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Perspective: How White Collar Criminal Defense Work is Changing

March 15, 2016, 6:35 PM

Editor’s Note: The author of this post is a Washington, D.C.-based litigator at Dechert LLP.

By Vincent H. Cohen, Jr., Partner, Dechert LLP

If the recent proliferation of taskforces and initiatives is any indication, the aggressive cross-border expansion of white-collar crime enforcement is only intensifying. Indeed, in March 2015, the FBI announced three new squads dedicated to investigating FCPA- and kleptocracy-related violations globally.[1] In November 2015, the DOJ’s Fraud Section created a Compliance Counsel position to investigate corporate compliance programs.[2] In January 2016, the Financial Crimes Enforcement Network issued orders requiring disclosure of the natural persons behind companies purchasing high-value real estate in Manhattan and Miami-Dade.[3] Since 2011, the DOJ’s Kleptocracy Asset Recovery Initiative has been seizing high-level foreign officials’ illicit assets, and its efforts are only increasing.[4]

Federal agencies undoubtedly intend to secure a significant return on investment, and have been putting these new resources to use.

Increased Focus on Individual Prosecutions

In a September 2015 memorandum by Deputy Attorney General Yates, the DOJ announced that, henceforth, cooperation credit for companies will be all or nothing.[5] To obtain any cooperation credit, companies will have to disclose “all relevant facts about individual misconduct” regardless of the individuals’ positions. Moreover, the DOJ will be investigating both to ferret out individual wrongdoers and to detect any lack of transparency or effort by companies. Needless to say, the breadth and depth of disclosure required places tremendous pressure on companies and leaves considerable room for error.

The best approach will be a proactive one. Companies with strong compliance programs implemented under the guidance of experienced outside counsel will be best positioned to timely disclose individual conduct, if necessary. Companies’ fates will depend not only on robust compliance programs, however, but also on convincing the DOJ that their internal investigations have been thorough. Government-savvy counsel adept at conducting internal investigations and assuaging prosecutors’ concerns will be indispensable.

The Yates memo also places pressure on prosecutors. Only under “extraordinary circumstances” will prosecutors be authorized to give cooperation credit without charging individuals. Furthermore, prosecutors will have to explain such decisions to their superiors in writing. With the incentives so strongly skewed towards charging individuals, more aggressive, individually-focused prosecutions are likely on the horizon.

Criminal Investigation of Regulatory Matters

Another result of the tremendous pressure to punish corporate wrongdoing is a trend towards criminal and enforcement actions in regulatory matters. Recent automotive cases exemplify this trend. In January 2016, the DOJ sued Volkswagen alleging it violated the Clean Air Act and exceeded EPA emission standards.[6] In March 2014, the DOJ extracted a $1.2 billion penalty from Toyota for falsely claiming it addressed the cause of its vehicles’ unintended acceleration.[7]

In the cybersecurity context, companies victimized by hackers have found themselves fending off charges. When hackers stole consumers’ credit card and account information from Wyndham, the FTC blamed Wyndham’s inadequate data security and sued it.[8] After losing its challenge to the FTC’s authority, Wyndham settled in December 2015.[9] In July 2015, the FCC’s first data security case ended with TerraCom, Inc. and YourTel America, Inc. paying $3.5 million to settle charges they failed to protect consumers’ confidentiality.[10] The SEC’s first cybersecurity enforcement proceeding culminated in investment adviser R.T. Jones Capital Equities Management paying a $75,000 fine after hackers accessed its clients’ private information.[11] The number of agencies with the ability and interest to police cybersecurity is certain to rise.[12]

Expansion of FCPA and Anti-Money Laundering Efforts

In addition to new initiatives, the government continues to use traditional tools such as the FCPA. In no other area is the trend towards cross-border enforcement more apparent. As the head of the DOJ’s Criminal Division recently declared: “Far from acting as the world’s corruption police, the United States is part of a formidable and growing coalition of international enforcement partners...”[13] Likewise, the SEC’s Enforcement Division recently announced plans to increase cross-border investigations and coordination with foreign governments.[14]

More than ever, heightened attention is being paid to international money laundering and bribery. While I was in leadership of the USAO-DC, we sharpened the Office’s focus on financial recoveries. We generated over $2.8 billion from domestic and foreign corporations and financial institutions through civil and criminal collections and asset forfeiture and achieved resolutions with four global banks that had moved money illegally through the US financial system.

In November 2015, the SEC and the UK Serious Fraud Office (SFO) jointly announced a $36.9 million settlement with ICBC Standard Bank Plc.[15] It was the first time any UK prosecutor had ever proceeded under Section 7 of the UK’s Bribery Act of 2010 and also the first time the SFO had ever executed a deferred prosecution agreement with a company.[16] Notably, there was no jurisdiction under the FCPA because Standard was not an “issuer” under the Act. The bank admitted its SFO settlement encompassed the facts underlying the SEC’s charges, however.

Beyond the traditional areas of law enforcement, sports are increasingly scrutinized. In May 2015, the USAO-EDNY charged nine FIFA officials and five corporate executives with racketeering, money laundering, and other conspiracies to corrupt international soccer.[17] The EDNY collaborated with multiple governments around the world to gather evidence.[18]

Conclusion

21stcentury white-collar enforcement is aggressive and creative. Geographical boundaries and traditional distinctions between regulatory and criminal violations are no barrier to the government’s reach. With global collaboration increasingly the norm and federal agencies seeking to hold accountable all within the corporate hierarchy, there is no respite in sight. In this age, companies must be prepared and white-collar counsel must be every bit as aggressive and creative as the government.

The author would like to thank Dechert associate Deborah Kemi Martin for her assistance in the preparation of this article.

Citations:

[1] Press Release, FBI, FBI Establishes International Corruption Squads (Mar. 30, 2015) .

[2] Press Release, Department of Justice, New Compliance Counsel Expert Retained by the DOJ Fraud Section (Nov. 3, 2015) .

[3] Press Release, Financial Crimes Enforcement Network, Department of the Treasury, FinCEN Takes Aim at Real Estate Secrecy in Manhattan and Miami (Jan. 13, 2016) .

[4] Leslie Wayne, Wanted by U.S.: The Stolen Millions of Despots and Crooked Elites, N.Y. Times, Feb. 16, 2016 .

[5] Memorandum from Sally Quillian Yates, Deputy Attorney General, Department of Justice, Individual Accountability for Corporate Wrongdoing (Sept. 9, 2015) .

[6] Press Release, Department of Justice, United States Files Complaint Against Volkswagen, Audi and Porsche for Alleged Clean Air Act Violations (Jan. 4, 2016) .

[7] Press Release, Department of Justice, Justice Department Announces Criminal Charge Against Toyota Motor Corporation and Deferred Prosecution Agreement with $1.2 Billion Financial Penalty (Mar. 19, 2014) .

[8] Press Release, Federal Trade Commission, FTC Files Complaint Against Wyndham Hotels for Failure to Protect Consumers’ Personal Information (Jun. 26, 2012) .

[9] Press Release, Federal Trade Commission, Wyndham Settles FTC Charges It Unfairly Placed Consumers’ Payment Card Information at Risk (Dec. 9, 2015) .

[10] Press Release, FCC, Terracom and Yourtel to Pay $3.5 Million to Resolve Consumer Privacy & Lifeline Investigations .

[11] Press Release, SEC, SEC Charges Investment Adviser with Failing to Adopt Proper Cybersecurity Policies and Procedures Prior To Breach (Sept. 22, 2015) .

[12] See, e.g., SEC, Finra Continue Cybersecurity Scrutiny in 2016, Financial Advisor, Feb. 28, 2016 .

[13] Leslie R. Caldwell, Asst. Attorney Gen., Remarks at the 26thAnnual Association of Certified Fraud Examiners Global Fraud Conference (Jun. 15, 2015) .

[14]Andrew Ceresney, Director, Division of Enforcement, ACI’s 32nd FCPA Conference Keynote Address (Nov. 17, 2015) .

[15] Press Release, SEC, Standard Bank to Pay $4.2 Million to Settle SEC Charges (Nov. 30, 2015) .

[16] Chad Bray, ICBC Standard Bank to Pay Nearly $33 Million in Bribery Case, N.Y. Times, Nov. 30, 2015 .

[17] Press Release, Department of Justice, Nine FIFA Officials and Five Corporate Executives Indicted for Racketeering Conspiracy and Corruption (May 27, 2015) .

[18]Leslie R. Caldwell, Asst. Attorney Gen., Remarks at the 26thAnnual Association of Certified Fraud Examiners Global Fraud Conference (Jun. 15, 2015) .

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