White Collar Crime Prof Blog

Australian Bank Bill Swap Rate Investigation Continues

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.

(LED)

Campaign Corruption - Internationally

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

(esp)

Collateral Consequences in 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. 

(LED)

Transparency International Releases 2014 Corruption Perceptions Index

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 17^th 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.

(LED)

3rd Annual ABA CJS International White Collar Crime Institute

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.  

(LED)

New Sentencing Guidelines in England and Wales for Fraud, Bribery and Money Laundering Offences

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. 

(LED)

Future Trends Regarding White Collar Crime and China

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. 

(LED)

ABA Annual Meeting - Roundtable Discussion Regarding White Collar Crime and China

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. 

(LED) 

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.

(LED)

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.

(LED)

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.

(goldman)

Italian Accused of U.S. Antitrust Crime Extradited After Switching Planes in Germany

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.

(goldman)

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.

 (goldman)

 

Fourth Circuit Extends Required Records Exception to Foreign Bank Accounts

Yesterday, in U.S. v. Under Seal (4th Cir. 2013), the Fourth Circuit, joining several other federal circuits, extended the Fifth Amendment's Required Records Exception to records of foreign bank accounts required to be maintained pursuant to the Bank Secrecy Act ("BSA"). John and Jane Doe received a subpoena to turn over records of their Swiss bank accounts. They responded that complying with the subpoena compelled them to testify against themselves, as they were required to create and maintain such records pursuant to the BSA. They also argued that the long-standing, judicially-created, Required Records Exception did not apply in this case, because the BSA's record-keeping provisions are essentially criminal, rather than regulatory, in nature. The district court disagreed, the Does took civil contempt, and an appeal ensued. Unsurprisingly, the Fourth Circuit sided with the government, accepting its argument that the BSA's record-keeping provisions are essentially regulatory in nature. You are shocked? There's not exactly a strong constituency, public or judicial, for foreign bank account tax evasion. 

(wisenberg)

Second Circuit Rules 10(b) Does Not Apply Extraterritorially

In United States v. Vilar, the Second Circuit examined a post-Morrison decision with an issue of whether Section 10(b) of the Securities Exchange Act of 1934 applies to extraterritorial criminal conduct.  The government had argued that the Supreme Court's decision in Bowman allowed for an extraterritorial application and that civil and criminal conduct should be treated differently and thus Morrison should not apply. The Second Circuit  disagreed with the government saying that the Bowman decision was limited to conduct that was "aimed at protecting 'the right of the government to defend itself.'" In contrast, statutes such as 10(b) have as its "purpose [  ] to prohibit 'crimes against private individuals or their property,'"  and therefore "the presumption against extraterritoriality applies to criminal statutes, and Section 10(b) is no exception."

The court also noted that "[a] statute either applies extraterritorially or it does not, and once it is determined that a statute does not apply extraterritorially, the only question we must answer in the individual case is whether the relevant conduct occurred in the territory of a foreign sovereign." Despite this legal analysis and ruling, the court found that there was no plain error with respect to territoriality on the counts here and thus no need to reverse on this issue.

Other issues raised by the defendants, such as those relating to a search warrant, jury instructions, and the admission of statements were found not to be in error.  The court did, however, remand the sentence.

(esp) 

DOJ Releases Statement on U.S.-Swiss Tax Evasion Investigations

The DOJ issued a press release today telling of "a program that will encourage Swiss banks to cooperate in the department's ongoing investigations of the use of foreign bank accounts to commit tax evasion."  The release also notes that "Switzerland will encourage its banks to participate in the program."  A joint statement was agreed upon by the DOJ and Swiss Federal Department of Finance." (see here). The program excludes those presently under investigation.  It offers others a non-prosecution agreement under a list of terms that include, "cooperat[ion] in treaty requests for account information," "agree to pay substantial penalties," and "make a complete disclsure of their cross-border activitites." The press release notes that

"banks seeking a non-prosecution agreement must agree to a penalty in an amount equal to 20 percent of the maximum aggregate dollar value of all non-disclosed U.S. accounts that were held by the bank on Aug.1, 2008.  The penalty amount will increase to 30 percent for secret accounts that were opened after that date but before the end of February 2009 and to 50 percent for secret accounts opened later than that."   

It will be interesting to see how many banks come forward to obtain a non-prosecution agreement. And if they do, will the disclosures result in tax prosecutions of individuals within the U.S.

(esp)

HSBC Settlement: The Unanswered Questions

by: Solomon L. Wisenberg

You can debate all day whether the government should allow any financial institution to get too big to fail. You can also debate whether such an institution, if it is too big to fail, should be too big to prosecute, even when it engages in blatantly criminal conduct over a lengthy period of time. However, you cannot seriously debate whether to prosecute senior bank officials of an international mega-bank who knowingly directed the criminal enterprise in question. Corporations only act through agents. Those agents are human beings.

We are not talking about technical matters here. This is not a question of whether each party to a complex transaction understood the fine print which revealed, or obscured, that an investment bank was betting against the deal it was pushing.  According to the published reports and press statements, obvious narcotics-related money laundering was repeatedly facilitated by the bank, despite multiple regulatory warnings. The sources of funds connected to outlaw regimes were intentionally and repeatedly hidden. If this stuff happened, people did it. And they were no doubt high-ranking people.

No credible person will contend that the prosecution of corrupt bank officers can ever endanger the financial community. No matter how important the institution or high-ranking the officer, employees are fungible. The global financial impact of prosecuting these officers, no matter how important they think they are, will always be negligible.

Assistant AG Lanny Breuer said at his press conference that individual prosecutions were not being ruled out. (Similar statements were made at the time of the robo-signing settlement press conference, and we all know what an avalanche of individual DOJ prosecutions followed in the wake of that!) But other comments Breuer made, discussing how hard it supposedly is to prosecute the individuals involved, appear to be window-dressing rehearsals for future DOJ declinations.

Reporters should not let this issue slide into oblivion. The DOJ does not typically comment upon pending investigations of individuals. (Of course this does not stop some FBI and IRS agents from telling all of a target's friends that he is being criminally investigated, thereby ruining the target's life.) Here is an occasion where the policy should be ignored, particularly since the DOJ can comment on a pending investigation without revealing the names of the subjects and targets. 

The question every self-respecting reporter should be asking AG Holder and Assistant AG Breuer is not whether individual indictments have been ruled in or out. The questions to be asked at every opportunity in the coming weeks and months are:

"What is the status of the investigation?"

"Is there really any investigation?"

"Are you treating this investigation like you treat the investigation of other individuals suspected of facilitating murder and drug crimes?"

Here is an account by Rolling Stone's Matt Taibbi of his appearance on Eliot Spitzer's Viewpoint program discussing the HSBC settlement. Taibbi's account contains a link to the Spitzer interview. Hat tip to Jack Darby of Austin's Krimelabb. com for alerting me to this posting. Taibbi also has an interesting opinion piece about the HSBC settlement on his Rolling Stone TAIBBLOG.

(wisenberg)

Alleged Theft of Trade Secrets

An area that has long fascinated me is intellectual property and prosecutions premised on theft of trade secrets. It is particularly intriguing when the actors are outside the United States. The U.S. Attorney in the Eastern District of Virginia issued an indictment of a company and several executives "for allegedly engaging in a multi-year campaign to steal trade secrets related to DuPont’s Kevlar para-aramid fiber and Teijin Limited’s Twaron para-aramid fiber.  The indictment seeks forfeiture of at least $225 million in proceeds from the alleged theft of trade secrets from Kolon’s competitors."  What will make this case particularly interesting is that the company - Kolon- is "[h]eadquartered in Seoul, South Korea, yet the indictment came from a grand jury in Richmond, Virginia. (see here).

(esp)

Carbon Copy Prosecutions - New Article

T. Markus Funk, Perkins Coie Partner and former federal prosecutor, and Chicago Assistant U.S. Attorney Andrew S. Boutros examine the growing - but still largely under-recognized - international phenomenon of what Funk and Boutros term "carbon copy prosecutions." A country’s incentive to vindicate its own laws is not insubstantial, especially when a company or individual has already admitted, in a foreign proceeding, to having violated local law.  With the increase in FCPA and money laundering cases, globalization presents many new concerns. Check out -  Andrew S. Boutros & T. Markus Funk, "Carbon Copy" Prosecutions: A Growing Anticorruption Phenomenon in a Shrinking World

(esp)

ABA Fall Meeting -Opening Session & Overcriminalization Panel

The ABA Fall Institute opened with welcoming remarks from William Shepherd (Holland & Knight), chair of the Criminal Justice Section, and Laurel Bellows, President of the American Bar Association. 

The opening address was given by Edwin Meese III, former U.S. Attorney General. He talked about how to make our system “effective, efficient, and just.” He noted that the National Association of Criminal Defense Lawyers (NACDL) is aligned with the Heritage Foundation on this important issue of overcriminalization. He spoke about the improper use of the criminal law and process for political reasons and social regulation, emphasizing the misuse of limited resources. He gave some frightening examples of how ordinary law-abiding citizens were caught up in the criminal process.  He said that the estimate today is that there are over 5,000 criminal statutes and then there are also regulatory offenses, and his estimate is over 300,000 federal criminal penalizing statutes and regulations.  He noted the lack of a meaningful mens rea in many of these statutes.  He mentioned how overcriminalization problems in the United States also involve cases in international law. He suggested that we need education  (educating the public and legislators) and also legislators should not be able to delegate criminal responsibility to an agency for the creation of a crime.  The legislature should also make crimes clear with a necessary ingredient being the mens rea. In this regard he advocated for an innovation of using mistake of law, something that is being experimented with in New Jersey. Finally, placing all criminal laws in Title 18 is something that he thinks will assist.

This opening address was a lead into a discussion of the next panel on the topic of Overcriminalization,
a panel moderated by Professor Sara Sun Beale. She started with questions of asking whether we have a problem of Overcriminalization and if so, what do we should do about it. The first speaker was Melodee Hanes, Acting Administrator, Office of Juvenile Justice & Delinquency Prevention, U.S. Department of Justice.  She said that U.S. detains youth five times more than the next industrialized country. She noted that Japan does not detain their youth; they resolve issues in an alternative method. Community based alternatives are needed.  Professor Roger Fairfax (George Washington) discussed the “smart on crime” philosophy. Charles J. Hynes, District Attorney of Kings County, Brooklyn, New York, who created 29 new alternative programs, including a re-entry program, noted the need for criminal law reform.The last speaker was Professor Luis Chiesa (Pace Law School), who offered a comparative perspective from a civil law view. He suggested using rules of construction similar to European courts and others.  This international perspective added another dimension to this discussion.

(esp)