Category Archives: Criminal Enforcement

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 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

In Precedent-Setting Case, Two Senior Corporate Executives Indicted for Failure to Report Under the Consumer Product Safety Act

by Jonathan J. Rusch

On March 29, the U.S. Department of Justice announced that on March 28, a federal grand jury in the Central District of California indicted two senior corporate executives with two corporations on multiple counts for their roles in a scheme involving defective and dangerous dehumidifiers made in China.  Simon Chu and Charley Loh, who served respectively as part owners, chief administrative officer, and chief executive officer of the same two corporations in California, were charged with (1) conspiracy (a) to commit wire fraud, (b) to fail to furnish information under the Consumer Product Safety Act (CPSA), and (c) to defraud the U.S. Consumer Product Safety Commission (CPSC); (2) wire fraud; and (3) failure to furnish information under the CPSA.  The Department indicated this was the first time that any individual had been criminally charged for failure to report under the CPSA. Continue reading

The Enforcement of Financial Market Crimes: A Comparative Case Study of Canada and the United Kingdom

by Anita Indira Anand

Strong enforcement of the law governing financial markets improves investment, reduces information asymmetries among corporations and investors, and prevents adverse selection. It has proven to be a deterrent, signaling to potential wrongdoers that criminal activity has serious consequences. It can also provide victims of crime with compensation for their losses. Despite these benefits, developed market economies struggle to develop comprehensive systems which allow for the successful prosecution of financial crimes. Indeed, the law of financial market crime is perhaps the most poorly-enforced branch of criminal law.

While there is no universally-accepted definition of “financial market crime,” the term typically refers to “any non-violent crime that generally results in a financial loss.”[1] In my comparative analysis of the enforcement of financial market crimes in Canada and the United Kingdom (UK), I argue that financial market crimes have low enforcement rates for a multiplicity of reasons common to both jurisdictions. To begin, financial market crimes have historically been relatively low priority for law enforcement officials who are required to devote increasing resources to violent crimes. In addition, and perhaps relatedly, law enforcement infrastructure lacks financial resources, which undermines the investigation and prosecution of financial market crime and fraud cases. Furthermore, technology, especially the prevalence of social media, has allowed new types of fraud to develop, with insufficient tools and financial resources to deal with them. Finally, past treatment of financial market criminals as pillars of the community who have merely had a fall from grace has weakened public perceptions of the harm caused by these crimes.

In both the UK and Canada, there is a lack of coordination among enforcement agencies when these crimes are investigated and prosecuted. While market regulation is more centralized in the UK, both countries rely on multiple agencies – and require those agencies to work together for the system to properly function. Theoretically, this integrated approach to financial market crime enforcement should work. Yet, in both countries, problems have arisen as regulators struggle to determine which agency (or agencies) should be responsible for tackling a specific financial crime, and handle issues of information sharing between national and local law enforcement teams. This lack of proper coordination has hampered officials in both countries as they attempt to prosecute and prevent financial market crime. In light of these issues, I propose three main reforms. Continue reading

France Boosts Tax Fraud Prosecution

by Antoine F. Kirry, Frederick T. Davis, Eric Bérengier, Alexandre Bisch, Robin Lööf, Aymeric D. Dumoulin, Alice Stosskopf, Fanny Gauthier, and Line Chataud

On October 23, 2018, the French Parliament enacted a law aimed at combatting fraud (the “Law”).[1] The most innovative provisions of the Law change key procedural aspects of tax law enforcement, which is likely to result in an increased number of criminal tax fraud prosecutions against both individuals and legal entities. The Law also addresses customs and social security frauds.

Tax Fraud Prosecution: Open the Floodgates Continue reading

What’s in a Name? That Which We Now Call the Justice Manual Has a Familiar, But Distinctive, Scent

by Katya Jestin, David Bitkower, Matthew D. Cipolla, Anne Cortina Perry, and Jessica A. Martinez

On September 25, 2018, Deputy Attorney General Rod Rosenstein announced the rollout of the “Justice Manual” – a revised and renamed version of the U.S. Attorneys’ Manual, a long-used reference for Department of Justice (DOJ) policies and procedures.[1] The most significant changes appear to be confined to anticipated codifications of well-publicized new policies (although one such policy was, puzzlingly, omitted). But some other changes have not been previously addressed by Department leadership, and may provide insight into the Department’s mindset in light of recent events.

The recent rollout was the culmination of a yearlong review and overhaul of the Manual, the first in more than 20 years.[2] This initiative to streamline DOJ policies and revamp the U.S. Attorneys’ Manual was announced by Deputy AG Rosenstein last October in a speech at NYU. Rosenstein explained in his initial announcement that the project would work to identify redundancies, clarify ambiguities, eliminate surplus language, and update the Manual to reflect current law and DOJ practice, including through the incorporation of outstanding policy memoranda.[3] According to DOJ’s recent announcement, the name change from “U.S. Attorneys’ Manual” to “Justice Manual” not only reflects this significant undertaking by DOJ employees, but also emphasizes the applicability of the Manual to the entire Department, beyond the U.S. Attorneys’ Offices.[4] Continue reading

KBR Inc.: Foreign Companies Can Now Be Compelled to Produce Documents to the UK Serious Fraud Office

by Christine Braamskamp and Kelly Hagedorn

On 6 September 2018, following hot on the heels of the important decision on the application of litigation privilege in internal investigations in ENRC v Serious Fraud Office[1] (read our recent summary here), the Administrative Court handed down its judgment in R (KBR Inc.) v Serious Fraud Office[2] concerning the Serious Fraud Office’s (SFO) powers to compel the production of documents held outside of the United Kingdom by companies incorporated outside of the  United Kingdom.  The Administrative Court held that where there is a “sufficient connection” to the United Kingdom, the SFO can compel the production of such documents. Continue reading

Court Of Appeal In London Overturns Widely Criticised High Court Judgment In SFO V ENRC

by Patrick Doris, Sacha Harber-Kelly, Richard Grime, and Steve Melrose

I. Introduction

Today the Court of Appeal of England and Wales issued its judgment in The Director of the Serious Fraud Office and Eurasian Natural Resources Corporation Limited[1] regarding the privileged nature of documents created in the context of an internal investigation.

The Court of Appeal reversed the High Court’s decision and found that all of the interviews conducted by ENRC’s external lawyers were covered by litigation privilege, and so too was the work conducted by the forensic accountancy advisors for the books and records review. The Court of Appeal found that ENRC did in fact reasonably contemplate prosecution when the documents were created. Moreover, while determining that it did not have to decide the issue, the Court of Appeal also stated that it may also have departed from the existing narrow definition of “client” for legal advice privilege purposes in the context of corporate investigations. Continue reading

Second Circuit Curbs FCPA Application to Some Foreign Participants in Bribery

by Kara Brockmeyer, Colby A. Smith, Bruce E. Yannett, Philip Rohlik, Jil Simon, and Anne M. Croslow

I. Introduction

On August 24, 2018, the Second Circuit handed down its long-awaited decision in United States v. Hoskins, [1] addressing the question of whether a non-resident foreign national can be held liable for violating the FCPA under a conspiracy theory, where the foreign national is not an officer, director, employee, shareholder or agent of a U.S. issuer or domestic concern and has not committed an act in furtherance of an FCPA violation while in the U.S.  In a word, the court held that the answer is “no,” concluding that the government may not “expand the extraterritorial reach of the FCPA by recourse to the conspiracy and complicity statutes.”[2]  The court added, however, that the same foreign national could be liable as a co-conspirator if he acted as an agent of a primary violator. 

While the ruling is undoubtedly an important curb on some potential sources of liability for foreign entities and individuals, the availability of agent liability may limit the practical impact of the decision for many non-resident foreign nationals.  Unfortunately, the decision did not address the scope of agent liability under the FCPA, leaving that issue open.  As a result, further development in this and subsequent cases — especially with respect to the meaning of “agency” under the FCPA — will necessarily be required before the full impact of the Hoskins ruling becomes clear. However, the decision is likely good news for foreign companies that enter into joint ventures with U.S. companies and some other classes of potential defendants, as it may be harder for the U.S. government to charge them with FCPA violations. Continue reading