Compliance

The Best Defense Is a Good Offense: FCPA Corporate Enforcement Policy Cements Importance of Compliance Programs

The Department’s revised FCPA Corporate Enforcement Policy—which will be incorporated into the United States Attorneys’ Manual—builds on and makes permanent the Department’s 2016 FCPA Pilot Program. While much of the commentary on the revised policy has focused on the potential benefits of voluntary self-disclosure and cooperation after an issue arises, the policy also provides updated guidance to all companies on the hallmarks of an effective compliance and ethics program – an important and practical takeaway for compliance officers, in-house counsel, boards and executives.

DOJ’s Revised FCPA Corporate Enforcement Policy Formalizes the 2016 FCPA Pilot Program

The Pilot Program set out to evaluate if the Department could motivate companies to voluntarily self-disclose FCPA-related misconduct, fully cooperate with the Fraud Section, and, where appropriate, remediate flaws in controls and compliance programs. One of the key components of the Pilot Program was the potential for substantial mitigation—including declination of prosecution in certain cases and, where warranted, a credit of up to a 50 percent reduction below the low end of the applicable U.S. Sentencing Guidelines’ fine range for companies that voluntarily self-disclose misconduct and cooperate and remediate to the Department’s satisfaction. Deputy Attorney General Rod Rosenstein expressed his satisfaction with the program’s results, which he heralded as a step forward in fighting corporate crime. He also noted that during the pilot period, the DOJ saw 30 voluntary disclosures to the FCPA Unit—compared to 18 during the previous 18‑month period.

In announcing the new formalized Policy, Deputy Attorney General Rosenstein emphasized that the Department will continue to strongly encourage voluntary disclosures and set forth what he considers to be the revised Policy’s three key features: READ MORE

FCPA Violators Beware—SEC to Double Down on Enforcement

The SEC has signaled plans to double down on its FCPA enforcement efforts and speed up FCPA investigations. On November 9, 2017, Steven Peikin, Co-Director of the SEC’s Enforcement Division, delivered a speech at New York University School of Law to commemorate the 40th anniversary of the FCPA and the 20th anniversary of the Organisation for Economic Co-Operation and Development Anti-Bribery Convention. In his speech, Peikin stressed the importance of the FCPA to the Commission’s enforcement mission and noted that the Commission will continue its commitment to FCPA enforcement. Pointing out that the Commission has brought 106 FCPA-related actions against individuals and corporations since forming its designated FCPA Unit in 2010, Peikin highlighted the Commission’s success in fostering a more predictable and uniform approach to FCPA enforcement and domestic and international partnerships in fighting corruption.

Peikin stressed the importance of collaborating with international colleagues in the fight to “eradicate[e] corruption and bribery” and pointed to recent global settlements, including the settlement with Telia (reported here), as examples of successful cross-border coordination and cooperation. Citing deterrence and investigation efficiencies as key benefits of global coordination, Peikin noted that he expects “the trend of the Enforcement Division working closely with foreign law enforcement and regulators in anti-bribery actions to continue its upward trajectory in the coming years.” READ MORE

Sudan Now Open for Business, but Risks Remain

On October 12, 2017, the United States made permanent its lifting of a longtime general embargo on trade and investment with Sudan. As a result, U.S. individuals and companies are now generally free to engage in transactions involving Sudan, the Government of Sudan or many formerly sanctioned Sudanese persons without a license from the Department of the Treasury’s Office of Foreign Assets Control (OFAC). While this presents opportunities for new business in Sudan, any U.S. person considering business relating to Sudan should be aware of the legal restrictions that remain in place and the risks associated with such an undertaking.

Background

For almost two decades, Executive Orders (EOs) by Presidents Bill Clinton (EO 13067) and George W. Bush (EO 13412), along with the Sudanese Sanctions Regulations (SSR), have generally prevented U.S. persons from conducting transactions involving the Government of Sudan or certain sanctioned Sudanese persons, importing goods or services of Sudanese origin, exporting any goods or services to Sudan, or performing any contract “in support of an industrial, commercial, public utility, or governmental project in Sudan,” among other things. This trade and investment embargo was prompted by findings that the Government of Sudan was engaged in support for international terrorism, efforts to destabilize its neighboring countries, and myriad human rights violations.

On January 13, 2017, President Obama issued EO 13761, which observed that the dangerous and unstable situation in Sudan that had prompted sanctions by his predecessors “has been altered by Sudan’s positive actions over the past 6 months.” In particular, the order praised Sudan for “a marked reduction in offensive military activity, culminating in a pledge to maintain a cessation of hostilities in conflict areas in Sudan, and steps toward the improvement of humanitarian access throughout Sudan, as well as cooperation with the United States on addressing regional conflicts and the threat of terrorism.” The order, which was one of President Obama’s final acts in office, called for a conditional return of U.S. trade and investment transactions with Sudan with permanent revocation of sanctions after a six-month monitoring period and approval by certain U.S. agencies. Consistent with this order, OFAC issued a temporary general license on January 17, 2017, authorizing transactions that were previously prohibited by the aforementioned sanctions. As it turns out, the January 17 general license marked the end of the main set of sanctions against Sudan. READ MORE

Breaking Down Telia: One of the Largest FCPA Settlements and One of the First of the Trump Administration

The recent settlement by Telia Company AB (“Telia”), one of the first of the U.S. Department of Justice (“DOJ”) under the Trump administration and one of the largest FCPA enforcement actions to date, has been touted by some as a sign that enforcement will remain tough. In this area of the law with scant case law or other guidance for companies looking to evaluate their own conduct and compliance programs, do these charting and resolution documents offer anything new? Telia obtained the maximum downward departure from the US Sentencing Guidelines and avoided the imposition of an independent monitor – what can be gleaned from the facts of the resolution as to how?

THE ALLEGATIONS

On September 21, 2017, Telia, a Swedish telecommunications company, entered into a $965 million joint settlement with U.S., Dutch, and Swedish authorities. The settlement revolved around allegations that Telia bribed a foreign official (widely reported to be Gulnara Karimova, the eldest daughter of Uzbekistan’s former president Islam Karimov), to assist Telia and its Uzbeki subsidiary, Coscom LLC (“Coscom”) in expanding the company’s share of the Uzbeki telecommunications market. According to the settlement documents (Links to the settlements: DOJ and SEC), from 2006 to 2007, Telia made approximately $331 million in corrupt payments to secure approvals from the Uzbek Agency for Communications and Information and business in the Uzbek telecommunications sector, generating more than $2.5 billion in revenues and approximately $457 million in profit. READ MORE

The SEC’s Office of Compliance Inspections and Examinations Warns Investment Advisers: “Don’t Mislead or We Will Proceed!”

On September 14, 2017, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert in which it highlighted a number of compliance issues it had identified relating to the so-called Advertising Rule (Rule 206(4)-1 of the Investment Advisers Act of 1940 (“Advisers Act”)).

The Advertising Rule imposes four specific provisions that prohibit investment advisers from making certain references, representations, and statements in advertisements that are deemed to be fraudulent, deceptive, or manipulative (Advisers Act Rule 206(4)-1(a)(1)-(a)(4)). It further prohibits advertisements that contain untrue statements of material fact, or are otherwise false or misleading (Advisers Act Rule 206(4)-1(a)(5)).

Specifically, the Advertising Rule prohibits advertising that refers to any testimonial regarding an adviser’s advice, analysis, report, or service; advertising that refers to past recommendations that were or would have been profitable to any person, with limited exceptions; advertising, representing, through graphs, charts, formulas, or other devices, that a decision to buy or sell a security can be made on the sole basis of that representation; and advertising containing any statements that any report, analysis, or service will be provided free of charge, unless it will be furnished free and without any obligation. The Advertising Rule also expressly prohibits an adviser, directly or indirectly, from publishing, circulating, or distributing any advertisement that contains any untrue statement of a material fact, or which is otherwise false or misleading. READ MORE

Chairman Clayton Sets New SEC Agenda

On Wednesday July 12, 2017, in his first public speech as Chairman of the SEC, SEC Chairman Jay Clayton laid out a set of eight priorities that will guide his SEC Chairmanship.[1] He said his priorities are consistent with and complimentary to the seven “core principles” set forth in President Donald Trump’s February 3, 2017 executive order regarding the regulation of the U.S. financial system.

The overarching themes in Chairman Clayton’s speech are that he is focused primarily on capital formation, modernizing the trading and markets system, and he favors a disclosure and market-based approach to federal securities regulation . Given the kind words for former Chair Mary Jo White and multiple references of areas of agreement, it is difficult to determine how much of a shift one can expect from the Commission under Chairman Clayton. Nevertheless, the following are a few key takeaways from the speech.

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New Year, New Priorities for the SEC’s Office of Compliance Inspections and Examinations

On January 11, 2016, the SEC announced its Office of Compliance Inspections and Examinations (OCIE) priorities for the year .   The announcement included several new areas of focus, including liquidity controls, public pension advisers, exchange-traded funds (ETFs), product promotion, and variable annuities.   Hedge fund and mutual fund managers, private equity firms, and broker-dealers – in particular those that deal with retirement investments – would be wise to take note of these new areas of interest.  As in past years, enforcement actions in these areas are likely to follow.

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Who Wants to be a Millionaire? Compliance Officer Whistles His Way to a Million Dollar Pay Day

Whistle

Last week the SEC announced an award of between $1.4 to $1.6 million to a whistleblower who provided information that assisted the SEC in an enforcement action. The enforcement action against the whistleblower’s company resulting in monetary sanctions exceeding $1 million.  This marks the second award to a whistleblower with an internal audit or compliance function at a company.  The first was back in August 2014, when the SEC awarded a whistleblower in internal auditing/compliance with over $300,000.  Here, as with the prior award, the officer had a reasonable basis for believing that disclosure to the SEC was necessary to prevent imminent misconduct from causing substantial financial harm to the company or investors.  In both cases, responsible management was made aware of the potential harm that could occur, yet failed to take steps to prevent it.

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The Volcker Rule: Great Expectations for Regulating Risk

Wall Street

On Tuesday, December 10, five federal regulatory agencies, the Federal Reserve, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller and the Commodity Futures Trading Commission, jointly released the long awaited and hotly contested “Final Rules Implementing the Volcker Rule.”   The Rules and supplement, together more than 900 pages long, are already generating comment and controversy for their complexity and severity—or lack thereof, depending on who you ask.  The Rules become effective on April 1, 2014 with final conformance expected by July 21, 2015.

A Product of Hard Times

Paul Volcker, an economist, former Federal Reserve Chairman and former chairman of the Economic Recovery Advisory Board, initially proposed a (seemingly) simple rule restricting certain risk-taking activity by American banks in a 3-page letter to President Obama in 2009.  Speculative activity, for example, proprietary trading, was believed to have contributed to the “too big to fail” position that the nation’s largest banks found themselves in at the height of the Financial Crisis in 2008 and 2009.  The Volcker rule thus proposed prohibiting banks from engaging in short-term proprietary trading on their own account.  It also proposed limiting the relationships that banks could have with hedge funds and other private equity entities.  Not long after its proposal, the rule was made into law in Section 619 of the 2010 Dodd-Frank Wall Street Reform Act, to take effect upon the issuance of implementing regulations.   READ MORE

A Look Ahead at SEC Enforcement Actions – with Orrick’s Jim Meyers

Orrick partner Jim Meyers provides his perspective to JD Supra in the May 14, 2013 article, “A Look Ahead at SEC Enforcement Actions – with Orrick’s Jim Meyers.” Jim comments on trends in Securities and Exchange Commission enforcement, the new arrivals of SEC chairwoman, Mary Jo White and Enforcement Unit co-head, Andrew Ceresney, the recent “Non-Prosecution Agreement” with Ralph Lauren, and more.

To read the full JD Supra article, please click here.