Scratch that trial, scrutiny alert, affirmed, follow-up, Braskem-related, and across the pond. It’s all here in the Friday roundup.
Scratch That Trial
One of the FCPA trials scheduled this Fall (see here for the prior post) involved Frank Chatburn. As highlighted here, in April 2018 Frank Roberto Chatburn Ripalda (a dual United States and Ecuadorian citizen) was criminally charged for conspiring with others for making corrupt payments to PetroEcuador officials in order to obtain and retain contracts for Galileo (described as an Ecuadorian company that provided services in the oil and gas industry) from PetroEcuador.
The DOJ announced:
“Frank Roberto Chatburn Ripalda (Chatburn), 42, a dual U.S. and Ecuadorian citizen, pleaded guilty in federal district court in Miami before the Honorable Marcia G. Cooke to one count of conspiracy to commit money laundering, which carries a 20-year statutory maximum sentence. Chatburn is scheduled to be sentenced by Judge Cooke on Dec. 18.
According to his admissions at the plea hearing, Chatburn conspired with an oil services contractor to pay nearly $3 million in bribes to Ecuadorian government officials in an effort to obtain and retain contracts with PetroEcuador. As a financial advisor to the contractor, Chatburn agreed to make bribe payments for the benefit of several then-PetroEcuador officials through the use of shell companies and bank accounts in the United States, Panama, the Cayman Islands, Curacao and Switzerland. To conceal the bribe payments and to promote the scheme, Chatburn established Panamanian shell companies with Swiss bank accounts on behalf of two then-PetroEcuador officials.
Chatburn further admitted that he conspired with another Ecuadorian government official to conceal bribe payments intended for the official from Odebrecht S.A., the Brazilian construction conglomerate. Chatburn facilitated hiding these bribe payments by conducting the transactions through several shell companies and bank accounts in multiple jurisdictions, including in the United States.”
The Wall Street Journal goes in-depth as to alleged corruption at Pemex – a Mexican company with securities registered in the U.S. According to the article:
“In 2017, Israeli private investigation company Black Cube secretly recorded senior officials at Mexico’s Petróleos Mexicanos describing widespread bribery and corruption at the state-run oil company.
The audio recordings are part of the evidence in a lawsuit filed last year against the Mexican government by a Mexican oil-field drilling company called Oro Negro. The company claims that Pemex, as the state oil company is known, helped drive Oro Negro into bankruptcy, because the driller refused to pay bribes.
The evidence from the Oro Negro lawsuit forms part of a broad-ranging investigation into corruption at Pemex by the U.S. Department of Justice and the Securities and Exchange Commission, according to people familiar with the matter.
The flurry of corruption cases surrounding Pemex has caught the attention of investigators in the U.S., where Pemex bonds trade. U.S. officials are investigating the Fertinal purchase for possible corruption, according to people familiar with the matter and law enforcement communications viewed by the Journal. And in May, the SEC launched a fraud inquiry into possible accounting irregularities at Pemex, according to U.S. government documents reviewed by the Journal.
Those lines of inquiry appear to have been put together in one large probe, according to the people familiar with the matter. The U.S. investigation is being handled by lawyers in the Justice Department’s criminal unit that focuses on the Foreign Corrupt Practices Act, along with prosecutors from the Eastern District of New York, in Brooklyn. The Federal Bureau of Investigation in Houston and the Securities and Exchange Commission in Miami are also involved, according to correspondence reviewed by the Journal and the people familiar with the matter.”
This prior post highlighted the defamation claim brought by Alejandro Yeatts (who from 2005 to September 2015 was employed by Biomet Argentina) in the aftermath of the company’s FCPA enforcement action. Previously a trial court granted the company’s summary judgment motion concluded that inclusion of Yeatts on a Restricted Parties List “conveyed no defamatory imputation of objectively verifiable or testable fact.”
Yeatts appealed to the Seventh Circuit which recently affirmed. (See 2019 WL 4942266).
In pertinent part, the court concluded:
“Yeatts alleges Biomet’s statements—that he was suspended in connection with the corruption investigation and that he posed a “significant and unacceptable compliance risk[ ]”—falsely suggest he engaged in criminal conduct and misconduct. He believes these statements imply false facts that are objectively verifiable. Biomet counters that the statement about Yeatts posing a risk cannot be proven false or verified by a factfinder because it is merely Biomet’s opinion.
The statement that Yeatts was suspended in connection with the corruption investigation is true. Yeatts does not contest the accuracy of the statement; rather, he disputes the implication of his suspension—i.e., that he engaged in misconduct or criminal behavior. Truth, however, is a total defense to a defamation claim. […] The statement is accurate, and none of the facts Yeatts attempts to raise as disputed (i.e., whether he actually engaged in misconduct) would disprove the fact of his suspension. As such, that statement is not actionable defamation.
Next, as to Biomet’s expressed concern that Yeatts posed a compliance risk, the Supreme Court has addressed the difference between statements of opinion and statements of fact. In Milkovich v. Lorain Journal Co., the Court compared the following examples: “in my opinion John Jones is a liar” and “Jones shows his abysmal ignorance.” 497 U.S. 1, 18–20 (1990). In the first example, despite the qualifier that it is “my opinion,” the Court explained the statement is defamatory because the speaker “implies a knowledge of facts which lead to the conclusion that Jones told an untruth.” The latter example about Jones’s ignorance, however, is not defamatory because there is no “provably false factual connotation.”
Likewise, in Sullivan v. Conway, we considered whether the statement “Sullivan is a very poor lawyer” defamed the plaintiff. 157 F.3d 1092, 1097–98 (7th Cir. 1998). We contrasted hypothetical assertions that a lawyer is dishonest, forged his credentials, or lost all his cases—all verifiable statements of fact. “But to say that he is a very poor lawyer is to express an opinion that is so difficult to verify or refute that it cannot feasibly be made a subject of inquiry by a jury.” We thus concluded the statement was not defamatory.
The statement that Yeatts posed a “significant and unacceptable compliance risk[ ]” is like the “abysmal ignorance” or “very poor lawyer” statements. There is no provably false factual connotation. Though Yeatts claims a factfinder could determine the precise limits Biomet placed on his interactions with Galindo and whether he violated those limits, those factual resolutions would not be dispositive of whether Yeatts posed a compliance risk. Even if Yeatts proved to a jury that he did not violate the specific limits Biomet imposed on his interactions with Galindo, that does not mean Biomet was incorrect or unreasonable in considering Yeatts a compliance risk. As the district court noted, for a company twice investigated by the DOJ for FCPA violations, it is reasonable to “take a hypersensitive view” of potential compliance risks. Like in Sullivan, where we determined it would be unmanageable to ask the court “whether ‘in fact’ Sullivan is a poor lawyer,” it is equally unmanageable to ask a court “to determine whether ‘in fact’ ” Yeatts posed a compliance risk.
Yeatts’s focus on the alleged lack of evidence that he engaged in criminal conduct misses the point. Even if there were zero evidence he engaged in criminal conduct, that would not prove false Biomet’s concern that Yeatts posed a compliance risk. The inability to prove the statement false demonstrates that it is a statement of opinion, beyond the reach of defamation law.”
As highlighted in this prior post, the recent Westport Fuel Systems enforcement action was based primarily on the conduct of Nancy Gougarty, a former executive officer of the company. In connection with the corporate enforcement action, Gougarty also agreed, without admitting or denying the SEC’s findings, to pay a $120,000 civil penalty.
As stated in this recent article in the Global and Mail.
“[L]et’s review the severance package Ms. Gougarty received in January of this year: US$585,000, plus US$106,250 in vacation pay and expense reimbursements. In addition, the company let her keep all of her 1.74 million unvested stock awards and removed restrictions on their sale. On the day she left, they were worth a little more than US$2.9-million; at Westport’s August high, they were worth nearly US$5.7-million.
What Westport paid Ms. Gougarty between the time it received the June, 2017, subpoena [from the SEC] and her departure is more curious.
The company determined her 2017 performance merited a US$975,000 bonus and a stock award valued at US$672,000. The company also says that in 2018, it determined to give her 1.5 million more share awards as part of her “amended employment contract,” but was unable to do so because of the “blackout rules” in the stock plan.
And, finally, as the board looked on the 2018 performance, presumably some days or weeks before Ms. Gougarty’s resignation, it awarded her a US$130,000 cash bonus for “meeting strategic initiatives” and getting most of the “discretionary” portion of the award.
That cash bonus for 2018 is just about as much as the SEC extracted for what it called a “bribery scheme” that spanned most of Ms. Gougarty’s tenure as a top official at Westport. A tenure that ended not with a costly termination, but in lucrative retirement. Fortunate for her; less so for the shareholders who the SEC said had their interests undermined.”
As highlighted in this prior post, in late 2016 Brazil-based Odebrecht/Braskem resolved an FCPA enforcement action. The conduct at issue was egregious and largely centered on a business unit, the Division of Structured Operations, housed within an Odebrecht subsidiary that allegedly served as little more than a bribe-paying department for the benefit of Odebrecht and Braskem. According to the resolution documents, former senior executives authorized approximately $788 million in bribes, largely through the Division of Structured Operations, to alleged foreign officials in at least twelve countries. While the principal focus of the DOJ’s action (and the exclusive focus of the SEC action) concerned conduct in Brazil including the companies relationships with Petrobras, the DOJ action also alleges improper payments in Angola, Argentina, Brazil, Colombia, Dominican Republic, Ecuador, Guatemala, Mexico, Mozambique, Panama, Peru, and Venezuela.
Set forth below is what the company said in its recently filed annual report:
“Braskem has developed a series of structural actions to maintain an effective anti-corruption Compliance Program and Controls designed to prevent and detect violations of the Foreign Corrupt Practices Act of 1977 (“FCPA”) and other applicable anti-corruption laws. The existing Compliance Program establishes short, medium and long-term initiatives; and recommendations received by local and foreign authorities (i.e.external monitors) were implemented in a short-term, as a priority. There are remaining actions that were concluded later with the objective to strengthen the program and establish new improvements.
The following remediation efforts have been implemented during the years of 2017 and 2018 with the objective of remediating the material weaknesses related to Anti-corruption Compliance Program and controls.
- Increase of the number of employees of the Compliance area, including a hiring of Compliance Officers to serve the Companies located in foreign countries (Mexico, United States and Netherlands and Germany);
- Appointment of new independent members of the Company’s Board of Directors as members of the Compliance Committee, enhancing the transparent and independent judgment;
- Designation and contracting of an independent monitor with the Department of Justice “DOJ” and Ministério Público Federal “MPF”, and review of processes and documentation of the Company by the monitor;
- Approval and/or review of normative documentation (policies, directives and procedures): Code of Conduct, Third Party Code of Conduct, Global Anti-corruption Policy, Directive and the Procedure for Relations with Public Agents, Global Risk Management Policy, Transactions with Related Parties of Braskem SA, Internal Audit Directive, Internal Controls Directive, Global Procurement Directive, Global Sales Directive, Sponsorship and Donations Directive, Delegation of Authority Directive, Third Party Integrity Due Diligence Directive, Disciplinary Measures Directive, Corporate Credit Card Directive, Treasury Payments Directive, Business Travel Directive, Personnel Selection Directive (hiring of employees), Payment of commissions to agents Procedure, Ethics Line Channel Research Protocols, Global Conflict of Interest Directive and others;
- Outsourcing of the “Ethics Line” (whistleblowing) Channel and improvements of the tool for receiving of complaints;
- Continuation of the Training Program, based on the Compliance System for employees (including the Board members) and for third parties;
- Approval of a normative documentation related to interactions with politicians and executives of public companies;
- Development of the corporate goal related to Compliance actions for all Company leaders;
- Formal and effective participation in working groups: United Nation Anti-Corruption and ETHOS Integrity;
- Improvement of integrity due diligence process for third parties;
- Development and application of the Communication Plan to lead the business to operate committed on ethical, integrity and transparency concepts;
- Mapping of risks and controls and evaluations of the effectiveness of controls for the most relevant corporate processes of companies with businesses in Brazil, USA, Mexico, Netherlands and Germany;
- Use of anti-corruption clauses in contracts with third parties;
- Implementation of improvements in relevant internal controls, including the remediation of deficiencies previously identified in our internal processes (mainly the material weaknesses and significant deficiencies);
- Mapping of anti-bribery and anti-corruption controls and improvement of enterprise risk management for these matters;
- Inclusion of the anti-bribery and anti-corruption risks as scope of Internal Audit works;
- Definition and review of the corporate risk management methodology; and
- Conclusion of Internal Audit projects and communication of the issues found to the Company leaders. Several remediation plans were also implemented in response to these issues.
Across the Pond
Recently Lisa Osofsky delivered this speech that touched upon international cooperation, how the private sector can cooperate in preventing crime in the first place, and how the SFO goes about its work.
As to international cooperation, Osofsky stated:
“We prosecutors simply cannot do our jobs today without working with our counterparts around the globe. We cannot do our jobs without obtaining evidence – documents, bank records, and witness accounts – from multiple jurisdictions. Criminals do not respect international boundaries. Quite the opposite, they use them to thwart us, to make it difficult to chase them and uncover their schemes, and trace and recover their ill-gotten assets. That means – if we are to succeed – that we must cooperate.
And we have been cooperating. The work we at the SFO have been able to do in the last year with our international law enforcement partners has been energising – at times even inspiring. Prosecutors all around the world are realising how much we need each other if we are truly to do justice. So we are increasingly linking arms in the march against transnational fraud and corruption.
Is it perfect? No. It is not perfect.
We do not always all fully grasp the differences in each other’s systems. We don’t always foresee how actions taken in one country can profoundly affect an outcome in another. Nor can I report that every aspect of parochialism has vanished from the face of the earth. But we are cooperating in a committed way. And we are reaping the benefits of that close co-operation.”
As to how the private sector can cooperate in preventing crime in the first place, Osofsky stated:
“It is obvious that achieving an ethical marketplace cannot rest solely with prosecutors – nor should it. In the world of integrity and ethics, law enforcement should be one of the last resorts. We often come onto the scene when something has already gone very badly wrong. And at that stage, it is our duty to use the intrusive powers that Parliament has given us to find the evidence, to apply the prosecutor’s full code test, and – if the evidence and the public interest meet the standard – to present it to a jury for determination of guilt or innocence. All of this, each of these steps, is warranted only after we suspect that criminal misconduct has already taken place.
Think, instead, of all of the ethics and integrity successes that do NOT require law enforcement intervention. Think of the private entities that have embraced an ethos of integrity and put in place the procedures — and put in post the people — to back that ethos up. None of the dramatic and forceful intervention of law enforcement is necessary where integrity has already triumphed in private. If bribery is prevented in the first place, then there are no prosecutions, no investigations, no jury trials.
So as we speak of cooperation, let us also discuss how the private sector can cooperate in preventing crime in the first place.
The law, of course, can and should give the private sector a good, strong nudge. One of the laudable goals of our criminal justice system is to create proper incentives, to help give private entities sound commercial reasons to act with integrity, and to create consequences for criminal behaviour.
That is precisely why, for example, Parliament created the adequate-procedures defence to the Bribery Act. It is why the Ministry of Justice promulgated the Six Principles of a sound compliance programme. It is why codes that govern prosecutors’ decisions to bring charges instruct us to take into account the existence of effective compliance programmes and speedy self-reporting. It is about incentivising the private sector to cooperate in preventing crime, to be willing to report it if it occurs nonetheless, and to cooperate when we investigate and prosecute those who have transgressed.”
Regarding how the SFO goes about its work, Osofsky stated:
But we all know, human nature being what it is, that we will never prevent all crime. And then it becomes the job of investigators and prosecutors to pursue and present cases, and for judges to preside, and for juries to deliberate. And so, as prosecutors and investigators we must dedicate ourselves to doing our part with excellence, and diligence, and a commitment to justice. It is an extraordinary and weighty obligation, and one that requires a ceaseless dedication to craft.
It becomes our job to find the truth, and to find it in the form of admissible evidence. And with evidence in hand, it is then our duty to apply the Full Code test – is there a realistic prospect that a jury will convict; is it in the public interest to bring a prosecution?
When a prosecutor applies that test faithfully, there are a few things that are certain.
One, it is not always possible to gather legally sufficient evidence, even against someone whom you reasonably suspect has committed a crime. We have to seek the truth and be just and transparent in so doing. When we cannot get the evidence – maybe because witnesses are dead or unavailable, or documents or monies are hidden on unfriendly shores, or because the evidence trail runs cold for reasons beyond our control – then the law requires us to stand down. It is nothing more or less than the old saying: “No witness, no case.” These are hard and unpleasant choices when your heart tells you one thing but the cold, hard, admissible evidence does not support it. But there is no choice: we must do our duty.
Two, the law requires us not to bring charges against some people against whom we have the requisite evidence, but where it would not be in the public interest to pursue the case. One could think of a suspect who is truly infirm, or who played only a very minor role in a large-scale offence and has other mitigating factors. This is where our law directs prosecutors to temper justice with mercy.
Three, as we are bound to prosecute cases where there is a realistic prospect that a jury will convict, then we can be certain that some juries will acquit some defendants. And God bless our juries. They are an important protection of civil rights. Thank goodness a lay jury must hear evidence of even highly complex, sophisticated corruption and frauds and that they have the power to disagree with the prosecutor. This is right and just.”