Category Archives: Corporate Enforcement

Is a European Anti-Corruption Prosecutor Needed?

by Jonathan J. Rusch

In a January 17 interview with the French news-magazine L’Obs, former French Prime Minister Bernard Cazeneuve argued that a European anti-corruption prosecutor is needed “to restore a balance, to correct the asymmetry of the Euro-Atlantic relationship in the fight against corruption from which European companies are currently suffering.”

In the interview, Cazeneuve — now a partner with the August Debouzy law firm specializing in compliance issues – stated that “it cannot be ruled out that in a context of rising protectionism under the Trump Administration, ‘compliance’ rules are also used to protect the economic and industrial interests of certain powers.  Faced with such a reality, it would be very naive not to seek to protect our own interests!”  At the same time, Cazeneuve said that “in a global economy, corruption is a long-term factor that impoverishes companies and distorts competition. Only the law can regulate what needs to be and create the conditions for a global level playing field. Preventing corruption in French companies is still the best way to protect them from the often intrusive procedures of U.S. prosecuting authorities.” Continue reading

How SEC Enforcement is Getting Back to Basics

by Russell G. Ryan

Since leaving the Securities and Exchange Commission in 2004, I’ve done my share of critiquing SEC enforcement policy. So it’s only fair, nearly two years into the tenure of current SEC leadership, to give credit where it’s due.

And as it happens, plenty of credit is due in at least six areas of SEC enforcement policy:

Better Accountability

About ten years ago, the SEC departed from historical practice by delegating to senior enforcement staff the commissioners’ legal responsibility for launching formal investigations and unleashing the power to issue subpoenas. Some of us publicly expressed concerns at the time about this dilution of political accountability, given the severe reputational harm and financial expense that can result from investigations, even if no wrongdoing is ever uncovered.  Continue reading

Fintech in 2019: Five Trends to Watch

by Steven Gatti, David Adams, Peter Chapman, Laura Nixon, Paul Landless, Jack Hardman, and Brian Harley

Technology continues to have an enormous impact on financial services and the pace of change shows no signs of abating. Following the bold predictions we made last year, we highlight the five stand-out trends for fintech in 2019.

1. CRYPTO CRACKDOWN

There has been massive growth in the market for cryptoassets such as Bitcoin and tokens issued in initial coin offerings (ICOs), but market participants have faced uncertainty as to whether cryptoassets may be regulated financial products (and subject to scrutiny by regulatory authorities). Enforcement investigations globally have largely focused on issues of fraud, but now, there’s a renewed focus on guarding the regulatory perimeter (i.e. ensuring businesses carrying on regulated activities have the appropriate authorisation) .  Disputes and enforcement cases are arriving in courts across the globe.

What’s next?

Continue reading

Detoxing Corporate Culture: How To Assess Toxic Cultural Elements

by Benjamin van Rooij, Adam Fine, and Judy van der Graaf

All views here represent the authors’ own views and not their organizations.

There is a cultural moment in the world of corporate compliance. Following recent major corporate scandals, there is now growing recognition among corporate boards and beyond  that truly changing corporate misconduct means addressing the toxic elements within cultures.

The central question for companies and regulators is how to assess toxic cultural elements.

Toxic corporate culture exists when organizations, whose chief business and business means are legal, develop structural violations of rules over a period of time.

Our recent paper (PDF: 1.06 MB), published in Administrative Science,  offers an in-depth analysis of what toxic cultural elements played a role in three major corporate scandals: BP’s polluting and unsafe oil exploration practices, VW’s diesel emission cheating practices, and Wells Fargo’s fake and unauthorized accounts schemes. In all three cases, the illegal behavior spanned over a decade and investigators concluded that corporate culture was to blame. Yet in all three cases, no one had yet systematically sought to understand what toxic cultural elements sustained the illegal conduct. We developed an analytical framework to examine toxicity in organizational cultures on three levels: structures, values, and practices (see Table 1 below[1]). Continue reading

Tenth Circuit Affirms SEC’s Extraterritorial Reach

by Mary Jo White, Kara Brockmeyer, Andrew J. Ceresney, Matthew E. Kaplan, Robert B. Kaplan, Julie M. Riewe, Jonathan R. Tuttle, and Ada Fernandez Johnson

Last week, in a much-anticipated decision, the U.S. Court of Appeals for the Tenth Circuit held in SEC v. Scoville et al. that Congress “clearly intended” Section 929P(b) of the Dodd-Frank Act to grant the U.S. Securities and Exchange Commission (“SEC”)  authority to enforce the anti-fraud provisions of the federal securities laws abroad where there is sufficient conduct or effect in the United States.[1] In affirming the lower court’s decision, the Tenth Circuit undertook a thorough analysis of the legislative history of Section 929P(b) and concluded that Congress “affirmatively and unmistakably” intended to grant extraterritorial authority to the SEC where either “significant steps” are taken in the U.S. to further a violation of the anti-fraud provisions, or conduct outside the U.S. has a “foreseeable substantial effect” within the U.S.

The Scoville decision thus provides judicial affirmation of the SEC’s ability to bring enforcement actions under what is essentially the same “conduct-and-effects” test that the Supreme Court rejected for private securities litigation in Morrison v. Nat’l Australia Bank Ltd., 561 U.S. 247 (2010). The Tenth Circuit’s decision, though not entirely unexpected, is significant in that it represents the first Circuit Court decision to directly address the SEC’s authority to enforce the federal securities laws extraterritorially after the Supreme Court’s rejection of the “conduct-and-effects” test in Morrison. Continue reading

Trends in U.S. Sanctions Enforcement During the Trump Administration

by Dr. Bryan R. Early and Keith A. Preble

U.S. Economic Sanctions Policy

Economic sanctions are coercive foreign policy tools that work by disrupting otherwise profitable commerce between the governments imposing them and their targets. In order to be effective, governments imposing sanctions must obtain the compliance of their constituents, or the sanctions will not harm their targets as intended. Complying with sanctions is costly for companies not only in terms of the commerce they disrupt, but also with respect to the investments required to prevent unintentional violations. Thus, as policy tools, economic sanctions inherently create costly compliance obligations for companies. Given that employing sanctions appears to run counter to U.S. President Donald Trump’s goal of reducing regulatory burdens on U.S. firms, it is surprising that he has heavily relied upon threatening and imposing sanctions as part of his administration’s foreign policy.

Two years into the Trump Administration, we can begin to see evidence of how this tension in President Trump’s policy preferences has affected the implementation of U.S. sanctions. Despite the fiery rhetoric directed at the targets of U.S. sanctions, our research indicates that the U.S. Department of Treasury’s Office of Foreign Asset Control (OFAC) has adopted a softer stance on sanctions enforcement during the Trump Administration than during his predecessors’ administrations. The major area in which OFAC’s recent enforcement policies have been more stringent is in punishing foreign sanctions violators. This suggests that OFAC has resolved the tension between reducing regulatory burdens on U.S. firms and President Trump’s sanctions preferences by focusing more of its attention on punishing foreign firms instead of American ones for violating sanctions. Continue reading

An Unintended Consequence of Tax Enforcement: More (And Better) Bank Lending?

by John Gallemore and Martin Jacob

Corporate tax enforcement has become a critical issue for many governments in recent years, given the massive amount of lost revenues and budget deficits. There is empirical evidence that corporate tax avoidance has increased over the past decades. [1] Some countries have responded by increasing coordination to combat tax avoidance. For example, the OECD countries created the Base Erosion and Profit Shifting (BEPS) project. At the same time, the IRS has seen its budget reduced in recent years. [2]

While policymakers have considered multiple remedies for combating aggressive corporate tax avoidance, such as withholding rules and information sharing, the IMF notes that “auditing remains crucial.” [3] Consistent with this idea, to aid the implementations of BEPS in developing countries, the OECD and the United Nations Development Program jointly started the Tax Inspectors Without Borders initiative to encourage greater investments in tax return audit capacity and to improve actual audit results. [4]

The obvious outcome of greater tax enforcement is a reduction in aggressive corporate tax avoidance. However, it is less clear whether and how tax enforcement affects firms and their stakeholders beyond tax payments. Understanding these “tax enforcement spillovers” is critical in assessing the overall net benefit of tax enforcement. Continue reading

OFAC Reaches Settlement with Cobham Holdings, Inc. for Violations Resulting from Deficient Screening Software

by H. Christopher Boehning, Jessica S. Carey, Michael E. Gertzman, Roberto J. Gonzalez, Brad S. Karp, Richard S. Elliott, Rachel M. Fiorill, and Karen R. King

On November 27, 2018, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) announced a nearly $90,000 settlement agreement with Virginia-based Cobham Holdings, Inc. (“Cobham”), a global provider of technology and services in aviation, electronics, communications, and defense, on behalf of its former subsidiary, Aeroflex/Metelics, Inc. (“Metelics”).[1] The settlement involves three shipments of goods through distributors in Canada and Russia to an entity that did not appear on OFAC’s Specially Designated Nationals and Blocked Persons List (the “SDN List”), but was blocked under OFAC’s “50% rule” because it was 51% owned by a company sanctioned under the Russia/Ukraine sanctions program. This is the second OFAC action of which we are aware that has relied on the 50% rule.  The apparent violations appear to have been caused by Metelics’s (and Cobham’s) reliance on deficient third-party screening software.

While difficult to predict, OFAC’s decision to pursue this action—involving only three shipments, a violation of the 50 percent rule, and where the root cause of the apparent violations is attributable to deficient sanctions screening software—may signal a raising of OFAC’s compliance expectations, consistent with Treasury Under Secretary Sigal Mandelker’s warning in a recent speech that private sector companies “must do more to make sure [their] compliance systems are airtight.”[2]

Below, we describe the settlement, OFAC’s penalty calculation, and several lessons learned. Continue reading

Director of the Serious Fraud Office Lisa Osofsky Keynote on Future SFO Enforcement

by Lisa Osofsky

Thank you.

I have just completed my first month as Director of the Serious Fraud Office.

As a new director, I have spent my first weeks meeting the talented and hardworking SFO team – from lawyers to investigators to accountants to computer experts to the administrative team who are the backbone of every government agency all around the globe.   I have come to an office with strong values and a commitment to justice, a dedication for searching for the truth.  Continue reading

Will This One Stick?

by Veronica Root

Over the past several years, there have been many attempts to garner greater transparency of the government’s use of nonprosecution agreements and monitorships.  On three occasions the party attempting to obtain a ruling that would reign in the government’s authority over these matters has won at the district court level.  In each of these instances, however, the court of appeals reversed. Continue reading