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On November 18, the FTC announced the expansion of its criminal referral program as part of its effort to cease and deter corporate crime, which enhances the agency’s work in combating criminal misconduct in consumer protection and antitrust. According to the announcement, the new measures highlighted in the policy statement guarantee that cases are promptly referred to local, state, federal, and international criminal law enforcement agencies so that corporations and their executives partaking in criminal behavior are held accountable. According to the policy statement, the agency intends to refine its collaboration with its criminal law enforcement partners to stop and deter consumer protection and competition criminal violations, including by, among other things: (i) publicly and regularly reporting on the FTC’s criminal referral efforts; (ii) developing guidelines to ensure criminal law violations, specifically by major corporations and their executives, are identified; and (iii) “convening regular meetings with federal, state, and local criminal authorities to facilitate the coordination that will enable the appropriate law enforcement partners to take up cases referred by the FTC and develop best practices to enhance this coordination.” The policy statement builds on the agency’s continuing partnerships with criminal authorities to decrease misconduct. According to FTC Chair Lina M. Khan, the FTC “is redoubling its commitment and improving its processes to expeditiously refer criminal behavior to criminal authorities, promoting accountability and deterrence.”
On January 31, state attorneys general from 49 states and the District of Columbia announced a $5 million settlement with a global money services business that resolves investigations into allegations that scammers used the company’s wire transfer services to defraud consumers over a period of 9 years. The company agreed to implement an anti-fraud program as part of the settlement, with the settlement funds paying for the states’ costs and fees. As discussed previously on InfoBytes, the company recently entered a $586 million settlement with the DOJ in connection with similar AML-related claims, which will be used for refunds to the victims of fraud-induced wire transfers.
Trevor McFadden, previously a partner with the law firm Baker McKenzie, was appointed Deputy Assistant Attorney General last month, with oversight over the Fraud and Criminal Appellate Sections. He takes over from Sung-Hee Suh, who was appointed to the role in September 2014.
Global Money Service Business Settles Alleged AML and Consumer Fraud Allegations; Fined $586 Million in Settlement
On January 19, the DOJ announced that it had entered into Deferred Prosecution Agreement with a global money services business regarding allegations the company failed to maintain effective anti-money laundering program and aiding and abetting wire fraud. The announcement claims that between 2004 and 2012, the company “violated U.S. laws—the Bank Secrecy Act (BSA) and anti-fraud statutes—by processing hundreds of thousands of transactions for Western Union agents and others involved in an international consumer fraud scheme.” Under the terms of the Agreement, the business must forfeit $586 million and “implement and maintain a comprehensive anti-fraud program with training for its agents and their front line associates, monitoring to detect and prevent fraud-induced money transfers, due diligence on all new and renewing company agents, and suspension or termination of noncompliant agents.”
In a related case, the company also agreed to a consent order with the FTC to resolve parallel allegations by the FTC in a complaint filed on January 19 in the U.S. District Court for the Middle District of Pennsylvania. The complaint alleges that the company’s conduct violated Section 5 of the FTC Act and the Telemarketing Sales Rule.
On January 26, the SEC charged two more former executives at an American hedge fund company with being the “driving forces” behind a massive bribery scheme across Africa that violated the FCPA. The civil complaint, which was filed in the United States District Court for the Eastern District of New York, alleges that the former head of the company’s European office in London, and an investment executive on Africa-related deals, caused “[the company] to pay tens of millions of dollars in bribes to government officials on the continent of Africa.” Specific allegations include that they induced Libyan authorities to invest in the company’s managed funds, and directed illicit efforts to secure mining deals by bribing government officials in Libya, Chad, Niger, Guinea, and the Democratic Republic of the Congo. In announcing the complaint, Chief of the SEC’s FCPA Unit, said the defendants “were the masterminds of the company’s bribery scheme that improperly used investor funds to pay bribes through agents and partners to officials at the highest levels of foreign governments.” The complaint seeks disgorgement and civil monetary penalties among other remedies.
The complaint follows the company’s payment last September of $412 million to the DOJ and SEC to settle criminal and civil charges in one of the largest ever FCPA enforcement actions. Previous FCPA Scorecard coverage of the company’s settlement with the DOJ and SEC can be found here.
On January 13, Chilean chemical and mining company agreed to pay nearly $30.5 million to resolve criminal and civil FCPA charges in connection with payments to politically-connected individuals in Chile. The company admitted that, from at least 2008 to 2015, it made approximately $15 million in payments to Chilean politicians, political candidates, and individuals connected to them. Many of the payments violated Chilean tax law and/or campaign finance limits and were not supported by documentation. Rather, the company made many of these payments to third-party vendors associated with the politically-connected individuals based on fictitious contracts and invoices for non-existent services. The company falsely recorded many of these payments in its books and records.
The company agreed to a three-year deferred prosecution agreement (DPA) with the DOJ, including a $15,487,500 criminal penalty, and agreed to retain an independent compliance monitor for two years. The criminal penalty reflected a 25 percent discount from the low end of the U.S. Sentencing Guidelines fine range due to the company’s full cooperation and substantial remediation. The company also agreed to pay a $15 million penalty to the SEC pursuant to an Administrative Order Instituting Cease-and-Desist Proceedings to settle the SEC’s charges that the company violated the books and records and internal controls provisions of the FCPA.
This settlement demonstrates the jurisdictional-reach of the U.S. government in enforcing the FCPA. The Chilean company with no U.S. operations, agreed to settle both the SEC’s and DOJ’s charges even though the entirety of the conduct occurred outside of the United States and was committed by foreign nationals. The only tie to the United States referenced in the SEC and DOJ settlement papers is that the company is registered with the SEC as a foreign private issuer (its Series B shares have been listed on the NYSE since 1993).
UK-based Manufacturer Settles FCPA Charges As Part of $800 Million Global Bribery Investigation Resolution
On January 17, a UK-based manufacturer and distributor for the civil aerospace, defense aerospace, marine, and energy sectors worldwide, agreed to pay nearly $170 million to the DOJ to resolve charges that it conspired to violate the anti-bribery provisions of the FCPA around the world. The settlement with the DOJ (via a three-year deferred prosecution agreement (DPA)), was a fraction of the company's $800 million global resolution in connection with bribes paid to government officials in exchange for government contracts in China, India, Indonesia, Malaysia, Nigeria, Russia, Thailand, Brazil, Kazahkstan, Azerbaijan, Angola, and Iraq.
In addition to settling with the DOJ, the company resolved charges with the UK SFO by entering into a DPA and agreeing to pay a fine of $604,808,392. The company entered into a leniency agreement with the Brazilian Ministério Público Federal (MPF) and agreed to pay a penalty of $25,579,170.
According to the DPA Statement of Facts, the company admitted that between 2000 and 2013, it conspired to violate the anti-bribery provisions of the FCPA by paying more than $35 million in bribes to foreign officials in exchange for confidential information and/or government contracts. Many of these contracts benefited RRESI, the company’s indirect U.S. subsidiary. The company made the majority of the bribes by inflating commission payments to third-party intermediaries, who then paid part of the commission as bribes to government officials.
The DOJ lauded the company’s cooperation in its investigation and as a result, the company received a 25 percent reduction from the low end of the U.S. Sentencing Guidelines fine range due. However, the DOJ refused to award the company any voluntary disclosure credit. The DOJ has been transparent that it only will award voluntary disclosure credit when the disclosure occurs prior to an imminent threat of disclosure or government investigation. Here, that test was not satisfied because the company did not disclose the conduct until after media reports and the related SFO inquiry began.
FinCEN Penalizes New York Credit Union for Failure to Manage High-Risk International Financial Activity
On December 14, the Financial Crimes Enforcement Network (FinCEN) announced that it had assessed a $500,000 civil money penalty against a federally-chartered, low-income designated, community development credit union, for “significant violations” of anti-money laundering regulations. According to FinCEN, the credit union had historically maintained an AML program designed to address risks stemming from its designated field of membership in New York, NY. However, in 2011, the credit union began providing banking services to many wholesale, commercial money services business, some of which were located in high risk jurisdictions or engaged in high risk activities, without taking steps to update its AML program. As a result, the credit union was unable to detect and report suspicious activity and was left particularly vulnerable to money laundering.
A change to Rule 41(b) of the Federal Rules of Criminal Procedure took effect on December 1. Amended Rule 41(b) now allows courts to issue warrants for remote access to electronic data outside their jurisdiction if the location of the information has been “concealed through technological means” or when the data is in five or more districts. Thus, under the revised rule, a magistrate judge has the authority to issue a warrant outside of their district without specific knowledge of the location of the computers being searched. By contrast, warrant requests were previously limited to the search and seizure of property within the court’s own district.
In its first insider trading decision in nearly two decades, the US Supreme Court ruled unanimously to uphold an insider trading conviction of an individual who traded while aware of material non-public information received from a friend who received no financial benefit in exchange. Salman v. United States, No. 15-628, 2016 WL 7078448 (U.S. Dec. 6, 2016).
The defendant in Salman was convicted in 2013 for trading on confidential information obtained through his brother-in-law even though Salmon he gained no tangible financial benefit. The appeal thus presented the Justices with the central question of how to define a “personal benefit” garnered from insider information. In upholding Salman’s conviction, the Supreme Court affirmed that a user of financial tips breaches fiduciary duty with respect to “insider information” from a relative, whether or not the person giving the information receives a tangible financial benefit. In so holding, the Court also undercuts a narrower interpretation in a case decided by the Second Circuit in 2014 that held that the person who provides the tips must receive something of value in exchange for inside information given to family or friends.
- Buckley Webcast: Fifth Circuit muddles CFPB’s plans to use in-house judges in enforcement proceedings
- Steven vonBerg to discuss “Regulatory plenary” at the Information Management Network’s Non-QM Forum
- Jeffrey P. Naimon to discuss “Understanding the ESG impact on compliance” at the ABA’s Regulatory Compliance Conference