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Enforcement agencies and corporate liability
What government agencies are principally responsible for the enforcement of civil and criminal laws and regulations applicable to businesses?
The Department of Justice (DOJ) has primary responsibility for enforcing US criminal law, including laws relating to securities fraud, commodities fraud, bank fraud, tax fraud, wire and mail fraud, anticompetitive activity, and corrupt practices, including bribery of foreign and local officials. The DOJ principally prosecutes these cases through the US attorneys’ offices in the 94 federal judicial districts and the DOJ’s Criminal Division in Washington, DC.
The Securities and Exchange Commission (SEC), through its Division of Enforcement, has responsibility for civil actions involving violations of the securities laws. The Commodity Futures Trading Commission (CFTC), through its own Division of Enforcement, has responsibility for civil actions involving violations of laws relating to the commodities and derivatives markets.
Though not discussed here, there are other federal agencies - including the Federal Trade Commission and certain offices of the Department of the Treasury - that serve both a regulatory and an enforcement function with respect to the types of businesses within their jurisdiction. Additionally, certain state and local agencies, such as district attorneys’ offices and offices of state attorneys general, can bring civil or criminal enforcement actions against businesses.
Scope of agency authority
What is the scope of each agency’s enforcement authority? Can the agencies pursue actions against corporate employees as well as the company itself? Do they typically do this?
The DOJ has the authority to enforce the civil and criminal laws of the US against businesses and individuals. The SEC and CFTC have a similarly broad authority with respect to the civil laws and regulations that they enforce. All three entities can, and often do, bring actions against corporations as well as individuals.
Can multiple government entities simultaneously investigate the same target business? Must they coordinate their investigations? May they share information obtained from the target and on what terms?
Government entities can, and often do, simultaneously investigate the same corporation in parallel investigations. There is no requirement that the investigations be coordinated, though some coordination may increase efficiencies both for the government agencies involved and for the corporation.
DOJ, SEC and CFTC investigations are presumptively non-public, but each government entity is authorised to share information with other investigating agencies or regulatory agencies under certain circumstances. Where the DOJ has obtained information through a grand jury subpoena, dissemination of that information is subject to further restrictions. Companies can, and typically do, request that materials made available to the government be given confidential treatment. However, such requests do not necessarily preclude the sharing of information among law enforcement entities, and such sharing is generally not disclosed to the corporation.
In what fora can civil charges be brought? In what fora can criminal charges be brought?
The DOJ can bring both civil and criminal charges in the federal district court in the district in which the alleged conduct occurred. The SEC and CFTC can bring civil actions in federal district court or before an administrative law judge (ALJ). ALJs are independent judicial officers who are authorised to adjudicate allegations of securities law or commodities law violations in public administrative proceedings instituted by the SEC or CFTC, respectively. ALJs can issue decisions and impose monetary penalties and other sanctions. Their decisions are appealable to the respective commission, and the commission’s decisions in turn can be appealed to a federal court of appeals.
Corporate criminal liability
Is there a legal concept of corporate criminal liability? How does the government prove that a corporation is criminally liable for the acts of its officers, directors or employees?
The law deems corporations legal persons capable of committing crimes. Under the principle of respondeat superior, a corporation may be held criminally liable for the illegal acts of its directors, officers, employees and agents. To hold a corporation liable for such illegal acts, the government must prove that the acts were ‘within the scope’ of the agent’s duties and were intended ‘at least in part . . . to benefit the corporation’ (United States v Potter, 463 F.3d 9, 25 (First Circuit, 2006)). A corporate agent acts within the scope of his or her duties when performing acts of the kind that he or she is authorised to perform. If a corporate agent intends to benefit the corporation, that intention is sufficient to hold the corporation liable, even if the agent had other personal motivations as well. A corporation need not profit from the agent’s actions; but where an agent’s acts are inimical to the corporation’s interests or were undertaken with the sole purpose of benefiting the agent (or another third party), the corporation cannot be held criminally liable.
Must the government evaluate any particular factors in deciding whether to bring criminal charges against a corporation?
In determining whether to criminally charge a corporation, DOJ prosecutors must weigh not only the factors normally considered in every case (such as sufficiency of the evidence, likelihood of success at trial, and the deterrent, rehabilitative or other consequences of a conviction), but also a number of factors specific to corporations. However, under DOJ policy, prosecutors maintain substantial discretion in how to apply and weigh these factors. The relevant factors are the following:
- the nature and seriousness of the offence, including the risk to the public;
- the pervasiveness of wrongdoing within the company and management’s complicity in or condoning of wrongdoing;
- the company’s history of misconduct, including previous actions against it;
- the company’s willingness to cooperate in the investigation and its timely and voluntary disclosure of wrongdoing;
- the existence and effectiveness of a company compliance programme prior to the investigation;
- the company’s remedial actions, including efforts to implement or improve a compliance programme, replace management, discipline or terminate wrongdoers, pay restitution and cooperate with the government;
- collateral consequences, including disproportionate harm to shareholders, pension holders, employees and other non-culpable persons;
- the adequacy of the prosecution of individuals responsible for the corporation’s malfeasance; and
- the adequacy of remedies such as civil or regulatory enforcement actions.
These factors are not exhaustive and need not be weighed equally, particularly if one factor is present to an extent or degree distinct from others. As in all criminal prosecutions, the nature and seriousness of the crime, including the risk of harm to the public from the criminal misconduct, are the primary factors in determining whether to charge a corporation.
Initiation of an investigation
What requirements must be met before a government entity can commence a civil or criminal investigation?
There are no specific requirements for a government entity to commence an investigation, but investigations are typically based, at a minimum, on a suspicion that a crime or legal violation has occurred. The DOJ typically conducts investigations through grand juries, which are independent bodies with expansive investigative powers. The grand jury’s principal function is to determine whether there is probable cause to believe that a particular individual or entity committed a federal crime. That determination is the threshold for returning an indictment.
The SEC and CFTC conduct both formal and informal investigations. In formal investigations, these agencies can issue subpoenas for documents and testimony, while in informal investigations, they can issue voluntary requests. The SEC or CTFC enforcement staff can seek a formal order of investigation from the Director of Enforcement or from the CFTC, respectively, by making a recommendation explaining the basis for believing that the relevant laws have been violated, and how the subpoena power will further the investigation. The threshold for issuing a formal order is relatively low. The formal order describes the nature of the investigation in very general terms and identifies the provisions of the federal securities or commodities laws that may have been violated.
What events commonly trigger a government investigation? Do different enforcement entities have different triggering events?
Investigations can be triggered by a multitude of events and developments. Referrals from other state and federal government agencies or industry self-regulatory organisations, whistle-blower allegations, claims made by a government informant, press reports of corporate or individual wrongdoing, and significant shifts in stock prices coupled with allegations of wrongdoing in civil litigation may all lead to government investigations.
What protections are whistle-blowers entitled to?
The Sarbanes-Oxley Act of 2002 (SOX) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) provide substantial protection for whistle-blowers employed by publicly traded companies.
The SOX provides whistle-blowers (defined to include those who report wrongdoing to government officials and supervisors, or who participate in SEC or shareholder legal proceedings) with a civil cause of action in the event of resulting discrimination. Whistle-blowers can obtain remedies, including reinstatement, back pay, attorneys’ fees and special damages, such as compensation for emotional distress. Additionally, the SOX criminalises retaliation against a whistle-blower for providing truthful information to the government, and makes it a civil violation of the securities laws for an employer to retaliate or discriminate against a whistle-blower. The SOX requires that all publicly traded corporations establish procedures for employees to file confidential internal whistle-blower complaints.
The Dodd-Frank Act expanded on these protections by, among other things, specifically protecting employees who provide information to the SEC or CFTC regarding a violation of the securities or commodities laws. The Dodd-Frank Act also requires the SEC and CFTC, pursuant to regulation, to pay any whistle-blower whose information leads to a successful enforcement action a percentage of the sanctions imposed in that action. Unlike the SOX, the Dodd-Frank Act protects only those whistle-blowers who report wrongdoing to government officials.
At what stage will a government entity typically publicly acknowledge an investigation? How may a business under investigation seek anonymity or otherwise protect its reputation?
Government entities typically refrain from speaking publicly about an investigation until charges are brought or a resolution is announced, though it is not uncommon for information about the investigation to be leaked to the press well before such an announcement is formally made.
A business under investigation will typically request that documents and other information provided to the government be kept confidential, but there is no formal way for a business to maintain its anonymity. Indeed, as discussed in question 20, investigations may in certain circumstances give rise to disclosure obligations for public companies. The business will want to think carefully about how to communicate with the press about the investigation and may want to engage an outside public relations firm to advise with respect to press strategy.
Evidence gathering and investigative techniques
Is there a covert phase of the investigation, before the target business is approached by the government? Approximately how long does that phase last?
A government investigation will often involve a covert phase. The length of that phase will depend on several factors, including the efficacy of covert investigative techniques and the government’s ability to successfully deploy such techniques to further the investigation.
What investigative techniques are used during the covert phase?
The covert techniques that the DOJ typically uses to investigate businesses are similar to those used to investigate traditional organised crime - for instance, wiretaps, informants and cooperating witnesses. Wiretaps of emails, text messages and phone calls can generate powerful evidence, while informants and cooperating witnesses can provide historical context and proactive assistance in an investigation.
The SEC and CFTC often obtain information through covert market surveillance and analysis of market data, in search of anomalies that may evidence improper market activity.
After a target business becomes aware of the government’s investigation, what steps should it take to develop its own understanding of the facts?
The company should direct its counsel (internal counsel, outside counsel, or both) to promptly conduct an internal investigation, with the goal of learning the key facts and making determinations about the culpability of the business and its employees, potential defences and the likelihood of negotiating a favourable resolution, so that the business can make important strategic decisions as early as possible. The internal investigation will principally involve preserving, collecting and reviewing relevant documents and data, and interviewing key employees. Often, counsel will tailor the review by identifying critical document custodians and filtering their data using key terms and date ranges. In certain circumstances, and particularly where the business is cooperating with the government’s investigation, it may be prudent to give the government an opportunity to supplement the custodian list and the list of key terms. After reviewing the relevant documents, counsel can conduct interviews with relevant personnel. Depending on the complexity of the subject matter and potential allegations, counsel may also wish to engage experts to assist in analysing the relevant facts.
Evidence and materials
Must the target business preserve documents, recorded communications and any other materials in connection with a government investigation? At what stage of the investigation does that duty arise?
A duty to preserve evidence, including electronically stored and hard-copy information, generally arises when litigation or a government investigation is reasonably anticipated. This threshold is met in the event of a civil or criminal complaint, information, indictment, subpoena or other request for documents or information. However, it is prudent for a company to begin preservation efforts as soon as it becomes aware of allegations that are likely to lead to a government investigation. Counsel should institute a ‘litigation hold’ for all potentially relevant hard-copy, electronic and audio materials.
During the course of an investigation, what materials - for example, documents, records, recorded communications - can the government entity require the target business to provide? What limitations do data protection and privacy laws impose and how are those limitations addressed?
Government entities can compel the production of corporate documents and records, employee communications over the company’s electronic systems, and recorded communications maintained by the company. The DOJ uses grand jury subpoenas to compel the production of these materials, while the SEC and CFTC use administrative subpoenas. All three entities can, and often do, also request these materials from companies on a voluntary basis. In terms of optics, a business may prefer a voluntary request rather than a subpoena.
A company that receives a government subpoena or voluntary request for data housed in the US is generally free to produce the requested data to the government. While certain types of non-responsive personal information may need to be redacted, data privacy is not heavily legislated or regulated in the US, as a general matter. When government subpoenas or requests call for data that is housed abroad, consideration must be given to the data protection laws in the countries where the data resides. For example, EU member states regulate the processing and transfer of personal data to the US, which has not been found to provide an adequate level of protection over personal data, given the potential availability of the data to third parties through public court records, Freedom of Information Act requests and other means.
Two Department of Commerce ‘safe harbour’ frameworks (one involving the EU and one involving Switzerland) provide a method for US companies to transfer data from the EU or Switzerland to the US in compliance with the EU General Data Protection Regulation and the Swiss Federal Data Protection Act. To fall within these safe harbour frameworks, US companies must make certain commitments with respect to the collection and handling of data. In the US, those commitments are enforced by the Federal Trade Commission. Certain foreign laws also permit the transfer of personal data in the public interest, such as for production in a law enforcement proceeding. However, this exemption depends on the nature of the proceeding and the restrictiveness of the relevant state. Foreign blocking statutes can also prohibit the transfer of data out of the country where it resides. Despite these restrictions, US law enforcement agencies and regulators may insist on the production of relevant materials, leaving a company in a difficult position. It is critical for counsel to identify these issues as early as possible in an investigation and to consult with experienced local counsel to attempt to resolve them.
On what legal grounds can the target business oppose the government’s demand for materials? Can corporate documents be privileged? Can advice from an in-house attorney be privileged?
Demands for corporate documents can be challenged on several grounds. First, corporate documents can be privileged - and can be withheld on that basis - when they reflect a corporation’s confidential request for legal advice from its internal or outside counsel, or when they constitute ‘work product’ (ie, are prepared by or for the company in anticipation of litigation). Second, a subpoena can be challenged where the subject matter of the inquiry falls outside the agency’s authority, the demand is ‘too indefinite’ or the information sought is not ‘reasonably relevant’ to the agency’s investigation. Subpoenas can also be challenged if compliance would be overly burdensome or oppressive. More commonly, the business, through its counsel, negotiates a narrowing of the scope of the subpoena or request, an extension of time to respond, and permission to respond on a rolling basis.
May the government compel testimony of employees of the target business? What rights against incrimination, if any, do employees have? If testimony cannot be compelled, what other means does the government typically use to obtain information from corporate employees?
Corporate employees have a constitutional right under the Fifth Amendment not to incriminate themselves, and therefore the government cannot compel an employee to testify or to make statements in an interview if the employee’s statements would tend to be self-incriminating. Although corporations are legal persons, they do not have a right against self-incrimination.
A company that is cooperating with a government investigation will likely want to encourage its employees to cooperate, including by agreeing to be interviewed by the government. The company will also want to interview key employees in the course of conducting its own investigation and can terminate the contracts of employees who do not cooperate with that internal investigation. As part of its cooperation, the company may provide the government with information obtained from such interviews. Should the government seek to compel that information, however, the company could refuse to provide it on privilege grounds.
Under what circumstances should employees obtain their own legal counsel? Under what circumstances can they be represented by counsel for the target business?
It is prudent for employees whose conduct is or may become a focus of the investigation to have their own counsel. Such employees may have interests that diverge from the corporation’s interests - for example, they may wish to cooperate against members of senior management - and the corporation’s counsel cannot represent both the employee and the corporation in such cases. Employees with no direct role in the conduct under investigation, and whose conduct is unlikely to be scrutinised, can be represented either by their own counsel or by the corporation’s counsel. Employees with common interests but whose interests may diverge from the corporation’s interest are commonly represented by ‘pool counsel’ that represent several employees with similar roles at the company.
Where the government is investigating multiple target businesses, may the targets share information to assist in their defence? Can shared materials remain privileged? What are the potential negative consequences of sharing information?
Corporations that are under investigation can share information with one another to assist in their defence. That information will generally remain privileged pursuant to the ‘common interest’ or ‘joint defence’ doctrines, which extend attorney-client privilege to protect the sharing of information with other parties where the parties have a common legal interest or are part of a joint defence effort undertaken by the parties and their counsel. A written joint defence agreement, though not required to preserve privilege, can be useful in establishing the scope of the agreement and the common defence goals it serves. Such agreements typically restrict each party’s ability to disclose to the government the information obtained from other parties to the agreement. This restriction can limit the information that a party that chooses to cooperate with the government can provide. For instance, if a corporation enters into a joint defence agreement with its employees, the corporation might be unable to share with the government information obtained from employee interviews.
DOJ policy recognises the limitations that joint defence agreements may impose, though the policy expressly does not preclude corporations that are parties to such agreements from receiving cooperation credit. The CFTC’s policies on cooperation state that, in examining cooperative conduct, the CFTC will consider (as a positive factor) whether a company avoided entering into joint defence agreements with counsel for employees or other entities.
At what stage must the target notify investors about the investigation? What should be considered in developing the content of those disclosures?
Public companies have a duty under the federal securities laws to disclose to investors certain events that arise during an investigation. Disclosure is required if an investigation results in a material pending legal proceeding, the company knows that the government is contemplating such a proceeding or a director of the company is a defendant in a pending criminal proceeding. Absent these specific events, public companies should disclose investigations if they are material, meaning there is a substantial likelihood that a reasonable investor would view the investigations ‘as having significantly altered the “total mix” of information made available’ about the company (TSC Indus, Inc v Northway, Inc, 426 US 438, 449 (1976)). An assessment of materiality generally turns on the probability and magnitude of potential investigative outcomes, including the likelihood of an enforcement proceeding or indictment.
When making disclosures, companies should provide sufficient information to make clear the type, subject matter and status of the inquiry, and avoid the need for frequent updates. Predictions regarding the outcome of the investigation should be avoided because they may turn out to be incorrect and may frustrate the investigating agency. In some circumstances, it may be prudent to preview the proposed disclosure with the investigating agency.
Notification before investigation
Is there a mechanism by which a target business can cooperate with the investigation? Can a target notify the government of potential wrongdoing before a government investigation has started?
Before the commencement of a government investigation, or before a company is aware of such an investigation, the company can self-report misconduct to the relevant government authority or regulatory agency. Early voluntary disclosure has a number of advantages.
First, the DOJ considers a company’s timely and voluntary disclosure in determining whether to bring criminal charges, and the SEC and CFTC consider timely self-reporting in determining whether to bring civil enforcement actions. Second, if a company is the first to report the wrongdoing at issue, the company’s information will likely be more valuable to (and more appreciated by) the government than if reported at a later time, when the government is already aware of the information. Third, it may be preferable to self-report than to have the government learn about misconduct from media reports or whistle-blowers’ claims, some of which may ultimately prove false, but which in the meantime may shape the government’s view of the matter and cast the company in an inaccurate or unnecessarily negative light. Self-reporting may, but does not always, result in a more favourable resolution (such as an alternative to a guilty plea, or a reduced fine). However, premature self-reporting may unnecessarily subject the company to government scrutiny when additional internal investigation might reveal that the issue is narrower or less problematic than originally understood. The question of when and whether to report potential wrongdoing is a highly fact-specific determination to be carefully weighed and considered in each case.
Once a government investigation has commenced, a company can make clear to the investigating agencies - both explicitly and through its conduct in response to government inquiries - that it will fully cooperate with the investigation. For example, the company can provide documents without a subpoena, regularly report the findings of its internal investigation to the government and encourage its employees to agree to government interviews.
Voluntary disclosure programmes
Do the principal government enforcement entities have formal voluntary disclosure programmes that can qualify a business for amnesty or reduced sanctions?
The DOJ has a long-standing leniency programme through which corporations and individuals can avoid criminal convictions, prison sentences and fines if they are the first to confess participation in a criminal antitrust violation (eg, cartel activity). The DOJ grants only one corporate leniency application per conspiracy. Often, a company may be unable to complete a leniency application when it first reports such wrongdoing because further enquiries are necessary to gather the relevant facts. In that event, the DOJ will grant a ‘marker’ to hold the applicant’s place for a limited period if counsel:
- provides a report that the available evidence indicates that the client has engaged in a criminal antitrust violation;
- discloses the general nature of the conduct;
- identifies the industry, product or service involved so that the DOJ can determine whether leniency is still available; and
- identifies the client.
The types of leniency vary based on the stage at which wrongdoing is reported and the nature of the conduct, among other issues. This programme can extend to non-antitrust crimes only if the crimes were committed in connection with the antitrust activity that is being reported.
More recently, the DOJ established a Foreign Corrupt Practices Act (FCPA) programme to reward companies that self-disclose FCPA violations, fully cooperate with the government’s investigation and timely and appropriately remediate the misconduct. (The programme was launched as a pilot programme in April 2016, extended on a temporary basis in March 2017 and adopted as a formal DOJ enforcement policy in November 2017.) Potential benefits of self-disclosure under the FCPA programme include up to a 50 per cent reduction in potential fines, no instalment of a corporate monitor or a declination of prosecution.
Timing of cooperation
Can a target business commence cooperation at any stage of the investigation?
Yes, but the later a company decides to cooperate, the less valuable its cooperation may be to the government, and the less weight its cooperation may carry in resolution determinations.
What is a target business generally required to do to fulfil its obligation to cooperate?
A cooperating company should promptly provide the government with complete and thorough information relevant to the misconduct at issue and undertake appropriate remediation efforts, including disciplining responsible wrongdoers and modifying internal controls to prevent the misconduct from recurring. The DOJ has explained that it is seeking, first and foremost, the relevant facts, and that disclosure of relevant factual information is a critical component of cooperation. A corporation can gather those facts by reviewing documents and electronic media, and conducting witness interviews, and can supply the facts to the government by producing relevant documents and reporting the results of its internal investigation.
When a target business is cooperating, what can it require of its employees? Can it pay attorneys’ fees for its employees? Can the government entity consider whether a business is paying employees’ (or former employees’) attorneys’ fees in evaluating a target’s cooperation?
A cooperating company can require its employees to provide relevant documents and be interviewed by outside counsel in connection with the investigation. Whether an employee can be terminated for refusing to supply documents or participate in an interview will depend to some extent on the employment laws in the relevant jurisdiction and any employment agreements, though as a general rule US businesses can terminate US-based employees for refusing to cooperate with internal investigations.
Companies can generally pay attorneys’ fees for their employees in connection with government investigations, subject to state statutes regarding indemnification, as well as their own corporate articles of incorporation and by-laws. The DOJ is prohibited from considering whether a company is advancing attorneys’ fees for its employees when evaluating a company’s cooperation.
What considerations are relevant to an individual employee’s decision whether to cooperate with a government investigation in this context? What legal protections, if any, does an employee have?
In evaluating the costs and benefits of cooperation, an individual employee will want to first assess his or her role in the misconduct at issue. If the employee has useful information to provide and limited culpability, cooperation may increase the likelihood that he or she will continue to be employed by the company, and may eliminate or substantially decrease the likelihood that he or she will face criminal charges, an enforcement action or a ban from the industry. An employee with substantial culpability, by contrast, should consider whether, based on the government’s evidence, he or she is likely to be charged, and whether he or she can successfully defend against those charges in court. If the employee perceives a low risk of a charge or conviction despite substantial culpability, the employee may not want to cooperate as this could expose him or her to significant criminal charges. However, if the employee perceives a significant risk of conviction and a potential prison sentence, he or she may be more likely to cooperate with the government in an effort to obtain leniency.
As noted in question 17, a US company can generally terminate the contracts of employees who fail to cooperate with the company’s own internal investigation.
How does cooperation affect the target business’s ability to assert that certain documents and communications are privileged in other contexts, such as related civil litigation?
It may be difficult for a corporation to maintain that documents or information provided to the government remain privileged in other contexts (eg, in civil litigation), as the vast majority of federal appellate courts have rejected the notion of ‘selective waiver’. A corporation can seek to minimise the extent of the waiver of privilege by presenting general or thematic factual information to the government through an attorney proffer, without attributing information to specific witnesses or materials. However, even such disclosures are likely to give rise to discovery disputes in any subsequent civil litigation.
What mechanisms are available to resolve a government investigation?
Potential resolutions of a criminal investigation can range from a decision not to criminally charge the corporation to a guilty plea to felony charges. Other options include a non-prosecution agreement (NPA), in which the DOJ agrees not to prosecute the corporation in exchange for its cooperation; or a deferred prosecution agreement (DPA), in which criminal charges are filed along with an agreement that the charges will be dismissed within a specified period if the corporation fulfils the requirements of the DPA. The DOJ is more likely to consider an NPA or DPA if a guilty plea by the corporation would have significant collateral consequences for innocent third parties.
Admission of wrongdoing
Is an admission of wrongdoing by the target business required? Can that admission be used against the target in other contexts, such as related civil litigation?
The DOJ generally requires an admission of wrongdoing to resolve an investigation of a corporation. A guilty plea, NPA and DPA all require an admission of wrongdoing, or acceptance of the government’s statement of facts describing the wrongdoing. NPAs and DPAs may also prohibit the corporation from publicly contradicting those admissions or statements of facts.
The SEC and CFTC, by contrast, have a long-standing practice of permitting defendants to settle cases without admitting liability, through ‘neither admit nor deny’ settlements. However, in mid-2013, the SEC announced that it would begin requiring admissions in certain cases where heightened accountability or acceptance of responsibility were deemed necessary.
Dispositions involving admissions of wrongdoing are likely admissible against the corporation in subsequent civil cases, subject to pretrial litigation. The significance of such admissions, of course, will vary depending on the specific issues in dispute in the civil litigation.
What civil penalties can be imposed on businesses?
The SEC and CFTC can impose civil penalties, including monetary penalties, disgorgement of ill-gotten gains and restitution to victims of the offence. They can also seek court orders or administrative orders that bar the company from future violations and require special supervisory arrangements. The SEC and CFTC can also suspend or revoke registrations necessary for certain types of activity in the securities and commodities industries and can bar businesses from working in those industries altogether. Negotiated settlements commonly involve agreements that companies will improve their compliance programmes, terminate employees engaged in misconduct and agree to continued cooperation.
What criminal penalties can be imposed on businesses?
The DOJ can exact substantial criminal fines from companies and impose a host of restrictions on their operations. For instance, it can prohibit a company from engaging in certain types of activity or business; require the company to develop appropriate compliance policies and to subject those policies to review by an independent expert; or require the appointment of a monitor to review the company’s operations and make reports to the court and the government on a regular basis.
What is the applicable sentencing regime for businesses?
Advisory federal sentencing guidelines govern sentences for corporations as well as individuals. The guidelines are not binding on courts, but courts must consider them when deciding a sentence. By law, courts must also consider certain relevant characteristics of the offender and the offence, and sentences are imposed on a case-by-case basis. Corporations and individuals that cooperate with government investigations and provide substantial assistance to the government are eligible for a reduction in sentence.
What does an admission of wrongdoing mean for the business’s future participation in particular ventures or industries?
An admission of wrongdoing - whether through an NPA, DPA, guilty plea or otherwise - can have substantial negative consequences for a company’s future activities. The extent and nature of those consequences depend on determinations made by a variety of other regulators in the relevant industry. For example, a financial institution that pleads guilty to a felony can be severely limited in the types of work in which it can engage: it may be disqualified from membership in certain national securities exchanges, barred from contracting with state or local governments, or face revocation of its banking licences. An institution subject to a DPA may face similar limitations, while an NPA’s consequences may be less onerous. However, in connection with a negotiated resolution, the relevant authorities may agree to waive such consequences or to quickly reinstate the company’s memberships, registrations and authorisations, thereby limiting the collateral consequences.
* The authors would like to thank Daniel Merzel and Deepa Devanathan for their assistance in the preparation of this chapter.
UPDATES & TRENDS
Updates & Trends
Updates and trends
In the Trump administration, US authorities have created additional incentives for corporate cooperation in government investigations, suggesting that the authorities may increasingly rely on voluntary cooperation, among other means, as a starting point for enforcement activity.
As noted in question 22, the FCPA pilot programme that the DOJ introduced in April 2016 - which offers substantial benefits, in certain circumstances, to companies that proactively self-disclose wrongdoing - was made permanent and adopted as a formal DOJ enforcement policy in November 2017. Moreover, in early March 2018, DOJ Criminal Division leadership announced that the principles of the FCPA policy would be extended (as ‘non-binding guidance’) to other types of criminal misconduct, potentially including fraud, money laundering, domestic corruption and a range of other federal offences. DOJ officials provided the example of a global financial institution that timely self-disclosed its involvement in a manipulative currency trading scheme, remediated its misconduct, fully cooperated with the government’s investigation and disgorged all ill-gotten gains from the scheme. In exchange, the DOJ declined to bring criminal charges against the company - a display of the ‘culture of openness and cooperation’ that the DOJ aims to foster, both to incentivise good corporate citizenship and to conserve investigative resources.
Separately, in late September 2017, the CFTC’s Enforcement Division announced a new cooperation programme for companies that promptly self-report misconduct to the CFTC, fully cooperate with the CFTC’s investigation and timely and appropriately remediate their misconduct. In announcing the programme, CFTC Enforcement Division leadership noted that, all else being equal, a company that does not self-report its misconduct but subsequently cooperates in a CFTC investigation will receive ‘significantly less’ cooperation credit than a company that promptly self-reports the wrongdoing. Under the new policy, highly cooperative companies could see penalty reductions in the range of 50 to 75 per cent, or even declinations of prosecution in ‘truly extraordinary’ cases.
Given these developments, companies that identify potential wrongdoing would be well advised to weigh the possible benefits of prompt self-reporting to relevant authorities and regulators.