District Court Judge orders publication of Monitor's Report for HSBC
In a highly anticipated decision, Judge Gleeson of the United States District Court for the Eastern District of New York has ordered that the public should have access to the corporate compliance monitor's report generated as part of HSBC's settlement of money laundering charges with the US government. The court held that the document is a judicial document and therefore should be available to the public. The decision followed Judge Gleeson's earlier influential decision in the same case asserting supervisory authority of the judicial branch to approve or reject deferred prosecution agreements (DPAs) and to continue monitoring the DPA's execution and implementation. This decision could have a great impact on how corporates negotiate and structure settlement terms with the enforcement agencies in the US.
District Court refuses to accept privilege claimed between co-defendants who are former CEO and outside counsel of a pharmaceutical company
In a closely watched criminal securities fraud case against the controversial pharmaceutical company CEO Martin Shkreli and an attorney who represented the company Shkreli founded, Retrophin Inc., the District Court for the Eastern District of New York decided that email communications between the two co-defendants would not be protected by attorney-client privilege in two orders. The court noted that the Shkreli, as Retrophin Inc.'s employee, was warned by the company that the documents created during employment were company property, and therefore the privilege covering communications between Shkreli and the company's lawyer belonged to the Company. As such, the Company has the authority to waive the privilege to provide the communications to the government despite Shkreli’s opposition. The court also noted that the communications might be subject to the crime fraud exception to the attorney client privilege, which would also void the privilege.
SEC resolves FCPA issues with PTC through settlements with the US parent company, its Chinese subsidiaries and one of its employees.
The US Securities and Exchange Commission (SEC) announced that PTC Inc. (PTC), a Massachusetts-based technology company, agreed to settle charges that two of its Chinese subsidiaries provided improper payments totalling nearly US$1.5 million to employees of Chinese state-owned entities that were customers of PTC. The improper payments consisted of fees to third party agents, disguises as commission payments or sub-contracting fees, as well as gifts and excessive entertainment. In particular, third party agents were used to arrange overseas sightseeing trips that lacked business purpose for Chinese officials. The SEC's administrative order found that PTC violated the anti-bribery, internal controls and books and records provisions of the Foreign Corrupt Practices Act (FCPA). PTC agreed to pay US$11.858 million in disgorgement and US$1.764 million in interest, and its two Chinese subsidiaries agreed to pay a US$14.54 million fine pursuant to a separate non-prosecution agreement with the SEC. In its order, the SEC acknowledged PTC's self-disclosure and remedial actions.
In addition, the SEC announced its first deferred prosecution agreement with an individual, a former employee of one of PTC's Chinese subsidiaries. According to the SEC, the employee provided significant cooperation during the SEC's investigation, and the charges against him were therefore deferred for three years.
SciClone settles FCPA charges with the SEC
The SEC announced another FCPA settlement concerning the pharmaceutical sector. SciClone Pharmaceuticals, a California-based pharmaceutical company, agreed to pay fines and disgorgement of more than US$12 million in connection with its subsidiaries' alleged bribes to health care professionals employed at state health institutions in China. The bribes consisted of weekend trips, vacations, gifts, expensive meals, foreign language classes and entertainment. It was also alleged that payments were made in connection with a licence application. In addition, SciClone used local Chinese travel companies to provide services but did not have sufficient due diligence over these parties and the events they helped to organise.
SciClone consented to the SEC's enforcement action without admitting or denying the findings. It has taken several remedial measures, and agreed to give status reports to the SEC for the next three years on its remediation and implementation of anti-corruption compliance measures. The DOJ was involved in the investigation but appears to have declined to bring a separate enforcement action.
SAP SE settles FCPA charges with the SEC
SAP SE, a Germany software company, has agreed to pay US$3.7 million in sales profits to settle an FCPA investigation conducted by the SEC. The investigation concerned Vicente Garcia, SAP's former head of Latin American sales and a US citizen, who was convicted of making bribe payments to government officials in Panama to secure software license sales. According to the SEC enforcement order, SAP SE violated the FCPA's accounting provisions because its internal controls failed to prevent or detect that Garcia was falsifying internal approval forms so as to disguise his bribes as discounts to a third party partner. The settlement only contains disgorgement of the profits and pre-judgement interest, without any additional penalties, which reflects SAP SE's cooperation and remediation.
LAN's executive settles FCPA charges with the SEC over consultant payment
The SEC announced that the CEO of South American-based LAN Airlines S.A. has agreed to settle charges that he violated the FCPA by authorizing improper payments to a third-party consultant. The third party consultant is alleged to have passed some money to union officials during a dispute between the airline and its unionized employees in Argentina. The payment was made through a sham consulting agreement and wired into the consultant's US account. The SEC alleged that, although the consulting agreement provided the payment was for a study of air routes in Argentina, the payment was really a bribe to settle the labor dispute. Without admitting or denying the findings, the CEO agreed to pay a $75,000 penalty and must certify his compliance with the airline’s policies and procedures by attending anti-corruption training among other undertakings.
The SEC stated that its investigation is "continuing.”
The enforcement action is notable because it was brought under the FCPA’s accounting provisions, not its anti-bribery provisions. This may be because the union officials are not likely to be considered "foreign officials" under the FCPA. Nevertheless, since LAN Airlines S.A. was a reporting issuer with the SEC at the time of the event, its officials can face individual liability under the FCPA’s accounting provisions.
Military contractor settles FCA charges with the DOJ
Centerra Services International Inc. (Centerra), a Florida based military contractor, settled a False Claim Act ("FCA") matter with the DOJ over alleged double billing and labor cost inflation in connection with a contract for firefighting and fire protection services in Iraq. Centerra agreed to pay US$7.4 million.
According to the DOJ, the enforcement action was triggered by a whistleblower lawsuit filed by under the FCA. In exchange, the whistleblower received US$1.33 million of the settlement.
Pipe supply company and its owner penalised for fraud and bribery in power generation industry
American Pipe Bending and Fabrication Co. Inc., a pipe supply company, was sentenced to pay a total of over US$1.7 million in fines and restitution, and its owner was sentenced to 32 months in prison in connection with fraud and bribery. According to the DOJ announcement, the company and its owner paid approximately US$510,000 cash bribes to a department manager of the purchasing department of the electricity utility company in Manhattan, and the manager in exchange provided the pipe supply company with confidential competitor bid information. The charges resulted from an ongoing federal antitrust investigation of bid rigging, bribery, fraud and tax-related offences in the power generation industry. In addition to these charges, four individuals and one company have also been convicted.
District Court rules that compliance officers can face personal liability for BSA violation
The District Court of Minnesota decided that the former Chief Compliance Officer of MoneyGram International Inc. (MoneyGram), a money transfer company, can face personal liability for violations of the Banking Secrecy Act (BSA). The case began with an enforcement action against MoneyGram in relation to its failure to maintain an effective anti-money laundering program, which MoneyGram settled with a DPA in 2012. In December 2014, the Department of the Treasury's Financial Crime Enforcement Network (FinCEN) issued a US$ 1 million civil money penalty assessment against the former Chief Compliance Officer of MoneyGram, Thomas Haider. It was alleged that Haider ignored numerous consumer complaints relating to fraud activity, and failed to file suspicious activity reports (SARs). Haider challenged the assessment, claiming the BSA would not apply to individuals. The court decided that, among others, the explicit language in the statute referring to "partner, director, officer, and employee" demonstrated the legislative intent to subject individuals to liability.
US Supreme Court agreed to resolve controversial insider trading standard
The US Supreme Court granted a petition for certiorari in a case that would clarify the standard of the personal benefit to the insider that is necessary to establish insider trading. In United States v. Salman, 792 F.3d 1087 (2015), the Ninth Circuit upheld the defendant’s insider trading conviction, even though Salman was a remote tippee. The court observed that the defendant and the tippers were related and there was evidence that the original tipper had provided the information in expectation of a benefit.
This decision distinguishes the Second Circuit’s earlier, decision in United States v. Newman, 773 F.3d 438 (2014), cert. denied, No. 15 -137 (U.S. Oct. 5, 2015), which raised the bar for criminal prosecution of tipper/tippee insider trading cases to require "proof of a meaningfully close personal relationship that generates an exchange that is objective, consequential and represents at least a potential gain of a pecuniary or similarly valuable nature." The circuit split presents a different interpretation of Dirks v. SEC, 463 U.S. 646 (1983), which sets out the standard for tipper/tippee insider trading to be whether the tipper has breached a duty by conveying the insider information for the tipper's personal benefit.
Further easing of Cuba sanctions implemented by OFAC and BIS
The US Department of the Treasury's Office of Foreign Assets Control (OFAC) and the US Department of Commerce's Bureau of Industry and Security (BIS) announced further easing of Cuba sanctions. Amendments have been made to relevant regulations to remove existing restrictions on payment and financing terms for certain authorized exports and reexports to Cuba and to relax the licensing policy for exports and reexports to Cuba. These amendments also facilitate travel to Cuba for authorized purposes by, among other things, allowing blocked space, code-sharing, and leasing arrangements with Cuban airlines and authorizing additional transactions related to professional meetings and other events, disaster preparedness and response projects, and information and informational materials, including transactions incident to professional media or artistic productions in Cuba.
Environmental violations and illegal importation result in US$13 million settlement for hardwood flooring retailer
The US Department of Justice (DOJ) has announced its largest monetary penalty under Lacey Act, which is legislation aimed at curbing trafficking of wildlife and illegally sourced wood products. Lumber Liquidators Inc., a Virginia based hardwood flooring retailer, pleaded guilty for importing hardwood flooring manufactured from timber that was illegally logged in far eastern Russia, home to endangered Siberian tigers and agreed to pay US$13.15 million in criminal fines, forfeiture and community service payments. The company also agreed to a five-year term of organisational probation and mandatory implementation of a government-approved environmental compliance plan and independent audits, together with additional civil forfeiture.
According to the DOJ announcement, the company repeatedly failed to follow its own internal procedures and deal with "red flags" such as imports from high risk countries and questionable suppliers. It also falsely reported the species or harvest country of timber to the US government.