Recent FCPA developments
Johnson Controls receives NPA for FCPA issues
On July 11, 2016, the Securities and Exchange Commission (SEC) announced that Johnson Controls Inc., a diversified technology and industrial service provider, agreed to settle alleged violations of the books-and-records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA), in connection with improper vendor payments made by employees at Johnson Controls Inc.'s Chinese subsidiary, China Marine. According to the SEC announcement, an SEC investigation found that China Marine used sham vendors to make improper payments of approximately US$ 4.9 million to employees of Chinese government-owned shipyards, and ship-owners and others, to obtain and retain business and personally enrich themselves. Pursuant to the SEC order, Johnson Controls Inc. agreed to report to the SEC periodically the status of its FCPA and anti-corruption remediation and implementation of compliance measures during a one-year term.
Simultaneously with the SEC settlements, the Department of Justice (DOJ) announced that it would not prosecute Johnson Controls Inc. for this conduct pursuant to its FCPA pilot program.
Both the SEC and the DOJ emphasized that Johnson Controls Inc. had cooperated in their investigations.
LATAM Airlines settles with DOJ and SEC over FCPA issues
On July 25, 2016, the DOJ announced that LATAM Airlines Group S.A. (LATAM Airlines), a commercial airline based in Chile, agreed to pay US$ 12.75 million to settle charges in connection with a scheme to pay bribes to Argentine union officials via a false consulting contract with a third-party intermediary. The consulting agreement was executed by executive of LAN Airlines S.A., LATAM Airlines' predecessor-in-interest. We reported in February that the CEO of LAN Airlines S.A. had agreed to settle charges that he violated the FCPA by authorizing improper payments to a third-party consultant.
LATAM also reached a settlement with the SEC under which it agreed to pay $6.74 million in disgorgement and $2.7 million in prejudgment interest.
Other corporate criminal and enforcement actions
Volkswagen reached partial settle with federal and state regulators
On June 28, 2016, Volkswagen AG and a few of its affiliates (collectively, Volkswagen) reached a proposed partial settlement with the U.S. Environmental Protection Agency (EPA) for the alleged violations of the Clean Air Act. The settlement concerns more than 500,000 models of Volkswagen vehicles that have installed "defeat devices" designed to cheat on federal emission tests. The settlement is a partial settlement because it only addresses what Volkswagen must do to address the certain vehicles on the road, and does not address other aspects of the United States’ complaint filed by the DOJ. Under the partial settlement, Volkswagen is required to remove from commerce in the United States or perform an emissions modification on at least 85 percent of the affected 2.0 liter vehicles, to pay a US$ 2.7 billion fine and to invest an additional US$ 2 billion to promote the use of zero emission vehicles.
Under two related settlements, a Federal Trade Commission (FTC) stipulated order and a class action settlement agreement, Volkswagen has also agreed to pay eligible consumers compensation for alleged consumer damages related to marketing and sale of such vehicles with defeat devices.
The State of Washington Department of Ecology announced a fine of US$ 176 million against Volkswagen for similar misconduct.
Volkswagen is still negotiating with other state regulators to resolve the issue. On July 13, 2016, the California Air Resources Board announced that it rejected Volkswagen's recall plan for 3.0 liter diesel passenger cars because the plans were incomplete and deficient in a number of areas.
Oil refinery companies settle with DOJ and EPA for alleged air pollution
On July 18, 2016, the EPA and the DOJ announced that they reached a US$ 425 million settlement with subsidiaries of Tesoro Corp. (Tesoro), and Par Hawaii Refining that resolves alleged Clean Air Act violations. Under the settlement, these refinery companies will spend about US$403 million to install and operate pollution control equipment, and Tesoro will spend about US$12 million to fund environmental projects in local communities previously impacted by pollution. Tesoro will also pay a US$10.45 million civil penalty. The settlement addresses a range of alleged leak detection and repair and flaring violations under the Clean Air Act as well as state clean air laws, programs and permits.
Norwegian shipping company pleaded guilty for price-fixing
On July 13, 2016, the DOJ announced that Wallenius Wilhelmsen Logistics AS (WWL), a Norwegian corporation, has agreed to plead guilty and pay a US$ 98.9 million criminal fine for its involvement in a conspiracy to fix prices of international ocean shipments of roll-on, roll-off cargo to and from the Port of Baltimore and other locations in the WWL is the fourth company to agree to plead guilty in the investigation, which has resulted in over $230 million in agreed-upon fines. In addition, eight executives have been charged for their participation in the conspiracy. Four have already pleaded guilty and been sentenced to prison terms. The other four executives have been indicted, but remain fugitives from justice. United States.
OFAC issues a general license authorizing U.S.-origin airplane's temporary sojourn" to Iran
On July 29, 2016, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a general license authorizing a non-US carrier to fly U.S.-origin aircraft to Iran on temporary sojourn, subject to certain conditions. The temporary sojourn is limited to a period of no more than 72 hours. The general license does not authorize any transaction by U.S. persons.
OFAC issued two Findings of Violation against insurance companies
On August 2, 2016, OFAC announced that it has issued a Finding of Violation against AXA Equitable Life Insurance Company (AXA) for issuing health insurance policies to cover persons designated as Specially Designated Nationals (SDNs) for narcotics-related activities. OFAC stated that although AXA personnel did not appear to have actual knowledge of the violations, AXA, as a large and commercially sophisticated company, violated sanctions because it failed to implement controls and measures to ensure it could identify, block and report insurance policies, premiums, or claim payments in which an SDN has an interest. AXA self-reported the violations to OFAC, cooperated with OFAC's investigations, and executed a statute of limitations tolling agreement and an extension to the agreement. These factors were considered in OFAC's decision to only issue a Finding of Violation against AXA without any monetary penalties.
On the same day, OFAC announced that it has issued a Finding of Violation against Humana, Inc. (Humana), the parent company of Kanawha Insurance Company, which appeared to have served as the third party administrator for the insurance policies issued by AXA.
FinCEN expands reach of real-estate data targeting order
On July 27, 2016, the US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) announced an expansion of Geographic Targeting Orders (GTOs) issued earlier, which require U.S. title insurance companies to identify the natural persons behind shell companies used to pay "all cash" for high-end residential real estate. The initial GTOs covered Manhattan and Miami areas, and the recently announced GTOs expand the covered areas to include all boroughs of New York City, Miami and adjacent areas, Los Angeles, San Francisco, San Diego County and San Antonio.
FinCEN fines California Casino for anti-money laundering failure
On July 15, 2016, FinCEN announced a fine of US$ 2.8 million against Hawaiian Gardens Casino in California. The casino admitted that it violated the Bank Secrecy Act's (BSA) program and reporting requirements and has agreed to future undertakings, including periodic independent reviews to examine and test its BSA Anti-Money Laundering (AML) program. According to the FinCEN announcement, from September 1, 2009 through the present, the casino failed to implement and maintain an effective AML program, failed to report large cash transactions, failed to file many suspicious activity reports (SARs), and failed to keep certain required records.
NYDFS issues final anti-money laundering regulation
On June 30, 2016, New York Department of Financial Service (NYDFS) announced that it has adopted a risk-based anti-terrorism and anti-money laundering regulation that requires regulated institutions to maintain programs to monitor and filter transactions for potential Bank Secrecy Act (BSA) and anti-money laundering violations and prevent transactions with sanctioned entities. The final regulation requires that every regulated institution annually submits a board resolution or senior officer compliance finding confirming steps taken to ascertain compliance with the regulation.
Compared with the proposed version announced in December last year, the final regulation does not require annual certifications executed by a firm's chief compliance officer or functional equivalent. The rule will become effective on 1 January 2017.
White House issues Presidential Policy Derivative on cyber incident coordination
On July 26, 2016, the White House issued a Presidential Policy Derivative that set forth principles governing the federal government’s response to cyber incidents in both government and private sectors. The new derivative, among other things, differentiates between significant cyber incidents and steady-state incidents, categorizes the government’s activities into specific lines of effort and designates a lead agency for each line of effort in the event of a significant cyber incident. The derivative was issued with a cyber incident severity schema, which adopted a common schema for categorizing the severity of cyber incidents for a rating of 0 to 5. The directive also clarifies that the Federal Bureau of Investigation (FBI) will lead the federal government’s initial response to cyberattacks against it and major organizations and companies.
Second Circuit Ruling Prohibits US Government Seizure of E-Mails Stored Outside the United States
On July 14, 2016, the US Court of Appeals for the Second Circuit handed a major win to Microsoft when it ruled that US authorities cannot compel US internet service provider companies to disclose e-mail content that they store on servers located outside the United States. This case arises from Microsoft's refusal to comply with a warrant obtained by US law enforcement authorities seeking production of Microsoft customer e-mails stored on servers maintained by Microsoft's affiliate in Ireland. The Second Circuit ruled that the long-standing limitation of US warrants to searches and seizures of information located in the United States applies equally to data stored in the "cloud." Therefore, the court found that the data stored in Ireland was beyond the reach of US law enforcement authorities.
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