Foreign Bribery: Incentives and Enforcement

by Jonathan Karpoff, Scott Lee, and Gerald Martin

Managers caught bribing foreign officials enhance their shareholders’ wealth unless they simultaneously engage in accounting fraud.  Most firms apprehended for foreign bribery generally did not engage in fraud and after adjusting for regulatory penalties, their average ex ante net present value of their bribery-induced projects is positive.  In a new paper, we develop a model that uses a comprehensive set of bribery enforcement to shed light on the how common foreign bribery is among US-listed firms with foreign sales. Continue reading

Judicial Scrutiny of Corporate Monitors:  Additional Uncertainty for FCPA Settlements?   

by Andrew M. Levine, Philip Rohlik, and Michael W. Gramer

Like many other complex corporate criminal matters, FCPA matters largely get resolved without meaningful judicial oversight.  Although imperfect, such negotiated settlements do provide corporations with a greater degree of predictability and finality.  In addition to a monetary penalty, these resolutions often involve the appointment of a compliance monitor, which occurred in more than half of the DOJ’s FCPA resolutions in 2016.[1]  The appointment of monitors has attracted controversy over the years, including that monitors are often seen as burdensome and expensive, have the practical effect of extending an investigation, and effectively outsource oversight to a third party.  As with negotiated resolutions themselves, typically there has been little judicial involvement in the appointment or oversight of corporate monitors. Continue reading

Supreme Court Substantially Reduces Government’s Ability to Seek Criminal Forfeitures 

by Sharon Cohen Levin, Daniel P. Kearney, Jr., Sarah Mortazavi, and Anuradha Sivaram

On June 5, 2017, the Supreme Court issued a unanimous opinion in Honeycutt v. United States (No. 16-142), holding that a criminal defendant can be held liable to forfeit only crime proceeds the defendant personally obtained, and cannot be made jointly and severally liable for proceeds acquired by a co-conspirator. The decision upends decades of nearly uniform precedent from the federal courts of appeals,1 and will likely have wide-ranging effects on the government’s ability to obtain criminal forfeiture. While Honeycutt is a narcotics case, the procedures in the forfeiture statute in question apply to all criminal forfeitures, including criminal forfeiture in cases involving securities fraud, healthcare fraud, corruption, insider trading, economic sanctions, mail fraud and wire fraud.  Continue reading

Fighting Hindsight Bias in White-Collar Investigations

by Nicolas Bourtin

Hindsight is 20-20. Ask any quarterback, risk manager, or meteorologist. What happened in the past often seems to have been inevitable—and eminently predictable.

This is more than folk wisdom. Decades of psychological research have proven the universal tendency not only to look for evidence to confirm a conclusion you have already reached, but also to greatly overestimate how foreseeable an outcome was once you know that the outcome has taken place. The effects of this phenomenon—known by psychologists as hindsight bias—are particularly significant in criminal investigations and in white collar investigations most of all. The problem is not insoluble, but solving it requires a broader awareness of hindsight bias, a greater understanding of the depth and dimensions of the issue among the white collar community, and consideration of the range of potential solutions. Continue reading

Sapin II: Is the Era of Compliance and Criminal Settlements Upon France?

by Margot Sève

This post is an abstract of the article published under the same title in the Revue Trimestrielle de Droit Financier / Corporate Finance and Capital Markets Law Review (Thomson Reuters), as part of the thematic section edited by Michel Perez and Margot Sève entitled “International Financial and White Collar Crime, Corporate Malfeasance and Compliance.”

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On December 9, 2016, France adopted law n° 2016-1691 on transparency, the fight against corruption, and the modernization of the economy.  The law has been commonly called the “Sapin II” law, after French Minister of Finance Michel Sapin who, in 1993, authored the first Sapin law on transparency in politics and public procurement, and sought in 2016 to further enhance transparency and combat corruption.

While France has in recent years certainly made efforts towards more severe punishment for corruption-related offenses, it has nonetheless been criticized for its weak enforcement track record.  For example, while the sanctions for active and passive corruption of domestic officials, active and passive corruption in the private sector, corruption of foreign officials, and influence peddling were increased in 2013, only one company (Total S.A.) was fined between 2000 and 2016 for acts of corruption of foreign public officials.  This lack of enforcement efficiency has led the OECD, as part of its monitoring of countries’ implementation and enforcement of the OECD Convention on Combatting Bribery, to report serious concerns regarding “the lack of foreign bribery convictions in France.” Continue reading

UVA Corporate Crime Registry

by Brandon Garrett

Monday, the University of Virginia School of Law launched a newly revamped registry containing documents and data related to federal corporate prosecutions.  The database, called the Corporate Prosecution Registry, allows researchers to view more than 3,000 decision documents, many of them previously hard to find or once shielded from the public eye, while also allowing them to better search specific subject matter and look at overall trends. Continue reading

SEC Administrative Law Judges: The Sequel

by Greg Morvillo

This is the time of year for sequels.  June rolls around and the summer movie slate starts to hit local theatres.  Guardians of the Galaxy, Vol 2.  This year, sequels are the big thing:  everything from the second Guardians of the Galaxy, to the fourth Pirates of the Caribbean film, to the umpteenth Alien movie and more.  Tis the season … for sequels.

With that in mind, I thought I’d do my own sequel.  Back in February, I wrote a blog piece on the state of the law as it relates to the litigation over SEC Administrative Law Judges.  As, I’m sure you know, all good sequels recap the previous incarnation without belaboring the point so here goes:  a circuit split is brewing.  In Lucia v SEC, the D.C. Circuit held that SEC ALJs are not inferior officers and do need not be constitutionally appointed. Thereafter, the Tenth Circuit, took the exact opposite position in Bandimere v. SEC.  ALJ’s are inferior officers under Article III and if not appointed by the head of a department, are unconstitutionally presiding over cases before them.  While it is not as exciting as seeing an old Luke Skywalker at the end of Star Wars: The Force Awakens, it is, in fact, where we left off in February.

Another rule about sequels is that to be any good something new has to happen.  Staying true to my theme here, that means something must be new in the fight over the constitutionality of the administrative law process?  The new here are dueling petitions for re hearing en banc in both the D.C. and Tenth Circuits.  In the most basic terms, it means that the loser in both appeals wanted a sequel of their own on the appellate level; before proceeding to the Supremes. Continue reading

A “Wells Fargo” Briefing for the Audit Committee

by Michael W. Peregrine

The Board’s audit committee is well advised to receive an update on the risk and compliance lessons from the recent Wells Fargo sales practices controversy. The general counsel, teaming with the chief risk & compliance officer, would be well suited to deliver this update. As well-chronicled in the recently released special investigative report (“Report”), the “20/20” lessons from the controversy transcend the financial services industry, to offer value to corporate boards across industry sectors. These lessons demonstrate how matters of organizational structure, corporate culture, and risk identification and reporting can coalesce in undisciplined circumstances to create significant corporate exposure. In several respects, these lessons prompt comparisons to the conclusions reached by investigative counsel in the GM ignition switch controversy of 2014. This comparison may help underscore the basic risk oversight message to the audit committee; i.e., that these issues have arisen in several of the largest U.S. companies and may arise again without proper supervision. Continue reading

External Statistics, Undeclared Assets held Abroad and Tax Evasion

by Valeria Pellegrini, Alessandra Sanelli and Enrico Tosti

Offshore financial centers and tax havens remain a popular means for businesses and wealthy individuals to reduce their domestic tax burdens by keeping money abroad. This issue has attracted significant attention from policy makers, who have attempted to eliminate the “international tax gap” — lost domestic tax revenue due to undeclared assets held abroad — by enhancing information exchange among national tax authorities. The value of undeclared assets held abroad has been estimated to be in the range of $5-$7 trillion. But due to the inherent nature of tax evasion — non-reporting and concealment of assets — there is a lack of specific information about the size of the international tax gap and the role that offshore financial centers and tax havens have played in widening that gap.

In a recent study published by the Bank of Italy, we have tried to provide new insight on the magnitude of the international tax gap by analyzing investment position and balance of payments statistics. The paper provides an overview of how tax havens are used as hubs in international financial transactions. Continue reading

An Alternative to Clawbacks: William Dudley’s 2014 Proposal for Deferred Compensation at Financial Institutions

by Carmi Schickler

In the wake of its fraudulent account scandal, Wells Fargo announced in April 2017 that it would claw back additional compensation from former CEO John Stumpf and former head of community banking Carrie Tolstedt. All told, the total amount of clawed back compensation at Wells Fargo has now reached $180 million.

However, such clawbacks remain the exception rather than the norm. Unlike most financial firms, Wells Fargo has a particularly powerful clawback policy on its books. Furthermore, the Wells Fargo clawbacks only occurred almost three years after the Board of Directors became aware of the malfeasance, and only in response to intense shareholder pressure against the Board of Directors.

As John Coffee and others have pointed out, extreme incentive compensation has led to many of the financial industry scandals that we have seen in recent years. Even the possibility of clawbacks does not seem to be changing the corporate culture in large financial institutions. As a result, it may be time to reconsider a stronger alternative to clawbacks: more widespread use of deferred compensation. Continue reading