Tag Archives: settlement

Brazil’s Car Wash Operation May Be Over, But Its Legacy Will Endure 

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Brazil’s Lava Jato (“Car Wash”) Operation, launched in 2014, exposed one of the largest corruption schemes ever, resulting in the conviction of over 361 people for corruption, money-laundering, procurement fraud, and other crimes. Those convicted included prominent members of the Brazilian business and political elite, including the current President, Luiz Inacio Lula da Silva (known as Lula). Over the last few years, however, the Car Wash Operation has unraveled, with several of its most important achievements reversed. In 2019 a Brazilian hacker publicized text messages allegedly exchanged between Sergio Moro, the presiding judge in many of the Car Wash cases (including Lula’s), and the Car Wash prosecutors, prompting allegations of bias. The specialized Car Wash prosecutorial task force was disbanded in February 2021, and the Brazilian Supreme Court annulled Lula’s conviction on procedural grounds in April 2021, paving the way for his re-election to a third presidential term in October 2022. Most recently, as I discussed in a post here, the Brazilian Supreme Court held that key evidence obtained by Car Wash prosecutors in a settlement agreement with one of the companies at the heart of the scandal was inadmissible due to procedural irregularities, potentially rendering dozens of additional convictions subject to reversal.

So, was it all for nothing? I don’t think so. True, some of the operation’s most important successes are vanishing. But Car Wash helped strengthen Brazil’s legal and institutional framework for anticorruption and has helped pave the way for the country to embrace a more transparent, honest, and efficient system. More specifically, Car Wash has left a positive legacy with respect to the Brazilian approach to (1) corruption prevention; (2) corruption investigations; and (3) the resolution of corruption cases. Continue reading →

Guest Post: The Recent Brazilian Ruling on Use of Evidence from the Odebrecht Case—Setting the Record Straight

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Last week, this blog featured a guest post from Gregory Michener and Breno Cerqueira on the recent decision by Justsice Toffoli of the Brazilian Supreme Court, which concerned the settlement that Brazilian prosecutors had previously reached with the Odebrecht company—and the evidence against other defendants that Odebrecht had provided prosecutors as part of that settlement. A Brazilian lawyer with first-hand knowledge of the case submitted the following guest post, which takes issue with a number of the claims made in the previous post. Although it is not GAB’s usual practice to publish anonymous posts, in this case the sensitivity of the matter and the importance of raising these issues led me to exercise my editorial judgment to publish the post below without the author’s name.

The recent guest post on this blog regarding the recent judicial ruling on the settlement in the Odebrecht case is inaccurate in certain respects.

  • The first and most important inaccuracy is that, in contrast to what the post indicates, Justice Toffoli’s ruling did not annul the settlement in the Odebrecht case. Rather, the ruling held that the evidence included in certain important Odebrecht databases contained in hard drives, obtained by the Brazilian prosecutors from Swiss authorities, may not be lawfully used in criminal or civil investigations. The guest post properly states this aspect of the ruling—that it prohibited the use of this evidence —but the suggestion that the ruling annulled the settlement itself is not accurate.(A potentially important issue is whether the ruling would apply with the same force to the evidence turned over directly to the Brazilian prosecutors by Odebrecht, rather than obtained by the Brazilian prosecutors from the Swiss authorities. But the guest post fails to make that distinction.)
  • Second, the guest post seems to treat Justice Toffoli’s decision as a surprise, or at least unanticipated. But in fact, several prior decisions by other Brazilian Supreme Court Justices (particularly Justice Lewandowsky) had reached essentially the same conclusion, though with regard only to particular defendants. Justice Toffoli’s ruling extends and generalizes those prior decisions, ruling that the evidence in question cannot be used at all, thus obviating the need for individual defendants to obtain a similar ruling by the court in their individual cases.
  • Third, the post seems to imply that Justice Toffoli decided this case because he was appointed by President Lula, and previously served in senior positions in Lula’s first administration. But this is a gross simplification, especially when one remembers that Justice Toffoli handed down several decisions that went against against Lula’s interests (including rulings against prominent members of Lula’s party in the Mensalao case, and during Lula’s time in jail). Notably, Justice Toffoli apologized for some of those earlier decisions in the more recent decision currently being discussed. Therefore, rather than favoring Lula and his party consistently, a more plausible hypothesis, based on Justice Toffoli’s record, is that he seems inclined to decide cases in favor of the interests he sees as commanding the current political agenda. This may be at least as objectionable as guest post’s suggestion that he is decides cases systematically out of loyalty to Lula, but as a matter of empirical analysis of judicial trends, it is importantly different. (And Lula himself is, or should be, attentive to that.)
  • Fourth, another inaccuracy in the post, though admittedly a less important one, is the claim that prosecutors had not made public the Odebrecht agreement’s legal framework until last week. This is not true. The agreement has been publicly available for more than five years on the Ministry of Federal Prosecution’s website, which provides easy access to several of the resolutions that the federal prosecutors have concluded.
  • Finally, it is worth addressing the suggestion at the end of the post that transparency regarding the facts reported by Odebrecht under the settlement agreement might have reduced the chance of a decision such as Justice Toffoli’s. This cannot be characterized as a factual inaccuracy, as it is inherently a speculation about what might have happened under different conditions. Nevertheless, that assertion seems too rudimentary. There may be good reasons why prosecutors (and other control agencies, such as, in the case of Brazil, the Comptroller General and the Attorney General’s office) elect not to disclose all of the facts contained in the evidence turned over by the company right away. The most obvious reason for not publicly disclosing this evidence right away is that the evidence may be relevant to ongoing investigations. And it is not true that the U.S Department of Justice (DOJ) would make public comparable factual material, if doing so would jeopardize ongoing investigations. (Some also claim that the DOJ decides on the degree of disclosure of facts in statements of facts attached to Foreign Corrupt Practices Act negotiated resolutions based more on, or at least with an eye to, strategic or geopolitical considerations than transparency concerns.) Again, though, the claim that more transparency about the settlement and the associated evidence would have helped seems reasonable, and is not strictly speaking inaccurate. There is certainly room for reasonable disagreement about the prosecutors’ approach to disclosure. But the issue is far more nuanced than the post suggests.

I want to emphasize that these comments are not meant to contradict the importance of making pointed critical assessments of judicial decisions in general and Justice Toffoli’s ruling in particular. Nor do I wish to offer any further opinion on these fraught, highly controversial legal and political issues. But given the intensity of the discussion in Brazil, and the unfortunate tendency for all sides in these debates to hurry over or oversimplify key facts, I thought it was important to advocate for subtlety and raise these problems about the recent guest post on this blog.

Civil Non-Prosecution Agreements: A Promising New Tool for Advancing Brazil’s Anticorruption Agenda

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In late 2019, the Brazilian Congress passed an “anti-crime package” which included, among other things, an amendment to the Administrative Improbity Act that authorized a new form of “civil non-prosecution agreement” (known by its Portuguese initials, ANPC). Under an ANPC, prosecutors can reach civil agreements with individuals who voluntarily disclose their corrupt acts, thus avoiding the usual judicial proceedings for determining penalties under the Improbity Law. (To be clear, ANPCs are used to resolve civil matters and impose administrative sanctions, rather than to resolve criminal cases.) More recent amendments to the Improbity Act have strengthened this mechanism by giving prosecutors greater discretion to reach settlements with individuals accused of improbity.

This reform is a major change to the traditional Brazilian approach to administrative sanctions, which historically bars the settlement of any case involving corruption or improbity. That said, Brazil has already expanded the use of settlement agreements in other contexts. For example, in the context of enforcing criminal laws against corporations, the 2014 Clean Company Act (CCA) authorized so-called “leniency agreements,” under which prosecutors may offer to lower penalties to companies that self-disclosure wrongdoing and cooperate with the investigation. The ANPC mechanism is similar but different in a couple of important respects. First, the ANPC applies to individuals rather than firms. Second, while the CCA authorizes leniency agreements only in cases where the company discloses information about other unlawful activities and thus helps the investigation, an ANPC may be issued as long as the individual agrees to reform her own conduct, even if she does not provide additional information that is useful in ongoing investigations. On the other hand, similarly to leniency agreements, the enforcement authorities need not seek judicial approval to resolve a case via ANPC, so long as the agreement is reached before the beginning of a judicial proceeding. (If a formal proceeding has already begun, then the judge would still need to sign off on the termination of that proceeding.)

Although ANPCs have yet to be used on large scale, this tool holds great promise for substantially improving Brazil’s effective enforcement of its anticorruption laws, for several reasons:

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The Future of FCPA Enforcement After KT Corp.

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Earlier this year, the US Securities and Exchange Commission (SEC) settled a Foreign Corrupt Practices Act (FCPA) case with KT Corporation, the largest telecommunications operator in South Korea. The facts of the case, as described in the settlement documents, are cinematically scandalous: From at least 2009 through 2017, high level executives at KT maintained enormous slush funds in off-the-books accounts and physical stashes of cash, from which they made illegal political contributions and paid off government officials in both Korea and Vietnam. In their home country, they frequently used these slush funds to pay for substantial unreported gifts, entertainment, and campaign donations to members of the Korean National Assembly who were serving on committees that addressed issues of public policy directly related to KT’s business. Furthermore, after the South Korean press reported on the slush fund allegations back in 2013—reporting that led to a Korean criminal prosecution of KT’s president for embezzlement—the company simply shifted its tactics for filling its slush funds: Rather than siphoning off inflated executive bonuses, KT had its Corporate Relations (CR) Group purchase gift cards, which were then converted into cash to replenish the slush funds. In genuine “cloak and dagger” style, a member of the CR Group would meet the corrupt gift card vendor in the parking lot behind the KT building and receive a paper bag containing a large envelope of cash.

In a magnificent understatement, the Chief of the SEC’s FCPA Enforcement Unit noted that KT “failed to implement sufficient internal accounting controls with respect to key aspects of its business operations,” and that in the future, the company’s leaders should “be sure to devote appropriate attention to meeting their obligations under the FCPA.” But this was not simply a case of a company failing to keep its financial records up to date. Rather, there was a complete and total collapse of any semblance of a culture of compliance at KT. The fact that executives at the highest levels of this corporation, including the president and the CR Group, were directly responsible for these bribery schemes indicates that the culture of this corporation was corrupt, thorough-and-through; bribery was an indispensable component of its business model, and continued even after the company’s president was prosecuted. Yet because KT cooperated with the SEC’s investigation, the SEC only required KT to pay a paltry $6.3 million in combined disgorgement and civil penalties; the SEC also put the company on a two-year probation, during which KT must update the SEC every six months on its compliance measures, though it is unclear what, if anything, will happen if KT somehow mishandles the recommended compliance improvements.

This outcome is unacceptable. If the U.S. government is serious about its intention to deter future misconduct, it must ensure that civil penalties for FCPA violations cannot simply be seen as an “acceptable cost of doing business.” Over the past few years, SEC and DOJ leadership have repeatedly emphasized the importance of anticorruption enforcement and have suggested a desire to reverse the trend of steadily declining FCPA enforcement actions. If deterrence of corrupt corporate conduct is truly a priority for the SEC and the DOJ, then now would be a good time to start substantially ramping up FCPA investigations and enforcement actions, especially in cases of companies like KT that have exhibited the incorrigible culture of brazen corruption.

There are two substantial objections to the call to ramp up FCPA enforcement actions against foreign companies and dramatically stiffen penalties for violations, but on closer inspection neither is compelling. Continue reading →

Taking on the Demand Side of Foreign Bribery: How U.S. FCPA Settlements Can Facilitate Foreign Prosecutions

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Laws like the U.S. Foreign Corrupt Practices Act (FCPA) target what is sometimes referred to as the “supply side” of transnational bribery transactions—the firms and individuals of offer or pay bribes to foreign officials in order to secure a business advantage. But what about the demand side? All too often, the government officials who demand or receive these bribes escape accountability—even when the bribe-paying firms are forced to pay substantial penalties for FCPA violations. Years ago, some U.S. Department of Justice (DOJ) prosecutors floated the theory that bribe-taking officials could be charged as abettors to, or co-conspirators in, FCPA violations, but that theory, though legally plausible, failed to gain traction in the courts. On occasion, the DOJ has prosecuted bribe-taking foreign officials for money laundering. And more recently, Members of the U.S. Congress have introduced a new bill, the Foreign Extortion Prevention Act (FEPA), which would make it a crime under U.S. law for a foreign public official to seek, demand, or accept a bribe. FEPA’s chances of enactment are uncertain (the vast majority of bills fail, after all); moreover, even if enacted, FEPA’s impact may be circumscribed by the practical and political difficulties of arresting and trying foreign public officials, particularly those that do not have any contact with U.S. territory.

What about the bribe-taking public official’s own government? Shouldn’t that government take the lead in prosecuting its own public officials when they behave corruptly? There would be a nice symmetry—and a great deal of practical advantage—to a system in which the supply-side government (say, the United States) goes after the bribe-paying company, while the demand-side government goes after the bribe-taking public official. But often this doesn’t happen: In the majority of cases where the U.S. government imposes FCPA sanctions on a company for paying bribes in a given country, there is no parallel or subsequent prosecution by that country’s government of the corrupt officials involved.

Sometimes the explanation is political: the public officials involved are sufficiently powerful and well-connected to escape domestic accountability in their home countries, even when their misconduct is known. That’s a big problem, and one that statutes like FEPA are designed to address. But there’s another reason that demand-side governments often fail to hold their own officials accountable: a lack of capacity and an associated lack of evidence. In a great many cases, even when a bribe-paying firm settles an FCPA case with the US government, and in doing so admits to certain facts and provides evidence about the misconduct to the DOJ, the demand-side country government does not receive sufficient evidence to identify, let along prosecute, the corrupt officials involved—either because the company did not supply that information to the DOJ, or the DOJ did not turn that information over to the demand-side official’s government. True, FCPA settlement agreements are usually public, but the official statements of facts in these agreements are often not sufficiently precise and detailed to give a foreign enforcement agency what it needs to make out a case.

The U.S. government can and should fix this problem. Doing so would not require new legislation. Rather, it could be accomplished through a straightforward and easily implementable change in DOJ policy. Continue reading →

The Goldman Sachs 1MDB Settlement Was Just and Appropriate

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In late October, the United States Department of Justice announced a major settlement with the global investment bank Goldman Sachs for its involvement in the 1MDB scandal, an international bribery scheme in which high-level Malaysian officials embezzled an estimated $4.5 billion from a fund designed to finance infrastructure and other economic development projects. Between 2012 and 2013, Goldman Sachs helped raise $6.5 billion for 1MDB in three bond sales, and at least two Goldman bankers aided Jho Low, an advisor to the fund, in embezzling much of the capital. As part of the settlement with DOJ, Goldman agreed to pay over $2.9 billion to authorities in the US, Hong Kong, UK, and Singapore. Of the nearly $3 billion in fines, approximately $1.85 billion will go to the United States, over $600 million to Malaysia (on top of a $3.9 billion settlement the Malaysian branch of Goldman reached with the country in July), and $440 million to financial regulators in other nations.

Despite these eye-popping numbers—including what appears to be the largest fine to date levied under the U.S. Foreign Corrupt Practices Act—some experts have characterized the $2.9 billion penalty as “surprisingly small” or even “virtually meaningless” for a company that made $3.6 billion this last quarter alone. And, in what has become a common refrain among critics of these sorts of settlements with big firms, many complain that no senior Goldman Sachs executives were held personally, criminally liable for the bank’s role in the 1MDB fiasco.

Yet an assessment of the punishment must also include the penalties that extend beyond these government-imposed fines. Indeed, while some regard Goldman Sachs’ settlement as a slap on the wrist for a global corporation that’s a glutton for punishment, the implications of the settlement reveal a more just outcome than appears at first blush.

Continue reading →

Guest Post: How France Is Modernizing Its Criminal Procedure and Streamlining Its Resolution of Corporate Crime Cases

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GAB is pleased to welcome back Frederick Davis, a lawyer in the Paris and New York offices of Debevoise & Plimpton and a Lecturer at Columbia Law School, who contributes the following guest post:

For approximately two decades, at least since 2000, France—a signatory to the 1997 OECD Anti-Bribery Convention — has had laws on the books that emulate the U.S. Foreign Corruption Practices Act (FCPA) by criminalizing bribes to foreign public officials. For most of that time, these laws were not effectively enforced: During the first 15 years after France prohibited foreign bribery, not a single corporation was convicted in France. The reasons for this—previously discussed on this blog by me and others—included the low maximum penalties applicable to corporations, imprecision in French laws relating to corporate criminal responsibility, lengthy investigations (often lasting over a decade) run by investigating magistrates, and the virtual absence of any possibility of a negotiated outcome. In the absence of French enforcement of its laws against foreign bribery, the U.S. Department of Justice (DOJ) took it upon itself to investigate and prosecute a number of French corporations for FCPA and other violations. These enforcement actions, which were typically resolved by guilty pleas or deferred prosecution agreements (DPAs), netted aggregate fines and other penalties of over $2 billion, not a penny of which was paid to France.

This situation provoked widespread discussion and debate in France, and eventually led to a number of changes in its criminal procedures. Among the most important were the creation, in 2013, of a National Financial Prosecutor’s office (PNF) with nationwide authority to prosecute a variety of financial crimes, and the adoption, in December 2016, of the so-called Loi Sapin II, which overhauled many of the criminal laws relating to corporate and financial crime, increasing corporate penalties, adopting a new settlement procedure called the Convention Judiciaire d’Intérêt Public (CJIP) closely modeled on the US DPA, and creating a French Anticorruption Agency (AFA) to supervise newly-mandatory corporate compliance programs and issue guidelines for corporate behavior. These reforms have already produced some impressive results, including major settlements (sometimes in cooperation with other countries like the US and UK) with large French and multinational companies (see, for example, here, here, and here).

An interview published this past April with Jean-François Bohnert, who has served since October 2019 as the National Financial Prosecutor, sheds some light on how France’s recent legal and institutional reforms are transforming its enforcement of its laws against foreign bribery and other complex corporate crime. In that interview, M. Bohnert understandably focused on his office’s successes; he was particularly proud of the number of cases his office had handled with a relatively small staff. But to my mind, by far the most interesting and important thing that came out of this interview was the fact that, of the 592 cases handled by the PNF in 2019, 81% were so-called “preliminary investigations” managed exclusively by the PNF, while only 19% were led by investigating magistrates. To someone unfamiliar with the French legal system, the significance of this statistic may not be readily apparent, but in fact it suggests an important change in the French approach to corporate misbehavior. Continue reading →

The Shortcomings of the Leniency Agreement Provisions of Brazil’s Clean Company Act

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If the CEO of a corporation operating in Brazil learns that her company has committed an unlawful act of corruption, should she order the corporation to self-report and negotiate a leniency agreement with the Brazilian authorities under Brazil’s 2013 Clean Company Act, which authorizes such settlements? In most of the cases, the corporate legal department would probably advise against it. Indeed, the number of leniency agreements based specifically on Brazil’s Clean Company Act has been much smaller than expected.

Several factors drive companies away from cooperating with Brazilian public authorities under the Clean Company Act:

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What Was the Holdup on the Walmart FCPA Settlement? Some Wild Guesses

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Most Foreign Corrupt Practices Act (FCPA) cases don’t attract much attention outside of a relatively small circle of lawyers, compliance specialists, anticorruption activists, and other FCPA nerds. But every once in a while a case comes along that gets a bit more attention from the mainstream media, or at least from the general business press. The Walmart case is one such example. The greater attention to that case is probably due to some combination of the Pulitzer Prize winning New York Times reporting on bribes allegedly paid by Walmart’s Mexican subsidiaries—allegations that helped get this case rolling—as well as the fact that the retail giant is more of a household name than, say, Alcatel or Och-Ziff.

As most readers of this blog (a group in which I imagine FCPA nerds are overrepresented) are likely aware, the Walmart case finally settled in late June, with the total monetary penalties coming to about $283 million. I already did a bunch of blog posts on the Walmart case while it was in process—including, perhaps most relevant now, a piece two years ago reflecting on what lessons we might learn if the case settled for somewhere in the neighborhood of about $300 million, which several news outlets had declared was about to happen. And since the announcement of the settlement this past June 20, there’s been no shortage of commentary on the case in the FCPA blogosphere (see, for example, here, here, here, and here). So I don’t have too much to add to the discussion.

I did, however, want to address one relatively small but intriguing puzzle. As I just mentioned, back in May 2017, news outlets reported that the Walmart case was on the verge of settling, for somewhere in the vicinity of $300 million. Over two years later, in June 2019, the Walmart case settled… for an amount very close to $300 million. So, what was the holdup? If the parties had basically worked out the amount that Walmart was going to have to pay back in May 2017, why did it take another two years to finalize the settlement? Neither side has an obvious incentive to delay: Walmart would like to put this behind it and stop paying its expensive lawyers, and the DOJ and SEC’s respective FCPA units have limited staff and a ton to do, and would also like to get the case over and done with. It’s possible that the delay was due to haggling over the exact penalty amount, or that Walmart thought maybe it could get a better deal from the Trump Administration and so decided to hold out, or perhaps there was some last-minute development that one side or the other thought might justify substantial shift in the settlement amount, even if in the end it didn’t. But I would guess (and it really is just a guess) that the two-year delay was due to one or both of the following two factors: Continue reading →

The OECD Anti-Bribery Convention Should Ensure a Fair Distribution of Settlement Recoveries

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In December 2016, the United States, Brazil, and Switzerland announced that they had concluded plea agreements with the Brazilian construction firm Odebrecht and its affiliate Braskem, in which the companies admitted their culpability in extensive bribery schemes involving upwards of US$800 million in bribes paid in a dozen countries—mainly though not exclusively in Latin America—and agreed to pay approximately US$3.5 billion in penalties to the US, Brazilian, and Swiss authorities. But with the exception of Brazil, none of the countries where the bribes were actually paid were entitled to receive any compensation under these plea agreements.

In fairness, the plea agreement with Odebrecht did require the company to cooperate with foreign law enforcement and regulatory agencies in any future investigation into related misconduct by Odebrecht or any of its current or former officers, directors, employers, or affiliates. The plea agreement further required Odebrecht to truthfully disclose all non-privileged factual information, and to make available its officers, employees, and affiliates, to foreign law enforcement authorities. Additionally, under the terms of the plea deal Odebrecht consented to US federal authorities sharing with foreign governments all documents and records that the company had provided to the US authorities in the course of the investigation into Odebrecht’s violation of US law. 

These well-intentioned provisions seem to have been included specifically to ensure that enforcement agencies of other countries could pursue their own actions against Odebrecht and its officers. But the plea agreements did not create a formal mechanism that enables foreign enforcement agencies to ask the DOJ, Swiss authorities, or Brazil to impose sanctions for breach of these conditions. If Odebrecht fails to fully cooperate with foreign enforcement agencies, that foreign government’s only recourse would be to try to convince (presumably through informal channels) the US, Brazilian, or Swiss authorities to sanction Odebrecht for breaching the plea agreement. But it’s unlikely that those governments will have much appetite for assessing these claims of non-cooperation. Furthermore, even if other countries do bring their own cases, the penalties imposed by the US, Switzerland, and Brazil were so high that Odebrecht simply doesn’t have the money to pay sufficient fines to other countries, at least in the short run.

The Odebrecht case may be unusual in its size, but it is not unique. It is therefore useful to reflect on whether the international community should adopt new mechanisms governing how the fines or reparations recovered in settlements of cross-border bribery cases are distributed, in order to ensure proportionality and fairness, particularly to victim nations. The most promising way forward would be to amend the OECD Anti-Bribery Convention.The Convention already requires (in Article 4) that Convention parties shall consult with each other to determine which is the most appropriate jurisdiction for prosecution, and also requires (in Article 9) that Convention parties provide, to the fullest extent possible, “prompt and effective legal assistance” to any other Convention party concerning investigations and proceedings within the scope of the Convention. But the Convention does not explicitly address other forms of cooperation, such as ensuring fairness in the distribution of monetary recoveries. The Convention should be amended to include additional language that covers this topic, as follows: Continue reading →