Author Archives: Ari Gutenmacher

Where’s the Beef? Demonstrating “Timely & Appropriate” Remediation

by Jonny Frank, Michele Edwards, and Christopher Hoyle

photos of the authors

Left to right: Jonny Frank, Michele Edwards and Christopher Hoyle. Photos courtesy of StoneTurn Group, LLP.

This article is part 4 in a series on remediation. Read part 1 on Root Cause Analysis here, part 2 on Read Across and Remediation here, and part 3 on Corrective Action Plans here.

Organizations seeking credit for “timely and appropriate” remediation under the DOJ’s Corporate Enforcement Policy (“CEP”) must show they conducted a comprehensive root cause analysis, addressed the root cause findings, and implemented an effective compliance program.[1] Additional guidance on DOJ expectations appears in Criminal Division memos on the evaluation of compliance programs,[2] and the selection of corporate compliance monitors.[3] The SEC has similar expectations.[4]

Building on our discussion of Root Cause Analysis (“RCA”), Similar Misconduct, and Timely and Effective Corrective Action Plans, this article suggests key steps to demonstrate the remediation and compliance program effectiveness to the board, prosecutors, regulators and other stakeholders.   

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Risks of Cross Border Operations: Chiquita Brands International Found Liable for Financing Terrorism

by Timothy Harkness, Peter Linken, Scott Eisman, and Maylin Meisenheimer

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From left to right: Timothy Harkness, Peter Linken, Scott Eisman and Maylin Meisenheimer (Photos courtesy of Freshfields Bruckhaus Deringer LLP)

Doing business in conflict zones has always been complicated. Increased litigation has compounded those risks in recent years. A June 2024 federal jury verdict against Chiquita Brands International illustrates the changing legal landscape. The jury in Florida found Chiquita liable for financing Autodefensas Unidas de Colombia (“AUC”), a Colombian paramilitary group, and awarded a bellwether group of plaintiffs $38.3 million in damages. A second bellwether trial against Chiquita is scheduled for later this year, and thousands of related claims against Chiquita remain pending. Although the Chiquita litigation has spanned almost two decades, this jury verdict represents the first liability determination and paves the way for the second bellwether trial and eventual resolution of all pending claims. As each plaintiff was awarded around $2 million, Chiquita could be facing hundreds of millions of dollars in damages as the broader litigation includes vastly more victims.

The Chiquita verdict is a signal to corporations that U.S. courts may be more willing to find them liable for actions that occurred abroad and that plaintiffs may increasingly choose to file these claims in U.S. courts. In Chiquita, the alleged actions took place in Colombia and the claims at issue were brought under Colombian law, but this is just one example among many. In Kaplan v. Lebanese Canadian Bank, for example, the Second Circuit held that the plaintiffs plausibly pleaded that Lebanese Canadian Bank had aided and abetted acts of international terrorism under the Antiterrorism Act (“ATA”) by alleging that the bank had processed transactions in Lebanon for individuals closely affiliated with Hezbollah. As companies weigh the risks of doing business abroad and how best to structure their operations, this verdict should be at the forefront of their minds.

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The Supreme Court’s Business Docket: October Term 2023 in Review

by John F. Savarese, Kevin S. Schwartz, Noah B. Yavitz, Adam L. Goodman, and Akua Abu

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Left to right: John F. Savarese, Kevin S. Schwartz, Noah B. Yavitz, Adam L. Goodman, and Akua F. Abu. (Photos courtesy of the authors)

In early July, the Supreme Court concluded its most consequential Term in years, with a flood of decisions on contentious issues ranging from abortion access to the regulation of social media companies and gun possession to presidential immunity. The Court’s business docket was no less active. While the Consumer Financial Protection Bureau narrowly survived a constitutional challenge to its funding mechanism, the Court’s conservative majority elsewhere struck body blows to the administrative state—including the long-anticipated reversal of the Chevron doctrine of judicial deference to agency interpretation of ambiguous statutes. Beyond this headline-grabbing showstopper, the Court issued a string of commercially significant decisions, affecting bankruptcy, arbitration, securities, and employment law. We summarize below the key business decisions from this Term and flag a few key cases to watch in the coming Term.

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It May Not Be Worth the Paper (or Pixel) It’s Written On (Part 1): A Fresh Look at Letters of Assurance Used to Bolster Sanctions and Export Controls Compliance

by Brent Carlson and Michael Huneke

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Left to right: Brent Carlson and Michael Huneke (Photos courtesy of the authors)

“The world has changed. And we must change with it.” So stated Assistant Secretary of Commerce for Export Enforcement Matt Axelrod at a recent summit in California.[1] This simple statement reflects the increasingly complex challenges companies now face in navigating export controls and sanctions in a world driven by new geopolitical realities.

These challenges call into questions past assumptions about compliance programs. The foundation of a robust compliance program starts with the reliability of the inputs relied upon to make informed, risk-based decisions. In the halcyon days of the post-Cold War era, export controls took on an administrative character. In that environment, certifications from counterparties—themselves the targets of the due diligence—were taken largely at face value. Yet today passive reliance, without more, carries profound risks because export controls and sanctions enforcement has already become more of a white-collar corporate enforcement environment driven by Russia’s continued ability to secure U.S.-brand microelectronics (both legacy and new production). Certifications alone accordingly may not be worth the paper they are written on—or the pixels of which they are made—especially when other data includes “red flags” that cast doubt on certifications’ veracity.

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State Immunity and the False Claims Act

By Joshua M. Baker

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Photo courtesy of the Young Law Firm.

While litigation under the False Claims Act (FCA) generally can be rather complex, bringing actions under this statute against state agencies involves the additional issue of potential immunity under the Eleventh Amendment. The inquiry as to whether a given state agency can successfully assert such immunity is nuanced and the analysis will vary depending on the jurisdiction in which the case is brought. At the most basic level, the resolution of this issue depends on how the agency is treated under state law. Specifically, courts will look at factors such as how much autonomy the agency has from the state government as such and how much of its funding comes from the state. 

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FinCEN Proposes Comprehensive Updates to AML/CFT Program Rules

by David Sewell and Nathaniel Balk

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From left to right: David Sewell and Nathaniel Balk. (Photos courtesy of Freshfields Bruckhaus Deringer LLP)

On June 28, 2024, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a proposed rule (the Proposed Rule) to update anti-money laundering (AML) and countering the financing of terrorism (CFT) compliance obligations to reflect revisions to the Bank Secrecy Act (BSA) contained in the Anti-Money Laundering Act of 2020 (AML Act).[1]

FinCEN’s release marks the latest step in the ongoing implementation of the AML Act, which adopted the most significant revisions to the U.S. AML/CFT framework since the adoption of the USA PATRIOT Act in 2001. Although the Proposed Rule in large part clarifies, streamlines, and updates existing regulations, it includes several provisions that materially change AML/CFT compliance obligations for many financial institutions, including most notably a mandatory risk assessment process.

Below, we briefly summarize the Proposed Rule, including its scope, requirements, and potential implications, and highlight open questions and next steps.  

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BlackRock’s Voting Choice Program Expands to Accommodate Diverging Client Priorities with More Tailored Voting Guidelines

by Adam O. Emmerich, David A. Katz, Karessa L. Cain, Elina Tetelbaum, and Carmen X. W. Lu

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Left to right: Adam O. Emmerich, David A. Katz, Karessa L. Cain, Elina Tetelbaum and Carmen X. W. Lu. (Photos courtesy of Wachtell, Lipton, Rosen & Katz)

In recent years, one of the most significant developments in corporate governance has been the adoption and expansion of voting choice programs by the largest institutional investors.  Such changes have come in response to growing scrutiny and pressure from asset owners and regulators with diametrically opposed and fervently held views on the role of environmental and social issues such as climate change and diversity, equity and inclusion (DEI) in investment decisions.  In furtherance of this trend, BlackRock has now adopted separate voting guidelines tailored towards specific funds and investors.

Early this month, BlackRock released climate and decarbonization stewardship guidelines for its funds with explicit decarbonization or climate-related investment objectives or other funds where clients have instructed BlackRock to apply these guidelines to their holdings.  These new guidelines will supplement BlackRock’s benchmark policies applicable to all assets under management and will focus attention on how companies have aligned their business model and strategies to meet the goals of the Paris Agreement.  A total of 83 funds with $150 billion of combined assets are expected to be covered by the new guidelines.  BlackRock has indicated that it will apply the guidelines to those companies held by covered funds and clients who have opted into the guidelines and that produce goods and services that “contribute to real world decarbonization,” have a “carbon intensive business model” or face “outsized impacts from the low carbon transition,” based on their Scopes 1, 2, and 3 greenhouse gas emissions. 

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Does California’s Delete Act Have the “DROP” on Data Brokers?: Updates and Insights from the Recent Stakeholder Session

 by Christine E. Lyon, Christine Chong, Jackson Myers, and Ortal Isaac

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From left to right: Christine E. Lyon, Christine Chong and Jackson Myers. (Photos courtesy of Freshfields Bruckhaus Deringer LLP)

The California Delete Act will make it easier for California consumers to request deletion of their personal information by so-called “data brokers,” a term that is much broader than companies may expect (see our prior blog post here). In particular, the Delete Act provides for a universal data deletion mechanism—known as the Data Broker Delete Requests and Opt-Out Platform, or “DROP”—that will allow any California consumer to make a single request for the deletion of their personal information by certain, or all, registered data brokers. In turn, by August 2026, data brokers will be required to regularly monitor, process, and honor deletion requests submitted through the DROP.

While the DROP’s policy objectives are fairly straightforward, it is less clear how the DROP will work in practice. For example, what measures will be taken to verify the identity of the consumer making the request, to ensure that the requesting party is the consumer they claim to be? What measures will be taken to verify that a person claiming to act as an authorized agent for a consumer actually has the right to request deletion of that consumer’s personal information? Unauthorized deletion of personal information may result in inconvenience or even loss or harm to individuals, which raises the stakes for the California Privacy Protection Agency (CPPA) as the agency responsible for building the DROP.

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Treasury and FSOC Sharpen Focus on Risks of AI in the Financial Sector

by Alison M. Hashmall, David Sewell, Beth George, Andrew Dockham, Megan M. Kayo and Nathaniel Balk

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Top left to right: Alison M. Hashmall, David Sewell and Beth George. Bottom Left to Right: Andrew Dockham, Megan M. Kayo and Nathaniel Balk. (Photos courtesy of Freshfields Bruckhaus Deringer LLP)

On June 6-7, 2024, the Financial Stability Oversight Council (FSOC or the Council) cosponsored a conference on AI and financial stability with the Brookings Institution (the FSOC Conference).  The conference was billed as “an opportunity for the public and private sectors to convene to discuss potential systemic risks posed by AI in financial services, to explore the balance between encouraging innovation and mitigating risks, and to share insights on effective oversight of AI-related risks to financial stability.” The FSOC Conference featured noteworthy speeches by Secretary of the Treasury Janet Yellen (who chairs the Council), as well as Acting Comptroller of the Currency Michael Hsu.  And in a further sign of increased regulatory focus on AI in the financial industry, the Treasury Department also released a request for information on the Uses, Opportunities, and Risk of Artificial Intelligence (AI) in the Financial Services Sector (the AI RFI) while the conference was happening – its most recent, and most comprehensive, effort to understand how AI is being used in the financial industry.

In this blog post, we first summarize the key questions raised and topics addressed in the AI RFI.  We then summarize the key takeaways from FSOC’s conference on AI and discuss how these developments fit within the broader context of actions taken by the federal financial regulators in the AI space. Lastly, we lay out takeaways and the path ahead for financial institutions as they continue to navigate the rapid development of AI technology.

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European Union Finally Adopts Corporate Sustainability Due Diligence Directive

by Samantha Rowe, Patricia Volhard, Jin-Hyuk Jang, John Young, Ulysses Smith, Jesse Hope, Harry Just, and Andrew Lee

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Top left to right: Samantha Rowe, Patricia Volhard, Jin-Hyuk Jang and John Young. Bottom left to right: Ulysses Smith, Jesse Hope, Harry Just and Andrew Lee. (Photos courtesy of Debevoise & Plimpton LLP)

On 24 May 2024, the European Council (the “Council”) formally adopted the Corporate Sustainability Due Diligence Directive (the “CSDDD” or the “Directive”). The regime introduces human rights, environmental and governance due diligence obligations for in scope companies’ and their subsidiaries’ operations, and in their “chain of activities”, which are companies’ supply and distribution chains.

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