It is no secret that in the past few years, governmental and regulatory bodies around the globe have intently focused on combating bribery and corruption in international transactions. This heightened scrutiny has resulted in increased enforcement and broadened scope in the application of global anti-bribery laws. The U.S. government, through the Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”), has targeted international corruption and bribery through its aggressive enforcement of the Foreign Corrupt Practices Act (“FCPA”). These enforcement efforts have been successful, generally speaking, as the continued emphasis on FCPA enforcement has led to an increase in the number of prosecutions against individuals and foreign companies, a broad interpretation of the term “foreign official,” and an expansion of the FCPA’s territorial reach.
The DOJ’s and SEC’s success in prosecuting bribery schemes has come in part through new tactics, demonstrated by the DOJ’s and SEC’s recent practice of conducting industry-wide sweeps to identify bribery in the context of international transactions. By focusing on specific conduct occurring in individual industries, such as the energy and pharmaceutical and medical device industries, U.S. enforcement authorities have targeted companies through coordinated investigations and prosecutions, which have resulted in substantial fines and prison sentences. With such results, it is unlikely that U.S. regulators will back away from the move toward coordinated industry prosecutions, but the question remains which industries may serve as the next FCPA enforcement targets.
With the heightened scrutiny that regulators have placed on financial institutions generally since the 2008 collapse of Lehman Brothers, the financial industry may be the next industry to find itself in the FCPA spot light. Traditionally, financial institutions have not made headlines as the subject of FCPA investigations or actions. This is not surprising, as a typical FCPA case involves bribing a foreign government official for a license, construction permit, or government contract, and financial institutions typically stand at least one level removed from any entity that would be involved directly in these types of violative transactions.
Nonetheless, even though financial institutions may not fit the mold for a traditional FCPA defendant, this does not mean that financial institutions will be unaffected by the DOJ’s and SEC’s anti-corruption enforcement efforts. The DOJ and SEC have established that they are willing and able to pursue entities that are not typically thought of as within the purview of the FCPA, either by broadly applying the FCPA’s terms to encompass the acts of the target entity or by bringing charges under other statutes, such as the Travel Act and the federal money laundering laws. It is through these alternative enforcement methods that the DOJ and SEC have successfully expanded the list of entities and individuals that may be held accountable for FCPA violations and brought actions against companies that hold an investment interest in an FCPA violator or bribe recipients, who are exempt under the FCPA and traditionally have not been prosecuted in the U.S. for their role in an international bribery scheme. As the DOJ and SEC continue to conduct industry sweeps, it is conceivable that they might use these alternative enforcement mechanisms to pursue actions against entities that might be unreachable under the FCPA, including members of the financial industry.
Additionally, given that the DOJ and SEC have recently pursued and/or settled a number of money laundering inquiries into financial institutions in non-FCPA cases, it is very plausible that the DOJ and SEC might also bring money laundering cases against financial businesses that get caught up in FCPA controversies. As such, financial institutions, hedge funds and private equity firms should be mindful as they underwrite transactions and/or invest in entities doing business abroad that regulators may be watching, and that the FCPA is not the only weapon in the government’s anti-corruption arsenal.
The FCPA (and its Limits)
On its face, the FCPA prohibits U.S. individuals and entities, issuers and foreign individuals and entities acting in the U.S. from corruptly offering, promising or providing anything of value to a non-U.S. government official for the purpose of obtaining or retaining business. It also requires issuers (U.S. publicly-traded companies and companies required to file with the SEC) to comply with enumerated accounting and record-keeping requirements and to maintain effective internal controls that are aimed at detecting and preventing FCPA violations.
In practice, the DOJ and SEC have broadly interpreted the FCPA’s terms and jurisdictional reach. For example, a “foreign official” has been interpreted to include employees and officers of state-owned companies and sovereign wealth funds. Additionally, the statute has been interpreted as applying to cases of bribery by non-U.S. companies abroad if the scheme’s primary connection to the U.S. is a financial transfer through a bank in the U.S. Moreover, the FCPA has been interpreted as applying to parent companies and entities that were not directly involved in the corrupt conduct but had an ownership interest in or control over the FCPA violator. The FCPA further imposes liability on individuals who may not have had direct knowledge of the bribery scheme, but were “willfully blind” to it or consciously avoided acquiring knowledge of the scheme.
Despite the statute’s broad application in recent years, the FCPA is not without limits, and there are some transaction participants that are beyond the FCPA’s jurisdictional reach. For example, the FCPA applies only to bribes made to foreign government officials; it does not apply to cases of commercial bribery. Additionally, liability under the FCPA extends to the person or entity that made, promised or offered the bribe (and more recently, to the offender’s parent company or control persons). It does not impose liability on the bribe recipient. As discussed below, these limitations have not stopped the DOJ from attempting to pursue these types of cases under alternative theories of liability.
Recent Enforcement Efforts Push the Bounds of the FCPA
One way in which the DOJ and SEC have increased the FCPA’s reach is by bringing actions against entities and individuals that were not necessarily directly involved in the FCPA violation, such as parent companies and control persons of FCPA violators. Just last year, the DOJ and SEC settled with Johnson & Johnson FCPA charges brought in connection with an alleged bribery scheme in Greece. Johnson & Johnson’s subsidiary, which it had acquired several years prior, was alleged to have perpetrated the scheme. Johnson & Johnson was not alleged to have directly participated in or to have had direct knowledge of the bribery scheme, but was nonetheless held responsible for its subsidiary’s actions. Similarly, in a recent enforcement action against Nature’s Sunshine Products, Inc., the SEC brought an action against the company in connection with violations of the FCPA’s anti-bribery and books and records provisions by a Brazilian subsidiary. The SEC also brought an action, however, against two executive officers of the company on the theory that they were in “control” of the primary violator under the Exchange Act.
Another way in which the DOJ has seemingly expanded the scope of FCPA liability is by bringing charges against participants in FCPA schemes under other statutes. The DOJ has pursued FCPA violations through money laundering and Travel Act charges for several years. Initially, the DOJ brought these charges alongside FCPA charges to enhance criminal fines and recover the ill-gotten gains of the conspiracy. But over the last two years, the DOJ has brought charges under the money laundering laws in cases where it did not, or could not, bring FCPA charges.
Earlier this year, Jean Rene Duperval, a Haitian official and director of international relations for Telecommunications D’Haiti S.A.M. was convicted under the money laundering laws for laundering bribes he received from two U.S. based telecommunications companies. Duperval was sentenced to nine years imprisonment for participating in a scheme to conceal bribe payments in which he instructed the bribe payers to forward the payments to shell companies, which dispersed the funds to Duperval or his family members as commissions or payroll payments. In connection with the bribery scheme, the DOJ also brought money laundering charges against Jean Fourcand, a Florida businessman who received the bribe payments and used them to engage in real estate transactions on behalf of one of the Haitian officials at Telecommunications D’Haiti.
The DOJ similarly charged a senior government officer at the Tourism Authority of Thailand and her daughter under the money laundering laws for accepting bribes from an American film producer and his wife to secure contracts in connection with the Bangkok International Film Festival. (The film producer and his wife were convicted of violating the FCPA and the money laundering laws in 2011). The defendants moved to dismiss the money laundering charges and directly challenged the DOJ’s use of the money laundering laws to prosecute them for participating in the alleged bribery scheme, arguing that the government is attempting to circumvent the limits of the FCPA. The motion is still pending before the Court.
Industry Sweeps – A Spotlight on the Financial Sector?
In November 2010, the SEC announced that its FCPA unit would be focused on conducting “industry-wide sweeps,” and stated that “no industry is immune from investigation.” Over the last year, it appears that the financial sector has been included in the sweeps. In the last year, a number of large international banks, including Lloyds Bank, HSBC and ING, have responded to federal money laundering inquiries and investigations. Media outlets reported recently that the U.S. Government is investigating claims that drug traffickers have been using HSBC accounts to launder money. Last month, ING settled a DOJ investigation into whether the bank processed financial transactions on behalf of Cuban and Iranian entities subject to economic sanctions. The Royal Bank of Scotland and Lloyds Bank also settled similar charges with the DOJ in the last few years. Finally, JP Morgan Chase recently closed a Vatican bank’s account in response to concerns that the account was being used to launder money.
Although there have been relatively few public reports tying the financial industry to FCPA investigations, recent FCPA enforcement efforts suggest that the industry may soon be in the FCPA spotlight. Last year, the SEC commenced an investigation into sovereign wealth funds (foreign government funds used for investment purposes) and examined whether financial institutions, private equity firms and other U.S. investors were providing improper gifts and payments to fund employees for the purpose of garnering favor with and obtaining investments from the funds. For example, Goldman Sachs disclosed in SEC filings last summer that the firm was responding to an investigation regarding its compliance with the FCPA. The Wall Street Journal reported that the SEC was investigating Goldman’s relationship with the Libyan Investment Authority (“LIA”), a Libyan sovereign wealth fund. According to the Journal, the SEC was investigating whether the firm violated the FCPA by offering to pay the LIA a $50 million fee that it ultimately did not end up paying. Additionally, in April 2012, the DOJ and SEC settled FCPA charges against former Morgan Stanley Managing Director Garth Peterson, further evidencing that the government remains focused on financial institutions.
The focus on the financial industry, coupled with aggressive FCPA enforcement practices, suggests that it is likely that the U.S. government will, if it has not already, be examining whether financial institutions, hedge funds and private equity firms, their subsidiaries, as well as the firms in which they invest, have committed FCPA violations. One can expect from the recent enforcement actions against parent companies and “control” persons that the DOJ and SEC may also consider whether the financial institution, hedge fund or private equity firm, should similarly be held responsible for a violation under the FCPA or otherwise.
The Application of the Money Laundering Laws to Financial Institutions
It is perhaps unsurprising that the DOJ has been bringing charges under the money laundering laws in FCPA cases, as bribery and money laundering seem to go hand in hand. The very purpose of the money laundering laws is to prevent the concealment of unlawful activity and allow the government to recover money that comes from or is used to fund unlawful activity. A bribery scheme may necessitate the use of a money laundering scheme to conceal a payment’s illegality. It therefore seems plausible that the government may turn to the money laundering laws to impose liability on financial institutions, hedge funds or private equity firms that are used by others, including subsidiaries, investment assets, clients, or joint venture partners, to transport the ill-gotten gains of the bribery conspiracy or conceal the unlawful payments from detection.
What are the Money Laundering Laws?
Generally speaking, the federal money laundering laws criminalize the use of the U.S. financial system to conduct unlawful activity. The statute makes it illegal to engage in financial transactions involving known proceeds of unlawful activity, to transport funds to support unlawful activity, to conceal the nature of the source of funds used for unlawful activity or avoid reporting transactions that must be reported under state or federal law. To prove a violation of the money laundering laws, the government must point to an unlawful act separate from the money laundering that is statutorily defined as a predicate act that may form the basis of a violation. The DOJ has taken the position that an FCPA violation is an “unlawful activity” that may serve as a predicate offense under the money laundering laws. Like the FCPA, the jurisdictional reach of federal money laundering laws has been interpreted broadly. Foreign persons and entities may be subject to the money laundering laws if any part of the illegal transaction takes place in the U.S. or if the funds move through the U.S. Additionally, the statute’s intent requirement, like that of the FCPA, may be satisfied by “willful blindness”.
How Could the Money Laundering Laws be Used to Bring FCPA Related Charges Against the Financial Industry?
As described above, the DOJ has brought money laundering charges against the members of the conspiracy that knowingly helped to facilitate or conceal bribes even where the individual did not violate the FCPA. The money laundering laws can also impose liability, however, where an individual had an unconfirmed suspicion of criminal activity or deliberately failed to learn facts that would have revealed the scheme. Under this theory, a financial institution, hedge fund or private equity firm could be liable under the money laundering laws if an employee had knowledge of “red flags” suggesting money laundering and ignored them, or if the employee failed to conduct adequate due diligence that could have uncovered the scheme. Thus if a U.S. bank’s financing of an international corporate venture was used to pay a bribe to a foreign official, and this fact could have been discovered through reasonable diligence, the DOJ could bring money laundering charges against the financial institution. A bank could similarly face charges under the money laundering laws if a bank’s accounts were used to launder a series of suspicious payments between a bribe payer and a bribe recipient. The risk of money laundering is also present in the private equity fund context, particularly for funds that invest in international ventures in countries where corruption and bribery are prevalent. If a fund is invested in or has accepted investments from shell entities used for funneling bribes to foreign officials, the fund could be subject to money laundering charges on the theory that this information could have been discovered through due diligence.
The financial industry also should be aware that the U.S. government is not the only country that is committed to enforcing anti-corruption laws. Moreover, it is not the only country with a focus on the financial industry. The U.K.’s Financial Services Authority (“FSA”) recently conducted a review of investment banks and their anti-corruption and anti-bribery controls and concluded that the majority of the banks surveyed did not have adequate procedures in place to prevent bribery and violations of the UKBA. In its report, the FSA further concluded that the money laundering policies that many firms had in place may not be adequate to detect and prevent bribery. In light of these findings, it would not be surprising if the DOJ and SEC also examined the internal controls of financial institutions operating in the U.S.
Recent events make clear that U.S. and foreign governments will be holding controlling stakeholders and financial institutions affiliated with FCPA violators to a high standard and will be scrutinizing these entities to ensure that they were not complicit in or a facilitator of an illegal scheme. Financial institutions, hedge funds and private equity firms likely already have internal controls and anti-money laundering policies in place to detect and prevent money laundering activity. But these policies should be reexamined, alongside the company’s FCPA policies, in light of the DOJ’s and SEC’s aggressive anti-corruption agenda, and the U.K.’s focus on the financial industry. Companies should also reexamine their auditing practices and internal processes designed to verify that employees are complying with institutional policies and are following up on red flags. Morgan Stanley recently avoided DOJ and SEC charges altogether because of its detection of Peterson’s FCPA violations and cooperation with the government. If an institution has comprehensive policies in place to detect the violation and discloses it to the authorities, the institution may similarly receive credit for its compliance efforts and avoid money laundering or FCPA charges.
 See, e.g. Press Release, Sec. & Exch. Comm’n, SEC Charges Seven Oil Services and Freight Forwarding Companies for Widespread Bribery of Customs Officials (Nov. 4, 2010), available at http://www.sec.gov/news/press/2010/2010-214.htm; Press Release, Dep’t of Justice, Oil Services Companies and a Freight Forwarding Company Agree to Resolve Foreign Bribery Investigations and to Pay More Than $156 Million in Criminal Penalties (Nov. 4, 2010), available at http://www.justice.gov/opa/pr/2010/November/10-crm-1251.html.
 15 U.S.C. §§ 78dd-1, et seq.
 15 U.S.C. § 78dd-2(a).
 15 U.S.C. § 78dd-1(a).
 See Press Release, Dep’t of Justice, Italian Executive of California Valve Company Pleads Guilty to Foreign Bribery Offenses (Apr. 29, 2011), available at http://www.justice.gov/opa/pr/2011/April/11-crm-545.html.
 See Dionne Searcey & Randall Smith, SEC Probes Banks, Buyout Shops Over Dealings With Sovereign Funds, Wall St. J. (Jan. 14, 2011), available at http://online.wsj.com/article/SB1000142405 2748704307404576080403625366100.html.
 See infra, p. 3.
See United States v. Bourke, et al, 09-cr-4704 (2d Cir. Dec. 14, 2011).
 See Press Release, Sec. & Exch. Comm’n, SEC Charges Johnson & Johnson With Foreign Bribery (Apr. 7, 2011), available at http://www.sec.gov/news/press/2011/2011-87.htm; Press Release, Dep’t of Justice, Johnson & Johnson Agrees to Pay $21.4 Million Criminal Penalty to Resolve Foreign Corrupt Practices Act and Oil for Food Investigations (Apr. 8, 2011), available at http://www.justice.gov/opa/pr/2011/April/11-crm-446.html.
 See id.
 See Press Release, Sec. & Exch. Comm’n, SEC Charges Nature’s Sunshine Products, Inc. with Making Illegal Foreign Payments (Jul. 31, 2009), available at http://www.sec.gov/litigation/litreleases/2009/lr21162.htm.
 See id.
 See, e.g. Press Release, Dep’t of Justice, Two Former Executives of California Valve Company Plead Guilty to Foreign Bribery Offenses (Apr. 12, 2012), available at http://www.justice.gov/opa/pr/2012/April/12-crm-485.html (describing charges brought under the FCPA and Travel Act); Press Release, Dep’t of Justice, Nexus Technologies Inc. and Three Employees Plead Guilty to Paying Bribes to Vietnamese Officials (Mar. 16, 2010), available at http://www.justice.gov/opa/pr/2010/March/10-crm-270.html (describing charges brought under the FCPA, Travel Act and money laundering laws).
 For example, in the Lindsay case, federal prosecutors charged Angela Aguilar, one of five defendants in an FCPA case, with conspiracy for violating the money laundering laws, but did not charge her with any FCPA violations. See Press Release, Dep’t of Justice, “California Company and Two Executives Indicted for Their Alleged Participation in Scheme to Bribe Officials at State-owned Electrical Utility in Mexico.” (Oct. 21, 2010), available at http://www.justice.gov/opa/pr/2010/October/10-crm-1185.html.
 Press Release. Dep’t of Justice, Former Haitian Government Official Sentence to Nine Years in Prison for Role in Scheme to Launder Bribes, (May 21, 2012), available at http://www.justice.gov/opa/pr/2012/May/12-crm-656.html.
 Press Release. Dep’t of Justice, Florida Businessman Pleads Guilty to Money Laundering in Foreign Bribery Scheme (Feb. 19, 2010), available at http://www.justice.gov/opa/pr/2010/February/10-crm-167.html.
 Complaint, U.S. v. Siriwan and Siriwan, No. 09-cr-00081 (filed Jan. 28, 2007) (C.D. Cal.).
 Press Release. Sec. & Exch. Comm’n, SEC Charges Seven Oil Services and Freight Forwarding Companies for Widespread Bribery of Customs Officials (Nov. 4, 2010), available at http://www.sec.gov/news/press/2010/2010-214.htm.
 See Carrick Mollenkamp, Brett Wolf and Brian Grow, Special Report: Documents Allege HSBC Money-Laundering Lapses, Reuters (May 3, 2012), available at http://www.reuters.com/article/2012/05/03/us-hsbcusa-probes-idUSBRE8420FX20120503; Carrick Mollenkamp, Brett Wolf and Brian Grow, Exclusive: Senate Investigating HSBC for Money Laundering, Reuters (Jan. 25, 2012), available at http://www.reuters.com/article/2012/01/25/us-hsbc-probe-idUSTRE80O1FH20120125.
 Annie Lowrey, ING Bank to Pay $619 Million to Settle Inquiry into Sanctions Violations, N.Y. Times (Jun. 12, 2012), available at http://www.nytimes.com/2012/06/13/business/ing-bank-to-pay-619-million-over-sanctions-violations.html.
 See supra n. 20, Carrick Mollenkamp, Brett Wolf and Brian Grow, Exclusive: Senate Investigating HSBC for Money Laundering.
 Phillip Pullella and Lisa Jucca, Vatican Bank Image Hurt as JP Morgan Closes Account, Reuters (Mar. 19, 2012), available at http://uk.reuters.com/article/2012/03/19/uk-vatican-bank-idUKBRE82I0P820120319.
 See supra n. 6.
 See Goldman Sachs Group, Inc. Quarterly Report (Form 10-Q) 99 (Aug. 9, 2011).
 See Samuel Rubenfeld, SEC Looks at Goldman, Others’ Dealing With Libyan Sovereign Fund, Wall St. J., (Jun. 9, 2011), available at http://blogs.wsj.com/corruption-currents/2011/06/09/sec-looks-at-goldman-others-dealing-with-libyan-sovereign-fund/?mod=google_news_blog.
 See id.
 Peterson is alleged to have arranged millions of dollars of real estate investments for a Chinese official and himself in exchange for business the official provided to Morgan Stanley and pled guilty to conspiring to evade Morgan Stanley’s internal controls. See Press Release, Dep’t of Justice, Former Morgan Stanley Managing Director Pleads Guilty for Role in Evading Internal Controls Required by FCPA (Apr. 25, 2012), available at http://www.justice.gov/opa/pr/2012/April/12-crm-534.html. Peterson was also the subject of an SEC action relating to the scheme. See Press Release, Sec. & Exch. Comm’n, SEC Charges Former Stanley Executive with FCPA Violations and Investment Adviser Fraud (Apr. 25, 2012), available at http://www.sec.gov/news/press/2012/2012-78.htm.
 See 18 U.S.C. § 1956(a).
 See 18 U.S.C. §1956(a), (c)-(7).
 See Gov’t Resp. in Opp. to Def. Mot. to Dismiss the Indict., United States v. Siriwan, No. 09-81-GW, Dkt. No. 67 (C.D.Cal. Sept. 9, 2011).
 See Money Laundering Overview, Criminal Resource Manual 2101, Dep’t of Justice, available at http://www.justice.gov/usao/eousa/foia_reading_room/usam/title9/crm02101.htm.
 U.K. Financial Services Authority, Anti-bribery Corruption Systems and Controls in Investment Banks (March 2012), available at http://www.fsa.gov.uk/static/pubs/other/anti-bribery-investment-banks.pdf.
 See id.
 See supra, n.28.