The Top Ten Asia-Pacific FCPA Enforcement Actions Of 2022 – White Collar Crime, Anti-Corruption & Fraud

In a surprising break from past trends for US enforcement of the
Foreign Corrupt Practices Act (FCPA), none of the five corporate
enforcement actions resolved by the US Department of Justice (DOJ)
in 2022, and only two of the six cases resolved by the Securities
& Exchange Commission (SEC), involved Asia Pacific countries.
Not so surprising, however, were the number of individuals
arrested, convicted, or sentenced who were connected to DOJ
corporate actions of long ago. And while the DOJ undertook some
corporate enforcement housecleaning (declinations and dismissals),
some new investigations announced this year that involve Asia
Pacific indicate that attention to the region remains. Finally, we
discuss two cases establishing important FCPA precedent arising
from conduct in Asia, just to meet our Top Ten numbers.

Here are 2022’s top ten FCPA enforcement actions in the
Asia-Pacific region.

1. KT Corporation

On February 11, 2022, South Korea-based telecommunications
company KT Corporation agreed to pay USD 6.3 million to settle SEC
civil charges that the company violated FCPA books and records and
internal accounting controls provisions by providing improper
payments to Vietnamese and South Korean government officials.
According to the SEC, the scheme included inflated bonuses and gift
cards which were cashed out for setting up a slush fund for gifts
to government officials and lawmakers overseeing the
telecommunication industry. Besides, KT also made charitable
payments to unregistered organizations established by “close
associates” of high-level South Korean government
officials.

Takeaway: The allegations reflect the power of
the books and records and internal accounting control provisions
applicable to issuers, including non-US issuers, particularly in
countries with higher corruption risks. For a more detailed
analysis, please see Steptoe’s blog on this enforcement
action.

2. Oracle Corporation

On September 27, 2022, American technology giant Oracle
Corporation agreed to settle SEC FCPA violations for more than USD
23 million, 10 years after its first FCPA settlement involving its
India subsidiary in 2012. According to the SEC, between 2016 and
2019, Oracle subsidiaries in India, Turkey, and the UAE, created
and maintained slush funds to bribe foreign officials and their
families in return for business. The bribery included excessive
discounts, marketing reimbursement, as well as travel and
accommodation expenses for attending technology conferences or
taking side trips.

Takeaway: For companies with subsidiaries or
for those that conduct business through third parties, efforts
should be made to enhance training and communications surrounding
company compliance issues, anti-corruption, and internal
controls.

3. Ng Chong Hwa (Roger Ng)

On April 8, 2022, a federal grand jury convicted Ng Chong Hwa
(a.k.a “Roger Ng”), a Malaysian national and former
Goldman Sachs managing director, on three FCPA conspiracy and money
laundering charges. In the long-running 1 Malaysia Development
Berhad (1MDB) case, Ng conspired with others between 2009 and 2014,
to launder billions of dollars, including funds 1MDB raised in 2012
and 2013 through three bond transactions it executed with Goldman
Sachs. Ng coordinated with his conspirators to circumvent Goldman
Sachs’ internal accounting controls for business contracts. For
further background, see our The Top Ten Asia-Pacific FCPA
Enforcement Actions for
2019 and
2020.

Takeaway: Ng’s case, started under the last
administration and woven together by the prosecutors as an
intricate tale of “glory and greed,” is illustrative of
the current trend in FCPA enforcement strategies to target not only
corporate entities but also the individuals responsible for corrupt
payments.

4. Leonard Francis (“Fat Leonard”)

On September 21, 2022, Leonard Francis, a Malaysian defense
contractor nicknamed “Fat Leonard” was arrested in
Venezuela after fleeing before his sentencing in California for an
extensive bribery scheme that lasted more than a decade and
involved dozens of US Navy officers. The bribery scheme was
operated through Francis’ Singapore-based company, Glenn
Defense Marine Asia, which provided port services to the US
Navy’s ships and submarines in the Pacific Ocean. Francis
pleaded guilty in 2015, and as part of his plea deal, he helped
prosecutors secure 33 convictions, including four of five Navy
officers convicted in June 2022 for accepting luxury travel,
elaborate dinners, and prostitutes from Francis in exchange for
classified information about the Navy’s ship schedules.

Takeaway: Francis’ company’s bidding
price and rates were less than one-third of its competitor, but was
secured by lavish gifts with a value of up to USD 100,000 paid to
officers without internal controls.

5. Cary Yan & Gina Zhou

On December 1, 2022, two Marshal Island nationals pleaded guilty
to FCPA conspiracy and now face maximum five year sentences.
Between 2016 and 2020, Cary Yan and Gina Zhou used their New
York-based NGO, which also claimed affiliation with the United
Nations, to pay bribes (interest-free loans, trips to Hong Kong and
New York) to high-level government officials in the Republic of the
Marshall Islands, to pass certain legislation that would carve out
a Hong Kong-like semi-autonomous region in the Marshall Islands – a
largely empty coral atoll almost deserted after nuclear testing.
Yan and Zhou succeeded in getting the legislation sponsored in
2018, but it was rejected by the then-RMI President.

Takeaway: The two were arrested when their
plane landed in New York but they pleaded guilty before trial just
two months later. Conseqently, just who stood to benefit from and
was bankrolling this scheme will remain unknown unless RMI takes
action, as there are still some limits to the FCPA’s
extraterritorial reach.

6. Yanliang (Jerry) Li

On June 27, 2022, in the Herbalife investigation, the SEC obtained a USD 550,092 default judgment against
Yanliang (Jerry) Li, former managing director of the Chinese
subsidiary of
Herbalife Nutrition Ltd. For over a decade, beginning in 2006,
Li falsified company expense reports concealing bribes to Chinese
government officials to obtain direct selling licenses and to
curtail government investigations of the company’s business
practices. Herbalife Nutrition Ltd. resolved related allegations
with the DOJ and SEC in August 2020.

7. New Investigations

Among the record low FCPA investigations disclosed, below are
Asia-based matters:

Ideanomics, Inc., a US-based company that
conducts its operations globally, disclosed an ongoing internal
investigation into its China operations that may involve possible
FCPA-related misconduct, but without any indication of having
reported the investigation to regulators.

Boston Scientific Corporation, a biomedical and
biotechnology engineering firm and multinational manufacturer of
medical devices, disclosed an internal investigation in response to
a whistleblower letter alleging FCPA violations in Vietnam. The
company is currently cooperating with the US government agencies
for an independent investigation of this matter, after receiving a
subpoena from the DOJ.

8. Declination, Closure, and Legacy

Cisco Systems, Inc. (Cisco):
On February 22, 2022,
Cisco announced that the SEC and the DOJ had declined to take
action against the company for potential FCPA violations.
Cisco’s FCPA violations were characterized as a scheme by
former employees in China to make or direct payments to
“various third parties, including employees of state-owned
enterprises.”

Panasonic Avionics Corporation (PAC): On March
11, 2022, the US District Court for the District of Columbia
granted the DOJ motion to dismiss the charges against
PAC, a subsidiary of the Japan-based electronics company
Panasonic Corporation as it had fulfilled its obligations under a
2018 deferred prosecution agreement (DPA). Panasonic paid USD 137.4
million in criminal penalties for a scheme to retain consultants
for improper purposes and conceal payments to third-party sales
agents, in violation of the accounting provisions of the FCPA.

Telefonaktiebolaget LM Ericsson (Ericsson): On
December 14, 2022, Swedish telecommunications giant Ericsson
announced that the DOJ had extended its monitorship until June
2024. The mandatory monitor was imposed as part of a 2019
international bribery settlement for corruption that involving
“at least five countries,” including China, Vietnam, and
Indonesia. Since entering into the DPA, DOJ has claimed that
Ericsson has twice failed to comply with the settlement terms:
first, in October 2021 for allegedly withholding information from
the DOJ, and later in March 2022 for allegedly failing to disclose
subsequent violations.

Safran S.A.: On December 21, 2022, French
aerospace defense company Safran received a declination from the
DOJ, and agreed to disgorge USD 17.9 million in profits for its US
subsidiary’s bribery to a China-based business consultant for
train lavatory contracts with the Chinese government between 1999
and 2015, before Safran acquired the subsidiary. The DOJ declined
prosecution because of Safran’s timely and voluntary
self-disclosure of the misconduct, its “full and
proactive” cooperation and remediation, and its effort to
enhance its anti-corruption training and compliance program.

9. United States v. Coburn

On May 4, 2022, New Jersey federal district judge Kevin McNulty
unsealed a decision ordering Cognizant Technology Solutions Corp.
(Cognizant) to produce unredacted versions of memoranda and notes
from its FCPA internal investigation into two of its former
executives facing trial on 12 counts of bribery in India. Cognizant
had resolved its liability with the SEC and the DOJ in 2019,
following the internal investigation. The court had ruled in early
February 2022 that Cognizant and its outside counsel had waived
privilege and work product protection over the documents by
disclosing details of the investigation to the DOJ.

Takeaway: Part of Cognizant’s cooperation
included its counsel’s providing detailed accounts of 42
privileged witness interviews of 19 company employees, which were
“sweeping in scope” and could constitute a “read
out” to prosecutors of specific portions of its memoranda of
the interviews. The Cognizant decisions highlight the risks in
preserving privileges that companies must consider when cooperating
with government investigations, especially when there could be
potential collateral litigations in relation to the same
matter.

10. Hoskins II

On August 12, 2022, the US Court of Appeals for the Second
Circuit affirmed the district court’s acquittal of defendant
Lawrence Hoskins, a British citizen who was alleged to have
supported Alstom Power Inc. (API), the US subsidiary of French
multinational corporation Alstom S.A. in a bribery scheme in
Indonesia. In
Hoskins I, the Court dismissed Hoskins’ conviction
under the conspiracy and accomplice theories of FCPA liability, as
Hoskins was not employed by API nor had he traveled to the United
States during the relevant period. In Hoskins II, the
prosecution had proceeded with the case under an agency theory of
liability, but the Court, over a dissenting opinion, ruled that the
evidence presented at trial was insufficient for a reasonable jury
to find that Hoskins was an “agent” within the meaning of
the statute.

Takeaway: The implications of Hoskins
I and Hoskins II are significant, as there is real
potential for an entire class of non-US employees of multinational
companies who may be intimately involved in providing support for
US companies’ operations worldwide. Given the divergence in
approaches between courts in different circuits, the extent of the
FCPA’s extraterritorial reach to foreign nationals is far from
settled, and we will be closely following relevant future
developments. For detailed analysis, please see Steptoe’s blog post.

Conclusion

Asia-Pacific FCPA-based internal investigations and enforcement
actions continued to be challenging in 2022, given Covid
constraints and the time and resources required, particularly for
individual liability. Nonetheless, the enforcement actions opened
in 2022 and the on-going efforts to prosecute individuals and
corporations in the region do not signal a pivot away from the
Asia-Pacific. Characterization of bribery as a national security
issue coincides with the national security focus on China and
elsewhere in the region. Accordingly, the volatile regulatory and
geopolitical environment should cause companies in the region
generally to continue to enhance their compliance programs and
foster a culture of compliance, particularly in their Asia Pacific
subsidiaries.

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