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Recent Forfeiture Action Underscores The Convergence of Anti-Bribery and Anti-Money Laundering Provisions

January 1, 0001

Forfeiture under U.S. money-laundering laws is emerging as a key part of the United States’ anti-bribery enforcement strategy. This month, the Department of Justice followed its record-setting FCPA settlement in the Siemens matter with a forfeiture action, filed on January 8, 2009, that underscores the close relationship between anti-bribery and anti-money laundering laws and regulations. Siemens AG, a German corporation, and three of its subsidiaries pleaded guilty on December 15, 2008, to violations of the Foreign Corrupt Practices Act (FCPA). The company and its subsidiaries agreed to pay a $450 million criminal fine to the Department of Justice and $350 million in disgorgement to the SEC.

The follow-on forfeiture action targets $3 million that represent the proceeds of a wide-ranging conspiracy to bribe Bangladeshi public officials and their family members. The forfeiture complaint relates primarily to bribes allegedly paid to the son of the former prime minister of Bangladesh, in connection with public works projects awarded by the government of Bangladesh to Siemens. Last year, Siemens Bangladesh admitted that from 2001 to 2006, it caused payments of at least $5 million to be made through purported business consultants to various Bangladeshi officials in exchange for favorable treatment during the bidding process on a mobile telephone project.

According to the forfeiture complaint, the bribes were paid in U.S. dollars, with the funds flowing through financial institutions in the United States before being deposited into foreign accounts, thereby subjecting them to U.S. jurisdiction. Money-laundering laws in the United States cover financial transactions that flow through the United States involving proceeds of certain foreign offenses, including extortion, bank fraud, embezzlement of public funds by or for the benefit of a public official, or bribery of a public official. 18 U.S.C. § 1956(c)(7)(B)(ii)-(iv).

This strategy closes a gap in previous anti-bribery enforcement efforts. Business officials who participate in bribery schemes often become the target of government investigations and are subject to criminal, civil, and equitable enforcement measures in the United States. However, foreign officials who receive bribes have often escaped United States jurisdiction. Forfeiture allows federal enforcement efforts to reach those proceeds when they are kept in United States financial institutions or in foreign financial institutions that have an interbank account in the United States with a covered financial institution. See 18 U.S.C. § 981(k).

Acting Assistant Attorney General Matthew Friedrich noted that “this action shows the lengths to which U.S. law-enforcement will go to recover the proceeds of foreign corruption, including acts of bribery and money laundering…Not only will the Department, for example, prosecute companies and executives who violate the Foreign Corrupt Practices Act, we will also use our forfeiture laws to recapture the illicit facilitating payments often used in such schemes.” DOJ Jan. 9, 2009 Press Release No. 09-020.

This is not the first case in which the United States Government has used forfeiture laws in conjunction with other anti-bribery enforcement mechanisms. In July 2007, federal prosecutors in Miami sought forfeiture of 19 separate accounts held in U.S. financial institutions including UBS Paine Webber, Morgan Stanley Dean Witter, Merrill Lynch, Citibank, and Wachovia Securities. United States v. Proceeds of Crime Transferred to Certain Domestic Financial Accounts, No. 07-21 79 1-CIV. The complaint alleged, in part, that the assets held in the accounts were the personal property of persons who had bribed Italian government officials to influence civil trials in Italy, and were consequently subject to forfeiture. As a result of this action, defendants agreed to a $100 million forfeiture settlement.

In addition to these forfeiture actions, recent criminal cases also emphasize the tight connection between foreign bribery and money laundering. Several recent FCPA indictments have included money-laundering charges, including:

  • U.S. v. Green: Gerald Green and Patricia Green, executives of a Los Angeles-based film festival management company, were charged with violating the FCPA and engaging in money laundering for allegedly conspiring to pay $1.7 million in bribes to a Thai government official to obtain film festival contracts in Thailand between 2003 and 2007.
  • U.S. v. Kozeny: Viktor Kozeny, Frederic Bourke, and David Pinkerton were charged in 2005 with violations of the FCPA and anti-money laundering laws, conspiracy to violate the FCPA and anti-money laundering laws, as well as other violations of federal laws. Bourke and Pinkerton, now dismissed from the indictment, allegedly made investments in a consortium led by Kozeny that used funds raised from private parties to bribe four senior Azeri officials between 1997 and 1998 in an effort to secure a controlling interest in the privatization of the State Oil Company of the Azerbaijan Republic (SOCAR).
  • U.S. v. William J. Jefferson: On June 4, 2007, a grand jury indicted U.S. congressman William Jefferson on counts of solicitation of a bribe by a public official, wire fraud, money laundering, and violations of the FCPA’s anti-bribery provisions. The indictment alleged that Jefferson made promises to bribe a high-ranking Nigerian official in order to obtain commitments from NITEL, a Nigerian-owned telecommunications company.
  • U.S. v. Leo Winston Smith: On April 25, 2007, a grand jury indicted Leo Winston Smith, a former executive of Pacific Consolidated Industries LP (PCI) for allegedly violating the FCPA by participating in a conspiracy to bribe a United Kingdom Ministry of Defence official in order to obtain equipment contracts valued at over $11 million for Pacific Consolidated Industries . In addition to the FCPA violations, the indictment also charged Smith with money laundering.

What to know

The U.S. anti-money laundering (“AML”) statutes criminalize financial transactions known to involve the proceeds of a “specified unlawful activity,” or the transportation or transfer of such funds, for the purpose of carrying on such an activity, concealing the nature or source of proceeds, or to avoid a reporting requirement under State or Federal law. 18 U.S.C. § 1956. AML statutes also criminalize monetary transactions involving criminally derived property valued greater than $10,000 when the transaction takes place in the territorial jurisdiction of the United States or involves a United States person. 18 U.S.C. § 1957.

Bribery of foreign government officials is a “specified unlawful activity” under the U.S. money-laundering statutes, 18 U.S.C. § 1956(c)(7)(B)(iv), even where the underlying bribery had no connection to the United States. A felony violation of the FCPA is also a specified unlawful activity. Id. § 1956(c)(7)(D).

As a result of this interplay, any U.S. financial transaction involving the payment of a bribe or the proceeds of a business relationship procured through foreign bribery may constitute a substantive violation of these statutes. Any party that conducts such a transaction with the requisite knowledge faces criminal liability. The funds underlying such transactions are subject to forfeiture under 18 U.S.C. § 981(a)(l)(A)—which provides for the forfeiture of any property involved in, or traceable to, property involved in violations of sections 1956 and 1957—and criminal forfeiture under 18 U.S.C. § 982.

The relationship between the anti-bribery and anti-money laundering laws creates serious consequences for individuals and companies that knowingly transfer bribe payments or proceeds through the U.S. financial system.

The criminal penalties for money laundering are severe, often exceeding the penalties under the FCPA and foreign anti-bribery laws. For example, a violation of the FCPA can carry a five-year prison term and a $100,000 fine per violation. 15 U.S.C. § 78dd-2(g). On the other hand, a violation of U.S. AML laws can carry up to 20 years imprisonment and a fine of up to $500,000, or twice the amount involved, whichever is greater. 18 U.S.C. § 1956(a)(1)(B)(ii). Additionally, the Alternative Fines Act, which allows the DOJ to seize twice the gain from an unlawful activity, can be applied to FCPA offenses.

The scope of forfeiture is broad under the U.S. AML statutes. First, forfeiture effectively “relates back” to the time of the offense that gives rise to the right to forfeiture. See 18 U.S.C. § 981(f). As a result, the U.S. government may take precedence over other third-party claimants to funds subject to forfeiture. Second, relatedly, such third-party claimants face significant disadvantages in proceedings provided to establish their rightful ownership of assets against which the government asserts forfeiture claims. See 18 U.S.C. § 983(a). Third, if funds are deposited into an account at a foreign financial institution, and that foreign financial institution has an interbank account in the United States with a covered financial institution, the funds are deemed deposited into the interbank account in the United States. Although unlikely, any forfeiture order regarding the funds could potentially be served and executed on the covered financial institution. 18 U.S.C. § 981(k).

U.S. companies considering acquisitions of foreign targets should be aware that past acts of foreign bribery, even when lacking a jurisdictional nexus to the U.S., may raise money-laundering risks if the proceeds of those past foreign bribes are later transferred through the U.S. financial system.

The relationship between anti-bribery and anti-money laundering laws and regulations is significant not only because of the consequences, but also because there are preventive actions common to both regimes. For example, U.S. money laundering laws, including the Bank Secrecy Act as amended by the USA PATRIOT Act, require that financial institutions and other regulated companies perform due diligence and implement procedures to identify their clients prior to conducting financial business with them. These “know-your-customer” (KYC) rules are an important component in preventing money laundering and terrorist financing, but similar procedures can help all businesses avoid bribery. By “knowing” their agents, intermediaries, and customers in ways similar to the manner in which financial institutions “know” their clients, businesses can significantly reduce the risk of making improper payments, directly or indirectly.