FCPA InvestigationsIt has been known for some time that the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have been investigating investment banks over their dealings with the Libyan sovereign wealth fund, known as the Libyan Investment Authority (LIA). In 2014 Wall Street Journal article, entitled “Probe Widens Into Dealings Between Finance Firms, Libya”, it said that US authorities were looking into the activities of Goldman Sachs (Goldman) as well as “examining Credit Suisse Group AG, J.P. Morgan Chase & Co., Société Générale SA, private-equity firm Blackstone Group LP and hedge-fund operator Och-Ziff Capital Management Group LLC”. These investigations were around issues related to possible violations of the Foreign Corrupt Practices Act (FCPA).

There is an interesting civil trial currently in session in London’s High Court, which may well provide insight to potential FCPA issues for Goldman and the other investment banks in their dealings with the LIA. The opening of Libya to western interests in the first decade of this century was hailed as a political as well as commercial opening. US investment banks were encouraged to help the LIA invest their large holdings.

According to Jane Croft, writing in a Financial Times (FT) article entitled “Case shines rare spotlight on one of the world’s most powerful investment banks, the LIA “claims that Goldman exploited its limited experience in 2008, forcing it into nine risky and ultimately lossmaking derivative trades. Goldman denies the claims and that it exerted “undue” influence over the LIA.” The LIA is seeking recompense for losses in the range of $1.2bn, for advice provided by Goldman, where the firm is alleged to have earned $200MM for said advice.

The testimony and evidence presented at trial to-date does not indicate Goldman believed the LIA to be a very sophisticated client. Croft reported that one email from a Goldman “banker described the bank’s presentation to the LIA team as being a pitch “to someone who lives in the middle of the desert with his camels”.” Another email “described officials at Libya’s sovereign wealth fund as being so unsophisticated “anyone could ‘rape’ them”.” In trial testimony, the court heard that “At the same time, Goldman was seeking to get close to the LIA and became so close it was effectively an “in house bank”.”

As salacious as these emails and testimony might be for any seasoned trial watcher, for the FCPA compliance practitioner there was information presented during the testimony that might put Goldman under some amount of DOJ and SEC scrutiny. One LIA official testified that “LIA staff were entertained and provided with chauffeur-driven cars by the investment bank whilst on a Goldman training course in London and the LIA had a “special relationship” with the US bank.” The trial court also heard testimony that “Goldman offered corporate hospitality to the LIA whilst its officials were in London on Goldman training courses.” Croft reported there was also testimony about a very expensive business trip to Dubai, where Goldman paid for a LIA official to fly business class and stay at the five star Ritz-Carlton hotel to attend a Goldman conference, the court heard.

Apparently not understanding (or not caring) about the FCPA implications of its explanation for these expenditures, Robert Miles QC, the barrister representing Goldman, “told the court that there was “nothing unusual” about the corporate hospitality. Moreover, Miles told the court that “other western investment banks had also offered senior LIA officials similar training as well as tickets to the Rugby World Cup final and the Champions League Final.” There was also evidence presented that “LIA staff were also offered corporate hospitality by Lehman Brothers including VIP tickets to Cirque de Soleil and west end musicals as well as tickets to a Euro 2008 football match by Commerzbank and RBS, court documents show.”

Earlier this year the investment firm of Och-Ziff Capital Management Group LLC (Och-Ziff) was reported by the WSJ to be in negotiations with the DOJ over resolution of potential FCPA violations. In an article entitled “Och-Ziff, Authorities Spar Over Bribery Settlement Terms” it was reported that the DOJ is pushing for a guilty plea from the company, while its lawyers are seeking a Deferred Prosecution Agreement (DPA) to resolve the matter. Additionally the article reported that the SEC “also are seeking civil sanctions of as much as $400 million from Och-Ziff, based on what they believe were the company’s profits from alleged bribery overseas”. In response, “Och-Ziff’s lawyers have argued that the company shouldn’t be held criminally liable, and any potentially illegal behavior wasn’t widely known at the firm, with profits from the activities in question totaling less than $100 million”.

Of course there has already been one resolution of a FCPA violation by an investment bank and an un-named sovereign wealth fund from the Middle East as “Bank of New York Mellon Corp. agreed last year to pay $14.8 million to settle an SEC civil investigation into whether it violated bribery laws by giving internships to relatives of government officials connected to a Middle East sovereign-wealth fund.”

The Goldman trial in London has brought to light some practices that might further put US investment banks in more difficult positions with the DOJ and SEC. For instance the testimony presented in London around actions that are FCPA violations, it could also be the basis for a SEC claim of profit disgorgement. In Goldman’s case, the LIA claims that figure is $200MM. Of course this might be overlaid on the recent ruling of the 11th Circuit Court of Appeals that the SEC can only go back five years or the applicable statute of limitations for the penalty of profit disgorgement but it certainly would be quite a sum, whatever that might be. Finally, all of this may portend an interesting issue of the LIA providing evidence to the DOJ and SEC of conduct by investment banks towards LIA associated with the prior regime.


This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016