Monday, November 30, 2015
Longtime New York State Assembly Speaker Sheldon Silver, a Democrat, was found guilty today by a Southern District of New York federal jury on corruption charges, including honest services theft and extortion under color of law. As Speaker and majority leader, Silver was one of the "three men in a room" who controlled the New York Legislature (the others being the Governor and Senate majority leader, almost always a Republican, one of whom, Dean Skelos, is now on trial on corruption charges in the same courthouse as Silver was - an apparent show of federal prosecutorial bipartisanship).
Silver had requested and received case referrals to the tort specialty law firm where he was counsel from a doctor to whose university-affiliated clinic he later directed a half-million dollar state grant. He also requested from two major real estate firms that they send business to a different law firm from which he received large referral fees. Although the doctor and the real estate firm officers testified that they made the referrals to curry favor and influence Silver, no witness testified that there was an explicit quid pro quo or specific agreement that Silver would perform a specific (or even unspecific) act, although the government maintained that Silver did perform official actions that benefited the doctor and the real estate firms.
The defense argued that there was no quid pro quo, that the referrals were made out of friendship and respect, and that the official acts performed by Silver were legitimate and not performed because of the referrals.
The verdict was no surprise. Although the defense portrayed the incidents as "politics as usual," the "politics" just stunk. Silver had clearly received benefits, referrals to law firms from which he received millions of dollars only because those who had provided these benefits thought that Silver as a powerful official would do things - unspoken, unspecific and perhaps then unknown - that would benefit them. The cases, on which Silver did no actual legal work, were not referred to him because of his reputation as a lawyer.
On the one hand, as one who loathes corruption, I am somewhat gratified that it now appears (subject to judicial reversal of the jury verdict) that a public official may not request a substantial valuable benefit, direct or indirect, if he or she knows or believes, that the donor is conferring the benefit because the donor believes that the official will exercise his or her official power to the donor's advantage, even in the absence of an agreement that the official do anything in his official capacity.
On the other hand, I am concerned about what in effect is legislation by prosecution, even if it is good legislation. However unwholesome Silver's conduct was, he might have been convicted for what had been generally perceived as acceptable conduct in his world that he believed was not criminal. For better or worse, U.S. Attorney Preet Bharara has essentially changed the rules. A corruption conviction does not require as a quid pro quo that there be an agreement by a public servant to do a specific act or at least generally to act favorably in the future when circumstances arise, as many prosecutors had believed for years (and some still do). While the "new" rule is certainly better for society as a deterrent to corruption, I have some concern whether it is just to convict, and likely imprison for a considerable time, someone who acted within what he believed the rules were.
Perhaps this case will embolden prosecutors to go further in charging public officials. Here, Silver clearly solicited benefits, received benefits, and, at least in the case of the doctor, in return provided a benefit, even if not pursuant to an agreement. Will cases now be brought where public official receive monetary or equivalent benefits from those intending to influence them even where there is no evidence of solicitation by the officials and/or no evidence that the officials did anything in return for the benefits received? And what about cases involving campaign contributions made by donors and accepted by a candidates in the expectation that the candidates will act favorably toward their causes, and the candidates (if elected) do so act? (Or should there be an exemption for cases involving campaign funding?)
(Note - Silver, whom I have never met or spoken with, reappointed me three times as his designee to serve on the New York State Commission on Judicial Conduct, but did not reappoint me a fourth time.)
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.
Friday, November 27, 2015
If you want to know why companies settle with the government, even when they aren't guilty of anything, look no further than Ally Financial LLC's $98 million "no admit or deny" settlement with the Consumer Financial Protection Bureau (CFPB) over alleged racial bias in auto lending. As Wednesday's Wall Street Journal reports here, the CFPB chose questionable statistical methods, had questionable legal authority, and used the threat of unfavorable action by the Federal Reserve and the FDIC in a wholly separate matter, to coerce a settlement. Ally was eager to receive approval from the Fed and FDIC to convert to holding company status, in order to avoid having to shed some of its business units. The Fed was only too happy to oblige CFPB in its bullying tactics. As an internal CFPB memo makes clear, a Fed finding of improper discrimination would "most likely result in the denial of holding company status," but the Fed "also indicated that if Ally takes prompt and corrective action, it would consider such a factor in its determination." The House Financial Services Committee Report, Unsafe at any Bureaucracy, carefully documents CFPB's sordid tactics . Incredibly, CFPB referred the matter to DOJ. This kind of stuff happens, and dictates business litigation strategy with the government, quite often. So, when people complain that the failure to prosecute corporate insiders is inevitably suspicious in light of large civil settlements, I always want to know the industry, the company and other important details.
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.
Tuesday, November 24, 2015
Sally Yates' new DOJ Memo has been a hot topic. (see here, here, here). Check out Sara Kropf's terrific entry here reporting and questioning the Yates Memo influence in a recent indictment of a corporate employee.
But one wonders if this DOJ claim that they have changed their policy is anything new. Has DOJ forgotten Enron and Jeff Skilling, who remains incarcerated?
My take continues to be that all the Yates really does is make it official that companies have to throw individuals under the bus (see here). And knocking NPAs and DPAs is not the answer. Yes, the terms within these documents are often offensive. (see here) But getting compliance from companies and changing corporate culture is an important goal and one needs to remain focused on how best to achieve this goal. Working with companies, as opposed to against companies, is the best way to foster compliance. Likewise, pitting individuals within a company against the entity and the entity's counsel is not the answer.
Tuesday, November 10, 2015
Looks like the NY Attorney General has decided to take a lead in stopping some fantasy sports companies. (see Walt Bogdanich, Joe Drape, and Jacqueline Williams, Attorney General Tells DraftKings and FanDuel to Stop Taking Entries in New York.) Some are wondering if other states will get on the bandwagon. But others of us are wondering what role the federal government may decide to take, or not take here. I'm not betting on this one.
Monday, November 2, 2015
Last Friday attorney Steven H. Levin posted a guest blog disagreeing with my view in a blog earlier that day that Dennis Hastert should not have been prosecuted. Hastert was charged with, and pleaded guilty to, structuring withdrawals from financial institutions of his own apparently legitimately derived funds, purportedly to conceal payoffs to an alleged extortionist whom he had purportedly sexually victimized over 30 years ago. Hastert, Mr. Levin said, "had to be prosecuted" because his prosecution had "potential deterrent effect" on "would-be structurers" and "would-be extortionists."
Even if the Hastert prosecution were to have a deterrent effect on such "would-be" criminals, I still believe, for the reasons I expressed, that this case was an appropriate one for the exercise of prosecutorial discretion. I do recognize that deterrence is a commonly recognized goal of prosecution and sentencing, and accept that prosecutions do have a deterrent effect on some "would-be" white-collar criminals (but far less an effect on those who might commit crimes involving violence and narcotics). Nonetheless, I question whether this prosecution will cause a positive deterrent effect on those who are considering the commission of either structuring or extortion.
I do accept that the publicity attendant to the prosecution will to an extent increase public awareness of the existence of a crime called structuring whose broad expanse covers acts committed by otherwise law-abiding citizens to maintain their privacy and avoid disclosure of things they prefer be confidential, and therefore may have some deterrent effect on those persons. However, deterring people from committing essentially harmless acts even though criminalized by an overbroad statute does not appear to me to be much of a societal benefit. And, to the extent that the attendant publicity will educate money launderers of criminal proceeds and deter them from violating the structuring statute, of which sophisticated criminals are overwhelmingly aware in any case, the positive effect is also questionable since its potential effects will be further concealment and consequent limitations on governmental discovery of criminality.
Additionally, I doubt that many would-be extortionists would be deterred from acts of extortion by this prosecution, in which, it so far appears, the purported extortion victim has been prosecuted and the purported extortion perpetrator remains free and also has probably received millions of dollars in payments (and also perhaps achieved some measure of retribution by the exposure, so far limited, of Hassert's alleged misdeeds) . To the extent it has any effect on rational would-be extortionists who weigh the benefit/risk ratio, this prosecution encourages rather than deters them.