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FinCEN Issues NPRM Establishing BSA/AML Requirements for Investment Advisers
On August 25, FinCEN issued a Notice of Proposed Rulemaking (NPRM) seeking to adopt minimum Bank Secrecy Act (BSA) and anti-money laundering (AML) standards that would be applicable to investment advisers. Under the proposal, investment advisers would be required to implement AML programs and report suspicious activity, among other safeguards. The NPRM states that the proposal would cover investment advisers registered or required to register with the SEC. The proposal would also add such investment advisers to the definition of “financial institution.” This would result in investment advisers being required to file currency transaction reports and to comply with recordkeeping and other requirements applicable to financial institutions. With respect to supervisory authority, FinCEN stated that it would delegate its authority to the SEC for purposes of examining investment advisers for compliance with the proposed requirements.
Large Multinational Financial Services Company Settles FCPA Charges Relating to Internships
On August 18, the SEC announced a settlement with a large multinational financial services company over allegations that the company had violated the FCPA by giving internships to family members of government officials working at a Middle Eastern sovereign wealth fund in hopes of retaining or gaining more business from that fund. The order entered as part of the settlement quoted emails between company employees purportedly demonstrating that the company gave the internships in hopes of keeping and growing the business relationship with the fund. The SEC also alleged that the company gave the internships to the family members without requiring that they pass through the competitive screening process the company typically requires for interns. Finally, the SEC alleged that the company had inadequate controls to prevent the improper hiring of relatives of government officials. The company paid $14.8 million to settle the charges, with $8.3 million in disgorgement, $1.5 million in pre-judgment interest, and a $5 million penalty.
The company previously disclosed in January 2015 that it had received a Wells Notice concerning possible FCPA violations in connection with the internships. The settlement follows earlier press reports of a broad SEC investigation into bank hiring practices in Asia, and appears to be the first settlement resulting from the investigation.
Former SAP Executive Pleads Guilty to Paying "Necessary" Bribes
On August 12, the DOJ and SEC announced joint enforcement actions against software giant SAP International’s former head of Latin American sales, Vicente Garcia. Garcia pleaded guilty to conspiracy to violate the FCPA and will be sentenced on December 16, 2015 in the Northern District of California. The DOJ alleges that SAP paid bribes to Panamanian officials to secure software license sales in late 2009, using sham contracts and fake invoices. Garcia “admitted that he believed paying such bribes was necessary” to secure the contracts.
The SEC simultaneously issued an administrative cease and desist order against Garcia describing a scheme by which Garcia, in violation of SAP’s internal controls, gave discounts to a local business partner to generate excess earnings, which were used to create the slush fund used to pay at least $145,000 in bribes to secure approximately $3.7 million in sales. Garcia and others also arranged to receive kickbacks from the sales. Garcia agreed to pay disgorgement of the kickbacks he received plus prejudgment interest, totaling $92,395.
SEC Sues 32 Defendants Involved in Insider Trading Operation; DOJ Files Criminal Charges Against Leaders
On August 10, the SEC filed a complaint against 32 defendants in the District of New Jersey for their alleged involvement in an international scheme to profit from stolen, confidential information regarding corporate earnings announcements. According to the SEC, the defendants hacked at least two newswire services’ computer servers to retrieve unpublished corporate press releases, subsequently using it to make trades generating over $100 million in profits. The SEC further asserted that the two leaders of the scheme designed a “secret web-based location to transmit the stolen data to traders in Russia, the Ukraine, Malta, Cyprus, France, and three U.S. states, Georgia, New York, and Pennsylvania.” The SEC contends that, for five years, the two leaders of the scheme (i) disguised their identity by posing as newswire service employees, using proxy servers, and/or using backdoor access-modules; and (ii) recruited traders by making a video that displayed their ability to steal earnings information prior to public release. In return for information, the traders paid the hackers either a percentage of the profits obtained from trading the stolen information, or a flat fee. The SEC Director called the scheme “one of the most intricate and sophisticated trading rings [the agency has] ever seen.” The U.S. Attorneys’ offices for New Jersey and the Eastern District of New York also announced criminal charges against nine of the same defendants, including the two leaders of the scheme.
SEC Adopts Final CEO Pay Disclosure Rule
On August 5, the SEC adopted a rule requiring public companies to disclose the pay ratio of their CEO to the median compensation of their employees. The rule gives companies some flexibility in the method of determining the pay ratio while providing investors with information to assess the compensation of CEOs. Methods companies may employ to identify the median employee include using (i) a statistical sample of the total employee population; (ii) payroll or tax records that contain a consistently applied compensation measure; or (iii) yearly total compensation as calculated under the existing executive compensation rules. The total compensation for CEOs and total compensation for average employees must be calculated in the same manner. Under the new rule, companies must also disclose the methodology used for identifying the median employee’s annual compensation. Companies will be required to provide disclosure of their pay ratios for their first fiscal year beginning on or after Jan. 1, 2017. Smaller reporting companies, emerging growth companies, foreign private issuers, MJDS filers, and registered investment companies are exempt from the pay ratio rule, which will be effective 60 days after publication in the Federal Register.
Vantage Drilling Self-Reports Potential FCPA Violation
On August 4, Vantage Drilling Company, an international offshore drilling contractor, acknowledged that an overseas agent had entered into plea discussions with Brazilian authorities and provided evidence in the ongoing corruption investigation focused on Petrobras. Vantage acknowledged that the agent had purportedly provided evidence related to a former director of Vantage and Petrobras. The company disclosed that it had opened an internal investigation and self-reported the matter to the DOJ and the SEC.
The Brazilian corruption investigations into Petrobras and its affiliates and counterparties continue to expand with no end in sight, and the expected related U.S. investigations are beginning to be disclosed.
SEC Subpoenas Flowserve Corporation Related to FCPA Investigation
On July 30, Flowserve Corporation, a global supplier of industrial pumps, valves, and seals, disclosed that the SEC had issued a subpoena in connection with an investigation of potential FCPA violations. Flowserve revealed earlier this year that it had terminated an employee of an overseas subsidiary for conduct that violated its Code of Business Conduct and “may have violated” the FCPA. It self-reported the matter to the SEC and the DOJ and has now completed an internal investigation. Flowserve stated that it “currently believe[s] that this matter will not have a material adverse financial impact,” but that there are no assurances that it will not be subjected to penalties and additional costs.
SEC Drops Investigation of NCR Corporation
On July 28, NCR Corporation, a leading global provider of ATM machines, announced that the SEC had decided not to pursue an enforcement action following an investigation of the company’s FCPA compliance. In 2013, the company disclosed that an anonymous whistleblower had alleged various FCPA and other violations in China, the Middle East (including Syrian sanctions issues), and Africa. The company stated that it had investigated internally and determined the allegations to be without merit. The company then disclosed the matter to the SEC and the DOJ, both of whom requested additional information. The company did not provide an update regarding the status of the DOJ’s inquiries.
Mead Johnson Nutrition Settles SEC FCPA Charges for $12 Million
On July 28, Mead Johnson Nutrition Co. (“Mead”), an infant formula maker, agreed to pay $12.03 million to settle civil FCPA charges with the SEC. The SEC alleged that a majority-owned subsidiary in China used discounts given to third-party distributors to make over $2 million in bribes from 2008 to 2013 to healthcare professionals at state-owned hospitals, to get them to push the use of Mead’s products to new mothers, reaping profits of over $7 million. The SEC also alleged that the subsidiary’s books and records were false as a result of the improper payments, and were then consolidated into the parent company’s books and records; Mead’s internal controls were also alleged to be deficient. Mead did not admit or deny liability.
Of note, the settlement came through the SEC’s administrative process, continuing the trend at the SEC of sending cases to its internal decision-makers instead of to a federal court. The alleged facts also highlight the danger of directing the activities of third-party distributors (here, related to the use of discounts provided to them).
SEC Opens FIFA-Related Investigations
Although not yet confirmed by the SEC, media reports suggest that the SEC has opened several investigations of publicly traded companies who contracted with FIFA. Indictments in the FIFA cases have alleged that certain companies paid kickbacks to officials of FIFA and related organizations in order to win marketing and apparel contracts. The specific companies targeted in the SEC’s new probe have not yet been named. Without the apparent involvement of a foreign official in the FIFA cases, presumably the SEC will be focusing on the books and records and internal controls provisions of the FCPA, along with other potential violations.
Previous BuckleySandler coverage of this investigation can be found here.