached the same conclusion with respect to Murta. Even though the indictment alleged that Murta traveled to the U.S. to meet with his co-conspirators and later caused a wire transfer to be sent from a U.S. bank, Judge Hoyt nonetheless found jurisdiction lacking because there was no evidence that Murta was physically present “in the United States at the time the alleged transactions occurred or that he initiated, or attempted to initiate them, from within the United States.”
It is not clear that all courts would agree with Judge Hoyt that the MLCA requires a foreign national to have been personally present in the U.S. at some point during the money laundering offense. Some courts have found that the MLCA’s extraterritorial jurisdiction requirement for a non-U.S. citizen was satisfied simply when the underlying financial transaction began or ended in a U.S. account, while other courts have found jurisdiction when the defendant’s co-conspirator engaged in relevant conduct in the U.S. Indeed, one court has already expressly declined to follow Judge Hoyt’s holding.
Florida Judge “Not Necessarily Persuaded” by Texas Decisions
On July 12, U.S. District Court for the Southern District of Florida Judge William Dimitrouleas rejected a motion to dismiss money laundering charges in another Venezuelan bribery case. In that case, former Venezuelan National Treasurer Claudia Patricia Díaz Guillen was indicted on money laundering charges in connection with a scheme in which she allegedly received approximately $65 million in bribes in exchange for allowing a company to conduct foreign exchange transactions in Venezuela at favorable rates. At least some of the alleged bribe payments were wired from Switzerland to bank accounts located in the U.S. Because Díaz was a foreign official, she could not be charged with violating the FCPA, but she was charged with conspiring to commit and aiding and abetting money laundering offenses.
Seizing on Judge Hoyt’s opinions in the Texas case, Díaz moved to dismiss the money laundering counts on jurisdictional grounds, among others, because the indictment did not allege that she committed any relevant conduct while physically present in the U.S. The DOJ conceded in response that it had no such evidence, but contended that the defendant’s physical presence in the United States is not required to establish jurisdiction under the MLCA.
Judge Dimitrouleas denied the motion, finding sufficient allegations in the superseding indictment to establish extraterritorial jurisdiction for the money laundering charges. Although the opinion does not include a detailed discussion of the Texas decisions, Judge Dimitrouleas stated that “[t]he Court is not necessarily persuaded by the opinions in” U.S. v. Rafoi-Bleuler and U.S. v. Murta.
Conclusion
The Florida and Texas decisions reach opposite conclusions on the DOJ’s ability to prosecute foreign nationals who use the U.S. banking system in furtherance of a foreign bribery scheme from outside the U.S.
If the Fifth Circuit agrees with Judge Hoyt that a foreign national must have been physically present in the U.S. to be charged with money laundering, then the DOJ could lose a significant enforcement tool in the fight against foreign bribery. The “physical presence” requirement could also be extended to other specified unlawful activities and could weaken the ability of the U.S. to police its banking system by creating an exception for remote money laundering by foreign nationals.
This is not unlike the dissenting opinion’s concern in the second Hoskins decision that the majority opinion could motivate U.S. companies to avoid FCPA jurisdiction by exclusively using foreign affiliates to bribe foreign officials. But this might be a gap that Congress will need to fill. In any event, defense attorneys in foreign bribery cases should continue to press jurisdictional issues and explore creative jurisdictional arguments. Even if ultimately reversed, Judge Hoyt’s decisions in the Texas cases show that some judges, and potentially some juries, will find such arguments compelling.”
Monaco Memo
In this article, Vinson & Elkins attorneys Ephraim Wernick, Zachary Terwilliger, and Peter Thomas discuss the recent “Monaco Memo” and how it “may chill self-disclosures.”
“After analyzing the DOJ’s latest moves, it appears that it is promising more sticks than carrots, which could end up chilling cooperation and self-disclosures for companies that otherwise would want to cooperate with the government. If so, the new initiatives may lead to an unintended consequence: fewer criminal cases against both companies and individuals in the future.
[…]
Compensation Clawbacks Could Backfire
[…]
Perhaps the most notable policy change in the policy memo is the announcement that the DOJ will now expect corporate compensation systems to incorporate elements — such as compensation clawback provisions — that enable penalties to be levied against current or former employees, executives, or directors whose direct or supervisory actions or omissions contributed to criminal conduct. Moving forward, the expectation is that a company may not be able to obtain full credit for its compliance program unless such clawback mechanisms are in place. Left unexplained in the policy memo is what “contributed” is supposed to mean, including what level of scienter the DOJ expects a company’s policy to require of an employee before the company should take action to retrieve years of back pay and bonuses from current and former employees. Notably, the policy memo suggests that a company should seek to claw back salaries even before a current or former employee is convicted of a crime, which — in addition to being a particularly draconian remedy — could violate employment laws in a number of foreign jurisdictions where workers’ rights are deemed sacrosanct.
The policy memo’s ambiguity on the subject of clawbacks is of no small consequence: If a company’s compliance program and its inclusion of a clawback provision does not pass the DOJ’s muster, then that could spell the difference between a guilty plea or one of several less onerous forms of resolution, e.g., a time-limited deferred prosecution agreement or nonprosecution agreement. Financially, under the DOJ’s operative guidance for prosecuting companies, a company that is faulted for having a subpar compliance program could also end up paying tens or even hundreds of millions of dollars more in criminal fines. And perhaps most concerning, if the DOJ finds a corporate compliance program to be lacking, it may try to impose a corporate compliance monitor on the company, which could significantly affect costs and cause unwanted distractions to business operations for years to come.
As a practical matter, directors and management may find it hard to accept open-ended clawback provisions that risk years of salaries and bonuses for senior executives and lower-level employees alike, especially if the trigger for such clawback is anything less than a criminal conviction or other judicial finding of wrongdoing. It would be a hard pill to swallow for management and compliance officials to agree to put their livelihood on the line if it is discovered, years later, that a crime occurred under their watch. This could occur as new management may later seek to recuperate past compensation to satisfy the DOJ’s policy requiring clawback for unspecified “actions or omissions [that directly or indirectly] resulted in, or contributed to, the criminal conduct at issue.” Faced with these new expectations by the DOJ, companies that refuse to implement such clawback provisions may find that it is not in their interest to engage voluntarily or cooperatively with the DOJ when a potential criminal matter is uncovered.
With its focus on individual accountability, the policy memo also directed prosecutors to “strive to complete investigations into individuals — and seek any warranted individual criminal charges — prior to or simultaneously with the entry of a resolution.” However, the DOJ’s clawback policy also creates real-world tensions that will make it far more difficult for prosecutors to enlist effective cooperation from employees, especially lower-level employees, whom the government typically requires to first plead guilty to their own crimes before they can cooperate against others. Ever since the department issued its 2015 memorandum on individual accountability for corporate wrongdoing, often referred to as the Yates Memo, companies have sought to maximize their cooperation credit, and thereby reduce their financial exposure to the government, by encouraging current and former employees to cooperate with government investigations against individual targets. In practice, this has meant that a company would pay the legal fees for such employees to facilitate their cooperation, even when that cooperation included entering into a plea agreement with the government. Companies routinely opted not to recuperate legal fees even if an indemnity clause allowed for it, because they were concerned that the financial burden would chill the employee’s cooperation with the government. Thus, in the past, a lower-level employee had potentially good reasons to cooperate against others, since it could mean a significantly lessened sentence or probation, and that the legal fees were taken care of.
With the new policy memo’s emphasis on compensation clawbacks, however, the strategic calculus by employees may significantly change. Faced with the risk of losing years of savings and jeopardizing their future livelihood for themselves and their families, far more employees may choose to roll the dice rather than admit to a crime and cooperate with the DOJ. If true, the result could have devastating consequences on the DOJ’s ability to build larger cases against companies and individuals.
The good news for companies and their employees is that there is time for the DOJ to clear up the ambiguities in the policy memo regarding clawback provisions. Under the policy memo, Deputy Attorney General Lisa Monaco asked the Criminal Division to “develop further guidance by the end of the year on how to reward corporations that develop and apply compensation clawback policies.” The department would be well served to consider the issues raised above when developing this guidance, or else companies and individuals who would otherwise be willing to engage with the government may decide that the risks of cooperation are far outweighed by any rewards.
The DOJ’s Tough Talk on Recidivism Could Make It Harder to Catch Repeat Offenders
The policy memo also builds on earlier guidance by the department calling for closer scrutiny and harsher treatment of recidivist companies, or companies with a prior of history of government enforcement actions. Among other things, the policy memo provides that prosecutors should consider the “elapsed time between the instant misconduct, [any] prior resolution, and the conduct underlying the prior resolution,” giving less weight to criminal resolutions that occurred more than 10 years prior to the conduct being prosecuted, and civil resolutions that occurred more than five years prior. Instances of recent misconduct involving the same individuals or management, on the other hand, should be given greater weight. The policy memo instructs prosecutors to consider how serious and pervasive prior misconduct was and whether it is similar in nature to the current conduct at issue, or indicative of a weakness in the company’s overall compliance program. The policy memo also explains that prosecutors can discount the prior misconduct of an acquired company if the root cause of the prior misconduct was addressed post-acquisition and before the new misconduct occurred. Signaling frustration with the department’s perceived leniency toward repeat offenders in the past, the policy memo expressly states that multiple deferred prosecution agreements and nonprosecution agreements for recidivist companies are now generally disfavored.
After explaining its approach to recidivist companies, including the suggestion that recidivist companies will more likely have to plead guilty to resolve future enforcement actions, the policy memo goes on to state that “nothing in this memorandum should disincentivize corporations that have been the subject of prior resolutions from voluntarily disclosing misconduct to the Department.” Doubling down on this message, Kenneth Polite, the head of the DOJ’s Criminal Division, later explained that a company with a history of misconduct has a powerful incentive to self-report because it could be the difference between a deferred prosecution agreement and a guilty plea.
However, this statement is in tension with Monaco’s prepared remarks that accompanied the release of the policy memo, when she stated that “[c]ompanies cannot assume that they are entitled to [a nonprosecution agreement or deferred prosecution agreement,” particularly when they are frequent flyers.” The conflicting statements present a quandary for recidivist companies that may want to self-report a new violation to the government. The department has repeatedly emphasized its focus on punishing companies it deems to be repeat offenders, yet the policy memo and assistant attorney general’s statements provide a small measure of comfort. The result for now is that, without further clarity, companies with a past history of wrongdoing may be less likely to self-report and engage with the government.
More Monitorships, but Promises for Increased Transparency and “Monitoring of the Monitors”
Finally, the policy memo provides updated guidance on the DOJ’s use of corporate monitors in criminal resolutions. Corporate monitorships are not supposed to be imposed on a company as a punitive measure; rather, they are a unique tool used in corporate cases to ensure that companies have well-designed and implemented compliance programs to ensure compliance with the law. Criminal Division guidance from the previous administration advised prosecutors to impose monitors in criminal corporate resolutions in limited circumstances, and “only where there is a demonstrated need for, and clear benefit to be derived from, a monitorship relative to the projected costs and burdens.” Previous guidance also made clear that the most critical factor in determining whether a monitor should be imposed was the assessment of a company’s current compliance program.
The policy memo again builds on previous guidance issued in October 2021, suggesting that monitorships will now be imposed more frequently on companies. While the new policy does not purport to create a presumption for or against monitors, it provides for a multifactor analysis that goes well beyond the state of a company’s existing compliance program, and now turns on a non-exhaustive list of factors to be evaluated by prosecutors, including whether the misconduct was widespread across the business, was ongoing for a long period of time, or involved acts or omissions by company leadership.
Whereas the old guidance strongly suggested that investment in a compliance program could avert the need for a monitor, the new policy allows for more discretion in the hands of prosecutors, who must evaluate more factors before deciding whether a monitor needs to be imposed on a company. The good news for companies facing the prospects of a monitorship is that the policy memo appears to respond to direct criticism of the monitorship program, including the lack of accountability of monitors, especially when it comes to mission creep and cost issues. The policy memo emphasizes that prosecutors are responsible for ongoing review of the monitorship, including by receiving regular updates from the monitor and assessing the reasonableness of the monitor’s scope of work and fees. While more guidance could be useful in empowering prosecutors with specific authority to restrain a runaway monitor, the emphasis on fee and scope controls is at least a welcome recognition that these issues all too often can become a problem.”
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