by Michael W. Peregrine
This year marks the fifteenth anniversary of the Sarbanes Oxley Act, enacted July 30, 2002, providing an important compliance-based teaching moment for both the governing board and executive management
As many lawyers and compliance professionals may recall, the law was enacted in response to the series of notorious and crippling accounting controversies that had occurred in prior months involving such companies as Enron and WorldCom. The goals of the Act included efforts to enhance the reliability and transparency of public company financial statements.
That seminal legislation has had an enormous impact not only on the development of corporate compliance programs. It has also affected the board’s relationship to compliance, the role of ethics and “tone at the top” within an organization, the general counsel’s role with respect to compliance, and laws affecting both whistleblower activity, and various forms of obstruction of justice. Continue reading
by Miriam Baer
Next October, the Supreme Court will hear oral argument in Digital Realty Trust, Inc. v. Somers. The case asks the Court to resolve whether the Dodd-Frank Act’s anti-retaliation protections for “whistleblowers” apply to those individuals who first report information solely to the SEC, or instead to the broader group of individuals who report information internally or other enforcement agencies before seeking out the SEC. As noted in an earlier post on this blog, circuit courts are split on the issue, and whereas the SEC itself has embraced the broader definition, Dodd-Frank’s explicit definitional language offers some room for doubt.
When the case does reach the Supreme Court, litigants favoring the broader definition presumably will portray what has now become the standard depiction of the whistleblower’s dilemma: An employee knows her bosses are cooking the books. She would like nothing to do with this sort of activity but she fears she will lose her job and be iced out of her industry if she says anything. Continue reading
by Brandon Fox and Natalie K. Orpett
The Second Circuit Court of Appeals has issued an important decision limiting district courts’ authority to supervise Deferred Prosecution Agreements (DPAs), a method companies and the Department of Justice (DOJ) frequently use to resolve criminal investigations. Under DPAs, companies are charged with – but not convicted of – crimes, so long as they abide by the terms of the agreement. In United States v. HSBC Bank USA, N.A., — F.3d –, 2017 WL 2960618 (2d Cir. July 12, 2017), the companies (collectively, HSBC) and DOJ agreed to a DPA based on HSBC’s alleged failure to prevent money laundering by Mexican drug cartels and violations of sanctions laws.
Under the terms of the DPA, HSBC consented to the appointment of a monitor who was to provide DOJ with periodic reports regarding HSBC’s compliance with the agreement. After arraignment on the charges, DOJ and HSBC requested that the court grant an exclusion of time under the Speedy Trial Act, which was necessary so that HSBC could fulfill its obligations under the DPA rather than go to trial in 70 days. As a condition to granting the motion, the district court ordered the parties to file quarterly reports apprising it of significant developments in HSBC’s efforts to comply with the DPA. Continue reading
by John F. Savarese, Ralph M. Levene, David B. Anders, Marshall L. Miller, and Christopher R. Deluzio
In an anticipated and important decision, the Second Circuit Court of Appeals overturned a district court’s order requiring the unsealing of an independent monitor’s report detailing HSBC’s compliance with a deferred prosecution agreement. United States v. HSBC Bank USA, N.A. (Nos. 16-308, 16- 353, 16-1068, 16-1094, July 12, 2017). In so doing, the Second Circuit substantially limited a district court’s power to scrutinize DPAs, thereby following a course similarly embraced by the D.C. Circuit (as discussed in our prior memo).
In the district court, Judge Gleeson granted the joint request by DOJ and HSBC to approve the DPA, subject to the Court’s ongoing oversight of the DPA’s implementation pursuant to the Court’s asserted “supervisory authority”—a decision we discussed in our earlier memo. As part of its oversight, the Court ordered the government to file under seal an independent monitor’s report, which eventually led to a member of the public requesting access to the report. Construing that request as a motion to unseal, the Court granted the motion, finding that the monitor’s report was a “judicial document” subject to the public’s qualified First Amendment right of access. The government and HSBC appealed. Continue reading
by Azish Filabi
Over the past few decades, while companies have invested in building and expanding their compliance programs, researchers, practitioners and employees in some companies attest to a lack of corresponding reduction in misbehavior. Some even believe that the compliance programs may be a cause of increasing misbehavior. Continue reading
by David W. Bowker, Sharon Cohen Levin, Michael D. Gottesman, Laura M. Goodall, Kelsey M. McGregor, and Aleksandr Sverdlik
The U.S. government’s settlement with Hobby Lobby on July 5, 2017 is part of its broader effort to combat trafficking in looted antiquities from the war-torn Middle East and to reduce market demand for such objects by punishing participants in the black market. Having scored this high-profile settlement in an early test case, the U.S. government likely will try to build on this success with additional investigations and enforcement actions. Continue reading
Among the flurry of resolutions in the final days of the Obama administration, two “repeat offenders” settled FCPA cases: Zimmer Biomet Holdings, Inc. (“Zimmer Biomet”) and Orthofix International N.V. (“Orthofix”). Zimmer Biomet and Orthofix are hardly the first such “repeat offenders.” In July 2016, Johnson Controls Inc. (“JCI”) settled an enforcement action involving activities of a Chinese subsidiary with the Securities and Exchange Commission (“SEC”), and the DOJ simultaneously “declined” to bring any charges. Each of these companies was a “repeat offender” in having previously settled FCPA-related allegations.
By analyzing and comparing these three recent resolutions, this Article highlights factors that may influence whether U.S. authorities bring follow-on FCPA enforcement actions and, if so, what penalties they seek to impose. As discussed below, companies are well advised to make concrete compliance enhancements in an effort to avoid recidivist status and the significant penalties that can accompany a second resolution. Continue reading
by John F. Savarese, Ralph Levene, Marshall L. Miller, and Jonathan Siegel
As we have observed, in its early days, the Trump Administration has stressed its intention to maintain continuity in white-collar enforcement, including through its recent extension of the FCPA Pilot Program. Consistent with that approach, the first FCPA action under the new administration was a Pilot Program declination, closing an investigation without enforcement action other than disgorgement. Continue reading
by Karolos Seeger, Alex Parker, Ceri Chave, and Andrew Lee
On 26 June 2017, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 came into force. These new regulations (the “2017 Regulations”):
- require a written assessment of money laundering risk and prescribe some features of effective internal controls;
- detail when different categories of customer due diligence must be conducted and what steps must be taken; and
- specify beneficial ownership information that trusts must provide for inclusion on a central register.
The 2017 Regulations are intended to ensure that the UK’s anti-money laundering regime is in line with the Financial Action Task Force’s standards and to implement into UK law the European Union’s Fourth Money Laundering Directive (“MLD 4”). The key features of the 2017 Regulations and the principal differences between them and the Money Laundering Regulations 2007 (the “2007 Regulations”) are summarised below. Continue reading
by John Savarese and Noah B. Yavitz
Earlier this week, the United Kingdom’s Serious Fraud Office (“SFO”) charged Barclays, its former CEO, and three other former top executives with criminal fraud. The prosecution stems from a long-running inquiry into whether Barclays failed to adequately disclose 322 million paid to Qatari investors in late 2008, during a period when the bank received billions in funding from affiliates of the Qatari government. Investigators reportedly examined whether Barclays and its former executives arranged for portions of the payments to be funneled into the Qatari bailout, in violation of British law. Despite this novel action, market reaction was muted, with Barclays’ shares trading in line with other U.K. banks. Continue reading