Two important anti-corruption due diligence tools published their 2020 results in November 2020 and January 2021. While the results are largely consistent, there are some important differences and some key improvements and declines in the Transparency International 2020 Corruption Perceptions Index and the TRACE 2020 Bribery Risk Matrix.
To comprehensively understand the risks and take…
In late December, the United States Court of Appeals for the Second Circuit affirmed the conviction of Chi Ping Patrick Ho on seven counts alleging multiple FCPA and money laundering (and related conspiracy) violations.[1] The decision is notable for its construction of various FCPA provisions, and further demonstrates the expansive jurisdictional reach of anti-money laundering laws to dollar-denominated transfers.
Ho, a citizen of Hong Kong, served as an officer and director of the Hong Kong-based non-governmental organization China Energy Fund Committee (CEFC-NGO), which was funded by Shanghai-based energy conglomerate China CEFC Energy Company Limited (CEFC).[2] Ho also served as an officer and director of a CEFC-affiliated US non-profit (US NGO), funded by CEFC NGO.[3]
Ho’s conviction, for which he was sentenced to 36 months imprisonment and a US$400,000 fine,[4] stemmed from two alleged bribery schemes involving (1) an attempted US$2 million cash delivery to the President of Chad (which was purportedly rejected by the President) and (2) a US$500,000 wire transfer to a charity associated with the foreign minister of Uganda.[5] Notably, the US dollar-denominated wire originated from a bank in Hong Kong, which was transmitted through its operating unit in the United States as a correspondent to another bank in New York, which in turn was acting as a correspondent for a beneficiary bank in Uganda for final credit to an ultimate beneficiary NGO. Both acts were allegedly made for the benefit of CEFC’s commercial interests in Africa.[6]
On appeal, Ho challenged his 2018 conviction on a number of grounds.[7]
Skirting over financial crime due diligence when considering a quick transaction in an emerging market can cost you dearly down the line when regulators or shareholders discover issues with regulatory compliance after your transaction. The safer and ultimately more cost-effective course may be an independent assessment of the financial crimes compliance risks before completing cross-border…
On July 3, the US Department of Justice (DOJ) and Securities and Exchange Commission (SEC) issued the second edition of the Resource Guide to the US Foreign Corrupt Practices Act (the 2020 Guide), the first full-scope overhaul of the Resource Guide since its issuance in 2012.
As with the original edition, the 2020 Guide will…
For decades the US Department of Justice (DOJ) has investigated and prosecuted individuals for violations of the Foreign Corrupt Practices Act (FCPA) and other US federal laws with an extraterritorial focus, even if the conduct transpired outside the United States. For experienced people doing business across borders, that is not a new topic. However, what may be unknown to some executives, entrepreneurs, and others is the possibility of also running afoul of the US Internal Revenue Service (IRS) and DOJ Tax Division.
Many corporate executives in China, India, and elsewhere studied at universities in the United States and obtained US citizenship or permanent resident status before returning to their native country to start their own business or to rise up the ranks at an existing company. There are also many native-born Americans working and living overseas. This is notable because US citizens and permanent residents are subject to US federal income tax on their worldwide income no matter where earned. In the author’s experience, having practiced in Hong Kong for several years, this reporting obligation has not historically been widely understood by many expats. IRS enforcement mechanisms, such as the Foreign Account Tax Compliance Act (FATCA) and tax information exchange agreements, are improving but there is still a very large “tax gap” of unreported tax liability. Some expats living abroad gamble that the IRS will not uncover their noncompliance, while others are simply unaware of or confused about their reporting obligations.
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Continue Reading US Tax Compliance Adds to Risks for US Citizens, Permanent Residents Abroad
On 17 June, the European Commission released its White Paper “on levelling the playing field as regards foreign subsidies.” The White Paper is built on the conclusion that foreign subsidies can undermine competition and distort the EU internal market. It aims at introduction of new EU legislation to address the regulatory “gap” between the EU state aid rules applying to subsidies granted by the EU Member States to EU entities and the current lack of rules to redress the behavior of corporate actors in the EU whose market actions are unfairly facilitated by unregulated foreign subsidies. Beyond mergers in the EU involving foreign subsidized companies, the legislation would also address concerns about foreign subsidized actors in the context of EU public procurement and access to EU funding.
At the start of her mandate, Commission President Ursula von der Leyen had announced her wish to develop tools and policies to better tackle the distortive effects of foreign state ownership and subsidies in the internal market. The COVID-19 crisis encouraged a swift move on this initiative, as pointed out by Executive Vice-President Margrethe Vestager and Commissioner Thierry Breton, who are co-responsible for this dossier.
The UK Financial Conduct Authority (FCA) has fined Commerzbank AG’s London branch (Commerzbank London) £37.8 million for failing to institute adequate anti-money laundering (AML) controls from 2012 to 2017 in violation of Principle 3 of the FCA’s Principles for Businesses.
Mark Steward, the FCA’s Executive Director of Enforcement and Market Oversight stated that “Commerzbank London’s failings over several years created a significant risk that financial and other crime might be undetected,” although the FCA did not identify any evidence of financial crime having been caused or facilitated by Commerzbank London’s AML control failings.
Financial institutions operating in the United Kingdom, such as Commerzbank London, are responsible for minimizing their risk of being used for criminal purposes, including the risk of being used to facilitate money laundering or terrorist financing. UK firms are required to mitigate this risk by organizing and controlling their affairs responsibly and effectively, establishing and maintaining an effective, risk-based AML control framework and complying with the applicable Money Laundering Regulations.
On June 1, 2020, the US Department of Justice (DOJ) Criminal Division, with little fanfare, issued updated guidance on the Evaluation of Corporate Compliance Programs (2020 Guidance). The document, which was released without any accompanying public announcement or explanation, updates an April 30, 2019 version of the document (2019 Guidance), as discussed in our May 9, 2019 Advisory. The 2019 Guidance updated original guidance published by the Division’s Fraud Section on February 8, 2017 (2017 Guidance), as discussed in our 2017 FCPA Mid-Year Review.
The DOJ’s evaluation of the effectiveness of a company’s compliance program continues to be a relevant factor to charging decisions under the Principles of Federal Prosecution of Business Organizations in the Justice Manual, as well as to an organization’s eligibility to receive a reduction in criminal fines calculated under the US Sentencing Guidelines (USSG); it is also important to the DOJ’s assessment of whether a monitor is warranted.
On April 29, 2020, the European Commission announced plans to develop a legislative proposal by 2021 that will require EU companies to conduct mandatory human rights and environmental due diligence on their operations and global supply chains. If passed, the new law would also include provisions for corporate liability with possible sanctions imposed for non-compliance.
The announcement follows the publication of a study conducted for the European Commission which focused on the due diligence requirements to identify, prevent, mitigate and account for abuses of human rights, including the rights of the child and fundamental freedoms, serious bodily injury or health risks, and environmental damage including with respect to climate. The announcement comes as part of wider efforts across the European Union to prevent human rights abuses and protect vulnerable workers.
On May 20, 2020, panelists from the DOJ, SEC, and FBI participated in a virtual town hall to discuss the state of play of FCPA and healthcare fraud enforcement as the United States and the rest of the world navigate the wide-ranging challenges wrought by the Covid-19 pandemic.
Government panelists included:
Key takeaways from the town hall discussion include:
