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We are approaching the 40th anniversary of the enactment of the Federal Corrupt Practices Act (FCPA). The Department of Justice has released new guidance to further encourage companies to voluntarily disclose FCPA violations.

Self-Reporting: A Step Forward

At the 34th International Conference on the Foreign Corrupt Practices Act on November 29, 2017 Deputy Attorney General Rod Rosenstein announced the FCPA’s new Corporate Enforcement Policy (CEP). This new policy will make permanent and expand upon the Obama administration’s FCPA Pilot Program under which the Department of Justice would “consider” declining to prosecute companies that self-report violations and comply with investigations.

A new anti-corruption committee has been established in Saudi Arabia, which has the power to conduct investigations, make arrests, issue travel bans, and freeze assets of individuals and companies. This committee is headed by Crown Prince Mohammed Bin Salman, son of King Salman bin Abdulaziz Al-Saud. However, rather than instilling confidence in foreign investors this anti-corruption committee has led to some uncertainty and confusion in Saudi business circles.

Mohammed Bin Salman is described by his supporters as a reformist with a desire to transform and modernize Saudi Arabia, get rid of extremist ideologies, ease restriction on women, and root out corruption. On the other hand, he is described by more traditional and conservative Saudis who disagree with his views as someone attempting to consolidate his power by purging political leaders and business leaders from the kingdom.

A year and a half after the release of the Panama Papers, another large data leak regarding offshore entities has been published. In November 2017 the International Consortium of Investigative Journalists released the Paradise Papers in cooperation with the German newspaper Süddeutsche Zeitung. The Paradise Papers primarily consist of documents leaked from the prominent offshore law firm Appleby, and contains names of more than 120,000 people and companies with holdings in offshore tax havens.

The leaks include holdings of corporate giants like Apple, Facebook, Disney, and McDonalds; current world leaders including Queen Elizabeth II and Prince Charles; sports team owners like Robert Kraft and Micky Arison; and even celebrities such as U2 singer Bono. Also named are US Secretary of Commerce Wilbur Ross and 12 others connected to the Trump Administration. Ross in particular has been named as a financial stakeholder in a Russian shipping firm with connections to Russian President Vladimir Putin.

Some governments and law enforcement agencies have been quick to respond to the new information. Arrest warrants have been issued in Argentina for four university officials in their connection to a money laundering scheme connected to a Swiss-owned mining company based in Argentina. Investigations and audits are being conducted regarding companies and public figures in Chile, Canada, and the Netherlands, among other countries. Members of the US Congress, including Senators Bernie Sanders (I-VT) and Sheldon Whitehouse (D-RI) and Congressman Lloyd Doggett (D-TX) have called on Congress to hold hearings and to pass legislation against offshore tax dodging.

While many governments and news organizations have openly called for more transparency and punishments for tax evasion, public response to the Paradise Papers is noticeably restrained compared to the massive public protests seen across the world 18 months ago. According to some financial experts, a lot (if not all) of the financial information released in the Paradise Papers appear to be legal and legitimate. Some experts state that there is little evidence of tax evasion or money laundering, though we note that not all of the information gathered has been released, and that it is too soon to definitively state there is no illegal activity uncovered by the Paradise Papers.

At least one expert interviewed says that the legality of these tax loopholes is inevitably going to come up in debates on tax reform, most notably in the United States where a large tax bill is currently working its way through Congress. Regardless of what is contained in these documents, the effects of the Paradise Papers could potentially be as significant as the Panama Papers, and we at Smith Brandon International will be keeping a close watch on what develops, and we will be adding the Paradise Papers to the list of sources we regularly check for all of our investigations.
It's not enough to avoid risky behavior in your own business, it's important to take the time to check on your business partners, vendors, and even clients to be sure they aren't engaging in risky behavior either.  Federal regulators with the Financial Crimes Enforcement Network (FinCEN) recently fined a small Texas bank for violations of the Bank Secrecy Act for a failure to conduct requisite due diligence and a lack of controls on foreign accounts. Essentially they didn't check out their depositors ahead of time and didn't monitor their activities once they had opened accounts.

Lone Star National Bank was fined $2 million dollars, though an earlier $1 million penalty the bank had already paid will credited toward that total. This case is interesting because FinCEN found no indication of actual money laundering; rather they noted suspicious activity involving a Mexican depositor, and found that Lone Star had not put in place adequate controls to serve foreign clients. The FinCEN assessment says "Without sufficient internal controls or experienced BSA staff, the Bank engaged in high-risk foreign correspondent banking services without conducting appropriate due diligence, and without adequately monitoring and reporting suspicious activity." This underscores the need to conduct due diligence on foreign clients. The document goes on to say:
Lone Star consistently failed to collect and analyze information necessary to assess each customer’s risk and to develop and implement specific customer risk profiles. Lone Star failed to identify the intended purpose of the customer’s account, the anticipated activity within the account, the nature of the customer’s business, the types of bank products and services used by the customer, and geographic indicators of risk.
In this case even though there's no specific indication that any funds were actually laundered by the depositor in question, simply not having an adequate program in place was enough to trigger a fine.

While this particular case involves the banking industry, which has it's own specific set of regulations, the lessons here are applicable to any industry. It is essential that businesses conduct due diligence on their potential clients, and be able to show that they have done so. It is all too easy to take on a new client without asking too many questions. But if something goes wrong with that client, you could end up being liable for not looking into their background before starting up a business relationship with them. In some industries, as with banking, simply not having an adequate program in place may itself be a violation, even if no other crime is shown to have taken place.

A good due diligence program can hopefully help you spot potential problems ahead of time so you can avoid dangerous client relationships. But it can also help provide some defense if a client turns out to have committed a crime. You want to be able to show regulators that you did everything you could to avoid problems ahead of time, and not just after problems started. Smith Brandon International can help you set up a comprehensive Due Diligence program and help make sure you have a Foreign Corrupt Practices Act compliance program in place. Make sure you know who your clients and vendors are before you start working with them so you can take adequate precautions for you business.
We were saddened to see that Daphne Caruana Galizia, a journalist who focused on corruption in Malta, was killed in a car bomb attack.

She was extremely well known and popular in Malta. Her blog entries sometimes attracted more readers than the combined circulation of Malta's newspapers. The website Politico has described here as "a one woman wiki leaks."

Her work focused on rooting out corruption and holding politicians accountable. Her work focused not only on politicians, but also on banks that facilitated money laundering, and Malta's online gaming industry and it's links to organized crime. In the past several years she had written extensively about revelations regarding Maltese politicians that came from Panama Papers. Her work on the Panama Papers is credited with causing Malta's Prime Minister, Joseph Muskat, to have to go to the polls a year early.

Last month Brazil's new chief prosecutor, Raquel Dodge, was sworn in, replacing the very high-profile Rodrigo Janot. From Janot she inherits a number of high profile cases, including one filed during his last days in office against Brazil's President, Michel Temer, on charges stemming from the huge "Operation Car Wash" scandal. (We've talked about Operation Car Wash before.) Dodge said in her inaugural address that "no one is above the law and that no one is below the law" and she stressed that Brazilians today “do not tolerate corruption and not only expect, but demand, results.” Still, she also talked about the need for greater "harmony" between branches of government, as aspect of her speech that the President praised. As a result of this and other commetns some are concerned that her tenure in office might lead to a slowdown in investigations connected with Operation Car Wash and other investigations of high ranking politicians. But others think she may simply be more discreet in her investigations, whicl still aggressively persuing anti corruption efforts. While she was nominated for the position by the president, she was chosen from a list of three prosecutors chosen by a vote of the National Association of Prosecutors. Dodge was reportedly the top choice in that selection process. 

Since taking office there have been some moves on Operation Car Wash. She has put together her own team to take over that and other investigations. Since taking office she has asked the Supreme Court for permission to hear testimony from Temer and others connected with the charges filed by her predecessor.

Where her investigations go from here is an open question, but we here at Smith Brandon International have been, and will continue to, keep a close eye on Brazil and anti corruption developments there. We have special expertise in Brazil and it's one of the countries where we pay special attention. In fact our own Gene Smith recently commented on Dodge's appointment in a recent issue of the Latin America Adviser, which is published the the Inter-American Dialogue. If you are working in Brazil, or you are considering business there, give Smith Brandon a call. We can help you understand what to expect and help you navigate the political and legal landscape.
Recently the Swedish Telecom company Telia Company AB has agreed to pay $965 Million in penalties for violating the FCPA. Some of that money will go to Swedish and Dutch prosecutors, with the rest going to the Department of Justice and the SEC. This is, by the reckoning of the authors over at the website FCPA Blog, the largest ever FCPA settlement.

The penalties stem from actions taken by the company after it purchased Coscom LLC, a company providing telecom services in Uzbekistan. After the purchase the company paid numerous bribes to government officials, including Gulnara Karimova, daughter of late Uzbek president Islam Karimova, in order to expand it's share of the Uzbek telecom market. Telia allegedly made payments to Karimova alone of up to $300 Million. A number of companies were also implicated in a bribery scandal involving Gulnara Karimova and dozens of her associates. The Amsterdam based company VimpelCom was also implicated in the bribery scandal in Uzbekistan, and itself paid $795 Million in penalties to US and Dutch authorities last year.

In addition three former Telia executives were charged in Sweden in connection with the bribes.

The importance of an effective compliance program to catch and prevent bribery and other corrupt activities can't be overstated. The penalties, both financial and reputational, for FCPA violations can be huge. Smith Brandon International can help you to set up a compliance program, and help you understand how the FCPA works and what you can do to help head off problems.
Guatemala is currently in political upheaval over a recent events related to anti-corruption efforts in the country. Last month, President Morales tried to expel Ivan Velasquez, the head of a UN commission (The International Commission Against Impunity in Guatemala, or CICIG) set up to expose political corruption in Guatemala. However, the country's top court quickly moved to stop the expulsion. The president has argued that the UN commission violated Guatemala's sovereignty, but protesters and other groups feel that the commission is the country's best hope to curb corruption in the country.

More recently the legislature passed a law to protect President Morales from prosecution, which triggered protests and the constitutional court stepping in and provisionally blocking the law from taking effect. On Thursday the Guatemala's congress announced it would be repealing the laws. What happens next is anyone's guess, but the protests were reported to be quite large, and many say that they are now disappointed in Morales. Morales was elected as an outsider who would clean up corruption, and many say they feel betrayed by the recent actions of Morales and the legislature. If the government pushes things too far it may face huge protests. Two years ago the capitals central plaza was filled with protesters for 20 straight weekends to protest corruption, and led to the resignation of former President Otto Pérez Molina. It's anyone's guess if the same thing will happen to President Morales, but it's clear that many people in the country take anti-corruption efforts seriously.

We'll be keeping a close eye on the situation and we'll keep you up to date on any important developments.
Despite common perceptions, public corruption is a problem which plagues even the most developed countries, including the United States. Elected officials can be bribed, as appears to be the case with New Jersey Senator Robert Menendez (D). Wednesday, September 6, 2017 marked the start of the federal case against Menendez, who is one of the highest-ranking Democrats in the US Senate. Menendez is on trial for bribery, and could face a lengthy prison sentence.

Menendez is accused of accepting lavish trips, jet flights, gifts, and campaign donations from Saloman Melgan, a Florida-based ophthalmologist, in exchange for political favors. These favors include helping Melgen’s girlfriends obtain US visas, attempting to resolve an $8.9 million billing dispute between Melgen and Medicare, and helping Melgen profit off a port security contract in the Dominican Republic. Menendez, who is the first US Senator to stand trial for bribery since 1981, asserts that he has never dishonored the public office and believes that he will be exonerated.

The Financial Crimes Enforecement Network (FinCEN), a division of the Treasury Department, has ordered new reporting and record keeping requirements for some real estate transactions in Honolulu, Hawaii. With this order, Honolulu joins six other areas in what's called a Geographic Targeting Order (GTO). FinCEN also extended the reporting requriments for all areas under GTOs through March of 2018.

GTOs are aimed at curbing the use of real estate transactions to launder money. Title Insurance companies in the effected areas are required to keep more detailed records on, and report to FinCEN, the ultimate beneficial owners involved in real estate transactions made with cash. Some areas of the United States have become notorious as places where individuals and organizations can launder money through cash real estate purchases made via shell companies and other means of obfuscating their identity. This order shines some sunlight on these transactions.

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