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Episode 234 – A Deep Dive into the Stericycle FCPA Enforcement Action

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The Justice Department ended its FCPA enforcement drought by announcing its first corporate settlement in 2022.  In a parallel action, the SEC announced its settlement with Stericycle for $28 million for FCPA violations.  The SEC’s settlement was its second with a company for 2022 (the first was KT Corp.).

Under the settlement, Stericycle resolved investigations being conducted by the Department of Justice, the Securities and Exchange Commission and Brazil.  Stericycle agreed to enter into a three-year deferred prosecution agreement and pay more than $84 million.  Stericycle will pay $52.5 million in criminal penalties, $28 million to the SEC in civil penalties and disgorgement, and approximately $9.3 million to Brazilian authorities.  DOJ agreed credit up to one-third of the criminal penalty against fines the company pays to Brazil authorities.

Significantly, the DPA requires Stericycle to obtain an independent compliance monitor for a two-year period and then submit a self-report for the rest of the DPA term. 

Stericycle is a global waste management company which is headquartered in Illinois.  In its factual admission, Stericycle admitted a wide ranging scheme involving payment of bribes to foreign officials in Brazil, Mexico and Argentina. In total, Stericycle paid approximately $10.5 million in bribes to foreign officials in Brazil, Mexico and Argentina to secure business contracts from which Stericycle profited by at least $21.5 million.

In this Episode, Michael Volkov reviews the Stericycle FCPA enforcement action.


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DOJ

Sanctions Enforcement: “The New FCPA”

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Hold onto your hats – while we are on the cusp of more FCPA enforcement actions, the Justice Department and OFAC are gearing up for real and significant sanctions enforcement actions.  The dye is cast, so here we go. 

Deputy Attorney General Lisa Monaco was recently quoted stating that sanctions enforcement is the “new FCPA.” This is not so surprising given the global crisis caused by Russia’s unprovoked invasion of Ukraine and the global rally in support of Ukraine.  The U.S. government, along with its Allies and partners, have put into place in unprecedented speed, a comprehensive set of economic sanctions.  It has been remarkable to follow.

Given these actions, it is not surprising that DOJ and OFAC would follow up with an aggressive enforcement program.  Frankly, the foundation for aggressive enforcement has been built over the last few years.  We have highlighted in past blog postings several significant enforcement actions, pre-dating the Russia-Ukraine crisis, which reflected this new approach, especially with respect to the North Korea and Iran Sanctions Programs.

FCPA enforcement developed through the years in a coordinated fashion between criminal and civil enforcement through the joint activities of the Justice Department and the Securities and Exchange Commission.  As a result, joint investigations or resolutions were often achieved that involved resolution of criminal and civil liability.

A similar relationship already exists between the Justice Department and OFAC.  In fact, in several cases, DOJ and OFAC have reached joint resolutions of criminal and civil charges (e.g. BNP Paribas, SAP and several other cases).  DOJ and OFAC have an established working relationship that is capable of conducting joint investigations and resolutions. 

Even prior to Russia’s invasion of Ukraine, DOJ’s National Security Division emphasized its commitment to aggressive enforcement of export and sanctions controls.  In the aftermath of Russia’s invasion, DOJ has ratcheted up its commitment even further in a series of aggressive statements of enforcement of the new Russia Sanctions Program.

In a number of early steps, DOJ scoured its files for cases involving relevant Russian targets and brought criminal cases against various actors for violating the 2014 Ukraine-Russia Sanctions Program which was implemented in 2014 in response to Russia’s annexation of Crimea.  In related cases, DOJ brought several cases against Russians for violations of FARA registration requirements. 

This was just the beginning.  These early cases were developed from existing investigations.  Since then, DOJ and OFAC have launched a number of investigations, targeting Russian Oligarch assets. 

More importantly, however, DOJ’s and OFAC’s future actions will be significant.  It is already likely that DOJ and OFAC have launched major investigations of potential violations by actors circumventing the new Russian sanctions program. Organizations have to redouble their commitment to export control and sanctions compliance.  For weeks, companies have been struggling to keep up with the ever-changing situation – whether it was new and expanded US sanctions or EU sanctions – global companies have been trying to keep up.

While the pace of change has slowed down in this area, organizations need to take a fresh look at their overall export control and sanctions compliance programs to reflect the new enforcement era an urgency. As part of this approach, companies should review some of the prior DOJ-OFAC enforcement actions, such as the SAP and the PT Bukit Muria Jaya (BMJ) cases, for a model for how such joint prosecutions may be structured.

Similarly, it is important to remember that both DOJ and OFAC maintain voluntary self-disclosure programs, as does the Commerce Department’s Bureau of Industry and Security (BIS) for export controls.  DOJ’s voluntary disclosure program tracks for the most part the Criminal Division’s Corporate Enforcement Policy.  The SAP enforcement action, which resulted in DOJ entering a non-prosecution agreement (NPA) with SAP, reflected  SAP’s participation in the voluntary disclosure program.  SAP voluntarily disclosed its violations of the Iran Sanctions Program, cooperated extensively and enhanced its compliance program, DOJ only sought disgorgement of profits and did not impose an independent compliance monitor.

OFAC has a well-established voluntary disclosure program as well.  Companies often participate in the program and earn significant discounts as well as avoidance of any significant enforcement action. 


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Brazil

DOJ Brings First Corporate FCPA Enforcement Action – Settles with Stericycle for $84 Million (Part I of III)

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The Justice Department ended its FCPA enforcement drought by announcing its first corporate settlement in 2022.  In a parallel action, the SEC announced its settlement with Stericycle for $28 million for FCPA violations.  The SEC’s settlement was its second with a company for 2022 (the first was KT Corp.).

Under the settlement, Stericycle resolved investigations being conducted by the Department of Justice, the Securities and Exchange Commission and Brazil.  Stericycle agreed to enter into a three-year deferred prosecution agreement and pay more than $84 million.  Stericycle will pay $52.5 million in criminal penalties, $28 million to the SEC in civil penalties and disgorgement, and approximately $9.3 million to Brazilian authorities.  DOJ agreed credit up to one-third of the criminal penalty against fines the company pays to Brazil authorities.

Significantly, the DPA requires Stericycle to obtain an independent compliance monitor for a two-year period and then submit a self-report for the rest of the DPA term. 

Stericycle is a global waste management company which is headquartered in Illinois.  In its factual admission, Stericycle admitted a wide ranging scheme involving payment of bribes to foreign officials in Brazil, Mexico and Argentina. In total, Stericycle paid approximately $10.5 million in bribes to foreign officials in Brazil, Mexico and Argentina to secure business contracts from which Stericycle profited by at least $21.5 million.

Between 2011 and 2016, Stericycle made hundreds of bribe payments to government officials in Brazil, Mexico and Argentina.  An executive at Stericycle’s Latin American division directed employees in the company’s offices in Brazil, Mexico and Argentina to pay bribes, usually in cash, based on a percentage of the value of an underlying contract.  The co-conspirators tracked the bribe payments through spreadsheets and used code words to discuss the bribes, using such terms as “CP” or “commission payment” in Brazil; “IP” or “incentive payment” in Mexico; and “alfajores” (a popular cookie or “IP” in Argentina.

In resolving this case, the Justice Department applied its Corporate Enforcement Policy factors as follows:

(a) Stericycle did not receive voluntary or timely disclosure credit;

(b) the company earned full cooperation credit by proactively disclosing certain evidence of which the United States was previously unaware; providing information obtained through its internal investigation; making detailed factual presentations to the DOJ; facilitating interviews of foreign-based employees; and collecting and producing relevant information and documents located outside the United States and translating foreign-language documents; and

(c) Stericycle earned remediation credit by: (i) beginning remedial measures in response to its internal investigation prior to the commencement of the investigation; (ii) strengthening its corporate governance by appointing new individuals to senior management and its Board of Directors and establishing a Safety, Operations and Environmental Committee to enhance board oversight; (iii) strengthening its compliance organization by hiring additional compliance personnel, including an experienced chief ethics and compliance officer who reports directly to the CEO and chair of the audit committee; (iv) updating its code of conduct, policies, procedures and controls relating to anti-corruption, including retention and management of commercial agents and third parties, and gifts, travel and entertainment; (v) enhancing its internal reporting, investigations and risk assessment processes; (vi) overhauling its compliance training and communications; (vii) disciplining certain employees including senior managers; and (viii) divesting its subsidiaries in Mexico and Argentina and taking steps to address risks in Brazil.

Despite Stericycle’s extensive remedial efforts, DOJ imposed a two-year independent compliance monitor because the company had not fully implemented or tested its enhanced compliance program. 

DOJ noted that Stericycle had some history of prior civil and regulatory settlements, but no prior criminal history.

Based on all of these factors, including the nature of the misconduct and its pervasive misconduct in Brazil, Mexico and Argentina, DOJ agreed to discount the criminal penalty with a 25 percent reduction off the bottom of the applicable U.S. Sentencing Guideline range.


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AML

Episode 218 – The Biden Administration’s New Strategy on Countering Corruption

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The Biden Administration announced a new, comprehensive anti-corruption initiative, the United States Strategy on Countering Corruption. The new anti-corruption initiative is the follow on to the earlier announcement elevating the global anti-corruption battle to a national security concern. After that announcement, the Biden Administration conducted a 200-day inter-agency examination to develop a comprehensive government-wide anti-corruption initiative.

The 38-page plan released last week outlines steps for cracking down on criminal actors and their networks while improving cooperation among federal agencies and law enforcement. The Biden Administration announced plans to increase financial transparency and new regulations on U.S. real-estate purchases to prevent money laundering.

In this Episode, Michael Volkov reviews the new initiative.


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