Issues To Consider From The Marshall Islands Enforcement Action

This recent post discussed the DOJ’s announcement that two Marshall Island nationals (Cary Yan and Gina Zhou) arrived in the U.S. after being extradited from Thailand based on 2020 criminal charges that the individuals violated the Foreign Corrupt Practices Act (and other laws) in connection with an alleged scheme to bribe elected officials in the Republic of the Marshall Islands (RMI) in exchange for passing certain legislation.

This post continues the analysis by highlighting additional issues to consider.

The Rongelap Atoll

The Marshall Islands are located in the central Pacific Ocean and consists of 29 separate atolls or island chains.

The enforcement action specifically concerned the development of a semi-autonomous region within a region of the RMI known as the Rongelap Atoll (pictured below) which itself is comprised of approximately 60 separate islands.

The Rongelap Atoll has an interesting history. As stated here:

“On On March 1, 1954, the United States conducted a nuclear test on Bikini Atoll in the northern Marshall Islands code named Bravo that led to widespread fallout contamination over inhabited islands of Rongelap, Ailinginae, and Utrōk Atolls. Prior to Bravo, little consideration was given to the potential health and ecological impacts of fallout contamination beyond the immediate vicinity of the test sites. A total of 64 people living on Rongelap Atoll (including people residing on Ailinginae Atoll at the time of the blast) received significant exposure to “fresh” radioactive fallout and had to be evacuated to Kwajalein Atoll for medical treatment. The Rongelap community spent the next 3 years living on Ejit Island (Majuro Atoll) before returning home to Rongelap in June 1957. However, growing concerns about possible long-term health effects associated with exposure to residual fallout contamination on the island prompted residents to relocate again to a new temporary home on Mejatto Island on Kwajalein Atoll in 1985. The people of Rongelap are still resident on Mejatto today although parts of the community have split off to live on Ebeye Island (Kwajalein Atoll) and Majuro Atoll.

The Rongelap community has always expressed a strong desire to return to their ancestral homeland. Through the Rongelap Resettlement Act, the United States Congress approved and continued a 1996 resettlement agreement between the United States and the Rongelap Atoll Local Government, and extended distribution authority for 10 years to advance resettlement. As a part of the 1996 resettlement agreement, a Phase I resettlement program was initiated in 1998. The United States Department of Energy, the Rongelap Atoll Local Government, and the Republic of the Marshall Islands have since signed a Memorandum of Understanding (MOU, 1999) outlining shared provisions in support of resettlement. Under this agreement, scientists from the Lawrence Livermore National Laboratory were tasked with developing individual radiation protection monitoring programs for resettlement workers and to verify the effects of the remedial actions.”

In short, the Rongelap Atoll is a most interesting place for Yan and Zhou “to attract investors to participate in economic and social development” as alleged in the indictment.

United Nations Related Bribery

According to the indictment, Yan and Zhou were associated with an NGO that maintained and held itself out as maintaining “special consultative status” with the United Nations Department of Economic and Social Affairs. Although not mentioned in the indictment, the NGO is World Organization of Governance & Competitiveness (WOGC) – see here.

This is certainly not the first FCPA enforcement action to implicate – in some way – the United Nations.

For instance, in 2018 Chi Ping Patrick Ho was found guilty at trial of FCPA and money laundering violations in connection with alleged bribery schemes in Chad and Uganda on behalf of China Energy Fund Committee, an entity funded by CEFC China Energy Company Ltd. (See here). According to the DOJ, China Energy Fund Committee held “special consultative status” with the United Nations Department of Economic and Social Affairs.

As highlighted here, in 2017 Ng Lap Seng was found guilty at trial of FCPA (and related charges) “for his role in a scheme to bribe United Nations ambassadors to obtain support to build a conference center in Macau that would host, among other events, the annual United Nations Global South-South Development Expo.” Part of the allegations in this enforcement action was that Ng helped to found a non-governmental organization based in New York purportedly as a media platform dedicated to covering stories regarding sustainable development, the UN, and related topics.

Other FCPA enforcement actions involving the United Nations include the following.

Armor Holdings / Bistrong (2009, 2011)

As highlighted in this previous post, in 2011 the DOJ and SEC announced an FCPA enforcement against Armor Holdings. The aggregate settlement amount was approximately $16 million ($10.3 million via a DOJ non-prosecution agreement and $5.7 million via a settled SEC civil complaint). The conduct related to, as stated by the DOJ:

“the making of, and agreement to make, improper payments by Armor employees and agents to a procurement official of the United Nations in connection with efforts to obtain and retain body armor contracts for an Armor subsidiary from the U.N. in 2011 and 2003, and related accounting and record-keeping associated with these improper payments …”.

Likewise, the SEC alleged:

“From 2001 through 2006, certain agents of Armor Holdings participated in a bribery scheme in which corrupt payments were authorized to be made to an official of the United Nations (“U.N.”), for the purpose of obtaining and retaining U.N. business. Armor Holdings generated more than $7.1 million in improper revenues, and realized over $1.5 million in improper profits, through the award of U.N. body armor contracts to its subsidiary during this period.”

In connection with the matter, then SEC Director of Enforcement Robert Khuzami stated: “illicit payments to U.N. officials are no less reprehensible than bribes to foreign government officials.”

In February 2009, Richard Bistrong a former employee of Armor Holdings Inc. (a former publicly-traded company, currently a subsidiary of BAE Systems) pleaded guilty to charges he conspired with others to, among other things, obtain United Nations body armor contracts valued at $6 million by causing his employer to pay $200,000 in commissions to an agent while knowing that the agent would pass along a portion of that money to a United Nations procurement officer to cause the officer to award the contracts. (See here and here for the prior posts).

Various Iraq Oil-For-Food Actions

The Oil-for-Food Program (“OFFP”) was set up in 1995 by the United Nations and provided certain limited exceptions to the Iraq sanctions regime that allowed Iraq to sell its oil on the condition that the proceeds from the oil sales be used by the Iraqi government to purchase various humanitarian supplies for the Iraqi people. Under the OFFP program, a supplier of humanitarian goods contracted with a Iraqi government ministry or other department of the Iraqi government to sell goods to the government.  According to the allegations in the OFFP enforcement actions, beginning in 2000 the “Iraqi government demanded that the suppliers of humanitarian goods pay a kickback, usually valued at 10% of the contract price, to the Iraqi government in order to be awarded a contract by the government.”  The actions further alleged that these kickbacks were often termed “after sales service fees” (“ASSFs”), but did not represent any actual service being performed by the supplier.  According to the allegations, “some suppliers labeled the ASSFs as such, thereby leading the U.N. to believe that actual after-sales services were being provided by the supplier” whereas “other suppliers disguised the ASSFs by inserting fictitious line items into the contracts for goods or services that were not being provided” whereas “other suppliers simply inflated their contract prices by 10% to account for the payments they would make, or cause to be made, to the Iraqi government.”

Numerous companies in various industries that participated in the Iraqi OFF program (such as AkzoNobel, Johnson & Johnson, ABB, Innospec, Textron, El Paso, Weatherford, Flowserve, Ingersoll-Rand, Volvo, Chevron, General Electric, Fiat, and Novo Nordisk) resolved FCPA books and records and internal controls enforcement actions based, in whole or in part, the OFFP.

“Foreign Official or Not?”

According to the indictment, Yan and Zhou were associated with an NGO that maintained and held itself out as maintaining “special consultative status” with the United Nations Department of Economic and Social Affairs. The indictment further alleges that an RMI government official appointed Yan as a “special advisor” to the Rongelap Atoll.

Either of these allegations would seem to fit with prior DOJ allegations that Yan and/or Zhou were perhaps “foreign officials” under the FCPA. If so, based on U.S. v. Castle, neither Yan nor Zhou would be subject to the FCPA.

Nevertheless, both Yan and Zhou were charged with FCPA violations.

To Influence Legislation

As alleged, the purpose of Yan and Zhou’s bribery scheme was to “offer and pay bribes to government officials in the RMI to pass certain legislation that would benefit the business interests of Yan, Zhou, and their associates.”

It is unusual for an FCPA enforcement action to include this type of allegation, but not unprecedented.

For instance, and as highlighted arshall, in 2005 the DOJ and SEC brought a parallel FCPA enforcement action against Monsanto based on conduct in Indonesia. As alleged, in approximately 2001 the Indonesian government “announced a rule requiring an environmental impact study, known as AMDAL, be performed for a variety of activities including the cultivation of genetically-modified crops” and that “after a change of governments and the appointment of new officials, Monsanto and Consultant Company (an Indonesian corporation hired by Monstanto to assist in obtaining various governmental approvals and licenses) sought to have the new government, in which Official A [described as a high-ranking official who was in a position to authorize various decrees and regulations that would have enabled the company to sell certain products in Indonesia] had a post, amend or repeal the requirement for the environmental impact statement.”

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