In reviewing FCPA bribery fact patterns, it is a rare occasion when a company’s CEO is at the epicenter of the criminal conspiracy.  In the BIT Mining case, standing atop all of the actors is the CEO  Zhengming Pan, Bit Mining’s former CEO and a Chinese national. DOJ had no choice but to charge Pan with a criminal FCPA conspiracy. Others could have been charged and it is interesting that Pan’s indictment is limited to just him.  The evidence against Pan is substantial and he will face a difficult path in seeking to escape the charges.

BIT Mining was formerly known as 500.com, which was headquartered in Shenzen, China.  From 2017 to 2019, 500.com engaged in a pervasive bribery scheme to influence numerous Japanese government officials, including members of Japan’s parliament, in its effort to enter the Integrated Resort (“IR”) market and obtain licensing to establish an IR casino in Japan (“the IR project”). At the time, Japan had recently lifted its long- standing ban on casinos and passed legislation to legalize gambling.

Over a two-year period, Pan and other individuals and third parties funneled over $2 million in bribes to IR decision makers in Japan.  In late 2019, 500.com’s offices were raided, and Tokyo prosecutors charged its consultants with bribery and prosecuted prominent government officials for accepting bribes. 500.com was unable to enter the IR market in Japan.

500.com was formerly an online sports lottery service operator.  In April 2015, 500.com suspended its online lottery services in China after the Chinese government altered the rules governing online lottery sales.  BIT Mining, the new name of the company, has now entered the crypto mining business. 

In July 2018, Japan’s National Diet enacted the IR Implementation Act to create a limited number of resorts in Japan designed to integrate casinos with other facilities such as hotels, convention centers, entertainment venues, luxury retail areas and restaurants.

500.com’s bribery scheme was discovered in late 2019 when Tokyo prosecutors charged both Japanese officials and consultants of 500.com in connection with the bribery scheme. Ultimately, 500.com did not obtain a license for an IR in Japan and was unable to enter the IR market.

The Bribery Plan

Zhengming Pan, then the CEO of 500.com, targeted his efforts to secure a valuable IR related casino in Japan.  As part of this effort, Pan orchestrated a widespread bribery scheme designed to influence numerous foreign government officials, including members of Japan’s National Diet.

Given 500.com’s lack of experience in the luxury resort market, 500.com’s management recognized that it needed to gain the support of senior Japanese officials with ties to IR development in Japan. To this end, in 2017, Pan retained three Japanese consultants (1-3, and consultant 1’s company) to assist in the effort to secure an IR casino license.  To avoid stiff competition from well-established in the US and Europe, 500.com identified certain cities “where under the table deals can be used.”

Lecture Fees

In July 2017, 500.com planned an IR Symposium to promote its bid for the development of an IR in Okinawa, Japan. Pan invited Official 1 to be a keynote speaker at the Symposium which was held in August 2017. Official 1 agreed to be paid a lecture fee of JPY 500,000 (approximately $4,600), which Pan approved.

Following the lecture, 500.com’s consultants learned that Official 1 would be promoted to Vice Minister in charge of IRs.  Pan approved payment of a larger fee to Official 1 of JPY 2,000,000 (approximately $26k), even though the speech had already been given and Official 1 had not requested a larger fee.500.com paid the lecture fee pursuant to a sham invoice for JPY 2,400,000 ($26,395) issued by an entity owned by Consultant 3. Once payment was received Consultant 3 transferred JPY 2,000,000 to a company controlled or owned by Official 1. The sole purpose of the inflated lecture fee was to improperly influence Official 1 and obtain favorable treatment on IR related matters. 500.com improperly recorded the lecture fee as management expense – advisory fees.

Sham Consulting Fees

In September 2017, Japan’s Prime Minister abruptly dissolved the lower house of the Japanese National Diet and called for a new general election in October 2017. Hoping to not lose momentum with influential Japanese politicians whose support was needed to enter the IR market, 500.com decided to use Consultant 1’s business, Company 1, to funnel cash to various National Diet members. The purpose of the payments was to influence the IR process and gain access to non-public information.

To execute the scheme, two of the consultants coordinated the delivery of large amounts of Japanese Yen in hand-carry bags. Pan oversaw the scheme and specifically approved the payments. 

To disguise the cash deliveries on 500.com’s books, 500.com signed a sham consulting agreement to pay, among other things, “[c]osts associated with IR Research and Reports of JPY 26,300,000 (or equivalent US dollars)” to Company 1 within five days. On or about September 22, 2017, 500.com wired $233,715 (approximately JPY 26,400,000) to Company 1’s bank, which then wired the money to a Hong Kong bank affiliated with Consultant 2. The wire payment went through a U.S. correspondent bank account. Afterwards, Consultant 2 withdrew a portion of the money from the Hong Kong bank account. Consultant 2 and Consultant 3 used the money to pay cash bribes to several Japanese officials in Japan connected to IRs, including Official 1 and Official 2. 500.com improperly recorded the payment to Company 1 as management expense – advisory fees.

Luxury Travel

In December 2017, 500.com invited Official 1 and three other Japanese officials, including Official 2, to travel on a three-day trip from Tokyo to Shenzhen, China, and then Macau, purportedly to attend an IR related seminar on managing gambling addiction. The real purpose for inviting Official 1, Official 2, and the other officials on the trip was to improperly influence them and gain their support for 500.com entering the IR market. 500.com executives, including CEO Pan, and the consultants accompanied the officials on the trip, along with employees of Company 1 and Tour Company, a travel agency that 500.com planned to partner with on the IR project.

500.com made improper payments of approximately $221,614 in connection with the December 2017 trip, including paying for roundtrip private jet transportation from Japan to Shenzhen and Macau, entertainment, meals and hotel costs, shopping, gifts, and cash bribes for Official 1, Official 2, and two other officials. 500.com improperly recorded the payments as management expenses – travel expenses.

Ski Trip for Official-1, Family Members and Official 2

With CEO Pan’s approval, 500.com also sponsored a ski trip for Official 1, his family members and Official 2 to Hokkaido, Japan, in February 2018. The ski trip did not involve a legitimate business purpose and was instead part of the effort to improperly influence Official 1 and Official 2 and gain their support for the establishment of an IR in Hokkaido. Consultant 3 and Tour Company paid approximately $6,635 for the trip and 500.com reimbursed Consultant 3 for his share of the costs. 500.com improperly recorded the payment as management expense – entertainment and travel expenses.

In September 2020, Tour Company Executive was found guilty in Tokyo District Court of conspiring with Consultant 2 and Consultant 3 to win influence over the IR project by bribing Official 1 and Official 2 with the Hokkaido ski trip.