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FCPA Digest - Trends & Patterns Article (July 2020)

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PRIVATE LITIGATION FCPA DIGEST July 2020 31 The first half of 2020 brought a number of updates to private litigation actions that followed the conclusion, or even commencement, of FCPA investigations. Particularly prevalent were restitution claims under the Mandatory Victim Restitution Act (MVRA), follow-on securities litigation, and civil RICO actions. Significantly, the threat of such civil litigation by private third parties in the aftermath of an FCPA investigation has extended the uncertainty and financial risk related to anti-bribery violations. RESTITUTION CLAIMS 12 State-Owned Oil Companies In April 2020, Juan Guaidó, whose claim to the Venezuelan presidency remains contested at the time of writing, requested a court order for restitution under the MVRA in excess of $560 million against a former employee of the state-owned oil company, PdVSA. 13 The provisions of the MVRA require a court to issue restitution orders to victims who suffered damages at the hands of defendants found guilty by jury or by plea. The former PdVSA employee, Abraham Edgardo Ortego, pleaded guilty in October 2018 to one count of conspiracy to commit money laundering. As Ortego pleaded guilty, the most significant obstacle to recovery is a declaration by the court of PdVSA's "victim" status—which has held up past MVRA claims by similarly situated parties. For example, in March 2020, PetroEcuador lost its bid in the Southern District of Florida to be recognized as a victim under the MVRA. 14 The court found that PetroEcuador's request to receive restitution from Jose Melquiades Cisneros Alarcón, who pleaded guilty in August 2019 to charges related to PetroEcudaor's bribery scheme, lacked merit due in part to pervasive illegal conduct by PetroEcuador's executives and that decision was affirmed by the Court of Appeals for the 11th Circuit in May 2020. A similar claim by PetroEcuador against Andrés Baquerizo Escobar, who was the owner of an Ecuadorian contracting company involved in bribing PetroEcuador officials, and who pleaded guilty to those bribes, was struck down by the same court and is currently under appeal in the 11th Circuit. At the center of these dismissals remain the oil company's own misconduct—which the courts found disqualified it from claiming to be a victim. Similarly, Juan Guaidó's claim for restitution on behalf of PdVSA rests on its ability to receive victim status even as the company faces its own bribery allegations. The U.S. government has 12 See Philip Urofsky, et al., Civil Litigation in the Aftermath of FCPA and U.K. Bribery Act Investigations, ANTI-CORRUPTION REPORT (May 13, 2020). 13 United States v. Abraham Edgardo Ortega, No. 18-cr-20685-KMW (S.D. Fl. 2018). 14 United States v. Jose Melquiades Cisneros Alarcón, No. 19-cr-20284- KMW (S.D. Fl. 2019). urged the district court to deny Guaidó's restitution claim, citing in part the 11th Circuit's PetroEcuador decision and the complicity of PdVSA in the bribery and money laundering schemes that are the subject of Ortego's prosecution. The claim is currently pending. On note, PdVSA has pursued several avenues in its quest for restitution in the past, including claims by the Maduro government. In 2017, a subsidiary of PdVSA, Bariven S.A., unsuccessfully sought to receive victim status, which may offer some guidance as to the potential success of PdVSA's newest claim to victimhood and restitution. Och-Ziff Capital Management Group The Och-Ziff case offers another prominent example of the potential financial risks a restitution claim may bring in the aftermath of an anti-bribery investigation. A subsidiary of Och- Ziff Capital Management Group, Inc. pleaded guilty in 2016 to one FCPA count and now faces a significant restitution claim by shareholders of a Canadian mining company filed in 2019. 15 The shareholders sought more than $1.8 billion in damages for an investment in a mine that they claim would have been properly developed without the corruption—an amount that dwarfs the original combined FCPA settlement of $412 million agreed to in 2016. In August 2019, as we discuss in the previous Trends and Patterns, the district court ruled that the shareholders were, in fact, victims of the Och-Ziff bribery scheme—but requested further briefing regarding the actual damages suffered. In May 2020, in response to objections by Och-Ziff regarding what the company viewed as the exaggerated value of the mine in question, the shareholders decreased the amount of their claim to $421 million. The claim is currently pending. SECURITIES FRAUD CLAIMS Cognizant Technology Solutions Corporation In September 2016, shareholders of Cognizant Technology Solutions Corporation brought a securities fraud class action, alleging the company made false statement that concealed the fact that the company had made illegal payments to Indian officials—and that the company's senior management participated in the scheme. 16 As discussed in our 2019 Trends and Patterns, Cognizant settled charges with the SEC for approximately $25 million in connection with its attempts to obtain permits for a facility in India. It also received a declination from the DOJ for the same conduct. U.S. authorities brought 15 United States. v. OZ Africa Management GP, LLC, No. 1:16-cr-00515 (E.D.N.Y. 2016). 16 Park v. Cognizant Tech. Solutions Corp., et al., No. 2:16-cv-06509 (D.N.J. 2016).

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