New York Judge’s Opinion Confirms Broad Reach of FCPA

Posted On Thursday, April 14, 2022
By: Lee K. Goldfarb

Takeaway: Judge’s Broad Interpretation of the FCPA’s Internal Controls Provision and jury conviction make this statute ripe for appellate review.

On April 8, 2022 after a two month long trial in federal court before Judge Margo Brodie, a Brooklyn jury convicted Roger Ng, former managing director of Goldman Sachs, for conspiring to commit bribery, to circumvent the internal accounting controls of Goldman Sachs, and to commit money laundering in connection with a multibillion dollar scheme involving Malaysia’s state-owned investment and development fund, 1Malaysia Development Berhad (1MDB). His co-conspirators included his former boss, Tim Leissner and Malaysian financier, Jho Low. According to the evidence at trial, Ng and his co-conspirators laundered billions of dollars of misappropriated and fraudulently diverted funds from 1MDB between 2009 and 2014.  Mr. Leissner plead guilty and was a key witness for the government during the course of this trial. Mr. Low remains a fugitive.

Of particular interest and significance is the conviction on the count of conspiring to circumvent Goldman Sachs’ internal accounting controls as this is the first time this charge has been presented to a jury and thus has been an untested provision of the Foreign Corrupt Practices Act (FCPA). Defense counsel filed a pre-trial motion to dismiss this count. Judge Brodie denied this motion and concluded that the FCPA’s internal controls provision can be implicated in instances when the issuer does not use their own assets to pay an alleged bribe.

Throughout the course of the trial, the government and defense counsel continued to present dueling interpretations of this statute. Prosecutors argued that the statute plainly designates management authorization of transactions and access to assets as part of a system of internal controls.

Defense counsel argued that this interpretation is an attempt to expand the statute to cover any false statement made by an employee working on a transaction. Judge Brodie issued a Memorandum and Order after defense counsel moved for judgment of acquittal on this charge. In her Memorandum and Order, Judge Brodie concluded that:

“The statute requires issuers to “devise and maintain a system of internal accounting controls.” Although the statute does not define “internal accounting controls,” and while the Court could read these words in isolation and interpret the statute to apply only to a limited subset of controls specifically related to accounting, a literal reading of the statute, in its entirety, would be inconsistent with such a narrow reading. The statute defines an adequate system of internal accounting controls by reference to the objectives of such a system, and the plain language of the statute indicates that such systems are intended not only to provide reasonable assurances of accurate internal accounting for purposes of external financial reporting, as addressed by objectives (ii) and (iv), but also to provide reasonable assurances that the company is adequately controlled, as addressed by objectives (i) and (iii), under which the Government is proceeding against Ng. Objectives (i) and (iii) indicate that the system of controls must include controls that will reliably ensure that transactions are executed, and access to assets is permitted, in accordance “with management’s general or specific authorization.” As the facts of this case demonstrate, “circumvention” of such a system does not depend on the falsification of a book or record — which the statute specifically addresses in a separate provision. Rather, subsections (i) and (iii) are aimed at ensuring the effective discharge of managements’ stewardship responsibility, and they explicitly contemplate that an attempt to circumvent management’s informed authorization for transactions and access to assets may violate the statute.

Thus, applying the law as the Court understands it to the evidence presented, and viewing the evidence in the light most favorable to the prosecution, the Court cannot conclude that the evidence is insufficient to sustain a conviction. A rational trier of fact could find the essential elements of the crime beyond a reasonable doubt.”

The dispute about the parameters of this statute coupled with the fact that this was the first time it had been presented to and decided by a jury make this ripe for appellate review.

Former Boeing Pilot Acquitted in 737 MAX Criminal Trial

Posted On Monday, March 28, 2022
By: Chalon C. Young

Takeaway:  Despite this acquittal, the Department of Justice has demonstrated that it can and will prosecute individuals for corporate malfeasance. A settlement by a corporation does not necessarily protect individual employees from liability.

In a 90-minute verdict handed down Wednesday, March 23, 2022, a Texas federal jury acquitted Boeing’s former chief technical pilot Mark Forkner of four counts of wire fraud. This verdict comes as a disappointment to the Department of Justice (DOJ), which sought – and failed – to hold an individual accountable for the wrongdoings of a corporation.

The Case Against Boeing

Forkner was the former Chief Technical Pilot for Boeing, and was instrumental in an alleged conspiracy to hide information from Federal Aviation Administration (FAA) regulators about additional training required for pilots in a new version of flight controls for the Boeing 737 MAX. Boeing installed a software system in its 737 MAX that contained an additional implement of flight controls called the Maneuvering Characteristics Augmentation System (MCAS), which was not included on previous versions of the airplane. The MCAS, based on readings from a single sensor, would push the nose of the airplane downward and not permit manual overrides by pilots. Forkner’s indictment alleged that in order to save the company money, Forkner withheld crucial safety information about the MCAS. Boeing ultimately hid the existence and operation of this system from pilots and even removed information about it from draft operating manuals. As a result, U.S.-based airline customers lacked critical information in deciding whether to purchase Boeing’s 737 MAX airplanes. Tragically, two of these airplanes crashed within the span of five months in 2018 and 2019, killing 346 people.

Boeing was charged with criminal fraud. In January 2021, Boeing struck a deal with the government – the company entered into a deferred prosecution agreement (DPA), which stipulated that if Boeing meets a series of requirements, the criminal charges against the company will be dropped after three years. Under the terms of this DPA, Boeing was assessed a total monetary penalty of over $2.5 billion, which includes a criminal penalty, compensation payments to airline customers, and a fund to compensate the families and representatives of the crash victims. The DPA also requires Boeing to cooperate with the government by reporting any evidence or allegation of fraud by its employees. Boeing also agreed to an enhanced compliance program, which requires it to meet with the Fraud Section of the DOJ at least quarterly and to submit yearly reports on the status of its remediation and compliance efforts. The DPA not only effectively shields the company from further criminal liability, it also explicitly exonerates senior Boeing management. Read the DOJ’s press release of the deferred prosecution agreement at:

The Case Against Forkner

Forkner, indicted in October 2021, was the only individual criminally charged in relation to the Boeing 737 MAX scandal. He was accused of deliberately misleading the FAA and two of Boeing’s U.S. airline customers about the certification of the Boeing 737 MAX, and faced a maximum penalty of 20 years on each charge. Forkner was alleged to have known about the MCAS and deliberately concealed this knowledge in an effort to save the company millions of dollars.

Forkner’s indictment was hailed by the DOJ as a deterrent. Assistant Attorney General Kenneth Polite stated, “Regulators like the FAA serve a vital function to ensure the safety of the flying public. To anyone contemplating criminally impeding a regulator’s function, this indictment makes clear that the Justice Department will pursue the facts and hold you accountable.”  Read the DOJ’s press release of Forkner’s indictment at:

The Fallout

Forkner’s rapid not guilty verdict is a rare defeat for the federal government. Under the onerous deferred prosecution agreement, the government is scrutinizing the company’s compliance for three years. The DOJ has been vocal as of late regarding its desire to hold individuals accountable for corporate malfeasance. Time will tell if additional individuals associated with Boeing will be the subject of criminal charges. 

Pietragallo Gordon Alfano Bosick & Raspanti, LLP assists corporations and their leadership in enhancing compliance and in responding to government enforcement actions. We assist clients in all 50 states, the District of Columbia, and abroad.