This prior post highlighted the Foreign Corrupt Practices Act enforcement action against BIT Mining Ltd. (formerly known as 500.com) in connection with a failed Japan bribery scheme concerning efforts to obtain a license to operate a casino.
This post highlights additional issues to consider.
Japan
The enforcement action is believed to be the first in FCPA history concerning conduct in Japan.
Take away point. While certain countries have a higher bribery and corruption risk than others, bribery and corruption issues can arise in any country.
FCPA enforcement actions have involved conduct in approximately 90 countries including perceived low risk countries such Canada, United Kingdom, Netherlands, France and Germany.
Timeline
In early 2020, 500.com was sued in U.S. court by investors alleging securities fraud in connection with the same core conduct alleged in the FCPA enforcement. The lawsuit was filed shortly after prosecutors in Japan charged Japanese officials and consultants of 500.com in connection with the bribery scheme.
Specifically, investors alleged that the company and certain of its executives “made false statements, misrepresentations, and omissions in various SEC filings after paying bribes of millions of yen to government officials in Japan for the purpose of securing a lucrative license to operate a casino.” The complaint alleged that the company paid Tsukaka Akimoto, a member of Japan’s legislature who was in charge of awarding licenses to run integrated resorts, approximately 7.6 million yen which came in the form of compensation for speaking at a 500.com symposium, elaborate trips, and other gifts. Plaintiffs also alleged that 500.com paid bribes to five members of Japan’s parliament in exchange for preferential treatment related to the integrated resorts the licenses which totaled approximately 5 million yen.”
However, as highlighted in this prior post, the securities fraud action was dismissed as the judge stated: “500.com’s Code is purely forward looking. 500.com’s Code states that executives and employees “should strive” to comply with the law and are obligated to comply with the laws, rules, and regulations applicable to 500.com’s operations.”
500.com’s FCPA scrutiny thus appears to have began in early 2020 and lasted approximately 4.5 years.
I’ve said it many times, and will continue saying it until the cows come home: if the DOJ/SEC want their FCPA enforcement programs to be viewed as more credible and more effective, the enforcement agencies must resolve instances of FCPA scrutiny much quicker.
This includes the 500.com matter in which the DOJ stated:
The Company’s cooperation included, among other things, (i) voluntarily producing relevant documents, financial data, and other information to the Fraud Section and the Office, including from foreign countries, while navigating some foreign data privacy and related criminal laws, accompanied by translations of a limited number of documents; (ii) providing the government with facts learned during its internal investigation related to conduct described in the Statement of Facts.
Likewise, the SEC stated that “during the investigation, the company’s cooperation included providing regular updates to the Commission, sharing facts identified during its own internal investigation, and providing English translations of important documents.”
Unsuccessful Bribery Scheme
Most bribery schemes alleged in FCPA enforcement actions are successful (at least initially) in accomplishing its objectives. However, a bribery scheme does not have to be successful in accomplishing its objectives to result in an FCPA enforcement action.
The 500.com matter was one such action as 500.com did not obtain the sought after license in Japan and was unable to enter the market.
Jurisdiction
A foreign company can only be subject to the FCPA’s anti-bribery provisions to the extent – generally speaking – there is a U.S. nexus in connection with the bribery scheme.
In the 500.com enforcement action, the allegations included that the company used a U.S. dollar denominated bank account to facilitate improper payments, and U.S. based email service providers were used at times when communicating about the IR project.
Things of Value
The 500.com enforcement action mentions the following things of value provided to Japanese officials: cash bribes including those disguised as a “lecture fee”, entertainment, and extravagant trips such as a skiing trip for officials and their family.
More Information Please
FCPA enforcement officials have longer encouraged the compliance community to look to its resolution documents for “how to act” in connection with FCPA scrutiny. The enforcement agencies have long touted its “transparency” in doing so.
If so, what about this statement from the DOJ: “the Company’s cooperation was reactive and was limited in degree and impact.”
More information please!
Third-Party Deficiencies
Under the heading “500.com Failed to Follow Its Own Procurement Policy When it Retained Company 1, Company 2, and Company 3 as Consultants,” the order finds:
“During the relevant period, 500.com failed to properly verify that payments to consultants were used for their stated purposes, and it failed to have mitigating controls to verify that services were properly rendered before paying the consultants and corresponding expense reimbursements. Executives at 500.com were able to direct employees to pay invoices without having supporting documented deliverables and to pay cash bribes. Furthermore, 500.com failed to provide anti-bribery and anti-corruption training to employees and third-party consultants who interacted with government officials on its behalf.
Similar deficiencies surrounded the retention of Company 1 and two other business consultants, Company 2 and Company 3, in connection with the IR project.
From August 2017 to August 2018, 500.com engaged Company 2 as a consultant and paid a total of $240,000. While the company received no legitimate deliverables from Company 2, the expense was nevertheless recorded as management expense-advisory fees for the Japan IR project.
Similarly, from January 2018 to September 2019, 500.com also engaged Company 3 as a consultant and paid $310,785 for purported consulting services related to IRs. As with Company 2, despite lacking support for the existence of legitimate deliverables, the Company 3 expenses were also recorded as management expense-advisory fees for the Japan IR project.
Though required by its Procurement Policy, 500.com did not provide its Finance Department with any price comparisons between the anticipated costs of the consulting services for Company 1, Company 2 and Company 3, and prevailing market rates prior to retaining their services.
