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Netherlands-based financial services company settles Netherlands corrupt practices case and receives SEC declination
On September 4, a Netherlands-based financial services company announced in its Form 6-K filing that it had agreed to pay a penalty of $782 million and disgorgement of $115 million to resolve corruption charges by the Dutch Public Prosecution Service (“DPPS”). The DPPS charges related to the company’s prevention of money laundering, client on-boarding, and corrupt practices. The company acknowledged its “serious shortcomings in the execution of customer due diligence policies to prevent financial economic crime” and “regrets that these shortcomings enabled customers to misuse accounts.”
On September 5, following the settlement with the DPPS, the company announced in a new Form 6-K filing that it received a formal notification from the SEC that it had concluded its own FCPA investigation and did not intend to recommend an enforcement action. The company first disclosed the SEC investigation in March 2017. The response from the SEC is consistent with the new policy against so-called piling on issued by DOJ in May 2018. The policy is intended to encourage coordination among enforcement authorities to avoid duplicative penalties. See previous FCPA Scorecard coverage here.
London-based offshore drilling company receives double declination in FCPA investigation
On September 4, a London-based offshore drilling company, announced in its Form 8-K filing that the DOJ and the SEC will not take action against the company, ending their investigations into alleged corruption related to a drilling services agreement between an acquired subsidiary, and a Brazilian state-owned oil company. According to the filing, the SEC letter stated that the agency “did not intend to recommend any enforcement action” related to the alleged irregularities. The DOJ letter acknowledged the company’s full cooperation in the investigation.
French pharmaceutical company settles FCPA action with SEC for $25.2 million
On September 4, the SEC announced that a French pharmaceutical company had agreed to pay $25.2 million to settle FCPA charges related to payments made by company employees to healthcare professionals in Kazakhstan and the Middle East. According to the SEC’s order, from 2011 to 2015, employees of the company’s subsidiaries acted to provide things of value to foreign officials and healthcare professions “in order to improperly influence them and increase sales of [the company's] products.” Employees generated the funds for the illicit payments by submitting fake reimbursement claims for, among other things, travel and entertainment expenses, product samples, and clinical trial and consulting fees.
The SEC found that the company violated the internal accounting controls and recordkeeping provisions of the FCPA. The company agreed to pay a civil penalty of $5 million, $17.5 million in disgorgement, and $2.7 million in prejudgment interest, without admitting or denying the SEC’s findings. According to the press release, the chief of the SEC’s FCPA Unit, Charles Cain, called out bribery in the pharmaceutical industry as a continued significant problem.
The company announced in March 2018 that the DOJ had closed its FCPA investigation without bringing an enforcement action. See previous FCPA Scorecard coverage here and here.
Agencies extend comment deadline for Volcker Rule revisions
On September 4, the OCC, Federal Reserve Board, FDIC, SEC, and CFTC (the Agencies) announced a 30-day extension to the public comment period for the Agencies’ joint revisions to the Volcker Rule. The comment period, which was previously scheduled to end on September 17, is now extended until October 17. The joint release notes that the extension will give interested parties “approximately four and a half months from the date the proposal was released to the public to submit comments,” as the Agencies’ first released the text of the proposal on May 30 (it was not published in the Federal Register until July 17). As previously covered by InfoBytes, the Agencies’ joint revisions are designed to simplify and tailor obligations for compliance with Section 13 of the Bank Holding Company Act, known as the Volcker Rule, which restricts a bank’s ability to engage in proprietary trading and own certain funds. Specifically, according to a Federal Reserve Board memo, the proposed amendments will better align Volcker rule requirements with a bank’s level of trading activity and risks.
SEC issues administrative order against U.S.-based global investment management firm
On August 27, the SEC issued an administrative order settling allegations against a U.S.-based investment management firm, which remained outstanding after the company’s June 4 NPA with the DOJ. The June 4 NPA resolved claims of FCPA violations in Libya and included a criminal penalty of $32.6 million and disgorgement of $31.6 million (see prior FCPA Scorecard coverage here). The SEC order stated that the company’s actions were in violation of the internal accounting controls provision of the Securities Exchange Act of 1934. The SEC settlement did not include a separate penalty beyond the disgorgement already agreed to in June, and pre-judgment interest.
Global technology company confirms U.S. investigations into Hungarian sales operations
On August 23, the Wall Street Journal reported that a global technology company is under investigation by the DOJ and the SEC regarding whether bribes and kickbacks were paid to Hungarian officials connected to sales of the company’s products in Hungary. The company stated in response to the reporting that it had terminated four employees as well as certain business partnerships in response to its own internal probe into potential wrongdoing in the 2013 to 2014 timeframe. In SEC filings over the last couple of years, the company previously disclosed FCPA-related investigations and that it has been cooperating with related U.S. investigations, which have to date yielded no enforcement actions.
Global bank settles two FCPA actions for $10.5 million
On August 16, the SEC announced that a global bank had settled two enforcement actions involving alleged violations of the FCPA’s books and records and internal control provisions. The FCPA’s anti-bribery provisions were not implicated in either action.
The first action alleged that three traders employed by a U.S. subsidiary of the bank had mismarked positions in certain proprietary accounts, causing $81 million in losses that were not reflected in the company’s books and records. Some of these losses were from allegedly “widespread unauthorized trading.” The second action alleged that the bank had “failed to devise and maintain adequate internal accounting controls,” causing $475 million in losses, when the company did not identify that a Mexican subsidiary had loaned nearly $3.3 billion to a counterparty on the basis of fraudulent documentation provided by the counterparty. Without admitting or denying the SEC’s findings, the bank “agreed to pay $10.5 million in penalties”: $5.75 million for the first action, and $4.75 million for the second.
FinCEN director discusses approach to virtual currency and emerging technology
On August 9, Financial Crimes Enforcement Network (FinCEN) Director Kenneth A. Blanco delivered remarks at the 2018 Chicago-Kent Block (Legal) Tech Conference to discuss, among other things, the agency’s approach to virtual currency and its efforts to protect financial institutions from being exploited for illicit financing purposes as new financial technologies evolve and are adopted. Blanco commented that while innovation provides customers with greater access to financial services, it can also create opportunities for criminals or serve as a vehicle for fraud. Blanco discussed several areas of focus, such as (i) the regulation of virtual currency and initial coin offerings (ICOs), along with coordinated policy development and regulatory approaches done in conjunction with the SEC and CFTC; (ii) examination and supervision efforts designed to “proactively mitigate potential illicit finance risks associated with virtual currency”; (iii) anti-money laundering/countering the financing of terrorism (AML/CFT) regulatory compliance expectations for companies involved in ICOs or virtual currency transmissions; (iv) enforcement actions taken against companies that fail to implement effective programs; (v) the rise and importance of virtual currency suspicious activity report filings which help the agency identify and investigate illicit activity; and (vi) the development of an information sharing virtual currency-focused FinCEN Exchange program. Blanco emphasized that “individuals and entities engaged in the business of accepting and transmitting physical currency or convertible virtual currency from one person to another or to another location are money transmitters subject to the requirements” of the Bank Secrecy Act.
FINRA seeks comments on fintech innovation in broker-dealer industry
On July 30, the Financial Industry Regulatory Authority (FINRA) issued a Special Notice seeking comment on how it can support fintech innovation consistent with its mission of investor protection and market integrity. According to FINRA, the comment request builds on its Innovation Outreach Initiative, which launched last year to assist FINRA in understanding fintech innovations and how those innovations affect the securities industry (previously covered by InfoBytes here). The Special Notice seeks general comments on FINRA’s rules or processes that could be “modified to better support fintech innovation without adversely affecting investor protection or market integrity,” and comments pointing to specific areas of fintech innovation that may need a greater focus by the organization. In addition to those comments, the notice also raises three specific topics for comment that have previously been flagged as potential areas of engagement through the Innovation Outreach Initiative: (i) data aggregation services; (ii) supervision as it relates to artificial intelligence; and (iii) the development of a taxonomy-based machine-readable rulebook. Comments are due by October 12.
Global investment bank subsidiaries to settle SEC allegations of mishandled American Depositary Receipts
On July 20, the SEC announced it had reached a settlement with two U.S.-based subsidiaries of a global investment bank to settle allegations that the subsidiaries mishandled the pre-release of American Depositary Receipts (ADRs)—U.S. securities that represent shares in foreign companies. According to the SEC’s separately issued orders, the bank’s depository bank subsidiary and the broker-dealer subsidiary allowed pre-released ADRs to be “used for abusive practices, including inappropriate short selling and inappropriate profiting around dividend payouts.” The SEC explained in its press release that ADRs can only be “pre-released” without the deposit of foreign shares, provided the brokers receiving the ADRs have an agreement with a depository bank and the broker or the broker's customer owns an amount of the underlying shares that corresponds to the number of shares the ADR represents. However, the SEC alleged that the depository bank subsidiary improperly provided thousands of ADRs where neither the broker nor its customers possessed the required shares, and that the broker-dealer subsidiary’s policies, procedures and supervision failed to prevent and detect violations tied to the borrowing and lending of pre-released ADRs. While the two subsidiaries neither admitted nor denied the SEC’s allegations, the depository bank has agreed to pay more than $51 million in disgorgement and prejudgment interest, along with a $22.2 million civil money penalty. The broker-dealer subsidiary has agreed to pay approximately $1.1 million in disgorgement and prejudgment interest and a nearly $500,000 civil money penalty.