FCPA: Circumventing Internal Controls

As issuers increasingly put in place effective internal controls that incorporate an anti-bribery compliance program, the failure of employees and others acting on behalf of the issuer to abide by those internal controls will have greater and greater consequences.  Not only may termination of employment or severance of a relationship be involved, but criminal prosecution may result.  Knowingly circumventing internal controls of an issuer is a crime subject to a 20-year term of imprisonment under the internal controls provisions of the FCPA.1

In a case often referred to as “EMATUM,” as part of the indictment “charging two executives of a shipbuilding company, three former senior Mozambican government officials, and three former London-based investment bankers for their roles in a $2 billion fraud and money laundering scheme that victimized investors from the United States and elsewhere,” violations of the FCPA were alleged.2  Of particular note were the criminal violations of the internal control provisions of the FCPA by three London-based investment bankers.3

The violations related to circumventing the internal controls provisions of the investment bank, which was an issuer.4  The three London-based investment bankers were employed by the investment bank and were acting on behalf of the investment bank.5  Each was regularly trained as to the investment bank’s internal controls, and each was also aware of the internal controls in having been involved in numerous transactions.6

Yet, in multiple ways, one or more of them is alleged to have conspired to circumvent the internal controls of the investment bank in their efforts to conceal their involvement in the fraudulent scheme:

  1. They failed to convey concerns of a regional executive to the investment bank’s compliance department;7
  2. They withheld information from the investment bank’s compliance department about the likelihood of corruption connected to the loan;8
  3. They purposely withheld from the investment bank’s compliance department the commissioning of a due diligence firm to advise on potential corruption and bribery risks associated with the loan;9
  4. They secretly removing conditions from the terms of the loan;10 and
  5. They used  private email accounts in lieu of the email accounts of the investment bank to conspire with Mozambican government officials and others to effectuate the loan.11

The internal control provisions in EMATUM were explicitly used to punish individuals acting on behalf of an issuer who intentionally evaded the issuer’s, that is, the investment bank’s internal controls.  Those acting on behalf of an entity not only put their relationship with that entity at risk by failing to abide by its internal controls, they also expose themselves to criminal liability.  Internal controls mean more than giving passing acceptance by employees or those acting on behalf of an entity.  They mean that compliance is required at serious risk to one’s liberty.

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115 U.S.C. §§ 78m(b)(5); 78ff(a) (2020).

2U.S. Dep’t of Justice, Press Release, “Mozambique’s Former Finance Minister Indicted Alongside Other Former Mozambican Officials, Business Executives, and Investment Bankers in Alleged $2 Billion Fraud and Money Laundering Scheme that Victimized U.S. Investors” (Mar. 7, 2019).

3Indictment, at ¶¶ 99-101, United States v. Boustani, No. 18-cr-00681 (E.D.N.Y., filed Dec. 19, 2018), ECF No. 1.

4Id. at ¶ 14.

5Id. at ¶ 39.

6Id. at ¶ 29.

7Id. at ¶ 42.

8Id. at ¶¶ 41-42.

9Id. at ¶ 101(b).

10Id. at ¶¶ 46-48.

11Id. at ¶ 64.

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