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Client Alert: DOJ and OFAC Actions Showcase Expansive U.S. Oversight of Foreign Conduct

The U.S. Department of Justice (DOJ) and the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) have recently announced two enforcement actions that demonstrate the U.S. government's aggressive and expansive application of U.S. law to foreign conduct with minimal U.S. nexus. These actions underscore the need for foreign companies and individuals to be aware of and comply with U.S. legal requirements, especially in the areas of anti-corruption and sanctions, and to implement effective compliance programs and controls to mitigate the risk of U.S. enforcement. Our firm has extensive experience and expertise in advising and representing clients on these complex and evolving issues, and we are ready to assist you in navigating the challenges presented by the U.S. regulatory and enforcement landscape.

DOJ Resolves FCPA Investigation with Telefónica Venezolana for $85.2 Million

On November 8, 2024, DOJ announced that Telefónica Venezolana C.A. (Telefónica Venezolana), a Venezuela-based subsidiary of Telefónica S.A. (Telefónica), a publicly traded global telecommunications operator based in Spain, will pay over $85.2 million to resolve a foreign bribery investigation involving bribing Venezuelan officials for preferential access to U.S. dollars in a currency auction, as part of a deferred prosecution agreement (DPA).

According to the DOJ press release, in 2014, Telefónica Venezolana participated in a government-sponsored currency auction in Venezuela that allowed it to exchange its Venezuelan bolivars for U.S. dollars. To ensure its success in the auction, Telefónica Venezolana recruited two suppliers to make approximately $28.9 million in corrupt payments to an intermediary, knowing that some of those funds would be paid as a "commission" to Venezuelan government officials. To conceal the bribe payments, Telefónica Venezolana covered the cost of the bribes by purchasing equipment from the two suppliers at inflated prices. As a result of its corrupt payments, Telefónica Venezolana was permitted to exchange and subsequently received over $110 million through the currency auction, which it used to purchase equipment from the two suppliers it recruited to join the scheme.

DOJ charged Telefónica Venezolana with conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA), which prohibits U.S. issuers and domestic concerns, as those terms are defined in the FCPA[1], from bribing foreign officials to obtain or retain business or secure an improper advantage. DOJ asserted jurisdiction over Telefónica Venezolana based on its status as a subsidiary and agent of a U.S. issuer, Telefónica, which is required to file periodic reports with the U.S. Securities and Exchange Commission (SEC). DOJ also relied on the fact that the bribe payments were funneled through U.S. correspondent bank accounts, which involved the use of U.S. interstate commerce.

The resolution reflects a 20% reduction off the low end of the applicable U.S. Sentencing Guidelines fine range, based on Telefónica Venezolana's cooperation with DOJ's investigation and its remedial measures, including disciplining employees, strengthening its compliance program, and enhancing its internal controls. However, the resolution also takes into account Telefónica Venezolana's failure to timely identify, collect, produce, and disclose certain records and important information, as well as Telefónica's prior history, which includes a resolution involving a subsidiary of Telefónica, Telefónica Brasil S.A., in an action brought by the SEC in 2019 for alleged violations of the accounting provisions of the FCPA.

This case illustrates the DOJ's continued focus on enforcing the FCPA against foreign companies and individuals, especially in high-risk regions, and the potential consequences of engaging in or failing to prevent corrupt conduct involving foreign officials. It also demonstrates the DOJ's broad jurisdictional reach over foreign conduct that has a minimal connection to the U.S., such as the use of U.S. dollars or U.S. financial institutions. In addition to U.S. companies, foreign companies and individuals with even tangential ties to the United States should therefore ensure that they have robust anti-corruption policies and procedures in place, particularly if the company conducts business in U.S. currency and thereby through the U.S. banking system. It also remains critically important to conduct adequate due diligence and oversight of their business partners, intermediaries, and suppliers.

OFAC Settles with Vietnam Beverage Company for $860,000 for Apparent Violations of North Korea Sanctions

On October 17, 2024, OFAC announced that Vietnam Beverage Company Limited (VBCL), a holding company based in Vietnam whose subsidiaries are involved in the production and sale of alcoholic drinks, agreed to pay $860,000 to settle its potential civil liability for apparent violations of OFAC sanctions on North Korea, involving the receipt of payments for alcoholic beverages sold to North Korean entities through U.S. financial institutions between April 2016 and October 2018.

According to OFAC, VBCL's subsidiaries executed 26 contracts for the sale and exportation of beer and spirits to North Korea, which were approved by the subsidiaries' senior managers and signed with two North Korean entities and two third-party companies in the Seychelles. The subsidiaries then issued 47 invoices to the two North Korean entities and the two third-party companies pursuant to the 26 contracts. Nearly all of the associated business documents for these dealings made specific references to North Korea and the receipt of payment in U.S. dollars. Following the issuance of the invoices, the subsidiaries received 43 wire transfers totaling approximately $1,141,547 between April 2016 and October 2018 for these sales from 15 different third-party companies (seven in Hong Kong, four in China, and four in Turkey), as well as the two aforementioned in Singapore and the Seychelles, all of whom were making payment on behalf of either the North Korean entities or unknown entities located in North Korea. All 43 wire transfers were processed by U.S. correspondent banks or, in one case, initiated by a foreign branch of a U.S. financial institution. Neither VBCL nor the subsidiaries had sanctions compliance programs or policies concerned with U.S. sanctions in place at the time the conduct of the issue occurred.

OFAC determined that by issuing invoices in U.S. dollars and subsequently receiving payments that were processed by U.S. financial institutions for the sale of alcoholic beverages to North Korea, the subsidiaries appear to have caused U.S. financial institutions to export financial services to North Korea in apparent violation of the North Korea Sanctions Regulations, 31 C.F.R. part 510 (NKSR). As a result, between April 2016 and October 2018, the subsidiaries appear to have violated § 510.212 of the NKSR on 43 occasions when they caused U.S. financial institutions to export financial services to North Korea (the "Apparent Violations").

The settlement amount reflects OFAC's determination that VBCL's subsidiaries' apparent violations were not voluntarily self-disclosed and non-egregious. It also accounts for VBCL's cooperation with OFAC's investigation, including its proactive notification to OFAC of its internal findings, and VBCL's remedial measures implemented after discovering the apparent violations, such as issuing a compliance directive prohibiting business with comprehensively sanctioned jurisdictions, developing a sanctions compliance program modeled after OFAC's May 2019 Framework for Compliance Commitments, and arranging sanctions compliance training for its subsidiaries.

This case illustrates the OFAC's continued focus on enforcing U.S. sanctions programs against foreign companies and individuals, especially in relation to North Korea, which is subject to comprehensive and strict U.S. sanctions. It also demonstrates the OFAC's broad jurisdictional reach over foreign conduct that involves the use of U.S. dollars or U.S. financial institutions, which may trigger U.S. sanctions prohibitions or reporting obligations. Foreign companies and individuals should therefore ensure that they have robust sanctions compliance policies and procedures in place and that they conduct adequate due diligence and screening of their customers, suppliers, intermediaries, and counterparties.

Key Takeaways and Recommendations

These two enforcement actions illustrate the U.S. government's willingness and ability to pursue foreign companies and individuals for conduct that occurs outside the United States and involves minimal U.S. nexus. The U.S. government has a broad range of legal tools and authorities to assert jurisdiction over foreign conduct, such as the FCPA, the NKSR, and other sanctions programs, as well as the use of U.S. dollars, U.S. financial institutions, U.S. interstate commerce, and U.S. issuers. The U.S. government also has extensive investigative and enforcement resources and capabilities, as well as cooperation and assistance from foreign authorities and regulators.

Foreign companies and individuals should therefore be cognizant of the potential exposure and liability they may face under U.S. law, especially in high-risk areas such as anti-corruption and sanctions. They should also take proactive steps to implement effective compliance programs and controls that are tailored to their specific business operations, risks, and jurisdictions, and that are consistent with the U.S. government's expectations and guidance.

By adopting and maintaining such compliance programs and controls, foreign companies and individuals can not only reduce the likelihood of violating U.S. law and facing U.S. enforcement, but also potentially benefit from more favorable outcomes and resolutions in the event of U.S. enforcement, such as lower penalties, reduced sanctions, or deferred or non-prosecution agreements.

Our firm has extensive experience and expertise in advising and representing clients on these complex and evolving issues, and we are ready to assist you in navigating the challenges and opportunities presented by the U.S. regulatory and enforcement landscape. Please contact us if you have any questions or concerns regarding your compliance obligations, risks, or strategies under U.S. law.