BSA/AML and KYC in a Crisis: Supervisors Provide Guidance as Financial Institutions Respond to the COVID-19 Pandemic

by Satish M. Kini, David G. Sewell, Zila Reyes Acosta-Grimes, Isabel Espinosa de los Reyes, Robert T. Dura, and Jonathan R. Wong

As the COVID-19 pandemic continues to unfold, the U.S. Congress, Treasury Department and Federal Reserve have taken extraordinary measures that would have been unimaginable just weeks ago in an attempt to stabilize the U.S. economy. Financial institutions are on the front lines of many of the new programs and are otherwise taking steps to support customers and communities affected by the crisis—while also protecting their employees through remote work arrangements and other measures.

Meeting obligations under the Bank Secrecy Act (the “BSA”) and associated anti-money laundering (“AML”) regulations—as well as supervisory know your customer (“KYC”) expectations—is challenging under ordinary circumstances and even more so in these conditions. Regulators have begun to offer guidance regarding their BSA expectations in these challenging circumstances. We highlight and summarize relevant developments below. Continue reading →

The German Corporate Sanctions Act—Heralding a New Era for Enforcement in Germany

by Ralf van Ermingen-Marbach and Finn Zeidler

While corporate criminal liability has become the standard in many countries, as of today, companies in Germany can only be fined under regulatory offense law. German criminal law does not provide for corporate criminal liability.

Now, the coalition parties are seeking to establish a corporate sanctions law addressing corporate criminal conduct. The draft of the Corporate Sanctions Act (“Verbandssanktionengesetz” or the “Act”) introduces a hybrid system of criminal law and regulatory offense law. Companies would be prosecuted and sanctioned under the Act if (i) one of their managers committed a corporate criminal offense (e.g., fraud or bribery) or (ii) if another person committed such an offense while performing duties on behalf of the company when management could have prevented this by taking appropriate compliance measures. After a long and tough debate, the coalition parties have recently agreed on the draft law and are pushing ahead with the legislative process. According to statements from the governing coalition, the German Bundestag could therefore pass the Act even before summer recess. Continue reading →

Federal Banking Agencies Encourage Financial Institutions to Offer Small-Dollar Loans: A Response to COVID-19, and Maybe More?

by Jonathan R. Silverstone

On March 26, the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB) issued an interagency statement encouraging financial institutions to offer small-dollar loans to individuals and businesses impacted by COVID-19 [1]. This statement is one of the latest in a series of releases from the federal banking agencies urging financial institutions to support households and businesses impacted by the outbreak. It is also the most recent development in a larger push by the current administration, predating COVID-19, to get banks back into small-dollar lending. Continue reading →

What the Hoskins Rule 29 Acquittal Reveals About Contesting “Jurisdictional” Issues in American Criminal Justice

by Frederick T. Davis

On February 26, 2020, Judge Janet B. Arterton of the federal district court in Connecticut granted a motion under Rule 29 of the Federal Rules of Criminal Procedure to acquit a defendant of seven counts of which he had been convicted by a jury in November 2019. A post-conviction Rule 29 acquittal is uncommon: A prosecutor armed with a jury verdict only rarely is found not to meet the quite lenient standard that the factual evidence, when viewed “in the light most favorable to the government,” provided a basis for a reasonable jury to convict. Even more unusually, the issue on which Judge Arterton found the prosecution lacking did not go to whether the defendant committed the acts of which he was charged or had the requisite state of mind, but whether the criminal statute applied to him at all—an issue that in much of the world is considered to be a question of “jurisdiction” (or, in Europe, of “competence”). The decision raises troubling questions about how threshold issues in criminal cases are resolved under American criminal procedures. Continue reading →

When Whistleblowers Call: Planning Today for Employee Complaints During and After the COVID-19 Crisis

by Lee Dunst, Jessica Brown, Daniel Weiss, Daniel Rauch, and Peter Baumann

The COVID-19 pandemic has caused unprecedented global economic turmoil and disruption. There are daily reports of massive employee layoffs across all segments of the economy, and millions of people are suddenly out of work. Federal and state governments have stepped in with numerous new, patchwork and ill-defined programs, rules and regulations to address the unemployment crisis and related effects. This is all reminiscent of the days after 9/11 and the 2008 Great Recession. And if what’s past is prologue, companies should expect that current and former employees will unleash an onslaught of allegations about company misconduct, both COVID-19-related and otherwise. Indeed, government regulators and the plaintiffs’ bar are already publicizing various reporting mechanisms for disgruntled employees seeking to raise such claims.

In this context, increased whistleblower complaints are inevitable. While most companies already have policies and processes in place to address those complaints, it is no longer business as usual. Existing programs likely do not account for a displaced and remote workforce, rapid and substantial employee layoffs and furloughs, ongoing work in an environment where health and safety are at the forefront, or any of the countless other disruptions that COVID-19 has caused to a company’s operations. Yet with so many immediate and pressing issues to address during these challenging and unprecedented times, it is understandable that evaluating and updating a company’s whistleblower action plan may not be seen as a mission-critical task. Inaction, however, could have detrimental effects that last long after the pandemic has been contained and the economy has begun to recover. Continue reading →

White Collar and Regulatory Enforcement in the Era of COVID-19

by John F. Savarese, Ralph M. Levene, Wayne M. Carlin, and David B. Anders

When we issued our memorandum (PDF: 231KB) on “what to expect in 2020” concerning white collar and regulatory enforcement developments, we certainly did not expect that just two months later, 41 states would effectively be locked down due to the coronavirus pandemic, many courts would be closed, and governments would be intensely focused on adopting measures responsive to the global health crisis. What we’re now seeing in the white collar/regulatory world is that, instead of pushing forward at their usual pace, prosecutors and regulators are adjusting to a new reality in which live testimony is impractical, courts are on pause and most everyone is working from home. It is impossible to predict when the normal cadence of such investigations will resume, but inquiries of all kinds will undoubtedly return to their normal pace and intensity when the crisis abates. Continue reading →

Accountability and Enforcement Under the CARES Act: What to Expect from the Act’s Oversight Provisions

by Joon H. Kim, Jonathan S. Kolodner, Elizabeth Vicens, and Natalie Noble

On Friday, March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (PDF: 472 KB) (“CARES Act”) became law, marking the third phase of government aid to combat the COVID-19 pandemic. This $2 trillion stimulus package, the largest in American history, will be accessed by wide swaths of the economy, with similarly widespread potential for fraud. Consequently, the accountability and oversight provisions built into the CARES Act, especially of the $500 billion corporate relief fund, warrants attention. Taking its cue from—and seemingly modeled after—the 2008 Troubled Asset Relief Program (“TARP”), the CARES Act establishes a three-part oversight structure, including a Special Inspector General for Pandemic Recovery (“SIGPR”) with far-reaching authority to monitor the $500 billion fund. Based on the experience with TARP oversight and the enforcement actions taken by the Special Inspector General of TARP (“SIGTARP”) over the years, we can expect a high level of scrutiny by SIGPR and the other overseers, as well as potentially years of investigations into fraud and misuse of CARES Act funds resulting in substantial monetary penalties and criminal referrals. Continue reading →

Accounting Fraud 2.0: Increased Enforcement Activity Based on Non-GAAP Metrics

by Arthur Greenspan, James Walker, David Massey and Jakob Sebrow

Accounting fraud has long been a staple of the enforcement program at the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ), as corporate officers and employees continue to engage in efforts to improperly enhance financial results. Based on the widespread use of “non-GAAP” financial metrics by public companies and recent SEC and DOJ emphasis on such measures, we believe that non-GAAP metrics will feature prominently in the government enforcement priorities that are likely to follow the significant market correction caused by COVID-19.

As we discuss below, companies and their senior executives risk SEC and criminal fraud charges based on misuse of non-GAAP metrics, and audit committee members risk scrutiny for failure to maintain adequate internal controls concerning non-GAAP metrics. United States v. Carroll, a criminal case currently pending before Chief Judge Colleen McMahon in the Southern District of New York, is an important example of the government’s expansive theories of materiality and the real risks faced by companies and executives who emphasize non-GAAP measures in their public disclosures and comments. Indeed, a confluence of factors—including the prosecutors’ core theory that the defendants sought to “smooth” an ancillary non-GAAP metric, their reliance on qualitative materiality, and their willingness to bring criminal charges notwithstanding the conclusion of the outside auditors that the misstatements were immaterial—makes Carroll a striking and novel prosecution. Continue reading →

Compliance and Enforcement