Just when you think things cannot get any bigger, any stranger, or any weirder, the FCPA anti-corruption world continues to grow in all three of those manners. In 2012, the New York Times broke the story of alleged bribery by the world’s biggest retailer, Wal-Mart, in Mexico. In 2013, there was the first prosecution by the Chinese government of a western corporation, GlaxoSmithKline, for violation of domestic Chinese anti-bribery laws. In 2014, the Petrobras corruption scandal broke under the rubric of a car wash, which may well bring down President Dilma Rouseff of Brazil. In 2015, the leaders of the world’s largest sporting organization, the Fédération Internationale de Football Association (FIFA), found themselves in the crosshairs of Justice Department criminal prosecutions for systemic corruption. Later in 2015 the Volkswagen emission-testing scandal— which certainly will become the world’s largest, most costly, and all-encompassing environmental corruption scandal—broke.
So forgive me for thinking things could not get any bigger. Yet in the month of February 2016, there were more FCPA prosecutions in that 30-day period than in the entire 2015 calendar year. But it does not stop there. In late March, the Huffington Post broke a story involving Unaoil, which may well be one of the harbinger events in the global fight against corruption and in anti-corruption compliance.
Unaoil, a firm based in Monaco but incorporated in the British Virgin Islands, has done what is essentially facilitation work for a wide variety of construction and extractive mineral projects across the globe, often in countries or regions with a high propensity for bribery and corruption. Companies listed in the Huffington Post article include Halliburton, its former subsidiary KBR, Weatherford, Samsung, and Rolls-Royce. Countries where Unaoil did business include places such as Iraq, Kazakhstan, Libya, Syria, Tunisia, and other countries in Africa, the Middle East, and the former Soviet Union.
Unaoil operated a traditional bribery scheme used by third parties by taking a percentage fee for a transaction. It would use some of its commission to pay bribes to obtain contracts for its clients, while creating paper programs and documents that allowed it to pass anti-corruption background scrutiny. Several reputable due diligence certifiers have been named as being taken in by Unaoil and its deliberate deception around information the company provided. In a written statement Trace founder Alexandra Wrage said, “We can hope the UNAOIL's of the world—cynical, self-congratulatory, and fraudulent—come along only rarely.”
Forgive me for thinking things could not get any bigger. Yet in the month of February 2016, there were more FCPA prosecutions in that 30-day period than in the entire 2015 calendar year.
After news of Unaoil’s bribery scandal broke, a group of international journalists broke the story about the so-called Panama Papers, a stunning treasure trove of documents leaked from the Panamanian law firm Mossack Fonseca, which detailed the shadowy world of shell corporations and money laundering. How big was the story of the Panama Papers? Over the next 24 hours, the story was the basis for the lead op-ed piece in the Wall Street Journal, Financial Times, and the New York Times. It is not often when all three of those media outlets choose to give top placement to the same topic on the same day.
The initial news reports surrounding the released documents focused on the usual suspects when it comes to those trying to hide money: dictators, strongmen, and other assorted kleptocrats plundering their own countries’ natural resources to line their own pockets. But the Panama Papers also involved wealthy individuals trying to avoid taxes in their home jurisdictions, which ultimately included ties to more than a few politicians from Western, popularly elected democracies (and their families). The first publicly elected official identified in the documents, Icelandic Prime Minister Sigmunder David Gunnlaugsson, resigned only days after the Panama Papers connected him to a failed Icelandic bank at the heart of that country’s wrenching financial crisis in 2008-2011.
The scandal even touched U.K. Prime Minister David Cameron, who was found to have personally benefitted from a shell corporation set up by his father. Cameron’s response was a series of political missteps, from his initial ambivalent response in the press to his robust defense before Parliament, where he said he should not be penalized for his father’s making money and hiding it offshore. That last comment may certainly well inform the U.K.’s very public attempts to reign in shell corporations on its own lands and territories. For if the country’s Prime Minister uses such vehicles, why shouldn’t everyone have the right to use them?
As prurient enjoyment it is to see politicians scramble to explain why they needed to hide money from their own national tax authorities, there were some other interesting issues around anti-bribery/anti-corruption. The first is the money-laundering angle. For every bribe paid in violation of the FCPA (or any other anti-corruption regime) there is a corresponding need to launder the proceeds. If the bribe is paid the old fashioned way, through cash; said cash must be placed or invested somewhere. If it is a wire transfer, the same holds true, only more so.
Next was the fact that there was a paucity of U.S. persons and entities identified in the Panama Papers. Unfortunately, this is because several states in the U.S. provide the same type of shell corporate structures where the true or beneficial owners need not be named to form a corporation. While Delaware is the most noteworthy, Nevada and Wyoming come as close cousins for providing the types of corporate anonymity for those seeking to hide ownership information. With the announced U.S. Treasury investigation into the purchase of Manhattan and Miami real estate by shell corporations seeking to hide their true owners and the 60 Minutes exposé about New York City law firms available to help such entities, perhaps the U.S. government can finally begin to do something about such entities here.
The next interesting issue is Mossack Fonseca, the law firm where the Panama Papers document leak originated. The news accounts said the documents were leaked from someone with the firm. The firm has said they were criminally hacked. If it is the former, it should put all law firms across the globe on notice that anything they have in their files will be fair game to be outed going forward. Moreover, if there is anything which could lead to a whistleblower bounty under Dodd-Frank or any other similar law, such conduct could now be incentivized.
One of the FCPA settlements in February involved the Olympus Corp., where the former chief compliance officer (CCO) received a Federal Claims Act whistleblower award for bringing forward information about the companies wide-ranging illegal conduct, more wide-ranging than FCPA alone. The CCO had raised these issues to the company’s board of directors, and he was terminated for his troubles.
The Securities and Exchange Commission has also specifically approved whistleblower awards to CCOs in cases—so how long might it be before disgruntled law firm personnel, or even avenging angels, purloin law firm information such as that spirited out of Mossack Fonseca.
Perhaps we will save the story of the new Justice Department Pilot Program for FCPA enforcement for another time. Next to Unaoil and the Panama Papers, the new enforcement regime seems almost pedestrian.