Tuesday, January 29, 2008
As anticipated here, the DOJ has announced in a press release that "Sigue Corporation and Sigue, LLC (“Sigue”), San Fernando, California-based money service businesses, entered into a deferred prosecution agreement on charges of failing to maintain an effective anti-money laundering program and will forfeit $15 million to the U.S. government." In addition the "Financial Crimes Enforcement Network (FinCEN) announced the assessment of a civil money penalty in the amount of $12 million against Sigue Corporation and Sigue, LLC, . . . . for violations of the Bank Secrecy Act (BSA). Sigue, without admitting or denying the allegations, consented to the civil money penalty." (see here)
The DOJ reports that the Information was filed in the Eastern District of Missouri and that it "charges Sigue with one count of failing to maintain an effective anti-money laundering program." The press release states that
"The company will pay $15 million to the United States, representing funds that are subject to forfeiture as a result of the criminal charge, and has agreed to commit an additional $9.7 million to improving its anti-money laundering program. In light of Sigue’s remedial actions to date and its willingness to accept responsibility for its anti-money laundering failures, the government will recommend the dismissal of the charge in 12 months, provided the company fully implements the significant anti-money laundering and Bank Secrecy Act measures required by the agreement, and complies in all other respects with the terms of the agreement."
The requirements placed by the government on those doing money transfers in the United States is highlighted in this passage of the DOJ press release -
"The charges filed today arose out of transactions conducted by Sigue and its authorized agents from November 2003 through March 2005. Sigue operates by and through more than 7,000 money remitter agents across the country. During this time, more than $24.7 million in suspicious transactions were conducted through registered agents of Sigue, including transactions conducted by undercover U.S. law enforcement agents using funds represented to be proceeds of drug trafficking. Sigue filed suspicious activity reports (SARS) on the obviously structured transactions, but ultimately failed to identify the broader patterns of money laundering activity and prevent the unlawful activity from continuing. Sigue failed to create systems and procedures to identify suspicious financial transactions being conducted by related senders and beneficiaries, from the same or multiple remitter agent locations on the same day, or over several days, months, and, in some cases, years."
The agreement makes it very clear that companies, like Sigue, who are in the business of handling money transfers will pay dearly if they fail to implement systems that will assist the government in monitoring monetary transfer activities. One can anticipate a strong corporate compliance program being used at Sigue.
Friday, January 25, 2008
Former Monster Worldwide CEO Andrew McKelvey entered into a deferred prosecution agreement with the U.S. Attorney's Office for the Southern District of New York (available below) related to options backdating at the company. This is the second such deferral agreement involving an individual in a white collar crime case that I'm aware of, the other one involving former investment banker Frank Quattrone to settle obstruction of justice charges. While the Department of Justice has entered into these agreements with corporations with increased regularity, they are uncommon for individuals, with both coming from the same office and each involving special circumstances. For Quattrone, the government would have had to try him a third time, after the first proceeding ended with a hung jury and the conviction after the second trial reversed due to improper jury instructions -- and the case would be transferred to a new judge because of a perception of possible bias by the judge in the first two trials.
The reason given for the DPA with McKelvey is that he is suffering from a terminal medical condition, so that it would be unlikely a trial could take place on the charges, and even if there was a conviction it would be unlikely to survive under the abatement doctrine applied in federal cases. The DPA essentially requires McKelvey to obey the law for twelve months and restrict his travel. He acknowledged his involvement in backdating options at Monster Worldwide from 1997 to 2003, and the company's former general counsel earlier entered a guilty plea to charges related to the backdating and was cooperating in the investigation. A U.S. Attorney's Office press release (here) discusses the DPA, and the SEC also entered into a settlement with McKelvey that requires him to disgorge profits of $275,000 but does not impose a civil penalty due to his illness (see SEC Litigation Release here).
The disposition in this case appears to be based on the unique situation of the defendant, and does not seem to signal a trend toward using DPAs to resolve cases involving individuals involved in corporate misconduct. I suspect, however, that defense lawyers may try to push for such dispositions in the future for individual clients in addition to corporations, and it will be interesting to see if these agreements become more common. (ph)
Friday, January 11, 2008
A standard feature of most deferred and non-prosecution agreements involving corporations is the appointment of an outside monitor to ensure the company's compliance with the terms of the settlement, which often includes increased internal controls and other changes to the line of business that triggered the investigation. These agreements have become the norm these days, and hardly a month goes by without an announcement that a case has been resolved and a monitor appointed. There are no rules related to DPAs, with each U.S. Attorney's Office and the Department of Justice sections pretty much on their own regarding the particulars of the agreement. The "Wild West" aspect may be coming to an end, however, as the Department disclosed that it is looking at adopting internal guidelines for the selection of monitors and the standards for entering into DPAs. This comes on the heels of Congressional pressure to rein in the discretion of U.S. Attorneys, specifically the U.S. Attorney in New Jersey, who picked the monitors for five medical implant suppliers as a condition of settling a case involving improper kickbacks. The tipping point was the revelation that one of the five, former Attorney General John Ashcroft, the monitor for Zimmer Holdings, will be paid anywhere from $29 million to $52 million for the work by his firm. These positions can be quite lucrative, and as I discussed in an earlier post (here), the monitored company has little leverage in controlling the costs of the monitorship because it has a powerful incentive to cooperate at almost any cost to get out from under the DPA.
Congress has started to weigh in on the matter. Letters from the chairmen of the House and Senate Judiciary Committees to Attorney General Mukasey seek information about the appointment of monitors. Senator Leahy's letter (here) states, "Please provide the Judiciary Committee with a list of all contracts, including dollar amounts, awarded since 2001 to outside lawyers retained by companies for monitoring compliance with out-of-court settlements reached in criminal investigations between companies and the Department. Please also explain the procedure followed to select the person or firm monitoring compliance." The monitors work for the company, not the federal government, so it is unlikely the Department of Justice has access to most contracts for serving as a monitor. The Department has little interest in getting involved in such details, so to gather that information the Committee may have to contact each company, a much more laborious process. Regarding the procedure for selection, the simple answer is that there does not appear to be one, or at least each district has its own process. The promise of Congressional hearings will likely push the Department of complete its internal guidelines as soon as possible to avoid having legislation proposed on the issue.
One appeal of DPAs has been the fact that they are subject to almost no outside oversight: the judiciary does not become involved in the negotiation or approval of the agreement because it is only a contract between the parties, and there have been no general guidelines by the Main Justice about what types of cases are appropriate for resolution by a DPA. That will change in the near future now that the agreements, especially the appointment of monitors, has come under greater scrutiny. An interesting question will be whether greater regulation means these agreements will be used less frequently. A Newark Star-Ledger story (here) discusses the situation. (ph)
Monday, January 7, 2008
A new item on SSRN provides some interesting statistics on deferred prosecution agreements. AUSA Ryan McConnell (not writing on behalf of the department) and Lawrence D. Finder of Haynes & Boone posted a piece entitled, "Annual Corporate Pre-Trial Update 2007." They present three trends from 2007.
- "First, the number of corporate pre-trial agreements rose sharply from 2006 to 2007."
- "Second, the number of corporate pre-trial agreements containing attorney client privilege and work-product waivers has declined significantly."
- "Finally, two thirds of all agreements involved violations of either the Foreign Corrupt Practices Act (FCPA) or the federal health care laws."
The piece provides a detailed analysis of each of these conclusions.
Sunday, January 6, 2008
Just a week ago the deferred prosecution agreement between DOJ and University of Medicine and Dentistry of New Jersey ended. But a news report (Newsday-AP) is saying that the monitor's report does not give this medical facility a completely clean bill of health. (see here).
Wednesday, December 19, 2007
New Jersey Congressman Bill Pascrell, Jr., has proposed that the House Judiciary Committee and the Department of Justice work together on legislation, or at least adopt internal policies, to guide the drafting and implementation of deferred prosecution agreements. Hardly a month goes by without a DPA or non-prosecution agreement being reached with a company under investigation, the most recent one in the District of Rhode Island with the local Blue Cross & Blue Shield insurance provider related to improper payments to elected officials (see earlier post here). While these agreements are now the preferred means for resolving a wide array of corporate crime investigations, there are no guidelines for when a company can receive one or how the outside monitors, a common feature of most agreements, should be selected and compensated.
Representative Pascrell submitted to the Committee and Department a Statement of Principles on Deferred Prosecution Agreements that outlines four areas that should be addressed:
- Require guidelines on deferred prosecution agreements;
- Restore judicial oversight of deferred prosecution agreements;
- Take the selection of federal monitors out of the hands of U.S. Attorneys;
- Require full disclosure of deferred prosecution agreements.
A letter to Attorney General Mukasey from Congressman Pascrell (available below) notes that these issues could be addressed by internal DoJ guidelines, but at this point there has not been any apparent move in that direction. Now that Congress has started to pay attention to DPAs, the issue most likely is whether future regulation is done internally or through legislation. For the U.S. Attorneys who have enjoyed substantial freedom in crafting these agreements, the process of negotiating and implementing DPAs probably will get a bit more complicated. (ph)
Saturday, December 15, 2007
The on-going corruption probe in Rhode Island -- dubbed Operation Dollar Bill -- snared another non-profit when Blue Cross & Blue Shield of Rhode Island entered into a deferred prosecution agreement with the U.S. Attorney's Office. The case involves payments by BCBSRI to three members of the state Senate while the insurer was lobbying for favorable legislation. The illicit payments involved $75,000 to a communications company for a cable television show one senator hosted, $175,500 to a second Senator for 10 million paper bags for a pharmacy promotion by BCBSRI but only 2 million were delivered, and $400,000 in insurance commissions to the president of the state Senate.
The DPA is similar to others we are seeing with increased regularity. BCBSRI will pay a $20 million fine, which will go to a foundation to be used to provide affordable health services, and must appoint an independent monitor with the U.S. Attorney's approval. The attorney-client privilege waiver provision is a bit more onerous than I've seen in recent DPAs. BCBSRI agrees not to assert the attorney-client privilege or work product protection for any factual material generated in its internal investigation, except for communication with counsel about the criminal investigation. Another provision states that providing the materials does not constitute a waiver of the protections as to third parties, but that may be worthless under the majority rule on selective waiver.
Prior to the disclosure of the DPA, four BCBSRI executives were terminated by the company, and I suspect we will see one or more indicted on corruption charges in the near future. Two of the state Senators who received money from the company have entered guilty pleas, and Roger Williams Medical Center, a Rhode Island hospital caught up in Operation Dollar Bill, got its own DPA in 2006, one of the first cases involving a non-profit organization. (ph)