Whenever regulators or criminal authorities from multiple jurisdictions become interested in the same suspected misconduct, the potential for disagreement and conflict between those authorities becomes very real. While investigators in different countries will always be keen to give the impression externally of high levels of cooperation and mutual respect between them in the course of an investigation, the reality in recent years has been one of soured relationships and fierce competition between authorities.
It is, of course, the case that misconduct in a single jurisdiction – particularly in wholesale financial markets – can have an effect on markets globally, with potentially numerous authorities wishing to investigate the behaviour of individuals based in other countries. This is exacerbated by the extremely wide approach of the US authorities to claiming jurisdiction over conduct elsewhere in the world, for example where the only physical connection with the US is that payments have been made in US dollars.
Examples in recent years of multi-jurisdictional investigations where we have seen conflict between international regulators include inter-bank offering rate manipulation, FX manipulation, SSA bond trading manipulation, misconduct in the aviation insurance market, commodity trading manipulation and various cross-border bribery investigations. To complicate matters further, suspected misconduct in the financial services sector can also lead to multiple agencies in each jurisdiction conducting their own parallel investigations – for example, from regulatory, criminal, antitrust and data security perspectives.
In multi-authority investigations of this nature, the pinch points that cause authorities to fall out with one another are numerous and can be significant in the course of each body’s own investigation. Each authority understandably wants to conduct a full investigation into the suspected misconduct, including access to the relevant documents, access to the relevant witnesses and ultimately control of any individuals who are believed to be culpable. Yet the steps taken by one authority will frequently undermine or cause other major problems for parallel authorities investigating the same matters.
The most serious issues we see include disagreements on sharing of documentary evidence between authorities; how, where and by whom individuals will be interviewed; which authority will prosecute individuals; the timing of any settlements; the division of financial penalties imposed; and, ultimately, which authority should be seen as the ‘lead’ investigator on the case.
While there are numerous formal cooperation agreements and mutual legal assistance arrangements in place between authorities in different jurisdictions, we regularly see authorities seeking to bypass these arrangements to seek to get access to witnesses in another jurisdiction. If an overseas body is the first to identify and investigate a potential issue, they may be reluctant to alert the local national authority to the issue in case that authority then commences its own parallel investigation which could well delay or interfere with the initial investigation. As a result, direct contact is frequently made with witnesses based overseas in the hope that those individuals will agree to attend an interview on a voluntary basis. We have even seen US investigators detaining (but not arresting) individuals arriving in the US on holiday, and immediately interviewing them about their Bloomberg chats – without any access to a lawyer or affording any other legal protections.
Where authorities do work together to coordinate interviews, the authority based in the jurisdiction where the individual is domiciled will typically take the lead in questioning
witnesses, although this in itself can cause friction between investigating bodies. Similarly, whether the interview is to be conducted on a compelled basis (as is typically the case for witnesses in UK regulatory investigations and by the Serious Fraud Office) or on a ‘voluntary’ basis (where the witness is not legally required to answer questions if they do not wish to) can be a deeply contentious issue between the authorities due to the legal problems that compelled testimony can create in the US. We saw in 2017 in the context of LIBOR-related prosecutions that even making transcripts of compelled interviews available to US prosecutors can taint a prosecution in the US, leading to prior convictions being quashed on appeal.
Perhaps the most significant issue that frequently arises in cross-border criminal investigations is which authority will bring a prosecution of individuals believed to have committed offences. Where suspected misconduct leads to parallel offences in a number of jurisdictions, it is not open to all authorities to bring prosecutions against the same individual (in contrast to regulatory enforcement against firms, where there is no such restriction). The potential to extradite individuals to face trial in another country has led to bad blood between authorities who are each keen to have one or more individuals within their control. This is at its most acute where one prosecuting body is seeking cooperation with the individual as a possible prosecution witness (with the potential to grant immunity or offer a plea bargain) while another is proposing to prosecute that individual. The authorities in the state in which the individual resides will normally have first option on bringing a prosecution, but where the individual is based in another jurisdiction there can be a real fight between authorities to extradite individuals to their own jurisdiction. Further issues arise where national courts refuse to extradite individuals, even under the European Arrest Warrant, as we saw with Germany and France last year in the context of the Euribor investigation.
In the context of purely regulatory outcomes, coordinating the timing of any global settlement – and the division of financial penalties between authorities – has been a further source of disagreement and friction between different national authorities. It is normally in the firm’s interest to agree a single global settlement, but the interests of different authorities may well conflict.
Each authority naturally wants to be seen as the ‘lead’ on the investigation, and to be viewed as having achieved the most successful outcome. While the announcement of a multi-regulator settlement can appear externally to be a well-choreographed affair, the reality is that settlements of this nature are the result of hard bargaining and the resolution of disagreements not only with the defendant firm but also between the various regulators involved.
Yet there are signs that the poor relationships between international authorities in recent years are now beginning to improve. The Department of Justice’s (DOJ’s) Rosenstein memo to US Attorney Generals in May 2018 made clear both that US prosecutors must coordinate properly with other agencies in the US and internationally, and that in the setting of financial penalties it is necessary to take into account the actions of other authorities to avoid the imposition of duplicative fines.
Equally the new Director of the SFO, Lisa Osofsky, is clearly committed to repairing soured relationships with the DOJ in order to maximise cooperation and harmony between the two bodies in the future. As a US citizen who has spent five years working as Deputy General Counsel and Ethics Offcer at the FBI, Ms Osofsky has the understanding, empathy and high level personal contacts that will be key to rebuilding a strong and constructive relationship between the UK and US prosecutors. In her first speech as Director just days after taking up her position at the end of August 2018, she signalled her intentions: “Our kinds of cases are becoming increasingly multijurisdictional and complex, so cooperation to achieve global settlements like Rolls-Royce are ever more important. Strengthening and deepening the relationships that make this happen is going to be a major focus for me.” Since then Ms Osofsky has been busy visiting prosecutors in a range of jurisdictions to build that mutual trust and cooperation.
While a binding global protocol to ensure that regulators and prosecutors operate in a constructive and cooperative manner with parallel authorities internationally still seems a long way off, these recent signs of an enhanced commitment to cooperation rather than competition between investigatory bodies on both sides of the Atlantic are to be strongly welcomed.
This article was first published in Bryan Cave Leighton Paisner’s Emerging Themes in Financial Regulation 2019: New Perspectives publication – an extensive collection of articles around the themes of investigations, financial crime, digital, markets, supervision and governance. You can download the full publication here.