New York Judge’s Opinion Confirms Broad Reach of FCPA

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.