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Pharmaceutical Companies Resolve DOJ and SEC FCPA Charges
On August 7, the DOJ and the SEC announced the resolution of FCPA allegations against Pfizer Inc. (Pfizer) and two of its subsidiaries, Pfizer H.C.P. and Wyeth LLC. The DOJ announced that it filed a criminal information in the U.S. District Court for the District of Columbia, as well as a deferred prosecution agreement pursuant to which Pfizer H.C.P. admitted to making improper payments to public officials in Russia and other eastern European countries in attempts to influence decisions to approve and register certain pharmaceutical products. Pfizer H.C.P. must pay a $15 million penalty, but the agreement acknowledges Pfizer’s efforts to investigate and self-report the matter, as well as the company’s “significant cooperation” and extensive remedial efforts. Civil charges brought by the SEC through separate complaints against Pfizer and Wyeth involve similar allegations regarding the companies’ conduct in numerous countries. While Wyeth neither admitted nor denied the SEC allegations, the two parties resolved the cases by agreeing to pay a combined $45 million, committing to certain remedial actions, and reporting to the SEC. Like the DOJ, the SEC notes Pfizer’s voluntary disclosure and cooperation. The SEC complaints and the DOJ deferred prosecution agreements are available on BuckleySandler’s FCPA Score Card.
Bank Officers Charged With Concealing Nonperforming Assets
On July 11, four former bank officers and two of their former customers were indicted in the U.S. District Court for the Eastern District of Virginia on eighteen counts of fraud. Indictment, United States v. Woodard, No. 12-105 (E.D. Va.). The indictment alleges that in the run-up to the financial crisis, the bank more than doubled its assets primarily through brokered deposits, while the directors administered a lending program that violated industry standards and the bank’s internal controls. In connection with the financial crisis, the indictment states, the bank’s loan portfolio deteriorated and the directors conspired to conceal the institution’s financial condition. Ultimately, the bank failed, leaving the federal government insurance fund to cover approximately $260 million in deposits, the indictment claims. In addition to the criminal charges, the U.S. Attorney is seeking forfeiture of the defendants’ assets. Other bank officers, employees, and customers already have pled guilty to related charges.
Senate Subcommittee Explores Money Laundering Vulnerabilities at Global Institutions
On July 17, the Senate Homeland Security and Government Affairs Committee, Permanent Subcommittee on Investigations, held a hearing to review money laundering and terrorist financing vulnerabilities that can emerge from certain international banking activities. In connection with the hearing, the Subcommittee released a report about its investigation into past money laundering and terrorist financing compliance failures at one multinational financial institution. The report notes that despite congressional efforts to strengthen anti-money laundering laws (AML), and financial institutions’ diligence in bolstering AML controls, money laundering risks associated with correspondent banking persist. Using the investigation and its findings as a case study, the report reiterates that effective AML compliance programs at U.S. banks should include written standards, sufficient and knowledgeable staff, effective training, and a positive compliance culture. With regard to specific issues that U.S. banks might face with regard to correspondent banking, the report recommends that U.S. banks implement programs that effectively (i) screen high-risk affiliates, (ii) prevent circumvention of OFAC prohibitions, (iii) avoid providing U.S. correspondent services to banks with links to terrorism, (iv) ensure traveler check controls restrict acceptance of suspicious bulk travelers checks, and (v) eliminate bearer share accounts. The report also identifies regulatory gaps and recommends that the OCC (i) treat AML deficiencies as a safety and soundness matter, (ii) develop a policy to coordinate internal divisions conducting AML examinations, (iii) consider the use of formal or informal enforcement actions to address mounting AML failures, and (iv) strengthen AML examinations by citing violations and focusing on specific business units and a bank’s AML program as a whole.
U.S. Eases Sanctions on Burma to Allow U.S. Investment and Export of Financial Services
On July 11, President Obama announced that the U.S. is easing sanctions on Burma to allow U.S. companies to responsibly conduct business in Burma. The revised sanctions permit the first new U.S. investment in Burma in nearly 15 years and broadly authorize the exportation of financial services to Burma. Any person that engages in new investment in Burma pursuant to the revised sanctions that exceeds $500,000 is subject to new reporting requirements.
Medical Device Manufacturer Resolves FCPA Violations Related to Conduct in Mexico
On July 10, medical device manufacture Orthofix International N.V. became the latest in a string of companies in the medical device sector to resolve an FCPA matter with the U.S. government. The settlement adds Orthofix to the list of device manufacturers that have settled FCPA matters in 2012, along with Smith & Nephew and Biomet, who settled in February and March 2012, respectively. The Orthofix FCPA resolution calls for the company to pay a criminal fine to the DOJ of $2.22 million, and a civil monetary sanction (including disgorgement and interest) of $5.2 million to the SEC. The DOJ resolved the matter through a Deferred Prosecution Agreement, which was attached to the company’s 8-K of July 10, 2012, reporting the resolution. According to the allegations in the SEC’s Complaint, Promeca S.A. de C.V, a subsidiary based in Mexico, paid bribes to employees of the government-operated health care system, referring to the payments as “chocolates” and booking inaccurate reimbursement requests as meals, car tires or training expenses. The Mexico subsidiary made approximately $317,000 in improper payments over a 7-year period, according to the SEC. The FCPA resolution follows a June 7, 2012 guilty plea by the U.S. subsidiary, Orthofix Inc., on a False Claims Act-related matter, resulting in $7.8 million fine and payment of over $34 million to resolve a civil action.
FinCEN Announces Public Hearing on Customer Due Diligence Proposal, Releases First Report on Real Estate Title and Escrow Industry SARs
On July 10, FinCEN announced the first in a series of public hearings to collect information related to its proposed rule on customer due diligence requirements for financial institutions. The public hearing, to be held July 31, 2012 at the Treasury Department, is designed to obtain input from the law enforcement and regulatory communities, as well as industry representatives.
On July 11, FinCEN released its first targeted study analyzing Suspicious Activity Reports (SARs) involving the real estate and title escrow industry. As part of its efforts to better understand criminal risks impacting related those industries, FinCEN studied thousands of SARs involving title and escrow companies, often filed in connection with mortgage fraud. The FinCEN release notes that the agency does not currently require title and escrow companies themselves to file SARs, but many such companies have reported suspicious activities to FinCEN. The agency plans to use this and future studies to identify regulatory gaps and assess appropriate solutions to close those gaps and mitigate risk.
FinCEN Offers Guidance on Application of BSA Regulations to Daily Money Management Services and Prepaid Card Vendors
Recently, FinCEN released two Administrative Rulings, FIN-2012-R003 and FIN-2012-R004, that provide guidance on the application of Bank Secrecy Act (BSA) regulations to certain types of businesses. In the first ruling, FinCEN analyzed a prepaid access arrangement where a bank exercises primary control over the arrangement, while a bank vendor distributes and sells the prepaid access (via prepaid cards). FinCEN determined that the vendor would not be required to register as a prepaid access provider. Still, the vendor may be a seller of prepaid accesswho would be required to registerin certain listed circumstances. In the second ruling, FinCEN advised that companies that offer daily money management services may be subject to FinCENs regulations implementing the BSA. The company that requested the ruling facilitated the payment of monthly expenses for its customers and managed customers day-to-day finances. FinCEN concluded that the company was a money transmitter under FinCEN regulations because (i) the company disbursed company checks on its customers behalf, (ii) the company was not engaged in core debt management services, and (iii) the disbursements were not ancillary to some other good or service.
Buckley Sandler Noted for Its Impressive Enforcement & Litigation Talent by Chambers USA
BuckleySandler LLP and eight of its partners have received top rankings in Chambers USA, which ranks leading firms and lawyers in a range of practice areas throughout the United States based on in-depth client and peer research. This year, Chambers USA recognized BuckleySandler as “one of the preeminent legal brands in the consumer finance market,” and ranked it highly in both Financial Services Regulation: Banking (Enforcement & Investigations) and Financial Services Regulation: Consumer Finance (Compliance). Chambers USA provided individual attorney recognition to seven partners in one or more of these Financial Services categories, recognized Andrew L. Sandler as a “Star Individual” in Financial Services Regulation: Consumer Finance (Litigation), and recognized David S. Krakoff in District of Columbia Litigation: White-Collar Crime & Government Investigations.
According to Chambers USA, BuckleySandler is noted for “its impressive enforcement and litigation talent, and represents some of the world's most high-profile financial institutions in a host of enforcement actions.” Chambers further highlights BuckleySandler’s regulatory work by saying “[the firm] was recently commissioned by a number of national banks to produce an exhaustive 50-state survey of all state and federal laws affecting lending businesses.”
“We are pleased that Chambers USA has once again ranked our firm and so many of our partners. This recognition is all the more meaningful because Chambers’ research methodology focuses on peer and client review and thereby validates our commitment to outstanding legal work and client service,” said BuckleySandler Chairman and Executive Partner, Andrew L. Sandler.
Partners Andrew L. Sandler, Jeremiah S. Buckley, Joseph M. Kolar, Benjamin B. Klubes, David S. Krakoff and Clinton R. Rockwell have once again been ranked individually in Chambers USA in 2012.
Partners John P. Kromer and Jeffrey P. Naimon have also been ranked in Chambers USA in 2012, bringing the total of BuckleySandler Chambers ranked partners to eight.
Specifically, their Chambers USA designations are as follows:
Nationwide
Financial Services Regulation: Banking (Enforcement & Investigations)
- Firm Ranked Band 2
- Andrew L. Sandler (Band 1)
- Benjamin B. Klubes (Band 3)
Financial Services Regulation: Consumer Finance (Compliance)
- Firm Ranked Band 1
- Jeremiah S. Buckley (Band 1)
- Joseph M. Kolar (Band 1)
- Andrew L. Sandler (Band 1)
- John P. Kromer (Band 3)
- Jeffrey P. Naimon (Band 3)
- Clinton Rockwell (Band U – Up and Coming)
District of Columbia
Litigation: White-Collar Crime & Government Investigations
- David S. Krakoff (Band 2)
Jeremiah S. Buckley is ranked as Band 1 in Financial Services Regulation: Consumer Finance (Compliance). Chambers says Mr. Buckley “is another example of the firm's astonishing bench strength in the mortgage space. He is praised as "a reliable, quality counsel who is straightforward, candid and energetic."
Benjamin B. Klubes is ranked as Band 3 in Financial Services Regulation: Banking (Enforcement & Investigations). Clients say Mr. Klubes is a "very talented litigation and enforcement expert” and "one of the real leaders in this space."
Joseph M. Kolar is ranked as Band 1 in Financial Services Regulation: Consumer Finance (Compliance). Clients say that he “is singled out as one of the leading mortgage banking lawyers in the country, and noted for his strategic advice and encyclopedic knowledge of federal regulations. He assists mortgage lenders, servicers and insurers, and is ‘extraordinarily good at research and analysis.’"
David S. Krakoff is ranked as Band 2 in DC Litigation: White-Collar Crime & Government Investigations. According to Chambers, “clients describe him as ‘a superb lawyer who is very dedicated.’”
John P. Kromer is ranked as Band 3 in Financial Services Regulation: Consumer Finance (Compliance). Clients report that "he is a joy to work with," with one hailing him as "a true expert in the industry."
Jeffrey P. Naimon is ranked as Band 3 in Financial Services Regulation: Consumer Finance (Compliance). Chambers quotes sources as saying Mr. Naimon is "certainly a thought leader" in the mortgage servicing space, with "his finger on the pulse of what is going on in the mortgage industry.”
Clinton R. Rockwell is ranked as “Up and Coming” in Financial Services Regulation: Consumer Finance (Compliance). Sources are quoted as saying, "it is one thing to provide strict legal advice but it is another to provide practical solutions, and [Mr. Rockwell] does a great job of that."
Andrew L. Sandler is ranked as a Band 1 lawyer in Financial Services Regulation: Consumer Finance (Compliance), as a Band 1 lawyer in Financial Services Regulation: Banking (Enforcement & Investigations), and as a “Star Individual” in Financial Services Regulation: Consumer Finance (Litigation). Chambers says that he “has consolidated his position as one of the leading financial services attorneys in the USA. His broad practice covers enforcement, litigation and compliance, with a focus on consumer finance and the mortgage industry. Sources consider him to be ‘probably the best fair lending lawyer in the country.’"
FinCEN Reports Increased Mortgage Fraud SARs
On April 23, the Financial Crimes Enforcement Network (FinCEN) released an update on mortgage loan fraud suspicious activity reports (SARs) for 2011. The report indicates that mortgage fraud SARs increased 31 percent in 2011 compared to 2010, a spike that FinCEN states is directly attributable to mortgage repurchase demands and special filings generated by several institutions. Based on a sample analysis, FinCEN found that in 40 percent of cases resulting in a SAR, the institution turned down the subject’s loan application, short sale request, or debt elimination because of the suspected fraud, indicating improvement in mortgage lending due diligence. Among other things, the report highlights short sales, appraisals, and identity theft as new fraud patterns in 2011 SARs.
How to Respond to a Subpoena: 10 Things You Should Do Immediately
Responding to a subpoena can be a daunting task and early missteps can have severe repercussions. Here is a short list of critical steps you can take in the early stages of the subpoena response to protect your company.
- Preserve. Preserve. Preserve. Immediately upon receipt of a subpoena, you should inform all necessary employees of the need to retain documents, including electronic documents, with a document hold memo that replaces standard document retention policies for potentially responsive materials. Destroying or removing documents in the context of a government investigationwhether done affirmatively or by failing to suspend automated document retention protocolsmay be viewed as obstruction of justice. At the very least, it will create the appearance of an unwillingness to cooperate with the investigation.
- Establish a dialogue with the appropriate enforcement authorities. Communication is critical to understanding the scope of the investigation and establishing a working relationship with the government. You should initiate contact quickly to discuss the scope of the subpoena and develop a feasible production schedule.
- Inform the companys key executives. Receiving a subpoena is no small matter and, depending on the nature of the subpoena and potential enforcement action, the key executives and even the board of directors need to be made aware immediately. This is especially important if your company is publicly traded as there may be disclosure obligations.
- Determine whether the subpoena was properly served. Not all subpoenas are properly served and improper service may provide valid grounds to get the subpoena quashed. You should quickly evaluate the basis upon which the subpoena was issued and served to determine whether to object or take other action.
- Advise employees of their rights and responsibilities, including access to counsel. Either at the time the subpoena is initially served or in follow up activities, agents may attempt to interview employees. It is important to remind employees immediately of their responsibility to be truthful when speaking with agents of the government, but that they may choose to have an attorney present if they do decide to be interviewed. You should also reiterate your companys policy on cooperating with investigations and request that employees inform the legal department of any discussions or contacts with the government.
- Evaluate your insurance policys notice requirements. Under many insurance policies, a subpoena is a triggering event. Putting your policy holder on notice early on increases your chances of having insurance pay for some or all of the investigation and/or litigation costs.
- Identify key company individuals. Identifying which individuals within the company are key to the subpoena response will help determine and potentially limit the overall scope of documents you are required to produce. Seeking to narrow or tailor the scope of a subpoena is an important early step in the response process.
- Narrow file search parameters. Once the key individuals are identified, you can then identify electronic and paper files that must be collected and searched. Fulfilling the governments request but not producing irrelevant or privileged documents requires a precisely-tailored search protocol.
- Protect and defend privileged materials. Protecting and defending privileged materials is a cornerstone responsibility of corporate counsel. Documents subject to privileges or protections should be isolated, logged, and preserved. While there are remedies available for inadvertently-produced privileged materials, no one wants to be in the position of having to seek return of a privileged document.
- Construct a formal, defensible review process. You should construct a formal review process that can be defended in court, with a focus on e-discovery issues. It is advisable to have your response protocol evaluated by outside legal counsel early in the process to ensure that all potential sources of electronic data have been identified and searched.
This post adapted from the article, 10 Steps Your Company Should Take When Responding to a Subpoena by Ben Klubes, James Parkinson, and John Kromer, originally published in Bloomberg Law Reports: Banking & Finance, Vol. 4, No. 8, August 1, 2011.