“Given geopolitical considerations, it is unlikely the United States will impose broad sanctions on Russia or Russian entities. However, as we have seen in other crises, events can move swiftly and companies doing business in Ukraine (and perhaps Russia as well) should at least be considering their worst-case-scenario contingency plans.”—Attorney Jonathan Epstein of Holland & Knight in Crisis in Ukraine: U.S. Imposes Targeted Sanctions
From attorney Jon Eisenberg of K&L Gates, an in-depth look at the first three years of Consumer Financial Protection Bureau enforcement and lessons that the organizations under its authority – banks, credit unions, mortgage lenders, payday lenders, and more – should draw. It’s a valuable read for those institutions, certainly, but also for everyone looking to understand the agency and how it will shape the financial future of consumers and providers alike…
Foreign Corrupt Practices Act enforcement activity in 2013 was robust, with DOJ and the SEC bringing 31 new FCPA enforcement actions, exceeding the 2012 total of 25. Total penalties amounted to more than $720 million, the second highest year on record.
In 2013, DOJ brought:
nine enforcement actions against corporate defendants, compared with 11 each year during 2012 and 2011.
14 enforcement actions against individual defendants, compared to only two in 2012, and 12 in 2011. The 14 DOJ enforcement actions in 2013 stemmed from five corporate investigations.
Several months ago, I raised the question of why the large-scale accounting fraud cases of the type that had been so prevalent in the early 2000s were no longer a staple for either federal prosecutors or the SEC. In so doing, I was not the only one to have noted a dramatic shift away from such cases towards investigations involving Ponzi schemes, allegations of insider trading, violations of the Foreign Corrupt Practices Act, or other types of financial improprieties. Accounting commentators have noted the decline of such cases – as well as the financial restatements that often precede them – for some time now…
As part of agreed targeted EU sanctions in response to recent violent events in Ukraine, the EU Member States have as a first step introduced an asset freeze against 18 Ukrainian individuals deemed responsible for misappropriation of Ukrainian State funds and human rights violations…
“[C]ustomers will face an uphill battle arguing priority to recovered bitcoins over Mt. Gox’s other creditors.” (Timothy Durken)
Wondering what the Mt Gox bankruptcy means for the future of Bitcoin? Whether Senator Manchin’s proposed ban on Bitcoin could spell the end of the virtualcurrency? How governments are responding to the growing use of cryptocurrencies? Read these updates:
“By ensuring that your company implements and maintains up-to-date anticorruption and export compliance programs, you are insuring yourself against the possibility of a minor inadvertent error leading your company down a slippery, costly, and potentially embarrassing slope.”—Attorney Doreen Edelman of Baker Donelson on the slippery slope of compliance violations.
“With liabilities ($64 million) substantially exceeding assets ($38 million), Mt. Gox’s customers will receive little, if any, payment from the bankruptcy unless stolen bitcoins are recovered.”—Attorney Timothy Durken on bitcoins and the Mt. Gox bankruptcy.
Earlier this month, Federal Trade Commission Chairwoman Edith Ramirez went before Congress to remind lawmakers that the country needs stronger data security laws to “fill in the blanks” in the agency’s uneven enforcement authority over data security and breach notification requirements. From attorney Travis Wall of Barger & Wolen:
“Chairwoman Ramirez stressed the need for uniform national standards for data security and breach notifications, stronger civil remedies, and expanded rulemaking authority under the Administrative Procedure Act enabling the FTC to respond effectively to changes in technology.”
But it’s a message that Congress has heard before and begun to heed. And therein lies the rub:
“Despite widespread support for such standards, proponents have not been able to amass enough votes to pass a comprehensive data security law.
There are competing proposals in the Senate – the Personal Data Privacy and Security Act, which Sen. Patrick Leahy, D-Vt., introduced for the fifth time in January 2014, and the Data Security Act, which Sen. Tom Carper, D-Del., and Roy Blunt, R-Mo. re-introduced that same month. In June 2013, Sen. Pat Toomey, R-Pa, sponsored more limited legislation that addressed only breach notification requirements.”
Yesterday United States Sentaor Joe Manchin published a letter demanding, in his words, that financial regulators ban Bitcoin, a virtual currency that is “unregulated and unstable, and has been used in illicit activity, including drug trafficking and money laundering.”
Senator Manchin’s call is the latest and certainly not the last public statement calling for regulation of one kind or another of virtual currency. But, is an outright ban really what we need here?
“Given the limited scope and duration of the sanctions relief, the substantial complexity of the sanctions regime that remains in place, and the uncertainty regarding the prospects for a long-term agreement, it is advisable for anyone seeking to pursue potential new business opportunities based on the recent U.S. Guidance to exercise caution.”—Attorneys from K&L Gates on what the Iran sanctions relief means for businesses in the Middle East.
The SEC has already brought the same number of FCPA enforcement actions in 2014 than it brought in all of 2013. The clear message from Ms. Brockmeyer was that although FCPA enforcement decreased in 2013, companies should not forget that the FCPA is still a priority for the SEC.
The biggest issues in FCPA enforcement right now are third-party intermediaries and travel and entertainment expenses. Ms. Brockmeyer noted that she is “amazed” to see companies enter into arrangements with third parties to get business without knowing anything else about that third party. Ms. Brockmeyer’s message was clear: third-party due diligence is critical.
Ms. Brockmeyer said that the fact that Ralph Lauren only discovered bribery problems in one subsidiary in one country also made a difference in the NPA decision. The company probably would not have qualified for an NPA if the problems were more widespread or systematic.
The SEC is continuing to observe companies put more thought and analysis into their compliance programs and internal controls. Ms. Brockmeyer noted that companies are using the FCPA Guidance from November 2012 to strengthen their compliance programs, including integrating the hypotheticals from the Guidance into their training programs, which is exactly what the SEC intended.
Ms. Brockmeyer said that many companies are self-reporting FCPA issues, including small problems that the company immediately remediates, and the SEC takes no action.
Ms. Brockmeyer commented that more and more countries are enforcing their own domestic bribery laws, as well as their international bribery laws. The SEC has also seen an increase in parallel investigations, in sharing of documents across international borders, and in cooperation between national governments in interviewing foreign witnesses.
“OFAC guidance on the [Foreign Sanctions Evaders] list clearly indicates that there is no “grandfathering” allowance for transactions initiated prior to the listing of an FSE. Where a potential transaction is in process at the time of a listing, U.S. persons are required to terminate and/or cease dealings with the FSE-listed party immediately unless and until otherwise exempted or specifically licensed by OFAC.”—Attorneys Rebekah Marie Jones and Wynn Segall of Akin Gump on the Office of Foreign Assets Control’s Foreign Sanctions Evaders List.
Earlier this month, the Financial Crimes Enforcement Network (FinCEN) and the Department of Justice issued guidance intended to clarify the rules for banks that wish to provide financial services to legal marijuana businesses. The background, from attorneys Jay Baris and Oliver Ireland of Morrison & Foerster:
“The Controlled Substances Act makes it illegal under federal law to manufacture, distribute or dispense marijuana. Despite the federal ban, 20 states and the District of Columbia have legalized varying levels of marijuana-related activity. Federal banking regulators now face an unusual dilemma: how can interactions of financial institutions – like banks, money services businesses, broker-dealers, and investment companies – be legal with businesses that are illegal under federal law?”
“Because marijuana use remains illegal under federal law, the banking industry is prohibited from servicing any marijuana-related bank accounts. This forces the recreational marijuana industry to operate on an all-cash basis, which increases public safety risks (both to retailers and to customers) and is a great inconvenience to the industry (which is required to take extreme measures such as hiring armed guards, installing very high tech security measures, and the businesses are unable to obtain bank loans or credit).”
Unfortunately, the latest guidance from the feds doesn’t go very far in solving the problem:
“FinCen’s guidance … was supposed to enable marijuana-related banking and eliminate the public safety concerns, as it clearly stated: ‘This FinCEN guidance should enhance the availability of financial services for, and the financial transparency of, marijuana-related businesses.’ Although the guidance pursued an admirable goal, it fell remarkably short. […]
[T]he DOJ memo confirms that recreational marijuana use remains illegal under federal law and could serve as the basis of prosecution against banks (or individuals), but that the DOJ will probably not enforce the applicable federal statutes against banks for processing marijuana-related accounts, provided that the banks follow certain guidelines that are outlined in the DOJ memo.
These wishy-washy ‘promises’ of non-enforcement are extremely unlikely to sway banks from their decision not to permit marijuana-related accounts(emphasis added).”
The bottom line? It will take more than guidance and promises to solve the problem, write attorneys at Fuerst Ittleman:
“The only true solution for both financial institutions and the marijuana-related businesses which seek their services is a comprehensive overhaul of the manner by which federal law governs marijuana and the businesses engaged in the sale of marijuana.”
“Some believe the Bitcoin, virtual currency which has skyrocketed in value over the past few years, represents a modern version of the tulip craze.”—Attorney Tyler Atkinson of McManis Faulkner asks the question: will legal reform kill the Bitcoin?
DPAs are agreements between prosecutors and corporate organisations that charges will be presented but not pursued, provided the organisation complies with a set of agreed terms and conditions. Those terms and conditions generally involve payment of substantial fines and/or the implementation of remediation programmes…
“The misnomer is that the Cyber Framework only affects “Critical Infrastructure” entities… If your organization is publicly traded, does work with the federal government as a contractor, uses an online presence to sell a good or service and/or incorporates personally identifiable information, the Framework will affect you.”—Attorney Norma Krayem of Patton Boggs on implementation of the Cybersecurity Framework.
It’s that time of the year again, when the Securities and Exchange Commission announces its priorities at its annual “SEC Speaks Conference.” Here’s a look at key takeaways, from attorneys at Perkins Coie:
A move from rule-making to rule enforcement:
“During their annual turn on the bully pulpit, several of the Commissioners themselves remarked that the congressional rule-making mandates of the Dodd-Frank Act and the JOBS Act have profoundly affected the scope and priorities of the SEC, which has in turn adversely impacted both staff morale and enforcement resources. Emerging into what was characterized as the “post-financial crisis” world, the SEC leadership also noted that the market in many ways has become more complex and less transparent. To face these new challenges, the SEC stands ready to use its traditional statutory toolbox, enhanced by hundreds of newly enacted rules and technological resources, to identify and investigate financial fraud. However, given the overwhelming task at hand, the real question may likely be not when, but whether, the market’s watchdogs can gain sufficient traction to capitalize on their new arsenal in some meaningful fashion.”
Ongoing focus on admissions of wrongdoing:
“Director of Enforcement Andrew Ceresney commented on the increased focus within the SEC of obtaining admissions as part of its settlements. Director Ceresney also noted that the SEC has recently filed a number of settled matters with admissions of wrongdoing, including the SEC’s February 21, 2014 settlement with Credit Suisse. […] Echoing Chairman White’s opening comments, Director Ceresney stated that the SEC will continue to aggressively pursue admissions of wrongdoing in cases with egregious misconduct that either harmed, or had the potential to harm, investors.”
Aggressive FCPA enforcement to continue:
“Kara Brockmeyer, Chief of the SEC’s Foreign Corrupt Practices Act (FCPA) Unit, noted that while enforcement activities seemingly tapered in fiscal year 2013, the FCPA Unit was off to a strong start in 2014, having brought an equal number of cases so far in this fiscal year as it did all last year. She stated that the SEC will continue to bring cases that span “old school” bribery, e.g., Weatherford and Alcoa; travel and entertainment abuses, e.g., Diebold; and even cases involving improper charitable donations, such as the allegations included in the Stryker action. She also noted that companies can expect to see more cases resolved in administrative proceedings, and that the FCPA Unit is considering bringing litigated FCPA cases through administrative proceedings as well.”
Increased reliance on big data:
“Jina Choi, the San Francisco Regional Director, reflected on the SEC’s increasing reliance on technological tools to detect and prosecute fraud in light of the limited resources available to the SEC. Choi cited as examples i2 analyst notebooks and an analytical platform that the agency is developing to marry internal SEC data with external documents. She also highlighted the importance of the SEC’s digital forensic lab, which allows the SEC to preserve, collect and analyze information on electronic devices, even when that information has been deleted or wiped. These tools permit the SEC to monitor and analyze much more activity and data than it otherwise could with manpower alone.”
Evolving litigation strategy:
“Joseph Brenner, the Chief Counsel of Enforcement, observed that the SEC is utilizing statutes and rules that either had never been employed before, or had not been used in a very long time, to refine its enforcement efforts. He indicated that post-Janus, a 2011 U.S. Supreme Court ruling limiting the circumstances in which securities fraud defendants can be held primarily liable for the misstatement of others, the Enforcement Division will likely enhance its use of section 20(b) of the Exchange Act because the statute does not require proof of an underlying primary violation in order to impose liability in certain false statement cases.”
“U.S. persons are generally prohibited from all transactions or dealings, direct or indirect, involving persons or entities identified on the [Foreign Sanctions Evaders] List related to any goods, services, or technology (i) in or intended for the United States, or (ii) provided by or to U.S. persons, wherever located.”—Attorney Rich Matheny of Goodwin Procter on the Office of Foreign Assets Control’s new Foreign Sanctions Evaders List.
On February 20, 2014, the Internal Revenue Service issued additional final and temporary regulations under the Foreign Account Tax Compliance Act of 2009 as well as new regulations that modify the international withholding, backup withholding and information reporting rules that apply outside the scope of FATCA…
The U.S. Government has taken another important step in helping to reintegrate Myanmar (referred to as Burma for official purposes) into the global economy. On February 6, 2014, the Export-Import Bank of the United States (Ex-Im Bank) announced the opening of financial support for qualified short-term and medium-term U.S. export sales to Myanmar…