Israeli Ministry of Justice Refrains from Opposing Settlement in Teva Shareholder Proceeding Concerning Foreign Bribery

On October 7, the Israeli business journal Globes reported that the Israeli Ministry of Justice is not opposing a compromise settlement that was reached between Israeli pharma company Teva Pharmaceuticals and a Teva shareholder, who had filed a petition in Tel Aviv District Court stemming from the resolutions that Teva had reached with U.S. and Israeli authorities regarding foreign bribery.

In December 2016, Teva and its Russian subsidiary agreed with U.S. authorities to criminal and civil resolutions requiring them to pay criminal and civil penalties totaling nearly $520 million, in connection with schemes involving the bribery of government officials in Russia, Ukraine, and Mexico in violation of the U.S. Foreign Corrupt Practices Act (FCPA).  Thereafter, in January 2018, Teva agreed to pay the Israeli State Attorney’s Office NIS 75 million ($22.1 million) in fines relating to the same types of foreign-bribery activity, without being required to plead to criminal charges.

The Teva shareholder’s petition sought documents that would allow him to bring a derivative shareholder action.  Teva subsequently set up an independent claims committee and reached a compromise settlement with the shareholder.  Under the terms of the proposed settlement, the insurance companies for the Teva company officers against whom the shareholder sought to file his derivative action would pay $50 million “in exchange for final and absolute removal of all claims by the company against its officers and directors in connection with the bribery affair.”  The settlement also set legal fees for the lawyers representing the shareholder at $1.6 million.

Under Israeli law, Globes reported, the Attorney General’s opinion “is legally required before any compromise in class action and derivative proceedings can be reached.”  In this case, however, the Israeli Ministry of Justice took a highly deferential position with regard to the potential settlement, stating that

[i]t can be argued that the result of the settlement, in which the company will be responsible for defending the officers in the event of a future proceeding against them in the affair for which the derivative lawsuit was filed, involves a difficulty.

The Ministry went on to state that if the Tel Aviv District Court, which has jurisdiction of the shareholder action, “finds that in this case, exceptional and special circumstances existed in this case justifying the indemnification conditions in the settlement, it may not be unreasonable to refrain from intervention in the considerations of the company and the independent committee.”

With regard to the payment of legal fees, the Ministry responded:

It appears that the requested legal fees meet the criteria established in judicial rulings, but on the high side. It should be kept in mind that the sum is fairly high considering the efforts made by the lawyer in the proceeding. For this reason, the Ministry of Justice leaves the judgment on the legal fees to the court.

A number of public shareholders have already stated that they oppose the proposed settlement.  The judge hearing the case reportedly will have to weigh their objections and concerns, and has the authority to require the parties to make further changes to the settlement before he would approve it.

N.B.: This latest action is a reminder that even if public enforcement authorities seek to coordinate their resolutions of foreign-bribery cases, the ripple effects of such resolutions can last for years afterward.  In addition to Teva’s resolution of the U.S. and Israeli law enforcement investigations, earlier this year former Teva management officials and directors agreed to return a sum of $50 million to Teva, as part of a compromise agreement to compensate Teva for fines and damages that it incurred to settle the foreign-bribery charges.  No date has apparently been set for the judge’s decision regarding the settlement.

Australian Securities & Investments Commission Brings Criminal Charges Against Commonwealth Bank of Australia Subsidiary for “Hawking” Violations

On October 4, the Australian Securities & Investments Commission (ASIC) announced that it had brought criminal charges against Colonial Mutual Life Insurance Society Ltd (CommInsure), a subsidiary of leading Australian bank Commonwealth Bank of Australia (CBA), under the “hawking” (cold-calling) provisions in section 992A of the Corporations Act 2001. ASIC alleged that on 87 occasions between October and December 2014, CommInsure, through its agent (telemarketing firm Aegon Insights Australia Pty Ltd (Aegon)), unlawfully sold life insurance policies known as Simple Life over the telephone, and that CommInsure provided customer contact details to Aegon from CBA’s existing customer database.

Subsection 992A(1) of the Corporations Act generally prohibits “offer[ing] financial products for issue or sale in the course of, or because of, an unsolicited meeting with another person.”  Subsection 992A(3) of the Act provides certain exceptions to the general prohibition (e.g., the call recipient must receive a Product Disclosure Statement before becoming obligated to purchase the financial product being offered).  In this case, ASIC alleged “that the calls to CBA customers were unsolicited, and that CommInsure did not comply with all of the hawking exceptions in section 992A(3) of the Corporations Act.”

Each violation of section 992A by a corporate entity is punishable by a fine equating to 125 penalty units (AUD$21,250).  If convicted on all counts, CommInsure would be fined up to AUD $1.785 million.

N.B.:  This prosecutions has attracted attention in the Australian media because criminal charges for hawking violations are reportedly rare.  As Reuters reported, however, during the 2018 Australian Royal Commission inquiry into financial sector misconduct, “other insurers admitted to habitually breaking anti-hawking laws.”  One life insurance company, Clearview Group, admitted to violating the hawking provisions more than 300,000 times, and to “targeting poor and vulnerable individuals.”  In response, ASIC had indicated in July 2109 “that it was planning to have the country’s top lenders prosecuted for overly aggressive sales of insurance products.”

Kansai Electronic Power Acknowledges Two of Its Top Executives Received $929,000 in “Gifts” from Local Official

On October 2, The Mainichi reported that Kansai Electric Power Co.  (KEPCO) disclosed that “two [KEPCO] executives who were responsible for its nuclear business both received more than 100 million yen ($929,000) as gifts from a former official of a town hosting one of its nuclear plants.”  KEPCO stated that 20 KEPCO officials had received ¥318.45 million ($2.98 million) worth of gifts, which “included U.S. dollars, gold coins, and gift coupons for tailored suits.” KEPCO managing executive officer Satoshi Suzuki received the largest amount (¥123.67 million, or $1.16 million) and former deputy president Hideki Toyomatsu the second largest amount (¥110.57 million, or $1.03 million).

According to The Mainichi, KEPCO employees accepted gifts from the late former deputy mayor of the town of Takahama, Eiji Moriyama, from 2006 until Moriyama’s death in 2019.  KEPCO’s nuclear power division – which Toyomatsu headed and Suzuki currently serves as acting chief — is located in Fukui Prefecture, where Takahama is located.

A report that KEPCO released on October 1 stated that Moriyama “had a wide network of connections with Japanese lawmakers and he had threatened to obstruct operation of the company’s nuclear power facilities if it did not comply with his wishes.”  In addition, KEPCO Chairman Makoto Yagi stated that Moriyama’s offering of gifts escalated after “the March 2011 earthquake and tsunami in northeastern Japan, which triggered the Fukushima nuclear crisis.”

An independent panel is to be established to investigate the facts relating to the 20 KEPCO officials and Moriyama.  KEPCO President Shigeki Iwane (who the KEPCO report said had received ¥1.5 million ($14,000) from Moriyama) and Yagi (who received ¥8.59 million ($80,275)) said that “they will decide what to do after looking at a report it compiles by the end of this year.”

KEPCO reportedly imposed a 20 percent reduction in remuneration for two months on Yagi and Toyomatsu, and a 20 percent reduction in remuneration for one month for Iwane.  KEPCO also stated that the officials had returned or repaid most of the gifts, but that ¥34.87 million yen ($325,866) worth of gifts remain unreturned.

N.B.: These revelations relating to the Moriyama “gifts” have attracted substantial attention in Japan — in part because last week KEPCO had held a press conference about the “gifts” but refused to disclose details, “citing the need to protect personal information.”  Even at its October 3 press conference, KEPCO disclosed only 12 of the 20 officials who received “gifts” from Moriyama.

However uncomfortable these revelations are, KEPCO needs to refrain from future piecemeal disclosures, and to expedite the independent panel’s review process.  The day after the October 2 KEPCO press conference, an unnamed former KEPCO senior official in charge of its nuclear business admitted that “he received ‘an outrageous gift’ after meeting Moriyama for the first time in the late 1990s, although he did not divulge what was received.”  That official also said that he returned the gift to Moriyama about six months later, which “enrag[ed]” Moriyama.

That former official’s statements indicate that that the panel needs to expand the scope of its investigation well beyond 2006.  It also needs to report as quickly as possible and comprehensively on the full scope and extent of KEPCO officials’ acceptance of Moriyama’s “gifts.”  The longer that KEPCO officials draw out the process, the more likely that public anger, and calls for top management’s ouster, will intensify.

Brazilian Meatpacking Company BRF Admits to Bribing Food Inspectors

On October 1, Reuters reported that according to the Brazilian Federal Police, Brazilian meatpacking company BRF SA “has admitted to bribing food inspectors with bank deposits and health benefits.”  This admission is related to the Federal Police’s ongoing investigation of BRF as part of “Operation Weak Flesh.”  The Federal Police initiated that operation in March 2017 to probe corruption of Ministry of Agriculture agricultural inspectors by owners of meat processing plants in three Brazilian states.

As part of the fourth phase of Weak Flesh, the Federal Police said that BRF had provided evidence that it had paid approximately R$19 million ($4.56 million) in bribes until 2017, when the company overhauled its management.  Subsequently, certain former BRF executives were taken into custody.

BRF itself is not under investigation, according to the Federal Police, but is cooperating with authorities.  As a result, police did not find it necessary to conduct raids to gather evidence, and BRF stated that none of its offices or production sites were targeted in the latest phase of the investigation.

Reuters also reported that according to a person familiar with the matter who requested anonymity, investigators are negotiating “a formal leniency agreement with BRF in return for its continued cooperation.”

N.B.: The statement that Brazilian Police indicated that BRF is not under investigation is worthy of note, in light of the report that the authorities are seeking a leniency agreement with BRF. Previously, the police had publicly “cited evidence that five laboratories accredited by the Agriculture Ministry colluded with the analysis department of BRF to ‘falsify’ test results related to the safety of its industrial process.”  Another media report indicated that the police are now focusing on farm inspectors who received bribes from BRF, and stated that “there are cases of inspectors who received R$600,000 [$145,871] through fake contracts.”

Auction Bidder Pleads Guilty to Participating in Bid-Rigging of Online GSA Auctions

On September 24, the U.S. Department of Justice announced that Igor Yurkovetsky pleaded guilty in the District of Minnesota to a criminal violation of the Sherman Act.  The information charged Yurkovetsky with participating in a conspiracy, from about July 2012 until as late as May 2018, to rig bids at online public auctions of surplus government equipment that the U.S. General Services Administration (GSA) held.

According to the Department, the GSA operates GSA Auctions, which conducts online auctions allowing the general public “the opportunity to bid electronically on a wide variety of federal assets, including computer equipment that is no longer needed by government agencies.”  Proceeds of GSA auction sales are distributed to the government agencies that made the equipment available for auction, or to the U.S. Treasury general fund.

The Department stated that “the primary purpose of the conspiracy was to suppress and eliminate competition,” and that “the co-conspirators obtained the equipment by agreeing which co-conspirators would submit bids for particular lots offered for sale by GSA Auctions and which co-conspirator would be designated to win a particular lot.”

Yurkovetsky, who reportedly agreed to cooperate in the ongoing investigation of this conspiracy, is the second person charged in that investigation. The Assistant Attorney General for the Justice Department’s Antitrust Division, Makan Delrahim, promised, “This charge will not be the last in this investigation.”

N.B.:  Although more facts about the alleged bid-rigging conspiracy are likely to emerge as the Antitrust Division continues its investigation, antitrust-compliance and legal officers in companies that conduct auctions as part of their operations should bring this plea to the attention of senior executives.  Business executives need to recognize that bid-rigging is a core criminal violation that the Antitrust Division has long made an enforcement priority, and that the Sherman Act’s prohibitions apply whether the auctions in question are brick-and-mortar or virtual and government or private.