Tag Archives: charitable donations

A Plan To Share FCPA Penalties with Brazil has Been Thwarted… by Brazil: The Supreme Court’s Invalidation of the Lava Jato Foundation

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A frequent criticism of how the US Department of Justice (DOJ) enforces the Foreign Corrupt Practices Act (FCPA) is that the fines recovered typically go to the US Treasury, rather than being used to make reparations for the damages caused by corruption in the countries where the bribery took place. Those who hold that view were likely encouraged by the non-prosecution agreement (NPA) that the DOJ concluded with Petrobras, the Brazilian state-owned oil company, in September 2018. The US enforcement action against Petrobras is a development of the so-called Lava Jato (Car Wash) investigation, in which firms paid off some Petrobras’ senior employees to benefit them in the contracts they had with the oil company. Such senior employees also shared a portion of the briber of politicians and political parties. In Brazil, Petrobras (and its shareholders, including the Brazilian federal government) are considered the victims of this scheme, but the US DOJ considered Petrobras a perpetrator (as well as a victim), because Petrobras officials had facilitated the bribe payments, in violation of the FCPA. Thus, the DOJ brought an enforcement action against Petrobras, and the parties settled via an NPA that required Petrobras to pay over US$852 million in penalties for FCPA violations. But—and here is the interesting part—the NPA also stated that the US government would credit against this judgment 80% of the total (over US$682 million) that Petrobras would pay to Brazilian authorities pursuant to an agreement to be negotiated subsequently between Petrobras and the Brazilian authorities.

This unusual agreement was the result of unusually close cooperation between U.S. and Brazilian authorities, especially the Lava Jato Task Force (group of federal prosecutors handling a series of Petrobras-related cases). After the conclusion of the NPA between the DOJ and Petrobras, the Task Force then entered into negotiations with Petrobras and reached an agreement under which Petrobras would use US$682 million that it would otherwise owe to the US government to create a private charity, known unofficially as the Lava Jato Foundation, with the Foundation using half of the money to sponsor public interest initiatives, and the other half to compensate minority shareholders in Petrobras. According to the agreement, the Foundation would be governed by a committee of five unpaid members from civil society organizations, to be appointed by the Task Force upon judicial confirmation. Once created, the Task Forcewould have the prerogative to have one of its members sitting at the Foundation’s board.

This resolution of the Petrobras case seemed to be a win-win resolution and a promising precedent for future cases: The US imposed a hefty sanction for violation of US law, but most of the money would be used to help the Brazilian people, who are arguably the ones most harmed by Petrobras’s unlawful conduct. Yet this arrangement has proven extremely controversial in Brazil, both politically and legally. Indeed, the issue has divided the country’s own federal prosecutors: The Prosecutor General (the head of the Federal Prosecutor’s Office, from which the Lava Jato Task Force enjoys a broad independence) challenged the creation of the Foundation as unconstitutional. She prevailed on that challenge in Brazil’s Supreme Court (Supremo Tribunal Federalor STF), which suspended the operation of the Foundation.

What, exactly, was the legal argument against the creation of the Lava Jato Foundation, and what are the implications of the STF’s ruling for this approach to remediating the impacts of foreign bribery going forward?

Continue reading →

“Charitable Giving” — A Way Around the FCPA? Part II

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In a December post I asked readers how they would rule in an FCPA-related case recently before U.S. federal trial judge Melinda Harmon.  As judge Harmon was required to do when deciding the case, readers were asked to assume the following was true:  The chief executive of Hyperdynamics Corporation, a Houston-based oil exploration company, had established “American Friends of Guinea,” an NGO, in 2006 after the Guinean government had threatened to revoke the company’s oil concession, its sole asset; and shortly after “Friends” was created, the government approved a renegotiated concession.  In 2007, when the government again threatened its concession, “Friends” made a substantial contribution of medicines to care for Guineans stricken with cholera, and in 2009, after the government again reaffirmed the concession, Hyperdynamics donated company stock to “Friends.”  Finally, in 2011 the firm itself gave government ministries some $30,000 worth of computer equipment.

Well, readers, what do you think?  Do the above allegations, if true, state a plausible violation of the FCPA?  That is, could a reasonable jury, or judge sitting as a finder of facts, infer from them that one or more of the donations was actually a bribe Hyperdynamics paid to Guinean government officials in return for allowing it keep its oil concession? Continue reading →

“Charitable Giving” — A Way Around the FCPA? Part I

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The facts below were alleged in a recent case involving Hyperdynamics Corporation, an American firm whose sole asset is an oil concession in Guinea:

* In 2005 the Secretary General of Guinea told the company that “further review” of its concession was necessary.  On August 1, 2006, the company’s CEO founded the NGO American Friends of Guinea and on September 22, 2006, the government approved a renegotiated concession.

* In September 2007, following critical reports in the local news about the renegotiated concession and government threats to cancel it, the Secretary General visited Hyperdynamics’ Houston office.  Over the next year American Friends of Guinea “delivered and paid for antibiotics and glucose fluids for men, women, and children who were stricken with cholera and . . . planned new water well projects to get to the source of solving the problem.”

* On September 11, 2009, the Guinean government and the company signed a memorandum affirming with modifications its oil concession.  On September 29 Hyperdynamics donated stock in the company to American Friends of Guinea.

* In September 2011 after a new, transition government was installed, a further dispute about the concession arose.  That year the firm donated $20,000 worth of computer equipment to the Ministry of Mines and some $8,000 -$10,000 to the Guinean Offshore Department of Environment.

Assuming these allegations are true, do they amount to a “payment . . .  to [a] foreign official for purposes of influencing any act or decision of such foreign official in his official capacity” and thus constitute a violation of the U.S. Foreign Corrupt Practices Act? Continue reading →

JP Morgan, Sons & Daughters, and the Rule of Law

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One of the more interesting ongoing Foreign Corrupt Practices Act investigations involves allegations that the investment banking giant JP Morgan’s “sons and daughters” program in China. According to media reports, JP Morgan’s China and Hong Kong offices offered jobs, and in some cases consulting contracts, to the children of well-connected officials in China (including the heads of state-owned enterprises and senior party officials) in return for lucrative business opportunities in the Chinese market (see, for example, here and here). The case is still under investigation, the facts are still in dispute, and the government enforcement agencies have not yet accused JP Morgan of any of its executives of any wrongdoing. Yet there have been hints that if the facts turn out to be as bad as they look, the U.S. government will consider JP Morgan’s so-called “sons & daughters” hiring program to have violated the FCPA’s anti-bribery provisions. That conclusion would depend crucially on the premise that providing a job to the (adult, non-dependent) child of a foreign official counts as providing “anything of value” to the official. (Things would be different if there were evidence that the officials’ children funneled some of the money back to their parents, but at the moment no such evidence has come to light.)

About six months ago, Professor Andrew Spalding (who has also contributed a number of insightful posts to this blog – see here, here, and here) published a provocative four-part series at the FCPA Blog (see here, here, here, and here) raising serious concerns about this legal theory, and suggests that applying it in JP Morgan’s case would be not only inappropriate, but a serious affront to fundamental legal principles. Somewhat unusually, I find myself in disagreement with Professor Spalding. Indeed, if the facts turn out to be as bad as early media reports suggest, I think that this is an easy case. To my mind, it’s straightforward that offering a benefit to a third party can count as offering “anything of value” to a foreign official under the FCPA, and nothing in the DOJ’s prior opinion releases would constrain the U.S. government from applying that principle in this case. Continue reading →