U.S. authorities continue to aggressively pursue cross-border investigations and to scrutinize closely the compliance programs of multinational corporations. Investigative activity by U.S. authorities in 2014 was particularly intense in the areas of market abuse, corrupt practices and bribery, and tax fraud, and that activity is anticipated to extend into 2015, perhaps with an even broader geographical reach. However, aggressive enforcement by U.S. and international regulators also led to tensions regarding employee rights, regulatory competition and double-jeopardy concerns, and conflicts between U.S. expectations and non-U.S. privacy and data protection rights. These concerns will continue in 2015.
Market Abuse Investigations Illustrate Challenges of International Cooperation
In November 2014, the U.S. Commodities Futures Trading Commission (CFTC), U.S. Office of the Comptroller of the Currency (OCC), U.K. Financial Conduct Authority (FCA) and Swiss Financial Market Supervisory Authority (FINMA) announced coordinated settlements with five international financial institutions in relation to alleged efforts by foreign exchange traders to manipulate the benchmark currency exchange rates. Like the LIBOR investigations before it, which resulted in nearly $6.5 billion in fines, the foreign exchange (FOREX) market settlements have resulted in $3.3 billion in fines. Notably, neither the U.S. Department of Justice (DOJ) nor the New York Department of Financial Services (DFS) was part of this round of settlements, reflecting the difficulties that entities face in achieving global peace in a multijurisdictional investigation. Indeed, according to public reports, one financial institution withdrew from the November 2014 settlement in an effort to achieve a global and more coordinated settlement at a later time.
The LIBOR and FOREX investigations also have illustrated the tensions that arise when multiple regulators pursue the same individuals. In the LIBOR investigations, for example, the DOJ has charged four U.K. bankers with violations of U.S. law (one of whom has pleaded guilty) while these same individuals are subject to investigation by the U.K. Serious Fraud Office (SFO). In the FOREX investigations, numerous individuals reportedly have been targeted by multiple regulators, complicating the efforts of any one regulator to secure cooperation or testimony from individual bankers.
US Authorities Continue to Focus on Anti-Corruption Investigations
U.S. authorities are actively enforcing the U.S. Foreign Corrupt Practices Act (FCPA) — often resulting in significant settlements with the entity being investigated. In 2014, the DOJ and Securities and Exchange Commission (SEC) resolved several long-running FCPA investigations with significant settlements, including with Alstom S.A. ($772 million), Alcoa Inc. ($384 million), Avon Corporation ($135 million), Hewlett-Packard Co. ($108 million) and Marubeni Corp. ($88 million). The Alstom settlement is the largest criminal penalty to date in an FCPA matter.
The SEC and DOJ have used the 2014 investigations and settlements to emphasize the importance of corporate voluntary disclosures and unfettered cooperation in investigations. In speeches last year concerning FCPA investigations, Marshall Miller and Leslie Caldwell, principal deputy attorney general and assistant attorney general and chief of the DOJ’s Criminal Division, respectively, warned that as a result of the DOJ’s deepening international relationships and increasing sophistication in analyzing non-U.S. law, the DOJ will more rigorously evaluate claims that international data privacy laws preclude the production of materials requested by the DOJ and may consider such claims “obstructionist” if deemed unsupported by relevant law. In resolving the Marubeni investigation, the DOJ noted “Marubeni’s decision not to cooperate with the department’s investigation when given the opportunity to do so, its lack of an effective compliance and ethics program at the time of the offense, its failure to properly remediate and the lack of its voluntary disclosure of the conduct.” In the Alstom settlement, the DOJ noted (among other factors related to the resolution and fine), “Alstom’s failure to voluntarily disclose the misconduct even though it was aware of related misconduct at a U.S. subsidiary that previously resolved corruption charges with the department in connection with a power project in Italy [and] Alstom’s refusal to fully cooperate with the department’s investigation for several years.”
Nevertheless, voluntary disclosures and full cooperation and disclosures do not guarantee minimal penalties. In settling FCPA investigations with the DOJ and SEC, Bio-Rad Laboratories agreed to disgorgement and penalties totaling $55 million despite having voluntarily disclosed compliance concerns to the government and cooperating fully with their investigations. Similarly, the DOJ and SEC credited Avon's cooperation in their investigations but still obtained $135 million in disgorgement and penalties.
Cross-Border Tax Resolutions Gain Additional Momentum
Non-U.S. banks and financial advisors suspected of aiding U.S. taxpayers in evading their tax obligations by opening and maintaining undeclared accounts overseas continue to face investigation and prosecution from U.S. authorities. See also “Latest Swiss Cross-Border Tax Investigation Reflects Wider US Enforcement Agenda” (June 26, 2014).
In May 2014, Credit Suisse AG pleaded guilty to conspiracy to aid and assist U.S. taxpayers in filing false income tax returns and other documents with the Internal Revenue Service (IRS). Credit Suisse AG also agreed to pay $2.6 billion in fines in connection with the plea. The prosecution of Credit Suisse arose from a long-running investigation resulting in indictments of eight of its executives since 2011, two of whom have pleaded guilty.
In December 2014, Bank Leumi Group entered into a two-year deferred prosecution agreement with the DOJ in relation to allegations that the bank conspired with U.S. taxpayers to prepare and present false tax returns to the IRS by assisting taxpayers in shielding income and assets in offshore bank accounts. Bank Leumi Group entities agreed to pay a total of $270 million to the DOJ. In a simultaneous and related settlement, Bank Leumi agreed to fines of $130 million imposed by DFS in relation to conduct by Bank Leumi USA and regarding Bank Leumi clients in New York state. In addition to the DFS fine, Bank Leumi agreed to an independent monitor, selected by DFS, to review the bank's compliance programs, policies and procedures.
Additionally, approximately 80-100 Swiss banks reportedly are still participating in the voluntary disclosure program, which began in 2013, that allows Swiss banks that may have committed a tax- or monetary-related offense under U.S. law to obtain a nonprosecution agreement (NPA). Banks participating in the program must pay a substantial fine and disclose a significant amount of information about U.S. accountholders, which has included details that will help in drafting requests to Swiss authorities for information related to undisclosed accounts.
The DOJ's investigation and resolution of tax matters will continue to be significant in 2015. Several financial institutions remain targets of DOJ investigation, and settlements are likely to be reached that are consistent with the Credit Suisse and Bank Leumi matters. In addition, the U.S.-Swiss Amnesty Program can be expected to result in numerous nonprosecution agreements with banks that are participating in the program. Finally, the DOJ has used its investigations and the program to gather information on U.S. taxpayers as well as individuals and entities that have assisted taxpayers in maintaining funds abroad, and the DOJ and IRS are likely to use such information to pursue additional investigations in 2015.