Toyota Thai Bribery Probe Marches On, FCPA Deal Likely

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A year after Thailand's Court of Justice said it was investigating Toyota's suspected conspiracy to bribe current and former Thai Supreme Court judges, inquiries in the Southeast Asian kingdom and the U.S. are slowly piecing together evidence to back up suspicions first outlined in an internal WilmerHale investigation, including a multimillion-dollar payment to a small law firm that allegedly acted as a middleman.

A judge in the Office of the President of the Supreme Court of Thailand said that the judicial branch continues to investigate claims, exclusively reported by Law360 in May 2021, that the automaker told U.S. law enforcement it suspected that its own attorneys at Toyota Motor Thailand may have bribed Supreme Court judges to overturn a judgment in a bid to erase a tax debt of 11 billion baht ($320 million) for allegedly dodging import taxes on Prius car parts.

In another development, Thai legislative investigators, led by Chairman Sereepisuth Temeeyaves of the Prevention and Suppression of Corruption and Misconduct Commission of the House of Representatives, have called witnesses to testify, including a senior Toyota executive in September 2021, while providing public reports on their progress.

Judge Jarimjit Pantawee, who works in the same office that was the target of the alleged bribery conspiracy, said both matters are "active" but "confidential," refusing to provide more information.

A U.S. federal investigation is also ongoing, according to Toyota's filings with the U.S. Securities and Exchange Commission. Experts said that given multiple factors — the complexity of the case, a change in counsel from WilmerHale to Debevoise & Plimpton LLP and the COVID-19 pandemic — the Foreign Corrupt Practices Act investigation may continue for another year or more.

Toyota declined to comment on recent developments in the investigations, instead repeating an earlier statement on the matter.

"Toyota works tirelessly to uphold the highest professional and ethical standards in each country where we operate. We take any allegations of wrongdoing seriously and are committed to ensuring that our business practices comply with all applicable government regulations," a company spokesperson said.

The U.S. Department of Justice and SEC declined to comment.

Here is a look at how the investigations began, where they stand now, and what might happen next.

Explosive Allegations

In March 2021, Toyota Motor Corp. disclosed to investors that the DOJ and SEC were investigating "possible anti-bribery violations" related to the company's Thai subsidiary that could result in unknown civil or criminal penalties. The carmaker has been cooperating with the probe.

The DOJ and SEC investigations were prompted by the automaker's findings in an internal document review, codenamed "Project Jack," Law360 reported.

According to a September 2019 detailed protocol document, the review was led by counsel at WilmerHale and sought to determine whether Toyota Motor Thailand, or TMT, violated the FCPA or the U.K. Bribery Act by making payments to outside law firms or consultants that may have been passed to or shared with Thai judges, court advisers or others in an effort to secure a favorable outcome in the Prius tax case.

At the end of the review, Toyota suspected that senior attorneys for TMT may have funneled millions of dollars in bribes through a private Thai law firm to Supreme Court of Thailand judges in an effort to influence the decision on a still-pending appeal of the tax judgment, according to sources familiar with the matter and documents describing the company's inquiry.

In May 2021, Law360 reported that U.S. federal prosecutors had impaneled a Texas grand jury as they sought any evidence Toyota bribed top Thai judges to overturn the tax judgment. That investigation aimed to determine if TMT, either directly or through the Thai law firm, paid former Supreme Court of Thailand President Direk Ingkaninan and Supreme Court senior advisor Chaiyasit Trachutham to persuade then-high court President Slaikate Wattanapan to accept Toyota's argument and have the court rule in its favor within a year.

TMT paid nearly $18 million on the $27 million contract, according to law enforcement documents, with a $9 million success fee to be paid if Toyota won the appeal.

The status of the grand jury investigation is unclear, and no charges have been filed publicly.

Corroborating Key Facts

After Law360's news reports went viral in Thailand, the Court of Justice and Thai legislators launched investigations into the claims Toyota may have bribed sitting Supreme Court judges, requesting information from U.S. authorities and calling witnesses.

Investigators appear to be slowly gathering evidence directly from primary sources.

By last September, the Thai House investigation confirmed a multimillion-dollar payment TMT made to a small law firm that Toyota and U.S. investigators suspect was used as a conduit for judicial bribes, the Annanon Law Office.

In a public statement in September, the Thai legislator leading an investigation into the matter called TMT President Noriaki Yamashita to testify. The executive confirmed the automaker had paid Annanon $18 million.

"Thus, there was an admission that there was an actual payment of $18 million," said Teerajchai Phunthumas, a member of the House and a spokesperson for the anti-corruption and misconduct committee.

The extraordinarily large payment to the small law firm was suspicious, the official said, citing annual financial disclosures from the Annanon Law Office showing that its revenues skyrocketed from the equivalent of thousands of dollars to millions of dollars during the time frame of the alleged bribery conspiracy.

Annanon did not respond to a request for comment Tuesday.

The Supreme Court judges named in the story and Annanon have denied wrongdoing and filed criminal complaints for alleged defamation against Law360 in Thailand, according to reports in Thai news outlets.

Delays in the Investigation

Experts told Law360 that the arc of an FCPA investigation is typically three years — which would yield an expected disposition date of about April 2023 — but this case could stretch longer because of the COVID-19 pandemic and other factors.

The pandemic slowed down government investigations for months, experts noted, likely halting progress on FCPA cases for at least six months, especially one that began in April 2020, just one month after COVID-19 shut down offices and courts across the U.S. Thailand also had its own shutdowns.

But beyond pandemic delays, all international bribery investigations require financial records, often from foreign banks, that must be routed through diplomatic channels. The mutual legal assistance treaty requests, or MLATs, can take a year to process for countries like Thailand.

Aside from garden-variety bureaucracy and red tape, MLATs may suffer delays because of negotiations between the U.S. and Thai governments over what information the DOJ or SEC must disclose in order to receive the records, experts said. That can beg questions of trust and how much information U.S. investigators are willing to share with Thailand, experts noted.

Then there is the fact that Toyota appeared to change law firms midstream. While the internal probe was conducted by WilmerHale starting in 2019, the findings were presented to U.S. authorities by Debevoise & Plimpton LLP in April 2020.

"Debevoise is taking over a complex cross-border foreign bribery investigation," said George McEachern, a former FBI international corruption squad leader and president of TrustStorm Solutions Inc., a financial crimes investigations firm that is not involved in the Toyota matter.

Debevoise may want to double-check WilmerHale's work on the underlying internal investigation on such an important case, McEachern added. "Getting up to speed — it takes time to do that properly," he said.

While it is unclear exactly why the two firms were involved in the matter, the same month Toyota disclosed the purported misconduct, a temporary member of the WilmerHale review team sued Toyota in Florida state court, alleging the company was engaged in a cover-up of corruption in Thailand.

The claims by attorney, document reviewer and Thai translator Andrew Delaney sparked lengthy and acrimonious litigation across multiple jurisdictions that remains unresolved. Delaney withdrew the Florida complaint, but other lawsuits are pending.

Delaney also sued Law360 for alleged defamation but voluntarily dismissed the case. He did not immediately respond to a request for comment on Tuesday.

Predicting the Endgame

The Delaney lawsuit could have an impact on whether the U.S. government considers Toyota's disclosure voluntary, experts noted. If prosecutors find that Delaney's suit forced Toyota to disclose the suspected bribery, then the company may not get credit for a voluntary disclosure — and lose a 50% fine reduction and a chance to avoid prosecution.

Whenever the U.S. wraps up its investigation, experts agreed that a public announcement and a hefty fine for Toyota is likely to follow. The experts, including former DOJ attorneys, gave the caveat that they were working with a limited set of publicly available facts from Law360's reporting.

Often, FPCA cases begin with a company's self-disclosure and conclude in one of several ways. The case could end in a trial, which is rare, or a plea deal. The DOJ could even decline to prosecute altogether. But the most likely outcome for Toyota, experts said, was either a nonprosecution agreement or a deferred prosecution agreement.

A nonprosecution agreement is an out-of-court agreement with a statement of facts. A deferred prosecution agreement is filed in federal court and sets out admitted facts and a criminal information that could support a conviction. Both options allow a company to avoid prosecution if it pays a fine and abides by a negotiated set of conditions, which include internal reforms, ongoing cooperation and perhaps an independent monitor to ensure compliance.

Experts leaned toward the likelihood of a deferred prosecution agreement for Toyota.

While Toyota could get credit for voluntarily disclosing misconduct, fully cooperating and conducting remediation — securing the 50% fine reduction in the process — the $18 million payment in suspected bribe money and the seniority of the alleged bribe recipients could derail such a large reduction in the fine and the more lenient NPA, experts said.

"It's too serious of an offense," said white-collar attorney Kathleen Hamann of Pierce Atwood LLP, a former prosecutor in DOJ's FCPA unit. She said that there are factors in the DOJ policy that can scuttle a company's chances of reduced fines if the offense is too grave.

"You're talking about a really serious amount of money to a very senior judicial official," she said.

The single biggest element in determining a fine under a DPA is the 11 billion baht, or $320 million, the company allegedly intended to gain by bribing judges, experts noted. Even if Toyota loses its pending appeal and has to pay Thailand that enormous tax debt, experts say, the ruling would not impact the U.S. government's fine calculation.

If the DOJ confirms Toyota's self-reported evidence of possible bribery, the company is likely to face a reckoning even if no bribes landed in the pockets of any judges.

"The crime is complete when the offer is made," Hamann said.

In addition to whatever action DOJ takes, the SEC's civil enforcement division will likely seek to recoup any profit Toyota made from the alleged bribery.

Beyond the corporate liability, there could be criminal charges for individuals who participated in the alleged bribery scheme, experts said.

But all of this assumes that U.S. prosecutors do not uncover more misconduct than Toyota reported, experts cautioned. After all, the underlying tax case is based on allegations that TMT evaded 80% import duties for years, which could lead prosecutors to dig into whether there was more persistent corruption in Thailand.

The investigation could either show that the conduct was the work of a few rogue employees, a company behavior or a global problem. It could also theoretically show no wrongdoing.

"Were they evading internal controls? Did they lie to people above them? Or were there a bunch of people who were in on this and it went on for years and years?" Hamann of Pierce Atwood said. "All of these factors come into play on all the pieces of a resolution."

Regardless of the outcome, experts said, the public will learn what prosecutors ultimately decide, given that Toyota has an obligation to tell its investors what happened. The next big indication of an impending resolution would be an update to Toyota's SEC disclosure.

"Toyota would have likely put money aside in preparation for penalties, fines and disgorgement … Shareholders are watching this," McEachern of TrustStorm Solutions said. "This can't disappear."

--Editing by Jill Coffey.

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