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Friday Roundup

Roundup

Oops, scrutiny alert, and does Senator Rubio understand the FCPA? It’s all here in the Friday roundup.

Oops

It’s probably not a good idea for Department of Justice officials to boast about Foreign Corrupt Practices Act trial court verdicts when post-trial motions are pending.

Here is what Assistant Attorney General Benczkowski said about the Hoskins FCPA case on December 4, 2019.

“The government’s prosecution theory, which resulted in the conviction, was that Hoskins violated the anti-bribery provisions of the FCPA through his actions as an agent of Alstom Power, Inc., a U.S. domestic concern. […] I want to be clear today that the Department is not looking to stretch the bounds of agency principles beyond recognition, or even push the FCPA statute towards its outer edges. […] Each case and application of agency liability will need to be evaluated on its own and be based on a provable facts that align with agency principles.  In this regard, the district court’s jury instruction in Hoskins is, well, instructive.  There, the jury was called upon to evaluate Hoskins’ conduct to look for proof of an agency relationship and control by the principal.  Additionally, the court made clear that a person or entity may be an agent for some business purposes and not for others.  This meant that the government needed to prove that Hoskins was an agent of a domestic concern in connection with the specific events related to the project at issue.  Before pursuing an FCPA case based on an agency theory, whether as to an individual or a company, the Department will need to measure the facts against the legal standard articulated by the court.  And our prosecutors will need to be confident that their evidence will be able to carry the government’s burden of proof at trial.  These are no small things. Aside from the law, the Department and its prosecutors must always exercise appropriate prosecutorial discretion. Where the evidence supports a finding of agency between a parent and a subsidiary, or for an individual, we will assess whether it is appropriate to exercise our discretion to apply the principle in that case.”

As highlighted in this recent post, earlier this week U.S. District Court Judge Janet Bond Arterton (D. Conn), in a rare judicial move, granted Hoksins’ motion for acquittal on all FCPA charges concluding that there was “no evidence upon which a rational jury could conclude that” Hoskins acted as a agent of Alstom.

Scrutiny Alert

Herbalife has been under FCPA scrutiny since early 2017. (See here).  In November 2019, former Herbalife China executives were charged by the DOJ and SEC with FCPA offenses in connection with obtaining a direct selling permit in China. (See here).

Recently, in its annual report Herbalife disclosed that it has “recognized an estimated aggregate accrued liability” of $40 million for the FCPA matter.

Does Senator Rubio Understand the FCPA?

Recently Senator Marco Rubio (R-FL) penned this letter to Attorney General William Barr to “vigilantly enforce the FCPA in light of China Phase One Deal.” The full text of the letter states:

“The “Phase One” trade agreement, recently signed by the United States and China, allows American financial companies to increase their involvement in China’s capital markets in new and hazardous ways. For example, the deal allows American firms to purchase Chinese non-performing loans directly from Chinese banks. A majority of these loans are the liabilities of state-owned enterprises.

As a result of this policy change, American financial institutions — and by extension the individuals whose savings they manage — will more directly fund companies that are directed by the Chinese government and Chinese Communist Party, many of which are used for an array of malign industrial, military, and human rights-related activities. As this agreement is implemented, it will be important that the United States Government ensure American actors are not unduly exposed to the risks associated with these state-owned and directed firms.

China’s economy and financial system are plagued by corruption and illegal activity. According to the GAN Business Anti-Corruption Portal’s China Corruption Report, “Companies are likely to experience bribery, political interference or facilitation payments when acquiring public services and dealing with the judicial system.”

The direct purchase of non-performing loans by U.S. financial firms will present a new institutional arrangement for American investors in China, and with it new risks for corruption. By purchasing the liabilities of state-owned enterprises, U.S. firms will become the creditors of institutions that are highly sensitive in Chinese politics. State-owned enterprises are at the heart of the Chinese economy. They are significant sources of spending for the rest of its business sector and employ millions of workers. As China becomes more reliant on state-owned enterprises as its economic growth slows, the solvency of these companies will become even more systemically important.

The burdens state-owned enterprises, policy banks, and commercial banks must bear in China’s planned economy are great. Decisions between making good on outstanding liabilities and sacrificing political goals will be very difficult, and so ripe for corruption.

As such, I urge you to vigilantly identify and enforce the Foreign Corrupt Practices Act (FCPA) cases involving the sale of distressed debt by Chinese financial and nonfinancial companies to American firms, in keeping with the goals of the Department of Justice China Initiative. This supervision will serve to safeguard American investors from the financial and legal hazards associated with these new, high-risk institutional relationships.

Thank you for your attention to this matter. I look forward to your response detailing the steps that the Department of Justice China Initiative plans to take in this regard.”

Does Senator Rubio know that the FCPA applies to providing things of value to specific foreign officials to influence their discretion – not generally to doing business with a foreign government or its alleged state-owned enterprises?

As highlighted in this prior post, in November 2018 the DOJ announced a China Initiative and among the ten specifically identified components of the initiative was the following: “identify Foreign Corrupt Practices Act (FCPA) cases involving Chinese companies that compete with American businesses.”

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