Category Archives: Corporate Investigations

CFTC Releases Enforcement Manual in Hopes of Increasing Transparency

By Paul M. ArchitzelElizabeth L. Mitchell, Petal P. WalkerMatthew Beville, and Seth Davis

Intending to bring greater transparency to the operation of its enforcement program, the Commodity Futures Trading Commission’s (CFTC or Commission) Division of Enforcement (the Division) recently, for the first time, made public its Enforcement Manual (Manual).[1] The Manual provides market participants, industry professionals and the enforcement bar with insights into the Division’s detections, investigations, and pursuit of violations (and potential violations) of the Commodity Exchange Act (CEA) and the regulations thereunder. According to CFTC Director of Enforcement James McDonald, this move is intended to “promote fairness, increase predictability, and enhance respect for the rule of law.”

The public release of the Manual brings CFTC practice in line with those of other enforcement agencies, including the Department of Justice and the Securities and Exchange Commission (SEC).[2] The Manual provides a roadmap of the life cycle of a CFTC enforcement action, from the opening of an investigation through the Wells process to resolution. Although the Manual provides broad insight into the general policies and procedures that guide the work of the Division’s Staff, it does not provide concrete guidance on how those general policies may be applied in particular cases. 

Below, we highlight several of the Manual’s more significant provisions. Continue reading

DOJ Issues Guidance on Cooperation In False Claims Act Investigations

by Jennifer Kennedy Park, Breon S. Peace, and Lisa Vicens

DOJ Issues Guidance on Cooperation In False Claims Act Investigations

On May 7, 2019, the Department of Justice (“DOJ” or “the Department”) issued formal guidance to DOJ’s False Claims Act (“FCA”) litigators on the circumstances in which DOJ will grant credit for cooperation during FCA investigations.[1] The guidance explains the factors that DOJ considers in determining whether to award cooperation credit in FCA investigations and the types of credit available.[2] 

Under the guidance, cooperation credit in FCA cases may be earned by voluntarily disclosing misconduct unknown to the government, cooperating in an ongoing investigation or undertaking remedial measures in response to a violation of the FCA.  Aside from taking these steps, a company may receive at least partial credit by identifying individuals with relevant information about the conduct, preserving relevant documents and information beyond existing business practice or legal requirements, and assisting in an ongoing investigation by disclosing relevant facts, among others.  Cooperation credit will take the form of reducing the penalties or damages multiple sought by the DOJ.  The maximum credit that a defendant receives may not surpass the amount of full compensation the government would receive for losses caused by the defendant’s misconduct.  This amount includes government damages, lost interest, costs of investigation and relator share. Continue reading

Scapegoating: A Structural Risk in Current U.S. Cross-Border Corporate Crime Enforcement

by Laurent Cohen-Tanugi

The interaction of corporate and individual liability in cases of corporate misconduct raises complex issues for prosecutors, management, and employees alike. Such issues, however, are generally discussed in connection with situations where corporate wrongdoing can be attributed to one or more individuals. Yet those “rogue employee” situations are neither the most difficult ones to address, nor the most frequent to arise.

More common, as evidenced by the numerous DPAs acknowledging wrongdoing entered into by corporate entities, and more problematic from a fairness standpoint, are situations where wrongdoing is instructed more or less overtly by senior management, and/or imbedded in a company’s business model and corporate culture, and implemented by lower level executives as part of their duties. The fairness issue stems from the pressure on both prosecutors and the company’s senior management to identify sanctionable individuals who may not be those ultimately responsible. And this problem is compounded in cross-border enforcement situations. Continue reading

U.S. v. Connolly: “Outsourcing” a Government Investigation — And How to Avoid It

by David B. Massey, James Q. Walker, Lee S. Richards III, Shari A. Brandt, Audrey L. Ingram, Daniel C. Zinman, Arthur Greenspan, and Rachel S. Mechanic

Summary

On May 2, in a widely-watched case, the U.S. District Court for the Southern District of New York found that the government “outsourced” a criminal LIBOR investigation to Deutsche Bank and its outside counsel, and thereby violated defendant Gavin Black’s Fifth Amendment rights when outside counsel interviewed the defendant under threat of termination from his employment.  United States v. Connolly, 16 Cr. 370 (CM), Memorandum Decision and Order Denying Defendant Gavin Black’s Motion for Kastigar Relief, ECF Document 432, slip op. at 19, 29 (May 2, 2019).  But because the DOJ did not use the defendant’s compelled statements at trial and the investigation was not otherwise tainted, the Court found no Kastigar violation and held that, even if there was, any error was harmless.  Connolly, slip op. at 40-41, 43-44.  

The Court’s exposition of the “outsourcing” issue has broad implications for internal investigations and corporate cooperation, but it need not end internal investigations or corporate cooperation as we know them.  By observing some basic precautions as described below, Government enforcement lawyers and corporate defense counsel can avoid similar rulings in the future.  At every stage of an internal investigation, companies should confirm and document that their major decisions are taken to satisfy their obligations to their shareholders to police and remediate their own activity, rather than to satisfy demands made by government lawyers.  The Government, for its part, should avoid instructing companies on the particulars of their internal investigations and not wait for the results of those investigations before beginning their own.  If both sides proceed in this way, internal investigations and corporate cooperation can continue  substantially in the way that they have for two decades.  Continue reading

DOJ Updates Guidance on Evaluating Corporate Compliance Programs

by Matthew L. Biben, Kara Brockmeyer, Helen V. Cantwell, Andrew J. Ceresney, Andrew M. Levine, David A. O’Neil, David Sarratt, Jonathan R. Tuttle, Mary Jo White, Bruce E. Yannett, Lisa Zornberg, Ryan M. Kusmin, Jil Simon

On April 30, 2019, Assistant Attorney General Brian Benczkowski announced an updated version of the Evaluation of Corporate Compliance Programs (the “Updated Guidance”).[1] This Updated Guidance supersedes a document of the same name that the Fraud Section of DOJ’s Criminal Division published online in February 2017 without any formal announcement (the “2017 Guidance”). Although not breaking much new ground, we believe the Updated Guidance can serve as a valuable resource for those grappling with how best to design, implement, and monitor an effective corporate compliance program.

In contrast to the 2017 Guidance—which listed dozens of questions to consider in evaluating a compliance program without providing much context—the Updated Guidance employs a more holistic approach. It focuses on three fundamental questions drawn from the Justice Manual:

  • Is the corporation’s compliance program well designed?
  • Is the program implemented effectively?
  • Does the program work in practice?[2]

Continue reading

Two Truths and a Lie About Settlements in Bribery Cases

by Pascale Hélène Dubois, Kathleen May Peters, and Roberta Berzero

If we were playing “Two Truths and a Lie,” we would say the following: (a) settlement agreements are used in a variety of jurisdictions as an alternative to litigation; (b) settlement agreements can offer parties the opportunity to save time and resources while securing a predictable outcome; (c) there is a book that will tell you everything you need to know about settlements in bribery cases. The last, of course, is the lie. But only until Spring 2020.

What do settlements within the World Bank Group Sanctions System look like? Why do entities and individuals choose to enter into settlements with the Bank Group? How do settlements support the Bank Group’s mission to further development impact and contribute to safeguarding donor funds in the projects it finances worldwide? These and other questions will be addressed by the chapter “Settlements Within the World Bank Group Sanctions System” to be published in spring 2020 in the forthcoming book from Edward Elgar Publishing, “NEGOTIATED SETTLEMENTS IN BRIBERY CASES – A Principled Approach,” edited by Tina Søreide, Norwegian School of Economics (NHH), Norway and Abiola Makinwa, The Hague University of Applied Sciences, the Netherlands. Continue reading

DOJ Updates FCPA Corporate Enforcement Policy

By Jonathan S. Kolodner, Lisa Vicens, and Lorena Michelen

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.[1]  These and other recent updates have since been codified in a revised Enforcement Policy in the Justice Manual.[2] 

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.[3]  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

Strong Whistleblower Protections Reflect a Positive Compliance Culture

By Maria T. Vullo

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.[1]

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

Hong Kong Court Confirms the SFC’s Broad Powers to Share Investigation Materials With Overseas Regulators

By Gareth Hughes, Mark Johnson, Emily Austin, Adam Lee, Christy Leung, Ralph Sellar, Cameron Sim and Emily Lam

Background

In 2014, the Securities and Futures Commission (the “SFC”) commenced an investigation into share trades undertaken by the First Applicant in 2013, after receiving a report from another licensed corporation indicating suspected market manipulation activities by a fund managed by the First Applicant. The trades concerned shares in Nitto Denko Corporation, a Japanese company listed on the Tokyo Stock Exchange.

During the course of the investigation, the SFC sought and obtained various materials from the First Applicant and its majority shareholder and responsible officer, the Second Applicant, pursuant to section 181 of the Securities and Futures Ordinance (the “SFO”). This section empowers the SFC to require the production of information including information about a client, details of a transaction and instructions relating to a transaction from a licensed person. Failure to comply with a demand from the SFC under section 181 without a reasonable excuse is a criminal offence.

In July 2014, the SFC received and acceded to a request for assistance from two Japanese regulators, the Financial Services Agency (the “FSA”) and the Securities and Exchange Surveillance Commission (the “SESC”). In particular, the SFC permitted the Japanese regulators to attend an SFC interview with the Second Applicant and provided them with materials previously disclosed by the Applicants in response to the SFC’s requests for information. Continue reading

Protecting Attorney-Client Privilege and Respecting Fifth Amendment Rights While Cooperating with the Government

by John F. Savarese and Carol Miller

In 2018, two cases illustrated the potential hazards that can arise when companies’ efforts to cooperate with the government later provide a basis for individuals questioned during internal investigations to claim that their Fifth Amendment rights against self-incrimination were compromised.  While these cases, which we summarize below, have the greatest impact in connection with the representation of individuals in such investigations, companies responding to white collar inquiries need to keep these new developments in mind, particularly in conducting internal investigations and working in a cooperative mode with the government.  Companies and their counsel must be mindful of these issues both to insure that individual employee rights are protected and to protect as much as possible the confidentiality and integrity of the company’s review. Continue reading