/>iThis week we are pleased to have a guest post from Edward Heath and Kevin Daly. Attorneys Heath and Daly are members of Robinson+Cole’s Manufacturing Industry Team and regularly counsel clients on trade compliance, anti-corruption compliance, and other corporate compliance issues.
It would be a mistake to think that the $2.9 billion settlement Goldman Sachs Group Inc. has agreed to pay in order to resolve allegations of widespread bribes to government officials in Malaysia and the United Arab Emirates has no relevance to those in the manufacturing industry. Although the settlement did involve a financial services firm, the underlying facts highlight important considerations for manufacturers with respect to the U.S. Foreign Corrupt Practices Act (FCPA).
The FCPA is the federal law that prohibits U.S. companies from paying, offering, or promising anything of value to a foreign government official in order to obtain or retain business opportunities. The DOJ and SEC share enforcement authority for the FCPA, and it is a major enforcement priority for both agencies. Total FCPA recoveries for the U.S. government total in the hundreds of millions of dollars annually, and in some years exceed $1 billion. The Goldman Sachs settlement is the largest FCPA settlement ever.
Goldman Sachs’ settlement with the United States DOJ and SEC arises from the firm’s relationship with 1MDB, a government-controlled investment company in Malaysia. Goldman Sachs had been retained to advise 1MDB with respect to three bond deals. According to the government, senior Goldman Sachs executives paid or authorized (using a third-party intermediary) over $1 billion in bribes and kickbacks to obtain or retain 1MDB business. The bribes were paid from funds diverted from the bond offerings underwritten by Goldman Sachs. The bribes were paid to Malaysian government officials and officials of a UAE sovereign wealth fund that did business with 1MDB. In addition to the anti-bribery violations, Goldman Sachs’ books and records did not accurately reflect key elements of some of the transactions.
This case underscores the breadth of the FCPA’s concept of a “foreign official”. The entities involved in this case were operating in commercial sectors of the economy (investment and finance), but were owned and controlled by foreign governments. These government affiliations made the personnel working for these entities foreign officials under the FCPA. In many countries, there is government involvement in sectors of the economy that are typically private in the United States. For that reason, manufacturers involved in international commerce should be careful about assuming whether an actor is or is not a government official.
Additionally, the personnel involved used an all-too-common tactic to try to conceal the bribes. Here, they were paid from funds diverted from bond transactions. In the manufacturing sector, bribes are sometimes paid by overpricing or discounting a product and diverting the purported markup or discount to a government official or an intermediary as an inducement. Compliance personnel would be wise to consider scrutinizing unusual markups or discounts.
Moreover, it appears that red flags were missed by Goldman Sachs compliance personnel. The bribery scheme went undetected by those diligencing the transactions despite the presence of some significant red flags, including the involvement of a third party whom Goldman Sachs knew posed an anti-corruption risk. As a result, the U.S. government viewed the internal controls as inadequate, and considered that deficiency to be an aggravating factor which increased the penalty imposed.
Finally, the investigation was pursued by, and the global settlement was reached with, authorities from several jurisdictions. Even though 1MDB was based in Malaysia, the transactions involved companies and personnel from multiple jurisdictions. It is important to remember that transnational cooperation between regulators is now almost inevitable, and it enhances the gathering and sharing of evidence while at the same time imposing the weight of multiple governments to leverage the target of the investigation, driving high dollar value settlements. For Goldman Sachs, the settlement payments arising in connection with 1MDB included more than $2 billion to the United States, well as hundreds of millions of dollars to authorities in the United Kingdom, Hong Kong and Singapore. This is in addition to the more than $2 billion paid to Malaysian authorities under a separate settlement.
