I am not suggesting that the following is a very meaningful statistic, but it is a fact: there has been more FCPA enforcement in the first week of the Trump administration than the first week of the Obama administration.
But then again “assigning” to the Trump administration yesterday’s SEC enforcement action against Michael Cohen and Vanja Baros (former Och-Ziff executives) based on the same core conduct as the DOJ and SEC’s September 2016 enforcement action against Och-Ziff is foolish just as it is foolish to “assign” FCPA enforcement in the first months (indeed the first year) of the Obama administration to the Obama Administration.
Yesterday’s enforcement action is not surprising as it was fairly obvious (as detailed in this prior post) that the main actors in the Och-Ziff matter were Cohen and Baros (even though not specifically named in the September 2016 resolution documents).
That the SEC filed a meaty 80 page complaint against Cohen and Baros alleging FCPA and other offenses, is a clear signal that a negotiated settlement was unable to be reached and that the defendants will put the SEC to its burden of proof. Indeed, according to this report:
“Ronald White, a lawyer for Cohen, said in a statement he “has done nothing wrong and is confident that when all the evidence is presented, it will be shown that the SEC’s civil charges are baseless.”
Mark Cohen, a lawyer for Baros, said “when the facts come out, it will be clear that Mr. Baros did nothing wrong.”
The SEC is rarely put to its burden of proof in FCPA enforcement actions (corporate or individual) and indeed has never prevailed in FCPA history when put to its ultimate burden of proof, thus this matter will be interesting to follow.
In summary fashion, the SEC’s complaint alleges:
“Michael L. Cohen and Vanja Baros (collectively, the “Defendants”) violated the Foreign Corrupt Practices Act (the “FCPA”), the Investment Advisers Act of 1940 (the “Advisers Act”) and related statutory rules and provisions from 2007 through at least August 2012. Cohen and Baros carried out their scheme while the two worked for Och-Ziff Capital Management LLC (“Och-Ziff”), as well as for and with certain of its subsidiaries and affiliates. Och-Ziff is an institutional alternative asset manager or “hedge fund” that provides asset management services to its managed investment funds (“Och-Ziff Hedge Funds”). In violation of the FCPA, Cohen and Baros directed, caused and arranged for Och-Ziff to pay tens of millions of dollars in bribes to government officials on the continent of Africa through agents, intermediaries and business partners of Och-Ziff. The bribes were paid to secure and attempt to secure special access, special opportunities and preferential treatment for Och-Ziff in its pursuit of profitable business in Africa. The Advisers Act violations by Cohen and Baros resulted from material misrepresentations and omissions by Cohen, Baros, Och-Ziff and OZ Management LP (“OZ Management”), to Och-Ziff investors regarding multiple transactions in Africa, as well as failures by Och-Ziff and OZ Management to disclose conflicts of interest to investors, and undisclosed, improper uses of investor funds by Och-Ziff and OZ Management.
Beginning in 2007 and continuing through at least August 2012, Cohen and Baros executed a sprawling scheme involving serial corrupt transactions and bribes paid to high-ranking government officials in African countries, including the State of Libya, the Republics of Chad, Niger and Guinea, and the Democratic Republic of the Congo (the “DRC”). Cohen spearheaded and participated in all of the corrupt transactions. Baros began working with Cohen at Och-Ziff in 2007 and participated in multiple corrupt transactions that were part of the scheme. Cohen and Baros intended that the bribery scheme get Och-Ziff special access to investment opportunities in African countries; obtain or retain business for Och-Ziff, its subsidiaries and its business partners; and financially benefit Cohen and Baros, as well as the agents, intermediaries and business partners of Och-Ziff who participated with them in the corrupt transactions.
As part of the scheme, Cohen and Baros worked on behalf of Och-Ziff to explore and obtain business opportunities in and to operate in African countries and industries known for corrupt business dealings. Cohen, Baros, and Och-Ziff specifically targeted, pursued, retained, engaged and worked with agents, intermediaries and business partners in those countries and industries. The agents, intermediaries and business partners promoted themselves, and were known to Cohen, Baros, and Och-Ziff, as having close relationships and connections with high-ranking foreign government officials and typically had reputations for engaging in unsavory business practices that, among other things, exploited relationships and connections with government officials. Cohen and Baros structured, championed and arranged for Och-Ziff to enter into a series of corrupt transactions and investments in which bribes were paid through agents, intermediaries and business partners to various high-ranking government officials. Cohen and Baros identified, developed and carried out these corrupt transactions with the knowledge, the firm belief, or under circumstances that made it substantially certain that all or a portion of the money paid, loaned or otherwise provided to and through agents, intermediaries and business partners would be forwarded and paid as bribes to high-ranking foreign government officials.
In most instances, bribes were paid with Och-Ziff Hedge Fund investors’ money rather than Och-Ziff’s own capital. Cohen and Baros arranged for and structured transactions for Och-Ziff and OZ Management to authorize the use of money from Och-Ziff Hedge Funds in transactions in which bribes were paid to high-ranking foreign government officials. In doing so, Cohen and Baros knew, held the firm belief, or operated under circumstances that made it substantially certain that investor funds would be used to pay bribes.
The scheme also included the use of investor funds in self-dealing transactions to benefit Cohen, Och-Ziff’s agents, intermediaries and business partners, and Och-Ziff itself.
Cohen and Baros crafted, developed and carried out the scheme, including the use of funding from the Och-Ziff Hedge Funds in most of the corrupt transactions, with the knowledge, the firm belief, or under circumstances that made it substantially certain that all or a portion of the money paid or loaned to agents, intermediaries and business partners subsequently would be paid as bribes to high-ranking government officials in order to secure special access and opportunities and preferential treatment for Och-Ziff in its pursuit and retention of profitable business in Africa. The corrupt transactions included:
• In or about 2007, Cohen engaged in a corrupt transaction to secure an investment from the Libyan Investment Authority (“LIA”) of $300 million into the Och-Ziff Hedge Funds. To pursue the LIA investment, Cohen used the services of an agent (“Agent 1”) to act on his and Och-Ziff’s behalf. Cohen arranged for Och-Ziff to retain Agent 1’s services knowing, holding the firm belief, or operating under circumstances that made it substantially certain, that Agent 1 would bribe highranking Libyan government officials to secure the investment. In fact, Agent 1 paid more than $3 million in bribes to Libyan government officials in connection with securing and retaining the LIA investment for Och-Ziff.
• In a second corrupt transaction that began in or about 2007, Cohen arranged for an investment of approximately $40 million of Och-Ziff funds in a Libyan real estate development project (the “Libya Real Estate Project”) in which Agent 1 was a main actor. The Project had the blessing of the Libyan government’s ruling family, secured and maintained through the payment and promise of bribes, which positioned it to be highly profitable. Cohen arranged for Och-Ziff to use investor funds to pay a bogus $400,000 “deal fee” to an entity controlled by Agent 1 as part of its investment. Cohen knew, held the firm belief, or operated under circumstances that made it substantially certain, that Agent 1 would use the deal fee for the continuing payment of bribes to high-ranking government officials in Libya, whose support was needed to maintain government support and protection for the Project.
• In a third corrupt transaction that also began in or about 2007, Cohen and Baros arranged for a loan of more than $86 million and additional payments of more than $10 million of Och-Ziff Hedge Funds investor money to one of Och-Ziff’s South African partners in African Global Capital I (“AGC I”), an Africa miningfocused fund formed by Och-Ziff. A substantial amount of that money was ultimately funneled through a consultant working with AGC I (“Agent 2”), who acquired assets on behalf of AGC I, primarily through the payment of bribes to high-ranking government officials. Of the Och-Ziff Hedge Funds investor money Och-Ziff provided to its AGC I business partner, millions went towards a) bribes to high-ranking government officials, b) illicit payments to middlemen, c) the personal benefit of Och-Ziff’s business partners, and d) expenditures unrelated to the investment. Cohen and Baros knew, held the firm belief, or operated under circumstances that made it substantially certain, that monies from the loan and additional payments would be used in those manners.
• In a fourth corrupt transaction that began in or about December 2007 and continued through at least October 2008, Och-Ziff Hedge Funds made a convertible loan (the “Convertible Loan”) of approximately $124 million from Och-Ziff investor funds through AGC I to an entity in the DRC, purportedly to purchase mining assets. During the same time frame, Och-Ziff invested $150 million in another DRC mining company using investor funds. Both DRC entities were controlled by a notorious Israeli businessman (“Agent 3”) who Och-Ziff partnered with at the behest of Cohen and Baros. Agent 3 purportedly would act as agent for and on behalf of Och-Ziff to purchase mining assets in the DRC. Monies from the Convertible Loan were used to pay bribes to high-ranking government officials related to the acquisition of such assets. Cohen and Baros knew, held the firm belief, or operated under circumstances that made it substantially certain, that monies from the Convertible Loan would be used to bribe high-ranking government officials in connection with the acquisition of assets on behalf of Och-Ziff.
• In a fifth corrupt transaction, in or about November 2010 and February 2011, Cohen and Baros arranged for a margin loan (the “Margin Loan”) of approximately $130 million to be made from Och-Ziff Hedge Funds investor funds to a third entity controlled by Agent 3. Cohen and Baros arranged for and structured the transaction so that approximately $84.1 million of the loan proceeds went to Agent 3 with no restrictions or oversight by Och-Ziff as to how Agent 3 used the money. Cohen and Baros knew, held the firm belief, or operated under circumstances that made it substantially certain, that money from the Margin Loan would be used to bribe high-ranking government officials in connection with the acquisition of assets on behalf of Och-Ziff.
• In a sixth corrupt transaction, in or about 2010 and 2011, and continuing to at least April 2012, Cohen and Baros arranged for African Global Capital II (“AGC II”), a second Africa-focused fund formed by Och-Ziff, to purchase shares in a London-based oil exploration company. Through the efforts of Cohen and Baros, Och-Ziff caused AGC II to purchase the shares from a South African business partner in order to provide him with capital to use for other purposes, including the payment of bribes. With the proceeds from the AGC II purchase, the South African business partner paid more than $25 million to an account under the control of the government of Guinea and $1 million to Agent 2, who then used a portion of those funds to bribe high-ranking government officials in Guinea. Cohen and Baros knew, held the firm belief, or operated under circumstances that made it substantially certain, that the South African business partner would use proceeds from the purchase by AGC to bribe high-ranking government officials related to the acquisition of assets on behalf of Och-Ziff.
As part of their corrupt scheme, Cohen and Baros failed to disclose all material facts in communications with Och-Ziff and OZ Management investors and potential investors and, in certain circumstances, purposely omitted facts to ensure that corrupt transactions would proceed. Cohen and Baros also aided and abetted OZ Management’s failures to disclose all material facts to their investors in connection with several African transactions, and aided and abetted failures by OZ Management to disclose conflicts of interest and to control the use of investor funds. Cohen, Baros, Och-Ziff and OZ Management made material misrepresentations and omissions to investors and potential investors regarding the corrupt transactions detailed in paragraph 5 above, as well as in additional AGC II transactions as follows:
• With respect to the AGC II purchase of shares in a London-based mining company for $77 million in 2011, Cohen and Baros knew, and failed to disclose to investors, that the $77 million transaction price would result in a $52 million windfall for Och-Ziff’s business partners. Nor did they disclose that the windfall would be used to fund, among other things, a $2.1 million payment back to OchZiff to satisfy an outstanding loan relating to AGC I, $25 million in payments to the government of Guinea to try to gain access to other business opportunities, $1 million to a consultant (Agent 2), in part to pay a $150,000 bribe to a highranking government official in Guinea, and millions of dollars of personal benefit to other agents, intermediaries and business partners of Och-Ziff.
• As to a 2010 investment by AGC II in oil rights in the Republic of the Congo (“Congo-Brazzaville”) through an Africa-focused oil exploration company, Cohen knew and failed to disclose to investors, among other things, details about the origin of the transaction, the self-interest of AGC II business partners in the transaction, and the bases for payments to intermediaries.
• As to a 2010 AGC II purchase of $20 million of shares in a privately held London-based mining holding company, Cohen knew and failed to disclose to investors, among other things, that of the $20 million purchase price, $4 million would be diverted to Cohen’s personal benefit. Further, Cohen and Baros knew and failed to disclose to investors that an additional $4 million would be funneled to an AGC II business partner for his personal benefit.
Cohen and Baros also aided and abetted and caused Och-Ziff’s violations of Section 13(b)(2)(A) of the Exchange Act in which Och-Ziff failed to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflected its transactions and disposition of its assets. 9. In addition, Och-Ziff lacked sufficient internal accounting controls to prevent and detect violations of the FCPA and to provide reasonable assurances that the transactions were legitimate and recorded appropriately; that the transactions were executed in accordance with management’s general or specific authorization; that transactions were recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements; and, to maintain accountability for assets. Despite being aware of and understanding the nature and extent of the corruption risk posed by doing business in, among other places, Libya, Chad, Niger, Congo-Brazzaville, Guinea and the DRC, Och-Ziff failed to implement an adequate system of internal accounting controls and failed to enforce the accounting controls it did have in place. As a result, the various investments, payments and loans to agents, intermediaries and/or business partners detailed above were not subject to meaningful review. Substantially all of the corrupt payments detailed above were made without adequate and appropriate due diligence inquiries and investigation, which permitted the bribe payments to be made.
Cohen and Baros took steps to circumvent Och-Ziff’s internal controls so that Och-Ziff would falsely record the bribes detailed above as legitimate investments and/or operating expenses on Och-Ziff’s books and records, thereby violating Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1.”
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In the SEC’s release, Kara Brockmeyer (Chief of the SEC’s FCPA Unit) stated:
“As alleged in our complaint, Cohen and Baros were the masterminds of Och-Ziff’s bribery scheme that improperly used investor funds to pay bribes through agents and partners to officials at the highest levels of foreign governments.”