International efforts at crimping corruption, snaring actors, assets and crooked corporates

With recent moves by international investigators to more aggressively go after corruption using techniques typically reserved for narcotics stings, banks have to consider the question of if banning bribery is finally on equal footing with countering money laundering and terrorism, say analysts.

In tandem with the corruption crackdown, which has notched some major legal settlements under laws, such as the US Foreign Corrupt Practices Act (FCPA), and historic seizures of graft-gilt assets, the issue at hand is should, or even how, could banks and corporates devote equal compliance resources, time and training to uncovering corruption as they do to complying with anti-money laundering (AML) rules and tracking terrorists and their nebulous financiers.

For some experts, the answer is a clear, yes, even if banks are already at compliance capacity and already devoting some of their sparse resources to anti-corruption efforts. Others, however, disagree, stating that AML clearly commands more regulatory attention and represents more potential penalty exposure and that the hullabaloo and fear mongering about a storm of incoming corruption enforcement actions is really just a tempest in a teacup.

“Certainly, corruption is viewed as one of the top three priorities for the DOJ and FBI and they will continue to focus on that,” said Thomas Fox, founder of the Houston-based boutique law firm tomfoxlaw.com, and contributor to the fcpablog.com.

Apart from straight FCPA cases, the US investigations and indictments against global soccer governing body FIFA, announced in May, were “huge,” he said, noting that it’s not illegal under the FCPA to receive the bribes, but can be a violation of fraud and money laundering provisions.

Last month, the United Kingdom’s National Crime Agency (NCA), stated it had formed a new unit to tackle “serious bribery, corruption and money laundering around the world,” called the International Corruption Unit. The unit will reportedly be going after more than 20 of the world’s most corrupt politicians involved in grand corruption, looting and money laundering.

The new unit will be adopting tactics historically used against drug smuggling gangs – including undercover operations and covert surveillance – to uncover corrupt acts and money laundering, and do so in conjunction with key allies, including the US and Switzerland, unit head Joe Benton told The Independent last month.

The unit is expanding to scrutinize other nations due to fears that illicit funds from Russia, China and Eastern Europe are flooding into the UK’s property market. Benton told the newspaper the unit will “strike fear” into corrupt individuals and their families.

Since 2006, 150 cases of overseas bribery have been investigated and over £180 million has been restrained, recovered or returned through the work of the ICU’s predecessors, along with the government prosecuting nearly 30 individuals and one company successfully.

New teams form as corruption crackdown widens

The FBI, in conjunction with the Department of Justice’s (DOJ) Fraud Section, recently announced the creation of special, focused teams to go after foreign bribery and kleptocracy-related criminal activity: three dedicated international corruption squads, based in New York City, Los Angeles, and Washington, D.C.

Special Agent George McEachern, who heads up the newly minted International Corruption Unit at FBI Headquarters, explained in a statement that the squads were created to address the national and international implications of corruption.

“The FCPA allows us to target the supply side of corruption — the entities giving the bribes,” he said. “Kleptocracy cases allow us to address the demand side — the corrupt officials and their illicit financial assets. By placing both threats under one squad, we anticipate that an investigation into one of these criminal activities could potentially generate an investigation into the other.”

Recent actions by the US government evince seriousness of mission

The latest actions by the US against corruption include some firsts across a variety of at risk sectors, including:

  • August: The Bank of New York Mellon paid nearly $15 million to settle charges by the US Securities Exchange Commission it violated federal bribery laws by selectively awarding internships to the family members of officials with ties to a Middle Eastern sovereign wealth fund with more than $50 billion in assets. The regulator stated the bank didn’t adequately evaluate the family members for its internship program, typically a highly competitive and stringent process. The bank, instead, chose family members to corruptly sway government officials to gain or keep contracts associated with the fund.
  • May: The FBI and IRS indicted more than a dozen individuals tied to the soccer governing body FIFA on wire fraud, racketeering and money laundering charges tied to collusion with sports marketing executives.
  • March: The US Justice Department announced settlement and civil forfeiture cases against $1.2 million in assets tied to corruption proceeds from former Korean president Chun Doo Hwan.
  • 2014: French power and transportation company Alstom plead guilty in US federal court to engaging in a widespread bribery scheme involving tens of millions of dollars and paid a record-setting $772 million for violating the FCPA.
  • 2014: The US Justice Department forfeited more than $480 million in corruption proceeds hidden in bank accounts around the world by former Nigerian dictator Sani Abacha and his associates, the largest forfeiture ever related to a kleptocracy action.

Challenges abound in uncovering corruption large and small

One of the problems for many governments, including the US, though, is that bribery can be so far flung and once investigations cross borders, they can be stymied.

To address that, the US government and Justice Department for at least the past five years have been going to different countries at risk for corruption and training prosecutors and investigators on how to identify and bring successful cases against corrupt actors and companies, Fox said.

In the past few years, “we are seeing the fruits of those labors,” he said, noting that the $500 million penalty against drug-maker GlaxoSmithKline was possibly the first instance of China prosecuting a foreign company with domestic anti-corruption laws.

Belgium also used similar powers to go after a suspect engineering firm, with the Justice Department deferring to them on most of the investigation load.

Corruption cases in general are tough to investigate because much of the actual criminal activity is hidden from view and involving complex and convoluted financial structures and shell companies in foreign secrecy jurisdictions, where the actual ownership of assets is obscured through many layers of straw or false owners.

However, “members of these three squads—agents, analysts, and other professional staff—have a great deal of experience investigating white-collar crimes and, in particular, following the money trail in these crimes,” the FBI said in a statement about the new anti-corruption squads.

“And they’ll have at their disposal a number of investigative tools the bureau uses so successfully in other areas—like financial analysis, court-authorized wiretaps, undercover operations, informants, and sources,” according to the statement.

Brazil has also made headlines choosing to take on state-owned oil giant Petrobras last year after finding out a former executive took payment in the form of a Range Rover from a convicted money changer, according to published reports.

On the financial services side, banks have been warned for more than a decade they should fear a more draconian use of FCPA powers, but have had little to fear in that time and no clear framework for how corruption could infiltrate their institution.

That changed with the nearly $15 million penalty last month against BNY Mellon, which is just the beginning of a much more significant foray into banking and corrupt dealings as other institutions, including JPMorgan, along with a half-dozen other banks, are being investigated for similar actions, Fox said.

The quid pro quo process of an institution doing something for the family members of major account holders was “fairly ubiquitous” in financial services circles, with institutions not hesitating to hire the sons and daughters of prominent customers to keep or expand their business, he said.

Successes against kleptocrats come after embarrassing defeats

The recent successes for the US government against corruption, particularly in FCPA-related cases, though, are tempered with the knowledge of past failures and embarrassing legal setbacks.

In a case dubbed the “Africa Sting,” federal agents posed as corrupt officials from Gabon seeking bribes to close deals tied to military equipment, recording conversations and bringing charges against nearly two dozen defense executives.

But issues tied to the handling of evidence, an informant and agent conduct resulted in acquittals and two mistrials, with the Justice Department dropping any remaining charges in 2012. A federal judge remarked on the dismissals as a particularly dark and sad chapter in the government’s fight against white collar crime, according to published reports and statements.

On the whole, however, while there has been talk about the increasing aggressiveness of the US, UK and many other governments in cracking down harder against corruption – both going after companies taking and giving bribes and arresting those involved in grand corruption and forfeiting the related assets – there have been too few results, said Mike Koehler, a law professor at Southern Illinois University School of Law who blogs about corruption at www.fcpaprofessor.com.

“There are a lot of political actors acting like political actors and declaring new policy objectives,” he said. “They are announcing new government units, but I still don’t see them having much of an impact on corruption. The vast majority of FCPA cases are still based on voluntary disclosures.”

As well, the announcement by certain agencies they are borrowing corruption investigation tactics from other areas, such as using undercover stings, wiretaps and informants, is “not new, they were doing this five years ago. Corruption is a crime, just like running a crack house is a crime. Why would you not expect law enforcement to use all of the tools at their disposal to go after one crime, but not another.”

The action against BNY Mellon is one of the few times the US government showed how and why large, international financial institutions need to worry about corruption tinging their operations and how they can become a concrete target for an FCPA action, Koehler said.

“It’s a new enforcement theory, and probably not the end of this” for banks, he said, adding that the dynamic could still change if a bank decides to fight the charges and federal investigators have to prove allegations before a judge.

Even with the BNY case and other upcoming actions, the US tactics against corruption are “not a thunderstorm, the sky is not falling,” Koehler said. “It’s more like a drizzle and not enough to” prod companies writ large to put corruption compliance on their radar screens to the degree or AML, cybersecurity and other compliance flash-points.