Tuesday, January 19, 2016
White collar crime in sports has been a topic of much discussion over the last year, including the widespread coverage of corruption allegations against high ranking officials with FIFA (discussed here). Now it appears that the tennis word is coming under greater scrutiny as a BuzzFeed and BBC article is released discussing what they describe as "widespread match-fixing by players at the upper level of world tennis."
The article, entitled The Tennis Racket, was released over the weekend and immediately provoked much discussion. The story details evidence of match-fixing, including the involvement of Russian and Italian gambling syndicates. According to the authors, tennis's governing body has been repeatedly warned about the activities of a core group of sixteen players, each of whom has ranked in the top 50 and some of whom are winners of singles and doubles at Grand Slam tournaments. According to the report, none of the sixteen have been sanctioned and more than half will be playing in the Australian Open, which started today. Included in the article is a fascinating discussion of a 2007 match in which the betting was so suspicious, Betfair (the world's largest internet betting exchange) suspended the market and announced for the first time in its history that all bets on the match were void.
After the release of this article, it appears all eyes over the next couple of weeks will be on both the matches at the Australian Open and these serious allegations of misconduct. The question now is whether this story will mark the beginning of a journey for the tennis world similar to the one the soccer world has experienced over the last year.
Monday, January 4, 2016
Guest Blogger - Dmitriy Kamensky, Fulbright Faculty Development Fellow, Stetson University College of Law; Professor of Law, Berdyansk State University, Ukraine.
On Dec. 30, just as corporate and the rest of America was getting ready to celebrate the New Year, one of the top-tier Swiss banks, Julius Baer Group, announced (see here) that it had reached an agreement in principle with the U.S. Attorney’s Office for the Southern District of New York, related to a long and extensive investigation into aiding American customers to evade millions of tax dollars. The bank said it set aside $ 547 million to settle the matter with the Justice Department and expects to enter a final settlement in the first quarter of 2016.
This final development of the Julius Baer case is the latest of about a dozen Swiss financial institutions that came under DOJ scrutiny for allegedly providing American customers (and taxpayers) with numbered accounts that were protected by Swiss bank-secrecy laws, thus effectively helping U.S. taxpayers underreport their taxes.
In February of 2009, UBS AG, the largest Swiss bank worth over $ 1 trillion in assets, entered into a Deferred Prosecution Agreement (DPA) with the Department of Justice for $780 million (see here). The bank has acknowledged that between 2000 and 2007 it has participated in a cross-border scheme with the purpose of defrauding the United States and the Internal Revenue Service. The scheme was designed to aid American customers in evading federal taxes, by dodging their money to numbered UBS accounts. Under growing pressure from the U.S. authorities, the bank and later the Swiss government agreed to cooperate, by granting access to American accounts and later relaxing bank secrecy laws altogether.
Then in 2014 another larger Swiss lender, Credit Suisse Group AG, moved to settle a similar criminal probe by pleading guilty to conspiracy to aid its American clients in filing false income tax returns with the IRS. The bank agreed to pay $ 2.6 billion in criminal fine, restitution and other penalties (see here).
With the case of Julius Baer outlining the final part of multiyear aggressive probes by DOJ into the Swiss banking industry and tax dodging operations, it becomes clear that bankers across the globe are being given a serious (and quite expensive) warning: do not mess with American tax laws; federal prosecutors and tax agents have long arms.
Monday, November 30, 2015
According to Reuters, a judge approved Britain's first Deferred Prosecution Agreement today. The below is from the Serious Fraud Office's (SFO) press release.
The Serious Fraud Office's first application for a Deferred Prosecution Agreement was today approved by Lord Justice Leveson at Southwark Crown Court, sitting at the Royal Courts of Justice.
The counterparty to the DPA, Standard Bank Plc (now known as ICBC Standard Bank Plc) ("Standard Bank"), was the subject of an indictment alleging failure to prevent bribery contrary to section 7 of the Bribery Act 2010. This indictment, pursuant to DPA proceedings, was immediately suspended. This was also the first use of section 7 of the Bribery Act 2010 by any prosecutor.
As a result of the DPA, Standard Bank will pay financial orders of US$25.2 million and will be required to pay the Government of Tanzania a further US$7 million in compensation. The bank has also agreed to pay the SFO's reasonable costs of £330,000 in relation to the investigation and subsequent resolution of the DPA.
In addition to the financial penalty that has been imposed, Standard Bank has agreed to continue to cooperate fully with the SFO and to be subject to an independent review of its existing anti-bribery and corruption controls, policies and procedures regarding compliance with the Bribery Act 2010 and other applicable anti-corruption laws. It is required to implement recommendations of the independent reviewer (Price Waterhouse Coopers LLP).
DPAs are a new settlement vehicle in the U.K., as discussed in my article International White Collar Crime and Deferred Prosecution Agreements. One should expect that now the first DPA has been approved, U.K. enforcement bodies will begin aggressively using DPAs in the coming years. As the Director of the SFO, David Green, said of the Standard Bank DPA, "This landmark DPA will serve as a template for future agreements."
The press release and links to the Standard Bank DPA are available on the SFO website.
Wednesday, November 25, 2015
Last week, the American Bar Association Criminal Justice Section held the inaugural Global White Collar Crime Institute in Shanghai, China. The event was a tremendous success with participants from around the globe coming together to hear from prosecutors and judges, defense counsel and accountants, in-house counsel and academics. On the first day, we were honored to be joined by Deputy Assistant Attorney General Sung-Hee Suh. DAAG Suh delivered the keynote luncheon address and touched on many important and timely issues related to white collar crime. Below, I'll specifically mention just two of the areas discussed.
First, DAAG Suh discussed the Yates memo and provided additional information about the government's current perspective on corporate cooperation. DAAG Suh said:
In her memo, Deputy Attorney General Yates announced a policy change designed to further enhance the likelihood that individuals who are responsible for corporate crime will be held accountable. The existing policy stated that, in deciding whether to give a company credit for cooperation, a criminal prosecutor “may” consider a number of factors – including the company’s willingness to give information about individuals. The new policy means that the “may” has now become a “must.” In other words, in deciding whether to give a company credit for cooperation, a prosecutor now “must” consider the company’s willingness to give information about individuals. And a company that does not provide this information will not be eligible for any cooperation credit. Previously, companies could receive varying degrees of credit for varying degrees of cooperation. Now, a company will receive no credit for cooperation unless, at minimum, it does what it can to identify individuals involved in the conduct, whatever their level of seniority or importance within the company.
(emphasis in original).
Second, DAAG Suh discussed the Department of Justice's recent hiring of a new compliance counsel to assist them in analyzing and evaluating corporate compliance programs. DAAG Suh said:
Self-disclosure, cooperation and remediation are all steps that a company can take after the fact, but the Justice Department is just as committed to preventing corporate wrongdoing from occurring in the first place. To that end, the Department has long placed great emphasis on the importance of an effective corporate compliance program. In the U.S., there is no affirmative defense based on the company’s corporate compliance program, but the Filip Factors have long provided that in conducting an investigation of a corporation, determining whether to bring charges, or in negotiating plea or other agreements, prosecutors should consider, among other factors, “the existence and effectiveness of the corporation’s preexisting compliance program.”
Fundamentally we ask, is the corporation’s compliance program well designed? Is the program being applied earnestly and in good faith? And does the corporation’s compliance program generally work? This is common sense in broad strokes. But prosecutors are no experts in the nuances of corporate compliance programs. Indeed, over the past twenty years in particular, the role of compliance has been evolving, becoming more sophisticated, more industry-specific and more metrics-oriented. Many companies have rightly tailored compliance programs to make sense for their business lines, their risk factors, their geographic regions and the nature of their work force, to name a few. But many have not.
The Fraud Section has therefore retained an experienced compliance counsel. She started only two weeks ago, so it’s still too early to talk about specifics. But I can tell you generally that we wanted to get the benefit of someone with proven compliance expertise, so as to probe compliance programs in terms of both industry best practices and real-world efficacy. This compliance counsel will help us assess a company’s claims about its program, in particular, whether the compliance program is thoughtfully designed and sufficiently resourced to address the company’s compliance risks, or is – at bottom – largely window dressing.
No compliance program is foolproof. We understand that. We also appreciate that the challenges of implementing an effective compliance program are compounded by the everincreasing cross-border nature of business and of criminal activity. Many companies’ businesses are all over the world. They are creating products and delivering services not only here in China but overseas and are operating across many different legal regimes and cultures. We also recognize that a smaller company doesn’t have the same compliance resources as a Fortune-50 company. Finally, we know that a compliance program can seem like “state of the art” at a company’s U.S. headquarters, but may not be all that effective in the field, especially in far-flung reaches of the globe.
The Fraud Section’s compliance counsel – who, notably, has worked as a compliance officer here in China, as well as in the U.S. and the U.K. – has the concrete experience and expertise to examine a compliance program on both a more global and a more granular level. More so than ever, it is critical that companies have vigorous compliance programs to deter and detect misconduct. Our compliance counsel will give our prosecutors more tools to intelligently assess them.
DAAG Suh's entire comments at the inaugural Global White Collar Crime Institute are available here.
I was also pleased to announce in my closing remarks to the Institute in Shanghai that the second Global White Collar Crime Institute will take place in South America in the spring of 2017. I hope to see you there.
Monday, September 7, 2015
Registration is now open for the Inaugural ABA Criminal Justice Section Global White Collar Crime Institute, which will take place November 19-20, 2015 at the Ritz-Carlton Shanghai Pudong in Shanghai, China. The event is done in collaboration with the KoGuan Law School of the Shanghai Jiao Tong University. I am honored to serve as the Institute Chair and hope to see many of our blog readers at the event.
This conference will be an incredible opportunity to interact with prosecutors, judges, defense counsel, accountants, in-house counsel, and academics from the U.S., China, and other parts of the world as they convene to discuss the complexities of international white collar crime.
More from the registration website:
The goal of the conference is to bring the energy and excitement of our previous international white collar crime conferences to Asia and create unique opportunities for our participants to network and explore the legal complexities of white collar crime in the growing Chinese legal market. Conference topics will include:
- General Counsels’ Roundtable
- Enforcers' Roundtable
- How to Conduct an International Internal Investigation
- Recent Developments in Global Antitrust Cartel Enforcement and Anticipated Implications for China and Asia
- Comparative Legal Systems & Special Enforcement Issues in China, the US & Beyond
- Year in Review: Lessons Learned from Recent White Collar Crimes Prosecutions in China & the US
- Trends Regarding Anti-Corruption Enforcement in China & the US
- Cyber Crime & Virtual Currencies
- Social Responsibility of Corporations
LUNCHEON KEYNOTE SPEAKER – November 19
Sung-Hee Suh, U.S. Deputy Assistant Attorney General
Suh was appointed in Sept. 2014 as the U.S. Department of Justice's Deputy Assistant Attorney General overseeing the Criminal Division's Fraud, Appellate and Capital Case Sections. She re-joined the Department after 15 years in private practice at Schulte Roth & Zabel LLP in New York, where she was a partner in the Litigation group and focused on representing institutions and individuals in financial fraud, securities regulatory, Foreign Corrupt Practices Act, anti-money laundering and sanctions matters.
The complete program is also now available on the ABA CJS registration website.
Tuesday, June 2, 2015
Yesterday I skimmed through the FIFA indictment referred to by my colleague Lucian Dervan on May 26, 2015 ("FIFA Officials Facing Corruption Charges"), primarily to determine how the government justified jurisdiction over alleged criminal activities that largely, seemingly almost entirely, occurred in other nations, a complaint made by none other than Vladimir Putin. Upon review, I believe the indictment, apparently drafted with that question in mind, facially makes a reasonably strong case for U.S. jurisdiction, based largely, although not entirely, on money transfers through U.S. financial institutions.
There remains, however, the question whether the U.S. Department of Justice should assume the role of prosecutor of the world and prosecute wrongs, however egregious, that were almost wholly committed by foreigners in foreign nations and affected residents of those foreign nations much more than residents of the United States. Our government's refusal to submit to the jurisdiction of the International Criminal Court is arguably inconsistent with our demand here that citizens of other nations submit to our courts.
On another subject, what struck me as just wrong was a minor part of the indictment, the obstruction of justice charge against Aaron Davidson, one of the two United States citizens indicted (the other, a dual citizen, is charged with procuring U.S. citizenship fraudulently). While the obstruction of justice count itself (count 47) is a bare bones parsing of the statute, the lengthy 112-page preamble to the actual recitation of counts (to me in clear violation of Fed. R. Crim. P. 7(c), which says the indictment "must be a plain, concise and definite written statement")(emphasis added) describes Davidson's allegedly criminal conduct as follows: "Davidson alerted co-conspirators to the possibility that they would be recorded making admissions of their crimes."
Such advice is provided as a matter of course - absolutely properly and professionally, in my opinion - by virtually every white-collar or other criminal lawyer representing a target of a criminal investigation. Since lawyers are given no special treatment different from others, if these facts justify a criminal conviction, a lot of white-collar lawyers will be counting the days until the five-year statute of limitations has passed since their last pre-indictment stage client meeting.
The obstruction of justice statute is so vague that it gives the government the opportunity to charge virtually any effort by lawyers or others to advise persons under investigation to exert caution in talking with others. The applicable statute, the one used against Davidson, prescribes a 20-year felony for "whoever corruptly...obstructs, influences, or impedes any official proceeding, or attempts to do so..." 18 U.S.C. 1512(c)(2). That catch-all statute, which follows one proscribing physical destruction of tangible evidence, to me is unconstitutionally vague, but courts have generally upheld it and left the determination of guilt to juries on the ground the word "corruptly," which itself is subject to many interpretations, narrows and particularizes it sufficiently. I hope that the presiding judge in this case, the experienced and respected Raymond Dearie, does not allow that count to get to the jury.
Tuesday, May 26, 2015
According to CNN, the U.S. Department of Justice is preparing to bring corruption charges against up to 14 senior officials at FIFA, the world's soccer governing body. The reports from CNN come from "law enforcement officials." According to the New York Times, several FIFA officials have already been arrested in Switzerland in a "extraordinary early-morning operation."
FIFA has been under investigation for some time, including with regards to the bidding process for the 2018 and 2022 World Cups, which will occur in Russia and Qatar. FIFA conducted an internal investigation of the selection process for each event. The investigation was led by Michael Garcia of Kirkland & Ellis. Garcia submitted his report to FIFA in September 2014. FIFA then released a "summary" of the report's findings, which summary Garcia alleged was "erroneous." Garcia resigned as independent chair of the FIFA Ethics Committee's Investigatory Chamber in December 2014.
One issue that will be interesting to watch in this case is the manner by which the U.S. alleges jurisdiction over the senior FIFA officials despite the fact that alleged corruption occurred overseas and FIFA is an association governed by Swiss law. According to CNN, the U.S. will allege jurisdiction exists because of the breadth of U.S. tax and banking regulations. Further, the government will reportedly rely in part on the fact that significant revenue is generated by the U.S. television market. This is certainly a case we will be hearing a lot about in the coming months.
Wednesday, January 21, 2015
For more than a year now, the Australian Securities and Investments Commission has been investigating a number of large Australian banks regarding allegations of collusion in the setting of the Bank Bill Swap Rate (BBSR). The BBSR is an interest rate benchmark that is used when banks lend to one another. This rate also impacts business and home loan rates. As details regarding the investigation begin to trickle out, one Australian commentator in the Sydney Morning Herald has said that this “could well prove to be the largest corporate scandal of 2015.” According to the commentator’s article, one bank, ANZ, has suspended seven BBSR traders, including the suspension of the head of the bank’s balance sheet trading earlier this month (see here). The article further states that ANZ has launched an internal investigation into the matter. While the article notes that other Australian banks may have also launched internal investigations, the banks have made no public statements regarding any such inquiries.
As readers of this blog will recall, in 2012 an investigation began into allegations that several large banks had been manipulating the London Interbank Offered Rate (Libor). The scandal received significant international attention. Eventually, the US, UK, and EU fined the banks involved more than $6 billion. Further, several traders were prosecuted for their roles in the manipulation. For more on the Libor Scandal, see the Council on Foreign Relations Backgrounder available here.
Based on recent reports from Australia, it sounds like the Australian BBSR investigation might be the next big international white collar case to watch in 2015.
Monday, January 12, 2015
A former Peru president is convicted "of funneling more than $40 million in public funds to tabloid newspapers that smeared his opponents during his 2000 re-election campaign." See AP, Former Peru President Convicted of Corruption
Wednesday, January 7, 2015
As we start off the year, I thought I would mention an issue that will likely be widely discussed in 2015 – collateral consequences.
As I mentioned in this 2014 post, I moderated a panel discussion regarding collateral consequences at the 2014 ABA CJS White Collar Crime Institute in London last October. That discussion raised a number of interesting issues and made clear that this is a topic that is growing in prominence internationally. As we move into 2015, the ABA continues to work on the ABA National Inventory of Collateral Consequences of Conviction, a database with which every attorney should be familiar. Later this year, the ABA will also convene a National Summit on Collateral Consequences, which will bring together a host of experts from around the country to discuss important issues related to this topic.
The NACDL has also been working hard on the issue of collateral consequences. According to the organization, over 70 million Americans have some form of criminal record and there are over 50,000 known collateral consequences of conviction. In May of last year, the NACDL launched a major new report entitled Collateral Damage: America’s Failure to Forgive or Forget in the War on Crime – A Roadmap to Restore Rights and Status After Arrest and Conviction. According to the NACDL website, “The report is a comprehensive exploration of the stigma and policies relegating tens of millions of people in America to second-class status because of an arrest or conviction. In addition, the report lays out ten recommendations to ensure that the values of life, liberty and the pursuit of happiness are within reach of all, regardless of past mistakes.” It is certainly worth a read.
As 2015 gets underway, this is one topic to keep an eye on, and the above resources from the ABA and NACDL are a great way to get up to speed.
Friday, December 5, 2014
Transparency International has released their 2014 Corruption Perceptions Index. The Index contains a wealth of information regarding the perceived levels of public sector corruption in 175 countries and territories. Topping this year’s list with the highest score, thus indicating very low perceived levels of public sector corruption, is Denmark, which received a score of 92. Denmark is followed closely by New Zealand, which received a score of 91. At the bottom of the list are North Korea and Somalia, each with a score of 8. The United States is ranked 17th with a score of 74.
Along with interesting charts, figures, and analysis, the report contains stories of corruption from select locations. These include stories about corruption related to pharmaceuticals, medical care, food aid, education, and rule of law.
A very interesting report worth spending some time examining.
Friday, October 31, 2014
Earlier this month, I had the pleasure of once again attending the ABA Criminal Justice Section’s annual International White Collar Crime Institute in London. This year’s event included a host of excellent speakers from around the world addressing some of the most pressing issues in the field. I thought I would take just a few moments to share some of the insights and themes from the conference.
First, there was much discussion about deferred prosecution agreements in the UK. Though a very common means of resolving a criminal investigation in the US, DPAs only became possible in the UK earlier this year. Thus far, no DPAs have been announced in the UK. That might be about to change, however, as several speakers informed the audience that there are rumors in London that the first such DPA may be entered into towards the end of this year. We’ll be keeping an eye out for this significant development.
Second, many speakers pointed out important differences that exist globally when discussing white collar crime and enforcement. For example, in the UK, the SFO prefers that corporations not interview employees during an internal investigation. Once the US DOJ becomes involved, however, the DOJ tends to insist on interviews, thus creating a conflict of approaches. As another examples, the trend of requiring monitors as part of settlements is beginning to lose favor in the US. By comparison, the UK is currently moving towards monitorships. As a final example, the role of whistleblowers remains drastically different around the globe. In the US, whistleblowers and whistleblower incentive programs like the FCA and Dodd-Frank are generally considered important tools for discovering misconduct. In France, by comparison, whistleblowing is discouraged. In fact, according to our speakers, in France it would be illegal for an employer to require employees to engage in any form of whistleblowing. These are just a handful of examples of the significant differences that exist around the world and that create complex issues for resolution in cross-border criminal investigations and prosecutions.
Finally, I’ll briefly mention the panel I moderated. The panel examined collateral consequences of conviction around the world. Collateral consequences are an issue that is garnering much attention in the United States today. This is partly because of the ABA’s collateral consequences website, which is an excellent tool for researching the collateral consequences that might be applicable in a particular case. The website also gives some incredible insights into the breadth and scope of these collateral consequences. In Illinois, for examples, there are 2,266 statues, rules, and regulations imposing various collateral consequences. These include things like losing the right to vote, the right to drive, and the right to hold public office. One might lose a public pension, a business license, or even parental rights. One might lose access to public housing and food stamps. The list is voluminous. One of the most unusual collateral consequences in Illinois makes it a felony for a felon to “knowingly own, possess, have custody, or reside in residence with… an unspayed or unneutered dog or puppy older than 12 weeks of age…." Our conversation in London revealed that the trend of expanding collateral consequences is not limited to the United States. In the UK, prosecutors are now more likely to put forward collateral consequences during a prosecution and the courts are becoming more likely to impose them on individual defendants.
While there are many other fascinating issues that were covered during the conference, including discussion of virtual currencies, anti-bribery initiatives, whistleblowing generally, financial regulations, anti-trust prosecutions, and cyber security, I’ll stop here. But I hope this gives some insight into the complexities of international white collar crime in a global environment where significant differences abound.
Friday, October 3, 2014
In May, the Sentencing Council for England and Wales issued their "Fraud, Bribery and Money Laundering Offences - Definitive Guidelines." The Guidelines apply to "all individual offenders aged 18 and older and to organisations who are sentenced on or after 1 October 2014, regardless of the date of the offence."
Bret Campbell, Adam Lurie, Joseph Monreno, and Karen Woody of Cadwalader, Wickersham & Taft have a nice piece examining the new Guidelines in the Westlaw Journal of White-Collar Crime entitled UK Issues Sentencing Guideline for Individuals Convicted of White-Collar Offenses (28 No. 11, Westlaw Journal White-Collar Crime 1 (July 25, 2014)).
In reviewing the new Guidelines, it is fascinating to see the difference in approach when compared to the U.S. Sentencing Guidelines. To take just one example, the fraud guidelines for England and Wales focus on "culpability" and "harm." For culpability, the guidelines consider a number of factors indicating whether the person had "High Culpability," "Medium Culpability," or "Low Culpability." The factors include entries such as the role in group activities, the sophistication of the offense, and the motivation behind the actions. In examining harm, there are just five categories of loss, the highest of which is £500,000 or more. Finally, when determining the sentence, there are a limited number of categories and the highest range is 5-8 years in custody.
For anyone who works with the U.S. guidelines, the guidelines for England and Wales are a fascinating read for comparison, and I highly recommend you give them a look.
Tuesday, August 12, 2014
As I mentioned in my post last week, I moderated a roundtable discussion at this year's ABA annual meeting entitled Navigating the White Collar Crime Landscape in China. While the discussion included many unique and interesting insights into current trends and challenges in the field of white collar crime in China, I thought I might share just a few of the themes we heard from participants.
First, according to our participants, we should expect to see a continued focus on anti-corruption enforcement actions by both the United States and China. Second, it is important to note that China has begun focusing on the prosecution of high-level corporate employees, not just low-level employees and the corporation. Third, we should anticipate that China will continue to expand its anti-corruption mission, including directing more attention towards U.S. entities. In this regarding, it was also predicted that China may soon explore the adoption of an anti-corruption statute with extraterritorial jurisdiction to assist it in undertaking a broader anti-corruption mission similar to the U.S. This might mean we will soon see a Chinese version of the FCPA. Finally, several of our panelists noted that China is increasing its focus on data privacy and state secrets laws, including enforcing such laws against foreigners more vigorously.
Regarding this last theme from the discussion, I'll note that on the morning of our program two corporate investigators in China, one from the UK and the other from the U.S., were found guilty of purchasing private information regarding Chinese citizens. The pair, who are married, were well known in the internal investigation community in China and regularly performed work for large U.S. corporations, including GlaxoSmithKline. According to the charges, the pair violated Chinese law by illegally acquiring personal information on Chinese citizens and then selling that information to their clients. The first defendant, Peter Humphrey, was sentenced to two and a half years in prison. The second defendant, Yu Yingzeng, was sentenced to two years in prison. Those who perform due diligence and internal investigation work in China are keeping a close eye on this and related matters. You can read more about the prosecution in The Wall Street Journal.
Monday, August 4, 2014
For those attending this year's ABA Annual Meeting in Boston, I wanted to alert you to a roundtable discussion occurring on Friday, August 8 from 3-5pm (Room 308, Level 3, Hynes Convention Center) entitled Navigating the White Collar Crime Landscape in China.
The event, which is co-sponsored by the Chinese Business Lawyers Association, will focus on emerging trends and challenges in the field of white collar crime in China. The event will begin with short presentations by a host of experts in the area, each of whom will offer their own unique insights. Following these brief introductory remarks, everyone in attendance will participate in an open dialogue. During the discussion portion of the program, panelists and audience members are encouraged to ask questions and share insights and experiences. It is anticipated that a wide variety of topics will be discussed and analyzed during this roundtable discussion, including strategies for conducting corporate internal investigations, advice for dealing with government agencies, best practices for corporate compliance, and current trends regarding cybercrime and corporate espionage, whistle-blower programs, anti-corruption enforcement, money laundering, and trade violations.
I will be moderating the program and will be joined by the following featured discussants:
Ronald Cheng - USAO, Central District of California
William McGovern - Kobre & Kim LLP, Hong Kong
Karen Popp - Sidley Austin LLP, Washington DC
Zaldwaynaka (Z) Scott - Kaye Scholer LLP, Chicago, Illinois
Philip Urofsky - Shearman & Sterling LLP, Washington, DC
Keith Williamson - Alvarez & Marsal, Hong Kong
Debra Yang - Gibson Dunn, Los Angeles, California
It should be a wonderful event. I hope to see some of our readers there.
Friday, July 25, 2014
In re Kellogg Brown & Root – Privilege, Internal Investigations, and International White Collar Crime – Part II of II
In last week’s post, I discussed the recent case of In re Kellogg Brown & Root (“KBR”) from the perspective of privilege issues and internal investigations generally. Today, I would like to focus our consideration of the KBR case on international investigations and privilege issues.
In the KBR matter, a whistleblower alleged that the defense contractor defrauded the government by “inflating costs and accepting kickbacks while administering military contract in wartime Iraq.” During the whistleblower’s case, he sought discovery of materials from an internal investigation of the matter previously conducted by KBR. As discussed last week, the U.S. Court of Appeals for the District of Columbia Circuit concluded that the whistleblower was not entitled to the materials, stating that the “same considerations that led the Court in Upjohn to uphold the corporation’s privilege claims apply here.”
In rendering its opinion, the DC Circuit offered several important clarifications regarding the applicability of the attorney-client privilege to internal investigations. One of those was to note that Upjohn v. US (1981) does not require the involvement of outside counsel for the privilege to apply.
From In re KBR:
First, the District Court stated that in Upjohn the internal investigation began after in-house counsel conferred with outside counsel, whereas here the investigation was conducted in-house without consultation with outside lawyers. But Upjohn does not hold or imply that the involvement of outside counsel is a necessary predicate for the privilege to apply. On the contrary, the general rule, which this Court has adopted, is that a lawyer’s status as in-house counsel “does not dilute the privilege.” In re Sealed Case, 737 F.2d at 99. As the Restatement’s commentary points out, “Inside legal counsel to a corporation or similar organization . . . is fully empowered to engage in privileged communications.” 1 RESTATEMENT § 72, cmt. c, at 551.
While this is accurate with regard to domestic internal investigations, one must be cognizant of the fact that various jurisdictions around the globe interpret the privilege differently. When an internal investigation crosses borders, a failure to examine the breadth and scope of attorney-client privilege protections in the relevant jurisdictions could unexpectedly expose vast quantities of materials to production or seizure.
Take for example, the case of Akzo Nobel Chemicals Ltd. v. European Commission (European Court of Justice 2010). The case involved an antitrust investigation during which a dawn raid was carried out on Akzo’s Manchester, England, offices. During the raid, two emails were seized. The emails were an exchange regarding relevant antitrust issues between a general manager and the company’s in-house counsel. Despite the fact that such communications would almost certainly be privileged under U.S. standards and the ruling in In re KBR, the European Court of Justice rejected Akzo’s position that the emails were protected under the EU rules of privilege. Relying on an earlier ruling, the European Court of Justice reiterated that in EU investigations the attorney-client privilege only applies where (1) the communication is given for purposes of the client’s defense and, (2) the communication is with an independent lawyer, which does not including in-house counsel. See AM&S v. Commission (European Court of Justice 1982). The Akzo court went on to state, “It follows, both from the in-house lawyer’s economic dependence and the close ties with his employer, that he does not enjoy a level of professional independence comparable to that of an external lawyer.”
While such a limited application of the attorney-client privilege will not be present in every jurisdiction encountered during an international internal investigation, it is an important issue to consider both when structuring and conducting such inquiries in a cross-border setting.
For more on the dynamics of international internal investigations, see my recent article entitled International White Collar Crime and the Globalization of Internal Investigations (Fordham Urban Law Journal), available for free download here.
Friday, July 18, 2014
In re Kellogg Brown & Root – Privilege, Internal Investigations, and International White Collar Crime – Part I of II
I am honored to join Ellen Podgor, Lawrence Goldman, and Solomon Wisenberg as a blogger on the White Collar Crime Prof Blog. My focus on the blog will be matters related to internal investigations and international white collar crime.
To get us started, let’s take a quick look at a new case that relates to both of these topics – In re: Kellogg Brown & Root, Inc., et al.
As readers of this blog will no doubt recall, the U.S. Supreme Court held in 1981 that attorney-client privilege protections may apply to internal corporation investigations. See Upjohn Co. v. United States, 449 U.S. 383 (1981). The Court stated:
The attorney-client privilege is the oldest of the privileges for confidential communications known to the common law. Its purpose is to encourage full and frank communication between attorneys and their clients, and thereby promote broader public interests in the observance of law and administration of justice. The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyers being fully informed by the client.
Despite the strong language in the Upjohn case, a U.S. District Court in Washington, DC ruled that a whistleblower at Kellogg Brown & Root (“KBR”), a defense contractor, was entitled to production of documents related to an internal investigation. The lower court concluded that the internal investigation was “undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.”
Last month, the U.S. Court of Appeals for the District of Columbia Circuit overruled that lower court decision in the case of In re: Kellogg Brown & Root, Inc., et al. (Decided June 27, 2014). The court concluded that the “same considerations that led the Court in Upjohn to uphold the corporation’s privilege claims apply here.”
In overruling the lower court’s decision, the DC Circuit offered several important clarifications regarding the applicability of the attorney-client privilege to internal investigations. First, the court clarified that Upjohn does not require the involvement of outside counsel for the privilege to apply. Second, the court noted that the privilege may apply even when many of the employee interviews are conducted by non-attorneys, as long as those interviewers are serving as the agents of attorneys. Third, the court explained that even though the employees in the KBR case were not explicitly informed that the purpose of the interviews were to assist the company in obtaining legal advice, Upjohn does not require any “magic words” for the privilege to apply. Further, the court noted that the employees in the KBR case knew that the company’s legal department was conducting an investigation and that the investigation was highly confidential.
Finally, and, perhaps, most importantly, the court rejected the lower court’s argument that the attorney-client privilege did not apply in this investigation because KBR was acting to comply with Department of Defense regulatory requirements, not to obtain legal advice. In ruling on the matter, the appeals court stated, “So long as obtaining or providing legal advice was one of the significant purposes of the internal investigation, the attorney-client privilege applies, even if there were also other purposes for the investigation and even if the investigation was mandated by regulation rather than simply an exercise of company discretion.” This is important language from the court, particularly given the increasing regulatory compliance obligations imposed on corporations and the fact that many internal investigations today are instigated at the behest of the government. See e.g. Computer Associates – discussed here and here.
In my next post, we’ll consider how the In re: KBR case fits into the larger legal framework of international internal investigations. In particular, we’ll examine whether attorney-client privilege extends to internal investigations undertaken solely by internal counsel when the investigation extends outside the United States.
Wednesday, July 2, 2014
BNP Paribas Conviction Commendable, But Length of Investigation and Failure to Prosecute Individuals Raise Questions
Both the Department of Justice (DOJ) and the District Attorney of New York County (DANY) deserve commendation for the criminal conviction of France's largest bank, BNP Paribas, and the securing of penalties of approximately $9 billion (including $2.25 billion to New York State's bank regulatory agency, the Department of Financial Services), and, for the first time, a seemingly not insignificant collateral sanction imposed by a regulator (although how significant remains to be seen). BNP for ten years falsified transactions in order to be able to use the American banking system to do business with Sudan, Iran and Cuba, countries deemed rogue states by the U.S. government (but not necessarily by France). See here. While I accept that those crimes were serious crimes, I would much have preferred a prosecution-to-conviction of an American bank whose wrongs made it and its bankers much richer while making millions of other Americans much poorer.
The investigation, according to a story in the New York Times (see here) began in 2006 under the venerable New York County District Attorney Robert Morgenthau, whose expansive view of jurisdiction included the planet of Saturn (one of his bureaus was called "DANY Overseas"), when an Israeli-American DANY financial analyst developed a lead from reviewing the court papers of a civil suit against Iran brought by a grieving lawyer father whose daughter was killed in a terrorist suicide bombing in Gaza in 1995. See here. The investigation was continued by District Attorney Cyrus Vance when he took office in 2009.
No individuals have been indicted (although 13 have been required to leave their jobs), perhaps because the statute of limitations had run during the lengthy investigation. One wonders why such an important investigation took seven to eight years and has resulted (at least so far) in no indictment of individuals. Perhaps it was due to the difficulty to forge cooperation between federal and state law enforcement agencies. New York's federal and state prosecutors have not always played well together.
In any case, the appearance of the District Attorney of New York as a player in the prosecution of big banks is a welcome step. New York is, as Mr. Vance said, "the financial capital of the world," and therefore probably the financial crime capital of the world. Perhaps strong prosecutorial action by a local prosecutor -- in a sense a competitor with DOJ for high-profile cases -- will goad DOJ into stronger actions against financial institutions. Although the U.S. Attorney's Office under Preet Bharara has done a creditable job in fighting insider trading, it -- and DOJ -- had not until six weeks ago (see here) secured a criminal conviction against a major financial institution.
Wednesday, June 18, 2014
With the growing internationalization of business crime, the question of when a foreign national may be extradited to the United States for crimes charged in the United States is arising more frequently. Generally speaking, under the requirement of "dual criminality," a resident of a foreign country charged in the United States will not be extradited if the country he is residing in does not deem his conduct criminal. If, however, that person travels from his "safe haven" home country to another country (even in transit) where such conduct is criminal, he may be extradited.
As reported in a recent Wilmer Hale article, see here, Romano Pisciotti, an Italian citizen charged with an antitrust bid-rigging violation in 2010, this April was extradited from Germany after the connecting flight on his trip from Nigeria to Italy landed there. Germany generally criminalizes bid-rigging; Italy generally does not. Presumably, had Pisciotti not left Italy, he would not have been arrested.
Pisciotti's extradition demonstrates that foreign residents indicted in the United States who are not extraditable from their home country (some nations, like Germany, will not extradite its own citizens other than to another European Union country or the International Criminal Court, for instance) take a considerable risk whenever they travel away from their country of residence.
Thursday, May 29, 2014
Credit Suisse Conviction Does Not Demonstrate Substantial Change In Department Of Justice Enforcement
The Department of Justice (DOJ) and Attorney General Eric Holder were strutting last week over the criminal conviction by plea of guilty of Credit Suisse, a major financial institution. "This case shows that no financial institution, no matter its size or global reach, is above the law," declared the Attorney General. Recent prosecutions of major financial institutions had resulted in lesser results, "deferred prosecutions," a somewhat deceptive term for "delayed dismissals," or a guilty plea by a minor affiliate.
The Credit Suisse guilty plea does not represent a sea change in the attitude of DOJ toward major financial institutions; rather, it appears to be a small ratcheting-up of the baseline penalty for serious criminal financial acts by such institutions. Credit Suisse, despite paying a hefty $2.6 billion fine, will not suffer the severe collateral consequences that ordinary individual defendants do upon a criminal conviction. (See here, NACDL's report "Collateral Damage: America's Failure to Forgive or Forget in the War on Crime -- A Roadmap to Restore Rights and Status After Arrest or Conviction," released today, Thursday, May 29, 2014.) It will still be able to act as an investment advisor, due to waivers agreed to by federal and New York State governmental agencies. Thus, its conviction, according to its chief executive Brady Dougan, will not have "any material impact on our operational or business capabilities." In other words, for Credit Suisse, it will be business as usual.
I hold no sympathy for Credit Suisse. Its crimes, continuous and notorious, have enabled American citizens and citizens of other countries to launder and evade tax payments on billions of dollars. In effect, Credit Suisse (not alone among Swiss banks) (see here) was a criminal enterprise, for many years making huge profits from extraordinary fees for its knowing and willful provision of a presumably safe haven for untaxed income, ill-gotten or otherwise. Mr. Dougan had stated to a Senate hearing in February that the tax evasion scheme was the work of a small group of private bankers that was hidden from senior management. That hard-to-believe claim was challenged in a statement by Schweitzerisher Bankpersonalverband, the organization representing the bank's employees: "It was common knowledge that tax evasion was the strategy, a business model pursued by many banks for a long time." See here.
To be sure, Credit Suisse's crimes did not cause the vast hardship to tens of millions of Americans that the wrongs -- criminal or not -- of other major financial institutions did in the last several years. And, further, its acts -- while subject to the long-arm jurisdiction of American courts -- were apparently legal under Swiss law, and seemingly condoned by the Swiss government.
Some commentators have suggested that there is considerable unfairness in prosecuting corporations for acts of low- or mid-level employees without knowledge of corporate leaders (see here), a position with which I generally agree. The demi-prosecution of Credit Suisse, however, does not appear to fit within that category, despite Mr. Dougan's claim. I see no unfairness in the government's requiring Credit Suisse to plead guilty.
I do, however, wonder about the effectiveness of the insistence on a guilty plea if the collateral consequences are waived. The conviction of a major financial institution with a considerable financial penalty but a waiver of regulatory bars is to me little different from a civil finding of wrongdoing with such a penalty. Other than its current status as a convicted felon, Credit Suisse today is essentially in the same position it was two weeks ago.
Given the legitimate (but probably exaggerated) fear that a felony conviction of a major financial institution without regulatory waivers will have on its existence and thus on the economy and societal well-being, it may well be that guilty pleas (and trial convictions too) of such corporations should be accompanied by limited collateral consequences. Such prosecutions, however, will then serve little more than a symbolic purpose (which I accept as a legitimate purpose). Overall, DOJ's prosecution to conviction of Credit Suisse is a positive step, albeit a small one.
The resolution here suggests again that the criminal process is inadequate to prosecute large financial institutions. Society looks to the criminal law to solve far more problems than the criminal law is capable of solving. Meaningful reform of a flawed financial system will not come from criminal prosecutions of corporations, but, if at all, from strong, substantial regulatory rulemaking and non-criminal legislation.