In a recent speech at the annual ABA White Collar Crime Conference in New Orleans, Assistant Attorney General Brian Benczkowski of the Criminal Division of the Department of Justice (“DOJ”) announced certain changes to the FCPA Corporate Enforcement Policy (“the Enforcement Policy” or “Policy”) to address issues that the DOJ had identified since its implementation. These and other recent updates have since been codified in a revised Enforcement Policy in the Justice Manual.
The Enforcement Policy, first announced by the DOJ in November 2017, was initially applicable only to violations of the FCPA, but was subsequently extended to all white collar matters handled by the Criminal Division. The Policy was designed to encourage companies to voluntary self-disclose misconduct by providing more transparency as to the credit a company could receive for self-reporting and fully cooperating with the DOJ. Among other things, the Enforcement Policy provides a presumption that the DOJ will decline to prosecute companies that meet the DOJ’s requirement of “voluntary self-disclosure,” “full cooperation,” and “timely and appropriate remediation,” absent “aggravating circumstances” – i.e. relating to the seriousness or frequency of the violation. For more information on the Enforcement Policy, read our blog post explaining it.
The most significant recent changes to the Enforcement Policy include eliminating the prohibition on a company’s usage of ephemeral instant messaging applications to receive full credit for “timely and appropriate remediation.” Additionally, the modified Enforcement Policy (1) now makes clear that one requirement of cooperation, de-confliction of witness interviews, should not interfere with a company’s internal investigation; (2) confirms based on an earlier announcement, that the Policy applies in the context of a merger and acquisition (“M&A”), if an acquiring company discovers and self-discloses misconduct in a target; and (3) implements a change announced months before by the Deputy Attorney General that a company only needed to provide information about individuals “substantially involved” in the offense. These changes are discussed in greater detail below. Continue reading →
Since the passage of the Energy Policy Act of 2005, fraud and market manipulation have been top enforcement priorities of the Federal Energy Regulatory Commission (FERC or the Commission). FERC’s most recent annual report on enforcement (PDF: 2.72 MB) shows that, in fiscal year 2018, FERC opened some 16 investigations into market manipulation (out of 24 total) and recovered almost $150 million in civil penalties and disgorgement of profits, much of which was from market manipulation cases.
Recent case law, meanwhile, indicates that courts interpret FERC’s authority in this sphere permissively. The courts, for example, have sided with FERC in allowing considerable time to bring enforcement actions in market manipulation cases, notwithstanding statute of limitations defenses raised by the regulated entities subject to enforcement.
Energy companies and other businesses subject to FERC’s enforcement authority should continue to monitor developments in this area and make sure that their compliance programs are up to date. Continue reading →
New enforcement advisory encourages reporting of foreign corrupt practices that the agency intends to pursue under the Commodity Exchange Act.
On March 6, 2019, the Division of Enforcement (Division) of the US Commodity Futures Trading Commission (CFTC or Commission) announced that it will work alongside the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) to investigate foreign bribery and corruption relating to commodities markets. CFTC Enforcement Director James McDonald announced the agency’s new interest in this area as the Division issued an enforcement advisory on self-reporting and cooperation for violations of the Commodity Exchange Act (CEA) involving foreign corrupt practices.
For companies and individuals who participate in the markets for commodities and derivatives — or whose activities may impact those markets — the CFTC announcement adds a new dimension to an already crowded and complex landscape for anti-corruption enforcement. A range of industries, including energy, agriculture, metals, financial services, cryptocurrencies, and beyond, must now consider the CFTC and the CEA when assessing global compliance and enforcement risks relating to bribery and corruption. This article summarizes the new developments and outlines key considerations for industry participants and their legal and compliance teams. Continue reading →
On February 12, 2019, the Commodity Futures Trading Commission (CFTC or Commission) published for the first time its examination priorities for the coming year. The release of the priorities will provide legal and compliance staff of CFTC-regulated entities greater insight into the Commission’s examination programs and assist them in better preparing for, and successfully navigating, an examination. The Commission bases its priorities on four pillars: (1) effective communication, (2) a risk-based determination of priorities, (3) continuous improvement and (4) efficiency. Continue reading →
In a recent submission (PDF: 2.36 MB) to Congress, the U.S. Securities & Exchange Commission (SEC) reported that, for fiscal year 2018, the SEC paid the largest whistleblower awards since the institution of its program in 2012 following the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Specifically, in FY 2018, the SEC awarded 13 individuals over $168 million collectively for tips that led to actions by the SEC to protect investors.
Other statutes likewise provide financial incentives to whistleblowing. Under the False Claims Act (FCA), for example, persons who report fraud in government contracting can receive up to 30 percent of the government’s recovery in an action. Many states, including New York, have enacted state-level equivalents of the FCA. For many decades, the FCA has contributed to large recoveries to the U.S. Treasury, with an expansion of recoveries in part due to the reporting of violations by whistleblowers. Continue reading →
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 →
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:
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 →
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.
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). Continue reading →
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. 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 →