Month in a Minute: December 2024

Hughes Hubbard's anti-corruption "Month in a Minute" offers a quick look-back at the biggest foreign corruption-related developments from the prior month. The Month in a Minute is intended to provide a quick snapshot of the latest news and developments. We hope you find it a useful and perhaps even enjoyable resource.

Highlights from December 2024 include a deferred prosecution agreement (DPA) involving a McKinsey subsidiary and parallel U.S. Department of Justice and U.S. Securities Er Exchange Commission resolutions for AAR for misconduct in Nepal and South Africa.

McKinsey Enters Into DPA For Bribery Scheme in South Africa

On Dec. 5, the DOJ announced that McKinsey 6- Company Africa (Pty) Ltd., a subsidiary of McKinsey 6-Company, entered into a three-year DPA to resolve allegations that it conspired to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) by paying bribes to South African government officials. On the same day the DOJ revealed that Vikas Sagar, a former McKinsey senior partner who worked in its Johannesburg office, had previously pleaded guilty to one count of conspiracy to violate the FCPA for his role in the scheme.

Between 2012 and 2016, Sagar and his co-conspirators paid bribes to officials at Transnet SOC Ltd., a South African state-owned infrastructure company, and Eskom Holdings SOC Ltd., a South African state-owned energy company. Sagar caused McKinsey Africa to retain two South African consulting firms pursuant South Africa's Broad-Based Black Economic Empowerment (B-BBEE) Act of 2003 and its Supplier Development & Localization Plan. McKinsey Africa entered into fee-splitting arrangements with these consulting firms under which a portion of the fees paid was used to bribe public officials at Transnet and Eskom. In exchange for the bribes, McKinsey Africa received confidential, non-public information regarding several consulting contracts for which it ultimately submitted proposals. Sagar and his co¬conspirators hid the scheme by conducting in-person meetings, limiting written communications and using personal email addresses when necessary. McKinsey Africa earned approximately $85 million from the scheme.

Under the DPA, McKinsey Africa agreed to pay a $123 million criminal penalty, which reflects a 35 percent discount off of the fifth percentile of the U.S. Sentencing Guidelines range. The DOJ credited McKinsey Africa for its cooperation and remediation efforts. These included making factual presentations to the DOJ, conducting anti-corruption training for McKinsey employees in South Africa and ceasing work with state-owned entities for the duration of the internal investigation. In addition, the DOJ recognized that McKinsey Africa promptly reported efforts by Sagar to delete documents related to the scheme, placed Sagar on leave and ultimately terminated him.

The DOJ agreed to credit up to half of the criminal penalty — approximately $61.4 million — against amounts McKinsey Africa paid to South African authorities in connection with a resolution between McKinsey Africa and the South African National Prosecuting Authority (N PA) announced on the same day. This resolution marks the DOJ's third coordinated resolution with South Africa in two years.

AAR Enters Into Parallel Resolutions For Bribes Paid in Nepal and South Africa

On Dec. 19, the DOJ and SEC announced that U.S. air services provider AAR agreed to pay more than $55 million as part of parallel resolutions to resolve charges that it violated the anti-bribery, recordkeeping and internal accounting controls provisions of the FCPA. AAR entered into an 18-month non-prosecution agreement with the DOJ and a cease-and-desist order with the SEC for bribes it paid to government officials in Nepal and South Africa.

According to the resolutions, between 2015 and 2020, AAR bribed government officials in Nepal and South Arica. In Nepal, AAR's former executive, Deepak Sharma, conspired to bribe Nepalese officials to win a bid to sell two Airbus A330 aircraft valued at approximately $210 million to Nepal Airlines Corporation, the state-owned airlines of Nepal. Sharma facilitated this scheme by paying intermediaries high commission rates, a portion of which were used to bribe the foreign officials. In South Africa, AAR conspired with Julian Aires, president of U.S.-based aircraft component services company JM International and others to pay bribes to officials at South African Airways Technical (SAAT), a wholly owned subsidiary of state-owned South African Airways, to obtain a lucrative aircraft services contract with SAAT. AAR used intermediaries, including joint venture partners ostensibly retained to meet South Africa's B-BBEE requirements, to execute the bribe payments which were disguised as "success fee payments" and "commissions." It is estimated that AAR earned roughly $24 million from the two schemes.

Under the non-prosecution agreement, AAR agreed to pay a criminal penalty of $26.4 million and $18.5 million in forfeiture. The criminal penalty marks a 45 percent reduction off of the applicable U.S.

Sentencing Guidelines range. The DOJ ag reed to credit the forfeiture against the disgorgement AAR pays to the SEC While AAR self-reported the bribery schemes to the DOJ, SEC and UI< Serious Fraud Office in 2019, it did not receive voluntary self-disclosure credit because several media outlets in Nepal and South Africa had previously published articles calling the contracts into question and the DOJ had received a separate report regarding the allegations 12 days prior. However, AAR received credit for its cooperation and remediation efforts, which included making presentations to the DOJ, conducting a company-wide review of high-risk third party representatives, and terminating one employee involved in the misconduct and disciplining others.

Under the SEC cease-and-desist order, AAR ag reed to pay approximately $23.5 million in disgorgement and $5.7 million in prejudgment interest Both Sharma and Aires pleaded guilty for their involvement in the schemes earlier in 2024 and are awaiting sentencing. For more information on their plea agreements, please see our July 2024 and August 2024 Month in a Minute updates. On Dec. 19, the SEC also revealed that it had entered into a cease-and-desist order with Sharma, charging him with violating the FCPA's anti-bribery recordkeeping and internal accounting provisions. Pursuant to the order, the SEC ordered Sharma to pay $130,835 in disgorgement and $53,762 in prejudgment interest; however, the SEC deemed the $130,835 in disgorgement satisfied by the DOJ's forfeiture order against Sharma.

Fact of the Month

Here's a fact for the puzzle lovers out there. On Dec. 21, 1913, journalist Arthur Wynne created the first "word-c ross" puzzle, which was published in the Sunday edition of the New York World. Later renamed “crossword”, the puzzle looked slightly different from the crossword puzzles of today. For instance, it had a diamond shape and a hollow center, and no internal black squares. Although, it did appropriately have the letters “F-U-N” filled into some of the boxes.