Defending Corporations and Individuals in Government Investigations

Transcription

1 Defending Corporations and Individuals in Government Investigations Cross-Border Investigations Daniel J. Fetterman Mark P. Goodman David A. O Neil Brian C. Ong Benjamin M. Whitfield September 28, 2016

2 Overview Part I: Part II: Part III: Part IV: Overview Enforcement Environment Hot Topics Hypothetical Questions 2

3 Part I: Overview 3

4 What Makes Cross-Border Investigations Different? 1.Coordination of multiple law firms & consultants 2.Governance issues 3.Application of multiple legal & regulatory schemes 4.Data privacy issues 5.Attorney-client privilege, work product & waiver issues 4

5 Prevalence of Cross-Border Investigations The number of cross-border investigations over the past 10 years has increased dramatically. U.S. companies are increasingly global. There is improved coordination between U.S. regulatory agencies and their foreign counterparts. There is an increased focus on enforcement by other countries. Focus on anti-money laundering enforcement over the last decade. 5

6 Anti-Corruption Other Countries United Kingdom In July 2016, the UK s Serious Fraud Office announced that it charged F.H. Bertling Ltg. and seven executives with violations of the Prevention of Corruption Act of In December 2015, Sweett Group Plc pled guilty to charges under the UK Bribery Act and was ordered to pay 2.35 million. This was the first guilty plea to a Section 7 offense under the antibribery statute, which makes it illegal to fail to prevent bribery. Brazil Brazil has experienced political and economic turmoil partially due to a series of corruption-related scandals. An inquiry regarding Petrobras, which has sent a number of executives to prison, is the most notable. In July 2016, SBM Offshore NV agreed to pay $341.8 million in fines for paying bribes to Petrobras officials. Asia Thailand and South Korea have adopted increased criminal penalties 6

7 Attorney-Client Privilege Issues Cross-Border Investigations require navigating a wide variety of issues relating to the attorney-client privilege. In many jurisdictions in Continental Europe, the privilege does not apply to in-house counsel. The UK s Serious Fraud Office and the Financial Conduct Authority have announced that they expect firms to share the fruits of an internal investigation, including witness statements and documents protected by privilege. This is contrary to the DOJ and SEC s current position. China has no privilege or work-product protections. 7

8 Data Collection and Privacy Issues Significant challenges relating to document retention and production may arise out of non-u.s. data protection regimes and blocking statutes when a company opens an internal investigation into potential FCPA-related misconduct. DOJ and SEC officials have repeatedly stated that they expect companies to develop creative solutions to challenges posed by non-u.s. laws, and to provide documents even if they are located overseas. AAG Caldwell said We recognize that some countries laws pose real challenges but we also know that many do not. Potential solutions may include producing documents to the government of the foreign country so that U.S. authorities can facilitate a request for such documents under an MLAT, or producing redacted documents in compliance with data protection laws. 8

9 Part II: Enforcement Environment 9

10 FCPA Statistics Relevant Statistics Ernst & Young, Kroll and OECD reports 13% of respondents thought offering cash payments to win or retain business is appropriate, and 14% thought offering personal services or gifts is justified. (E&Y) Senior management was involved in over 50% of foreign bribery cases (OECD) 38% of respondents said their company has never conducted anticorruption due diligence when acquiring a business in the last two years. (E&Y) 48% of respondents stated they never conduct any anti-corruption training with third parties. (Kroll) 52% of respondents are not confident in the ability of their financial controls to catch books-and-records FCPA violations. (Kroll) Less than 50% of those surveyed by E&Y viewed cybercrime as a significant risk. (E&Y) 10

11 FCPA Trends Increase in DOJ enforcement activity against corporations, and a steady stream of SEC enforcement activity. As in 2015, the SEC remains far more active than the DOJ. Recent settlements include some of the largest-ever civil penalties in FCPA actions (VimpelCom, $795m; Novartis $25m; LAN Airlines, $22m; Las Vegas Sands, $9m) has seen a decrease in the average penalties both by the DOJ and SEC. DOJ announced the FCPA Pilot Program, an initiative intended to increase transparency in the DOJ s FCPA enforcement practices. Increased focus on enforcement by other countries especially the UK. 11

12 FCPA Pilot Program In April 2016, the DOJ announced a one-year pilot program to encourage companies to voluntarily self-disclose their FCPA misconduct, cooperate with the DOJ Criminal Division s Fraud Section and use internal controls and compliance programs to remediate their flaws. This program built on the requirements detailed in the Yates Memorandum. It only applies to FCPA matters brought by the DOJ s Fraud Section. Under the one-year program, if a company (1) voluntarily discloses all relevant facts regarding corporate and individual misconduct, (2) fully cooperates with the government s investigation, and (3) timely and appropriately remediates any issues, that company is eligible to receive up to a 50% reduction from the US Sentencing Guidelines fine calculation. 12

13 FCPA Pilot Program (cont.) If the company implements an effective compliance program, apointment of a monitor will not be required. Disclosures already required by law agreement or contract do not qualify as self-disclosure. In order to effectively remediate, the company must implement an effective compliance program and discipline employees that are found to be responsible. An effective compliance program will vary based on the individual circumstances and size of the company. If a company fails to voluntarily disclose but later cooperates and remediate, the company may receive a 25% reduction. 13

14 Healthcare DOJ and SEC have targeted pharmaceutical and medical device companies operating abroad a number of significant enforcement actions and settlements over the last few years: Analogic: $11.5 million in June 2016 Novartis: $25 million in March 2016 Bristol-Myers Squibb: $14.7 million in October 2015 Mead Johnson: $12 million in July 2015 Stryker Corp. (medical devices): $13.3 million in October 2013 Eli Lilly & Co.: $29 million in December 2012 Pfizer: $45 million in August

15 DPA/NPA Deferred Prosecution Agreement ( DPA ) & Non-Prosecution Agreement ( NPA ) Prosecutor agrees to defer or forego the criminal charges against the company in exchange for the company s compliance with terms of agreement. NPA: generally a contract between the company and government DPA: requires the government to formally file the agreement in court Criticism Since 2008 roughly 75% of DOJ FCPA individual enforcement actions have not resulted in DOJ charges against company employees. Since 2004, when NPAs and DPAs came to dominate FCPA context, only 6.5% of corporate DOJ FCPA enforcement actions that settled exclusively with an NPA or DPA have resulted in related criminal charges of company employees. 15

16 Libor Manipulation Since June 2012, the U.S. s DOJ, SEC, and CFTC, and the U.K. s Financial Conduct Authority have levied over $6 billion in fines against banks around the world for manipulating Libor. Cross-border cooperation between the U.S. and the U.K. have been poorly coordinated. The U.K. has seemed more willing to prosecute individuals in multijurisdictional cases over the past few years. August 2015: Tom Hayes, former UBS and Citigroup trader, was sentenced to a 14 year prison term (later shortened to 11 years) in the U.K.. This was the first individual ever convicted for manipulating Libor in the U.K. 16

17 Anti-Money Laundering: Overview AML remains a focus of the regulators in 2016, as it has over the last decade. Regulators no longer solely focus on traditional financial institutions. They are now focusing on the alternative investment industry, advisers, currency services businesses, payment companies, casinos, and other retail companies. A robust compliance program remains the most effective defense against the ever changing money laundering schemes. Robust system for monitoring suspicious activity If applicable, be wary of microcap securities Regulators emphasize firm culture, professional ethics, and conflicts of interest. 17

18 Anti-Money Laundering: Overview (Cont d) Regulated by the SEC Enforcement Division, FINRA, and FinCEN. Factors FINRA uses in evaluating potential liability for individuals Recidivism Extent the individual was involved Whether the individual has undertaken corrective measures The extent of the underlying conduct Degree of harm Whether there is willful blindness or intentional participation 18

19 Anti-Money Laundering: Statistics Relevant Statistics PWC reports Global money laundering transactions are $1-2 trillion annually, 2-5% of global GDP. Less than 1% of illegal financial flows are seized by authorities. Global spending on AML compliance is predicted to grow to more than $8 billion by 2017 (CAGR of ~9%). 18% of banks have recently experienced enforcement actions by a regulator. Over 25% of financial services firms have not conducted AML/CFT risk assessments across their global footprint. Only 50% of money laundering or terrorist financing incidents were detected. 32% of organizations spent over $50k on investigations and/or interventions as a result of AML & CFT in the past 24 months. 19

20 FINRA: Recent AML Enforcement Actions FINRA has targeted financial institutions over the last few years, listing AML as a focus in its examination priorities: Raymond James: $17 million in May 2016 Cantor Fitzgerald & Co.: $7.3 million in December 2015 Aegis Capital Corp.: $0.95 million in August 2015 LPL Financial LLC: $11.7 million in May 2015 Wells Fargo Advisors: $1.5 million in December 2014 FINRA expects firms to adopt a robust AML program that is applicable to your business. 20

21 FinCEN: Recent AML Enforcement Actions The U.S. Treasury Financial Crimes Enforcement Network has targeted largely casinos and financial institutions over the last few years: Hawaiian Gardens Casino: $2.8 million in July 2016 Gibraltar Private Bank and Trust: $4 million in February 2016 Caesar s Palace: $8 million in September 2015 Bank of Mingo: $4.5 million in June 2015 J.P. Morgan: $461 million in January 2014 TD Bank: $37.5 million in September

22 AML / Privacy Issues Panama Papers Unprecedented leak of 11.5 million files from the database of Mossack Fonseca, one of the world s largest global law firms. The files were obtained by the German newspaper Suddeutsche Zeitung, a German newspaper, which shared them with the International Consortium of Investigative Journalists. The files reveal the ways in which the wealthy can use secret offshore tax regimes to retain and expand their wealth. 143 politicians, including Vladamir Putin, Ayad Allawi, Nawaz Sharif, Petro Poroshenko, and the father of David Cameron were involved. This leak is one of the largest in world history (2.6 Terabites), larger than the U.S. diplomatic cables released by WikiLeaks (1.7GB) and the documents released by Edward Snowden (260GB). 22

23 Part III: Hot Topics 23

24 Hot Topics- Focus on Individuals DOJ and SEC have both significantly increased their focus on prosecuting individuals in recent years. DOJ Yates Memo: One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing.... To be eligible for any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct. Andrew Ceresney (SEC): In the FCPA arena as well as all other areas of our enforcement efforts, we are very focused on attempting to bring cases against individuals. 24

25 Hot Topics- Focus on Individuals (cont.) The DOJ s policy: Corporations will only be eligible for cooperation credit if they disclose all relevant facts about individual misconduct. DOJ investigations will focus on individual wrongdoing from the very beginning of any investigation. Criminal and civil attorneys handling corporate investigations should be in routine communication with one another throughout an investigation. Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals. Civil attorneys should consistently focus on individuals and evaluate whether to bring suit against an individual based on considerations beyond that individual's ability to pay. 25

26 Hot Topics VimpelCom VimpelCom paid $795 million in a global settlement to the SEC, DOJ and Dutch regulators for FCPA violations. SEC alleged that the telecommunications provider offered and paid at least $114 million in bribes to an Uzbek political official related to the President of Uzbekistan. Settlement requires VimpelCom to pay $167.5 million to the SEC, $230.1 million to the DOJ and $397.5 million to Dutch regulators. Telia, a Sweedish telecom company is currently under investigation for its entry into Uzbekistan in On September 15, 2016, U.S. and Dutch authorities proposed a $1.4 billion settlement. 26

27 Hot Topics Third Party Due Diligence Approximately 90% of all FCPA cases involve illegal activities by third parties on behalf of a company. DOJ and SEC expect that companies develop, document and implement a risk-based due diligence program nature and scope of the due diligence should be based on the third party s risk profile Due diligence should address: The industry The type of service to be provided Whether the third party will provide services to a government agency, SOE or foreign official The geographic location in which the services are provided The reputation and background of the third party and its officers and directors, including whether they are PEPs Due diligence should be refreshed on a periodic basis 27

28 Part IV: Hypotheticals 28

29 Hypothetical You are a U.K.-based company not listed on any exchange in the U.S. or U.K., and you are considering an acquisition of a Foreign Entity that does not do any business connected with the United States. The Foreign Entity would become a subsidiary of your company. While doing your due diligence, you discover the Foreign Entity has made payments designed to facilitate obtaining government approvals and contracts. What should you do? Do the SEC/DOJ or SFO (or other U.K. regulatory body) have jurisdiction over actions taken by the Foreign Entity prior to your company s acquisition? Do you have successor liability under the UKBA? 29

30 Hypothetical You are a U.S. national serving as regional general counsel at the Belgian subsidiary of a NYSE-listed financial services company with worldwide operations. You learn that bribes were paid to local government banking officials in four African countries six years ago on behalf of the Belgian subsidiary s predecessor in order to obtain rights to open branches in those countries, each of which is still operating and making money. You report this to the general counsel of your company in New York, and she asks you for your advice on whether you think the company should self-report to the DOJ. What do you tell her? 30

31 Hypothetical You are a compliance manager at a global pharmaceutical company with manufacturing facilities in the United States, the UK, and Switzerland; while on a training trip to your company s offices in China, you learn from the trainees that the market for the particular medicines in one division of the China business is highly corrupt, with competitors routinely offering small bribes to doctors (all of whom are state employees) to prescribe their medicines instead of those of your company. No one at the meeting admits doing anything wrong on behalf of your company, but sales of the affected division remain strong. What do you do? 31