SEC issues 2015 whistleblower report
The Securities and Exchange Commission (the "SEC") has issued its 2015 annual report to Congress on the Dodd-Frank whistleblower program. This report provides an overview of the whistleblower tips received by the SEC, and the awards it has made to individuals following successful enforcement actions based on the information they provided.
The SEC received 3,923 whistleblower reports in 2015, an increase of over 30% from 2012 (the first year for which full-year data on the program is available). Over $37 million was paid to eight whistleblowers during this period (with an additional award of $325,000 to a ninth individual authorized after the close of the fiscal year).
The largest category of reports related to corporate disclosures and financials (17.5%), followed by offering fraud (15.6%) and manipulation (12.3%). Around 4.7% of the tips submitted in 2015 related to Foreign Corrupt Practices Act ("FCPA") issues (186 FCPA tips were received in 2015).
The SEC's report indicates that it will continue to focus on (i) ensuring the whistleblowers' rights to report suspicions of misconduct to the SEC are not constrained, for example in confidentiality agreements with their employers; and (ii) ensuring that internal whistleblowers (i.e. those who report suspected violations within their companies, rather than to the SEC or another regulator) receive the same protection against retaliation afforded to external whistleblowers.
DOJ and SEC emphasize importance of corporate self-reporting and cooperation
We have referred in previous alerts to the Yates Memo – a recent document directing US prosecutors to focus on seeking accountability from culpable individuals in their investigations of corporate wrongdoing. The memo also emphasizes that self-reporting corporations will be required to provide evidence concerning the individuals responsible for wrongdoing, and will receive no cooperation credit if they refuse. On November 16 the Department of Justice (the "DOJ") issued revisions to the United States Attorney's Manual (the "USAM") to incorporate the principles set out in the Yates Memo. The USAM has been revised in order to update the so-called "Filip factors": binding guidance on the conduct of corporate criminal prosecutions. These amendments incorporate the requirement outlined in the Yates Memo that companies must provide all non-privileged information about individual wrongdoers in order to receive any credit for cooperation.
On the same day, Deputy Attorney General Sally Quillian Yates delivered a speech in which she discussed the revisions to the USAM. She emphasized that the new DOJ policy does not require companies to disclose privileged material in order to receive cooperation credit but noted that companies must provide all relevant facts and not seek to withhold them by making privilege claims. Yates said: "we will respect [attorney-client] privilege, but we will also expect companies to respect its boundaries and not to wrongly exploit its legitimate purpose by using it to shield non-privileged information from investigators."
In a November 17 speech at the American Conference Institute's FCPA conference in Washington DC, Andrew Ceresney, Director of the SEC's Division of Enforcement, also discussed the issues of corporate self-reporting and cooperation. In addition to the benefits of reduced charges for companies who self-report, he noted that if the SEC becomes aware of potential violations through its own investigations, or a whistleblower, instead of the company, the opportunity to earn additional cooperation credit may well be lost. He said that companies are "gambling" if they fail to report FCPA misconduct. Ceresney also stated that, as a matter of policy, the SEC will require that a company self-report in order to be eligible for a deferred prosecution agreement or non-prosecution agreement. He cautioned that self-reporting alone was not enough and that other factors such as self-policing, remediation and cooperation will also be considered. However, these factors will not come into play unless the company self-reports.
Alstom sentenced to pay $772 million FCPA fine
The DOJ announced on November 13 that Alstom SA had been sentenced to pay a fine of $772,290,000 following its December 2014 guilty plea to violations of the FCPA's books and records and internal controls provisions. This represents the largest ever fine imposed in FCPA proceedings.
Alstom pleaded guilty to involvement in a global bribery scheme involving the payment of over $75 million in bribes in officials in Egypt, Indonesia, Saudi Arabia, Taiwan and the Bahamas in exchange for power, grid and transportation contracts.
VimpelCom makes $900 million accounting provision relating to bribery investigation
Telecommunications company VimpelCom announced on November 3 that it will make a provision of $900 million in its third quarter financial statements based on its ongoing assessment of an investigation its business in Uzbekistan. The company said that it was cooperating with investigations by the DOJ and the SEC, as well as an investigation by the Dutch authorities. Norwegian authorities have also started their own investigation and arrested VimpelCom's former CEO. The investigation reportedly relates to VimpelCom's dealings with Talikant Ltd – a company reportedly involved in corruption and money laundering relating to the award of mobile telecommunications contracts in Uzbekistan.
PTC prepares to settle FCPA investigation with the SEC and the DOJ
Technology firm PTC announced on November 24 that it has recorded liabilities of $28.2 million, which represented its agreement in principal with the SEC and the DOJ, to settle alleged FCPA violations. The matter concerns the expenditures by PTC's business partners in China and by its China business, including for travel and entertainment that benefitted employees of state-owned customers.
SEC and DOJ investigating Alexion Pharmaceuticals' FCPA compliance
Alexion Pharmaceuticals Inc. (Alexion) confirmed in its quarterly results on November 2 that it is currently under investigation by the SEC and DOJ in relation to its compliance with the FCPA. The SEC reportedly contacted Alexion in March 2015 with a subpoena for information on its operations in various countries, with the DOJ following suit in October 2015. Alexion had disclosed the SEC subpoena in a previous filing. In that document, it confirmed that the SEC's inquiry referred in particular to Japan, Brazil, Turkey and Russia. It said that the subpoena also requested information related to Alexion’s recalls of specific lots of a particular drug and related securities disclosures.
Deutsche Bank pays $258 million penalty in connection with potential sanctions violations
The Board of Governors of the Federal Reserve System (the Federal Reserve) and the New York Department of Financial Services (the NYDFS) announced sanctions settlements with Deutsche Bank on November 4. The bank agreed to pay $200 million to the NYDFS and $58 million to the Federal Reserve in connection with its processing of transactions on behalf of entities subject to the US sanctions regimes against Iran, Libya, Syria, Myanmar and Sudan. The settlement was made in respect of allegations that Deutsche Bank carried out transactions worth over $10 billion between 1999 and 2006 by developing various means to ensure that the transactions were not identified as subject to sanctions. These included wire-stripping, i.e. ensuring that red flag information was removed from payment messages, and the use of "cover payments" whereby payment messages were split into two streams with full details being sent to the beneficiary's bank and a sanitized version of the message being sent to the US correspondent clearing bank involved in the transaction.
The NYDFS ordered Deutsche Bank to terminate the employment of six individuals who were involved in the scheme and still remained with the bank and three further employees will be banned from holding any duties or responsibilities involving the bank's US operations. Deutsche Bank will also appoint an independent monitor for a one year period to conduct a review of its sanctions compliance program.
Banco do Brasil enters into OFAC settlement regarding Iran sanctions violations
The Office of Foreign Assets Control (OFAC) announced on November 4 that it had entered into a civil settlement with Banco do Brasil, S.A., New York Branch (BBNY) in respect of seven apparent violations of its Iranian sanctions regime. The violations in question related to transactions processed on behalf of a customer called Isfahan Internacional Importadora Ltda (Isfahan). Isfahan frequently generated alerts in BBNY's sanctions screening software since "Isfahan" is also the name of a location in Iran. BBNY relied on confirmation from Isfahan that it did not export products to, or import products from, Iran, placed the customer on an exception list and continued to process funds transfers on its behalf, even after a US financial intermediary rejected a payment due to references to Iran on supporting documentation.
BBNY has agreed to pay US$139,500 to settle its potential civil liability in relation to these transfers.
Barracuda Networks settled with OFAC and Department of Commerce for sanctions violations
The OFAC announced on November 24 that it had settled with Barracuda Networks, Inc, and its UK subsidiary, for alleged sanctions violations. According to the OFAC announcement, from 2009 to 2012, Barracuda's UK subsidiary sold Web filtering products with censorship function, together with related software subscriptions, to individuals and entities in Iran and Sudan, and to Specially Designated Nationals (“SDNs”) under the Syrian Regulations. On November 23, the Department of Commerce's Bureau of Industry and Securities (BIS) also announced that it has reached a settlement agreement with Barracuda Networks for violations of the Export Administration Regulations (EAR). Barracuda Networks agreed to pay a US$1.5 million fine to the BIS, and another $38,930 to the OFAC.
US imposes sanctions against Burundi
President Obama signed an Executive Order on November 23 imposing sanctions on several senior members of Burundi government and an opponent armed group. The Executive Order also authorizes the US authorities to impose sanctions on more persons who engage in human rights abuses and undermine peace and democracy in the country.
OFAC terminates sanctions against Liberia
OFAC announced on November 12 that the President had signed an Executive Order terminating the US sanctions against Liberia which had been imposed with respect to the actions and policies of former President Charles Taylor. OFAC's announcement lists the various individuals and entities which have been removed from the SDN list as a result.