As was recently reported in the FCPA Blog, the Securities and Exchange
Commission (SEC) is now investigating "whether bank and private equity firms
violated the [FCPA] in their dealings with sovereign wealth funds. A WSJ
article noted that banks, such as Citigroup, and private equity firms, such as
Blackstone Group Ltd., had received letters from the SEC requesting that they
retain documents relating to such activities. At this point, the SEC letters
did not state any specific allegations of bribery but indicated that such investigation
was in "the early stages".
In in the Q4 2010 issue, of Ethisphere Magazine, in an
article entitled, "FCPA
and UK Bribery Act Risks Facing Financial Institutions," authors Alan
Brudner,
Palmina Fava and Mor
Wetzler, [all attorneys at Paul, Hastings]
explored some of the sources of liability for banks under the FCPA and UK
Bribery Act. The authors began by noting that financial institutions face
multiple anti-money laundering regulations in multiple jurisdictions. Under
these various regulations, financial institutions are required to identify
customers and the sources of funds. These requirements, coupled with the FCPA
best practice of heightened scrutiny of transactions involving high risk
countries, led the authors to opine that financial institutions may face
liability under the FCPA and other anti-corruption legislation such as the UK
Bribery Act.
The authors noted that although banks face the same risks
of liability for paying of bribes under the FCPA which other companies are
subject to, there are other avenues of potential liability. They authors
discussed potential liability based upon the conscious indifference standard
used to convict Frederick Bourke. Under this standard, the jury found that
Bourke had been willfully blind, i.e., that "he was aware of circumstances in
which illegal payments were highly probable but consciously avoided looking any
further." The authors also cited to the SEC enforcement action involving
two executives from Nation's Sunshine. In this case, the SEC did not allege
that the executives had actual knowledge of improper payments but "rather that
they were liable as control persons...". This provides another avenue by
which a company or its senior officers "can be held responsible [under the
FCPA] for improper payments without participation or actual knowledge."
This question regarding the source of funds was recently
by the FCPA Blog. In a post entitled, "Tesler's
$148.9 Million Forfeiture Raises Big Questions" the FCPA Blog raised
several questions regarding the source(s) of the money, that defendant Jeffrey
Tesler had in multiple bank accounts around the world. This money was forfeited
to the US government in conjunction with his guilty plea. The FCPA Blog asked
The forfeiture order raises questions that
haven't yet been answered in court. What are all of the sources of Tesler's
cash? Who besides Tesler may have held beneficial interests in the bank
accounts - such as Nigerian or other government officials? And did the banks
holding the accounts do any due diligence to know Tesler and the source of his
funds?
Another source of potential liability for financial
institutions is through transactions involving sovereign wealth funds. Once
again recognizing that financial institutions risk FCPA liability directly for
bribery or other violations of the FCPA in their dealings with sovereign wealth
funds, such as the lack of due diligence in determining a business partner or
improper payments, there are other potential sources of FCPA liability. This
can include an "offset requirements" where "some percentage of contract funds
is invested back into the foreign country, sometimes as a direct investment, or
as a requirement to use a particular foreign component in a deal." The
financial institution may not know who all the parties to such a transaction
are, "thereby creating the potential for anti-corruption liability."
The FCPA journey that these financial institutions have
embarked upon may well be long and costly. We can only conclude by citing back
to the WSJ article, which quoted our colleague Simeon Kriesberg, a FCPA lawyer
in Mayer Brown's Washington DC office, who told the WSJ, "Those [Financial
Institutions] that do not have effective compliance programs in place may get a
rude awakening."
Visit the FCPA Compliance and Ethics Blog,
hosted by Thomas Fox, for more commentary on FCPA compliance, indemnities and
other forms of risk management for a worldwide energy practice, tax issues
faced by multi-national US companies, insurance coverage issues and protection
of trade secrets.
This publication contains general information
only and is based on the experiences and research of the author. The author is
not, by means of this publication, rendering business, legal advice, or other
professional advice or services. This publication is not a substitute for such
legal advice or services, nor should it be used as a basis for any decision or
action that may affect your business. Before making any decision or taking any
action that may affect your business, you should consult a qualified legal
advisor. The author, his affiliates, and related entities shall not be
responsible for any loss sustained by any person or entity that relies on this
publication. The Author gives his permission to link, post, distribute, or
reference this article for any lawful purpose, provided attribution is made to
the author. The author can be reached at tfox@tfoxlaw.com.
© Thomas R. Fox, 2011
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