There is no private right of action under the Foreign Corrupt Practices Act. However, regulatory enforcement actions under the FCPA by U.S. government authorities can and often does result in massive fines and penalties. When companies subject to FCPA enforcement are compelled to pay these penalties they often then hit with follow-on civil lawsuits arising out of or based on the anti-corruption enforcement action. In the most recent example of this anti-corruption enforcement and follow-on civil litigation sequence, earlier this week a plaintiff shareholder filed a securities class action lawsuit filed against a U.S.-listed Russian telecom company that was the subject of both criminal and civil FCPA enforcement actions that recently resulted in the company’s agreement to pay substantial fines and penalties.
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anti-corruption
Frequently-Filed FCPA Follow-On Securities Suits Face Formidable Obstacles
As I have often noted (for example, here), a company’s announcement that it is the subject of an FCPA-related investigation frequently leads to the filing of a follow-on civil lawsuit in which investor claimants allege either that the company’s senior officials have violated their oversight duties or that the company’s public disclosure statements were insufficient in some way relating to the alleged misconduct. As I have also noted, these kinds of follow-on lawsuits, while frequently filed, often are unsuccessful.
Both of these aspects of the follow-on civil lawsuit track record are relevant in connection with the wave of litigation that has followed in the wake of the massive anti-bribery investigation in Brazil. Many of the companies caught up in the continuing anti-corruption investigation in Brazil have been hit with follow-on securities suits in the U.S. While there have been noteworthy exceptions, many of these cases have been unsuccessful. Most recently, the defendants’ motion to dismiss was granted in the anti-bribery investigation-related securities class action lawsuit that had been filed against the Brazilian airplane manufacturer Embraer. Southern District of New York Richard M. Berman’s March 30, 2018 opinion granting the motion to dismiss can be found here. The decision is interesting and it highlights many of the challenges claimants face in pursuing these kinds of claims.
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Brazilian Energy Company’s Corruption-Related U.S. Securities Suit Survives Dismissal Motion
As I have frequently noted (most recently here), Brazil’s ever-expanding corruption investigation that initially focused on Petrobras, the country’s state-run oil company, has swept up an increasing number of companies across the country’s economy (and elsewhere in Latin America as well). Among the companies caught up in the investigation is the country’s state-run electrical energy company, Eletrobras, which like many of the companies under investigation that have securities trading on U.S. exchanges, was hit with a corruption-related U.S. securities class action lawsuit. The defendants in the Eletrobras securities suit moved to dismiss. In a lengthy and interesting March 25, 2017 opinion (here), Southern District of New York Judge John Koeltl largely denied the dismissal motion. The ruling is interesting not only because it relates to one of the Brazilian companies caught up in the corruption scandal, but also because it addresses a number of interesting legal issues.
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Brazilian Corruption Scandal Leads to Liability Exposures in Other Latin American Countries
The massive Petrobras bribery scandal has long since spread beyond just the Brazilian petroleum company itself to encompass a number of different other companies. As I have previously noted on this blog, many of the Brazilian companies caught up in these investigations have been hit with securities class action lawsuits in the U.S. Among the companies caught up in the growing anti-corruption scandal is the Brazilian-based multinational construction company, Odebrecht. Investigations based on the Odebrecht scandal having now spread to companies in other Latin American countries, including, among others, Peru. As discussed below, plaintiffs’ lawyers have now filed a U.S. securities class action lawsuit against one of the Peruvian companies caught up in the Odebrecht scandal, showing that the potential fallout from the corruption investigation that began in Brazil now represents a significant liability risk exposure for companies and their executives throughout Latin America.
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Guest Post: D&O Insurance Implications as Deferred Prosecution Agreements Take Off in the U.K.
On January 17, 2017, the U.K.’s Serious Fraud Office announced that it had entered into a significant Deferred Prosecution Agreement (DPA) with Rolls-Royce PLC following its approval by Sir Brian Leveson. The agreement followed an extensive investigation of alleged bribery involving the company’s operations in a number of different countries. The full text of the deferred prosecution agreement can be found here. In the following guest post, Mark Sutton and Karen Boto of the Clyde & Co law firm take a look at the agreement and examine the agreement’s D&O insurance implications. I would like to thank Mark and Karen for their willingness to publish their article on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Mark and Karen’s guest post.
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Guest Post: U.S. Parent Company Enters U.K.-Style Deferred Prosecution Agreement for Bribery
Deferred prosecution agreements have long been a part of the U.S. criminal enforcement environment, but they are relatively new in the United Kingdom. In addition, as the U.K. has begun to adopt the use of deferred prosecution agreements, it has adopted the agreements to its own system and legal requirements. In the following guest post, Francis Kean of Willis Towers Watson takes a look at a recent U.K. deferred prosecution agreement, relating to bribery allegations involving a U.K.-based subsidiary of a U.S. company. Francis notes a number of interesting features of the agreement and discusses its implications. Francis’s article previously appeared on the Willis Towers Watson Wire blog (here). I would like to thank Francis for his willingness to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Francis’s article.
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Guest Post: Developments Under Indian Anti-Corruption and Securities Laws
I am always pleased to be able to publish updates on important developments in other jurisdictions. In following guest post, I reproduce two articles about important developments in India. The first article discusses the widening scope of India’s Prevention of Corruption Act. The second article discusses a recent decision of the Supreme Court of India with respect to the imposition of penalties under the Indian securities laws. The two articles were submitted by Rohan Negandhi, who is a Financial Lines Underwriter with Tata AIG General Insurance Company Limited, which is an Indian General insurance Company, and a joint venture between the Tata Group and American International Group (AIG). I would like to thank Rohan for submitting his articles. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here are Rohan’s articles.
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Petrobras Securities Suit: Judge Rakoff Rejects Company’s “Adverse Interest” Argument; Rules Brazilian Investors Must Arbitrate Brazilian Securities Law Claims
In an interesting opinion addressing several of the critical issues in the U.S. securities lawsuit arising out of Petrobras bribery scandal, on July 30, 2015, Southern District of New York Judge Jed Rakoff denied in part and grated in part the defendants’ motions to dismiss. Among other things, Judge Rakoff rejected the company’s “adverse interest” argument, in which the company had tried to argue that the complicit corporate executives’ knowledge of the bribery scheme and consequent awareness of the misrepresentations of the company’s financial condition could not be attributed to the company. However, Judge Rakoff dismissed the claims asserted under Brazilian law on behalf of shareholders who purchased their Petrobras shares on the Bovespa, the São Paulo Stock exchange, ruling that these shareholders’ claims were subject to the mandatory arbitration clause in the company’s bylaws. A copy of Judge Rakoff’s opinion can be found here.
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Another U.S. Securities Suit Arising from Overseas Corruption Investigation
In an earlier post, I noted that a significant factor driving securities litigation filings so far this year has been the rising number of U.S. securities lawsuits involving non-U.S. companies. A number of different factors are contributing to the filing of these suits, but among the factors is the increasing numbers of U.S.-listed non-U.S. companies that have been caught up in corruption investigations in their home countries.
The highest profile company among the firms involved in corruption probes is the Brazilian petroleum company, Petrobras, which has been the target of growing Operação Lava Jato (Operation Car Wash) corruption investigation in Brazil. Petrobras, whose ADSs trade on the NYSE, was hit with a class action securities lawsuit in the U.S. in December 2014 (as discussed here).
The continuing Petrobras investigation has spread to a number of other Brazilian companies. Among other things, the investigation has led to the recent arrests of two high profile executives in the construction industry in Brazil, as discussed here. The leaders of the nation’s two largest engineering and construction companies, Marcelo Odebrecht, head of Odebrecht SA, and Otavio Marques Azevedo, head of Andrade Gutierrez, were taken into custody in raids linked to the Petrobras scandal.
The investigation has now led to yet another U.S. securities class action lawsuit against yet another Brazilian company. On July 1, 2015, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of New York against Braskem, S.A. and certain of its directors and officers. Braskem, which is based in Brazil, is Latin America’s largest petrochemical company.
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The Troublesome Recent FCPA-Related Enforcement Action Involving the 2008 Beijing Olympics and Why It Matters
The dramatic pre-dawn arrest in Zurich of nine FIFA officials on bribery-related charges dominated the headlines last week. The FIFA corruption investigation news last week also overshadowed the resolution of an FCPA enforcement action involving different sports-related events – BHP Billiton’s sponsorship-related activities at the 2008 Summer Olympics in Beijing. Though the SEC’s enforcement action…