A guest post from Arnall Golden Gregory LLP attorneys Cory Kirchert and Adriaen Morse. Previously both Kirchert and Morse were Senior Counsel in the SEC’s Enforcement Division.
The U.S. Securities and Exchange Commission (“SEC”) recently filed a case alleging violations of the anti-bribery provisions of U.S. securities laws that raises more questions than it answers. As most practitioners in this area know, press releases (or “litigation releases”) that accompany the announcement of new enforcement cases often discuss a company’s cooperation, in particular when the case came to the SEC’s attention via company self-disclosure or when the SEC wishes to signal that the company’s cooperation contributed to a low penalty or no penalty.
The litigation release accompanying the SEC complaint discussed in this article did neither while, at the same time, the complaint did not identify the names of the companies that may have benefited from the underlying conduct nor charge those entities with any violations.1 In our analysis below, we explain that the companies may not have cooperated by revealing the bribery scheme to the SEC but may nonetheless have been insulated from liability by the actions of their compliance function. In addition, we note that the SEC’s complaint may be vulnerable to dismissal on a properly-framed motion by the defendant.
SEC Sues Former Bank Executive
On April 12, 2020, the U.S. Securities and Exchange Commission (“SEC”) filed a civil Complaint in the U.S. District Court for the Eastern District of New York (“EDNY”) against Asante K. Berko (“Complaint”)—a dual citizen of Ghana and the United States and a “former executive of a United Kingdom-based financial services company” (“Subsidiary” in the Complaint), a subsidiary of a publicly traded bank holding company in the United States (“Holding Company” in the Complaint)2 —for allegedly having orchestrated a bribery scheme for a client, an unnamed Turkish Energy Company (“TEC”), and violating the Foreign Corrupt Practices Act of 1977 (“FCPA”) as codified at 15 U.S.C. § 78dd-1 (“Section 78dd-1”). The Complaint makes two claims against Berko: first, that he directly violated Section 78dd-1, and second, that he aided and abetted the Holding Company’s (GSUS) violation of Section 78dd-1. The U.S. Attorney’s Office for EDNY has not filed a parallel criminal action.
SEC Prosecution Theory
SEC’s Two Claims Against Berko
Section 78dd-1, one of three parallel provisions of the FCPA, prohibits an issuer that has registered securities with the SEC and any “officer, director, employee, or agent” of such issuer from paying bribes to foreign officials to obtain business in foreign countries. The issuer in this matter is GSUS. The SEC asserts that Berko, an employee of GSUK, was also an employee or agent of GSUS. Based on this joint-employer theory, the SEC further asserts that Berko: (1) violated section 78dd-1 directly as an employee or agent of GSUS; and also (2) aided and abetted GSUS’s violation of the same section.
Seemingly Inconsistent Allegations of Agency
The Complaint generally avers that GSUS “retained control over all significant transactions” and “directed and controlled Berko” on the project in which Berko, without permission, designed and executed a bribery scheme. The Complaint’s specific allegations reveal that GSUS, however, did not authorize Berko to orchestrate a bribery scheme—the very conduct that violated the FCPA—for the purpose of bringing the project to fruition. In effect, Berko appears to be a rogue employee. The “employee or agent” theory seems inconsistent with the SEC’s allegations that Berko’s design and implementation of a bribery scheme was contrary to GSUS’s instructions and policies and was undertaken without its knowledge.
Agency Problem with the SEC’s Two Claims Against Berko
The inconsistency of allegations arguably impairs the SEC’s two claims. Berko arguably had no authority to engage in any bribery scheme on behalf of GSUS and could not, therefore, have been its employee or agent at those times he was allegedly engaged in the bribery scheme. If he was not an employee or agent of GSUS while orchestrating a bribery scheme, his conduct does not satisfy the direct violation requirements of section 78dd-1 because he was not working for an “issuer.” The same holds true for the aiding-and-abetting claim, which requires the SEC to prove that GSUS violated section 78dd-1. Consistent with this latter narrative, the Complaint does not specifically allege that—and more importantly, how—GSUS directly violated section 78dd-1. Without that primary violation, one wonders how Berko could be an aider and abettor to a non-violation.
Factual Allegations in the Complaint
Prelude to the Bribery Scheme
In July 2014, GSUK hired Berko to develop investment banking business in Ghana and Africa. Within four months, GSUK’s managing director (“MD”) informed Berko that GSUK’s client, TEC, was interested in building and operating an electrical power plant in the Republic of Ghana and selling the power to the Ghanaian government. The MD asked Berko to assist TEC—of which GSUK was also part owner—to contract with the Ghanaian government to accomplish TEC’s objective. For assisting and if successful, TEC would likely pay GSUK at least $10 million in advisory and banking fees.
The Intermediary Company
The central character in the story is what the Complaint calls the “Intermediary Company,” an enterprise characterized as a consultant to or partner of TEC. Before joining GSUK, Berko had dealings with the Intermediary Company. The Complaint alleges that Berko knew “or should have known” that an immediate family member of one of the most senior officials of Ghana at that time was “closely associated with the Intermediary Company,” perhaps a control person of it; this individual is called a Politically Exposed Person (“PEP”) in the Complaint.
In November 2014, Berko linked employees of GSUK and TEC to employees of the Intermediary Company. Thereafter, employees of the Intermediary Company linked employees of TEC to members of the Ghanaian government. The introductions and discussions culminated in a January 2015 meeting that included the GSUK MD, Berko, TEC executives, the Intermediary Company executives, and Ghanaian officials. By March 2015, GSUK’s deal team included the GSUK MD and four other GSUK employees, although the Complaint identifies Berko as the “only [GSUK] employee who spent significant time in Ghana or had any substantial interactions with Ghanaian government officials” on the power plant project.
The story is a daisy chain of meetings and back-and-forth correspondence (late 2014-2015), which entailed two or three payments of $1.5 million each from TEC to the Intermediary Company (April and May 2015), a contract or deal between TEC and Ghanaian executives (2015), the Ghanaian legislature’s approval of the deal (July 2015), a dispute over $1.5 million in unpaid “consulting” or partner fees (July 2015), and the completion of the power plant and its commencement of operations (2017).
The Initial Executed Bribery Scheme
The bribery scheme allegedly began no later than April 2015 and continued through October 2015. TEC made multiple payments of “fees” for consulting efforts to the Intermediary Company, to an entity that the Intermediary Company controlled, or to individual principals. Because invoicing and payments tracked certain approval milestones needed to transform TEC’s proposal into a contract with the Republic of Ghana, about one week after each milestone, the Complaint infers that the payments were indirect bribes from TEC to Ghanaian officials. TEC transferred a total of $3 million to $4.5 million to the Intermediary Company, which then allegedly transferred those funds less a discount to members of the Ghanaian government. The Complaint does not identify the evidence, direct or circumstantial, showing the Intermediary Company’s payments to Ghanaian officials in the executive and legislative branches.
The Second Unexecuted Bribery Scheme
In October 2015, TEC’s parent company (apparently a co-owner, with GSUK, of TEC), contracted to pay the Intermediary Company up to $42 million over five years for various—allegedly overpriced—services. The Complaint alleges that these services are “additional regulatory benefits,” to include a “tax exemption waiver worth millions of dollars and a government-backed letter of credit.” Payments under this new agreement depended on the Intermediary Company’s success in securing the “sought-after governmental concessions” for TEC.
According to the Complaint, everyone knew about the bribery scheme except GSUK and GSUS: “[t]he central conspirators in the bribery scheme were Berko, the Intermediary Company Executives, the PEP, and the Energy Company [TEC] Executives.” If so, one wonders for what GSUK was invoicing TEC as advisor and what “advice” or other consideration GSUK or GSUS was providing to TEC. The Complaint also fails to address the knowledge and role of Berko’s supervisor, the GSUK MD, in the bribery scheme. It also does not reveal what, if any, serendipitous financial benefits the bribery scheme provided to GSUK or GSUS.
Discovery of the Bribery Schemes
In March 2016, GSUK’s compliance personnel learned of the role of the Intermediary Company and, after interviewing Berko, GSUS’s legal and compliance group (“L&C Group”) began to investigate the interactions between and among GSUK, TEC, the Intermediary Company, and highly placed Ghanaian officials. In May 2016, TEC’s chief executive officer ended TEC’s cooperation with the L&C Group after allegedly providing falsified information intended to hide the bribery scheme. Throughout this time, and continuing into 2016, Berko allegedly circumvented GSUS’ anti-corruption internal controls and policies by: (1) using a personal email account, rather than his GSUK email, to correspond with TEC and the Intermediary Company; (2) misrepresenting the role of the Intermediary Company and concealing its receipt of payments in internal documents; (3) receiving personal payments from TEC in a separate account; and (4) advising TEC in its misrepresentations about payments to and the Intermediary Company’s involvement in the Ghanaian transaction. These circumventions continued while the L&C Group was conducting enhanced due diligence and inquiring into the deal.
In August 2016, GSUK terminated its involvement in the power plant project. Berko, however, apparently continued to assist TEC. On December 7, 2016, Berko tendered his resignation to GSUK, which became effective in March 2017. While employed at GSUK, TEC paid Berko $2 million, in four wire transfers of $500,000 each, unknown to GSUK or GSUS.
Analysis of Complaint and Key Takeaways
SEC’s Non-Inclusion of GSUS, GSUK, or GSUK’s MD as Defendants
The SEC did not name GSUS, GSUK, and GSUK’s MD as co-defendants, it sculpted the Complaint to avoid identifying them, and it does not clarify what the Complaint’s narrative implies about the MD’s possible involvement. The omission of one or more of these possible defendants could reflect the SEC’s “cooperation credit” for GSUS’s possible self-reporting or the absence of any evidence against either GSUS or GSUK, particularly given their apparently strong controls and due diligence and Berko’s rogue behavior.3 Whatever the cause, neither GSUS nor GSUK incurred any civil or criminal liability. Or, perhaps there was some other reason that GSUS and GSUK (an investor in TEC) were not charged, and we may someday hear more on this story.
Benefits of Compliance Discovering the Scheme
In any event, we note that this is an example in which an entity’s anti-corruption control mechanisms, including enhanced due diligence and thorough investigation of a suspicious intermediary, seem to have redounded to the company’s benefit.4 As alleged, Berko acted on his own in concert with TEC and the Intermediary Company to bribe Ghanaian government officials. GSUS’s L&C Group detected, investigated, and then halted further bank involvement in the scheme. We do not know whether or not GSUS self-reported to the SEC or other regulators, but the Complaint takes pains to emphasize the work of the L&C Group and the lengths to which Berko and TEC went to keep details of payments and activities by the Intermediary Company secret from GSUS and GSUK. This Complaint should hearten general counsel and compliance officers, who often must justify their budgets and overhead costs to skeptical business and finance executives who demand evidence that the costs of these measures offer some reward over the long term—here, GSUAS appears to have saved millions of dollars in hefty settlement payments to regulators or, alternatively, in defense costs in a protracted litigation context.
The Complaint alleges that Berko is a United States citizen. As discussed above, the SEC’s agency theory, needed to find liability under section 78dd-1, is problematic, and the internally inconsistent allegations could be employed in Berko’s motion to dismiss the Complaint under Federal Rule of Civil Procedure 12(b)(6). One wonders why the SEC did not allege that Berko violated 15 U.S.C. § 78dd-2 for having bribed Ghanaian government officials to direct business to TEC as a “domestic concern,” instead of proceeding under section 78dd-1, which applies to issuers whose employees or agents bribe on their behalf. Section 78dd-2 applies to a “domestic concern,” defined as “any individual who is a citizen . . . of the United States.” Berko, under the facts as alleged in the Complaint, could be liable as a U.S. citizen under section 78dd-2, which would render the claims stronger and the case simpler. Unless the SEC files an amended complaint and modifies its factual allegations or changes its theory of liability, Berko has a strong argument on a motion to dismiss or motion for summary judgment because the SEC seems to have alleged inapplicable statutory violations in this matter.
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 U.S. Securities and Exchange Commission, SEC Charges Former Executive of Financial Services Company with FCPA Violations, Litigation Rel. No. 24794 (Apr. 13, 2020), https://www.sec.gov/litigation/litreleases/2020/lr24794.htm.
 The media have revealed that the UK Subsidiary and Berko’s explicit employer was Goldman Sachs International, which is headquartered in London, United Kingdom (“GSUK”), and the US Holding Company is the Goldman Sachs Group, Inc., the publicly traded bank holding company and “issuer” headquartered in New York City and among the top five largest banks in the United States based on assets (“GSUS”). E.g., Dave Michaels, Ex-Goldman Banker Arranged Bribes to Ghana Officials, SEC Says, The Wall St. J., Apr. 13, 2020, http://wsj.com/articles/ex-goldman-banker-arranged-bribes-to-ghana-officials-sec-says-11586817542.
 Another possibility exists: that the scheme came to the SEC’s attention not through a report from the bank, but via a whistleblower whose identity the SEC must protect under its whistleblower program. This possibility gains further weight from the fact that the SEC has not trumpeted any cooperation from GSUS or GSUK, which may have made a strategic decision not to self-disclose as the fees earned by the bank were most likely not material and the L&C Group’s actions appear to have cut off the bank’s involvement with the scheme. What may have happened to the GSUK MD, if anything, via internal discipline is also unknown.
 Perhaps Goldman Sachs has learned its lesson following its involvement in the notorious 1MDB Malaysian wealth fund corruption scandal. See, e.g., Greg Farrell & Sridhar Natarajan, Mystery Goldman Exec at 1MDB Meeting Signals New Woes for Bank, Bloomberg News, Nov. 2, 2018, http://news.bloomberglaw.com/banking-law/mystery-goldman-exec-at-1mdb-meeting-signals-new-woes-for-bank.