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June 14, 2018 |
Revisions to the FFIEC BSA/AML Manual to Include the New CDD Regulation

Click for PDF On May 11, 2018, the federal bank regulators and the Financial Crimes Enforcement Network (“FinCEN”) published two new chapters of the Federal Financial Institution Examination Council Bank Secrecy Act/Anti-Money Laundering Examination Manual (“BSA/AML Manual”) to reflect changes made by FinCEN to the CDD regulation.[1]  One of the chapters replaces the current chapter “Customer Due Diligence – Overview and Examination Procedures” (“CDD Chapter”), and the other chapter is entirely new and contains an overview of and examination procedures for “Beneficial Ownership for Legal Entity Customers” to reflect the beneficial ownership requirements of the CDD regulation (“Beneficial Ownership Chapter”).[2] The new CDD Chapter builds upon the previous chapter, adds the requirements of the CDD regulation, and otherwise updates the chapter, which had not been revised since 2007.  The Beneficial Ownership Chapter largely repeats what is in the CDD Rule.  Both new chapters reference the regulatory guidance and clarifications from the Frequently Asked Questions issued by FinCEN on April 3, 2018 (the “FAQs”).[3]   Other Refinements to the CDD Regulation May Impact the BSA/AML Manual Implementation of the CDD regulation is a dynamic process and may require further refinement of these chapters as FinCEN issues further guidance.  For instance, in response to concerns of the banking industry, on May 16, 2018, FinCEN issued an administrative ruling imposing a 90-day moratorium on the requirement to recertify CDD information when certificates of deposit (“CDs”) are rolled over or loans renewed (if the CDs or loans were opened before May 11, 2018).  FinCEN will have further discussions with the banking industry and will make a decision whether to make this temporary exception permanent within this 90-day period (before August 9, 2018).[4] In his May 16, 2018, testimony at a House Financial Services Committee hearing on “Implementation of FinCEN’s Customer Due Diligence Rule,” FinCEN Director Kenneth Blanco suggested that FinCEN may be receptive to refinements as compliance experience is gained with the regulation.  Director Blanco also indicated that there will be a period of adjustment for compliance with the regulation and that FinCEN and the regulators will not engage in “gotcha” enforcement, but are seeking “good faith compliance.” Highlights from the New Chapters Periodic Reviews:  The BSA/AML Manual no longer expressly requires periodic CDD reviews, but suggests that regulators may still expect periodic reviews for higher risk customers.  The language in the previous CDD Chapter requiring periodic CDD refresh reviews has been eliminated.[5]Consistent with FAQ 14, the new CDD Chapter states that updating CDD information will be event driven and provides a list of possible event triggers, such as red flags identified through suspicious activity monitoring or receipt of a criminal subpoena.  Nevertheless, the CDD Chapter does not completely eliminate the expectation of periodic reviews for higher risk clients, stating:  “Information provided by higher profile customers and their transactions should be reviewed . . . more frequently throughout the term of the relationship with the bank.”Although this appears to be a relaxation of the expectation to conduct periodic reviews, we expect many banks will not change their current practices.  For a number of years, in addition to event driven reviews, many banks have conducted periodic CDD reviews at risk based intervals because they have understood periodic reviews to be a regulatory expectation. Lower Beneficial Ownership Thresholds:  Somewhat surprisingly, there is no expression in the new chapters that consideration should be given to obtaining beneficial ownership at a lower threshold than 25% for certain high risk business lines or customer types.  The new Beneficial Ownership Chapter simply repeats the regulatory requirement stating that:  “The beneficial ownership rule requires banks to collect beneficial ownership information at the 25 percent ownership threshold regardless of the customer’s risk profile.”  The FAQs (FAQ 6 and 7) refer to the fact that a financial institution may “choose” to apply a lower threshold and “there may be circumstances where a financial institution may determine a lower threshold may be warranted.”  We understand that specifying an expectation that there should be lower beneficial thresholds for certain higher risk customers was an issue that was debated among FinCEN and the bank regulators.For a number of years, many banks have obtained beneficial ownership at lower than 25% thresholds for high risk business lines and customers (e.g., private banking for non-resident aliens).  Banks that have previously applied a lower threshold, however, should carefully evaluate any decision to raise thresholds to the 25% level in the regulation.  If a bank currently applies a lower threshold, raising the threshold may attract regulatory scrutiny about whether the move was justified from a risk standpoint.  Moreover, a risk-based program should address not only regulatory risk, but also money laundering risk.  Therefore, banks should consider reviewing beneficial ownership at lower thresholds for certain customers and business lines and when a legal entity customer has an unusually complex or opaque ownership structure for the type of customer regardless of the business line or risk rating of the customer. New Accounts:  The new chapters do not discuss one of the most controversial and challenging requirements of the CDD rule, the requirement to verify CDD information when a customer previously subject to CDD opens a new account, including when CDs are rolled over or loans renewed.  This most likely may be because application of the requirement to CD rollovers and loan renewals is still under consideration by FinCEN, as discussed above. Enhanced Due Diligence:  The requirement to maintain enhanced due diligence (“EDD”) policies, procedures, and processes for higher risk customers remains with no new suggested categories of customers that should be subject to EDD. Risk Rating:  The new CDD Chapter seems to articulate an expectation to risk rate customers:  “The bank should have an understanding of the money laundering and terrorist financing risk of its customers, referred to in the rule as the customer risk profile.  This concept is also commonly referred to as the customer risk rating.”  The CDD Chapter, therefore, could be read as expressing for banks an expectation that goes beyond FinCEN’s expectation for all covered financial institutions in FAQ 35, which states that a customer profile “may, but need not, include a system of risk ratings or categories of customers.”  It appears that banks that do not currently risk rate customers should consider doing so.  Since the CDD section was first drafted in 2006 and amended in 2007, customer risk rating based on an established method with weighted risk factors has become a best and almost universal practice for banks to facilitate the AML risk assessment, CDD/EDD, and the identification of suspicious activity. Enterprise-Wide CDD:  The new CDD Chapter recognizes the CDD approach of many complex organizations that have CDD requirements and functions that cross financial institution legal entities and the general enterprise-wide approach to BSA/AML long referenced in the BSA/AML Manual.  See BSA/AML Manual, BSA/AML Compliance Program Structures Overview, at p. 155.  The CDD Chapter states that a bank “may choose to implement CDD policies, procedures and processes on an enterprise-wide basis to the extent permitted by law sharing across business lines, legal entities, and with affiliate support units.” Conclusion Despite the CDD regulation, at its core CDD compliance is still risk based and regulatory risk remains a concern.  Every bank must carefully and continually review its CDD program against the regulatory requirements and expectations articulated in the BSA/AML Manual, as well as recent regulatory enforcement actions, the institution’s past examination and independent and compliance testing issues, and best practices of peer institutions.  This review will help anticipate whether there are aspects of its CDD/EDD program that could be subject to criticism in the examination process.  As the U.S. Court of Appeals for the Ninth Circuit recently recognized, detailed manuals issued by agencies with enforcement authority like the BSA/AML Manual “can put regulated banks on notice of expected conduct.”  California Pacific Bank v. Federal Deposit Insurance Corporation, 885 F.3d 560, 572 (9th Cir. 2018).  The BSA/AML Manual is an important and welcome roadmap although not always as up to date, clear or detailed as banks would like it to be. These were the first revisions to the BSA/AML Manual since 2014.  We understand that additional revisions to other chapters are under consideration.    [1]   May 11, 2018 also was the compliance date for the CDD regulations.  The Notice of Final Rulemaking for the CDD regulation, which was published on May 11, 2016, provided a two-year implementation period.  81 Fed. Reg. 29,398 (May 11, 2016).  https://www.gpo.gov/fdsys/pkg/FR-2016-05-11/pdf/2016-10567.pdf. For banks, the new regulation is set forth in the BSA regulations at 31 C.F.R. § 1010.230 (beneficial ownership requirements) and 31 C.F.R. § 1020.210(a)(5).    [2]   The new chapters can be found at: https://www.ffiec.gov/press/pdf/Customer%20Due%20Diligence%20-%20Overview%20and%20Exam%20Procedures-FINAL.pdfw  (CDD Chapter) and https://www.ffiec.gov/press/pdf/Beneficial%20Ownership%20Requirements%20for %20Legal%20Entity%20CustomersOverview-FINAL.pdf (Beneficial Ownership Chapter).    [3]   Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions, FIN-2018-G001.  https://www.fincen.gov/resources/statutes-regulations/guidance/frequently-asked-questions-regarding-customer-due-0.  On April 23, 2018, Gibson Dunn published a client alert on these FAQs.  FinCEN Issues FAQs on Customer Due Diligence Regulation.  https://www.gibsondunn.com/fincen-issues-faqs-on-customer-due-diligence-regulation/. FinCEN also issued FAQs on the regulation on September 29, 2017. https://www.fincen.gov/sites/default/files/2016-09/FAQs_for_CDD_Final_Rule_%287_15_16%29.pdf.    [4]   Beneficial Ownership Requirements for Legal Entity Customers of Certain Financial Products and Services with Automatic Rollovers or Renewals, FIN-2018-R002.  https://www.fincen.gov/sites/default/files/2018-05/FinCEN%20Ruling%20CD%20and%20Loan%20Rollover%20Relief_FINAL%20508-revised.pdf    [5]   The BSA/AML Manual previously stated at p. 57:  “CDD processes should include periodic risk-based monitoring of the customer relationship to determine if there are substantive changes to the original CDD information. . . .” Gibson Dunn’s lawyers  are available to assist in addressing any questions you may have regarding these developments.  Please contact any member of the Gibson Dunn team, the Gibson Dunn lawyer with whom you usually work in the firm’s Financial Institutions practice group, or the authors: Stephanie L. Brooker – Washington, D.C. (+1 202-887-3502, sbrooker@gibsondunn.com) M. Kendall Day – Washington, D.C. (+1 202-955-8220, kday@gibsondunn.com) Arthur S. Long – New York (+1 212-351-2426, along@gibsondunn.com) Linda Noonan – Washington, D.C. (+1 202-887-3595, lnoonan@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

May 10, 2018 |
Webcast: FCPA M&A: Identifying and Mitigating Anti-Corruption Risk In Cross-Border Transactions

International M&A increasingly implicates the U.S. Foreign Corrupt Practices Act (FCPA) and other anti-bribery laws, which are proliferating in major economies around the world. Gibson Dunn panelists, including partners in the U.S., Europe and Asia, examine FCPA risks associated with cross-border transactions, discuss ways in which these issues arise, and offer strategies for mitigating anti-corruption risks and successfully completing the deal. View Slides [PDF] PANELISTS: Michael S. Diamant is a partner in Gibson Dunn’s Washington, D.C. office and a member of the firm’s White Collar Defense and Investigations Practice Group. He also serves on the firm’s Finance Committee. His practice focuses on white collar criminal defense, internal investigations, and corporate compliance. Mr. Diamant has broad white collar defense experience representing corporations and corporate executives facing criminal and regulatory charges. He has represented clients in an array of matters, including accounting and securities fraud, antitrust violations, and environmental crimes, before law enforcement and regulators, like the U.S. Department of Justice and the Securities and Exchange Commission. Mr. Diamant also has managed numerous internal investigations for publicly traded corporations and conducted fieldwork in nineteen different countries on five continents. Mr. Diamant also regularly advises major corporations on the structure and effectiveness of their compliance programs. Lisa A. Fontenot is a corporate partner in Gibson Dunn’s Palo Alto office and a member of the firm’s Mergers and Acquisitions Practice Group. She counsels clients across a variety of industries, including some of the world’s leading technology companies and innovative startups, with particular experience in the telecom, media and technology (TMT) sectors. Ms. Fontenot counsels clients as to M&A matters with over 20 years’ extensive experience representing both U.S. and foreign strategic buyers and sellers successfully completing cross-border acquisitions, joint ventures and investments. Ms. Fontenot also represents private equity/venture capital investors in connection with their investment in, and equity dispositions of, portfolio companies and related securities matters. Stephen I. Glover is a partner in Gibson Dunn’s Washington, D.C. office and Co-Chair of the firm’s Mergers and Acquisitions Practice Group. Mr. Glover has an extensive practice representing public and private companies in complex mergers and acquisitions, joint ventures, equity and debt offerings and corporate governance matters. Mr. Glover’s clients include large public corporations, emerging growth companies and middle market companies in a wide range of industries. He also advises private equity firms, individual investors and others. Benno Schwarz is a German-qualified partner in Gibson Dunn’s Munich office and a member of the firm’s International Corporate Transactions and White Collar Defense and Investigations Practice Groups. Mr. Schwarz has many years of experience in the area of corporate anti-bribery compliance, especially issues surrounding the enforcement of the US FCPA and the UK Bribery Act as well as Russian law. Fang Xue is Chief Representative of Gibson Dunn’s Beijing office and a member of the firm’s Corporate Department and its Mergers and Acquisitions and Private Equity Practice Groups. Ms. Xue has broad-based corporate and commercial experience. She has represented Chinese and international corporations and private equity funds in cross-border acquisitions, private equity transactions, stock and asset transactions, joint ventures, going private transactions, tender offers and venture capital transactions, including many landmark deals among those. MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.0 credit hour, of which 1.0 credit hour may be applied toward the areas of professional practice requirement.  This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast.  Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.

May 9, 2018 |
The Trump Administration Pulls the Plug on the Iran Nuclear Agreement

Click for PDF On May 8, 2018, President Donald Trump announced his decision to abandon the 2015 Iran nuclear deal—the Joint Comprehensive Plan of Action (the “JCPOA”)—and re-impose U.S. nuclear-related sanctions on the Iranian regime.[1]  Though it came as no surprise, the decision went further than many observers had anticipated.  Notably, under the terms of the JCPOA, U.S. sanctions were held in abeyance through a series of waivers that were periodically renewed by both the Obama and Trump administrations.  Many commentators expected the current administration to discontinue only waivers of sanctions on the Iranian financial sector that were set to expire on May 12, 2018, leaving other sanctions untouched.[2]  Instead, the Trump administration re-imposed all nuclear related sanctions on Iran, staggering the implementation over the course of the next six months.  As described in an initial volley of frequently asked questions (“FAQs”) set forth by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the re-imposition of nuclear sanctions will be subject to certain 90 and 180 day wind-down periods that expire on August 6, 2018 and November 4, 2018, respectively.[3] Background The JCPOA The JCPOA was a purposefully limited accord focusing only on Iran’s nuclear activities and the international community’s nuclear-related sanctions.  Prior to the JCPOA, the international community, including the United Nations, the European Union, and the United States imposed substantial sanctions on Iran of varying scope and severity.  The European Union had implemented an oil embargo and U.S. nuclear sanctions had included the “blacklisting” of more than 700 individuals and entities on OFAC’s list of Specially Designated Nationals and Blocked Persons (“SDN List”), as well as economic restrictions imposed on entities under U.S. jurisdiction (“Primary Sanctions”) and restrictions on entities outside U.S. jurisdiction (“Secondary Sanctions”).  Secondary Sanctions threatened non-U.S. entities with limitations on their access to the U.S. market if they transacted with various Iranian entities.  Broadly, Secondary Sanctions forced non-U.S. entities to decide whether they were going to deal with Iran or with the United States.  They could not do both. The JCPOA, signed between Iran and the five permanent members of the United Nations Security Council (the United States, the United Kingdom, France, Russia, and China) and Germany (the “P5+1”) in 2015, committed both sides to certain obligations related to Iran’s nuclear development.[4]  Iran committed to various limitations on its nuclear program, and in return the international community (the P5+1 alongside the European Union and the United Nations) committed to relieving substantial portions of the sanctions that had been placed on Iran to address that country’s nuclear activities.  This relief included the United States’ commitment to ease certain Secondary Sanctions, thus opening up the Iranian economy for non-U.S. persons without risking their access to the U.S. market to pursue Iranian deals.  This sanctions relief came into effect in January 2016 (on “Implementation Day”) when the IAEA determined that Iran was compliant with the initial nuclear components of the JCPOA. Criticism of the Deal Donald Trump made his opposition to the JCPOA a cornerstone of his presidential campaign.  On occasions too numerous to count, then candidate and now President Trump criticized the deal and indicated his intent to withdraw from the JCPOA unless it was “fixed” to address his concerns, including the deal’s silence on Iran’s ballistic missile development and the existence of certain “sunset provisions” (after which any remaining sanctions would be permanently lifted).[5] There were at least two challenges built into the JCPOA that critics—including President Trump—have seized upon.  First, in an effort to reach an agreement to limit Iran’s nuclear capabilities, the Obama administration and other JCPOA parties not only included “sunset” provisions in the accord after which certain restrictions on Iran would be lifted, but also drew a distinction between Iran’s compliance with the nuclear deal and its conduct in other areas (including its support for groups the United States deems terrorists, its repression of its citizens, its support for Syrian President Bashar al-Assad, and its conventional weapons development programs).  Supporters of the deal argued that addressing the immediate nuclear weapons risk was paramount—this necessitated both the sunset provisions and the absence of addressing other troubling activities.  Critics of the deal, however, including some powerful Congressional leaders and President Trump, derided these compromises and claimed not only that the sunset periods were too brief to be meaningful, but also that by ignoring non-nuclear issues Iran was given both a free pass to continue its bad behavior and indeed the ability to fund that bad behavior out of proceeds received from the nuclear-related sanctions relief. A second challenge to the deal came from the fact that while the other parties to the JCPOA agreed to remove almost all of their sanctions on Iran, U.S. relief was far more surgical and reversible.  This was recognized by all parties to the JCPOA but so long as President Obama (or a successor with similar political views) was in office, it was thought to be a manageable limitation.  One of the key limits to the U.S. relief was that U.S. persons—including financial institutions and companies—have remained broadly prohibited from engaging with Iran even after the JCPOA was implemented in 2016.  Instead, the principal relief the U.S. offered was on the sanctions risks posed to non-U.S. parties pursuant to Secondary Sanctions and related measures.  As a consequence, it has remained a challenge for non-U.S. persons to fully engage with Iran due to the continued inability to leverage U.S. banks, insurance and other institutions that remain central to the bulk of cross-border finance and trade. Changes to U.S. Sanctions Regarding Iran Wind-Down Periods In conjunction with the May 8, 2018 announcement, the President issued a National Security Presidential Memorandum (“NSPM”) directing the Secretary of State and the Secretary of the Treasury to prepare immediately for the re-imposition of all of the U.S. sanctions lifted or waived in connection with the JCPOA, to be accomplished as expeditiously as possible and in no case later than 180 days from the date of the NSPM. According to FAQs published by OFAC, the 90-day wind-down period will apply to sanctions on:[6] The purchase and acquisition of U.S. dollar banknotes by the Government of Iran; Gold and precious metals; Graphite, raw or semi-finished metals such as aluminum and steel; Coal; Software for integrating industrial processes; Iranian rials; Iranian sovereign debt; and Iran’s automobile sector. At the end of the 90-day wind-down period, the U.S. government will also revoke authorizations to import into the United States Iranian carpets and foodstuffs and to sell to Iran commercial passenger aircraft and related parts and services.[7] The longer 180-day wind-down period will apply to sanctions on:[8] Iranian port operators, shipping and shipbuilding; Petroleum-related transactions; Transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions; Provision of specialized financial messaging services to the Central Bank of Iran and certain Iranian financial institutions; Underwriting services, insurance and reinsurance; and Iran’s energy sector. At the end of the 180-day wind-down period, the U.S. government will also revoke General License H, which authorizes foreign entities of U.S. companies to do business with Iran, and the U.S. government will re-impose sanctions against individuals and entities removed from the SDN List on Implementation Day.[9] The nature and scope of the “wind-down” period resulted in immediate, and significant, concerns from companies seeking to comply with U.S. sanctions.  OFAC has clarified that, in the event a non-U.S. non-Iranian person is owed payment after the conclusion of the wind-down period for goods or services that were provided lawfully therein, the U.S. government would allow that person to receive payment according to the terms of the written contract or written agreement.[10]  Similarly, if a non-U.S., non-Iranian person is owed repayment after the expiration of the wind-down periods for loans or credits extended to an Iranian counterparty prior to the end of the 90-day or 180-day wind-down period, as applicable, provided that such loans or credits were extended pursuant to a written contract or written agreement entered into prior to May 8, 2018, and such activities were consistent with U.S. sanctions in effect at the time the loans or credits were extended, the U.S. government would allow the non-U.S., non-Iranian person to receive repayment of the related debt or obligation according to the terms of the written contract or written agreement.[11]  These allowances are designed for such parties to be made whole for debts and obligations owed or due to them for goods or services fully provided or delivered or loans or credit extended to an Iranian party prior to the end of the wind-down periods.  Notably, any payments would need to be consistent with U.S. sanctions, including that payments could not involve U.S. persons or the U.S. financial system, unless the transactions are exempt from regulation or authorized by OFAC.[12] Changes to the SDN List In assessing the impact of the “re-designations” under the SDN List, it is useful to note the restrictions that remained in place after the JCPOA was implemented.  For example, although they were not classified as SDNs, the property and interests in property of persons of the Government of Iran and Iranian financial institutions remained blocked if they are in or come within the United States or if they are in or come within the possession or control of a U.S. person, wherever located.  As a result, U.S. persons were broadly prohibited from engaging in transactions or dealing with the Government of Iran and Iranian financial institutions, while non-U.S. persons could deal with them in non-dollar currencies.[13]  But under the new policy, such persons will be moved to the SDN List, which means that non-U.S. persons who continue to deal with them will be subject to Secondary Sanctions.[14]  OFAC indicated that it will not add such persons to the SDN List immediately, so as “to allow for the orderly wind down by non-U.S., non-Iranian persons of activities that had been undertaken” consistent with the prior regulations.  This change will happen no later than November 5, 2018.[15] Diplomatic Next Steps Yesterday’s announcement followed significant diplomatic efforts to save the deal.  Trump’s January 2018 announcement that he would extend existing waivers until May 2018 set off a feverish round of negotiations with European partners, culminating in recent visits by French President Emmanuel Macron and German Chancellor Angela Merkel to try to persuade the Trump administration to remain in the deal.  Many expect those negotiations to continue, as the global community is significantly more exposed to the Iranian market than U.S. persons, who continued to be subject to sanctions post-JCPOA.  Indeed, since sanctions were suspended in early 2016, Iran’s oil exports have increased dramatically, reaching approximately two million barrels per day in 2017.  European imports from Iran rose by nearly 800 percent between 2015 and 2017 (primarily imports of Iranian oil), while European exports to Iran rose by more than four billion euros ($5 billion) annually over the same period.[16]  Major European companies have also resumed investing in Iran—France’s Total has announced plans to invest $1 billion in one of Iran’s largest offshore gas fields.[17]  Early press reports following President Trump’s May 2018 announcement, if accurate, suggest that Iran and the other JCPOA parties remain committed to the underlying deal and plan to begin prompt negotiations to salvage the JCPOA.[18] Because full re-imposition of U.S. sanctions is not scheduled to take effect for another six months, it is entirely possible that the announcement by President Trump will serve as an impetus to negotiations that bring Iran and the rest of the P5+1 to the table.  Such an approach could mirror the Trump administration’s recent tactics with respect to steel and aluminum tariffs, where a splashy public announcement is followed by a series of repeated extensions as the administration seeks to extract further concessions.  One point of leverage the EU may have in these negotiations is the possibility of extending the existing “Blocking Regulation,”[19] which makes it unlawful for EU persons to comply with a specific list of U.S. sanctions laws against Cuba, Libya and Iran as of 1996.  That list could be extended to capture U.S. sanctions against Iran in respect of which the JCPOA offered relief.  This possibility has been mentioned by senior EU officials a number of times since late last year, including by the EU ambassador to the United States in September 2017,[20] and the head of the Iranian Taskforce in the EU’s External Action Service in February 2018.[21] For now, the EU remains committed to the deal.  On the same day that President Trump announced the change in Iran sanctions policy, European Union High Representative and Vice-President Federica Mogherini remarked that “[a]s long as Iran continues to implement its nuclear related commitments, as it is doing so far, the European Union will remain committed to the continued full and effective implementation of the nuclear deal. . . . The lifting of nuclear related sanctions is an essential part of the agreement.  The European Union has repeatedly stressed that the lifting of nuclear related sanctions has not only a positive impact on trade and economic relations with Iran, but also and mainly crucial benefits for the Iranian people.  The European Union is fully committed to ensuring that this continues to be delivered on.”[22] Notably, the Trump administration may be hard pressed to convince Iran’s most significant trading partners —many of whom are mired in disputes with the United States—to add pressure on Tehran.  China and India are Iran’s largest importers, and China appears particularly unlikely to reduce its reliance on Iranian oil given heightened tensions between Beijing and Washington over bilateral trade and investment issues.  Furthermore, the Trump administration would need to convince Russia to halt plans to invest potentially tens of billions of dollars in Iran’s oil and gas sector, and the Trump administration’s strained ties with Turkey make it far from clear that Turkey would cooperate with renewed U.S. pressure on Iran.[23]  Furthermore, the expected rise in oil prices as a result of the withdrawal is seen as a boon to Russia, whose economy is heavily dependent on petroleum and natural gas exports. Alternatively, U.S. allies in the Middle East, led by Israel and Saudi Arabia, support the Trump administration and have argued that Iran threatens their own national security.  Last week Israeli Prime Minister Benjamin Netanyahu unveiled documents regarding Iran’s covert nuclear weapons project from the 1990s as proof that Iran lied about the extent of its program, a move that was widely criticized as an effort to influence U.S. public opinion with information that was widely known and had provided the impetus for the negotiations in the first place.  The U.S. intelligence community had confirmed the weapons program ended in 2003. Furthermore, the Trump administration could have a difficult time persuading countries to cut commercial ties with Iran in the absence of any international legal basis for doing so.  Although U.S. sanctions on Iran have more force than United Nations sanctions, the latter created an important international framework that the United States and other countries could expand on.  Most of these sanctions were repealed with the passage of UN Security Council Resolution 2231 (2015), which endorsed the JCPOA.  The “snapback” mechanism in UNSCR 2231 would enable the United States to unilaterally require the restoration of UN sanctions on Iran under international law.  But as the UN’s nuclear watchdog has repeatedly confirmed Iran’s compliance with the JCPOA’s nuclear terms, the diplomatic costs of unilaterally requiring UN sanctions’ reactivation would likely outweigh any benefits.[24] Although the JCPOA contains no provisions for withdrawal, Iran has long threatened to resume its nuclear program if the United States reneges on its obligations by reinstituting sanctions.[25]  In the immediate aftermath of the Trump administration’s May 8 announcement, however, Iranian President Hassan Rouhani said that his government remains committed to maintaining the nuclear deal with other world powers.  The Iranian leader said he had directed his diplomats to negotiate with the deal’s remaining signatories—including European countries, Russia and China—and that the JCPOA could survive without the United States.  Rouhani, who had made the deal his signature achievement, faces stiff pressure from the hardline elements within Iran who objected to the deal.  If Iran resumes uranium enrichment activities, that could move European parties to walk away from the negotiating table, thereby dooming the JCPOA on which President Rouhani has staked so much political capital and empowering more hardline elements within the Iranian regime.[26] Conclusion Although many expect negotiations regarding the fate of the JCPOA to continue over the next six months, the outcome of such deliberations is highly uncertain.  Notably, it took the combined efforts of the Bush and Obama administrations to convince foreign governments and companies to join the United States in imposing sanctions on Iran, and such coordinated actions are unlikely to be replicated in the wake of leaving the JCPOA.  As the Trump administration negotiates with the rest of the parties to the JCPOA, it is possible that the U.S. administration may exercise discretion and decline to bring enforcement actions against non-U.S. persons that continue to do business with Iran.  That would mitigate the immediate impact of re-imposing sanctions. The precise nature of any EU response remains to be seen.  Although potential blocking regulations may serve as leverage in negotiations, the impact would be severe for European companies seeking to comply with both U.S. and European laws.  Whether the position of the United Kingdom will remain aligned with its European partners once it has left the EU is another imponderable,[27] although the U.K., French and German governments have projected a united front in re-affirming their commitment to the JCPOA,[28] and the U.K. is a signatory to the JCPOA separate from its status as an EU member state.  Further strains to the U.S.–EU relationship are likely if the U.S. were to bring enforcement actions against EU persons for alleged breaches of re-imposed sanctions.  The EU has stated that “it is determined to act in accordance with its security interests and to protect its economic investments.”[29]  However, what this might mean in practice remains unclear.    [1]   Press Release, White House, Remarks by President Trump on the Joint Comprehensive Plan of Action (May 8, 2018), available at https://www.whitehouse.gov/briefings-statements/remarks-president-trump-joint-comprehensive-plan-action; see also Presidential Memorandum, Ceasing U.S. Participation in the JCPOA and Taking Additional Action to Counter Iran’s Malign Influence and Deny Iran All Paths to a Nuclear Weapon (May 8, 2018), available at https://www.whitehouse.gov/presidential-actions/ceasing-u-s-participation-jcpoa-taking-additional-action-counter-irans-malign-influence-deny-iran-paths-nuclear-weapon.    [2]   These sanctions were enacted on the last day of 2011, when President Obama signed into law the National Defense Authorization Act for Fiscal Year 2012 (“NDAA”).  Included within the NDAA is a measure that designated the entire Iranian financial sector as a primary money laundering concern, which effectively required the President to freeze the assets of Iranian financial institutions and prohibit all transactions with respect to Iranian financial institutions’ property and interests in property if the property or interest in property comes within the United States’ jurisdiction or the possession and control of a United States person.  In addition, the measure broadly authorized the President to impose sanctions on the Central Bank of Iran.    [3]   Press Release, U.S. Dep’t of Treasury, Statement by Secretary Steven T. Mnuchin on Iran Decision (May 8, 2018), available at https://home.treasury.gov/news/press-releases/sm0382.    [4]   U.S. Dep’t of State, Joint Comprehensive Plan of Action (July 14, 2015), available at https://www.state.gov/documents/organization/245317.pdf.    [5]   Press Release, White House, Statement by the President on the Iran Nuclear Deal (Jan. 12, 2018), available at https://www.whitehouse.gov/briefings-statements/statement-president-iran-nuclear-deal.    [6]   U.S. Dep’t of Treasury, Frequently Asked Questions Regarding the Re-Imposition of Sanctions Pursuant to the May 8, 2018 National Security Presidential Memorandum Relating to the Joint Comprehensive Plan of Action (JCPOA) (May 8, 2018), available at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/jcpoa_winddown_faqs.pdf, FAQ No. 1.2.    [7]   Id.    [8]   OFAC FAQ No. 1.3.    [9]   Id. [10]   OFAC FAQ No. 2.1. [11]   Id. [12]   Id. [13]   E.O. 13599, 77 Fed. Reg. 6659 (Feb. 5, 2012); U.S. Dep’t of Treasury, Resource Center, OFAC, JCPOA-related Designation Removals, JCPOA Designation Updates, Foreign Sanctions Evaders Removals, NS-ISA List Removals; 13599 List Changes (Jan. 16, 2016), available at https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/updated_names.aspx. [14]   OFAC FAQ No. 3. [15]   Id. (“Beginning on November 5, 2018, activities with most persons moved from the E.O. 13599 List to the SDN List will be subject to secondary sanctions.  Such persons will have a notation of “Additional Sanctions Information – Subject to Secondary Sanctions” in their SDN List entry.”) [16]   Peter Harrell, The Challenge of Reinstating Sanctions Against Iran, Foreign Affairs (May 4, 2018), available at https://www.foreignaffairs.com/articles/iran/2018-05-04/challenge-reinstating-sanctions-against-iran?cid=int-fls&pgtype=hpg. [17]   Id. [18]   See, e.g., Erin Cunningham & Bijan Sabbagh, Iran to Negotiate with Europeans, Russia and China about Remaining in Nuclear Deal, Wash. Post (May 8, 2018), available at https://wapo.st/2HWaI9w?tid=ss_tw&utm_term=.ed12421ad6a6; James McAuley, After Trump Says U.S. Will Withdraw from Iran Deal, Allies Say They’ll Try to Save It, Wash. Post (May 8, 2018), available at https://wapo.st/2rokYfI?tid=ss_tw&utm_term=.291cd9490f2e. [19]   Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom. [20]   Jessica Schulberg, Europe Considering Blocking Iran Sanctions if U.S. Leaves Nuclear Deal, EU Ambassador Says, Huffington Post (Sept. 26, 2017), available at https://www.huffingtonpost.co.uk/entry/europe-iran-sanctions-nuclear-deal_us_59c9772ce4b0cdc77333e758. [21]   John Irish & Parisa Hafezi, EU could impose blocking regulations if U.S. pulls out of Iran deal, Reuters, (Feb. 8, 2018), available at https://uk.reuters.com/article/uk-iran-nuclear-eu/eu-could-impose-blocking-regulations-if-u-s-pulls-out-of-iran-deal-idUKKBN1FS2F0. [22]   Press Release, European Union External Action Service, Remarks by HR/VP Mogherini on the statement by US President Trump regarding the Iran nuclear deal (JCPOA) (May 8, 2018). [23]   Harrell, see supra n. 16. [24]   Id. [25]   The last sentence of the JCPOA expressly provides: “Iran has stated that if sanctions are reinstated in whole or in part, Iran will treat that as grounds to cease performing its commitments under this JCPOA in whole or in part.” [26]   See Erin Cunningham & Bijan Sabbagh, Iran to Negotiate with Europeans, Russia and China about Remaining in Nuclear Deal, Wash. Post (May 8, 2018), available at https://wapo.st/2HWaI9w?tid=ss_tw&utm_term=.ed12421ad6a6; James McAuley, After Trump Says U.S. Will Withdraw from Iran Deal, Allies Say They’ll Try to Save It, Wash. Post (May 8, 2018), available at https://wapo.st/2rokYfI?tid=ss_tw&utm_term=.291cd9490f2e. [27]   While the U.K. is currently in the EU, it will be leaving the EU shortly, at which time it may seek to negotiate trade deals with a variety of governments.  Particularly if negotiations over the U.K.’s exit from the EU were to become fractious, it is possible a post-Brexit U.K. could use its stance on the JCPOA as a bargaining counter in negotiations with the Trump administration over a new U.K.–U.S. trade deal. [28]   Press Release, U.K. Prime Minister’s Office, Joint statement from Prime Minister May, Chancellor Merkel and President Macron following President Trump’s statement on Iran (May 8, 2018), available at https://www.gov.uk/government/news/joint-statement-from-prime-minister-may-chancellor-merkel-and-president-macron-following-president-trumps-statement-on-iran. [29]   Press Release, EU External Action Serv., Remarks by HR/VP Mogherini on the statement by US President Trump regarding the Iran nuclear deal (JCPOA) (May 8, 2018. The following Gibson Dunn lawyers assisted in preparing this client update: Judith Alison Lee, Adam Smith, Patrick Doris, Mark Handley, Stephanie Connor, Richard Roeder, and Scott Toussaint. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the above developments.  Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s International Trade Group: United States: Judith Alison Lee – Co-Chair, International Trade Practice, Washington, D.C. (+1 202-887-3591, jalee@gibsondunn.com) Ronald Kirk – Co-Chair, International Trade Practice, Dallas (+1 214-698-3295, rkirk@gibsondunn.com) Jose W. Fernandez – New York (+1 212-351-2376, jfernandez@gibsondunn.com) Marcellus A. McRae – Los Angeles (+1 213-229-7675, mmcrae@gibsondunn.com) Daniel P. Chung – Washington, D.C. (+1 202-887-3729, dchung@gibsondunn.com) Adam M. Smith – Washington, D.C. (+1 202-887-3547, asmith@gibsondunn.com) Christopher T. Timura – Washington, D.C. (+1 202-887-3690, ctimura@gibsondunn.com) Stephanie L. Connor – Washington, D.C. (+1 202-955-8586, sconnor@gibsondunn.com) Kamola Kobildjanova – Palo Alto (+1 650-849-5291, kkobildjanova@gibsondunn.com) Courtney M. Brown – Washington, D.C. (+1 202-955-8685, cmbrown@gibsondunn.com) Laura R. Cole – Washington, D.C. (+1 202-887-3787, lcole@gibsondunn.com) Scott R. Toussaint – Palo Alto (+1 650-849-5320, stoussaint@gibsondunn.com) Europe: Peter Alexiadis – Brussels (+32 2 554 72 00, palexiadis@gibsondunn.com) Attila Borsos – Brussels (+32 2 554 72 10, aborsos@gibsondunn.com) Patrick Doris – London (+44 (0)207 071 4276, pdoris@gibsondunn.com) Penny Madden – London (+44 (0)20 7071 4226, pmadden@gibsondunn.com) Mark Handley – London (+44 (0)207 071 4277, mhandley@gibsondunn.com) Benno Schwarz – Munich (+49 89 189 33 110, bschwarz@gibsondunn.com) Richard W. Roeder – Munich (+49 89 189 33-160, rroeder@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 23, 2018 |
FinCEN Issues FAQs on Customer Due Diligence Regulation

Click for PDF On April 3, 2018, FinCEN issued its long-awaited Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions, FIN-2018-G001. https://www.fincen.gov/resources/statutes-regulations/guidance/frequently-asked-questions-regarding-customer-due-0.[1]  The timing of this guidance is very controversial, issued five weeks before the new Customer Due Diligence (“CDD”) regulation goes into effect on May 11, 2018.[2]  Most covered financial institutions (banks, broker-dealers, mutual funds, and futures commission merchants and introducing brokers in commodities) already have drafted policies, procedures, and internal controls and made IT systems changes to comply with the new regulation.  Covered financial institutions will need to review these FAQs carefully to ensure that their proposed CDD rule compliance measures are consistent with FinCEN’s guidance. The guidance is set forth in 37 questions.  As discussed below, some of the information is helpful, allaying financial institutions’ most significant concerns.  Other FAQs confirm what FinCEN has said in recent months informally to industry groups and at conferences.  A few FAQs raise additional questions, and others, particularly the FAQ on rollovers of certifications of deposit and loan renewals, are not responsive to industry concerns and may raise significant compliance burdens for covered financial institutions.  The guidance reflects FinCEN’s regulatory interpretations based on discussions within the government and with financial institutions and their trade associations.  The need for such extensive guidance on so many issues in the regulation illustrates the complexity of compliance and suggests that FinCEN should consider whether clarifications and technical corrections to the regulation should be made.  We provide below discussion of highlights from the FAQs, including areas of continued ambiguity and uncertainty in the regulation and FAQs. Highlights from the FAQs FAQ 1 and 2 discuss the threshold for obtaining and verifying beneficial ownership.  FinCEN states that financial institutions can “choose” to collect beneficial ownership information at a lower threshold than required under the regulation (25%), but does not acknowledge that financial institution regulators may expect a lower threshold for certain business lines or customer types or that there may be regulatory concerns if financial institutions adjust thresholds upward to meet the BSA regulatory threshold.  A covered financial institution may be in compliance with the regulatory threshold, but fall short of regulatory expectations. FAQ 7 states that a financial institution need not re-verify the identity of a beneficial owner of a legal entity customer if that beneficial owner is an existing customer of the financial institution on whom CIP has been conducted previously provided that the existing information is “up-to-date, accurate, and the legal entity’s customer’s representative certifies or confirms (verbally or in writing) the accuracy of the pre-existing CIP information.”  The example given suggests that no steps are expected to verify that the information is up-to-date and accurate beyond the representative’s confirmation or certification.  The beneficial ownership records must cross reference the individual’s CIP record. FAQs 9-12 address one of the most controversial aspects of the regulation, about which there has been much confusion: the requirement that, when an existing customer opens a new account, a financial institution must identify and verify beneficial ownership information.  FinCEN provides further clarity on what must be updated and how:Under FAQ 10, if a legal entity customer, for which the required beneficial ownership information has been obtained for an existing account, opens a new account, the financial institution can rely on the information obtained and verified previously “provided the customer certifies or confirms (verbally or in writing) that such information is up-to-date and accurate at the time each subsequent new account is opened,” and the financial institution has no knowledge that would “reasonably call into question” the reliability of the information.  The financial institution also would need to maintain a record of the certification or confirmation by the customer.There is no grace period.  If an account is opened on Tuesday, and a new account is opened on Thursday, the certification or confirmation is still required.  In advance planning for compliance, many financial institutions had included a grace period in their procedures. FAQ 11 provides that, when the financial institution opens a new account or subaccount for an existing legal entity customer whose beneficial ownership has been verified for the institution’s own recordkeeping and operational purposes and not at the customer’s request, there is no requirement to update the beneficial ownership information for the new account.  This is because the account would be considered opened by the financial institution and the requirement to update only applies to each new account opened by a customer.  This is consistent with what FinCEN representatives have said at recent conferences.The FAQ specifies that this would not apply to (1) accounts or subaccounts set up to accommodate a trading strategy of a different legal entity, e.g., a subsidiary of the customer, or (2) accounts of a customer of the existing legal entity customer, “i.e., accounts (or subaccounts) through which a customer of a financial institution’s existing legal entity carries out trading activity through the financial institution without intermediation from the existing legal entity customer.”  We believe the FAQ may fall far short of addressing all the concerns expressed to FinCEN on this issue by the securities industry. FAQ 12 addresses an issue which has been a major concern to the banking industry:  whether beneficial ownership information must be updated when a certificate of deposit (“CD”) is rolled over or a loan is renewed.  These actions are generally not considered opening of new accounts by banks.FinCEN continues to maintain that CD rollovers or loan renewals are openings of new accounts for purposes of the CDD regulation.  Therefore, the first time a CD or loan renewal for a legal entity customer occurs after May 11, 2018, the effective date of the CDD regulation, beneficial ownership information must be obtained and verified, and at each subsequent rollover or renewal, there must be confirmation that the information is current and accurate (consistent with FAQ 10) as for any other new account for an existing customer.  There is an exception or alternative approach authorized in FAQ 12 “because the risk of money laundering is very low”:  If, at the time of the rollover or renewal, the customer certifies its beneficial ownership information, and also agrees to notify the financial institution of any change in information in the future, no action will be required at subsequent renewals or rollovers.The response in FAQ 12 is not responsive to the concerns that have been expressed by the banking industry and will be burdensome for banks to administer.  Obtaining a certification in time, without disrupting the rollover or renewal, will be challenging, and it appears that if it the certification or promise to update is not obtained in time, the account may have to be closed. FAQs 13 through 17 address another aspect of the regulation that has generated extensive discussion: When (1) must beneficial ownership be obtained for an account opened before the effective date of the regulation, or (2) beneficial ownership information updated on existing accounts whose beneficial ownership has been obtained and verified.Following closely what was said in the preamble to the final rule, FAQ 13 states that the obligation is triggered when a financial institution “becomes aware of information about the customer during the course of normal monitoring relevant to assessing or reassessing the risk posed by the customer, and such information indicates a possible change in beneficial ownership.”FAQ 14 clarifies somewhat what is considered normal monitoring but is not perfectly clear what triggers obtaining and verifying beneficial ownership.  It is clear that there is no obligation to obtain or update beneficial ownership information in routine periodic CDD reviews (CDD refresh reviews) “absent specific risk-based concerns.” We would assume that means, following FAQ 13, concerns about the ownership of the customer.  Beyond that FAQ 14  is less clear.  It states that the obligation is triggered “when, in the course of normal monitoring a financial institution becomes aware of information about a customer or an account, including a possible change of beneficial ownership information, relevant to assessing or reassessing the customer’s overall risk profile.  Absent such a risk-related trigger or event, collecting or updating of beneficial ownership information is at the discretion of the covered financial institution.”The trigger or event may mean in the course of SAR monitoring or when conducting event-driven CDD reviews, e.g., when a subpoena is received or material negative news is identified – something that may change a risk profile.  Does the obligation then arise only if the risk profile change includes a concern about whether the financial institution has accurate ownership information?  That may be the intent, but is not clearly stated.  If the account is being considered for closure because of the change in risk profile, would the financial institution be released from the obligation to obtain beneficial ownership?   That would make sense, but is not stated.  This FAQ is in need of clarification and examples would be helpful.On another note, the language in FAQ 14 also is of interest because it may suggest, in FinCEN’s view, that periodic CDD reviews should be conducted on a risk basis, and CDD refresh reviews may not be expected for lower risk customers, as is the practice for some banks. FAQ 18 seems to address at least partially a technical issue with the regulation that arises because SEC-registered investment advisers are excluded from the definition of legal entity customer in the regulation, but U.S. pooled investment vehicles advised by them are not excluded.[3]  FAQ 18 states that, if the operator or adviser of a pooled investment vehicle is not excluded from the definition of legal entity customer, under the regulation, e.g., like a foreign bank, no beneficial ownership information is required to be obtained on the pooled investment vehicle under the ownership prong, but there must be compliance with beneficial ownership control party prong, i.e., verification of identity of a control party.  A control party could be a “portfolio manager” in these situations.FinCEN describes why no ownership information is required as follows:  “Because of the way the ownership of a pooled investment vehicle fluctuates, it would be impractical for covered financial institutions to collect and verify ownership identity for this type of entity.”  Thus, in the case where the operator or adviser of the pooled investment vehicle is excluded from the definition of legal entity, like an SEC-registered investment adviser, it would seem not to be an expectation to obtain beneficial ownership information under the ownership prong.  Nevertheless, the question of whether you need to obtain and verify the identity of a control party for a pooled investment vehicle advised by a SEC registered investment adviser is not squarely answered in the FAQ.  A technical correction to the regulation is still needed, but it is unlikely there would be regulatory or audit criticism for following the FAQ guidance at least with respect to the ownership prong. FAQ 19 clarifies that, when a beneficial owner is a trust (where the legal entity customer is owned more than 25% by a trust), the financial institution is only required to verify the identity of one trustee if there are multiple trustees. FAQ 20 deals with what to do if a trust holds more than a 25% beneficial interest in a legal entity customers and the trustee is not an individual, but a legal entity, like a bank or law firm.  Under the regulation, if a trust holds more than 25% beneficial ownership of a legal entity customer, the financial institution must verify the identity of the trustee to satisfy the ownership prong of the beneficial ownership requirement.  The ownership prong references identification of “individuals.”  Consequently, the language of the regulation does not seem to contemplate the situation where the trustee was a legal entity.FAQ 20 seems to suggest that, despite this issue with the regulation, CIP should be conducted on the legal entity trustee, but apparently, on a risk basis, not in every case:  “In circumstances where a natural person does not exist for purposes of the ownership/equity prong, a natural person would not be identified.  However, a covered financial institution should collect identification information on the legal entity trustee as part of its CIP, consistent with the covered institution’s risk assessment and customer risk profile.”  (Emphasis added.)More clarification is needed on this issue, and perhaps an amendment to the regulation to address this specific situation.  Pending additional guidance, the safest course appears to be to verify the identity of legal entity trustee consistent with CIP requirements, which may pose practical difficulties, e.g., will a law firm trustee easily provide its TIN?  Presumably, CIP would not be required on any legal entity trustee that is excepted from the definition of legal entity under 31 C.F.R. § 1010.230(e)(2). FAQ 21 addresses the question of how does a financial institution verify that a legal entity comes within one of the regulatory exceptions to the definition of legal entity customer in 31 C.F.R. § 1010.230(e)(2).  The answer is that the financial institution generally can rely on information provided by the customer if it has no knowledge of facts that would reasonably call into question the reliability of the information.  Nevertheless, that is not the end of the story.  The FAQ provides that the financial institution also must have risk-based policies and procedures that specify the type of information they will obtain and reasonably rely on to determine eligibility for exclusions. FAQ 24 may resolve another technical issue in the regulation.  The exceptions to the definition of legal entity in the regulation refer back to the BSA CIP exemption provisions, which in turn, cross reference the Currency Transaction Reporting (CTR) exemption for banks when granting so-called Tier One exemptions.  One category for the CTR exemption is “listed” entities, which includes NASDAQ listed entities, but excludes NASDAQ Capital Markets Companies, i.e., this category of NASDAQ listed entity is not subject to CIP or CTR Tier One exemptions.  31 C.F.R. § 1020.315(b)(4).  This carve out was not discussed in the preamble to the CDD final regulation or in FAQ 24.The FAQ simply states:  “[A]ny company (other than a bank) whose common stock or analogous equity interests are listed on the New York Stock Exchange, the American Stock Exchange (currently known as the NYSE American), or NASDAQ stock exchange” is excepted from the definition of legal entity.  In any event, as with the FAQ 18 issue, it would appear that a technical correction is needed on this point, but, given the FAQ, it is unlikely that a financial institution would be criticized if it treated NASDAQ Capital Markets Companies as excepted legal entities. FAQs 32 and 33 end the speculation that the CDD regulation impacts CTR compliance.  Consistent with FinCEN CTR guidance, under FAQ 32, the rule remains that, for purposes of CTR aggregation, the fact that two businesses share a common owner does not mean that a financial institution must aggregate the currency transactions of the two businesses for CTR reporting, except in the narrow situation where there is a reason to believe businesses are not being operated separately. Conclusion Financial institutions and their industry groups will likely continue to seek further guidance on the most problematic issues in the CDD regulation.  It is our understanding that FinCEN and the bank regulators also will address compliance with the CDD regulation in the upcoming update to the FFIEC Bank Secrecy Act/Anti-Money Laundering Examination Manual. Covered financial institutions already have spent, and will continue to spend, significant time and resources to meet the complex regulatory requirements and anticipated regulatory expectations.  In this flurry of activity to address regulatory risk, it is essential for financial institutions to continue to consider any money laundering risk of legal entity clients and that CDD not become simply mechanical.  It is not only a matter of documenting and updating all of the right information about beneficial ownership and control, but financial institutions should continue to assess whether the ownership structure makes sense for the business or whether it is overly complex for the business type and purposely opaque.  Also, it is important to consider whether it makes sense for a particular legal entity to be seeking a relationship with your financial institution and whether the legal entity is changing financial institutions voluntarily.  CDD measures to address regulatory risk and money laundering risk overlap but are not equivalent.    [1]   FinCEN also issued FAQs on the regulation on July 19, 2016. https://www.fincen.gov/sites/default/files/2016-09/FAQs_for_CDD_Final_Rule_%287_15_16%29.pdf.   FINRA issued guidance on the CDD regulation in FINRA Notice to Members 17-40 (Nov. 21, 2017). http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-17-40.pdf.    [2]   The Notice of Final Rulemaking was published on May 11, 2016 and provided a two-year implementation period.  81 Fed. Reg. 29,398 (May 11, 2016). https://www.gpo.gov/fdsys/pkg/FR-2016-05-11/pdf/2016-10567.pdf.  FinCEN made some slight amendments to the rule on September 29, 2017.  https://www.fincen.gov/sites/default/files/federal_register_notices/2017-09-29/CDD_Technical_Amendement_17-20777.pdf The new regulations are set forth in the BSA regulations at 31 C.F.R. § 1010.230 (beneficial ownership requirements); 31 C.F.R. § 1020.210(a)(5) (banks); 31 C.F.R. § 1023.210(b)(5) (broker-dealers); 31 C.F.R. § 1024.210(b)(4) (mutual funds); and 31 C.F.R. § 1026.210(b)(5) (future commission merchants and introducing brokers in commodities).    [3]   The regulation does not clearly address the beneficial ownership requirements for a U.S. pooled investment vehicle operated or controlled by a registered SEC investment adviser.  Pooled investment vehicles operated or advised by a “financial institution” regulated by a Federal functional regulator are not considered legal entities under the regulation.  31 C.F.R. § 1010.230(e)(2)(xi).  An SEC registered investment adviser, however, is not yet a financial institution under the BSA.  Under 31 C.F.R. § 1010.230(e)(3), a pooled investment vehicle that is operated or advised by a “financial institution” not excluded from the definition of legal entity is subject to the beneficial ownership control party prong. Gibson Dunn’s lawyers  are available to assist in addressing any questions you may have regarding these developments.  Please contact any member of the Gibson Dunn team, the Gibson Dunn lawyer with whom you usually work in the firm’s Financial Institutions practice group, or the authors: Stephanie L. Brooker – Washington, D.C. (+1 202-887-3502, sbrooker@gibsondunn.com) Arthur S. Long – New York (+1 212-351-2426, along@gibsondunn.com) Linda Noonan – Washington, D.C. (+1 202-887-3595, lnoonan@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 15, 2018 |
Key 2017 Developments in Latin American Anti-Corruption Enforcement

Click for PDF In 2017, several Latin American countries stepped up enforcement and legislative efforts to address corruption in the region.  Enforcement activity regarding alleged bribery schemes involving construction conglomerate Odebrecht rippled across Latin America’s business and political environments during the year, with allegations stemming from Brazil’s ongoing Operation Car Wash investigation leading to prosecutions in neighboring countries.  Simultaneously, governments in Latin America have made efforts to strengthen legislative regimes to combat corruption, including expanding liability provisions targeting foreign companies and private individuals.  This update focuses on five Latin American countries (Mexico, Brazil, Argentina, Colombia, and Peru) that have ramped up anti-corruption enforcement or passed legislation expanding anti-corruption legal regimes.[1]  New laws in the region, coupled with potentially renewed prosecutorial vigor to enforce them, make it imperative for companies operating in Latin America to have robust compliance programs, as well as vigilance regarding enforcement trends impacting their industries. 1.    Mexico Notable Enforcement Actions and Investigations In 2017, Petróleos Mexicanos (“Pemex”) disclosed that Mexico’s Ministry of the Public Function (SFP) initiated eight administrative sanctions proceedings in connection with contract irregularities involving Odebrecht affiliates.[2]  The inquiries stem from a 2016 Odebrecht deferred prosecution agreement (“DPA”) with the U.S. Department of Justice (“DOJ”).[3]  According to the DPA, Odebrecht made corrupt payments totaling $10.5 million USD to Mexican government officials between 2010 and 2014 to secure public contracts.[4]  In September 2017, Mexico’s SFP released a statement noting the agency had identified $119 million pesos (approx. $6.7 million USD) in administrative irregularities involving a Pemex public servant and a contract with an Odebrecht subsidiary.[5] In December 2017, Mexican law enforcement authorities arrested a former high-level official in the political party of Mexican President Enrique Peña Nieto.[6]  The former official, Alejandro Gutiérrez, allegedly participated in a broad scheme to funnel public funds to political parties.[7]  While the inquiry has not yet enveloped the private sector like Brazil’s Operation Car Wash investigation, the prosecution could signal a new willingness from Mexican authorities to take on large-scale corruption cases.  The allegations are also notable due to their similarity to the allegations in Brazil’s Car Wash investigation.  In both inquiries, funds were allegedly embezzled from state coffers for the benefit of political party campaigns. Legislative Update Mexico’s General Law of Administrative Responsibility (“GLAR”)—an anti-corruption law that provides for administrative liability for corporate misconduct—took effect on July 19, 2017.  The GLAR establishes administrative penalties for improper payments to government officials, bid rigging in public procurement processes, the use of undue influence, and other corrupt acts.[8]  The law reinforces a series of Mexican legal reforms from 2016 that expanded the scope of the country’s existing anti-corruption laws and created a new anti-corruption enforcement regime encompassing federal, state, and municipal levels of government.  Among the GLAR’s most significant changes are provisions that target corrupt activities by corporate entities and create incentives for companies to implement compliance programs to avoid or minimize corporate liability. The GLAR applies to all Mexican public officials who commit what the law calls “non-serious” and “serious” administrative offenses.[9]  Non-serious administrative offenses include the failure to uphold certain responsibilities of public officials, as defined by the GLAR (e.g., cooperating with judicial and administrative proceedings, reporting misconduct, etc.).[10]  Serious administrative offenses include accepting (or demanding) bribes, embezzling public funds, and committing other corrupt acts, as defined by the GLAR.[11]  The GLAR also applies to private persons (companies and individuals) who commit acts considered to be “linked to serious administrative offenses.”[12]  These offenses include the following: Bribery of a public official (directly or through third parties)[13]; Participation in any federal, state, or municipal administrative proceedings from which the person has been banned for past misconduct[14]; The use of economic or political power (be it actual or apparent) over any public servant to obtain a benefit or advantage, or to cause injury to any other person or public official[15]; The use of false information to obtain an approval, benefit, or advantage, or to cause damage to another person or public servant[16]; Misuse and misappropriation of public resources, including material, human, and financial resources[17]; The hiring of former public officials who were in office the prior year, acquired confidential information through their prior employment, and give the contractor a benefit in the market and an advantage against competitors[18]; and Collusion with one or more private parties in connection with obtaining improper benefits or advantages in federal, state, or municipal public contracting processes.[19]  Notably, the collusion provisions apply extraterritorially and ban coordination in “international commercial transactions” involving federal, state, or municipal public contracting processes abroad.[20] The GLAR provides administrative penalties for violations committed by both physical persons and legal entities.  Physical persons who violate the GLAR can be subjected to: (1) economic sanctions (up to two times the benefit obtained, or up to approximately $597,000 USD)[21]; (2) preclusion from participating in public procurements and projects (for a maximum of eight years)[22]; and/or (3) liability for any damages incurred by any affected public entities or governments.[23] Legal entities, on the other hand, can be fined up to twice the benefit obtained, or up to approximately $5,970,000 USD, precluded from participating in public procurements for up to ten years, and held liable for damages.[24]  The GLAR also creates two additional penalties for legal entities:  suspension of activities within the country for up to three years, and dissolution.[25]  Article 81 limits the ability to enforce these two stiffer penalties to situations where (1) there was an economic benefit and the administration, compliance department, or partners were involved, or (2) the company committed the prohibited conduct in a systemic fashion.[26]  The GLAR’s penalties for physical and legal persons are administrative, rather than criminal. Under Article 25 of the GLAR, Mexican authorities can take into account a company’s robust compliance “Integrity Program” in determining and potentially mitigating corporate liability under the GLAR.[27]  The law requires the Integrity Program to have several elements, including clearly written policies and adequate review, training, and reporting systems.[28] The GLAR contains a self-reporting incentive that provides for up to a seventy percent reduction of penalties for those who report past or ongoing misconduct to an investigative authority.[29]  As previously noted, the GLAR’s non-monetary sanctions include preclusion from participating in public procurements and projects for up to eight years (for physical persons) or ten years (for companies).[30]  If a person subject to a preclusion sanction self-reports GLAR violations, the preclusion sanction can be reduced or completely lifted by the Mexican authorities.[31]  Requirements for obtaining a reduction of penalties through self-reporting include: (1) involvement in an alleged GLAR infraction and being the first to contribute information that proves the existence of misconduct and who committed the violations; (2) refraining from notifying other suspects that an administrative responsibility action has been initiated; (3) full and ongoing cooperation with the investigative authorities; and (4) suspension of any further participation in the alleged infraction.[32] Notably, other participants in the alleged misconduct who might be the second (or later) to disclose information could receive up to a fifty percent penalty reduction, provided that they also comply with the above requirements.[33]  If a party confesses information to the investigative authorities after an administrative action has already begun, that party could potentially receive a thirty percent reduction of penalties.[34] For a full analysis of the GLAR, see http://www.gibsondunn.com/publications/Pages/Mexico-General-Law-of-Administrative-Responsibility-Targets-Corrupt-Activities-by-Corporate-Entities.aspx. 2.    Brazil Following the success of the massive Operation Car Wash investigation into corruption involving the country’s energy sector, Brazilian regulators launched or advanced inquiries in 2017 impacting companies in the healthcare, meatpacking, and financial industries, among others.  Brazilian authorities have also continued to garner international accolades for their anti-corruption work, with Brazil’s federal prosecution service (“Ministério Público Federal” or “MPF”) winning Global Investigation Review’s “Enforcement Agency or Prosecutor of the Year” award for its 2017 Operation Car Wash efforts.[35]  This award follows a 2016 recognition of the Car Wash Taskforce by Transparency International.[36]  The robust enforcement environment in Brazil is also reflected in this year’s public company disclosures.  In 2017, thirty-four companies disclosed information regarding new or ongoing inquiries involving Brazil, while disclosures regarding other Latin American nations numbered in the single digits.[37] Notable Enforcement Actions and Investigations A.    Operation Car Wash (Operação Lava Jato) Operation Car Wash, the multi-year investigation into allegations of corruption related to contracts with state-owned oil company Petrobras, has remained a focus area for the Brazilian authorities.  The investigation opened four new phases in 2017.  Notably, in October 2017, Judge Sergio Moro—the lead jurist for the investigation—stated at a public event that the Car Wash inquiry was “moving toward the final phase.”[38]  Judge Moro did not, however, provide a potential date for closing the investigation, stating, “a good part of the work is done, but this does not mean that work does not remain.”[39]  To date, Brazilian authorities investigating the Car Wash allegations have obtained 177 convictions, with sentences totaling more than 1,750 years in prison.[40] B.    Operation Zealots (Operação Zelotes) In 2017, Brazilian authorities launched new phases of Operation Zealots, a multi-year investigation into alleged payments to members of Brazil’s Administrative Board of Tax Appeals.[41]  The investigation began as an inquiry into one of the largest alleged tax evasion schemes in the country’s history.  Large companies and banks, including Bradesco, Santander, and Safra, allegedly paid bribes to members of the appeals board in exchange for a reduction or waiver of taxes owed.[42]  Operation Zealots was launched in 2015 and initially implicated companies in the financial sector.  The scope of the investigation has expanded in the last two years to also reach companies in the automobile sector and a Brazilian steel distributor.[43]  Notably, in 2017, a criminal complaint was filed against former Brazilian President Luiz Inácio Lula da Silva alleging that he received payments in exchange for securing tax benefits for automobile companies.[44]  The total amount of evaded taxes through various alleged Operation Zealots schemes is estimated to reach nearly $19 billion BRL (approx. $5.8 billion USD).[45] C.    Operation Weak Flesh (Operação Carne Fraca) In early 2017, the Brazilian Federal Police launched an investigation into the alleged bribery of government food sanitation inspectors called Operation Weak Flesh.[46]  The operation was reported to be one of the largest in the history of the Federal Police, with Brazilian authorities executing 194 search-and-seizure warrants.[47]  Dozens of inspectors are accused of taking bribes in exchange for allowing the sale of rancid products, falsifying export documents, overlooking illicit additives, and failing to inspect meatpacking plants.[48]  Authorities are investigating more than thirty meatprocessing companies, including giants such as JBS S.A. and BRF S.A. D.    Operation Bullish (Operação Bullish) On May 12, 2017, the Federal Police launched Operation Bullish, an investigation into fraud and irregularities in the manner by which Brazil’s National Bank for Economic and Social Development approved investments of over $8 billion BRL (approx. $2.4 billion USD) for the expansion of the Brazilian meatpacking company JBS.[49]  While JBS claims that it did not receive any favors from the bank’s investment arm (“BNDESPar”), Brazil’s Federal Court of Accounts (“TCU”) claims that the bank approved “risky” investments for JBS with inadequate time for analysis.[50]  The Federal Police further claim that although BNDESPar approved funds for a JBS acquisition of a foreign company, the acquisition never occurred and the investment funds were never returned.[51] E.    Operation Mister Hyde (Operação Mister Hyde) Brazilian authorities also continued inquiries in the healthcare space as part of a multi-year investigation into an alleged “Prosthetics Mafia” of doctors and medical instrument suppliers that rigged the bidding process for surgical supplies.  Investigators alleged that in exchange for payments, doctors would identify patients for unnecessary surgeries and ensure that the surgical instruments used in the operations came from a specified provider.[52]  The inquiry stems from a 2015 congressional investigation.  In February 2017, it was reported that three employees from one of the companies under investigation, TM Medical, agreed to plea bargains with the federal authorities.[53] Settlements and Leniency Agreements UTC Engenharia.  In July 2017, UTC Engenharia signed a leniency agreement with the Brazilian government and agreed to pay $574 million BRL (approx. $175 million USD), including a fine, damages, and unjust enrichment.[54]  UTC signed the agreement with Brazil’s Comptroller General of the Union (“CGU”) and Brazil’s Federal Attorney General’s Office.[55]  Under the agreement, UTC must adopt an integrity program and pay its fine within twenty-two years.[56] According to the Brazilian government, the agreement reflects “the basic pillars enumerated by the two federal agencies in the negotiations, that is, speed in obtaining evidence, identification of others involved in the crimes, cooperation with investigations, and commitment to the implementation of effective integrity mechanisms.”[57]  Notably, according to the press release, the implementation of UTC’s integrity program “will be monitored by the CGU, which can perform inspections at the company and request access to any documents and information necessary.”[58] Rolls-Royce plc.  In January 2017, Rolls-Royce settled allegations that the company offered, paid, or failed to prevent bribes involving the sale of engines, energy systems, and related services in Brazil and five other foreign jurisdictions.[59]  According to charging documents, between 2003 and 2013, Rolls-Royce allegedly made commission payments to an intermediary while knowing that portions of the payments would be paid to officials at Brazil’s state-owned oil company Petrobras.[60]  Rolls-Royce’s intermediary allegedly made more than $1.6 million BRL (approx. $485,700 USD) in corrupt payments to obtain contracts for supplying equipment and long-term service agreements.[61]  As a part of a global settlement with DOJ, Britain’s Serious Fraud Office, and Brazil’s Ministério Público Federal, Rolls-Royce agreed to pay $800 million USD total, with $25.5 million USD of that settlement being paid to the Brazilian authorities.[62] SBM Offshore N.V.  In November 2017, SBM settled allegations with DOJ that the company made payments to foreign officials in Brazil, Angola, Equatorial Guinea, Kazakhstan, and Iraq.[63]  According to the DPA, SBM used a sales agent to provide payments and hospitalities to Petrobras executives to secure an improper advantage in business with the state-owned company.[64]  SBM agreed to pay a $238 million USD criminal fine.[65]  DOJ took into account overlapping conduct prosecuted by other jurisdictions when calculating SBM’s fine, including the company’s ongoing negotiations with the MPF and a $240 million USD settlement with the Dutch authorities.[66]  The government’s press release also stated that DOJ was “grateful to Brazil’s MPF” and authorities in the Netherlands and Switzerland “for providing substantial assistance in gathering evidence during [the] investigation.”[67] Braskem/Odebrecht.  In December 2016, Brazilian construction conglomerate Odebrecht and its petrochemical production subsidiary, Braskem, resolved bribery charges with authorities in Brazil, Switzerland, and the United States.[68]  At the time of the 2016 settlement, the DOJ/SEC segment of the multibillion-dollar resolution was $419 million USD.  The settlement agreement did note, however, that Odebrecht represented it could pay no more than $2.6 billion USD in penalties.[69]  The agreement further noted that the Brazilian and U.S. authorities would conduct an independent analysis of Odebrecht’s representation.[70]  According to an April 2017 sentencing memorandum filed with the court, the U.S. and Brazilian authorities analyzed Odebrecht’s ability to pay the proposed penalty and determined that Odebrecht was indeed unable to pay a total criminal penalty in excess of $2.6 billion USD.[71]  The sentencing memorandum noted the parties agreed that Odebrecht would therefore pay a reduced fine of $93 million USD to the U.S. government.[72] Legislative Updates and Agency Guidance State-Level Anti-Corruption Law.  In late 2017, the state of Rio de Janeiro passed an anti-corruption law requiring companies contracting with the state to have compliance programs.[73]  The law applies to companies and individuals, including foreign companies with “headquarters, subsidiaries, or representation in Brazil.”[74]  While the Clean Company Act takes a company’s compliance program into consideration in the application of sanctions, Rio de Janeiro’s law goes one step further and requires companies to have programs in place before contracting with the state.[75] Ten Measures Against Corruption.  An initiative from Brazil’s Ministério Público Federal to strengthen anti-corruption laws has yet to pass both houses of Brazil’s legislative branch.  The initiative—called the “Ten Measures Against Corruption”—was first announced by the MPF in 2015.[76]  The proposal was introduced to Congress as a public initiative in 2016 after it received more than 1.7 million signatures of support from the public.[77]  The measures propose changes in corruption laws and criminal proceedings that would make the judiciary and prosecutor’s office more transparent, criminalize unjust enrichment of civil servants, hold political parties liable for accepting undeclared donations, and increase penalties for corrupt acts.[78]  Consideration of the proposal was halted in the Senate in 2017 after public outrage in response to the lower Congress’s addition of a provision that would impose harsh penalties on the judiciary and federal prosecutors for “abuse of authority.”[79]  Operation Car Wash prosecutor Deltan Dallagnol claimed that the House’s amendments “favored” white collar crimes and undermined the proposal’s purpose.[80] Ministério Público Federal Leniency Agreement Guidance.  In August 2017, the Ministério Público Federal issued guidance for prosecutors negotiating leniency agreements.[81]  The guidance provides insights into the process Brazil’s prosecutors use for negotiating such agreements and the expectations for collaborators.  One section of the guidance, for example, states that negotiations should be conducted by “more than one member of the MPF” and preferably by a criminal and administrative prosecutor for the agency.[82]  The guidance also notes the possibility that the negotiations could take place together with other Brazilian authorities, including the CGU [the chief regulator of the Clean Company Act], the Federal Attorney General’s Office (“AGU”), the chief anti-trust regulator, and the TCU.[83]  The guidance also notably details obligations of collaborators in leniency agreements, including: Communicating relevant information and proof (time frames, locations, etc.); Ceasing illicit conduct; Implementing a compliance program and submitting to external audit, at the company’s expense; Collaborating fully with the investigations during the life of the agreement and always acting with honesty, loyalty, and good faith, without reservation; Paying applicable fines and damages; and Declaring that all information supplied is correct and accurate, under the penalty of rescission of the leniency agreement.[84] 3.    Argentina Notable Enforcement Actions and Investigations A.    Investigation into President Mauricio Macri Beginning in 2016 and continuing throughout 2017, federal prosecutors in Argentina launched investigations concerning current President Mauricio Macri.[85]  While Macri was elected on promises to combat corruption in Argentina,[86] his family’s extensive business holdings have been scrutinized by Argentine authorities in connection with various influence trafficking and money laundering probes.[87]  An investigation opened in April 2017, for example, focuses on the grant of airline routes to a company connected to Macri’s father.[88]  Argentine prosecutors are also probing allegations that a government official received payments from construction conglomerate Odebrecht in connection with renewing a public contract.[89]  At the time of the alleged payments, Odebrecht was a participant in a consortium with a company connected to Macri’s cousin.[90] B.    Investigation into Former President Cristina Fernández de Kirchner In April 2017, former President Cristina Fernández de Kirchner was indicted in connection with allegations that she led a scheme to launder funds misappropriated from public coffers through a family-owned business.[91]  The charges represent the second indictment filed against Kirchner since she left office more than two years ago.[92]  In December 2016, charges were brought against Kirchner alleging that she led a criminal organization that attempted to illegally benefit its members by awarding public contracts to construction company Austral Construcciones.[93]  In a separate investigation, a judge ordered Kirchner’s arrest in connection with allegations that she covered up possible Iranian involvement in the 1994 bombing of a Jewish community center in Buenos Aires in exchange for a potentially lucrative trade deal.[94]  Other former high-level employees in Kirchner’s government have been arrested for unjust enrichment, including Vice President Amado Boudou and former planning minister Julio de Vido.[95] Legislative Update In November 2017, Argentina’s Congress passed new legislation imposing criminal liability on corporations for bribery (national and transnational), influence peddling, unjust enrichment of public officials, falsifying balance sheets and reports, and other designated offenses.[96]  The bill, called the Law on Corporate Criminal Liability, applies to both Argentine and multinational companies domiciled in the country.[97]  The law went into effect on March 1, 2018.[98] Under the bill, legal entities can be held liable for bribery and other misconduct carried out directly or indirectly, with the company’s intervention, or in the company’s name, interest, or benefit.[99]  Legal entities can also be held liable if the company ratifies the initially unauthorized actions of a third party.[100]  The bill states that legal entities are not held liable, however, if the physical person who committed the misconduct acted “for his exclusive benefit, and without providing any advantage” for the company.[101]  The bill also imposes successor liability on parent companies in mergers, acquisitions, and other corporate restructurings.[102]  The bill applies to transnational bribery for acts committed by Argentine citizens and entities that are domiciled in Argentina.[103] The bill imposes monetary and non-monetary sanctions, including: Monetary fines from two to five times the benefit that was (or could have been) obtained by the company,[104] Complete or partial suspension of activities for up to ten years,[105] Suspension for up to ten years from participating in public bids, contracts, or any other activity linked to the state,[106] and Dissolution and liquidation of the corporate person when the entity was created solely for the purposes of committing misconduct, or when misconduct constituted the principal activities of the entity.[107] Legal entities can be exempted from criminal liability where the company (1) self-reported misconduct detected through its own efforts and internal investigation, (2) implemented an adequate internal control and compliance system before the misconduct occurred, and (3) returned undue benefits obtained through the misconduct.[108]  The bill also contains provisions allowing for Argentina’s public prosecutor’s office, the Ministério Público Fiscal, to enter into collaboration agreements with legal entities.[109]  The agreements require legal entities to provide information regarding the misconduct, pay the equivalent of half the minimum monetary fine imposed under the law, and comply with other conditions of the agreement (including, but not limited to, implementing a compliance program).[110] Minimal requirements for compliance programs consistent with the bill include: A code of ethics or conduct, or the existence of integrity policies and procedures applicable to all directors, administrators, and employees that prevent the commission of the crimes contemplated by the law,[111] Specific rules and procedures to prevent wrongdoing in the context of tenders and bidding processes in the execution of administrative contracts, or in any other interaction with the public sector,[112] and Periodic trainings on the compliance program for directors, administrators, and employees.[113] The law also notes that a compliance program may include additional elements, including, among others: Periodic risk assessments,[114] Visible and unequivocal support of the program from upper management,[115] Misconduct-reporting channels that are open to third parties and adequately defined,[116] Anti-retaliation policies,[117] Internal investigation systems,[118] Due diligence processes for M&A transactions,[119] Monitoring and evaluation of the effectiveness of the compliance program,[120] and Designation of an employee responsible for the coordination and implementation of the program.[121] The compliance program components listed in the law are notably similar to elements of effective compliance programs delineated by DOJ, the SEC, and Mexico’s General Law of Administrative Responsibility.[122] 4.    Colombia Notable Enforcement Actions and Investigations A.    Odebrecht Fallout According to a December 2016 deferred prosecution agreement with DOJ, Odebrecht made more than $11 million USD in corrupt payments to government officials in Colombia to secure public works contracts.[123]  In the wake of this settlement with U.S. authorities and Brazil’s multi-year investigation into Odebrecht’s dealings, Colombian prosecutors have announced inquiries into congressional involvement in the allegations and have arrested former Colombian senator Otto Bula for allegedly taking $4.6 million USD in bribes from the company.[124]  Odebrecht allegedly paid Bula to ensure that a contract for the construction of the Ocaña-Gamarra highway included higher-priced tolls that would benefit the company.[125]  Odebrecht also allegedly made $6.5 million USD in payments to former Vice Minister of Transportation Gabriel García Morales in exchange for a contract to construct a section of the Ruta del Sol highway.[126] B.    Reficar Oil Refinery In 2017, Colombian authorities brought corruption charges against executives from an American engineering firm, Chicago Bridge & Iron Company (“CB&I”), in connection with the Refineria de Cartagena (“Reficar”) oil refinery.[127]  The Reficar oil refinery is a subsidiary of Colombia’s state-owned oil company, Ecopetrol.  Colombian authorities charged CB&I and Reficar executives with various corruption charges, including unjust enrichment, misappropriation of funds, and embezzlement.[128]  According to the Colombian authorities, Reficar executives directed contracts to CB&I without abiding by legal requirements for public bidding.[129]  The Colombian authorities also claimed to have discovered irregularities with payments CB&I received in connection with Reficar contracts, including payments for work that was not performed, reimbursements for extravagant expenses unrelated to the refinery project, and double billing.[130] C.    Conviction of Former Anti-Corruption Chief Luis Gustavo Moreno On June 27, 2017, former anti-corruption chief Luis Gustavo Moreno was arrested in his office by the CTI (the Technical Investigation Team, a division of the Colombian Attorney General).  They charged him with soliciting bribes in return for interfering with anti-corruption investigations into Alejandro Lyons Muskus, ex-governor of Córdoba, with the possibility of ending such investigations.  After his arrest, Moreno turned into a key collaborator with various officials, shedding light on a massive corruption scandal in the judiciary and congressional branch.  According to Moreno, the scandal involved state politicians such as Musa Besaile Fayad and Bernardo “Ñoño” Elías, while also accusing judges such as Gustavo Malo Fernández, Francisco José Ricaurte, and Leónidas Bustos of accepting bribes in order to corrupt judicial proceedings.[131]  President Juan Manuel Santos signed extradition orders for Moreno and extradited him to Florida, where DOJ officials charged him with conspiracy to launder money with the intent to promote foreign bribery.[132] Legislative Update In 2017, Colombian President Juan Manuel Santos announced a series of measures to address corruption issues in the country.[133]  The announcement followed Colombia’s 2016 passage of its first foreign bribery statute, the Transnational Corruption Act (“TCA”).[134]  The TCA notably has extraterritorial effect and holds legal entities administratively liable for improper payments to foreign government officials made by the entity’s employees, officers, directors, subsidiaries, contractors, or associates.[135]  The new anti-corruption measures announced by President Santos, among others, include passing new laws that would provide labor protections and economic incentives for whistleblowers, require that companies disclose information regarding “the persons who in reality profit from a business or company,” and eliminate the use of house arrest for corruption cases.[136]  The President also proposed creating a group of judges who specialize in anti-corruption cases.[137]  Other corruption reforms considered by Colombia’s Congress in 2017 include requiring lobbyists to disclose meetings with public officials and the creation of a registry of beneficiaries of public contracts.[138] Transnational Cooperation In 2017, Colombia’s Superintendence of Corporations and the Peruvian Ministry entered into a Memorandum of Understanding (“MOU”) to prosecute international corruption.[139]  The goal of the MOU is to help investigate corruption in Peru and Colombia by focusing on a bilateral exchange of evidence between the two countries.[140]  Colombia signed a similar agreement with Spain in 2017.[141]  These new efforts are meant to assist partnering states in overcoming the difficulties of cross-border investigations, including the need to acquire evidence in foreign territories. 5.    Peru Notable Enforcement Actions and Investigations The Odebrecht scandal has significantly impacted the political and anti-corruption landscape in Peru.  In its settlement with Odebrecht, DOJ disclosed that Odebrecht executives admitted to funneling around $29 million USD in bribes to Peruvian government officials between 2004 and 2015.[142]  Government officials announced that Odebrecht and other companies involved in corruption would no longer be able to bid on public work contracts.[143]  This marked the end of Odebrecht’s four-decade run as a successful bidder on public work projects in Peru.[144]  The government will now decide on a case-by-case basis what to do with the remaining contracts awarded to Odebrecht.[145] Three of Peru’s recent former presidents have been arrested and/or accused of crimes related to corruption, all with some alleged connection to Odebrecht.[146]  In July 2017, a Peruvian judge ordered the arrest of former President Ollanta Humala and his wife on charges of money laundering and conspiracy related to the alleged receipt of a $3 million USD bribe from Odebrecht.[147]  Humala, who has continued to maintain his innocence, became the first former head of state detained in connection with the Odebrecht scandal.[148]  Prosecutors are also investigating former President Alan Garcia, who allegedly facilitated irregular bidding on the subway in Lima.[149] Another former president, Alejandro Toledo, was ordered arrested by a Peruvian judge in February, pursuant to accusations that he had received $20 million USD in bribes from Odebrecht in connection with bidding on the Interoceanic Highway between Brazil and Peru.  Toledo has remained in the United States and denied any wrongdoing.[150]  A formal extradition request to the United States for Toledo to return to Peru and face charges for the alleged bribe is near approval on the Peruvian side.[151] Even Peru’s current president, Pedro Pablo Kuczynski, has been unable to evade implication in the ever-expanding Odebrecht probe.  Earlier in 2017, he had to testify as a witness in the same investigation implicating former President Toledo in the alleged irregular bidding process to build the Interoceanic Highway.[152]  In November 2017, former Odebrecht CEO Marcelo Odebrecht told Brazilian prosecutors that Odebrecht hired Kuczynski as a consultant after he had opposed highway contracts granted to the company.[153]  Kuczynski denied the allegations, but subsequently documents showed Kuczynski may have received $782,000 in payments from Odebrecht through his investment banking firm, Westfield Capital.[154]  Kuczynski narrowly survived an impeachment vote based on the corruption allegations in late December 2017.[155]  Recent additional testimony from an Odebrecht official purporting to confirm impropriety in Kuczynski’s relationship with Odebrecht has renewed calls for Kuczynski to step down or be impeached.[156] On a regional and local level in Peru, several governors have been under investigation or accused of corruption.[157]  Remarkably, a May 2014 study by Peru’s office of the anti-corruption solicitor reported that a significant majority of mayors in office between 2011 and 2014 in Peru had been investigated for criminal activity.[158] Legislative Update The most significant development in anti-corruption legislation in Peru over the last year was Legislative Decree No. 1352, enacted on January 6, 2017.  This decree modifies Law No. 30424 (Law Regulating Administrative Liability of Legal Entities for the Commission of Active Transnational Bribery),[159] which was enacted in 2016 to declare that legal entities, including corporations, would be autonomously and administratively liable for active transnational bribery when it was committed in their name or for them and on their behalf.[160]  Decree No. 1352 extended the administrative and autonomous liability of legal entities to include those guilty of active bribery of public officials.[161]  The liability provided for in Decree No. 1352 is termed “autonomous” because a natural person does not have to be found liable first; the Decree’s charges now create independent liability, and an independent entity like a corporation can be charged separately.[162]  The law provides for autonomous liability for certain crimes of bribery and money laundering.[163] Parent companies are not liable for penalties under the autonomous liability provisions of Decree No. 1352 unless the employees who engaged in corruption or money laundering did so with specific consent or authorization from the parent company.[164]  Additionally, companies that acquire entities found guilty of corruption under the autonomous liability provision may not be separately penalized if the acquiring company used proper due diligence, defined as taking reasonable actions to verify that no autonomous liability crimes had been committed.[165]  Finally, entities can avoid autonomous liability by implementing a sufficient criminal law compliance program designed to prevent such crimes of corruption from being committed on behalf of the company.[166] Elements of a properly designed program include: an autonomous person in charge of the compliance program, proper implementation of complaint procedures, continuous monitoring of the program, and training for those involved.[167]  The Peruvian securities regulator had promised additional guidance before January 1, 2018—when the Decree took effect—but, as of the date of this publication, no such guidance has been issued.[168] The Peruvian government has also modified the procurement laws via Decree 1341 to ban any company with representatives who have been convicted of corruption from securing government contracts.[169]  The ban applies even if the crimes are admitted as part of a plea bargain agreement for a reduced sentence.[170] Peru has also enacted harsher penalties for public officials found guilty of corruption and prohibitions on such officials from being able to work in the public sector post-conviction.  Legislative Decree No. 1243 (the “civil death” law) was enacted in late 2016 to establish harsher sentences for corruption-related offenses and to increase the “civil disqualification” period to five to twenty years for corruption crimes like extortion, simple and aggravated collusion, embezzlement, and bribery.[171]  That said, this disqualification only applies to crimes committed as part of a “criminal organization,” and because of the practicalities involved in these types of crimes, it is unlikely that many officials will be found to have been part of a “criminal organization” and thus barred from public service.[172] Legislative Decree No. 1295 was also enacted on December 30, 2016 with provisions to improve government integrity.[173]  The decree created the National Registry of Sanctions against Civil Servants (Registro Nacional de Sanciones contra Servidores Civiles).[174] This online registry will be updated monthly by the National Authority of Civil Service (Autoridad Nacional del Servicio Civil) and will consolidate all the information relevant to disciplinary actions and/or sanctions against public officials (including corruption charges).[175]  Anyone listed in the registry is prohibited from government employment for the duration of their registry.[176] [1] This article is intended to review key developments in the five enumerated countries.  Changes to the compliance environment continue throughout Central and South America, though they are not covered in this particular update. [2] Petróleos Mexicanos – Pemex, Report of Foreign Private Issuer (Form 6-K) (Nov. 11, 2017), at 8. [3] Petróleos Mexicanos – Pemex, Report of Foreign Private Issuer (Form 6-K) (Sept. 29, 2017), at 21. [4] See Plea Agreement, Attach. B ¶¶ 59-60, United States v. Odebrecht S.A., Cr. No. 16-643 (RJD) (E.D.N.Y. Dec. 21, 2016). [5] See Secretaría de la Función Pública, Abre SFP nuevos procedimientos administrativos en contra de filial de Odebrecht (Sep. 11, 2017), https://www.gob.mx/sfp/articulos/abre-sfp-nuevos-procedimientos-administrativos-en-contra-de-filial-de-odebrecht-126170?idiom=es. [6] Azam Ahmed and J. Jesus Esquivel, Mexico Graft Inquiry Deepens with Arrest of a Presidential Ally, N.Y. Times, Dec. 20, 2017, https://www.nytimes.com/2017/12/20/world/americas/mexico-corruption-pri.html. [7] Id.; Detienen a extesorero del PRI por presunto desvío de recursos en 2016, El Financiero, Dec. 20, 2017, http://www.elfinanciero.com.mx/nacional/detienen-a-extesorero-del-pri-por-presunto-desvio-de-recursos-en-2016.html. [8] Ley General de Responsabilidades Administrativas, Artículos 2, 52, 66, 70 (July 18, 2016) (Mex.) [hereinafter “GLAR”]. [9] GLAR at Artículos 49, 51. [10] Id. at Artículo 49. [11] Id. at Artículos 51-64. [12] Id. at Artículos 3, 4, 65. [13] Bribery includes promising, offering, or giving any benefit, whether it be through money, valuables, property, services well below market value, donations, or any other benefit, to a public servant or their spouse in return for the public servant performing or refraining from performing any act related to their duties, or using their influence in their position, for the purpose of obtaining or maintaining a benefit or advantage, irrespective of the benefit actually being achieved.  Id. at Artículos 52, 66. [14] Id. at Artículo 67. [15] Id. at Artículo 68. [16] Id. at Artículo 69. [17] Id. at Artículo 71. [18] Id. at Artículo 72. [19] Id. at Artículo 70. [20] Id. [21] Under Article 81 of the GLAR, if no benefit is obtained through the corrupt act, the financial penalty is calculated by multiplying a statutorily defined value by the daily tenor of a Mexican government economic reference rate called the Unidad de Medida y Actualización (“UMA”).  While the UMA is a variable rate that changes over time, the statutory multiple is static and defined by the GLAR.  For physical persons—if no benefit was obtained—the penalty can be up to 150,000 times the UMA (approximately $597,000 USD as of May 2017).  GLAR, Artículo 81. [22] Id. [23] Id. [24] Id. [25] Id. [26] Id. [27] Id. at Artículo 25. [28] The seven required elements of the integrity program are delineated in the statute and discussed more fully in Gibson Dunn’s review of the GLAR, found at http://www.gibsondunn.com/publications/Pages/Mexico-General-Law-of-Administrative-Responsibility-Targets-Corrupt-Activities-by-Corporate-Entities.aspx. [29] GLAR at Artículos 88-89. [30] Id. at Artículo 81. [31] Id. at Artículos 88-89. [32] Id. at Artículo 89. [33]Id. [34]Id. [35] Ministério Público Federal, MPF recebe prêmio internacional por trabalho no combate à corrupção (Nov. 6, 2017), http://www.mpf.mp.br/rj/sala-de-imprensa/noticias-rj/mpf-recebe-premio-internacional-pelo-combate-a-corrupcao. [36] Press Release, Transparency Int’l Secretariat, Brazil’s Carwash Task Force Wins Transparency Int’l Anti-Corruption Award (Dec. 6, 2016). [37] See generally FCPA Tracker, https://fcpatracker.com/. [38] See Felipe Gutierrez, Moro se diz ‘cansado’ e que trabalho da Lav Jato em Curitiba esta no fim, Folha de Sao Paulo, Aug. 15, 2017, http://www1.folha.uol.com.br/poder/2017/10/1923633-moro-diz-que-trabalho-da-lava-jato-em-curitiba-esta-acabando.shtml. [39] Id. [40] See Ministério Público Federal, A Lava Jato em numeros – STF (Jan. 12, 2018), http://www.mpf.mp.br/para-o-cidadao/caso-lava-jato/atuacao-no-stj-e-no-stf/resultados-stf/a-lava-jato-em-numeros-stf. [41] Entenda a Operação Zelotes da Polícia Federal, Folha de São Paulo, Apr. 1, 2015, http://www1.folha.uol.com.br/mercado/2015/04/1611246-entenda-a-operacao-zelotes-da-policia-federal.shtml. [42] Id. [43] Mateus Rodrigues, MPF denuncia executivos da Gerdau na Zelotes por corrupcão e lavagem de dinheiro, Oglobo, Aug. 24, 2017, https://g1.globo.com/distrito-federal/noticia/mpf-denuncia-executivos-da-gerdau-na-zelotes-por-corrupcao-e-lavagem-de-dinheiro.ghtml; MPF denuncia Lula e Gilberto Carvalho por corrupcao passive na Operacoes Zelotes, Oglobo, Sept. 11, 2017, https://g1.globo.com/politica/noticia/mpf-denuncia-lula-por-corrupcao-passiva-na-operacao-zelotes.ghtml. [44] MPF denuncia Lula e Gilberto Carvalho por corrupcao passive na Operacoes Zelotes, supra note 43. [45] Entenda a Operação Zelotes da Polícia Federal, supra note 41. [46] Estelita H. Carazzai, Bela Megale, & Camila Mattoso, Operação contra frigoríficos prende 37 e descobre até carne podre à venda, Folha de S. Paulo, Mar. 17, 2017, http://www1.folha.uol.com.br/mercado/2017/03/1867309-pf-faz-operacao-contra-frigorificos-e-cumpre-quase-40-prisoes.shtml. [47] Id. [48] Id. [49] Operação Bullish investiga fraudes em empréstimos no BNDES, Agência de Notícias de Polícia Federal, May 12, 2017, http://www.pf.gov.br/agencia/noticias/2017/05/operacao-bullish-investiga-fraudes-em-emprestimos-no-bndes; Bela Megale, Camila Mattoso, & Raquel Landim, Operação policial põe sob suspeita apoio do BNDES à expansão da JBS, Folha de S. Paulo, May 12, 2017, http://www1.folha.uol.com.br/mercado/2017/05/1883367-pf-deflagra-operacao-que-investiga-fraudes-em-emprestimos-no-bndes.shtml. [50] Megale et al., supra note 49. [51] Id. [52] Graziele Frederico and Gabriela Lapa, Grupo de acusados na ‘máfia de próteses’ do DF fecha acordo de delação premiada, Oglobo, Feb. 9, 2017, http://g1.globo.com/distrito-federal/noticia/grupo-de-acusados-na-mafia-das-proteses-do-df-fecha-acordo-de-delacao-premiada.ghtml. [53] Id. [54] Ministério da Transparência e Controladoria-Geral da União, CGU e AGU assinam acordo de leniência com UTC Engenharia, July 10, 2017, http://www.cgu.gov.br/noticias/2017/07/cgu-e-agu-assinam-acordo-de-leniencia-com-o-utc-engenharia. [55] Id. [56] Id. [57] Id. [58] Id. [59] Press Release, U.S. Dep’t of Justice, Rolls-Royce plc Agrees to Pay $170 Million Criminal Penalty to Resolve Foreign Corrupt Practices Act Case (Jan. 17, 2017), https://www.justice.gov/opa/pr/rolls-royce-plc-agrees-pay-170-million-criminal-penalty-resolve-foreign-corrupt-practices-act. [60] Deferred Prosecution Agreement, Attach. A ¶ 20, United States v. Rolls-Royce plc, No. 2:16-CR-00247-EAS (S.D. Ohio. Dec. 20, 2016). [61] Id. [62] Press Release, U.S. Dep’t of Justice, supra note 59. [63] Press Release, U.S. Dep’t of Justice, SBM Offshore N.V. and United States-Based Subsidiary Resolve Foreign Corrupt Practices Act Case Involving Bribes in Five Countries (Nov. 29, 2017), https://www.justice.gov/opa/pr/sbm-offshore-nv-and-united-states-based-subsidiary-resolve-foreign-corrupt-practices-act-case. [64] Deferred Prosecution Agreement, Attach. A ¶¶ 27, 35, United States v. SBM Offshore N.V., No. 17-686 (S.D. Tex. Nov. 29, 2017). [65] Press Release, U.S. Dep’t of Justice, supra note 63. [66] Id. [67] Id. [68] Press Release, U.S. Dep’t of Justice, Odebrecht and Braskem Plead Guilty and Agree to Pay at Least $3.5 Billion in Global Penalties to Resolve Largest Foreign Bribery Case in History (Dec. 21, 2016), https://www.justice.gov/opa/pr/odebrecht-and-braskem-plead-guilty-and-agree-pay-least-35-billion-global-penalties-resolve. [69] Plea Agreement ¶ 21(b), United States v. Odebrecht, No. 16-643 (RJD) (Dec. 21, 2016). [70] Id. at ¶ 21(c). [71] Sentencing Memorandum at 4, United States v. Odebrecht S.A., No. 13-643 (RJD) (Apr. 11, 2017). [72] Id. [73] Lei No. 7753 de 17 de outubro de 2017, do Rio de Janeiro. [74] Id. at Artigo 1. [75] Id.; Lei No. 12.846 de 2013, at Artigo 7. [76] Fausto Macedo, Quais são e o Que propõem as ’10 Medidas contra a corrupção’ do Ministério Público, Estadão, Sept. 16, 2015, http://politica.estadao.com.br/blogs/fausto-macedo/quais-sao-e-o-que-propoem-as-10-medidas-contra-a-corrupcao-do-ministerio-publico/. [77] Marcello Larcher, CCJ valida assinaturas do projeto das dez medidas contra a corrupção, Agência Câmara Notícias, Mar. 28, 2017, http://www2.camara.leg.br/camaranoticias/noticias/POLITICA/527029-CCJ-VALIDA-ASSINATURAS-DO-PROJETO-DAS-DEZ-MEDIDAS-CONTRA-A-CORRUPCAO.html. [78] Renan Ramalho, MP apresenta dez propostas para reforçar combate à corrupção no país, Oglobo, Mar. 20, 2015, http://g1.globo.com/politica/noticia/2015/03/mp-apresenta-dez-propostas-para-reforcar-combate-corrupcao-no-pais.html. [79] Felipe Gelani, Lei de abuso de autoridade divide opinões entre juristas, Jornal do Brasil, Dec. 4, 2016, http://m.jb.com.br/pais/noticias/2016/12/04/lei-de-abuso-de-autoridade-divide-opinioes-entre-juristas/; Projeto com medidas contra a corrupção aguarda relator na CCJ, Senado Notícias (Apr. 17, 2017), https://www12.senado.leg.br/noticias/materias/2017/04/17/projeto-com-medidas-contra-a-corrupcao-aguarda-relator-na-ccj. [80] Ricardo Brandt, ‘Congresso destruiu’ as 10 Medidas contra Corrupção, diz procurador da Lava Jato, Estadão, Dec. 3, 2016, http://politica.estadao.com.br/blogs/fausto-macedo/congresso-destruiu-as-10-medidas-contra-corrupcao-diz-procurador-da-lava-jato/. [81] Ministério Público Federal, Orientation No. 07/2017 – Leniency Agreements (Aug. 24, 2017), http://www.mpf.mp.br/pgr/documentos/ORIENTAO7_2017.pdf. [82] Id. [83] Id. [84] Id. [85] Almudena Calatrava, Argentine Clean-up President Macri Finds Scandals of His Own, U.S. News, Mar. 3, 2017 https://www.usnews.com/news/world/articles/2017-03-03/argentine-clean-up-president-macri-finds-scandals-of-his-own; Abren investigación contra presidente de Argentina por presunta asociación ilícita y tráfico de influencias, CNN Español, Mar. 1, 2017, http://cnnespanol.cnn.com/2017/03/01/abren-investigacion-al-presidente-de-argentina-mauricio-macri-por-entrega-de-rutas-aereas-a-avianca/. [86] Lucia de Dominicis, 10 promesas incumplidas de Macri en sus 2 años de gobierno, La Primera Piedra, Dec. 10, 2017, http://www.laprimerapiedra.com.ar/2017/12/10-promesas-incumplidas-de-macri/. [87] Calatrava, supra note 85; Fiscal argentino abre investigación a Mauricio Macri por firmas ‘offshore,’ La Prensa, Apr. 7, 2016, https://www.prensa.com/mundo/Fiscal-argentino-investigacion-Mauricio-Macri_0_4455304547.html. [88] Abren investigación contra presidente de Argentina por presunta asociación ilícita y tráfico de influencias, supra note 85. [89] Hugo Alconada Mon, Un Operador de Odebrecht le giro US$ 600.00 al jefe de inteligencia argentine, La Nacion, Jan. 11, 2017, http://www.lanacion.com.ar/1974791-un-operador-de-odebrecht-le-giro-us-600000-al-jefe-de-inteligencia-argentino; AFP, Argentina: fiscal abre causa contra jefe de espias por giro de Odebrecht, La Prensa, Jan. 24, 2017, https://www.prensa.com/mundo/Argentina-fiscal-causa-espias-Odebrecht_0_4674282545.html. [90] Mon, supra note 89. [91] Frederico Rivas Molina, Cristina Fernández de Kirchner suma otro procesamiento por corrupción, El Pais, Apr. 4, 2017, https://elpais.com/internacional/2017/04/04/argentina/1491322535_840466.html. [92] Id. [93] Id. [94] Max Radwin and Anthony Faiola, Argentine Ex-president Cristina Fernández de Kirchner Charged with Treason, Wash. Post, Dec. 7, 2017, https://www.washingtonpost.com/world/the_americas/argentine-ex-president-cristina-fernandez-charged-with-treason/2017/12/07/e3e326e0-db80-11e7-a241-0848315642d0_story.html?utm_term=.37df90a6bf06. [95] Argentina Former Vice-President Amado Boudou Arrested, BBC News, Nov. 3, 2017, http://www.bbc.com/news/world-latin-america-41867239. [96] Argentina Congress Passes Law to Fight Corporate Corruption, Reuters, Nov. 8 2017, https://www.reuters.com/article/us-argentina-corruption/argentina-congress-passes-law-to-fight-corporate-corruption-idUSKBN1D83AX; La Ley de Responsabilidad Penal de las Personas Jurídicas, Law No. 27401 (Nov. 8, 2017), Artículo 1 (Arg.) [hereinafter Ley de Responsabilidad Penal]. [97] La Ley de Responsabilidad Penal de las Personas Jurídicas, at Artículo 1, supra note 96. [98] Paula Urien, Cómo reaccionan las compañías ante la ley penal empresaria, La Nacion, March 4, 2018, https://www.lanacion.com.ar/2113848-como-reaccionan-las-companias-ante-la-ley-penal-empresaria. [99]  Ley de Responsibilidad Penal, at Artículo 2, supra note 97. [100] Id. at Artículo 1. [101] Id. at Artículo 2. [102] Id. at Artículo 3. [103] Id. at Artículo 29. [104] Id. at Artículo 7. [105] Id. [106] Id. [107] Id. [108] Id. at Artículo 9. [109] Id. at Artículo 16. [110] Id. at Artículos 16, 18. [111] Id. at Artículo 23. [112] Id. [113] Id. [114] Id. [115] Id. [116] Id. [117] Id. [118] Id. [119] Id. [120] Id. [121] Id. [122] DOJ and SEC, A Resource Guide to the U.S. Foreign Corrupt Practices Act, at 57 (Nov. 14, 2012); GLAR at  Artículo 25. [123] See Plea Agreement, Attach. B ¶ 51, United States v. Odebrecht S.A., Cr. No. 13-643 (RJD) (E.D.N.Y. Dec. 21, 2016). [124] ¿Pueden las leyes acabar con la corrupción?, Política, July 29, 2017, http://www.semana.com/nacion/articulo/corrupcion-10-proyectos-de-ley-se-tramitan-en-el-congreso-sirven/534225; Julia Symmes Cobb & Guillermo Parra-Bernal, Colombia Arrests Ex-Senator Linked to Odebrecht Graft Scandal, Reuters, Jan. 15, 2017, https://www.reuters.com/article/brazil-corruption-odebrecht-colombia/colombia-arrests-ex-senator-linked-to-odebrecht-graft-scandal-idUSL1N1F5073. [125] Cobb & Parra-Bernal, supra note 124. [126] Jose Maria Irujo & Joaquin Girl, La policía investiga la conexión Colombia-Miami en los pagos al Exviceministro García Morales, El Pais, Nov. 9, 2017, https://elpais.com/internacional/2017/11/06/actualidad/1509965659_671036.html. [127] Fiscalía General de la Nación, Imputados empresarios extranjeros y colombianos por corrupción en la construcción de Reficar (July 26, 2017), https://www.fiscalia.gov.co/colombia/bolsillos-de-cristal/imputados-empresarios-extranjeros-y-colombianos-por-corrupcion-en-la-construccion-de-reficar/. [128] Id. [129] Id. [130] Fiscalía General de la Nación, Refineria de Cartagena (2017), https://www.fiscalia.gov.co/colombia/wp-content/uploads/Presentacion-REFICAR270417.pdf. Santos ratificó extradición del exfiscal Luis Gustavo Moreno, RCN Radio, Mar. 12, 2018, https://www.rcnradio.com/judicial/santos-ratifico-extradicion-del-exfiscal-luis-gustavo-moreno. [132] Id. [133] Presidencia de la República, Gobierno presenta paquete de iniciativas para combatir la corrupción (Aug. 18, 2017), http://es.presidencia.gov.co/noticia/170818-Gobierno-presenta-paquete-de-iniciativas-para-combatir-la-corrupcion. [134] Ley. 1778 de 2016 (Feb. 2, 2016) Diario Oficial 49.774 (Colo). [135] Id. at Artículo 2. [136] Presidente anuncia nuevas medidas para seguir enfrentando el desafío de la corrupción y a los corruptos, El Observatario, Apr. 19, 2017, http://www.anticorrupcion.gov.co/Paginas/Presidente-anuncia-nuevas-medidas-para-seguir-enfrentando-el-desafio-de-la-corrupcion-y-a-los-corruptos.aspx. [137] Colombia tendrá jueces especializados en casos de corrupción, El Observatario, Dec. 7, 2017,     http://www.anticorrupcion.gov.co/Paginas/Colombia-tendra-jueces-especializados-en-casos-de-corrupcion.aspx. [138] Leyes en Contra de la Corrupción, la Apuesta del Gobierno Nacional, Actualicese, July 13, 2017, http://actualicese.com/actualidad/2017/07/13/leyes-en-contra-de-la-corrupcion-la-apuesta-del-gobierno-nacional/. [139] Colombia y Peru contra soborno transnacional, El Nuevo Siglo, Sep. 23, 2017, http://www.elnuevosiglo.com.co/articulos/09-2017-colombia-y-peru-combatiran-soborno-transnacional. [140] Id. [141] See Juan Cruz Peña, Colombia investiga a tres empresas españolas por sobornos e irregularidades, El Confidencial, May 17, 2017, https://www.elconfidencial.com/empresas/2017-05-17/colombia-investiga-empresas-espanolas-sobornos-desfalco_1379311/. [142] United States v. Odebrecht S.A., Docket No. 16-CR-643 (RJD) (E.D.N.Y. 2016). [143] Odebrecht Banned from Signing Contracts with Peru State, Andina, Jan. 9, 2017, http://www.andina.com.pe/Ingles/noticia-odebrecht-banned-from-signing-contracts-with-peru-state-648542.aspx. [144] Mitra Taj, Peru to Bar Odebrecht from Public Bids with New Anti-graft Rules, Reuters, Dec. 28, 2016,  http://www.reuters.com/article/peru-corruption-odebrecht-idUSL1N1EO00K. [145] Id. [146] Lucas Perelló, Pablo Kuczynski Loses Another Battle to the Fujimorista Opposition, Global Americans, Sept. 28, 2017, https://theglobalamericans.org/2017/09/perus-pedro-pablo-kuczynski-loses-another-battle-fujimorista-opposition/. [147] Simeon Tegel, Latin America’s Mega-Corruption Scandal Just Claimed its Two Biggest Names, Wash. Post, July 15, 2017, https://www.washingtonpost.com/news/worldviews/wp/2017/07/15/latin-americas-mega-corruption-scandal-just-claimed-its-two-biggest-names/?utm_term=.6c05e8a6bb8c; Jimena De La Quintana, Ordenan prisión preventive para Ollanta Humala y Nadine Heredia, CNN en Espanol, July 13, 2017, http://cnnespanol.cnn.com/2017/07/13/ordenan-prision-para-ollanta-humala-y-nadine-heredia/. [148] Id. [149] ¿Cuál es la relación de Alan García con el caso Odebrecht y Lava Jato?, Radio Programas del Perú, Aug. 7, 2017, http://rpp.pe/politica/judiciales/la-relacion-de-alan-garcia-con-los-casos-odebrecht-y-lava-jato-noticia-1049631. [150] Ryan Dube, Judge Orders Arrest of Former Peruvian President Alejandro Toledo in Odebrecht Bribery Case, Wall Street J., Feb. 9, 2017, https://www.wsj.com/articles/judge-orders-arrest-of-former-peruvian-president-alejandro-toledo-in-odebrecht-bribery-case-1486698137; U.S. State Department Office of Investment Affairs, Peru Country Commercial Guide – Investment Climate Statement (Sept. 20, 2017), https://www.export.gov/article?id=Peru-Corruption. [151] Peru court approves Toledo extradition request, Yahoo News, Mar. 13, 2018, https://au.news.yahoo.com/world/a/39499741/peru-court-approves-toledo-extradition-request/. [152] Lucas Perelló, Pablo Kuczynski Loses Another Battle to the Fujimorista Opposition, Global Americans, Sept. 28, 2017, https://theglobalamericans.org/2017/09/perus-pedro-pablo-kuczynski-loses-another-battle-fujimorista-opposition/; PPK declarará el Viernes por Caso Odebrecht ante fiscalía, El Comercio, Mar. 29, 2017, https://elcomercio.pe/politica/justicia/ppk-declarara-viernes-caso-odebrecht-fiscalia-420928. [153] Ex-Odebrecht CEO Says Hired Peru President as Consultant – Reports, Reuters, Nov. 14, 2017, https://www.reuters.com/article/peru-politics/ex-odebrecht-ceo-says-hired-peru-president-as-consultant-reports-idUSL1N1NK1H4. [154] Peru: President Kuczynski Denies Odebrecht Bribe Allegations, BBC News, Nov. 16, 2017, http://www.bbc.com/news/world-latin-america-42006558; Andrea Zarate & Nicholas Casey, Peru Leader Could Be Biggest to Fall in Latin America Graft Scandal, N.Y. Times, Dec. 19, 2017, https://www.nytimes.com/2017/12/19/world/americas/peru-kuczynski-impeachment.html. [155] Simeon Tegel, Peru’s President Survives Impeachment Vote Over Corruption Charges, Wash. Post, Dec. 22, 2017, https://www.washingtonpost.com/world/the_americas/perus-president-faces-impeachment-over-corruption-allegations/2017/12/20/61b2b624-e4d9-11e7-927a-e72eac1e73b6_story.html?utm_term=.e542fa1216da. Sonia Goldenberg, ‘Game of Thrones’, Inca Style, N.Y. Times, Dec. 28, 2017,  https://www.nytimes.com/2017/12/28/opinion/peru-kuczynski-fujimori-pardon-odebrecht.html. [156] Jacqueline Fowks, El fantasma de Odebrecht arrecia en Perú, El País, Mar. 8, 2018, https://elpais.com/internacional/2018/03/08/america/1520467389_977266.html. [157] U.S. State Department Office of Investment Affairs, supra note 150. [158] Id. [159] Decreto Legislativo No. 1352, Artículo 1 (Jan. 2017) (Peru). [160] Id. at Artículo 3. [161] Id. at Artículo 1. [162] Id. at Artículo 4. [163] Id. at Artículos 3-4; New Criminal Liability System for Corporate involved in Corrupt Practices and/or Money Laundering, http://www.estudiorodrigo.com/en/new-criminal-liability-system-for-corporate-involved-in-corrupt-practices-andor-money-laundering/. [164] Decreto Legislativo No. 1352, Artículo 3. [165] Id. at Artículo 17. [166] Id. [167] Id. [168] Omar Manrique, Todas las empresas deberán tomar medidas para prevenir corrupción, Gestión, Dec. 27, 2017, https://gestion.pe/economia/empresas-deberan-medidas-prevenir-corrupcion-223626. [169] Decreto Legislativo No. 1341, Artículo 11 (Jan. 2017) (Peru); José Antonio Payet & Payet Rey Cauvi Pérez, PERUVIAN UPDATE – The Impact of “Lava Jato” on M&A in Peru, International Institute for the Study of Cross-Border Investment and M&A, May 30, 2017, http://xbma.org/forum/peruvian-update-the-impact-of-lava-jato-on-ma-in-peru/. [170] Decreto Legislativo No. 1341, supra note 169. [171] Ejecutivo oficializó ley de muerte civil para corruptos, El Comercio, Oct. 22, 2016, http://elcomercio.pe/politica/gobierno/ejecutivo-oficializo-ley-muerte-civil-corruptos-273517; Decreto Legislativo No. 1243, Artículo 38 (Oct. 2016) (Peru). [172] Comentarios a la “Muerte Civil,” Decreto Legislativo 1243, Parthenon, Nov. 1, 2016, http://www.parthenon.pe/editorial/comentarios-a-la-muerte-civil-decreto-legislativo-1243/. [173] Decreto Legislativo No. 1295 (Dec. 2016) (Peru). [174] Id. at Artículo 1. [175] Id. at Artículo 4. [176] Id. The following Gibson Dunn lawyers assisted in preparing this client update: F. Joseph Warin, Michael Farhang, Lisa Alfaro, Tafari Lumumba, Michael Galas, Abiel Garcia, Renee Lizarraga, John Sandoval and Sydney Sherman. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues.  We have more than 110 attorneys with FCPA experience, including a number of former prosecutors and SEC officials, spread throughout the firm’s domestic and international offices.  Please contact the Gibson Dunn attorney with whom you usually work in the firm’s FCPA group, or the authors: F. Joseph Warin – Washington, D.C. (+1 202-887-3609, fwarin@gibsondunn.com) Michael M. Farhang – Los Angeles (+1 213-229-7005, mfarhang@gibsondunn.com) Please also feel free to contact the following Latin America practice group leaders: Lisa A. Alfaro – São Paulo (+55 (11) 3521-7160, lalfaro@gibsondunn.com) Kevin W. Kelley – New York (+1 212-351-4022, kkelley@gibsondunn.com) Tomer Pinkusiewicz – New York (+1 212-351-2630, tpinkusiewicz@gibsondunn.com) Jose W. Fernandez – New York (+1 212-351-2376, jfernandez@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

February 1, 2018 |
2017 Year-End United Kingdom White Collar Crime Update

Click for PDF Those with operations in the United Kingdom, especially in the financial services or regulated sectors, will have been very aware during the course of this year of the flood of new legislation imposing significant and varied compliance obligations: the Policing and Crime Act 2017 (the “PCA”) changing the nature of financial sanctions enforcement; the Criminal Finances Act 2017 (the “CFA”), introducing new offences of failing to prevent the facilitation of tax evasion, and changing the suspicious activity report regime; the European Union Financial Sanctions (Amendment of Information Provisions) Regulations 2017 (“IPR 2017”) imposing a reporting obligation on lawyers, accountants, tax advisers, casinos, estate agents and others regarding breaches of financial sanctions; the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the “2017 AML Regulations”) implementing the EU’s Fourth Money Laundering Directive and significantly changing the face of anti-money laundering compliance for those in the regulated sector. Coupled with this new wave of regulation has been another year of substantial enforcement by a range of regulators and prosecutors, for a wide variety of offences. These enforcement actions are discussed below in the relevant sections. The year has also seen significant developments from the courts. Most notably this can be seen in the High Court decision on privilege in SFO v ENRC which is discussed below and will, unless overturned, have significant implications for the conduct of internal investigations relating to the UK. In addition, given the large number of offences which require the prosecution to prove dishonesty, the fundamental change to the test for dishonesty in the Supreme Court decision of Ivey v Genting Casinos (UK) Limited [2017] UKSC 67 will have repercussions for a vast number of prosecutions in years to come. A U.S. decision from this year is also likely to have repercussions in the UK. In the case of United States v Allen et al., No. 16-898 (2nd Circuit, July 19, 2017) , it was held that evidence constituting compelled testimony from a FCA compelled interview in the UK could not be used by the prosecution. This judgment is likely to have significant impact on the cross-border co-operation between the U.S. and UK authorities. __________________________________ Table of Contents 1.…. Developments Relating to Financial Crime Generally New Economic Crime Unit for the UK The 2017 money laundering and terrorist financing National Risk Assessment (“NRA”) Privilege The Regulators and Prosecutors Continued use of DPAs Modern Slavery Act Paradise Papers Brexit 2.… Bribery and Corruption UK anti-corruption strategy for 2017 to 2022 Enforcement: concluded bribery/corruption enforcement against corporations Enforcement: concluded bribery/corruption prosecutions of individuals Enforcement: ongoing investigations and prosecutions SFO: expected trial dates International co-operation 3.… Fraud Enforcement: SFO Enforcement: FCA City of London Police and Crown Prosecution Service Ivey v Genting Casinos SFO: expected trial dates 4.… Tax Criminal Finances Act: new failure to prevent the facilitation of tax evasion offences European Union tax haven Black List and Grey List Enforcement: concluded prosecutions relating to tax fraud 5.… Financial and Trade Sanctions Legislative developments New and revised sanctions regimes Trade and export controls Export Control Order: amendments Case law Enforcement 6.… Anti-Money Laundering New economic crime centre Criminal Finances Act 2017 2017 AML Regulations enter into force Sanctions and Anti-Money Laundering Bill FCA final guidance on treatment of PEPs for AML purposes FCA anti-money laundering annual report for 2016/17 Bitcoin and cryptocurrencies Case law Enforcement Offshore enforcement 7.…. Competition / Antitrust Enforcement Litigation Brexit – House of Lords competition inquiry 8.… Market abuse and Insider Trading and other Financial Sector Wrongdoing FCA Enforcement: insider dealing Civil enforcement for market abuse EU developments   __________________________________ 1.     Developments Relating to Financial Crime Generally New Economic Crime Unit for the UK In December 2017, the Home Secretary, the Hon. Amber Rudd, announced the creation of a new national economic crime centre within the National Crime Agency (the “NCA“). According to the Home Secretary the new centre will be tasked with coordinating the national response to economic crime “backed by greater intelligence and analytical capabilities“. This is part of a wider package of measures which are designed to “ensure the UK is a hostile environment for cases of fraud, bribery, corruption and money laundering“. The Home Secretary also announced that the Government will introduce legislation that will enable the NCA to directly the task the Serious Fraud Office (“SFO”) to “target the worst offenders“. This may be unnecessary, as section 5(5) of the Crime and Courts Act 2013 already permits the Director General of the NCA to direct the performance of tasks by the police force, although this power has never been used. Other than the idea that it would be at the NCA’s direction, rather than just the Director General, it is unclear how this new legislation is a change from the current position where the SFO is already the primary investigating and prosecuting agency for the most serious financial crime. The Government claims that the SFO will continue to act as an independent organisation, supporting the multi-agency response led by the NCA, but there is room to question how the SFO can be expected maintain its independence when acting under the direction of the NCA. The 2017 money laundering and terrorist financing National Risk Assessment (“NRA”) In October 2017, the UK published its second risk assessment setting out the threats posed to the UK by money laundering and terrorist financing. The first NRA was published in 2015 and set out the areas where action was needed to combat money laundering and terrorist financing. In response, in 2016, the Government released an action plan which set out planned reforms to the AML regime: reform given effect by the CFA and 2017 AML Regulations which change both the suspicious activity report regime and the compliance regime. The key findings of the 2017 assessment are that: high-end and cash-based money laundering remain the greatest areas of money laundering risk to the UK; professional services remain vulnerable as money launderers look to disguise the origin of their funds; and cash remains the favoured method for terrorists to move funds out of the UK. As regards the financial services sector, the 2017 NRA found that overall the sector remained at high risk of money laundering. The report provides separate assessments for retail banking, wholesale banking, capital markets, and wealth management. In summary, retail banking was identified as being at a high risk of money laundering due to the increasing speed and volume of transactions together with a widespread criminal intent to exploit retail banking products, although the NRA noted that controls are more developed in retail banking than other areas. In wholesale banking and capital markets, the risk of money laundering was found to be high due to the risks of large sums being laundered through capital markets and the relative lack of controls. Wealth management was also found to be high risk due to its exposure to the proceeds of political corruption and tax evasion and regulatory concerns. Privilege As reported in our last update, regulators continue to take an aggressive stance on privilege and two important judgments over the past year demonstrate this. The judgments of Hildyard J in the RBS Rights Issue Litigation [2016] EWHC 3161 (Ch) (“RBS“) and Andrews J in Serious Fraud Office v Eurasian Natural Resources Corporation Limited [2017] EWHC 1017 (QB) (“SFO v ENRC“) have cast doubt over the scope of litigation privilege and in particular its availability in the context of criminal and regulatory investigations. SFO v ENRC The SFO v ENRC judgment is one of the most notable cases of 2017 as it is likely to have wide repercussions on how companies conduct investigations and argue privilege. The case involved an investigation by the SFO into the activities of Kazakh mining company ENRC, now owned by Eurasian Resources Group. The opening of the investigation followed a period of dialogue between the SFO and ENRC, during which ENRC was reporting to the SFO. The investigation focused on allegations of fraud, bribery and corruption. As part of its investigation, the SFO sought to compel the production of documents (including interview notes and factual updates) that had been prepared by ENRC’s lawyers during the course of an internal investigation. Assertions of both legal advice privilege and litigation privilege were made in respect of the documents sought by the SFO. All assertions of privilege, save for a limited legal advice claim in respect of a narrow group of documents, failed. We reported on this decision and its implications in our 2017 UK White Collar Crime Mid-Year Alert. Since then there have been two further developments. In October 2017, the High Court granted ENRC leave to appeal and on November 21, 2017 the Law Society applied for permission to intervene in the appeal. The Law Society has expressed concern throughout the case over the impact of the case on privilege. Joe Egan, president of the Law Society, made a statement that the decision has “profound implications for when and how companies and their employees are protected by privilege” and believed that it may discourage companies from self-reporting. RBS Rights Issue In RBS, the claimants sought disclosure of notes recording interviews with current and former employees of RBS. The interviews were conducted by in-house and outside counsel as part of two internal investigations carried out by the bank. RBS sought to withhold disclosure of the interview notes on different bases, including that they were subject to legal advice privilege, that they were “lawyers’ privileged working papers”, or that the English Court should apply U.S. law which recognises the notes as privileged. The High Court rejected these arguments and held that the notes of interviews were not privileged. The Regulators and Prosecutors Serious Fraud Office In the May 2017 Conservative election manifesto, it was pledged to integrate the SFO into the NCA and Crown Prosecution Service (“CPS”). Following that party failing to maintain its Parliamentary majority (albeit remaining in government), there have been no further statements since then and this pledge appears to have been quietly dropped and replaced with the above-mentioned plan from the Home office for the Economic Crime Unit. The SFO has faced criticism this year particularly over LIBOR-related prosecutions. These include the collapse of the trial against two ex-traders, Stylianos Contogoulas and Ryan Michael Reich, who were accused of rigging the LIBOR rate. As discussed in more detail in the Fraud section below, the SFO has also faced criticism over Saul Haydon Rowe, the SFO’s expert witness who provided evidence in many LIBOR trials, and who admitted to texting friends during the trials to ask for help understanding some of the banking terms. At least one former trader is currently requesting permission to appeal a 2016 conviction for manipulating the LIBOR rate with the argument that the evidence of Mr Rowe as the SFO’s expert witness was unreliable. The other key development for the SFO is that David Green QC is shortly to end his term as Director. Applications from those wishing to replace him close on February 5, 2018, and it is expected that the new Director will be in office in April. Financial Conduct Authority (“FCA”) This year the FCA has collected significantly more in fines than it did in 2016. In 2017, the cumulative value of fines imposed was more than £225 million in comparison with £22 million in 2016. The figure for 2017 is, however, smaller than the total fines collected in each of 2013, 2014 and 2015. An enforcement action by the FCA since our last update resulted in a £34.5 million fine levied in October 2017 against Merrill Lynch International in relation to exchange traded derivative transactions. This was the first enforcement action based on allegations of the non-reporting of details of trading instruments since the European Markets Infrastructure Regulation reporting requirements were introduced in 2008 to help improve transparency and help regulators understand the risks banks faced. Merrill Lynch cooperated with the FCA. In the same month, the FCA also fined Rio Tinto PLC £27 million under the Disclosure and Transparency Rules (see further below). As noted in our 2017 Mid-Year UK White Collar Crime Alert, in January 2017 the FCA fined Deutsche Bank £163 million over AML controls (see further below). Prudential Regulation Authority (“PRA”) In 2017 the PRA imposed just one fine. On February 9, 2017 the PRA fined a global investment bank £17.85 million and its related company £8.925 million for “failing to be open with the PRA“. This lack of openness lay in the fact that the companies involved “did not inform the PRA” about an enforcement actions being taken by the New York Department of Financial Services “until after the DFS’ public announcement“. It is important to stress that this was the only misconduct complained of and which generated this significant fine. As stated by the PRA “Where a firm operates across multiple jurisdictions, the PRA expects it to be organised such that, when issues arise concerning its operations in one jurisdiction which may impact on other jurisdictions, the regulatory responsibilities of the firm as a whole are appropriately considered“. The lessons for companies with multiple regulators are clear; the PRA (and the same applies to the FCA) expects to be told in advance about any regulatory enforcement against a company taking place around the world. Continued use of DPAs As reported in our 2017 Mid Year UK White Collar Crime Alert, the SFO secured one DPA in 2015, one in 2016, and two in the first half of 2017: Rolls Royce PLC in January 2017 and then Tesco PLC in April 2017. The agreement with Rolls Royce PLC is especially notable as under the terms of the DPA, Rolls Royce agreed to pay £497.25 million. See also our 2017 Year-End DPA and NPA Alert. The SFO’s General Counsel has said in a published speech that the SFO will only use DPAs if it believes a company is unlikely to reoffend and has been proactive in cooperating. The continued use and promotion of DPAs is an indication that the SFO and other government bodies are using and intend to continue to use the new powers made available by recent legislation. As discussed below in relation to sanctions offences under the PCA, and the new failure to prevent tax evasion offences under the CFA, the DPA regime is being extended to other offences as and when they are enacted. Modern Slavery Act As reported in the 2016 Year End UK White Collar Crime Update, the UK government published its Modern Slavery Act Review in July 2016, covering the first 12 months of the Modern Slavery Act 2015. The government did not publish a further review in 2017. However, in October 2017, the Home Office issued updated guidance on compliance with the 2015 Act. Under the Act, a commercial organization carrying on a business, or part of a business, in the UK and having a minimum £36 million annual global turnover was already required to publish on its website an annual statement explaining the steps taken to ensure that slavery and human trafficking are not taking place in any of its supply chains or in any part of its business. The October 2017 guidance now encourages smaller organizations to produce the statements voluntarily. The new guidance also recommends that the statements should cover the organization’s internal anti-trafficking policy, due diligence measures in monitoring supply chains, and anti-trafficking training for staff, among other items. The guidance requests that organizations keep public archives of their annual statements to allow the public to compare statements between years and monitor the progress of the organization over time. On December 15, 2017, the National Audit Office published a report analyzing the government’s strategy to tackle modern slavery, noting that the Home Office had limited means of tracking the strategy’s progress and highlighting shortcomings in the national referral mechanism used for identifying victims. The report found that there had been 80 prosecutions for 155 offences in 2016. Paradise Papers In November 2017, over 13 million documents were leaked, mostly related to the law firm Appleby. These documents revealed the tax and other arrangements of a large number of individuals and corporations. Although there has been media criticism of some of the high-profile individuals involved and calls for legislation on offshore arrangements to be reformed, one of the most notable aspects of the leak is that the response within the UK has been reasonably muted, especially in comparison to the reaction to the Panama Papers leak which we reported in our 2016 Year-End UK White Collar Crime Alert. The Panama Papers leak resulted in a Panama Papers Taskforce being set up and the FCA contacting 64 firms to establish their links with the Panama law firm at the centre of the controversy. In contrast, the UK’s response to the Paradise Papers has been so muted that in November 2017, more than 30 Members of the European Parliament issued a letter which criticized the British government for failing to take any action against the offshore tax industry following the disclosures in the Paradise Papers. One possible reason why public reaction to the Paradise Papers has been so limited is that most of the schemes revealed were lawful. In addition, it appears many of the public figures named were not directly involved in organising these arrangements and the public may simply be losing interest following coverage of Lux Leaks in 2014, and Swiss Leaks and the Panama Papers both in 2015. Nonetheless, companies will continue to be conscious of how aggressive tax avoidance schemes and use of offshore tax jurisdictions, even if legal, can cause adverse headlines. It is, however, likely that the Paradise Papers provided significant impetus to the EU’s publication of its black and grey lists of tax havens, as discussed in the Tax section below. Brexit The Sanctions and Anti-Money Laundering Bill (the “Sanctions Bill”) is the first piece of Brexit legislation to be brought before the House of Lords. The Bill aims to allow the UK government to continue to comply with the current UN sanctions regime post Brexit, as well as imposing and enforcing sanctions. The Bill was introduced to the House of Lords on October 18, 2017, had its second reading on November 1, 2017 and is currently at the committee stage. For more information, please see the Sanctions section below. 2.     Bribery and Corruption Without question the key development for 2017 was the DPA entered into with Rolls-Royce. The company was required to pay over £500 million in fine, disgorgement and costs. Underneath that headline story two other companies have been found guilty of corruption and 27 individuals have been convicted of bribery or corruption offences. Moreover, press reports indicate that DPA negotiations between the SFO and Airbus on another substantial resolution are currently in progress. UK anti-corruption strategy for 2017 to 2022 On December 11, 2017, the Department for International Development and the Home Office published the UK anti-corruption strategy for 2017 to 2022. The cross-government anti-corruption strategy provides a framework to guide UK government action to tackle corruption. The strategy lists six priorities and goals focused on reducing the threat to the UK’s national security including instability caused by corruption overseas; increasing the UK’s prosperity at home and abroad; and enhancing public confidence in domestic and international institutions. The six priorities are as follows: 1. Reduce the insider threat in high-risk domestic sectors 2. Strengthen the integrity of the UK as an international financial centre 3. Promote integrity across the public and private sectors 4. Reduce corruption in public procurement and grants 5. Improve the business environment globally 6. Work with other countries to combat corruption The strategy notes that in the present Parliamentary session, a draft bill will be published for the establishment of a public register of beneficial ownership of overseas legal entities where they own or purchase property in the UK, or participate in central government contracts. With this strategy the government intends to strengthen the dialogue between law enforcement agencies and Companies House as well as the central registers of UK Overseas Territories and Crown Dependencies to ensure that law enforcement can more effectively use information contained in PSC (people with significant control) registers, registers of taxable relevant trusts and registers of company beneficial ownership information. In respect of goal 2, the government will consider the findings of its Call for Evidence of corporate criminal liability made in January 13, 2017 and consult, if appropriate, although this commitment is lacklustre. The UK Government also made a commitment to establish a new Ministerial Economic Crime Strategic Board chaired by the Home Secretary. The new Minister for Economic Crime will have oversight of anti-corruption. Enforcement: concluded bribery/corruption enforcement against corporations F.H. Bertling Limited In our 2016 Year-End UK White Collar Crime Alert, we reported that the SFO had announced charges against F.H. Bertling Limited, and seven individuals (Peter Ferdinand, Marc Schweiger, Stephen Emler, Joerg Blumberg, Dirk Jürgensen, Giuseppe Morreale, and Ralf Peterson) relating to an alleged conspiracy to “bribe an agent of the Angolan state oil company, Sonangol, to further F.H. Bertling’s business operations in that country“. On September 26, 2017 the SFO announced that it had secured convictions against F.H. Bertling Limited and six of the individuals for conspiracy to make corrupt payments, contrary to section 1 of the Criminal law Act 1977 and section 1 of the Prevention of Corruption Act 1906. Mr Ferdinand was acquitted by a jury at Southwark Crown Court on September 21, 2017. Of those convicted, Mr Morreale and Mr Emler pleaded guilty to the charges on September 1, 2016 and Mr Blumberg, Mr Petersen (now deceased), Mr Jürgensen and Mr Schweiger pleaded guilty on March 17, 2017. On August 1, 2017, F.H. Bertling Limited also pleaded guilty. One of the individual defendants, Mr Ferdinand was acquitted on September 21, 2017. The conduct complained of was stated by the SFO as being a payment of $250,000 to secure a contract. Unusually, F.H. Bertling has issued its own press release disputing this, stating that “the payment was made to a third party in Angola to enable release of a payment for work contractually done by the former subsidiary and to protect the livelihoods of its employees in the country“. To the extent that F.H. Bertling’s account is correct, then these convictions are all for the making of facilitation payments. This would be the first such conviction, and would underline the oft-stressed point that English law does not allow any exception for facilitation payments. On October 20, 2017 three of the individuals were sentenced, fined and disqualified as company directors. Mr Blumberg, Mr Jürgensen and Mr Schweiger were each given 20-month sentences, suspended for 2 years, a £20,000 fine, payable within 3 months and disqualification from being company directors for 5 years. F.H. Bertling Limited, Mr Morreale and Mr Emler will be sentenced following the conclusion of connected proceedings against F.H. Bertling relating to alleged improper payments relating to North Sea oilfields (as reported in our 2017 Mid-Year UK White Collar Crime Alert) for which the trial is scheduled in September 2018. Rolls-Royce As we reported in detail in our 2017 Mid-Year UK White Collar Crime Alert, on January, 17 2017 Rolls-Royce PLC (“Rolls-Royce”) entered into the UK’s most significant deferred prosecution agreement (“DPA”) to date, following its approval by Lord Justice Leveson. The resolution represents the largest ever criminal enforcement action against a company in the UK following an extensive four-year investigation by the SFO. The investigation concerning the conduct of individuals remains ongoing. Under the terms of the DPA, Rolls-Royce agreed to pay £497.25 million (comprising disgorgement of profits of £258.17 million and a financial penalty of £239.08 million) plus interest, as well as the SFO’s costs of the investigation amounting to approximately £13 million. In November 2017, three ex-employees of Rolls-Royce’s former Energy division, James Finley, Keith Barnett and Louis Zuurhout pleaded guilty to bribery and corruption offences in the United States District Court for the Southern District of Ohio Eastern Division. Andreas Kohler, who worked for an international engineering consulting firm instructed by Rolls-Royce’s former customer in Kazakhstan also entered a guilty plea. A further individual, Petros Contoguris, who worked as an intermediary for Rolls-Royce was indicted. In its November press release, the SFO stated that it provided significant assistance to the U.S. authorities throughout the course of their investigation. The individuals involved all held significant roles within Roll-Royce or firms connected with the company: Mr Finley was a Vice President and Global Head of Sales of Rolls-Royce’s Energy Division. Mr Barnett was a Regional Director of Rolls-Royce’s Energy Division. Mr Zuurhout was a Sales Manager of Rolls-Royce’s Energy Division. Mr Kohler was a Director of an international engineering consulting firm which worked for Rolls-Royce’s former customer in Kazakhstan. Mr Contoguris acted as an intermediary of Rolls-Royce in Kazakhstan. Alandale Rail On July 24, 2017, Alandale Rail Limited (“Alandale”) was convicted of one count of making corrupt payments contrary to section 1 of the Prevention of Corruption Act 1906. The case was not prosecuted by the SFO, but by the Specialist Fraud Division of the CPS, following an investigation by the British Transport Police. The scheme involved two directors, Kevin McKee and John Zayya of Alandale making corrupt payments to the senior manager of a joint venture (Innocent Obiekwe) that oversaw the award of contracts in relation to the upgrade of Farringdon railway station in London. After improperly obtaining the contract, the three then colluded in manufacturing false invoices to enable Alandale to recover the cost of its bribes. When the scheme started to be uncovered, the bribes continued to be paid through an intermediary (William Waring). Nobody involved self-reported and the conduct was only uncovered after a whistleblower came forward from within Alandale. The two directors of Alandale, the recipient of the bribes, and the intermediary all pleaded guilty and were sentenced. The bribe-paying directors received 12 months and 2 years respectively. Following a trial at Blackfriars Crown Court the bribe recipient was sentenced to 12 months in jail, and the intermediary was sentenced to 2 years. Alandale itself was convicted and fined £25,000. These sentences appear more lenient than might have been expected based on the usual application of the sentencing guidelines, which require that the base number used for calculating the fine for a corporation guilty of bribery or corruption is the gross profit from the contract obtained as a result of the offending. The application of this guideline would appear to have suggested a the base figure for Alandale’s fine of £5.2 million. This would then be increased or decreased depending on the presence of aggravating or mitigating circumstances, with a lowest fine available of 20 percent of the base figure. As Alandale did not plead guilty, the availability of maximum mitigation is unlikely to have been available. In addition, the Sentencing Guidelines also require a convicted company to have its profits disgorged from an improperly obtained contract. No such order was made in respect of Alandale. It is unclear why the Sentencing Guidelines, which should be binding, may not have been followed in this case, or why the prosecution do not seem to have sought permission to appeal the sentence. In any event, it would be wrong for companies to assume that this case is anything other than a notable outlier. Enforcement: concluded bribery/corruption prosecutions of individuals There were 27 individuals convicted of bribery or corruption offences in 2017. This is more than in any other year in the last decade. These were all prosecuted by the Crown Prosecution Service, but investigated by different parties. Eight of these convictions were investigated by the SFO, seven by the City of London Police, and the rest investigated by a mixture of the British Transport Police, Thames Valley Police, the Crown Prosecution Service, Leicestershire Police, and Avon and Somerset Police. Ten of the convictions have been discussed above, and a further nine were discussed in detail in our 2017 Mid-Year UK White Collar Crime Alert. With custodial sentences ranging up to 15 years, 2017 has also seen the longest ever custodial sentence for bribery and corruption offences. World Bank tenders As reported in our 2017 Mid-Year United Kingdom Alert, the trial of health equipment consultant Wassim Tappuni took place on July 13, 2017, and was sentenced to six years’ imprisonment at Southwark Crown Court on September 22, 2017. Mr Tappuni received £1.7 million in bribes from 12 medical supply companies that had submitted tenders for projects with World Bank, which had engaged Mr Tappuni as an independent medical procurement consultant. The value of these contracts is estimated at £43 million. Buckingham Palace works contracts Bernard Gackowski pleaded guilty to conspiracy to make corrupt payments in relation to the Buckingham Palace works bribery scandal which we reported on in our 2016 Year End United Kingdom White Collar Crime Alert. He was given a 10-month sentence suspended for two years and ordered to do 200 hours of unpaid work. In sentencing the judge accepted he was a “broken man” who assisted in, but did not benefit from, the wrongdoing. Payments for confidential information On June 6, 2017 Androulla Farr was given a suspended custodial sentence for taking a corrupt benefit valued at £2000. The benefit was a holiday and it was in return for Farr providing confidential information relating to an adoption. Other than an example of the appetite of the UK authorities to prosecute low-value bribery, the case is only otherwise noteworthy as being a rare instance of a prosecution under the Public Bodies Corrupt Practices Act 1889. Five individuals were all convicted under the Bribery Act in relation to payments for confidential insurance information. Underhill, Clarke, and Bowen all worked for an insurance company and were bribed with £7,000 by Sajaad Nawaz and Shaiad Nawaz to release over 700 pieces of confidential information. The investigation was carried out by the City of London Police Insurance Fraud Enforcement Department. All but Shaiad Nawaz pleaded guilty. All five were sentenced on August 25, 2017 and were given suspended custodial sentences ranging from 6 months to 12 months. “Right to Buy” Bribery Scheme Recently, valuations officer Desmond Tough, who worked for the Valuation Office Agency in Aberdeen admitted eight counts of bribery at Aberdeen Sheriff Court on November 23. Mr Tough told people looking to buy a home under the ‘Right to Buy’ legislation that in return for a sum of cash, he would lower the price. A sentencing  hearing is awaited, although the Sheriff has warned that a custodial sentence is likely. Mr Tough was the twenty-third individual convicted under the Bribery Act. Enforcement: ongoing investigations and prosecutions The UK prosecuting agencies are conducting a large number of ongoing bribery and corruption investigations. We will not list all of those here, but only those where there have been significant developments during the course of 2017. Alstom Trials of Alstom Network UK Limited and of Alstom Power Limited, along with individuals are currently ongoing at Southwark Crown Court. A further trial of Alstom Network UK Limited is due to commence in January 2018. ENRC As demonstrated by the SFO v ENRC judgement, the investigation into ENRC is continuing, but as yet no charging decision has been made. Unaoil – Other Companies Involved The SFO is continuing its investigation into Unaoil for suspected bribery, corruption and money laundering offences after allegations of bid-rigging in the oil and gas industry were made against Unaoil and its directors, employees and agents. The investigation, which has been ongoing since March 2016, now includes a number of other companies involved with Unaoil. As we reported in our 2017 Mid-Year UK White Collar Crime Alert, the SFO commenced related investigations in ABB Limited and Amec Foster Wheeler in February and July respectively. Additionally, British oil services company John Wood Group confirmed in their prospectus of May 23, 2017 that they have been conducting their own investigation into their past dealings with Unaoil. Unaoil – KBR Engineering company KBR Inc, is also under SFO investigation in relation to Unaoil’s activities. The investigation, which was announced on April 28, 2017, sparked a federal securities class action suit against KBR in the Texas Federal Court. Unaoil – Petrofac The SFO announced on May 12, 2017 that it was also investigating Petrofac PLC for bribery and corruption offences connected with Unaoil. Petrofac suspended its Chief Operating Officer, Marwan Chedid, almost immediately on May 25, 2017, and saw its Chairman Rijnhard van Tets announce on December 14, 2017 his intention to resign at Petrofac’s May 2018 annual meeting. Unaoil – SBM Offshore and Individuals Charged As reported in our 2017 Year-End FCPA Update SBM Offshore recently settled its FCPA enforcement matter, in which the FCPA were investigating allegations against SBM Offshore of bribery offences in Iraq, amongst other countries. The alleged bribery in Iraq involved the use of Unaoil as an intermediary to pay bribes to foreign officials in Iraq to secure contracts. To this end, four individuals have been charged in relation to the investigation into Unaoil. The SFO announced on November 16, 2017 that Ziad Akle and Basil Al Jarah were both charged with conspiracy to make corrupt payments, contrary to section 1(1) of the Criminal Law Act 1977 and section 1 of the Prevention of Corruption Act 1906. Akle, Unaoil’s territory manager for Iraq, and Al Jarah, Unaoil’s Iraq partner, conspired to make corrupt payments to secure the award of contracts in Iraq to SBM Offshore. Saman Ahsani, Unaoil’s commercial director and son of the head of Unaoil, Ata Ahsani, will also be charged, subject to an extradition request to Monaco. On November 30, 2017 the SFO announced that it had charged two further individuals, both executives at SBM Offshore, for their role in the alleged corrupt dealings between Unaoil and SBM Offshore between June 2005 and August 2011. Paul Bond, former SBM Offshore senior sales manager, and Stephen Whiteley, former vice president with SBM Offshore and Unaoil’s general territories manager for Iraq, Kazakhstahn and Angola, were charged with conspiracy to make corrupt payments contrary to section 1(1) of the Criminal Law Act 1977 and section 1 of the Prevention of Corruption Act 1906. Unaoil – Judicial Review Unaoil also brought judicial review proceedings against the SFO, arguing that the steps taken by the SFO to raid Unaoil’s premises in Monaco were unlawful. As we reported in our 2017 Mid-Year UK White Collar Crime Alert, the High Court rejected this claim in  R (on the application of) Unaenergy Gropup Holding Pte Limited & others v The Director of the Serious Fraud Office [2017] EWHC 600. This is consistent with the British courts’ long-standing circumspection regarding judicial review proceedings challenging decisions taken by prosecutors in the course of their prosecutions. British American Tobacco On August 1, 2017, the SFO confirmed that it is investigating British American Tobacco PLC (“BAT”), its subsidiaries and associated persons in connection with allegations it has paid bribes in several African states in attempts to influence regulation of the tobacco industry in the region. Rio Tinto group The SFO announced on July 24, 2017 that it was launching an investigation into the Rio Tinto group, its employees and anyone associated with its conduct of business in the Republic of Guinea. Tower Hamlets Planning Permission Bribery Allegations Allegations of bribery have been made this December against Tower Hamlets based businessman Abdul Shukur Khalisadar. Khalisadar was recorded demanding a £2 million “premium” from property developers in exchange for guaranteeing planning permission for a £500 million project to build two skyscrapers on the Isle of Dogs. The allegations, first made in 2016 were passed on to the Serious Fraud Office and National Crime Agency after an independent external investigation. Chemring Group PLC and Chemring Technology Solutions Limited On January 19, 2018, the SFO announced it was opening a criminal investigation into Chemring Group PLC and its subsidiary Chemring Technology Solutions Limited. The SFO further stated that this followed a self-report by Chemring and that the investigation was “into bribery, corruption and money laundering“. Chemring’s own press release notes that the investigation concerns two contracts, the most recent of which was obtained in 2011. SFO: expected trial dates The SFO has recently published its court dates. Court dates of note include: the confiscation hearing taking place on March 19, 2018 for Peter Chapman, sentenced to 30 months’ imprisonment for corrupt payments to a Nigerian official to secure contracts for polymer for Securrency PTY Ltd. the trial of Michael Sorby and Adrian Leek, former director and sales manager of Sarclad Limited, a technology products company, is due to take place on April 3, 2018. The second trial of F.H. Bertling and individual defendants is scheduled to commence on September 10, 2018. More about each of these enforcements can be found in our 2017 Mid-Year United Kingdom White Collar Crime Alert, and, for Jolan Saunders, Spencer Steinberg and Michael Strubel, our 2016 Year-End United Kingdom White Collar Crime Alert. International co-operation Chad – Caracal Energy On January 23, 2017, the Court of Appeal found in favour of the SFO in an appeal brought by Ikram Mahamat Saleh against a property freezing order relating to the proceeds from the sale of shares in Caracal Energy Inc (formerly Griffiths Energy), a Canadian oil and gas company, totalling over £4.4 million. In the run up to Griffith’s flotation on the London Stock Exchange, due diligence exercises revealed that the company had paid bribes to Chadian government officials in order to gain access rights to two of the country’s oil blocks. With knowledge of the impending deal, Saleh, the wife of former Deputy Chief of Mission for Chad in Washington DC, bought shares in Griffith’s for a nominal amount. In 2013, Griffiths Energy pleaded guilty to corruption charges in Canada. The property freezing order was granted in the UK in July 2014 by Mr Justice Mostyn in respect of the proceeds from the sale of 800,000 Caracal shares. Saleh first challenged the order in the High Court in July 2015, arguing that an order made by a Canadian Court in 2014 precluded the SFO from claiming that the money in question was recoverable under the UK’s Proceeds of Crime Act 2002 (“POCA”), because the order stipulated that the proceeds from the sale were not criminal and the order was in rem. Mrs Justice Andrews found that the order of the Canadian Court did not have this effect and upheld the property freezing order. Saleh appealed against the decision to the Court of Appeal, maintaining the argument that the SFO was not able to enforce the property freezing order without contravening the order of the Canadian Court. The SFO’s case for upholding the freezing order was based on the argument that Saleh, had acquired the shares as a part of a series of corrupt transactions involving companies and personnel linked to the Chadian Embassy in Washington DC. The Court of Appeal ruled that the order of the Canadian Court did not bind the SFO. If the order was to preclude the SFO from pursuing a property freezing order in the UK, this would be “inconsistent with the statutory regime established by POCA”. Furthermore, the Court of Appeal observed that “the Canadian Order was plainly not the product of a decision-making process, in which the relevant facts were considered and weighed, in which the relevant principles of law were set out and applied to the facts found, and from which a conclusion was reached.” Thus, although the wording of the order gave the impression that it was made on the assessment of the merits of the case and an order in rem, “on a proper analysis it was neither.” Accordingly, the Court of Appeal upheld the confiscation order against Saleh. Angola – NCA investigation It has been reported that the NCA is investigating, and has frozen, some $500m transferred from the Angolan Central Bank to a London bank account in the last days of the presidency of José Eduardo dos Santos in late 2017. An NCA spokesperson is quoted as confirming an investigation “a case of potential fraud against the Angolan government”. Cas-Global and former Norwegian official As reported in our 2017 Mid-Year United Kingdom White Collar Crime Alert, the City of London police is co-operating with anti-corruption investigators in the U.S., Nigeria and Norway in relation to an investigation into the UK company Cas-Global. The investigation is in relation to an alleged bribe paid by Cas-Global to a Norwegian official, Bjorn Stavrum, as part of the sale of seven decommissioned naval vessels from 2012 onwards. It is alleged that Mr Stavrum was paid to assist Cas-Global to disguise the real destination of the vessels from the Norwegian authorities. The vessels were being sold to a former Nigerian guerilla, Government Ekpemupolo. The joint investigation with the Norwegian authorities has led to the arrest of Mr Stavrum and three British nationals. On May 16, 2017 Mr Stavrum was convicted by a Norwegian court, and sentenced to four years and eight months jail. Antigua’s Minister of Tourism arrested in the UK On October 23, 2017, Asot Michael, Antigua’s Minister of Tourism, was arrested in the UK upon disembarking a British Airways flight. The NCA has stated that Mr Michael was questioned in connection with an NCA investigation into bribes paid by a U.K. national for business contracts in the Caribbean. Mr Michael was released under investigation with no conditions imposed, however, the NCA stated that they cannot rule out the possibility of criminal charges in due course. Croatia – Ivica Todoric On November 7, 2017, the Metropolitan Police Extradition Unit arrested Ivica Todoric under a Euriopean Arrest Warrant raised by Croatia. Mr Todoric’s extradition is for him to face charges of fraud and corruption in Croatia. France – Alexandre Djouhri Alexandre Djouhri was arrested at Heathrow Airport on January 7, 2017 and remanded in custody after a hearing at Westminster Magistrates’ Court. The French-Algerian businessman was arrested by officers from the Metropolitan Police acting on a European arrest warrant issued by French authorities for fraud and money laundering offences. Djouhri was allegedly the “middleman” money broker in a multi-million pound corruption scandal with ex-French president Nicolas Sarkozy and late Libyan dictator Colonel Gaddafi. Arrests in the UK re cricket corruption/spot-fixing The NCA arrested three men in February 2017 for bribery offences related to the ongoing investigation into spot-fixing in international cricket. As reported in our 2017 Mid-Year United Kingdom White Collar Crime Alert the men were released on bail pending further enquiries from the NCA, with one man having his passport confiscated until the NCA concludes its enquiries. These arrests followed from reports on February 10, 2017 that two cricketers from the Pakistan Super League had been provisionally suspended by the Pakistan Cricket Board’s anti-corruption unit for spot-fixing. Since the arrests a further six players have been suspended from the Pakistan Super League. 3.     Fraud As we reported in our 2017 Mid-Year United Kingdom White Collar Crime Alert, the first half of 2017 saw the SFO engaged in high profile investigations against Tesco and Airbus.  The second half of the year has seen the trial of former directors of Tesco, significant charges against former board members of an ex-FTSE 250 company and a significant fine brought by the FCA for breach of the disclosure and transparency rules.  The English courts have also re-considered the jury instruction to be given in criminal cases in which dishonesty must be proved.  The new test simplifies the law and is likely to make it easier for prosecutors to successfully prosecute these offences. Enforcement: SFO Afren PLC Following an investigation launched in June 2015, on September 27, 2017 the SFO brought money laundering and fraud charges against the former CEO and CFO of Afren PLC (“Afren”), Osman Shahenshah, and Shahid Ullah, an oil and gas exploration company. It was reported that the defendants set up a fraudulent scheme whereby an offshore company they controlled distributed “excessive payments” received from $400 million worth of business deals with a Nigerian partner of Afren. Shahenshah and Ullah were charged with two counts of fraud by abuse of position and two counts of money laundering. Afren had been a FTSE 250-listed company prior to its collapse in 2015. The company’s administrators have also brought civil damages claim of over $500 million against Shahenshah and Ullah, alleging that their fraudulent activities assisted in the collapse of the company. LIBOR There have been no further trials in connection with LIBOR since our 2017 Mid-Year United Kingdom White Collar Crime Alert. However, as we reported in that update, lawyers for convicted traders Jonathan Mathew and Alex Pabon challenged the evidence of Saul Haydon Rowe, an expert prosecution witness whose expertise was called into question during Mr. Reich’s re-trial. Rowe was a key witness for the SFO; he testified in four of the Libor trials, giving evidence on trading concepts such as short-term interest rates, and assisted with decoding the heavily jargon-filled and abbreviated communications between traders. On November 13, 2017, The Telegraph reported that the families of three convicted Libor traders had requested the Justice Select Committee (a standing Committee of the House of Commons) to investigate the SFO’s selection of Mr. Rowe as an expert. Complaints are now also being raised in relation to a psychiatric expert used by the SFO. On November 24, 2017, Pabon sought permission in a hearing before the Court of Appeal to appeal his conviction on the basis of Rowe’s credibility which his lawyers argued was compromised when he texted friends during breaks in his testimony for help to understand some of the banking terms referred at the trial. At the hearing, Lord Justice Gross described himself as being “deeply troubled” by this matter. The SFO acknowledged that Rowe – who received £400,000 to appear as an expert witness for SFO during the Libor trial – had failed to act with integrity. Mr. Pabon’s appeal will likely impact on the other Libor-related trials in which Rowe also acted as expert witness. Tesco Three former directors of Tesco Stores Limited (“Tesco”) were each charged on August 3, 2017 with one count of fraud by false accounting and one count of fraud by abuse of position. Christopher Bush (former UK managing director), Carl Rogberg (former UK finance director), and John Scoulter (former UK commercial director) pleaded not guilty to the charges on the same day. The trial of these three former Tesco executives began on 25 September 2017 at the Southwark Crown Court. This follows Tesco entering into a DPA in principle with the SFO in March 2017 (see our 2017 Mid-Year United Kingdom White Collar Crime Alert for more information). At trial, the SFO’s lawyer alleged that the Tesco directors had knowingly tried to conceal the real profits of Tesco by way of “conniving and manipulating figures“. The charges against the former Tesco directors can carry prison sentences of up to 10 years. Enforcement: FCA Tom Hayes On November 8, 2017, the FCA published a statement about  the Decision Notice it issued on October 28, 2016 banning Tom Hayes, the former trader convicted in connection with LIBOR manipulation, from performing any regulated activity in the financial services industry. The FCA reached the view that Hayes is not “a fit and proper person as a result of his conviction for conspiracy to commit fraud.” Hayes, who is currently serving an 11 year prison sentence for LIBOR rigging, subsequently appealed the Decision Notice to the Upper Tribunal, which heard the matter on September 25, 2017. The Upper Tribunal decided to grant a stay in favour of Hayes while his case is reviewed by the Criminal Cases Review Commission (“CCRC”).  The CCRC accepted his application earlier in 2017, and Hayes is expected to argue that he was deprived of a fair trial due to his Asperger’s Syndrome, and to dispute evidence given by the expert witness Saul Rowe. Neil Danziger and Arif Hussein On January 8, 2017, the FCA fined Neil Danziger, a former trader, £250,000 in relation to Yen LIBOR manipulation between 2007 and 2010, and banned him for performing any function in relation to regulated financial activity. Mr Danziger disputes the findings, and may seek to challenge the Final Notice. Another trader, Arif Hussein, banned for over allegations of LIBOR manipulation is currently challenging the FCA’s decision. That case is ongoing. City of London Police and Crown Prosecution Service On October 18, 2017, Robert Waterman, a businessman sentenced to six years imprisonment for a VAT fraud, was ordered to return over £3 million to the taxpayer after pleading guilty to cheating the public revenue, money laundering, furnishing false documents, operating a company while a banned director and absconding while on bail. Waterman was sentenced following an investigation conducted by HMRC which found that he had created a fake trade in computer memory sticks, whereby he claimed to be exporting memory sticks to Dubai through his company, enabling him to wrongfully claim almost £5 million in VAT repayments. However, there were in fact no memory sticks, and Waterman was merely creating fake invoices and posting empty parcels. According to the Crown Prosecution press release, Waterman is now expected to sell his assets to raise the funds to pay the £3 million. On July 21, 2017, Mohammed Muj Meah Chaudhari, Suraiya Alam and Victoria Sherrey were sentenced for conspiracy to defraud after stealing over £1.1 million from the Home Office. Through the scheme, they were able to benefit from grants from the Solidarity and Management of Migration Flows European Integration Fund by claiming that their firms were helping with the social, cultural and economic integration of foreign nationals in the UK. Chaudhari was sentenced to seven years imprisonment and disqualified as a director for 15 years, and Alam and Sherrey were sentenced to 12 months jail, disqualified for two years and each ordered to undertake 100 hours of unpaid work. Ivey v Genting Casinos As previewed in the Introduction to this alert, the key question in many criminal cases is whether the defendant was dishonest. Until recently, the jury instructions in English criminal trials asked the jury to consider the test laid down in 1982 in the case of R v Ghosh [1982] EWCA Crim 2. In that case, Ghosh was a medical consultant who falsely claimed fees for a surgical operation he did not carry out himself. He was found to have acted contrary to sections 15(1) and 20(2) of the Theft Act 1968 by attempting to execute a cheque and obtain money through deception. In its judgment, the Court of Appeal set out the following two limb test for assessing whether a person is dishonest: The first limb is objective, and asks whether the act in question is dishonest by the standards of a reasonable and honest person. If the answer is yes, the second subjective limb asks whether the defendant himself realized that his actions would be regarded as dishonest by a reasonable and honest person. The test used for dishonesty in civil proceedings follows the objective test set out in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 and Barlow Clowes International Limited v Eurotrust International Limited [2005] UKPC 37, which determines dishonest conduct by applying “the [objective] standards of ordinary decent people” to a person’s “actual state of….knowledge or belief“. Unlike in Ghosh, the civil test for dishonesty does not require a defendant to appreciate that his conduct was dishonest. On October 25, 2017, the UK Supreme Court handed down its judgement in the case of Ivey v Genting Casinos [2017] UKSC 67. Effectively the Court did away with the second limb of the Ghosh test, and thus brought the civil and criminal tests for dishonesty into line. The landmark decision marks a significant change in the law relating to dishonesty, and is likely to simplify the prosecution of acquisitive offences by applying only an objective, and therefore more easily applicable, test. The case related to Mr Phil Ivey, a gambler, who claimed to have won a total of £7.7 million playing Punto Banco (described below) at Crockford’s Casino in Mayfair, London. The casino refused to pay out these winnings because it believed that he cheated, and Ivey issued proceedings for breach of contract in order to recover his winnings. Ivey used a technique called “edge sorting”, where a person seeks to identify minor differences that appear on playing cards as a result of the manufacturing process and using this knowledge to increase the chances of success. Ivey feigned superstition and asked the dealer to arrange the cards in a certain way to help him to see the edges of the cards to enable him to identify the values. The casino denied liability essentially arguing that Ivey had cheated. Ivey denied that his conduct amounted to cheating as cheating necessarily requires an element of dishonesty, which he claims he did not fully satisfy. On October 8, 2014, following trial, the English High Court found in favour of the casino and held that Ivey’s “play on this occasion amounted in law to cheating” because he gave himself an advantage, by using the dealer as an “innocent agent” when he knew that she did not understand the consequences of her actions. Ivey subsequently appealed the decision, and his appeal was dismissed by the Court of Appeal. The question before the Supreme Court was whether Ivey had “cheated” within the meaning of section 42 of the Gambling Act 2005, and if so, whether that meant Ivey had breached an implied term of the contract with the casino that he would not cheat.  The criminal standard was applied because, following the reasoning of the Court of Appeal, the Supreme Court considered that a breach of the implied term would only occur if the statutory offence of cheating had occurred. In examining this, it considered the Ghosh test and identified a number of issues.  In particular the second limb was criticized on the grounds that it has the effect that “the more warped the defendant’s standards of honesty are, the less likely it is that he will be convicted of dishonest behavior.”  The Supreme Court found the test to be confusing and “difficult to apply”, and unnecessarily inconsistent with the objective definition of dishonesty in civil cases. On that basis, the Supreme Court effectively abolished the second limb of the test, and Ivey’s appeal was dismissed as he was found dishonest according to the objective standard and thus to have “cheated” within the meaning of section 42 of the Gambling Act. Although strictly obiter, Ivey will almost certainly be followed. This will effect crimes in which the prosecution must prove that the defendant acted dishonestly. As just one example, the offence of fraud by false representation under the Fraud Act requires that the defendant: make a false representation; dishonestly; while knowing that the representation was or might be untrue or misleading; and with the intent to make a gain for himself or another. In light of Ivey, defendants will not be able to rely on their own subjective belief in their own honesty to contest allegations of fraud by false representation. SFO: expected trial dates The SFO has recently published its court dates. Court dates of note include: the confiscation hearings on March 19, 2018 and April 19, 2018 for Jolan Saunders, Spencer Steinberg and Michael Strubel, each convicted of conspiracy to defraud, inducing wealthy individuals to invest sums into a business the trade if which was significantly below the levels portrayed to potential investors; and the trial of David Ames on 7 January 2019, chairman of the Harlequin Group, charged with fraud by abuse of position for pensions fraud (note in the 2017 Mid-Year Alert the trial date was reported as taking place on 18 September 2018.) 4.     Tax With the introduction of the new failure to prevent tax evasion offences under the CFA, we have included for the first time this year a new section in our alert dedicated to the enforcement of tax evasion offences and related legislative developments. Criminal Finances Act: new failure to prevent the facilitation of tax evasion offences The Criminal Finances Act 2017 came into force on September 30, 2017, and introduced two new corporate offences of failure to prevent the facilitation of tax evasion. The first of these offences is the UK tax evasion offence which is committed where a person acting in the capacity of someone associated with the corporate facilitates (or partnership) the fraudulent evasion of UK tax. The second offence relates to foreign tax, and is committed where a corporate’s “associated person” facilitates the fraudulent evasion of foreign tax, so long as that facilitation is an offence both in the UK and in the foreign jurisdiction.’ It is a defence to either offence for the corporate to show that it had in place reasonable prevention procedures designed to prevent the facilitation of tax evasion. The jurisdictional reach of these offences is very wide. For the UK offence the only required nexus to the UK is that it is UK tax which is evaded. Conduct committed entirely outside the UK by non-UK nationals for the benefit of a non-UK company will still be subject to the jurisdiction of the UK courts. For the foreign offence the required nexus is that the corporate is either a UK company, carries on a business or part of a business in the UK, or the facilitation in question took place wholly or partly in the UK. HMRC published guidance on September 1, 2017 on the CFA, which covers amongst other things the six guiding principles that should inform the prevention procedures put in place by corporate persons. These include:         i.            Risk assessment ii.            Proportionality of risk-based prevention procedures iii.            Top level commitment iv.            Due diligence v.            Communication (including training) vi.            Monitoring and review For more detail on the CFA and the HMRC Guidance, please refer to our detailed client alert: “UK Criminal Finances Act 2017: New Corporate Facilitation of Tax Evasion Offence: Act now to secure the reasonable prevention procedures defence“. European Union tax haven Black List and Grey List In the wake of the Panama Papers, Pierre Moscovici, the European Commissioner for Economic and Financial affairs, urged in April 2016 for more stringent EU tax laws on non-cooperative jurisdictions, and/or EU member states to draw up with a common list of tax havens to be blacklisted. Following its research, the European Commission published in September 2016 a list of 92 jurisdictions outside the European Union that would be contacted for screening. On February 1, 2017, EU member states sent a letter to those 92 jurisdictions to notify them that they would be screened for possible inclusion in a “blacklist” of tax havens. The letter emphasized that the jurisdiction had been selected “based on a set of objective indicators (such as strength of economic ties with the EU, financial activity, and stability factors)“. At the time, the list of 92 countries contacted was not made available to the public. On 21 February 2017, European Union finance ministers agreed on criteria first proposed in November 2016 to appropriately screen tax-free jurisdictions outside the European Union. The three main criteria for assessments consisted of: tax transparency, fair taxation, and a commitment to implement OECD measures on taxation. A jurisdiction was at risk of being placed on a black or grey list of non-cooperative tax regimes if it failed to meet the criteria. The EU finance ministers announced that they would publish the list of tax havens that failed to meet the criteria by the end of 2017. On December 5, 2017, the EU published its Black List which comprises the following 17 jurisdictions: American Samoa, Bahrain, Barbados, Grenada, Guam, Macao, The Marshall Islands, Mongolia, Namibia, Palau, Panama, St Lucia, Samao, South Korea, Trinidad & Tobago, Tunisia, and the United Arab Emirates. Another 47 jurisdictions were put on a grey list as a recognition of their commitment to reform their tax laws as soon as possible to meet EU standards. Since the list’s initial publication, the EU officials have now accepted assurances from Barbados, Grenada, Macao, Mongolia, Panama, South Korea, Tunisia, and the United Arab Emirates as to tax reform commitments and so these jurisdictions have been removed from the Black List and added to the Grey List. Countries can stay off the list as long as they implement common reporting standard which would require them to share banking information of individuals who are not their own citizens. While acknowledging that the list represented “substantial progress” and an “important step forward“, Moscovici warned that it remained “an insufficient response to the scale of tax evasion worldwide“. Moscovici emphasized the need to discuss appropriate sanctions for jurisdictions on the list. The EU finance ministers will convene in 2018 to adopt sanctions for non-compliant countries. Such sanctions may include prohibitions to conduct business with jurisdictions on the blacklist. In addition a decision on 8 Caribbean jurisdictions severely hit by hurricanes during 2017 has been delayed until February 2018. For more detail see our client alert: “Black and Grey: The EU publishes its lists of Tax Havens”. Enforcement: concluded prosecutions relating to tax fraud Like the Panama Papers, the Paradise Papers have attracted mass media focus on issues of offshore investments and tax avoidance. However, there has been no official UK enforcement action following the Paradise Papers leak. In response to questions to her during the annual CBI conference in London, the Prime Minister refused to commit to an introduction of a public register that would ensure greater transparency with respect to ownership in offshore companies and trusts. Theresa May also did not commit to opening a public inquiry into tax avoidance as she had been encouraged to do by various Labour shadow ministers. However, as described below, there have been a number of concluded prosecutions relating to tax fraud in 2017. Convictions over £100 million tax fraud On November 10, 2017 following a ten year investigation by HMRC, six men (Michael Richards, Robert Gold, Rodney Whiston-Dew, Evdoros Demetriou, Jonathan Anwyl, and Malcolm Gold) were jailed for their participation in an “audacious and cynical” scheme that defrauded investors of over £100 million. Mr Gold had pleaded guilty, but the other defendants were all convicted after a contested trial. Over 730 investors signed up to the scheme, believing that an initial £20,000 investment in research and reforestation projects in Brazil and China would entitle them to claim £32,000 in tax relief. The scheme was structured so that a number of companies were incorporated around the world, including in offshore jurisdictions, and each company was marketed as being independent of the other. In reality, the companies were all controlled by the defendants, who used the entities to cycle cash between them so as to give the illusion of lending. The scheme was marketed to be larger than it actually was, and the purpose of it was to deceive HMRC into granting tax relief totalling £107 million when it otherwise would not have been due. The men were found guilty of conspiracy to cheat the public revenue, and were handed custodial sentences. Mr Gold who pleaded guilty was sentenced to 20 months’ jail. The other defendants were sentenced to 11 years, 11 years, 10 years, 6 years and 5 and a half years respectively. A pensioner claiming he was a ‘spy’ stole £1.6 million in tax Raymond Thomas, a company director, told his friends and family that he was a spy working for the U.S. Department of Homeland Security and was required to work abroad, when in fact he was travelling to various properties he owned in France, Germany and Spain, which were entirely funded from the proceeds of a large-scale VAT fraud. Thomas claimed that he made key components for military drones, which he did through a company, and he complained to the Prime Minister as a “desperate measure” to obtain funds withheld by HMRC, alleging that he “worked fiercely and patriotically in the protection of the citizens of this country.” Following an investigation, the company was found to be a sham, and Thomas had created various false invoices to support fraudulent VAT refund claims. Thomas admitted to VAT fraud, money laundering and producing false documents, and was sentenced to 56 months in prison on November 1, 2017.                 Robert Waterman As discussed above in the Fraud section on October 18, 2017, Robert Waterman, a businessman, was sentenced to six years’ imprisonment for a VAT fraud, and ordered to return over £3 million to the taxpayer after pleading guilty to cheating the public revenue, amongst other offences. 5.     Financial and Trade Sanctions The year 2017 saw very significant legislative developments in the UK regarding financial and trade sanctions, but little by way of enforcement activity. We cover these developments in detail, and also the new sanctions on Venezuela and Mali, and provide a summary of the current state of the fast-moving North Korean sanctions. For the UK’s response to President Donald Trump’s de-certification of the Iran Nuclear deal, please refer to our client alert “Trump Decertifies the Iran Deal, Creating Both new Uncertainties and potentially unexpected clarity“. Legislative developments Policing and Crime Act 2017 and accompanying guidance Part 8 of the Policing and Crime Act 2017, which came into force on April 1, 2017, strengthened the UK’s sanctions enforcement by increasing the maximum custodial sentence for violating sanctions rules from two to seven years. Additionally, it expanded the list of offences amenable to a DPA, giving the NCA and Office of Financial Sanctions Implementation (“OFSI”) more scope to offer DPAs (which can still only be entered into by the SFO and CPS) and impose Serious Organised Crime Prevention Orders. Importantly, it also gives OFSI the power to impose, as an alternative to criminal prosecution and by reference to the civil standard of proof, monetary penalties for infringements of EU/UK sanctions. OFSI can impose penalties of either £1 million or 50% of the value of the breach, whichever is greater. The lower evidential burden to impose the new civil penalties means that OFSI need only be satisfied on the balance of probabilities that a person (legal or natural) acted in breach of sanctions and knew or had reasonable cause to suspect they were in breach. The Act also addresses the delay between the United Nations Security Council adopting a financial sanctions resolution and the EU adopting an implementing regulation, which can take over a month. OFSI can adopt temporary regulations to give immediate effect to the UN’s resolutions, as if the designated person were included in the EU’s consolidated list. OFSI put this power into practice in June of this year by adding a militia leader, Hissene Abdoulaye, to its consolidated list of Central African Republican sanctions targets, before the EU had done so. Businesses relying on a version of the EU’s consolidated list prepared by the European Union, or by a member state other than the United Kingdom, may miss fast-track listings done by the UK in this manner. The UK has also enacted the Policing and Crime Act (Financial Sanctions) Overseas territories) order 2017  to extend these short-term fast-track listings to its offshore financial centres of Cayman, British Virgin Islands and Turks and Caicos. In a number of interviews this year, OFSI head Rena Lalgie has given further indications of how the body will enforce sanctions compliance. According to Ms. Lalgie, “voluntary disclosure will be an important part of determining the level of any penalties that might be imposed“. OFSI has already said that companies that voluntarily come forward will see reductions in fines of up to 50% in “serious” cases and 30% in the “most serious” cases. Ms. Lalgie also made the following noteworthy comments: OFSI’s enforcement action has focused on “preventing and stopping non-compliance and ensuring compliance improves in the future“. The agency has used its information powers numerous times to “require companies which haven’t complied to tell [OFSI] how they intend to improve their systems and controls in future”. Any continuing sanctions non-compliance could lead to criminal prosecution, with fines “fill[ing] the gap between prevention and criminal prosecution“. The most important actions a company can take to avoid violating sanctions rules are to “know [its] customers and promote active awareness among relevant staff of high-risk areas“. Ms. Lalgie believes that a company also ought to know what sanctions are in place in the countries in which it does business and have appropriate, up-to-date procedures that are regularly monitored and understood by staff. In April 2017, and after a public consultation, OFSI published its final Guidance on the new financial sanctions framework providing detailed guidelines relating to the imposition of the new civil monetary penalties. For further information about the consultation, please see our 2016 Year-End United Kingdom White Collar Crime Alert. The final OFSI Guidance on monetary penalties was also published in April 2017. It provides a detailed overview of OFSI’s approach to investigating potential breaches, as well as the penalty process and procedures for review and appeal. Of note are the following key points from the guidance: Penalties can be imposed on natural or legal persons, meaning that separate penalties could be imposed on a legal entity and the officers who run it, if the officer consented to or connived in the breach, or the breach was attributable to the officer’s negligence; OFSI will regularly publish details of all monetary penalties imposed, including by reference to the name of the person or company in breach, and a summary of the case; and Under sections 147(3)-(6) of the Policing and Crime Act 2017, decisions to impose a penalty can be reviewed by a government minister and then by appeal to the Upper Tribunal. In OFSI’s “penalty matrix“, factors which may escalate the level of penalty imposed include the direct provision of funds or resources to a designated person, the circumvention of sanctions, and the actual or expected knowledge of sanctions and compliance systems of the person or business in breach. Voluntary and materially complete disclosure to OFSI is a mitigating factor that may reduce the level of penalty imposed by up to 50%. The European Union Financial Sanctions (Amendment of Information Provisions) Regulations 2017 On August 8 2017, the European Union Financial Sanctions (Amendment of Information Provisions) Regulations 2017 (the “IPR 2017”) came into force. Before the IPR 2017, financial services firms had a positive reporting obligation to notify HM Treasury of any known or suspected breach of financial sanctions, and to notify any known assets of those subject to financial sanctions. Failure to notify constituted a criminal offence. The IPR 2017 extends this reporting regime to: (a) auditors; (b) casinos; (c) dealers in precious metals or stones; (d) estate agents; (e) external accountants; (f) independent legal professionals; (g) tax advisers; and (h) trust or company service providers. OFSI has claimed in its Guidance (at 5.1.1) that all companies and individuals have a positive reporting obligation, but this is based on wording in the relevant EU regulations not implemented into English law. As such, the IPR 2017 represents a significant expansion of the scope of the financial sanctions reporting obligations in the UK. Moreover, this extension of the reporting obligation regime is specific to the UK – there is no EU equivalent. It should be noted that trade sanctions are on the whole excluded from this reporting regime, with the focus mostly on those included in the Consolidated List or the separate Ukraine List. As set out in the Explanatory Memorandum to the Regulations, this development occurred without a public consultation, impact assessment, or parliamentary scrutiny. The failings of the system as currently enacted are best seen by way of a comparison with the money laundering reporting obligations. In the field of AML: the maker of a bona fide suspicious activity report is protected by statute from liability for any loss or damage flowing from the SAR; there is a defence to any breach if the party has followed its regulator’s guidance; there is a defence of “reasonable excuse” for failing to make a SAR; there is an architecture for reporting, first within an organisation and then for an MLRO who has personal criminal liability if they fail to report; and there is an exception to the obligation to make a SAR for lawyers and accountants, auditors or tax advisers, if the information came from the client – the so-called “privileged circumstances” exception. None of the certainty that comes with a clear reporting hierarchy is found in the IPR 2017, and none of these protections are present either. Most notably this may have an unintended chilling effect on companies seeking legal assistance in the conduct of an internal investigation. As they stand the IPR 2017 would require a company’s lawyers to report to OFSI any suspected breach of sanctions, thus robbing the client of the possibility of gaining any credit by self-reporting. Given that OFSI’s own guidance stresses the benefits of self-reporting, the IPR 2017 only serve to undermine this policy objective. It remains to be seen whether the government will revise the IPR 2017 to take account of these failings. Sanctions and Anti-Money Laundering Bill 2017 On October 18, 2017 a new Sanctions and Anti-Money Laundering Bill was introduced in the House of Lords, which aims to provide a legislative framework for the imposition and enforcement of sanctions after Brexit. Currently much of the UK Government’s authority to impose and enforce sanctions flow from the European Communities Act 1972. The proposed bill would give the Government authority to impose and implement sanctions by way of secondary legislation to comply with its obligations under the United Nations Charter and to support its foreign policy and national security goals. The European Union (Withdrawal) Bill 2017-19 (the “Bill”) which will give effect to Brexit, will freeze the current sanctions regimes and underlying designations on the date of the UK’s exit from the EU. The sanctions regime in place would quickly become out of date, and absent new legislation the UK would be unable to amend or lift the existing sanctions. The Sanctions and Money Laundering Bill seeks to provide the mechanism to resolve this issue. The proposed legislation has been through two readings before the House of Lords and is currently at the Committee Stage with the Report Stage scheduled for 15 and 17 January. Part I of the Bill as originally introduced provided the power to impose sanctions, giving an appropriate Minister, defined as the Secretary of State or the Treasury, the power to make “sanctions regulations” for a variety of purposes including: compliance with a UN obligation; compliance with another international obligation; to further the prevention of terrorism in the UK or elsewhere; in the interests of national security; in the interests of international peace and security; or to further a foreign policy objective of the UK government. In the process of going through the House of Lords further bases for imposing sanctions have been added to the current draft of the Bill. These are: promote the resolution of armed conflicts or the protection of civilians in conflict zones; promote compliance with international humanitarian and human rights law; contribute to multilateral efforts to prevents the spread and use of weapons and materials of mass destruction; and promote respect for human rights, democracy, the rule of law and good governance. The absence of “misappropriation” as a basis for sanctions is notable, when that is the basis for the current EU sanctions against Egypt and Tunisia and some of those against Ukraine. Another absence is an express reference to cyber sanctions. As discussed in our 2017 Mid Year United Kingdom White Collar Crime Update, earlier in 2017 the EU proposed sanctions as one of a panoply of responses to organised cyber attacks. In the case of human trafficking, as mentioned further below, there have been a number of recent proposals to impose such sanctions. It is possible that some of the broad rubrics such as “protection of civilians in conflict zones” or “human rights law” or “international peace and security” will be extended to cover such sanctions. “Sanctions regulations” are defined as regulations which impose financial, immigration, trade, aircraft, or shipping sanctions, and expanded upon in clauses 2 to 6 of the Bill. In its comments on the Bill the House of Lords’ Constitution Committee has raised concerns in relation to the breadth of powers afforded to Ministers under the sanctions provisions, including in particular the power to create new forms of sanctions. The Bill is currently the subject of significant debate and it is not yet clear what final form it will take. The sanctions authorised by the Bill take a variety of forms. Financial sanctions can be imposed by way of asset freezes, and by the placement of restrictions on the provision of financial services, funds, or economic resources in relation to designated persons, persons connected with a prescribed country, or persons meeting a particular description. A person who is the subject of a travel ban may be refused leave to enter or to remain in the UK. Trade sanctions can prevent activities relating to target countries or to target specific sectors within those countries. Aircraft and shipping sanctions can have a variety of impacts, including preventing particular craft from entering the UK’s airspace or waters. Designated persons can include individuals, corporations, and organisations and can be identified by name or by description. The Bill enables Ministers to set out in regulations how designation powers are to be exercised. The Bill also includes provision for Ministers to create exceptions to any prohibition or requirement imposed by the regulations, or to issue licences for prohibitions imposed by the regulations not to apply. Clause 16 is worthy of mention for, as explained in the accompanying Explanatory Notes, it provides a mechanism for a yet-further expansion of the obligatory reporting regime to all individuals and companies. Whether this provision survives parliamentary scrutiny, and the requirement to protect the right to a fair trial, will remain to be seen. Chapter 2 sets out the Bill’s provisions on revocation, variation and review of designations of persons under the Bill. The Bill provides that a designation may be varied or revoked by the Minister who made it at any time, and that at any time a designated person may request that the Minister vary or revoke the designation. However, after such a request, no further request may be made unless it relies on new grounds or raises a significant matter which has not previously been considered by the Minister.  The Bill also requires periodic review of designations by the appropriate Minister every three years. Where a designated person has been identified by a UN Security Council Resolution, they may ask the Secretary of State to use his or her best endeavours to have their name removed from the UN list. These provisions have attracted criticism, as they would appear to detract from the existing procedural safeguards available in relation to EU sanctions, which include an entitlement to challenge before the Courts. Similarly, the existing EU regime allows for review of designations every six to twelve months. Although the Bill adopts certain definitions from EU Sanctions measures, it also provides that new sanctions regulations may make provision as to the meaning of other concepts.  This may give rise to a divergence in the interpretation of sanctions legislation between the UK and the EU, which could increase uncertainty and the burden of those charged with compliance with multiple sanctions regimes. Criminal Finances Act 2017 – “Magnitsky sanctions” The CFA amended POCA to include a “Magnitsky amendment”. This expands the definition of “unlawful conduct” for the purposes of civil recovery orders under Part 5 of POCA to include human rights abuses and applies to those who profited from or materially assisted in the abuses. The amendment is modelled on the U.S. Magnitsky Act. These amendments to the CFA came into effect on January, 31 2018. EU cyber security sanctions The possibility of cyber sanctions has already been mentioned. The Council of the European Union announced in late June that it would be prepared to impose sanctions against “state and non-state actors” as part of a broader policy response to malicious cyber activity. The imposition of sanctions is one element within what the EU is describing as its “cyber diplomacy toolbox“. The Council has published Conclusions on a Framework for a Joint EU Diplomatic Response to Malicious Cyber Activities, which clarifies the policy objectives behind this development: “The EU affirms that measures within the Common Foreign and Security Policy, including, if necessary, restrictive measures, adopted under the relevant provisions of the Treaties, are suitable for a Framework for a joint EU diplomatic response to malicious cyber activities and should encourage cooperation, facilitate mitigation of immediate and long-term threats, and influence the behavior of potential aggressors in a long term“. As yet no such sanctions have been imposed. Human Trafficking Sanctions At the recent G20 meeting in Germany, the EU tabled a proposal for the United Nations to designate people and entities for human trafficking. This proposal was rejected by both the Russians and the Chinese. As two permanent members of the UN Security Council there appears little prospect for the time being of UN sanctions in this sphere. Nonetheless, in late November 2017, France’s ambassador  to the UN, François Delattre, called for the UN Security Council to impose sanctions on persons implicated in the slave trade of African refugees and migrants crossing through Libya. An emergency Security Council session was held to discuss the possibility of such sanctions, but no resolution resulted. We will continue to watch for developments in this area. New and revised sanctions regimes A number of new sanctions regimes have been imposed by the EU and its member states during 2017. Mali On September 28, 2017, Council Decision (CFSP) 2017/1775 implemented UN Resolution 2374 (2017), which imposes travel bans and assets freezes on persons who are engaged in activities that threaten Mali’s peace, security or stability. Interestingly, the imposition of this regime was requested by the Malian Government, due to repeated ceasefire violations by militias in the north of the country. Affected persons will be determined by a new Security Council committee, which has been set up to implement and monitor the operation of this new regime, and will be assisted by a panel of five experts appointed for an initial 13-month period. As yet no one has been designated under the Mali sanctions. Venezuela On November 13, 2017, in the wake of severe political turmoil in Venezuela, most notably gubernatorial elections plagued by electoral irregularities, the EU imposed an arms embargo on the country, as well as introducing a legal framework for the imposition of travel bans and asset freezes against persons involved in the non-respect of democratic principles or the rule of law and human rights violations (Council Regulation (EU) 2017/2063 and Council Decision (CFSP) 2017/2074). In its conclusions on Venezuela, the Council noted that these measures would be implemented in a “gradual and flexible manner and can be expanded”, but can also be reversed “depending on the evolution of the situation in the country“. On January 22, 2018 through Regulation 2018/88, the EU designated seven Venezuelan officials as the first, but perhaps not the last, to be sanctioned under these measures. On November 15, 2017, the UK passed the Venezuela (European Union Financial Sanctions) Regulations 2017, which came into force on December 6, 2017, to implement these new measures. North Korea 2017 was an eventful year in the Korean peninsula. Given the ballistic missile and nuclear testing it is unsurprising that sanctions regimes against North Korea have been steadily strengthened over the past 12 months. The relevant UK/EU/UN developments are set out below. On June 2, the UN Security Council designated a further four entities and 14 officials subject to travel bans and asset freezes, including Cho Il U, believed to be the Director of North Korea’s overseas espionage operations and foreign intelligence collection. In early August, the UN Security Council unanimously passed Resolution 2371 (2017), which introduced fresh sanctions against North Korea, including: (i) a full ban on coal, iron and iron ore (which, at $1 billion, is estimated to represent about a third of North Korea’s export economy); (ii) the addition of lead and lead ore to the banned commodities subject to sectoral sanctions; (iii) a ban on seafood exports from North Korea; and (iv) the expansion of financial sanctions by prohibiting new or expanded joint ventures and cooperative commercial entities with the DPRK. Demonstrating the significant developments seen to North Korean sanctions in 2017, in August the EU consolidated its existing North Korean sanctions into Council Regulation 2017/1509, a move deemed necessary in view of the numerous amendments that had been made to the previous Council Regulation 329/2007. It also issued an updated decision, Council Decision (CFSP) 2017/1512, amending Council Decision (CFSP) 2016/849, to reflect these changes. The UN Security Council duly imposed Resolution 2375 (2017) on September 11, 2017, which includes: (i) a ban on textile exports (North Korea’s second-biggest export at over $700m per year); (ii) limits on imports of crude oil and oil products to the amount imported by the exporting country in the preceding year; (iii) a prohibition against all joint ventures or cooperative entities or the expansion of existing joint ventures with North Korean entities or individuals; and (iv) a ban on new visas for North Korean overseas workers. These measures were watered down from the original restrictions called for by the U.S., so as to ensure that Russia and China would not veto the proposals. The U.S. had initially sought a total prohibition on exports of oil into North Korea, stricter restrictions on North Koreans working in foreign countries, enforced inspections of ships suspected of carrying UN sanctioned cargo, and a complete asset freeze against Kim Jong-Un. In November, the EU further imposed additional restrictions via Council Regulation (EU) 2017/2062, which: (i) broadened the ban on investment of EU funds in or with North Korea to all economic sectors; (ii) reduced the permissible amount of personnel remittances to North Korea from €15,000 to €5,000; and (iii) at the Council’s invitation to review the existing list of luxury goods subject to import/export bans, published a new list, which covers everything from caviar, cigars and horses to artwork, musical instruments and vehicles. Finally, rounding off the year, the UN imposed Resolution 2397 (2017) on December 22, which inter alia: (i) strengthens the measures regarding the supply, sale or transfer to North Korea of all refined petroleum products, including diesel and kerosene, and reduced to 500 million barrels per 12-month period the permitted maximum aggregate of refined petroleum product exports to North Korea; (ii) limits the supply, sale or transfer of crude oil by Member States to the DPRK to 4 million barrels or 525,000 tons per 12-month period; (iii) expands sectoral sanctions by introducing a ban on North Korean exports of food and agricultural products, machinery, electrical equipment, earth and stone, wood and vessels, as well as a prohibition against the sale of North Korean fishing rights; (iv) introduces a ban on the supply, sale or transfer to North Korea of all industrial machinery, transportation vehicles, iron, steel and other metals; (v) strengthens the ban on providing work authorizations for North Korean nationals by requiring Member States to repatriate all income-earning North Koreans and all North Korean government safety oversight attachés monitoring North Korean workers abroad by 22 December 2019; and (vi) strengthens maritime measures by requiring Member States to seize, inspect and freeze any vessel in their ports and territorial waters for involvement in banned activities. As North Korea’s missile and nuclear programmes show no signs of being halted, we expect that the international community will continue to expand the restrictive measures imposed against North Korea in the coming year. Indeed already in 2018, the EU has designated a further 17 North Korean individuals through Regulation 2018/87. Trade and export controls Judicial reviews: boycotts and arms exports Two judicial reviews concerning trade and sanctions have made their way to the High Court this year. These were discussed in detail in our 2017 Mid-Year United Kingdom White Collar Crime Alert, and we refer readers to the discussion there. Export Control Order: amendments The Export Control Organisation (“ECO”) has twice amended the Export Control Order 2008 this year, as set out in one notice to exporters in February and another in July. The amending orders make a number of changes to both the main order itself and Schedule 2, which sets out the military goods, software and technology that are subject to export controls. These updates reflect changes made to the EU Common Military List that must be incorporated into UK export control rules to honour its commitment to the international non-proliferation regime. The main changes made in February are to the definitions of “library“, “spacecraft” and “software“, changes to ML1 (note on deactivation) and text revisions to ML9, ML13, ML17 and ML21. The national control (PL5017) within this schedule has also been deleted (on equipment and test models). The main changes made in July include amendments to the definitions of “airship“, “laser“, “lighter-than-air vehicles“, “pyrotechnics” and “software” and changes to ML1, ML8 and ML10. Amendments to the UK Strategic Export Control Lists On December 16, 2017, the Export control Joint Unit of the Department for International Trade published a revised set of UK Strategic Export Control Lists to give effect to EU Regulation 2017/2268. For detail of the changes see the EU’s notice here. Case law Bank Mellat and v HM Treasury There have been new developments in the longstanding litigation between Bank Mellat, Iran’s largest private bank, and HM Treasury. As reported in our 2014 Year-End Sanctions Alert, Bank Mellat commenced an action in 2014 against the British Government, claiming almost £2 billion (approx. $3.13 billion) in damages. This followed the UK Supreme Court’s quashing of sanctions imposed on the bank under the Financial Restrictions (Iran) Order 2009 (SI 2009/2725) in connection with allegations that it had links to the Iranian nuclear program (as detailed in our 2013 Mid-Year Sanctions Alert). This action continues to make its way through the courts; in August, Males J sitting in the Commercial Court ([2017] EWHC 2409 (Comm)) made an order regarding how disclosure of documents should be carried out. Separately, Bank Mellat has also taken numerous steps to have restrictions imposed on it under the Financial Restrictions (Iran) Order 2011 (SI 2011/2775) and the Financial Restrictions (Iran) Order 2012 (SI 2012/2904) set aside. By an application notice issued in April 2014, HM Treasury sought the court’s permission to withhold disclosure of certain closed material on which it relied in defence of the claim. In November 2014, in Bank Mellat v HM Treasury [2014] EWHC 3631 (Admin), the UK High Court held that the essence of allegations justifying designation of a person in a sanctions regime must be disclosed to that person, even where national security concerns prevent full disclosure. This was subsequently upheld by the Court of Appeal ([2015] EWCA Civ 1052). The case was then remitted to the Administrative Court to consider whether HM Treasury had met the required standard of disclosure in proceedings with Bank Mellat. On November 24, 2017, Justice Holroyde handed down a closed judgment determining that certain material may continue to be withheld, but other information must be disclosed. The open judgment considered only the relevant principles applied in determining these issues, without going into the specifics of the materials in question. Enforcement Limited enforcement activity in UK In our 2017 Mid-Year United Kingdom White Collar Crime Alert, we noted the one publicly-known instance of a company which has self-reported to OFSI, Computer Sciences Corporation (“CSC”). According to an SEC filing in February 2017 CSC submitted an initial notification of voluntary disclosure to both the U.S. Treasury’s Office of Foreign Assets Control (“OFAC”) and OFSI. The disclosure concerned possible breaches of sanctions law relating to insurance premiums and claims data by Xchanging, a company that CSC had recently acquired. There continues to be little information in the public domain regarding enforcement activity by OFSI, although in responding to a Freedom of Information request by Law360, OFSI has confirmed that it has opened 125 investigations since it commenced operations in early 2016, and that 60 of these involved financial services firms regulated by the FCA or the PRA. This should not be mistaken for a torrent of upcoming enforcement actions. At a recent event hosted by the English Law Society, a representative from OFSI confirmed that the vast majority of the breaches OFSI was investigating were very minor, and that 97% of the known breaches would not be pursued through any sort of enforcement action. It may, therefore, be some time before we are able to report on significant enforcement activity by OFSI. In stark contrast to this UK position, a significant number of EU member states have concluded or undertaken sanctions enforcement actions during 2017. This includes fines imposed by the regulator in Latvia, multiple investigations and prosecutions in Holland, as well as an insurance-sector investigation; an investigation and corporate raids regarding alleged breaches of Syrian sanctions in France and Belgium, an investigation in Lithuania regarding Crimean sanctions, and the seizure of goods of Crimean origin in Italy. The details of these enforcement actions can be found in our 2017 Year-End Sanctions Alert. 6.     Anti-Money Laundering 2017 has not been short of developments. Legislative activity continued apace against the backdrop of the UK’s withdrawal from the EU and the UK government’s Action Plan for Anti-Money Laundering and Counter-Terrorist-Finance. 2017 saw the implementation of several significant legislative developments intended to strengthen the tools available to UK authorities to detect and prosecute financial crime and substantially change the UK’s money laundering landscape: the CFA, the 2017 AML Regulations, and the Sanctions and Anti-Money Laundering Bill, which is currently under review by the House of Lords. Enforcement activity has continued with the FCA imposing the largest ever fine for anti-money laundering (“AML”) controls failings and a Solicitor’s Disciplinary Tribunal decision against Clyde & Co LLP, providing a reminder to the legal profession of the importance of AML risk controls. While 2017 has also seen setbacks in the English Courts for the NCA and the City of London Police, the “laundromat” money laundering schemes revealed by new leaks of confidential banking records, as well as other high profile investigations by the FCA, has reinforced AML enforcement as a major regulatory priority. New economic crime centre In December 2017, a new economic crime audit by the UK government suggested that £90 billion is laundered in criminal proceeds through the UK each year. In response, the Government unveiled plans to create a new national economic crime centre with a key focus to clamp down on money laundering. As a unit of the NCA, the centre will reportedly be tasked with coordinating a national response among the agencies that tackle money laundering and fraud and with increasing the confiscation of criminal proceeds. In addition, the Government published its anti-corruption strategy, which sets out the Government’s anti-corruption priorities, both domestic and international, and establishes a long-term framework for tackling corruption up to 2022. One of the government’s six priorities under the strategy is to “Strengthen the integrity of the UK as an international financial centre” (see page 35), which it says will require: i) “Greater transparency over who owns and controls companies and other legal entities“; ii) “Stronger law enforcement, prosecutorial and criminal justice action“; iii) “Further enhanced anti-money laundering and counterterrorist financing capability“; and iv) “Stronger public-private partnership, to share information and improve targeting of those who pose greatest risk”. Criminal Finances Act 2017 The CFA became law on April 27, 2017.  As outlined in our 2017 Mid-Year United Kingdom White Collar Crime Alert, the CFA amends POCA, which forms the basis for the UK’s anti-money laundering regime. Suspicious activity reporting regime Sections 10, 11 and 12 of the CFA will bring in a number of changes to the Suspicious Activity Reports (“SARs”) regime. At present, “regulated sector” entities seeking a defence to a principal money laundering offence must disclose knowledge or suspicion of money laundering to the NCA by way of a SAR. Whilst a transaction cannot proceed without risk of committing an offence under POCA if the NCA refuses consent, the NCA is deemed to have consented if it does not notify the company that consent is refused within seven working days, or if it notifies the company within seven working days that consent is refused, but takes no further action after a further 31 calendar days (the “moratorium period“). Section 10 amends POCA so as to allow the NCA to apply for an extension to the moratorium period up to a total of 186 days, so long as certain conditions as to the speedy and efficient conduct of their investigation are met. Section 11 of the CFA explicitly allows companies in the regulated sector to voluntarily share otherwise confidential client information where the disclosing company is asked to share the information by the NCA, or when one company makes a request of another for information relating to money laundering prevention.  A condition of sharing such information is that the sharing party must be satisfied that “the disclosure of the information will or may assist in determining any matter in connection with a suspicion that a person is engaged in money laundering“. That information sharing may result in a joint SAR which, if made in good faith, will be treated as satisfying any requirement to make disclosure on the part of the persons who jointly make the report. Under section 12, the NCA will now have the option of seeking a “further information order” against the entity that either filed the SAR, or which is an entity in the regulated sector, to compel the provision of further information to assist the NCA in its enquiries. The NCA can also seek such an order when giving effect to a request for mutual legal assistance from a foreign country. Unexplained Wealth Orders The CFA also introduces unexplained wealth orders (“UWOs”), which may be used to require those suspected of corruption (individuals or companies) to explain the origin of certain assets. The NCA, CPS, FCA, SFO and HMRC will all be able to apply for a UWO by making an application to the High Court. On January 30, 2018, David Green QC told an audience in London that the SFO is looking for cases to start to utilize this new power: “We have been combing through all existing case work and intelligence and have matters of interest that might transmogrify”. For more detail on the changes to the SARs regime and UWOs, please see our 2017 Mid-Year United Kingdom White Collar Crime Alert. 2017 AML Regulations enter into force As outlined in detail in our 2017 Mid-Year United Kingdom White Collar Crime Alert, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017  (the “Regulations”) entered into force on June 26, 2017. The draft regulations were laid before Parliament on June 22, 2017 and then entered into force only one business day later, giving firms very little time to prepare for their implementation. Overall, the Regulations are more prescriptive and require a firm’s responsible person to carry out a risk assessment for potential exposure to money laundering and terrorist financing. A person is required to keep a record of the steps taken to conduct the risk assessment, unless it is told by its supervisory authority that this is not necessary. The responsible person must then establish and maintain policies, controls and procedures based on that risk assessment, and make sure that relevant employees are made aware of the law relating to money laundering and terrorist financing and regularly given training in how to recognize and deal with transactions and other activities which may give rise to such risks. The Regulations also introduced new and more prescriptive customer due diligence (“CDD”) requirements. CDD measures must be applied to new business relationships as well as existing ones where there are doubts as to the veracity or adequacy of documents previously obtained for verification purposes. Simplified due diligence is available in fewer circumstances than under the old regulations: a relevant person needs to consider both customer and geographical risk factors in deciding whether simplified due diligence is appropriate; firms can no longer automatically apply only simplified CDD requirements in certain circumstances. Enhanced CDD measures will need to be applied in relation to any transaction of business relationship with a person established in a “high risk third country“, currently Afghanistan, Bosnia and Herzegovina, Iran, Iraq, Laos, North Korea, Syria, Uganda, Vanuatu and Yemen, to which on December 13, 2017 were added Tunisia, Trinidad & Tobago and Sri Lanka. Additional situations in which Enhanced CDD measures are required include cases in which the relevant person determines that a customer or potential customer is a PEP or a family member of a known close associate of a PEP, in which the relevant person discovers that a person has provided false or stolen identification, in which a transaction is complex and unusually large, or there is an unusual pattern of transactions and the transactions have no apparent legal or economic purpose. On September 19, 2017, the Legal Sector Affinity Group published draft guidance on complying with the new 2017 AML Regulations. Legal sector regulators will take into account whether a professional has complied with this guidance when they are assessing professional conduct and acting as a supervisory authority. The Legal Sector Affinity Group are in the process of obtaining approval from HM Treasury for this guidance. Once HM Treasury approval is obtained, the court is required to consider compliance with this guidance in assessing whether a person committed an offence or took all reasonable steps and exercised all due diligence to avoid committing the offence. Sanctions and Anti-Money Laundering Bill On October 18, 2017, the UK government introduced the Sanctions and Anti-Money Laundering Bill into Parliament and published Explanatory Notes. For AML purposes, the function of the Bill is to give the UK government the power to update existing provisions on anti-money laundering and terrorist financing, upon the exit of the UK from the EU. Clause 41 of the Bill gives the appropriate Minister a legal power to introduce regulations for the purposes of detecting, investigating or preventing money laundering and terrorist financing and to implement the international standards set by the Financial Action Task Force, of which the UK is a member. Ministers may also pass secondary legislation to amend the 2017 AML Regulations once the European Communities Act 1972 no longer applies. The Bill itself does not impose any new AML-related requirements. FCA final guidance on treatment of PEPs for AML purposes On July 6, 2017, the FCA published its finalised guidance (FG17/5) on the treatment of PEPs in connection with the Regulation. The FCA notes that firms should only treat these in the UK who hold “truly prominent positions” in the UK as PEPs, and that “as such it is unlikely in practice that a large number of UK customers should be treated as PEPs“. The guidance also sets out the FCA’s view as to what will constitute an indicator that a PEP poses a “lower” or “higher” risk. For more detail, see our 2017 Mid-Year United Kingdom White Collar Crime Alert. FCA anti-money laundering annual report for 2016/17 On July 5, 2017, the FCA published its AML annual report for 2016/17. The report reiterates that financial crime and AML remains one of the FCA’s key priorities for 2017/18, and that the FCA continues to develop its AML supervision strategy. This includes the Systematic Anti-Money Laundering Programme, a programme of regular, thorough scrutiny that covers 14 major retail and investment banks operating in the UK with higher risk business models or strategic operations, and a programme of regular AML inspections for a group of other high risk firms that present higher financial crime risk. HM Treasury also announced that the FCA will become responsible for monitoring the AML supervision carried out by professional bodies such as the Institute of Chartered Accountants in England and Wales. A new Office for Professional Body AML Supervision will operate within the FCA, and will be funded by a new fee on the professional body supervisors. In October 2017, the FCA published consultation papers on how the fees for the new Office for Professional Body AML Supervision (OPBAS), which will directly oversee the 22 accountancy and legal professional body AML supervisors in the UK, should be distributed. For more detail, see our 2017 Mid-Year 2017 Mid-Year United Kingdom White Collar Crime Alert. The OPBAS regulations will take effect on January 18, 2018. Bitcoin and cryptocurrencies On December 4, 2017, it was reported that the UK Government was looking to step up regulation of bitcoin amid concerns criminals were using cryptocurrencies to launder money and avoid taxes. Stephen Barclay, economic secretary to Britain’s Treasury, told parliament in a notice dated November 3, 2017—but only later reported by media—that the proposed amendments would “bring virtual currency exchange platforms and custodian wallet providers into Anti-Money Laundering and Counter-Terrorist Financing regulation“. Case law Merida Oil Traders, Bunnvale and Ticom Management [2017] EWHC 747 (Admin) On April 11, 2017, the High Court ruled, on an application for judicial review in R (on the application of Merida Oil Traders Limited & others v Central Criminal Court & others, that City of London Police had exceeded its power under POCA in seizing U.S.$ 21 million from Merida Oil Traders, Bunnvale and Ticom Management (and Intoil SA, which was not party to the judicial review) as part of a money laundering investigation. During the course of the investigation, the City of London Police invited a broker to create cheques for closing balances payable to Merida, Bunnvale, Ticom and Intoil, then applied to the Central Criminal Court for a production order requiring the broker to produce the cheques, which they then seized. The High Court held that that the statutory requirements for making production orders were not met, in that the production of the cheques was not of substantial value to a money laundering investigation. The purpose of an investigation, whatever its subject matter, was to find out information with a view to taking some action or decision, whereas production of the cheques was sought so that they could be seized and detained as cash. The High Court held that the cheques were unlawfully seized and that the City of London Police had abused their power under POCA. Merida, Bunnvale, Ticom and Intoil did not choose to hold their money in cash, and the cheques, which were classified as cash, only existed because the City of London Police had arranged with the broker – without the claimants’ knowledge or consent – for the cheques to be created. Had the cheques not been created, they could not have been seized. Instead, they would have had to seek a restraint order or a property freezing order.  For more detail, see our 2017 Mid-Year United Kingdom White Collar Crime Alert. National Crime Agency v N and Royal Bank of Scotland PLC (“RBS”) [2017] EWCA Civ 253 As discussed in our 2017 Mid-Year United Kingdom White Collar Crime Alert, on April 7, 2017, the Court of Appeal handed down judgment in an appeal brought by the NCA against RBS and an authorised payment institution referred to only as “N”. Mr Justice Barton had made interim orders allowing RBS to continue operating the accounts of N, even after the NCA had asked for RBS to freeze the accounts and return the funds to N. This was based on the NCA’s suspicion that the balance of the account constituted criminal property. The NCA appealed against the interim orders, on the basis that the only appropriate mechanism was the statutory procedure set out in POCA. The Court of Appeal did not agree with the NCA’s submission that Mr Justice Burton had no jurisdiction to make the orders that he did. The court’s jurisdiction to grant interim relief was not ousted by the money-laundering provisions of POCA. However, it accepted the NCA’s alternative submission that the statutory procedure under POCA was highly relevant to the court’s discretion. It could not be displaced “merely on a consideration of the balance of convenience as between the interests of the private parties involved. The public interest in the prevention of money laundering as reflected in the statutory procedure has to be weighed in the balance and in most cases is likely to be decisive“. The Court of Appeal, therefore, overturned Mr Justice Burton interim orders. The judgment is a fairly extreme example of the deference the courts will have with law enforcement agencies – requiring as it did the forced closure of bank accounts outside the statutory regime. Ikram Mahamat Saleh v Director of the Serious Fraud Office [2017] EWCA Civ 18 On January 23, 2017, the Court of Appeal gave judgment in an appeal brought by Mrs Saleh against the SFO. That appeal concerned a Property Freezing Order in respect of £4.4 million is discussed above in the Bribery and Corruption section. R v Otegbola & ors [2017] EWCA Crim 1147 On July 7, 2017, the Court of Appeal denied an application for permission to appeal in R v Otegbola & others ruling, in the absence of evidence that the proceeds in question were criminal property, that the prosecution was nonetheless permitted to rely on an inference—arising out of the way that the funds were moved and transferred between the defendants’ accounts—that the funds could only have been the proceeds of crime. The applicants, Olaluwa Otegbola, Oluboukola Otegbola and Vivian Baje had been convicted of converting criminal property contrary to section 327(1) of POCA. The three defendants were convicted of having transferred £39,650 between their bank accounts between December 29, 2011 and April 6, 2012, knowing that the funds constituted criminal property. The evidence showed that the money was received into an account held by Mrs Otegbola trading as Checed Enterprise, then transferred between the applicants’ bank accounts over the course of a few days. The prosecution presented the jury with a schedule of the payments between the applicants’ bank accounts, but did not present any evidence about the transactions leading to the initial payments to Checed Enterprise. After the three defendants were arrested, they provided differing explanations for the transactions, including that the transactions had been loans to Ms Baje, but were unable to explain why the alleged loans had been repaid on the same day or into a different account. The prosecution relied on R v Anwoir [2008] 2 Cr App R 36 and argued that the Crown could prove that property had been derived from a crime either by proving that it derived from conduct of a specific kind that was unlawful, or by presenting evidence of the way in which the property was handled that gave rise to the irresistible inference that the property could only be derived from crime. The Court of Appeal agreed that the prosecution was entitled to rely on the principle set out in Anwoir, and observed that the sums transferred were substantial when compared with the income and business turnover of the accused, that the schedule of transfers established that the way the funds had been dealt with was highly unusual, and that the defendants’ explanations were inadequate. Enforcement Deutsche Bank AG As noted in our 2017 Mid-Year United Kingdom White Collar Crime Alert, on January 30, 2017, the FCA issued a final notice against Deutsche Bank AG (“Deutsche Bank”) for failing to maintain an adequate AML control framework during the period between January 1, 2012 and December 31, 2015. Deutsche Bank was fined £163,076,224. This is the largest FCA financial penalty in relation to AML controls. HSBC On February 21, 2017, it was reported that the FCA was investigating HSBC over potential breaches of money laundering rules after concerns raised in 2016 by the bank’s compliance monitor. Clyde & Co LLP On April 12, 2017, the Solicitors Disciplinary Tribunal (“SDT”) gave judgment in respect of allegations made against the international law firm Clyde & Co LLP and three of its partners, and held that both Clyde & Co and the partners in question committed breaches of accounting and money laundering rules. Two key money laundering allegations were made: (i) that the firm had become involved, as escrow agent, with a fraudulent scheme, and that by unintentionally becoming involved had lent the scheme credibility; and (ii) a number of breaches of money laundering rules, including by allowing their client account to be used as a banking facility. The Tribunal also noted that there had been a systemic failure by the firm to have proper procedures in place to ensure that residual balances on files were returned to clients in a timely manner at the end of a retainer. The SDT imposed a fine of £50,000 on Clyde & Co, and £10,000 each on the three individual partners. For more detail, see our 2017 Mid-Year United Kingdom White Collar Crime Alert. Russian Laundromat money laundering scheme In our 2017 Mid-Year United Kingdom White Collar Crime Alert, we reported that the NCA was considering whether information published by The Guardian would result in an investigation into the role of British banks in the “Russian Laundromat” money laundering scheme that moved U.S.$ 20.8 billion out of Russia between January 2011 and October 2014 using a complex global web of companies and banks. The Guardian‘s analysis of banking records suggested that 17 British banks had processed nearly U.S.$ 740 million in funds involved in the “Russian Laundromat” money laundering scheme. Each of the 17 banks has issued a statement to the effect that they had anti-money-laundering controls in place and would cooperate with law enforcement. “Azerbaijan Laundromat” money laundering scheme In early September 2017, leaked confidential banking records led to a report by the Organized Crime and Corruption Reporting Project (“OCCRP”) about the “Azerbaijan Laundromat” scheme, a U.S.$ 2.9 billion operation which ran between 2012 and 2014—with on average U.S.$ 3 million channelled by certain public figures out of Azerbaijan every day and into four offshore-managed UK companies. The scheme was reportedly designed by Azerbaijan’s ruling elite to provide a fund to bribe European politicians, launder money and fund luxury purchases. The funds are thought to have come from companies linked to Azerbaijan’s president, Ilham Aliyev, state ministries and the International Bank of Azerbaijan. The cash was transferred into four offshore-managed UK entities, and then spent in the UK, Germany, France, Turkey, Iran and Kazakhstan. The UK entities that handled the cash were Hilux Services and Polux Management, both incorporated as Scottish Limited Partnerships in Glasgow, and Metastar Invest and LCM Alliance, both Limited Liability Partnerships registered in Birmingham and Potters Bar, respectively. Some UK MPs have urged the government to open an inquiry into the scheme and the involvement of UK entities demanding “a full investigation to see that dirty money has not been used to buy influence in the UK“. Gupta family and HSBC / Standard Chartered In October 2017, the FCA announced that it was investigating financial ties between HSBC PLC and Standard Chartered PLC and the Guptas – a wealthy family accused of buying influence with South Africa’s President Jacob Zuma – after former cabinet minister Lord Hain passed a list of transactions to the chancellor warning of their “possible criminal complicity” on September 25, 2017. Lord Hain had alleged in the House of Lords that as much as £400 million of illicit funds from South Africa may have been “transnationally laundered“. The chancellor asked UK enforcement agencies the SFO, NCA and FCA to investigate the matters, and on October 12, 2017 the FCA said that it had been in contact with the two banks. The FBI has also launched an investigation with respect to U.S. links to the Guptas. On November 3, 2017 HSBC announced that it had closed bank accounts held by “front companies” associated with the Guptas. Standard Chartered was also reported to have said that it was “not able to comment on the details of client transactions but can confirm that following an internal investigation accounts were closed by us in 2014“. Lord Hain was reported to have confirmed to the House of Lords on December 12, 2017, that the FCA was being assisted directly by a whistleblower supplying information from South Africa.  During his speech to the House of Lords, Lord Hain also suggested that two other banks  “be given [a] red flag warning to check their exposure to Gupta money laundering – both direct and indirect”. Offshore enforcement Guernsey – investigation of Standard Chartered On October 5, 2017, it was reported that a U.S.$ 1.4 billion money transfer between Standard Chartered’s Guernsey and Singapore offices was under investigation by the Guernsey Financial Services Commission, in partnership with the Monetary Authority of Singapore, in connection with possible movement of assets shortly before new tax transparency rules were implemented. The bank is reported to have conducted an internal investigation and self-reported to regulators after employees raised questions in 2016 about the timing of the transactions, whether the bank had undertaken adequate “know your client” due diligence and whether the source of customers’ funds had been properly vetted. Jersey – Gisele Le Miere In February 2017, the former Managing Director and Money Laundering Reporting Officer of Jordans Trust Company Jersey was banned from any future work in any business licensed to conduct financial services business in Jersey following accusations of fraud and money laundering relating to a £200,000 film investment fund she oversaw. The Jersey Financial Services Commission concluded that Gisele Helene Le Miere had provided inaccurate information to the Jordans Board of Directors and Compliance Committee and had ignored several red flags relating to a non-Jersey incorporated company which ultimately received investor money from the fund. Bermuda – Sun Life Financial Investments (Bermuda) On February 27, 2017, the Bermuda Monetary Authority announced that it had imposed civil penalties including a U.S.$ 1.5 million fine on Sun Life Financial Investments (Bermuda) Limited (“Sun Life”), as well as restricting Sun Life’s Investment Business Licence for failing to apply appropriate CDD measures such as applying Enhanced Due Diligence when appropriate, monitoring ongoing business relationships and maintaining appropriate risk-sensitive policies and procedures. 7.     Competition / Antitrust 2017 was a significant year for enforcement, with the CMA and FCA opening new investigations into a variety of industries and finalising a number of investigations. The CMA also had success before the Competition Appeal Tribunal, with its steel tanks decision being upheld upon appeal. The UK’s class actions regime for private enforcement, on the other hand, saw the rejection of the first class action to follow on from an OFT infringement decision, casting something of a shadow over the regime. At the European level, on 23 January 2018 the EU imposed a fine of €997 million on computer chip manufacturer Qualcomm in respect of allegations of anti-competitive behavior. Qualcomm has said it intends to appeal. Please note that the CMA also took enforcement action in 2017 in the consumer protection sphere, which falls outside the scope of our review. Enforcement Cleanroom services On December 14, 2017, the CMA fined 2 suppliers of “cleanroom” laundry services for a market sharing agreement whereby they agreed not to compete for each other’s allocated territories and customers. The CMA imposed a financial penalty of £510,118 on Micronclean Limited and of £1,197,956 on Berendsen Cleanroom Services Limited. Transport Sector (airports) On December 7, 2017, the CMA launched an investigation into suspected breaches of competition law in respect of facilities at airports. At this point, no further information regarding the scope of the investigation is available. Pharmaceuticals As reported in the 2017 Mid Year UK White Collar Crime Update, in March 2017, the CMA issued a statement of objections to Concordia and Actavis UK, alleging that the companies signed agreements under which Actavis UK incentivized Concordia not to enter the market with its own competing version of hydrocortisone tablets. In a separate investigation regarding hydrocortisone tablets, the CMA had in December 2016 provisionally found that Actavis UK had breached competition law by charging excessive prices to the NHS for the tablets following a 12,000% price rise over the course of several years. On August 9, 2017, the CMA issued a statement of objections to Intas Pharmaceuticals Limited and Accord Health Limited, which acquired Actavis UK in January 2017, alleging that Actavis UK continued to charge excessive prices for the tablets and proposing to find the parent companies jointly and severally liable for the alleged infringements from their period of ownership. On November 21, 2017, the CMA also announced that it had provisionally found that Concordia had breached competition law by using its dominant position to charge excessive and unfair prices in relation to the supply of liothyronine tablets in the UK. Consumables On August 9, 2017, the CMA announced that it had closed its investigation into a suspected abuse of a dominant position of Unilever PLC in the market for single-wrapped ice cream in the UK. The CMA’s investigation considered whether the company had abused a dominant position by offering deals or prices for impulse ice cream to retailers in the UK which were likely to have an exclusionary effect, in particular by means of promotional deals under which the company supplied to retailers single-wrapped ice cream products free of charge or at a reduced price if they purchased a minimum number of single-wrapped ice cream products. The CMA found that Unilever’s promotional deals were unlikely to have had an exclusionary effect. Sports Equipment Industry As reported in our 2016 Year End UK White Collar Crime Update, in June 2016 the CMA had issued a statement of objections to Ping Europe Limited (“Ping”) alleging that it had breached competition law by operating an online sales ban in respect of golf clubs. On August 24, 2017, the CMA issued an infringement decision and imposed a £1.45 million financial penalty on Ping, directing that it bring the online sales ban to an end. An appeal against the decision was launched by Ping on October 27, 2017, and the main hearing is set to take place in May 2018. Building and Construction Industry As reported in our 2016 Mid Year UK White Collar Crime Update, the CMA confirmed in March 2016 that it had commenced criminal proceedings against Mr Barry Cooper for the criminal cartel offence, following an investigation into the supply of precast concrete drainage products. On September 15, 2017, the CMA announced that Mr Cooper had been sentenced to 2 years’ imprisonment suspended for 2 years, made the subject of a 6-month curfew order and disqualified from acting as a company director for 7 years. The CMA’s related civil investigation into whether businesses have infringed competition law is ongoing. Online price comparison websites As reported in the 2017 Mid Year UK White Collar Crime Update, in March 2017 the CMA published its interim report on its year-long market study into digital comparison tools (“DCTs”). On September 26, 2017, the CMA published its final report. Although the CMA’s study found that DCTs help consumers shop around by making it easier to compare prices, it issued the following recommendations: 1.        sites should be clear about how they make money, how many deals they display and how results are ordered; 2.       sites should be clear on how personal information is protected; and 3.       it should be made as easy as possible for consumers to make effective comparisons or use different sites. The CMA also announced that it had opened an investigation into suspected breaches of competition law on the part of one site through the use of most favored nation (“MFN”) clauses in relation to home insurance prices. The use of such clauses came to the CMA’s attention as part of its general investigation into DCTs. Live auction platform services In November 2016, the CMA launched an investigation into suspected breaches of competition law by ATG Media, the largest provider of live online auction platforms in the UK. The investigation related to suspected anti-competitive agreements or concerted practices, and suspected abuse of dominance, and in particular suspected exclusionary and restrictive pricing practices, including MFN provisions in respect of online sales. On June 29, 2017, the CMA published its decision to accept final commitments from ATG Media to refrain for five years from: 1.        obtaining exclusive deals with auction houses; 2.       preventing auction houses getting a cheaper online bidding rate with other platforms for their bidders through MFN clauses; and 3.       preventing auction houses from promoting or advertising rival live online bidding platforms in competition with ATG Media. Leisure Industry Having alleged in December last year that rules enforced by the Showmen’s Guild of Great Britain in the travelling fair sector breach competition law by protecting existing Guild showmen from competition, on October 26, 2017 the CMA announced its decision to accept binding commitments from the Guild to change certain of its rules in order to address the CMA’s competition concerns, and to therefore close the investigation. In particular, the changes address the CMA’s concerns that the Guild’s rules restrict members from competing with one another to organize or attend fairs or from setting up new fairs in competition with existing fairs. Asset Management Industry On September 14, 2017, the FCA confirmed its decision to make a Market Investigation Reference to the CMA following its market study of investment consultancy and fiduciary management services. It also confirmed that it was rejecting the package of undertakings in lieu offered by three of the largest investment consultants, as it could not be confident that it would provide a solution to the adverse effects of competition identified. This is the first time that the FCA has made such a reference to the CMA. The CMA published an issues statement on September 21, 2017 and is carrying out investigative steps. A provisional decision is expected in July 2018. On November 29, 2017, the FCA issued a statement of objections to four asset management firms, Artemis Investment Management LLP, Hargreave Hale Limited, Newton Investment Management Limited and River & Mercantile Asset Management LLP, accusing them of breaching competition law by colluding on stock market flotations in 2014 and 2015. The FCA alleged that the four firms shared information about the price they intended to pay for shares in two IPOs before prices had been officially set, when they should have been competing for the shares. The companies face a fine up to 10% of their worldwide turnover in a particular market if they are found to have breached competition rules. Insurance Industry                                                                                                                  In April 2017, the FCA launched an antitrust investigation into the aviation insurance sector with dawn raids on several of the largest firms.  In October 2017, it was confirmed that the investigation of at least three of the firms had been taken over by the European Commission. The Commission stated that the proceedings concerned the exchange of commercially sensitive information between competitors in relation to aviation insurance, as well as possible coordination between competitors. Following this, on November 8, 2017, the FCA launched a full market study into the wholesale insurance-broking market, stating concern that broker behaviour may be restricting competition, and citing a desire to ensure that the market is functioning in the interests of a diverse range of consumers.The FCA aims to publish an interim report in autumn 2018. EURIBOR As reported in the 2016 Year End UK White Collar Crime Update, the SFO issued criminal proceedings against 11 individuals accused of manipulating EURIBOR, and on January 11, 2016, they were charged with conspiracy to defraud. On May 24, 2017, the SFO announced that the trial of six of the former traders who had been charged was to be postponed until January 2018. Litigation Steel Tanks Industry As reported in the 2016 Year End UK White Collar Crime Update, in December 2016, the CMA found that Balmoral, a supplier of galvanized steel water tanks, along with three other businesses, had breached competition law by taking part in an exchange of competitively-sensitive information on prices and pricing intentions. Balmoral did not take part in the main price–fixing cartel which the CMA investigated separately, but was fined £130,000 for taking part in the unlawful information exchange which amounted to a concerted practice. In February 2017, Balmoral challenged the CMA’s finding, their decision to impose the fine, and the amount of that fine, but on October 6, 2017, the Competition Appeal Tribunal dismissed the appeal. The Tribunal unanimously determined that Balmoral’s conduct was an infringement, and that the fine was appropriate and there was no basis for criticizing its imposition or its amount. On December 13, 2017, the Competition Appeal Tribunal refused permission to appeal to the Court of Appeal on the basis that none of the appeal grounds had any real prospect of success and there was no other compelling reason for granting permission to appeal.  The Tribunal also ruled that the CMA was entitled to costs. Pharmaceuticals (Pfizer and Flynn Pharma) As reported in the 2017 Mid-Year UK White Collar Crime Update, in February 2017, Pfizer, the manufacturer of phenytoin sodium, and Flynn Pharma, its distributor, appealed a CMA decision which found that they had charged excessive and unfair prices for the drug, and which fined them £84.2 million and £5.2 million respectively. This appeal was heard by the Competition Appeal Tribunal between October 30, 2017 and November 24, 2017, and judgment has been reserved. Pay for Delay appeal (Merck KGaA v CMA) In February and March 2017, the CAT heard the appeal against the CMA’s Seroxat “pay for delay” infringement decision. That decision concerned the settlement entered into by Merck’s subsidiary, Generics (UK) Limited (“GUK”), in 2002 to end ongoing patent litigation with pharmaceutical originator company GlaxoSmithKline PLC (“GSK”) relating to paroxetine, which is supplied in the UK as Seroxat, an antidepressant medicine. The CMA found that the settlement infringed the competition rules by inducing GUK to desist, during the term of the Settlement, from continuing its efforts to enter the UK paroxetine market independently of GSK, and thereby from offering independent generic competition against GSK. Mobility Scooter class action (Dorothy Gibson v Pride Mobility Products Limited) In March 2017, the Competition Appeal Tribunal rejected the application by proposed class representative, Ms Gibson, for an opt-out collective proceedings order to combine follow-on actions for damages arising from a decision of the Office of Fair Trading in March 2014 which  had found that Pride Mobility Products and each of eight retailers selling its mobility scooters had infringed the Chapter I prohibition by entering into agreements or concerted practices whereby the retailers would not advertise certain models of Pride scooters online at prices below the recommended retail price set by Pride. The CAT gave permission for Ms Gibson to file and serve a draft amended claim form, but proceedings were abandoned in May 2017. This was followed in July 2017 by the rejection of the second class action application, an action brought on behalf of consumers against the European Commission’s infringement decision against Mastercard. Brexit – House of Lords competition inquiry On July 21, 2017, the House of Lords EU Internal Market Sub-Committee launched an inquiry into the impact of Brexit on UK competition policy. The stated focus of the inquiry was to explore: (i) opportunities and challenges in re-shaping UK competition policy post-Brexit; (ii) the implications of Brexit for the application and enforcement of competition law in the UK; (iii) whether UK authorities have the capacity and resources to cope with additional responsibilities and a greater caseload; (iv) potential state aid obligations in any UK-EU free trade agreement; and (v) future cooperation between the UK and the EU on investigations and enforcement actions. The Sub-Committee received a number of written responses to its call for evidence, including from the CMA and the CAT. Those responses addressed a number of key issues, including (i) consistency of interpretation as between UK and EU competition law; (ii) conduct of parallel competition law investigations; and (iii) cooperation between the UK authorities and the European Commission in terms of enforcement. The Sub-Committee concluded its hearing of oral evidence in November 2017, and is expected to publish its report in early 2018. 8.     Market abuse and Insider Trading and other Financial Sector Wrongdoing FCA Enforcement: insider dealing As we reported in our 2017 Mid-Year United Kingdom White Collar Crime Alert, the FCA’s 2016/17 Enforcement Performance Account, indicated that as at March 31, 2017 the FCA had 122 market abuse cases open. Despite this, the latter half of 2017 has been quiet in terms of criminal enforcement for insider dealing with the FCA bringing no new cases and securing no new convictions. Since 2008, when the FCA secured its first conviction for insider dealing the agency has secured over 30 convictions for insider dealing, a crime that had not been prosecuted by the authority prior to 2008. Prior to 2008, the FSA (the FCA’s predecessor) had relied on civil enforcement powers under Financial Services and Markets Act 2000 (“FSMA”) to sanction those accused of market abuse. Fabiana Abdel-Malek and Walid Anis Choucair In our 2017 Mid-Year United Kingdom White Collar Crime Alert, we reported that Ms Abdel-Malek and Mr Choucair had been charged with five counts of insider dealing, contrary to section 52(2)(b) and 52(1) of the Criminal Justice Act 1993 following a joint investigation between the FCA and the NCA. The alleged insider dealing took place between June 3, 2013 and June 19, 2014. In that period, it is alleged that Mr Choucair used inside information that was passed to him by Ms Abdel-Malek to trade certain stocks realising a profit of almost £1.4 million. Manjeet Mohal and Reshim Birk In our 2015 Year-End United Kingdom White Collar Crime Alert, we reported that the FCA had charged Manjeet Singh Mohal and Reshim Birk in respect of offences of insider dealing, contrary to sections 52(1) and 52(2)(b) of the Criminal Justice Act 1993. The offences related to the passing on, in 2012, of insider information relating to a takeover of Logica PLC by CGI Holdings (Europe) Limited. That information had come into Mr Mohal’s possession during his employment at Logica. Mr Mohal passed on that information to his neighbour, Reshim Birk, and another individual. Reshim Birk made a profits in excess of £100,000 by trading on the basis of that inside information. Mr Mohal and Mr Birk were sentenced on January 13, 2017. Mr Mohal was sentenced to 10 months’ imprisonment suspended for two years, together with 180 hours of community work. Mr Birk was sentenced to 16 months’ imprisonment suspended for two years, together with 200 hours of community work. Interactive Brokers (UK) On January 25, 2018, the FCA announced a fine of £1,049,412 against Interactive Brokers (UK) in relation to allegations of failings in its post trade systems and controls concerning the identification and reporting of suspicious transactions in relation to insider dealing. One Call Insurance Services Limited and John Radford On January 26, 2018, the FCA announced fines of £684,000 against Once Call Insurance Services Limited, and £468,600 against Mr Radford who was the company’s CEO and majority shareholder. In addition, the company has been prohibited from charging renewal fees to customers for 121 days which is expected to cost the company some £4.6 million. The failings alleged in the Final Notice relate to poor controls over client money with the company inadvertently using client funds for its working capital. Civil enforcement for market abuse Tesco PLC and Tesco Stores Limited We reported in detail on the final notice issued by the FCA against Tesco Stores PLC and Tesco Stores Limited for market abuse contrary to section 118(7) FSMA in our 2017 Mid-Year United Kingdom White Collar Crime Alert. As we noted, this was the first time the FCA has used its powers under section 384 of FSMA to require a listed company to pay compensation for market abuse.  The compensation scheme, administered by KPMG opened on August 23, 2017. Paul Axel Walker On November 22, 2017 the FCA issued its final notice against Paul Axel Walter for engaging in market abuse under section 118(5) of FSMA. Mr Walter, an experienced bond trader at a global investment bank, was fined £60,090 for placing misleading bids and quotes on six Dutch State Loans (“DSL”) in July and early August of 2014 on an inter-dealer platform. In 11 instances, Mr Walter had placed high bid quotes on DSLs that he had intended to sell, artificially causing others traders who were tracking his quotes to raise their bids in response to this. He would then cancel his bid and sell the loan at a higher price. On one instance Mr Walter had placed a low offer quote on a DSL that he was selling and, when other DSL sellers lowered their offer prices in response, cancelled his quote and purchased the DSLs at a lower price. Mr Walter used the anonymity offered by the platform to seek to avoid being attributed to the false bids that he had made. Although Mr Walter did not make any personal profit from his market abuse, and neither intended to commit market abuse nor foresee its consequences, the FCA stated that given his experience as a trader, his conduct constituted a serious failure to act in accordance with the standards reasonably expected of market participants. Damian Clarke In our 2017 Mid-Year United Kingdom White Collar Crime Alert we reported that Damian Clarke, a former equities trader at an international investment bank pleaded guilty to seven charges of insider trading. As previously reported, Mr Clarke was sentenced to two years in jail and barred by the FCA from performing any function related to a regulated activity. On July 24, 2017 Southwark Crown Court made a confiscation order for £350,000 against Mr Clarke, a figure which exceeded the profit generated through the insider trades he pleaded guilty to. The FCA successfully argued that Mr Clarke’s offences were such that he led a “criminal lifestyle” and had benefitted from general criminal conduct.  As a consequence the Court was entitled assume that profits made from other, non-indicted trading within a defined period were generated as a by-product of his insider trading and should be repaid.  This illustrates the draconian nature of sections 75(2) and 10 of the Proceeds of Crime Act 2002, which provide for wide ranging assumptions to be made about the origins of a defendant’s property if he is found to have benefitted from general criminal conduct.  These provisions will be engaged if specific offences have been committed, including certain money laundering offences or if the offence of which the defendant has been convicted forms part of a course of criminal conduct or was committed over a period of six months, and the defendant has benefitted by at least £5,000.  It is for the defence to disprove these assumptions. Tejoori Limited On December 14, 2017 the FCA imposed its first fine on an AIM company for late disclosure of inside information under Article 17(1) of the Market Abuse Regulation (Regulation 596/2014) (“MAR”). Tejoori Limited (“Tejoori”), a self-managed, closed-ended investment company was fined £70,000 for failing to disclose the sale of shares it held to another company for no initial consideration.  While press releases were made by both the purchaser and the company whose shares were transferred, neither made reference to Tejoori or the amount of consideration paid to Tejoori. Tejoori’s failure to disclose this information led to market speculation on the purchase price paid to Tejoori, causing Tejoori’s share price to rise by 38% over two days on August 22 and 23, 2016. When the London Stock Exchange contacted Tejoori’s nominated advisor to enquire about the sudden rise in its share price, Tejoori denied selling its shares and denied holding inside information.  Tejoori had been obliged to transfer its shares following exercise of “drag-along” rights by the majority shareholders and would only receive a payment for its shares under an earn-out provision in the share purchase agreement. Tejoori misunderstood this and believed, erroneously, that it would not be obliged to transfer its shares unless it received consideration under the earn-out. When, on August 24, 2017, Tejoori eventually released an announcement confirming the nature of the share sale, its closing share price fell 13%. Tejoori notified the FCA of its breach of Article 17(1) of MAR and cooperated with the FCA’s investigation, and therefore qualified for a 20% discount on the ultimate fine. EU developments Garlsson Real Estate SA, in liquidation, and others v Commissione Nazionale per le Società e la Borsa (Consob) (Case C-537/16) On 12 September 2017, Advocate General Campos Sanchez-Bordona (“AG”) handed down an opinion concerning the extent to which the principle of double jeopardy (“ne bis in idem“) applies when the laws of a member state permit the imposition of both administrative and criminal penalties in relation to market abuse.  The AG’s opinion confirms that when administrative sanctions under the Market Abuse Regulation (Regulation 596/2014) (“MAR”) are sufficiently onerous to be criminal in nature, a criminal prosecution for substantially the same conduct under the Directive on Criminal Sanctions for Market Abuse (2014/57/EU) (“CSMAD”) would engage Article 50 of the EU Charter, which sets out the principle of double jeopardy.  The AG opined that member states must, “establish appropriate procedural mechanisms to prevent the duplication of proceedings and ensure that a person is prosecuted and punished only once in respect of the same acts“. Although the opinion is advisory in nature, it foreshadows a potential divergence in the Court of Justice of the European Union (“CJEU”) approach to double jeopardy from that of the European Court of Human Rights (“ECtHR”).  In  A and B v Norway [2016] ECHR 987, the ECtHR found that the double jeopardy protection would not be infringed where two proceedings were integrated and sufficiently connected in time and substance. The UK is a signatory to the EU Charter, but not to Article 4 of Protocol No. 7 (the relevant provision of the ECHR).  Accordingly, the potential difference in the approaches taken by the CJEU and ECtHR will require careful monitoring. Firms should be aware that CSMAD applies to trading on an EU regulated market that is conducted from the UK.  This will remain the case following the UK’s exit from the EU. The following Gibson Dunn lawyers assisted in the preparation of this client update: Mark Handley, Steve Melrose, Sacha Harber-Kelly, Patrick Doris, Allan Neil, Deirdre Taylor, Emily Beirne, Jonathan Cockfield, Moeiz Farhan, Besma Grifat-Spackman, Yannick Hefti-Rossier, Meghan Higgins, Korina Holmes, Chris Loudon, Nooree Moola, Barbara Onuonga, Rebecca Sambrook, Frances Smithson, Caroline Ziser Smith, Syamack Afshar, Helen Elmer, Fatima Hammad, Clementine Hollyer and Rose Naing. Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following members of the firm’s White Collar Defence and Investigations Practice Group: London Philip Rocher (+44 (0)20 7071 4202, procher@gibsondunn.com) Sacha Harber-Kelly (+44 20 7071 4205, sharber-kelly@gibsondunn.com) Patrick Doris (+44 (0)20 7071 4276, pdoris@gibsondunn.com) Charles Falconer (+44 (0)20 7071 4270, cfalconer@gibsondunn.com) Charlie Geffen (+44 (0)20 7071 4225, cgeffen@gibsondunn.com) Osma Hudda (+44 (0)20 7071 4247, ohudda@gibsondunn.com) Penny Madden (+44 (0)20 7071 4226, pmadden@gibsondunn.com) Allan Neil (+44 (0)20 7071 4296, aneil@gibsondunn.com) Ali Nikpay (+44 (0)20 7071 4273, anikpay@gibsondunn.com) Deirdre Taylor (+44 (0)20 7071 4274, dtaylor2@gibsondunn.com) Mark Handley (+44 20 (0)7071 4277, mhandley@gibsondunn.com) Steve Melrose (+44 (0)20 7071 4219, smelrose@gibsondunn.com) Sunita Patel (+44 (0)20 7071 4289, spatel2@gibsondunn.com) Brussels Peter Alexiadis (+32 2 554 72 00, palexiadis@gibsondunn.com) David Wood (+32 2 554 72 10, dwood@gibsondunn.com) Attila Borsos (+32 2 554 72 10, aborsos@gibsondunn.com) Munich Benno Schwarz (+49 89 189 33-110, bschwarz@gibsondunn.com) Mark Zimmer (+49 89 189 33-130, mzimmer@gibsondunn.com) Frankfurt Finn Zeidler (+49 69 247 411-530, fzeidler@gibsondunn.com) Paris Nicolas Autet (+33 (0) 1 56 43 13 00, nautet@gibsondunn.com) Ahmed Baladi (+33 (0) 1 56 43 13 00, abaladi@gibsondunn.com) Nicolas Baverez (+33 (0) 1 56 43 13 00, nbaverez@gibsondunn.com) Eric Bouffard (+33 (0) 1 56 43 13 00, ebouffard@gibsondunn.com) Jean-Pierre Farges (+33 (0) 1 56 43 13 00, jpfarges@gibsondunn.com) Pierre-Emmanuel Fender (+33 (0) 1 56 43 13 00, pefender@gibsondunn.com) Benoît Fleury (+33 (0) 1 56 43 13 00, bfleury@gibsondunn.com) Bernard Grinspan (+33 (0)1 56 43 13 00, bgrinspan@gibsondunn.com) Dubai Graham Lovett (+971 (0) 4 318 4620, glovett@gibsondunn.com) Nooree Moola (+971 (0) 4 318 4643, nmoola@gibsondunn.com) Hong Kong Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Oliver D. Welch (+852 2214 3716, owelch@gibsondunn.com) Rebecca Sambrook (+852 2214 3729, rsambrook@gibsondunn.com) Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Patrick F. Stokes (+1 202-955-8504, pstokes@gibsondunn.com) Richard W. Grime (+1 202-955-8219, rgrime@gibsondunn.com) Scott D. Hammond (+1 202-887-3684, shammond@gibsondunn.com) D. Jarrett Arp (+1 202-955-8678, jarp@gibsondunn.com) Stephanie L. Brooker (+1 202-887-3502, sbrooker@gibsondunn.com) David P. Burns (+1 202-887-3786, dburns@gibsondunn.com) John W.F. Chesley (+1 202-887-3788, jchesley@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) David Debold (+1 202-955-8551, ddebold@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Michael Diamant (+1 202-887-3604, mdiamant@gibsondunn.com) Caroline Krass – (+1 202-887-3784, ckrass@gibsondunn.com) Judith A. Lee (+1 202-887-3591, jalee@gibsondunn.com) Linda Noonan (+1 202-887-3595, lnoonan@gibsondunn.com) Adam M. 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Farhang (+1 213-229-7005, mfarhang@gibsondunn.com) Douglas Fuchs (+1 213-229-7605, dfuchs@gibsondunn.com) Eric D. Vandevelde (+1 213-229-7186, evandevelde@gibsondunn.com) Francis Smithson (+1 213-229-7914, fsmithson@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) Palo Alto Benjamin B. Wagner (+1 650-849-5395, bwagner@gibsondunn.com) San Francisco Thad A. Davis (+1 415-393-8251, tadavis@gibsondunn.com) Marc J. Fagel (+1 415-393-8332, mfagel@gibsondunn.com) Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com) Michael Li-Ming Wong (+1 415-393-8234, mwong@gibsondunn.com) Rachel S. Brass (+1 415-393-8293, rbrass@gibsondunn.com) Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 24, 2018 |
Webcast – Challenges in Compliance and Corporate Governance -14th Annual Briefing

Our constantly-evolving regulatory landscape expands existing obligations while creating new compliance risks for companies big and small. Join our panel of experts as they review key developments in 2017 and offer valuable insight on how to address challenges forecasted for 2018. Topics discussed include: Global Enforcement and Regulatory Developments Change and Continuity in the New Administration Key Tips for Identifying and Addressing Top Areas of Compliance Risk Practical Recommendations for Improving Corporate Compliance DOJ and SEC Priorities, Policies, and Penalties Update on Key Governance Issues and Regulatory Requirements View Slides [PDF] PANELISTS: This year’s presentation assembles a deep bench of experts with broad expertise. The following panelists join moderator Joe Warin for the 14th annual installment of ‘Challenges in Compliance and Corporate Governance’: Gibson Dunn partner Stephanie L. Brooker, Co-Chair of the firm’s Financial Institutions Practice Group, is former Director of the Enforcement Division at the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). As a federal prosecutor, Stephanie served as the Chief of the Asset Forfeiture and Money Laundering Section in the U.S. Attorney’s Office for the District of Columbia. She represents financial institutions, multi-national companies, and individuals in connection with criminal, regulatory, and civil enforcement actions involving anti-money laundering (AML)/Bank Secrecy Act (BSA), sanctions, anti-corruption, securities, tax, and wire fraud New Gibson Dunn partner Avi S. Garbow, the former EPA General Counsel and co-chair of Gibson Dunn’s Environmental Litigation and Mass Tort Practice Group. As General Counsel, he successfully managed one of the most active regulatory and defensive litigation dockets among large federal agencies. Avi previously held positions in EPA’s enforcement office and served as a distinguished prosecutor in DOJ’s Environmental Crimes Section New Gibson Dunn partner Caroline Krass, the former CIA General Counsel and chair of Gibson Dunn’s National Security Practice Group. As General Counsel, Caroline oversaw more than 150 attorneys and advised on complex, highly sensitive issues, including cybersecurity, foreign investment in the U.S. and export controls, government investigations and litigation, and crisis management.  Previously, Caroline served as Acting Assistant Attorney General at the Department of Justice, as Special Counsel to the President for National Security Affairs, as a federal prosecutor, at the National Security Council, and at the Treasury and State Departments. Gibson Dunn partner Stuart Delery, the former Acting Associate Attorney General, the No. 3 position in the Justice Department. In that role, Stuart was a member of DOJ’s senior management and oversaw the civil and criminal work of five litigating divisions — Antitrust, Civil, Tax, Civil Rights, and Environment and Natural Resources — as well as other components. Previously, Stuart led the Civil Division, overseeing litigation involving the False Claims Act among other matters. Gibson Dunn partner Adam M. Smith, an experienced international trade lawyer who previously served in the Obama Administration as the Senior Advisor to the Director of OFAC and as the Director for Multilateral Affairs on the National Security Council. Adam focuses on international trade compliance and white collar investigations, including with respect to federal and state economic sanctions enforcement, the FCPA, embargoes, and export controls. Gibson Dunn partner Lori Zyskowski, a member of the firm’s Securities Regulation and Corporate Governance Practice Group who was previously Executive Counsel, Corporate, Securities & Finance at GE. Lori advises clients on a wide array of securities, compliance and corporate governance issues, and provides a unique perspective gained from over 12 years working in-house at S&P 500 corporations. Gibson Dunn partner F. Joseph Warin, Co-Chair of the firm’s White Collar Defense and Investigations practice and former Assistant United States Attorney in Washington, D.C. Joe is one of only ten lawyers in the United States with Chambers rankings in five categories. Chambers recently honored him with the Outstanding Contribution to the Legal Profession Award in 2017. Chambers Global 2017 ranked Mr. Warin a “Star” in USA – FCPA “with exceptional expertise across all aspects of anti-corruption law”. Chambers USA 2017 ranked him a “Star” in Nationwide FCPA and D.C. Litigation: White Collar Crime & Government Investigations. Chambers USA 2017 also selected him as a Leading Lawyer in the nation in the areas of Securities Regulation Enforcement and Securities Litigation, as well as in D.C. Securities Litigation. From 2015–2017, he has been selected by Chambers Latin America as a top-tier lawyer in Latin America-wide, Fraud & Corporate Investigations. In 2017, Who’s Who Legal selected him as a “Thought Leader: Investigations,” including “only the best of the best” of those listed in their guides and who obtained the biggest number of nominations from peers, corporate counsel and other market sources. In 2016, Who’s Who Legal and Global Investigations Review also named Mr. Warin to their list of World’s Ten-Most Highly Regarded Investigations Lawyers. He has been listed in The Best Lawyers in America® every year from 2006 – 2017 for White Collar Criminal Defense. BTI Consulting named Mr. Warin to its 2017 BTI Client Service All-Stars list, recognizing lawyers who “truly stand out as delivering the absolute best client service.” Best Lawyers® also named Mr. Warin 2016 Lawyer of the Year for White Collar Criminal Defense in the District of Columbia. In 2016, he was named among the Lawdragon 500 Leading Lawyers in America. Mr. Warin also was recognized by Latinvex as one of its 2017 Latin America’s Top 100 Lawyers. He was selected as a 2015 Top Lawyer for Criminal Defense by Washingtonian magazine. U.S. Legal 500 has repeatedly named Mr. Warin a Leading Lawyer for White Collar Criminal Defense Litigation. Benchmark Litigation has recognized him as a U.S. White Collar Crime Litigator Star for seven consecutive years (2011–2017). MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 3.0 credit hours, of which 3.00 credit hours may be applied toward the areas of professional practice requirement.  This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast.  Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 2.50 hours. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.

January 9, 2018 |
Webcast: FCPA Trends in the Emerging Markets of China, Russia, Latin America, India and Africa

Corruption was a defining characteristic of a roller-coaster 2017, with landmark Foreign Corrupt Practices Act (“FCPA”) enforcement actions, the passage of historic anti-bribery legislation in key markets, and sustained grassroots anti-corruption movements threatening to upend established political orders. As companies increasingly look to do business in emerging markets, the ever-present threat of corruption creates an environment fraught with commercial, legal and reputation risk. Join our team of experienced international anti-corruption attorneys to learn more about how to do business in China, Russia, Latin America, India and Africa without running afoul of anti-corruption laws, including the FCPA. View Slides [PDF] Topics to be discussed: An overview of FCPA enforcement statistics and trends for 2017; The corruption landscape in key emerging markets, including recent headlines and scandals; Lessons learned from local anti-corruption enforcement in China, Russia, Latin America, India and Africa; Key anti-corruption legislative changes in China, Russia, Latin America, India and Africa; and Mitigation strategies for businesses operating in high-risk markets. PANELISTS: Kelly Austin Partner-in-Charge of Gibson Dunn’s Hong Kong office and a member of the firm’s Executive Committee. Ms. Austin’s practice focuses on government investigations, regulatory compliance and international disputes. She has extensive experience in government and corporate internal investigations, including those involving the FCPA, anti-money laundering, securities, and trade control laws. Ms. Austin also regularly guides companies on creating and implementing effective compliance programs. Joel Cohen Trial lawyer and former federal prosecutor, Mr. Cohen is a partner in Gibson Dunn’s New York office, Co-Chair of the firm’s White Collar Defense and Investigations Group, and a member of its Securities Litigation, Class Actions and Antitrust & Competition Practice Groups. He has been lead or co-lead counsel in 24 civil and criminal trials in federal and state courts, and he is equally comfortable in leading confidential investigations, managing crises or advocating in court proceedings. Mr. Cohen’s experience includes all aspects of FCPA/anticorruption issues, in addition to financial institution litigation and other international disputes and discovery. Sacha Harber-Kelly New Partner in Gibson Dunn’s London office and a member of the firm’s White Collar Defense and Investigations Practice Group. Mr. Harber-Kelly was a prosecutor from 2007 to 2017 with the U.K.’s Serious Fraud Office, in the Anti-Corruption and Bribery Division. He handled some of the largest and most complex cases brought by the SFO, and he was centrally involved in the U.K.’s development of a Deferred Prosecution Agreement (DPA) regime. Benno Schwarz German-qualified partner in Gibson Dunn’s Munich office and a member of the firm’s International Corporate Transactions and White Collar Defense and Investigations Practice Groups. Mr. Schwarz has many years of experience in the area of corporate anti-bribery compliance, especially issues surrounding the enforcement of the US FCPA and the UK Bribery Act as well as Russian law. F. Joseph Warin Partner in Gibson Dunn’s Washington, D.C. office, Chair of the office’s Litigation Department, and Co-Chair of the firm’s White Collar Defense and Investigations Practice Group. Mr. Warin is regarded as a top lawyer in FCPA investigations, FCA cases, and special committee representations. He has handled cases and investigations in more than 40 states and dozens of countries in matters involving federal regulatory inquiries, criminal investigations and cross-border inquiries by dozens of international enforcers, including UK’s SFO and FCA, and government regulators in Germany, Switzerland, Hong Kong, and the Middle East. MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 2.50 credit hours, of which 2.50 credit hours may be applied toward the areas of professional practice requirement.  This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast.  Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 2.00 hours. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.

January 2, 2018 |
2017 Year-End FCPA Update

Click for PDF When President Jimmy Carter signed the Foreign Corrupt Practices Act (“FCPA”) into law on December 19, 1977, not many predicted the dramatic impact this singular U.S. statute would still be having on the global rule of law some 40 years later.  Indeed, the FCPA seems to have truly hit its stride as it passes 40 and looks toward its fifth decade of existence.  Almost poetically, this 40th year of the FCPA saw 39 combined enforcement actions by the U.S. Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”), the statute’s dual enforcers, joined in many cases by a global legion of anti-corruption enforcers unlike anything imagined four decades ago.  In no small part the FCPA’s coming of age is due to the fact that the FCPA—the only one of its kind when enacted—is now joined by numerous other international corruption laws, multinational conventions, and hundreds of investigators, prosecutors, and regulators worldwide with a mission of ensuring a level playing field in global business markets. This client update provides an overview of the FCPA and other domestic and foreign anti-corruption enforcement, litigation, and policy updates in 2017, as well as the trends we see from this activity. FCPA OVERVIEW The FCPA’s anti-bribery provisions make it illegal to corruptly offer or provide money or anything else of value to officials of foreign governments, foreign political parties, or public international organizations with the intent to obtain or retain business.  These provisions apply to “issuers,” “domestic concerns,” and those acting on behalf of issuers and domestic concerns, as well as to “any person” who acts while in the territory of the United States.  The term “issuer” covers any business entity that is registered under 15 U.S.C. § 78l or that is required to file reports under 15 U.S.C. § 78o(d).  In this context, foreign issuers whose American Depository Receipts (“ADRs”) are listed on a U.S. exchange are “issuers” for purposes of the FCPA.  The term “domestic concern” is even broader and includes any U.S. citizen, national, or resident, as well as any business entity that is organized under the laws of a U.S. state or that has its principal place of business in the United States. In addition to the anti-bribery provisions, the FCPA also has “accounting provisions” that apply to issuers and those acting on their behalf.  First, there is the books-and-records provision, which requires issuers to make and keep accurate books, records, and accounts that, in reasonable detail, accurately and fairly reflect the issuer’s transactions and disposition of assets.  Second, the FCPA’s internal controls provision requires that issuers devise and maintain reasonable internal accounting controls aimed at preventing and detecting FCPA violations.  Prosecutors and regulators frequently invoke these latter two sections when they cannot establish the elements for an anti-bribery prosecution or as a mechanism for compromise in settlement negotiations.  Because there is no requirement that a false record or deficient control be linked to an improper payment, even a payment that does not constitute a violation of the anti-bribery provisions can lead to prosecution under the accounting provisions if inaccurately recorded or attributable to an internal controls deficiency. 40 YEARS OF FCPA ENFORCEMENT STATISTICS On this the 40th anniversary of the FCPA, we have expanded the traditional 10-year FCPA enforcement statistics that have become a mainstay of our semi-annual updates over the past decade to detail the entire history of FCPA enforcement by the numbers.  These statistics detail the meteoric rise of FCPA enforcement—from the sleepy 1970s, 80s, and 90s, through the bustling 2000s.  They also demonstrate the increasingly stiff penalties imposed in FCPA enforcement actions, by dollar and by the increasing certitude of time behind bars, as well as the most frequent situses of FCPA violations, with China holding a commanding lead after dominating the last decade in FCPA enforcement. 2017 FCPA ENFORCEMENT TRENDS With dozens of dedicated and talented enforcement lawyers at DOJ and the SEC, and a team of law enforcement agencies working alongside them, it is little wonder that the FCPA’s 40th year was one of its most prolific.  There is an energy in the hallways of the Bond Building, where DOJ’s FCPA Unit is staffed with a driven and relatively young team of prosecutors—clocking in at a median age just shy of 40, most were not alive when the statute was signed into law.  Led by the articulate and indefatigable Dan Kahn, the majority of the 31 attorneys currently assigned to the Unit attended elite law schools, nearly 70% completed prestigious federal judicial clerkships early in their careers, and while more than 80% have private practice experience, the majority started with prior prosecutorial experience.  Charles Cain, a quick study who distills complicated scenarios effortlessly, just this year assumed leadership of the SEC’s FCPA Unit.  His attorneys likewise have deep experience, with the majority of the 31 attorneys joining the Unit from other positions at the SEC and nearly half having spent five years or more in the Unit.  Each agency’s commitment to anti-corruption enforcement was on display during the second half of the year, with 21 combined FCPA enforcement actions in the last six months, bringing the total to 39 in 2017. In each of our year-end FCPA updates, we seek not only to report on the year’s FCPA enforcement actions but also to identify and synthesize the trends that stem from these actions.  For 2017, five key enforcement trends stand out from the rest: 1.      Multi-jurisdictional anti-corruption resolutions continue apace; 2.      DOJ continues to demonstrate a focus on culpable individuals; 3.      DOJ and the SEC bring FCPA cases absent proof of bribery; 4.      Recurring enforcement actions; and 5.      DOJ and the SEC push the boundaries of “foreign official.”       Multi-Jurisdictional Anti-Corruption Resolutions Continue Apace The FCPA was born of the policy judgment that corruption is bad business, and U.S. persons, companies, and those operating within the U.S. financial system should not profit from it.  Of course, this was not a view uniformly held in 1977, and the reality is that there are still corners of the world where corruption is the norm rather than the exception.  In these economies, the criticism has long been that foreign companies and individuals who do not have to play by the U.S. rulebook have an unfair advantage over those subject to the FCPA.  Thus, one of the most important efforts in FCPA enforcement has been DOJ and SEC lawyers helping to build an aligned multinational network of law enforcers, aided by expanded legal tools, that together are making it increasingly more difficult for corrupt actors to engage in bribery with impunity.  One way in which this increasingly complex enforcement environment manifests itself is coordinated, multi-jurisdictional anti-corruption actions involving DOJ and/or the SEC and any one (or more) of a growing number of their foreign counterparts.  Four examples highlighted this phenomenon in 2017, resulting in more than $3 billion in cumulative corporate penalties. The year in 2017 FCPA enforcement came to a roaring close with the announcement of a coordinated anti-corruption resolution with Singaporean shipyard company Keppel Offshore & Marine Ltd. (“KOM”).  KOM is alleged to have paid, between 2001 and 2014, approximately $55 million in bribes to Brazilian government officials, including certain officers of Petróleo Brasileiro S.A. – Petrobras (“Petrobras”), Brazil’s state-owned oil company and the center of the Operation Car Wash investigation we have been reporting on for the past several years.  The corrupt payments reportedly helped KOM win 13 contracts that netted the company more than $351 million in profits. To resolve these allegations, KOM agreed to pay combined financial penalties of more than $422 million to authorities in the United States, Brazil, and Singapore.  Specifically, DOJ calculated a total U.S. criminal fine of $422,216,980, and agreed with KOM, the Ministério Público Federal in Brazil, and the Attorney General’s Chambers in Singapore that this criminal fine would be satisfied by KOM paying 50% ($211,108,490) to Brazilian authorities and 25% ($105,554,245) to each of the other two.  The total U.S. criminal fine reflected a 25% discount from the bottom of the U.S. Sentencing Guidelines range, the maximum amount KOM was entitled to under DOJ policy based on its significant cooperation but failure to voluntarily disclose the conduct at issue.  The U.S. resolution took the form of a deferred prosecution agreement with KOM and a guilty plea by its U.S. subsidiary, each charging conspiracy to violate the FCPA’s anti-bribery provisions; the Singaporean resolution took the form of a “conditional warning” from the Corrupt Practices Investigation Bureau; and the Brazilian resolution took the form of a leniency agreement with the Ministério Público Federal.  DOJ did not impose a compliance monitor on KOM, but KOM did agree to submit annual reports to DOJ on the status of its compliance program over the three-year term of the deferred prosecution agreement.  Because KOM is not an issuer, there was no parallel SEC enforcement action. In another multi-jurisdictional enforcement action arising from Operation Car Wash, on November 29, 2017, DOJ announced an FCPA resolution with Dutch oil and gas services provider SBM Offshore N.V.  According to the charging documents, from 1996 to 2012 SBM conspired to pay more than $180 million in commissions to third parties, knowing that at least part of the funds would be used to bribe government officials in Angola, Brazil, Equatorial Guinea, Iraq, and Kazakhstan.  SBM reportedly gained more than $2.8 billion in profits from projects received in return for these illicit payments. As we reported in our 2014 Year-End FCPA Update, SBM previously reached a $240 million anti-corruption settlement with the Dutch Public Prosecutor (Openbaar Ministerie) in November 2014 arising from substantially the same course of conduct.  DOJ closed its investigation at that time, with no intention of bringing a parallel enforcement action of its own, since at that time there was no evidence of conduct in the United States sufficient to vest jurisdiction over the non-issuer Dutch entity.  However, in 2016 DOJ reopened its investigation based on new evidence that a substantial portion of the corrupt scheme was allegedly managed by a U.S.-based executive of a U.S. subsidiary of SBM.  In addition, this new evidence opened the allegations of corruption in Iraq and Kazakhstan, which were not part of the original resolution with Dutch authorities. To resolve the November 2017 U.S. charges, SBM agreed to pay a $238 million criminal penalty in connection with a deferred prosecution agreement, and to have its U.S. subsidiary plead guilty, with both charging documents alleging a conspiracy to violate the FCPA’s anti-bribery provisions.  Notably, SBM did not receive voluntary disclosure credit from DOJ, even though it voluntarily disclosed the matter to DOJ and Dutch authorities, because SBM allegedly failed to bring the full facts and circumstances to DOJ’s attention for one year, which was not timely according to DOJ.  With only a 25% discount from the bottom of the U.S. Sentencing Guidelines range for cooperation, rather than the 50% discount from a lower Guidelines range it may have received if this matter had been viewed as a voluntary disclosure, SBM’s penalty should have been set at $3.83 billion.  The $238 million fine (roughly 7% of this discounted figure) reflects the $240 million already paid to Dutch authorities, an additional amount (reportedly $342 million) to be paid to Brazilian authorities, and most significantly, a desire to “avoid[] a penalty that would substantially jeopardize the continued viability of the Company.”  DOJ did not impose a compliance monitor on SBM, but SBM did agree to submit annual reports to DOJ on the status of its compliance program over the three-year term of the deferred prosecution agreement.  Because SBM is not an issuer, there was no parallel SEC enforcement action. Still another multi-jurisdictional anti-corruption resolution is that of Swedish telecom company and former ADR issuer Telia Company AB, which was announced jointly by authorities in the United States, the Netherlands, and Switzerland on September 21, 2017.  Weighing in at more than $965 million, the Telia enforcement action is one of the largest in global anti-corruption history.  Similar to the VimpelCom resolution, reported in our 2016 Mid-Year FCPA Update, this case arose from allegations that Telia paid hundreds of millions of dollars to the daughter of the President of Uzbekistan—including making payments to a shell company beneficially owned by the daughter, as well as purchasing at an inflated price a company in which she held a financial stake—all to facilitate entry into and licenses to operate in the Uzbek telecommunications market.  The revenue Telia generated from its business in Uzbekistan allegedly totaled more than $2.5 billion, on which Telia allegedly earned $457 million in profits. To resolve the U.S. charges, Telia entered into a deferred prosecution agreement with DOJ and had its Uzbek subsidiary plead guilty to charges of conspiracy to violate the FCPA’s anti-bribery provisions.  The parent also consented to an SEC administrative cease-and-desist order alleging FCPA bribery and internal controls violations.  In addition, Telia reached parallel resolutions with the Dutch Public Prosecutor (Openbaar Ministerie) and Swedish Prosecution Authority (Åklagarmyndigheten).  After netting out a series of financial credits and offsets, Telia is expected to pay $274.6 million to DOJ, $274 million to the Dutch Public Prosecutor, $208.5 million to the SEC, and $208.5 million to either the Dutch Public Prosecutor or Swedish Prosecution Authority.  (The uncertainty of the final payment is a function of Swedish law, which may require prosecutors to first establish the corruption beyond a reasonable doubt in ongoing criminal cases against individual Telia executives before it may accept its share of the corporate settlement.)  Notably, not only was Telia able to escape a compliance monitor as part of its U.S. resolution, but it also is not required to report annually on its compliance program during the term of the deferred prosecution agreement. In addition to the three discussed above, we reported on a fourth multi-jurisdictional anti-corruption enforcement action of 2017, involving Rolls Royce plc, in our 2017 Mid-Year FCPA Update.  The following chart captures such resolutions from 2016 and 2017 and demonstrates this growing trend, which we expect will continue to be a significant part of global anti-corruption enforcement.       Multi-National Anti-Corruption Enforcement Actions – 2016 & 2017 Company Total Resolution U.S. Portion Other Countries Involved – Payments Keppel Offshore & Marine (Dec. 2017) $      422,216,980 $  105,554,245 (DOJ) Brazil (Ministério Público Federal) Singapore (Atty. Gen.’s Chambers) $  211,108,490 $   105,554,245 SBM Offshore (Nov. 2017) $    820,000,000 $ 238,000,000 (DOJ) Brazil (Ministério Público Federal) Netherlands (Openbaar Ministerie) $   342,000,000 $   240,000,000 Telia (Sep. 2017) $       965,773,949 $  483,273,949 (DOJ / SEC) Netherlands (Openbaar Ministerie) Sweden (Åklagarmyndigheten) $    274,000,000 $    208,500,000 Rolls-Royce (Jan. 2017) $      800,305,272 $  169,917,710 (DOJ) Brazil (Ministério Público Federal) United Kingdom (Serious Fraud Office) $      25,579,170 $    604,808,392 Odebrecht & Braskem (Dec. 2016) $    3,557,625,337 $  252,893,801 (DOJ / SEC) Switzerland (Swiss Attorney General) Brazil (Federal Prosecution Office) $    210,893,801 $ 3,093,837,736 Embraer (Oct. 2016) $     205,000,000 $ 185,000,000 (DOJ / SEC) Brazil (Federal Prosecution Office) Brazil (Securities & Exchange Comm.) $      19,300,000 $        1,800,000 GlaxoSmithKline (Sep. 2016) $     509,000,000 $   20,000,000 (SEC) China (Changsha People’s Court) $    489,000,000 VimpelCom (Feb. 2016) $     795,300,000 $ 397,600,000 (DOJ / SEC) Netherlands (Openbaar Ministerie) $    397,500,000       DOJ Continues to Demonstrate a Focus on Culpable Individuals After years of Deputy Attorneys General issuing namesake memoranda pronouncing DOJ policy for corporate prosecutions, the 2015 “Yates Memo” signaled an emphatic shift toward holding individual actors accountable for corporate misconduct.  This focus on individual liability has survived and even flourished through the shift in administrations, with nearly 70% of DOJ’s 2017 FCPA enforcement docket constituting prosecutions against individual defendants.  (The percentage is even higher if non-FCPA charges arising from FCPA investigations are considered.)  Indeed, DOJ’s 20 individual FCPA prosecutions this year is the highest number in any of the FCPA’s 40-year history except 2010, the year of the numerous (and subsequently dismissed) SHOT Show indictments.  The SEC, for its part, continues to espouse the importance of individual accountability, with Co-Director of Enforcement Steven Peiken most recently asserting that individual liability will be an “intense focus [of the SEC] in every FCPA investigation.”  Yet the SEC’s numbers for 2017 continue to reflect the inverse of DOJ’s, with individuals representing 30% of the SEC’s FCPA enforcement docket. There are several subsidiary points to be made of DOJ’s focus on individual culpability. First, it has been a commonly recited critique of recent years that DOJ and the SEC have focused too heavily on corporate liability in FCPA enforcement, and not sufficiently on holding accountable the individual actors responsible for the corporate FCPA violations.  Whether or not this is a fair criticism historically, certainly it does not accurately reflect 2017 FCPA enforcement, and our suspicion is that it will not in years to come.  DOJ’s 2017 enforcement docket, in particular, makes good on statements that DOJ officials have been making for years about its focus on prosecuting culpable individuals.  Examples from 2017 FCPA enforcement include: KOM Lawyer – On August 29, 2017, senior KOM lawyer Jeffrey S. Chow entered a guilty plea in the U.S. District Court for the Eastern District of New York to a single count of conspiracy to violate the FCPA’s anti-bribery provisions.  As allocuted at his plea hearing, Chow was a more than 25-year lawyer at KOM responsible for, among other things, drafting and preparing contracts with the company’s agents.  In the course of executing these duties, Chow became aware that the agent KOM had hired for Petrobras business was being overpaid, sometimes by millions of dollars.  Although he did not negotiate the contracts or make the decision to pay the bribes, Chow admitted that his role in drafting the contracts gave the illicit payments a semblance of legality and was therefore an important part of the corrupt scheme.  Chow’s plea was unsealed on December 26, 2017, days after charges were filed against his former employer as described above. Rolls-Royce Five – On November 7, 2017, nearly a year after the corporate resolution covered in our 2017 Mid-Year FCPA Update, FCPA charges were unsealed in the U.S. District Court for the Southern District of Ohio against three former Rolls-Royce employees (James Finley, Keith Barnett, and Aloysius Johannes Jozef Zuurhout), a former company intermediary (Petros Contoguris), and an executive of an international engineering and consulting firm working with Rolls-Royce (Andreas Kohler).  The allegations concern an alleged plot to bribe officials of a state-owned joint venture between the governments of China and Kazakhstan, formed to transport natural gas between the two nations.  The Rolls-Royce defendants allegedly disguised corrupt payments as commissions to Contoguris’s company, which then passed portions of those payments on to Kohler’s firm to use as bribes.  Contoguris, a Greek citizen believed to be residing in Turkey, has yet to be brought before the court and has been deemed by DOJ to be a fugitive.  Contoguris has been indicted on seven counts of FCPA bribery, 10 counts of money laundering, and one count each of conspiracy to violate these two statutes.  The other four defendants have each pleaded guilty to criminal informations charging conspiracy to violate the FCPA and/or substantive FCPA bribery violations. SBM Executives – In early November 2017, weeks before the corporate resolution described above, two former executives of SBM Offshore were charged criminally for their role in the corruption scheme.  Anthony Mace and Robert Zubiate, respectively the former CEO of the parent company and a sales and marketing executive of its U.S. subsidiary, pleaded guilty to one count each of FCPA conspiracy in connection with the company’s bribery of government officials in Angola, Brazil, and Equatorial Guinea.  The charges against Mace are noteworthy not only in that he was the CEO of a major international company, but also because the entire theory of liability was so-called willful blindness—i.e., that he authorized payments to third parties without actually knowing that they would be used for corrupt purposes, but while being “aware of a high probability [that] these payments were bribes and deliberately avoided learning the truth” about them. Embraer Executive – On December 21, 2017, more than a year after the corporate resolution covered in our 2016 Year-End FCPA Update, former Embraer sales executive Colin Steven was charged by criminal information in the U.S. District Court for the Southern District of New York.  Steven, a UK citizen residing in the United Arab Emirates while working for the Brazilian aircraft company, pleaded guilty to substantive and conspiracy FCPA and money laundering violations in connection with a scheme to pay $1.5 million in bribes to an official of Saudi Arabia’s state-owned oil company to secure the $93 million sale of three airplanes, as well as a related personal enrichment kickback scheme.  Steven also pleaded guilty to making a false statement to FBI agents concerning the purpose of the funds related to the kickback scheme. Odebrecht-Related Charges – Although little is known about these cases due to the fact that virtually all filings are under seal, FCPA Unit prosecutors have filed non-FCPA charges against two individuals reportedly connected to the wide-ranging Odebrecht bribery scheme reported on in our 2016 Year-End FCPA Update.  On April 20, 2017, Paulo César de Miranda and Barry W. Herman were charged by criminal complaint with one count each of failing to report a foreign financial account.  Miranda was also charged with a second count of making and using a false document. Second, the FCPA’s anti-bribery provisions, by their plain terms, do not cover the receipt of bribes by foreign government officials.  This was a conscious decision by Congress, which in passing the FCPA sought to regulate the domestic effects of corrupt business practices without treading too much upon the sovereignty of foreign nations and their own government officials.  Decades ago, DOJ sought to get around this statutory barrier by charging foreign official bribe recipients with conspiracy to violate the FCPA.  This approach was soundly rejected in a per curiam opinion of the U.S. Court of Appeals for the Fifth Circuit in United States v. Castle, 925 F.2d 831 (5th Cir. 1991), and has not been revisited since.  However, as we have noted in recent years (e.g., 2011 Year-End FCPA Update), DOJ has found the money laundering statute to be an effective tool for holding foreign official bribe recipients criminally liable where they use the U.S. financial system to launder the proceeds of their corruption.  Although these are not “FCPA” cases, they are generally prosecuted by the FCPA Unit, often in conjunction with FCPA cases, as can be seen from the following 2017 examples: PDVSA Defendants – DOJ has announced and unsealed the ninth and tenth guilty pleas in its ongoing investigation of a “pay to play” corruption scheme involving Venezuelan state-owned oil company Petróleos de Venezuela S.A. (“PDVSA”), which we last covered in our 2017 Mid-Year FCPA Update.  Specifically, on October 11, 2017, Florida businessman Fernando Ardila-Rueda pleaded guilty to substantive and conspiracy FCPA bribery charges, and on June 21, 2017, the Court unsealed the prior guilty plea to money laundering conspiracy by PDVSA purchasing representative and foreign official Karina Del Carmen Nunez-Arias, in connection with hundreds of thousands of dollars in bribes paid to place Ardila-Rueda’s company on bidding panels for PDVSA projects.  In total, six businesspersons and four PDVSA officials have been charged with and pleaded guilty to FCPA and money laundering offenses, respectively, in connection with this investigation to date.  Notably, Nunez-Arias was charged in 2016, but the charges were kept under seal while the investigation developed, a standard practice in FCPA investigations that leads us always to caution that the true extent of FCPA enforcement during a given period is not always public knowledge. Petroecuador Defendant – On October 12, 2017, DOJ charged a former executive of Ecuadorean state-owned oil company Petroecuador, Marcelo Reyes Lopez, for his alleged role in an FCPA-related money laundering scheme.  The public, unredacted version of the indictment is extremely sparse, but a DOJ motion to enter a protective order limiting disclosure of information about the case alleges that it has developed evidence of an “extensive bribery scheme that existed to provide illicit payments to officials from [Petroecuador] in order to secure and profit from contracts with that company.”  Lopez has been detained pending a June 2018 trial date, and DOJ is seeking the forfeiture of six of his properties in Florida. Third, debates often ensue about whether the suspected corrupt payments at issue in FCPA cases were actually used for corruption or simply pocketed by a third party as fraud.  This truism of FCPA enforcement was explicitly alleged in two 2017 FCPA cases as follows: Vietnamese Skyscraper Defendants – We reported in our 2017 Mid-Year FCPA Update on FCPA charges arising from a plot to bribe an official of a Middle Eastern sovereign wealth fund to induce the official to cause the fund to purchase a financially distressed skyscraper in Hanoi.  On October 31, 2017, FBI agents arrested real estate broker Andrew Simon for his alleged role in the plot, which involves Simon’s former co-workers, Sang Woo and Joo Hyun Bahn; Bahn’s father and executive of the South Korean construction company who owned the distressed property, Ban Ki Sang; and a fashion designer who was supposed to broker the corrupt deal, Malcolm Harris.  Much to the surprise of everyone else in the alleged deal, Harris did not actually know the official at the sovereign wealth fund and used the $500,000 down payment on an agreed-upon $2.5 million bribe for his own enrichment.  Harris pleaded guilty to non-FCPA fraud charges and was sentenced in October 2017 to 42 months in prison; Woo has reportedly pleaded guilty and is cooperating with DOJ; Bahn is reportedly in plea discussions with DOJ; Simon has pleaded not guilty; and Sang, who is in South Korea, has not yet been brought before the court.  DOJ’s theory of FCPA liability for these defendants, even where there was no real corruption of a foreign official, is that the defendants (other than Harris) agreed to bribe a foreign official and that the agreement itself, even without money changing hands, was a violation of the anti-bribery provisions. Haitian Development Defendant – On August 29, 2017, DOJ unsealed a criminal complaint charging Joseph Baptiste, a retired U.S. Army colonel and founder of a non-profit formed to help Haiti’s poor, on charges stemming from his alleged role in a corruption scheme connected to a Haitian development project.  Unbeknownst to Baptiste, the project’s investors who provided him the bribe money were undercover FBI agents.  Unbeknownst to the undercover FBI agents, Baptiste used the $50,000 down payment on a bribe for his own personal expenses.  DOJ alleges that there was an FCPA violation because Baptiste allegedly intended to use additional payments for actual bribery of Haitian port officials.  Baptiste reportedly entered into a signed plea agreement with DOJ after being approached by authorities and before the charges were made public, but then backed out of that deal, leading to his arrest.  On October 4, 2017, DOJ filed an indictment charging Baptiste with FCPA, Travel Act, and money laundering violations. The final set of individual cases brought by DOJ in 2017 concerns a new branch of corruption at the United Nations.  We first reported in our 2015 Year-End FCPA Update on bribery charges implicating former President of the U.N. General Assembly John Ashe and a scheme to corruptly influence a plan to build a U.N.-sponsored conference center in Macau (a 2017 trial conviction of one of the businessmen involved in this scheme is discussed below).  On November 20, 2017, DOJ unsealed a criminal complaint alleging a completely distinct bribery scheme involving Ashe’s successor to the U.N. General Assembly presidency.  Chi Ping Patrick Ho, the head of a non-governmental organization that holds “special consultative status” at the United Nations and is associated with the China Energy Fund, and Cheikh Gadio, the former Foreign Minister of Senegal and a business consultant, were each charged with substantive and conspiracy FCPA and money laundering violations associated with two separate bribery schemes.  The first involved an alleged scheme to pay $2 million to the President of Chad to secure valuable oil concessions and reduce a substantial fine for environmental violations by Ho’s Chinese employer.  The second scheme, allegedly “hatched in the hallways of the United Nations,” involved a separate plan to bribe the current Foreign Minister of Uganda and then-President of the U.N. General Assembly with $500,000 for various illicit benefits, including a share in profits from a Ugandan joint venture with Ho’s Chinese employer.  Ho alone was indicted on these charges on December 18, 2017.  Neither individual has yet (publicly) entered a plea in connection with these charges. As noted in many of the cases described above, a substantial portion of the individual FCPA defendants in 2017 are foreign nationals.  Specifically, as shown below, 15 of the 23 individual defendants (nearly two-thirds) were foreign nationals.       DOJ and the SEC Bring FCPA Cases Absent Proof of Bribery In the opening paragraphs of each of our semi-annual reports we note that the FCPA’s accounting provisions enable DOJ and the SEC to bring FCPA charges against issuers and their representatives even in the absence of proven bribery.  This year, DOJ and the SEC utilized these provisions to bring several cases predicated upon aggressive theories of FCPA liability. In our 2017 Mid-Year FCPA Update, we reported on two such FCPA enforcement cases containing no allegations of actual bribery:  (1) the SEC’s cease-and-desist proceeding against Cadbury / Mondelēz International, where the violation alleged by the SEC was payments to an agent on whom due diligence was not conducted and no written documentation of activities was obtained; and (2) DOJ’s non-prosecution agreement with Las Vegas Sands, where the violation alleged by DOJ was payments to a Chinese consultant, continuing even after being warned of the consultant’s allegedly dubious business practices. More recently, on July 27, 2017, the SEC announced an FCPA cease-and-desist action against Texas-based oilfield services provider Halliburton Company relating to alleged accounting violations arising from its retention of a local Angolan company.  According to the charging document, in 2008 Halliburton customer Sonangol, the Angolan state-owned oil company, put pressure on Halliburton to partner with more locally-owned businesses to satisfy local content regulations for foreign firms operating in Angola.  In response, Halliburton retained and paid $3.7 million to a local company owned by a neighbor and friend of the Sonangol official responsible for approving Halliburton’s contracts.  There was no bribery alleged.  But the SEC contended that Halliburton violated its own internal controls over the approval of local business partners, including by subverting a required internal bidding process and by reclassifying the type of vendor to one with a lower degree of scrutiny, to expedite the retention of this local firm.  Further, while the SEC acknowledged that there were “possible justifications for selecting the local Angolan company,” the SEC found it significant that these justifications were discussed only in company e-mails and not documented in Halliburton’s accounting system.  Collectively these actions, the SEC contended, violated the books-and-records and internal controls provisions of the FCPA. To resolve these charges, Halliburton consented to the entry of a cease-and-desist order and agreed to pay $29.2 million, consisting of $14 million in disgorgement from contracts awarded during the relevant period, $1.2 million in prejudgment interest, and a $14 million civil penalty.  In addition, Halliburton was required to retain an independent consultant, focused on African operations, for an 18-month term.  Finally, the SEC also brought an action against Halliburton’s former Angola country manager, Jeannot Lorenz, who allegedly selected and caused the accounting violations associated with the retention of the vendor in question.  To settle his charges, Lorenz paid a $75,000 civil penalty and agreed to cease and desist from future violations of the FCPA’s accounting provisions.  DOJ closed its investigation without taking any action.       Recurring Enforcement Actions The FCPA now having been around for four decades, as well as the subject of some of the most aggressive corporate enforcement seen over the last 10-15 years, we are beginning to see more and more companies find themselves the subject of a second FCPA enforcement action.  For example, the Halliburton action of July 2017, described immediately above, follows a somewhat larger scale FCPA resolution between the company and the SEC in 2009 arising from the participation of its former subsidiary in the Bonny Island “TSKJ” liquid natural gas consortium in Nigeria, as covered in our 2009 Mid-Year FCPA Update. But Halliburton was only one of three companies to register a second FCPA charge in 2017.  In addition, as covered in our 2017 Mid-Year FCPA Update, Zimmer Biomet Holdings (formerly Biomet, Inc.) and Orthofix International each reached FCPA resolutions during the first half of the year that each followed prior FCPA enforcement actions in 2012.  Notably, it appears from the public documents that the companies’ reporting and oversight obligations imposed as part of the first FCPA resolutions played a role in some or all three of these companies uncovering the conduct leading to the second FCPA resolutions.  The lesson to be learned is that companies must not let down their guard following an FCPA settlement with DOJ and/or the SEC, as the standard obligation in most corporate FCPA resolutions to report for several years “credible evidence” of “corrupt payments” presents significant ongoing risk to the company if not handled appropriately. With an acknowledgement that the ever-changing corporate form renders this a somewhat imprecise exercise, at least 12 companies have had multiple FCPA resolutions. The industry sectors range widely from pharmaceutical companies, to information and infrastructure, to technology and telecommunications.       DOJ and the SEC Push the Boundaries of “Foreign Official” For years there has been debate, from the courts to congressional committees, about the FCPA’s application to employees of commercial entities owned or controlled by foreign governments.  To date, DOJ and the SEC have gotten the better of this “state-owned entities” argument, as efforts to amend the statute petered out and the courts have with virtual unanimity sided with the government’s view.  Unless and until there are further developments, we are guided by complex, multi-factored tests from United States v. Esquenazi, 752 F.3d 912 (11th Cir. 2014) and the DOJ/SEC FCPA Resource Guide, as described in our 2014 Mid-Year and 2012 Year-End FCPA updates, respectively. In 2017, DOJ and the SEC pushed the boundary on who constitutes a “foreign official” for purposes of the FCPA perhaps even a step further.  In two corporate FCPA settlements, they included allegations buried deep in the charging documents that, although they do not constitute binding precedent as they were settled outside of court, do give a window into the government’s increasingly expansive view of the statute’s coverage. The SEC’s final FCPA charges of 2017 were levied against Massachusetts-based medical diagnostic test manufacturer Alere, Inc.  On September 28, 2017, the SEC announced that Alere consented to a cease-and-desist order alleging a variety of accounting violations, principally related to alleged revenue recognition violations, but which also included the failure to prevent and properly record improper payments to foreign officials in Colombia and India.  To resolve the charges, Alere without admitting or denying the SEC’s findings agreed to pay more than $3.8 million in disgorgement plus prejudgment interest and a $9.2 million civil penalty.  Alere has announced that DOJ closed its investigation without taking action. The SEC alleged that Alere made corrupt payments to a manager of a health insurance company in Colombia.  Although the health insurance company was privately incorporated, the SEC alleged that Colombia’s Ministry of Health took control of the company following allegations of mismanagement.  According to the SEC, the health insurance company thus became “an instrumentality of the Government of Colombia and its employees were officials of the Government of Colombia.” The second allegation of note in this regard concerns DOJ’s charges against SBM Offshore discussed above, and specifically the allegations of corruption in Kazakhstan.  SBM was alleged to have made corrupt payments to obtain oil exploration and development contracts both to an employee of KazMunayGas, Kazakhstan’s state-owned oil company, and to an employee of a subsidiary of an Italian oil and gas company.  Although the latter entity is clearly commercial in nature, DOJ alleged that its employee “was acting in an official capacity for or on behalf of KazMunayGas” because his employer was granted a concession to operate the oil field.  In other words, consistent with a view espoused in FCPA Opinion Procedure Release 2010-03, covered in our 2010 Year-End FCPA Update, DOJ treated an employee of a commercial company as a “foreign official” for purposes of the FCPA based on the company’s license to operate on behalf of a state-owned entity. 2017 FCPA-RELATED POLICY DEVELOPMENTS       New FCPA Corporate Enforcement Policy One of the most challenging decisions any corporate counsel faces is whether, upon learning of suspected misconduct within the company, to self-report that information to government prosecutors and regulators.  Most companies operate with a sincere commitment to ethical conduct and transparency, and would be naturally inclined to make such reports and see the wrongdoers held accountable, particularly since in so many cases it is the company that has been victimized by the misconduct.  But the U.S. legal construct of respondeat superior liability, whereby the company itself may be held civilly or even criminally liable for the misdeeds of its representatives if there was at least some intention to benefit the company, even where the action was clearly against corporate policy, gives any company counsel pause.  Add to that prospect of potential corporate criminal liability the cost, collateral consequences (such as civil litigation), distraction, length, and uncertainty of corporate criminal investigations, and you have a recipe for what inevitably is a difficult disclosure decision. Recognizing these difficulties, and incentivized to encourage more corporate disclosures, DOJ has sought to provide greater certainty and transparency concerning the benefits of voluntary disclosure in anti-corruption cases.  This effort began with the announcement of a 12-month “FCPA Pilot Program” in April 2016, covered in our 2016 Mid-Year FCPA Update, which was subsequently extended and then, finally, codified in the U.S. Attorneys’ Manual as the new “FCPA Corporate Enforcement Policy,” announced by Deputy Attorney General Rod J. Rosenstein on November 29, 2017. The FCPA Corporate Enforcement Policy introduces a presumption that DOJ will decline prosecution of a company that voluntarily discloses FCPA-related misconduct, cooperates fully in the ensuing investigation, and appropriately remediates the misconduct.  There are, however, many caveats. First and foremost is what DOJ considers “appropriate remediation.”  To qualify for a “declination” under the FCPA Corporate Enforcement Policy, companies are required to disgorge any allegedly improper profits from the conduct.  This can be accomplished in the form of a resolution with a parallel regulator, such as the SEC, or it could take the form of the so-called “declination with disgorgement” resolutions we covered in our 2016 Year-End and 2017 Mid-Year FCPA updates.  In either event, even a “declination” under this policy may be accompanied by public allegations (or even admissions) of corporate misconduct and financial “penalties.” Second, the “presumption” of declination that accompanies a voluntary disclosure is just that, a “presumption” that may be overcome by “aggravating circumstances.”  Such circumstances enumerated in the FCPA Corporate Enforcement Policy include, but according to DOJ are not necessarily limited to:  (1) the involvement of executive management in the misconduct; (2) significant profits from the misconduct; (3) misconduct that was pervasive; and (4) “criminal recidivism.”  If DOJ determines that such aggravating circumstances (or others, not enumerated in the Policy) render it inappropriate to provide a “declination,” the FCPA Corporate Enforcement Policy provides that in the ensuing prosecution it will provide a 50% reduction off the low end of the U.S. Sentencing Guidelines range (except in cases of recidivism) and also generally not require a monitor for organizations that have implemented an effective compliance program.  Like the FCPA Pilot Program, for companies that do not self-disclose, but otherwise cooperate and undertake appropriate remediation, DOJ will provide at most a 25% discount off the bottom of the Guidelines range. There is no question that DOJ’s FCPA Corporate Enforcement Policy is a positive step forward in providing some transparency to companies that discover corruption-related misconduct.  Nevertheless, many questions concerning this policy abound.  For example, what is a “criminal recidivist”?  Another interesting and rather novel statement included in the Policy with no elaboration is that as a precursor to receiving mitigation credit, a company must “prohibit[] employees from using software that generates but does not appropriately retain business records and communications.”  Given the prevalence of commercial messaging apps throughout the workforce, the vast majority of which are used for completely legitimate means, companies will need to be prepared to address this issue.       Following Kokesh, IRS Reaffirms View Disgorgement Is Not Tax Deductible As reported in our client alerts 2017 Mid-Year FCPA Update and United States Supreme Court Limits SEC Power to Seek Disgorgement Based on Stale Conduct, in Kokesh v. SEC, 137 S. Ct. 1635 (2017), the Supreme Court unanimously held that disgorgement in an SEC enforcement proceeding is a “penalty” within the meaning of 28 U.S.C. § 2462 and therefore is subject to the five-year statute of limitations.  This decision limits the SEC’s ability to seek disgorgement based on conduct that occurred more than five years earlier, and also rejects the SEC’s long-held position that disgorgement is an equitable remedy not subject to any limitations period. Following Kokesh, on December 1, 2017, the Internal Revenue Service released a Chief Counsel Advice Memorandum (CCA 201748008) addressing the deductibility of amounts paid as disgorgement for securities law violations.  Similar to the May 2016 CCA covered in our 2016 Mid-Year FCPA Update, the IRS concludes that a taxpayer cannot claim a U.S. federal income tax deduction for a disgorgement payment associated with a securities law violation.  Section 162(f) of the Internal Revenue Code prohibits a deduction for any fine or similar penalty paid to a government for a violation of law.  In light of the Supreme Court’s ruling in Kokesh that disgorgement is equivalent to a penalty, the IRS took the view that disgorgement payments are penalties and therefore not deductible.       Global Magnitsky Executive Order on Human Rights Abuses / Corruption We have for years been following the U.S. government’s increasing focus on sanctioning foreign government officials engaged in corruption.  Examples covered in this Update include the increased employment of the money laundering statute for criminal prosecution of the individuals discussed above and in rem civil forfeiture actions against the corrupt proceeds discussed below. On December 20, 2017, prosecutors and regulators were handed still another tool in the fight against international corruption.  In an Executive Order titled, “Blocking the Property of Persons Involved in Serious Human Rights Abuse or Corruption,” President Trump declared “that the prevalence and severity of human rights abuse and corruption . . . have reached such scope and gravity that they threaten the stability of international political and economic systems.”  Relying on the Executive Order, on December 21, 2017 the Treasury Department’s Office of Foreign Assets Control (“OFAC”) designated 52 persons and entities, thereby making it unlawful for U.S. persons to engage with them in business transactions of any kind absent an OFAC license.  Notably, several of the listed individuals have been tied, directly or indirectly, to recent FCPA enforcement actions, including Dan Gertler, Gulnara Karimova, and Ángel Rondón Rijo. 2017 FCPA ENFORCEMENT LITIGATION       DOJ Secures Three FCPA-Related Trial Convictions As discussed in our 2009 Year-End FCPA Update, in 2009 the then-Assistant Attorney General for the Criminal Division proclaimed that year “the year of the FCPA trial” following four high-profile FCPA trial convictions.  The intervening years have seen somewhat more mixed results for DOJ’s FCPA Unit.  But 2017 again saw DOJ back on top, securing convictions in three separate trials involving FCPA and FCPA-related charges. First, as reported in our 2017 Mid-Year FCPA Update, on May 3, 2017 former Guinean Minister of Mines and Geology Mahmoud Thiam was found guilty by a Manhattan federal jury on one count of transacting in criminally derived property and one count of money laundering in connection with the alleged receipt of bribes to secure valuable investment rights in Guinea.  The Honorable Denise L. Cote denied Thiam’s motion for a new trial on July 11, and on August 25 sentenced Thiam to seven years’ imprisonment and ordered him to forfeit $8.5 million.  Thiam is appealing to the U.S. Court of Appeals for the Second Circuit. Second, on July 17, 2017, Heon-Cheol Chi, Director of the Korea Institute of Geoscience and Mineral Resources (“KIGAM”) Earthquake Research Center, was convicted by a federal jury in Los Angeles of one count of transacting in criminally derived property associated with payments from two seismological companies with business before KIGAM.  The jury did not reach a verdict on the other five money laundering counts with which Chi was charged, which were subsequently dismissed on DOJ’s motion.  On October 2, the Honorable John F. Walter sentenced Chi to 14 months in prison, along with a $15,000 fine.  Chi is appealing to the U.S. Court of Appeals for the Ninth Circuit. Third, on July 27, 2017, Macau billionaire Ng Lap Seng was convicted by a Manhattan federal jury for his role in a scheme to pay more than $1 million in bribes to two U.N. officials in connection with, among other things, a plan to build a U.N.-sponsored conference center in Macau.  After a four-week trial, the jury needed only hours to return a verdict finding Seng guilty on all six counts, including FCPA, federal programs bribery, and money laundering charges.  Seng has filed a Rule 33 motion for a new trial, which remains pending before the Honorable Vernon S. Broderick.  Judge Broderick denied DOJ’s request to revoke bail following the conviction, but has placed Seng on house arrest pending an early 2018 sentencing date.       Och-Ziff Defendants Oppose SEC Disgorgement and Injunctive Relief In our 2017 Mid-Year FCPA Update we covered the SEC’s civil complaint alleging that former Och-Ziff executive Michael Cohen and analyst Vanja Baros violated the FCPA’s anti-bribery provisions, among other securities law violations.  Cohen and Baros have filed separate motions to dismiss arguing, among other things, that the SEC is barred from seeking disgorgement and injunctive relief under the Kokesh decision, in which as discussed above the Supreme Court held that disgorgement is a “penalty” within the meaning of 28 U.S.C. § 2462 and therefore subject to the five-year statute of limitations.  Cohen and Baros contend that the bulk of the conduct in the SEC’s complaint is at least 10 years old.  Cohen further argues that the SEC’s complaint does not sufficiently allege that he had knowledge of the bribery scheme, while Baros, an Australian citizen living in the United Kingdom, argues that the court does not have personal jurisdiction over him.  The SEC opposed the motions to dismiss, and the parties presented oral argument before the Honorable Nicholas G. Garaufis of the U.S. District Court for the Southern District of New York on December 19, 2017.  A ruling is pending.       Hearing on Dmitry Firtash’s Motion to Dismiss As noted in our 2017 Mid-Year FCPA Update, in February 2017 Austria’s Constitutional Court approved the extradition of Ukrainian billionaire Dmitry Firtash to the United States to face FCPA charges that he authorized $18.5 million in bribes to Indian officials.  But on December 12, 2017, the extradition was stayed by the Austrian Supreme Court pending Firtash’s request for a new hearing in Austria and request that the Court of Justice of the European Union hear whether the extradition would violate the EU Charter on Human Rights. Meanwhile, in the U.S. proceedings, Firtash has moved in absentia to dismiss the indictment pending against him in the U.S. District Court for the Northern District of Illinois, arguing improper venue, that the laws he is charged with violating have no extraterritorial effect, and that “the prosecution is a violation of [his] due process rights because the United States has no legitimate interest in prosecuting the charged conduct.”  The Honorable Rebecca R. Pallmeyer heard two days of oral argument in September 2017, which of note featured DOJ FCPA Unit Chief Dan Kahn.  A ruling is pending.       Novel Motion to Unseal Indictment by Potential FCPA Defendant We reported in our 2017 Mid-Year FCPA Update on the curious case of a “John Doe” plaintiff who brought suit against DOJ alleging that DOJ violated his due process rights by accusing him in all but name of participating in the infamous Bonny Island Nigeria corruption scheme.  On April 11, 2017, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court order dismissing the novel claim as barred by the statute of limitations. Then, on September 29, 2017, “John Doe” Samir Khoury made the even more unorthodox move of filing a motion to unseal and then dismiss an indictment that may or may not have ever been filed against him.  Khoury, who is overtly described in public court records only as “LNG Consultant,” contends that the identifying information about his employment history, citizenship, and business relationship with various named parties together have “identified [him] in all respects except by name.”  Based on the conduct attributed to him in the charging documents of other defendants, as well as DOJ’s alleged refusal to confirm his status in the investigation, Khoury alleges that it is likely that an indictment has been pending against him under seal of the court since 2009, waiting for him to travel to the United States or another country with an extradition treaty.  Khoury contends that this amounts to a violation of his Speedy Trial Act rights and that any indictment must be unsealed and then dismissed as untimely under the applicable statute of limitations. DOJ attorneys have entered appearances in Khoury’s case, but all further substantive pleadings have been made under seal.       Siemens Defendant Makes Initial Court Appearance; Pleads Not Guilty In a case nearly as old as the Bonny Island bribery scandal, on December 22, 2017, former Siemens executive Eberhard Reichert appeared in the U.S. District Court for the Southern District of New York and entered a not guilty plea before the Honorable Denise L. Cote.  As discussed in our 2011 Year-End FCPA Update, Reichert was one of eight Siemens representatives indicted on FCPA charges in December 2011.  Since then, only one other defendant (Andres Truppel) has appeared to answer the criminal charges.  Reichert, who was extradited to the United States following his arrest in Croatia in September 2017, was released on bond pending a July 2018 trial date. 2017 FCPA-RELATED SENTENCING DOCKET Fifteen defendants were sentenced on FCPA and FCPA-related charges in 2017.  Sentences ranged from probationary, non-custodial sentences to as high as seven years in prison.  Similar to an observation we made in our 2015 Year-End FCPA Update, the data for 2017 show that one of the most pertinent factors in the sentencing of a defendant involved in an FCPA-related prosecution is whether the defendant additionally (or instead) faces a money laundering charge.  Whereas the FCPA carries a statutory maximum of five years per violation, the statutory maximum for money laundering is 20 years.  Further, the way in which sentences for money laundering offenses are calculated under the U.S. Sentencing Guidelines generally leads to higher advisory prison terms.  Although sentences vary by a wide degree depending on the facts of the case, the average prison term in 2017 for FCPA convictions not including a money laundering count was 19 months, whereas the average of FCPA-related convictions including a money laundering count was more than one-and-a-half times that, at 33.5 months. The sentences imposed in FCPA and FCPA-related cases in 2017 follow: Defendant Sentence Date Sentenced Date Charged Court (Judge) Comment $ Laundering Conviction? Ernesto Hernandez Montemayor 24 months 01/23/2017 11/06/2015 S.D. Tex. (Bennett) $2 million forfeiture Yes (no FCPA charge) Kamta Ramnarine 3 years’ probation 02/02/2017 08/15/2016 S.D. Tex. (Hinojosa) No Daniel Perez 3 years’ probation 02/02/2017 08/15/2016 S.D. Tex. (Hinojosa) No Victor Hugo Valdez Pinon 12 months, 1 day 03/02/2017 09/15/2016 S.D. Tex. (Bennett) $90,000 restitution + $275,000 forfeiture No Douglas Ray 18 months 04/17/2017 09/15/2016 S.D. Tex. (Bennett) $590,000 in restitution + $2.1 million forfeiture No Samuel Mebiame 24 months 06/14/2017 08/12/2016 E.D.N.Y. (Garaufis) No Dmitrij Harder 60 months 07/19/2017 01/06/2015 E.D. Pa. (Diamond) $100,000 fine + $1.9 million forfeiture No Mahmoud Thiam 84 months 08/28/2017 12/12/2016 S.D.N.Y. (Cote) $8.5 million forfeiture Yes (no FCPA charge) Frederic Pierucci 30 months 09/25/2017 11/27/2012 D. Conn. (Arterton) $20,000 fine No Amadeus Richers ~ 8 months 09/27/2017 12/04/2009 S.D. Fla. (Martinez) Extradited from Panama No Heon-Cheol Chi 14 months 10/02/2017 12/12/2016 C.D. Cal. (Walter) $15,000 fine Yes (no FCPA charge) Malcolm Harris 42 months 10/05/2017 12/15/2016 S.D.N.Y. (Ramos) $760,000 restitution + $500,000 forfeiture No (no FCPA charge) Boris Rubizhevsky 12 months, 1 day 11/13/2017 10/29/2014 D. Md. (Chuang) $26,500 forfeiture Yes (no FCPA charge) Eduardo Betancourt 12 months, 1 day 12/21/2017 02/02/2016 S.D. Tex. (Harmon) $150,000 restitution No (no FCPA charge) Franklin Marsan 12 months, 1 day 12/21/2017 02/02/2016 S.D. Tex. (Harmon) $150,000 restitution No (no FCPA charge) 2017 KLEPTOCRACY FORFEITURE ACTIONS For years we have been following DOJ’s Kleptocracy Asset Recovery Initiative, spearheaded by DOJ’s Money Laundering and Asset Recovery Section, which uses civil forfeiture actions to freeze, recover, and, in some cases, repatriate the proceeds of foreign corruption.  2017 saw increased coordination between attorneys from this section and DOJ’s FCPA Unit, as frequently they have been appearing in one another’s enforcement actions, working hand-in-glove across section lines. In our 2016 Year-End and 2017 Mid-Year FCPA updates, we reported on DOJ’s massive civil forfeiture action seeking to recover more than $1 billion in assets associated with Malaysian sovereign wealth fund 1Malaysia Development Berhad (“1MDB”).  In September 2017, however, DOJ obtained an indefinite stay of the forfeiture actions pending before the Honorable Dale S. Fischer of the U.S. District Court for the Central District of California because of concerns the civil forfeiture actions could jeopardize DOJ’s ongoing criminal investigation. In another significant civil forfeiture action, on July 14, 2017, DOJ announced the filing of a complaint to seize and forfeit $144 million in proceeds of alleged corruption involving Nigeria’s former Minister for Petroleum Resources, Diezani Alison-Madueke, and Nigerian businessmen Kolawole Akanni Aluko and Olajide Omokore.  The assets named in the complaint include most prominently an $80 million yacht and a $50 million Manhattan apartment.  Various parties have made an appearance in the action and asserted an interest in the property to be seized, including the Federal Republic of Nigeria. 2017 FCPA-RELATED PRIVATE CIVIL LITIGATION Despite the fact that the FCPA does not provide for a private right of action, civil litigants have long used a variety of causes of action, with varying degrees of success, to pursue private redress for losses allegedly associated with FCPA-related misconduct.       Shareholder Lawsuits Shareholder litigation all too frequently follows a company’s announcement of an FCPA-related event, either through a class action lawsuit brought on behalf of shareholders whose stock value has dropped, allegedly as a result of the misconduct, or a shareholder derivative lawsuit brought against the company’s directors for allegedly violating their fiduciary duties to run the business in a compliant manner.  Examples with significant developments during the second half of 2017 include: Braskem S.A. – On September 14, 2017, Brazilian chemical company Braskem agreed to a settle a class action lawsuit with a payment of $10 million to investors who alleged that the company committed securities fraud by misleading them regarding its role in the Operation Car Wash scandal.  As covered in our 2016 Year-End FCPA Update, Braskem pleaded guilty in December 2016 to conspiring to violate the FCPA’s anti-bribery provisions.  The Honorable Paul A. Engelmayer of the U.S. District Court for the Southern District of New York has granted preliminary approval to the settlement, with a final settlement hearing scheduled for February 2018. Och-Ziff Capital Mgmt. Group LLC – On September 29, 2017, the Honorable J. Paul Oetken of the U.S. District Court for the Southern District of New York for the second time dismissed certain securities fraud claims against Och-Ziff and senior executives alleging, among other things, that they failed to timely disclose the investigation that led to the DOJ/SEC FCPA resolution covered in our 2016 Year-End FCPA Update.  Other claims were allowed to proceed to discovery.  Plaintiffs’ motion to certify a class of investors is now fully briefed and awaiting disposition. Sinovac Biotech Ltd. – On July 3, 2017, shareholders of vaccine developer Sinovac Biotech filed a putative class action lawsuit in the U.S. District Court for the District of New Jersey alleging that the company misled investors about its corrupt business dealings in China.  The action came in the wake of a 2016 report published by a financial research firm that Sinovac’s CEO had bribed a Chinese official to obtain vaccine approval.  The report prompted an SEC investigation, later joined by DOJ, which allegedly caused the company’s stock price to drop.  On September 6, 2017, the named plaintiff voluntarily dismissed the action, which the court granted without prejudice. VimpelCom Ltd. – In late 2015, a putative class of investors sued VimpelCom (now VEON Ltd.) alleging violations of the federal securities laws after the company’s stock price dropped following revelations of the investigation leading to the FCPA resolution covered in our 2016 Mid-Year FCPA Update.  Among the allegations, the plaintiffs contend that VimpelCom made material misstatements and omissions in its SEC filings, including referencing an increase in the company’s subscriptions and revenue in Uzbekistan without disclosing that this was, at least in part, a result of bribery.  On September 19, 2017, the Honorable Andrew L. Carter, Jr. of the U.S. District Court for the Southern District of New York denied VimpelCom’s motion to dismiss most of the claims.  The company is scheduled to file an answer to the complaint in early 2018.       Civil Fraud Actions Associação Brasileira De Medicina De Grupo (“Abramge”), an association of Brazilian health insurers, has filed civil fraud and conspiracy complaints in various federal district courts against numerous medical device companies, including Abbott Laboratories, Inc. (Northern District of Illinois), Arthrex, Inc., Boston Scientific Corporation, and Zimmer Biomet Holdings (District of Delaware), and Stryker Corporation (Western District of Michigan).  Abramge alleges that the defendants, which it dubs “the Prosthetic Mafia,” engaged in corrupt practices that inflated prices for medical devices ultimately reimbursed by the association’s members. Abramge filed a motion with the Judicial Panel on Multidistrict Litigation, seeking to consolidate the actions before one court.  This motion was denied by the Panel on May 31, 2017, on the grounds that the allegations in each case were distinct enough, and the number of actions few enough, to proceed with the cases separately.  In the Stryker case, on June 28, 2017, the Honorable Robert J. Jonker dismissed the action on the doctrine of forum non conveniens, holding that the fraud allegations belong in Brazilian, not American, court.  Not long after, Abbott Laboratories consented to jurisdiction in Brazil and Abramge voluntarily dismissed its U.S. lawsuit on August 29, 2017.  Arthrex, Boston Scientific, and Zimmer Biomet have moved to dismiss the case in Delaware, which motion is pending. Another civil fraud action with ties to international corruption allegations concerns the lawsuit of husband and wife private investigators Peter Humphrey and Yu Yingzeng against their former client GlaxoSmithKline plc (“GSK”).  As we reported in our 2014 Year-End FCPA Update, Humphrey and Yu were convicted in Chinese court and spent more than a year in Chinese prison for illegally obtaining private information while investigating a corruption-related whistleblower claim on behalf of GSK.  In November 2016, they brought a Racketeer Influenced and Corrupt Organizations (“RICO”) Act lawsuit against their former client, alleging that the company misled them into believing that the whistleblower’s claims were false and failed to disclose that the whistleblower had powerful connections in China.  On September 29, 2017, the Honorable Nitza I. Quiñones Alejandro of the U.S. District Court for the Eastern District of Pennsylvania granted GSK’s motion to dismiss the complaint in its entirety, holding that Humphrey and Yu did not suffer a domestic injury and RICO does not cover injuries that occurred entirely outside of the United States.       Corruption as Support of Terrorism Allegations On October 17, 2017, scores of American service members and their families filed an Anti-Terrorism Act lawsuit in U.S. District Court for the District of Columbia against five healthcare companies and various subsidiaries alleging a pattern of corruption in Iraq that ultimately funded a terrorist organization.  Specifically, plaintiffs allege that between 2005 and 2009 the defendant entities provided extra “in-kind” goods to the Iraqi Ministry of Health, beyond those called for in contracts, which goods were then sold on the black market to support the Jaysh al-Mahdi, which purportedly controlled the Ministry of Health during this period of conflict in Iraq.  Defendants’ response to the complaint is currently due in February 2018.       Breach of Contract Litigation On March 23, 2017, Cicel (Beijing) Science & Technology Co. Ltd. filed a breach of contract action against Misonix, Inc. in the U.S. District Court for the Eastern District of New York.  Misonix argued that it terminated Cicel, its Chinese distributor, after discovering potentially corrupt conduct and disclosing the same to DOJ and the SEC.  Cicel claimed this justification was a pretext and nevertheless that Misonix breached the parties’ contractual arrangement by terminating the relationship.  On October 7, 2017, the Honorable Arthur D. Spatt denied Misonix’s motion to dismiss the breach of contract claim, allowing the case to proceed to discovery. 2017 INTERNATIONAL ANTI-CORRUPTION DEVELOPMENTS       World Bank Integrity Vice Presidency Pascale Hélène Dubois is now the leader of World Bank Group Integrity Vice Presidency (“INT”), a unit that plays an important role in global anti-corruption enforcement.  INT kept an active docket under Dubois’s leadership in Fiscal Year 2017, sanctioning 60 entities and individuals, honoring 84 cross-debarments from other development banks, and making 456 referrals to national authorities in more than 100 countries. World Bank investigations and sanctions proceedings can at times place targets involved in parallel criminal proceedings in a difficult spot.  That tension was on display in Sanctions Board Decision No. 93, issued June 2, 2017.  The respondent was charged with obstruction after refusing to allow INT to audit its records, asserting that the audit would compromise its right against self-incrimination in the context of a pending criminal charge.  The Sanctions Board, however, upheld the INT sanction, concluding that the respondent could not use the right against self-incrimination to avoid its contractual obligations to the World Bank.  This case is part of a larger World Bank and criminal inquiry involving Wassim Tappuni, a former World Bank consultant who, as discussed below, was convicted in July 2017 in the United Kingdom for his involvement in a scheme to defraud World Bank and U.N. Development Programme projects.       United Kingdom As we will cover in significantly greater detail in our forthcoming 2017 Year-End UK White Collar Crime Update, to be released on January 8, 2018, the year 2017 was a record for UK anti-corruption enforcement.  Including the domestic bribery cases prosecuted under the UK Bribery Act 2010, 27 individuals were convicted and three companies concluded enforcement actions, two with convictions and one with a deferred prosecution agreement.  To assist our clients with these challenges, we are pleased to announce that Sacha Harber-Kelly has joined the firm as a partner after working at the SFO for many years.  A brief summary of the international anti-corruption actions follows. In our 2017 Mid-Year UK White Collar Crime Update, we reported that the UK Serious Fraud Office (“SFO”) had announced charges against F.H. Bertling Limited and seven individuals relating to an alleged conspiracy to pay $250,000 to an agent of Angolan state oil company Sonangol.  Between September 2016 and August 2017, the SFO secured guilty pleas by F.H. Bertling and six of the individuals for conspiracy to make corrupt payments, in violation of section 1 of the Criminal Law Act 1977 and section 1 of the Prevention of Corruption Act 1906.  On October 20, 2017, three of the individuals were given suspended 20-month prison sentences, fined £20,000, and disqualified from serving as company directors for five years.  The only defendant to take his case to trial was acquitted by a jury at Southwark Crown Court on September 21, 2017. In November 2017, the SFO announced Prevention of Corruption Act 1906 charges against five individuals in its ongoing investigation of contracts awarded by Unaoil to SBM Offshore in Iraq.  Three of the individuals are former Unaoil employees—Ziad Akle, Basil Al Jarah, and Saman Ahsani—and two are former SBM Offshore employees—Paul Bond and Stephen Whiteley. On July 25, 2017, World Bank and U.N. Development Programme consultant Wassim Tappuni was convicted by a jury at Southwark Crown Court of corruption-related charges associated with his receipt of £1.7 million in bribes to skew his evaluation and otherwise to subvert the competitive process of the tenders he oversaw.  Tappuni was sentenced to six years’ imprisonment on September 22, 2017.       Rest of Europe France As reported in our 2017 Mid-Year FCPA Update, Teodoro Nguema Obiang Mangue, the son of the President and himself Second Vice President of Equatorial Guinea, went on trial in France for allegedly embezzling more than $112 million from his home country.  In October 2017, Obiang was convicted, fined €30 million, given a suspended three-year prison sentence, and had his assets in France confiscated. Greece In our 2014 Year-End and 2015 Mid-Year FCPA updates, we reported on the indictment of 64 individuals in the Siemens – OTE corruption case.  On July 28, 2017, an Athens appeals court found former Greece Transport Minister Tassos Mantelis guilty of money laundering in connection with payments by Siemens’s Greek branch in 1998 and 2000 to secure contracts to digitalize phone lines for the then state-owned Greek telecom.  The court found that some 450,000 Deutsche Marks were transferred to an account controlled by Mantelis as a kickback, rather than as a campaign contribution as Mantelis had claimed.  Another defendant, Ilias Georgiou, a former Siemens executive in Greece, was convicted of money laundering and bribery in connection with his role in transferring the funds to Mantelis.  Aristidis Mantas, a former Mantelis aide, also was convicted of complicity in the money laundering scheme but was acquitted of complicity to bribe. Italy On December 20, 2017, an Italian judge granted the Milan Public Prosecutor’s Office’s request to indict oil and gas giants Royal Dutch Shell and Eni—as well 11 of the companies’ current and former executives, including current Eni CEO Claudio Descalzi and former Shell UK Chairman Malcolm Brinded—on corruption charges associated with a $1.3 billion deal for oil exploration rights in an offshore block in Nigeria.  Among other things, prosecutors allege that $520 million from the 2011 deal was converted to cash for payments to then-Nigerian president Goodluck Ebele Azikiwe Jonathan and other officials.  The Nigerian government seized the offshore block in January 2017.  Shell, Eni, and the individuals have denied wrongdoing, and the case is currently scheduled to go to trial beginning in March 2018. Portugal In July 2017, the Portuguese Public Prosecutor’s Office filed corruption and forgery charges against four former TAP Airlines employees, including former TAP board member Fernando Sobral, in connection with up to €25 million in payments allegedly received from SonAir, an Angolan air transport provider.  Prosecutors allege that, between 2008 and 2009, SonAir paid TAP for aircraft maintenance services that were never provided, laundering the money through an intermediary that took a 75% commission before funneling the remaining funds to offshore accounts owned by SonAir.  Prosecutors also charged three lawyers accused of assisting with money laundering.  Notably, the conduct came to light during an internal audit and internal investigation by TAP, after which it self-reported to prosecutors in Lisbon. Russia On July 1, 2017, President Vladimir Putin signed into law a measure establishing a register of government employees terminated due to corruption.  Although there is no provision that would affirmatively prevent these individuals from occupying government positions, the Presidential Administration expects the publication of the register will assist in screening government service candidates.  In addition, to improve corporate anti-corruption compliance, the Ministry of Labor and the Ministry of Economic Development of the Russian Federation proposed a federal bill that, starting in 2019, would require companies to implement anti-corruption measures in accordance with federal anti-corruption standards. Sweden We reported in our 2017 Mid-Year FCPA Update on the March 2017 arrest of Evgeny Pavlov by Swedish authorities for suspected bribery in connection with helping his former employer, aerospace and transportation company Bombardier, secure a $350 million railway contract in Azerbaijan.  On October 11, 2017, a Swedish court found Pavlov not guilty.  Nevertheless, Sweden’s National Anti-Corruption Unit continues to investigate five other Bombardier employees referenced in the prosecution’s case against Pavlov.  In addition, Swedish prosecutors have charged three former Telia executives—former CEO Lars Nyberg, former deputy CEO and head of Eurasia Tero Kivisaari, and former general counsel for Eurasia Olli Tuohimaa—in connection with the Uzbek telecommunications corruption scandal described above.       The Americas Argentina We have been covering in recent years corruption-related prosecutions of political luminaries at the highest levels of the Argentinian government.  This year was no exception, with the indictment of former President Cristina Fernández de Kirchner and her former Vice President, Amado Boudou.  On the legislative front, the Corporate Liability Bill is now law.  The Bill imposes criminal liability on corporations (in addition to individuals) for certain crimes against the government, including bribery, foreign corruption, and falsifying balance sheets.  Fines of two-to-five times the illegal gains may be imposed, in addition to potential suspension and debarment from government contracts.  Pursuant to the Bill, companies may avoid prosecution by voluntarily self-disclosing the conduct, demonstrating an effective compliance program, and disgorging profits.  Moreover, even if unable to avoid prosecution entirely, companies can negotiate leniency agreements and obtain up to a 50% discount off the bottom end of the applicable fine range if they provide information that leads to uncovering all relevant facts. Brazil Even in the face of significant political turmoil, the long-running Lava Jato (Car Wash) investigation into allegations of corruption related to contracts with Petrobras and other state-owned entities continues.  Following perhaps the most notable conviction arising from the investigation to date, former President Luiz Inácio Lula da Silva was sentenced on July 12, 2017 to 9.5 years in prison after he was found guilty of accepting bribes.  Brazilian authorities have now charged more than 375 individuals and obtained 177 convictions, with total sentences of more than 1,750 years in prison. Despite, or perhaps because of, this success, tension has arisen over potential efforts to curb the investigation.  In May 2017, President Michel Temer appointed a close political ally, Torquato Jardim, to head the Ministry of Justice, which oversees the Federal Police.  In July 2017, the Federal Police announced it would shut down the Car Wash Task Force and absorb its members into a broader anti-corruption unit, a move that prompted widespread objections.  More recently, former Prosecutor General Rodrigo Janot, whom Temer replaced in mid-September, alleged that the personnel changes were part of an effort to divert graft investigations.  In the months before leaving his post, Janot charged Temer with corruption, obstruction of justice, and criminal conspiracy.  Temer avoided standing trial, however, after twice lobbying Brazil’s Congress to block his prosecution. 2017 also saw Brazilian authorities continue to investigate other instances of alleged corruption.  In September, Joesley Batista, one of the owners of Brazilian meatpacker JBS S.A., surrendered to police after a court revoked the immunity granted to him under a previous plea deal described in our 2017 Mid-Year FCPA Update.  JBS executive Ricardo Saud also was arrested.  Then-Prosecutor General Janot sought the arrests after Batista’s attorneys inadvertently produced a recording of Batista and Saud discussing crimes not covered by the plea deal.  In another prominent case, in October 2017, the head of Brazil’s Olympic Committee, Carlos Arthur Nuzman, and the Director of Operations for the Rio de Janeiro Olympic Games, Leonardo Gryner, were detained on suspicion that they paid bribes to ensure Rio de Janeiro’s selection to host the 2016 Summer Games.  Former governor of Rio de Janeiro State Sérgio Cabral and Brazilian businessman Arthur César de Menezes Soares Filho also have been accused of involvement, and Cabral has been sentenced to a total of more than 87 years in prison in connection with Operation Car Wash. As Brazilian anti-corruption investigations increasingly rely on leniency agreements—the Brazilian Public Prosecutor’s Office has entered into more than 10 such agreements in Operation Car Wash—prosecutors have faced public backlash regarding the terms and negotiation of the agreements.  On August 24, 2017, the Brazilian Public Prosecutor’s Office issued guidelines for Brazilian prosecutors to formalize the practices for negotiating leniency agreements. Beyond Brazil, the country’s anti-corruption crusade is being felt throughout Latin America.  Many of the countries in which Odebrecht S.A. admitted to paying bribes (as covered in our 2016 Year-End FCPA Update) have opened their own investigations, including the following: Colombia – In July 2017, Colombia’s Attorney General announced that Colombian officials had received $27 million in bribes from Odebrecht in connection with a contract to build a highway.  Authorities have made multiple arrests, and the Prosecutor General’s Office ordered an investigation into eight senators.  In November 2017, the former CEO of Odebrecht Colombia and two employees in Odebrecht’s Division of Structured Operations issued a formal apology to Colombia and agreed to return approximately $6.5 million in restitution.  In December 2017, the former Vice Minister of Transportation was sentenced to more than five years in prison for receiving a $6.5 million bribe from Odebrecht in connection with a highway construction contract. Ecuador – In December 2017, a court in Ecuador, where Odebrecht admitted to paying more than $33.5 million in bribes, sentenced former Vice President Jorge Glas to six years in prison after finding him guilty of receiving a $13.5 million bribe from Odebrecht.  A court in Ecuador announced in November 2017 that trial should proceed against Glas and 12 others in connection with the scandal. Peru – Prosecutors are investigating former Odebrecht CEO Marcelo Odebrecht’s claims that the company paid $29 million in bribes to Peruvian officials, including President Pedro Pablo Kuczynski and former presidents Ollanta Humala and Alejandro Toledo.  Humala and his wife were arrested in July 2017.  Toledo is living in the United States, and Peru has issued an international warrant for his arrest. In late December 2017, President Kuczynski fought and survived an impeachment vote by Congress, initiated as a result of the bribery allegations. Panama – Panamanian authorities have charged 17 people in connection with the scandal, and President Juan Carlos Varela has been accused of receiving campaign donations from Odebrecht. Canada In July 2017, the Ontario Court of Appeal upheld the Corruption of Foreign Public Officials Act (“CFPOA”) conviction of businessman Nazir Karigar and, in the process, clarified aspects of the statute.  According to the trial evidence, Karigar introduced a representative of security firm Cryptometrics Canada to Air India officials and then worked with Cryptometrics to transfer $200,000 in bribes to Indian officials to secure the deal.  After the arrangement soured and Karigar was unable to facilitate the transfer, he attempted to recast himself as a whistleblower and contacted DOJ, before ultimately being prosecuted himself in Canada.  First, the Court of Appeal rejected Karigar’s jurisdictional challenge, finding that even though the conduct predated the CFPOA’s 2013 amendment to add nationality jurisdiction, there was a “real and substantial link” between the offense and Canada, even if all of the essential elements of the offense did not take place in Canada.  Second, Karigar argued that the plain language of the CFPOA required proof of a direct agreement with a foreign official, but the court disagreed, holding that the statute also encompasses indirect agreements between parties concerning corrupt payments to officials.  In legislative news, Canada’s repeal of the CFPOA’s carve-out for facilitating payments, announced in 2013, took effect in October 2017. Guatemala Corruption investigations and prosecutions encountered unexpected obstacles this year from President Jimmy Morales‘s administration.  As noted in our 2016 Mid-Year FCPA Update, Morales, who won the presidency in 2015 with the slogan “neither corrupt, nor a thief,” previously supported the International Commission Against Impunity in Guatemala (known by its Spanish acronym “CICIG”), an independent UN-supported body of international prosecutors and investigators.  But on August 27, 2017, in a controversial move that spurred protests across the country, Morales ordered the expulsion of Iván Velásquez Gómez, the Colombian prosecutor who heads CICIG.  The order came after Velásquez and Guatemala’s Attorney General Thelma Aldana alleged that Morales failed to report anonymous campaign contributions and announced that they intended to strip him of immunity from prosecution.  Earlier in 2017, Morales’s brother and one of his sons were arrested on corruption charges.  The Guatemalan Supreme Court ultimately blocked the expulsion, as well as an effort by Congress to gut the laws used by CICIG and the Attorney General to prosecute corruption and abuse of power.  Since then, CICIG and the Attorney General’s office have continued their investigations. Mexico As detailed in our June 2017 client alert, Mexico’s New General Law of Administrative Responsibility Targets Corrupt Activities by Corporate Entities, the General Law of Administrative Responsibility, which prescribes liability for a variety of corruption-related offenses and mitigation of damages for companies with adequate integrity policies, took effect on July 19, 2017.  Steps remain before the law is fully implemented.  The 18 judges tasked to oversee anti-corruption cases have yet to be appointed, as is the case for the new independent prosecutor called for by the reforms. Peru Effective January 1, 2018, Legislative Decree No. 1352 provides that corporations can be liable for active transnational bribery committed in their name without a person first being found liable of the offense (a concept referred to in Peruvian law as “autonomous liability”).  Decree No. 1352 extends this liability to corporations for active bribery of any public official as well as for money laundering.  But parent companies are not liable under Decree No. 1352 unless the employees who engaged in the corruption or money laundering did so under specific consent or authorization from the parent.  In addition, companies that acquire entities found guilty of corruption via autonomous liability may not be penalized if they conducted proper due diligence, defined as reasonable actions to verify that no autonomous liability crimes had been committed.  Finally, entities can avoid autonomous liability by implementing a sufficient compliance program designed to prevent such crimes from being committed on the company’s behalf.  Peru also modified its procurement laws to ban companies with representatives that have been convicted of corruption from securing government contracts. Venezuela Corruption allegations continue to play a key role in the political turmoil engulfing Venezuela.  In August 2017, then-Prosecutor General and longtime Socialist Party member Luisa Ortega Díaz called for an investigation into corruption by President Nicolás Maduro.  Ortega was terminated immediately thereafter, fleeing to Colombia reportedly with documents proving that Maduro and other officials participated in corruption schemes, including dealings with Brazilian construction conglomerate Odebrecht.  Her efforts to call attention to alleged corruption by Maduro’s regime included a November 16, 2017 petition to the International Criminal Court in the Hague to open an investigation into Maduro and other top officials.  For its part, Maduro’s government has engaged in an aggressive anti-corruption campaign against current and former Venezuelan oil officials, reportedly detaining as many as 65 individuals, including in November 2017 Eulogio Del Pino and Nelson Martínez, respectively the former Minister of Oil and President of state-owned oil company PDVSA.  On December 3, 2017, the newly appointed head of PDVSA announced that henceforth all oil service contracts will be reviewed by Maduro moving forward.  The timing has raised suspicion that the arrests are part of an effort to consolidate power and find scapegoats for the current economic crisis, ahead of upcoming presidential elections.       Asia China The second half of 2017 saw notable changes to China’s anti-corruption landscape.  Most prominently, China passed the first amendments to the 1993 Anti-Unfair Competition Law (“AUCL”).  The revised AUCL, which took effect on January 1, 2018, provides additional guidance on what constitutes prohibited bribery.  In addition, under the AUCL a business operator is vicariously liable for an employee’s bribery unless it can prove “such acts of the employee are not related to seeking transaction opportunities or competitive advantages for the business operator.”  The range of fines for commercial bribery increased to between RMB 100,000 and RMB 3 million, and a business operator’s license may be revoked for a serious violation.  The revised AUCL, for the first time, provides the possibility of leniency for an offender who “proactively eliminates or mitigates the severe consequences caused by its illegal conduct” or whose misconduct is minor and promptly remediated.  In another significant legislative development we will be following, in November 2017 China released for public comment a draft National Supervision Law that, among other things, is expected to consolidate corruption-fighting powers from the National Bureau of Corruption Prevention, the Ministry of Supervision, and the anti-corruption department of the Procuratorate. In addition to these legislative changes, 2017 witnessed notable developments in China’s continuing anti-corruption crackdown, now in its fifth year and Xi Jinping’s second term with no sign of abating.  More officials at the provincial/ministerial level or above were ensnared this year than in 2016, including former Party Secretary of Chongqing Sun Zhengcai and top insurance regulator Xiang Junbo, who were both expelled from the Communist Party and whose cases were both referred for prosecution, and General Zhang Yang, who reportedly committed suicide while under investigation. India In December 2017, a special Central Bureau of Investigation court acquitted a former Indian telecom minister and 16 others (including politicians, bureaucrats, and executives of telecom companies) in what is popularly referred to as the “2G Scam” case.  The former telecom minister was alleged to have changed the standards for awarding telecom licenses in exchange for kickbacks, resulting in losses of INR 310 billion (approx. $4.84 billion) to the country.  In February 2012, the Supreme Court of India cancelled all 122 telecom licenses that had been awarded to the licensees. Korea As reported in our 2017 Mid-Year FCPA Update, former South Korea President Geun-Hye Park was impeached in December 2016 amid allegations of influence peddling and corruption that have come to be known as “Choi-gate.”  Her trial remains ongoing.  The investigation also led to the arrest of Samsung Electronics Vice Chairman Lee Jae-yong, who on August 24, 2017 was convicted of bribery and related charges and sentenced to five years in prison.  Another corporate executive engulfed in the scandal is Lotte Group Chairman Shin Dong-bin, who on December 22, 2017 was convicted of embezzlement and breach of trust, but given only a suspended prison sentence.       Middle East and Africa Israel The investigation of billionaire Israeli investor Beny Steinmetz continued in 2017 when Israeli authorities detained Steinmetz and several others in August.  As reported in our 2016 Year-End FCPA Update, Steinmetz was initially arrested in December 2016 on suspicion of money laundering and paying bribes to Guinean officials in connection with an iron ore mining concession.  He was placed under house arrest after posting bail of more than $20 million.  In August 2017, Steinmetz was detained once again for questioning, together with others, including Tal Silberstein, a political consultant who has worked for former Israeli prime minister Ehud Barak and other political leaders.  Steinmetz is reportedly under investigation in four other countries, including the United States. Saudi Arabia In November 2017, Saudi Arabian Crown Prince Mohammed bin Salman instituted a sweeping anti-corruption probe in which more than 200 influential Saudis were detained, including Prince Miteb bin Abdullah.  Prince Miteb was initially detained on November 4, 2017, and held at the Ritz-Carlton in Riyadh along with others facing corruption charges.  He was released weeks later after reaching a settlement of more than $1 billion.  Miteb was previously Minister of the National Guard, but was removed from that position hours before his detention.  Although some analysts have viewed the corruption campaign as a power grab by Prince Mohammed, the Saudi government insists its focus is combating endemic corruption.  In recent weeks, the anti-corruption purge has extended its reach beyond Saudi citizens: in early December, Palestinian billionaire businessman Sabih al-Masri was held in Saudi Arabia for questioning while on a business trip to Riyadh.  Al-Masri was not charged but was reportedly questioned about his business and business partners. South Africa On December 13, 2017, South Africa’s High Court delivered a major blow to embattled President Jacob Zuma, who has been entangled in a widespread corruption scandal involving allegedly illicit dealings with state-owned companies and multinational firms.  In November 2016, former public protector Thulisile Madonsela released a 350-page report on corruption in which she called for a public inquiry.  But Zuma refused to set up an inquiry.  In a harshly worded order, the High Court rejected Zuma’s efforts to block the further investigation and ordered him to set it up within 30 days.  Judge Dunstan Mlambo characterized Zumba’s conduct as a “clear abuse of the judicial process.”  The order followed a series of defeats for Zuma, including the recent removal of a chief prosecutor appointed by Zuma and the reinstatement of nearly 800 corruption charges against Zuma stemming from a 1999 arms deal.  The charges had been dropped before Zuma was elected president in 2009. CONCLUSION As is our semi-annual tradition, over the next several weeks Gibson Dunn will be publishing a series of enforcement updates for the benefit of our clients and friends as follows: Wednesday, January 3:  2017 Year-End Update on Corporate NPAs and DPAs; Thursday, January 4:  2017 Year-End False Claims Act Update; Friday, January 5:  2017 Year-End German Law Update; Monday, January 8:  2017 Year-End UK White Collar Crime Update; Tuesday, January 9:  2017 Year-End Securities Enforcement Update; Wednesday, January 10:  2017 Year-End Securities Litigation Update; Tuesday, January 16:  2017 Year-End Government Contracts Litigation Update; Tuesday, January 16:  2017 Year-End UK Labor & Employment Update; Wednesday, January 17:  2017 Year-End Activism Update; Thursday, January 18:  2017 Year-End E-Discovery Update; Friday, January 19:  2017 Year-End Environmental Litigation & Mass Tort – Oil & Gas Update; Monday, January 22:  2017 Year-End FDA and Health Care Compliance and Enforcement Update – Drugs and Devices; Thursday, January 25:  2017 Year-End Cybersecurity Update (United States); Monday, January 29:  2017 Year-End Cybersecurity Update (European Union); Tuesday, January 30:  2017 Year-End Transnational Litigation Update; Wednesday, January 31:  2017 Year-End Health Care Compliance and Enforcement Update – Providers; Monday, February 5:  2017 Year-End Sanctions Update; and Thursday, February 8:  2017 Year-End Aerospace & Related Technologies Update. The following Gibson Dunn lawyers assisted in preparing this client update: F. Joseph Warin, John Chesley, Christopher Sullivan, Richard Grime, Patrick Stokes, Elissa Baur, Liang Cai, Ella Alves Capone, Stephanie Connor, Tzung-Lin Fu, Melissa Goldstein, Julie Hamilton, Mark Handley, Daniel Harris, William Hart, Natalie Hausknecht, Patricia Herold, Korina Holmes, Derek Kraft, Nicole Lee, Renée Lizarraga, Zach Lloyd, Lora MacDonald, Andrei Malikov, Michael Marron, Jesse Melman, Laura Musselman, Rose Naing, Jaclyn Neely, Nick Parker, Emily Riff, Jeff Rosenberg, Rebecca Sambrook, Jason Smith, Pedro Soto, Laura Sturges, Marc Aaron Takagaki, Karthik Ashwin Thiagarajan, Caitlin Walgamuth, Oliver Welch, Eric Veres, Oleh Vretsona, and Carissa Yuk. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues.  We have more than 110 attorneys with FCPA experience, including a number of former federal prosecutors and SEC officials, spread throughout the firm’s domestic and international offices.  Please contact the Gibson Dunn attorney with whom you work, or any of the following: Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Richard W. Grime (+1 202-955-8219, rgrime@gibsondunn.com) Patrick F. Stokes (+1 202-955-8504, pstokes@gibsondunn.com) Judith A. Lee (+1 202-887-3591, jalee@gibsondunn.com) David P. Burns (+1 202-887-3786, dburns@gibsondunn.com) David Debold (+1 202-955-8551, ddebold@gibsondunn.com) Michael S. Diamant (+1 202-887-3604, mdiamant@gibsondunn.com) John W.F. Chesley (+1 202-887-3788, jchesley@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) Stephanie Brooker (+1 202-887-3502, sbrooker@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Caroline Krass (+1 202-887-3784, ckrass@gibsondunn.com) Adam M. Smith (+1 202-887-3547, asmith@gibsondunn.com) Oleh Vretsona (+1 202-887-3779, ovretsona@gibsondunn.com) Christopher W.H. Sullivan (+1 202-887-3625, csullivan@gibsondunn.com) Courtney M. Brown (+1 202-955-8685, cmbrown@gibsondunn.com) Jason H. Smith (+1 202-887-3576, jsmith@gibsondunn.com) Pedro G. Soto (+1 202-955-8661, psoto@gibsondunn.com) New York Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Joel M. Cohen (+1 212-351-2664, jcohen@gibsondunn.com) Lee G. Dunst (+1 212-351-3824, ldunst@gibsondunn.com) Mark A. Kirsch (+1 212-351-2662, mkirsch@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Lawrence J. Zweifach (+1 212-351-2625, lzweifach@gibsondunn.com) Daniel P. Harris (+1 212-351-2632, dpharris@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) Laura M. Sturges (+1 303-298-5929, lsturges@gibsondunn.com) Los Angeles Debra Wong Yang (+1 213-229-7472, dwongyang@gibsondunn.com) Marcellus McRae (+1 213-229-7675, mmcrae@gibsondunn.com) Michael M. Farhang (+1 213-229-7005, mfarhang@gibsondunn.com) Douglas Fuchs (+1 213-229-7605, dfuchs@gibsondunn.com) San Francisco Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) Thad A. Davis (+1 415-393-8251, tadavis@gibsondunn.com) Marc J. Fagel (+1 415-393-8332, mfagel@gibsondunn.com) Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com) Michael Li-Ming Wong (+1 415-393-8333, mwong@gibsondunn.com) Palo Alto Benjamin Wagner (+1 650-849-5395, bwagner@gibsondunn.com) London Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com) Charlie Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com) Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com) Mark Handley (+44 20 7071 4277, mhandley@gibsondunn.com) Paris Benoît Fleury (+33 1 56 43 13 00, bfleury@gibsondunn.com) Bernard Grinspan (+33 1 56 43 13 00, bgrinspan@gibsondunn.com) Jean-Philippe Robé (+33 1 56 43 13 00, jrobe@gibsondunn.com) Audrey Obadia-Zerbib (+33 1 56 43 13 00, aobadia-zerbib@gibsondunn.com) Munich Benno Schwarz (+49 89 189 33-110, bschwarz@gibsondunn.com) Michael Walther (+49 89 189 33-180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33-130, mzimmer@gibsondunn.com) Hong Kong Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Oliver D. Welch (+852 2214 3716, owelch@gibsondunn.com) São Paulo Lisa A. Alfaro (+55 (11) 3521-7160, lalfaro@gibsondunn.com) Fernando Almeida (+55 (11) 3521-7095, falmeida@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

December 12, 2017 |
40 Years Of FCPA: Cross-Border Efforts And Growing Risk

Washington, D.C. partner Patrick Stokes and Orange County associate Zachariah Lloyd are the authors of “40 Years Of FCPA: Cross-Border Efforts And Growing Risk,” [PDF] published by Law360 on December 12, 2017.

December 7, 2017 |
Black and Grey: The EU Publishes Its Lists of Tax Havens

On Tuesday, December 5, 2017, the EU announced its long-awaited list of seventeen “non-cooperative” tax jurisdictions (the “Black List”) and identified a further 47 jurisdictions with whom discussions about tax reform are ongoing (the “Grey List”).  The countries identified in both lists were among a number of jurisdictions invited by the EU to engage in a dialogue on tax governance issues in early 2017.  The Black List identifies jurisdictions that failed to engage in a meaningful dialogue with the EU or to take action to address deficiencies identified in their tax practices. The Grey List identifies jurisdictions whose tax policies and practices continue to present concerns but which have committed to address issues raised by the EU. The origins of the list date back to a European Commission Recommendation from 2012, which was followed by detailed assessment work carried out since June 2015, pursuant to a published Commission action plan. The EU has not announced any immediate steps to be taken against the blacklisted jurisdictions and instead has deferred to EU member states to take action. The jurisdictions on the Black List are: American Samoa Marshall Islands St Lucia Bahrain Mongolia Samoa Barbados Namibia South Korea Grenada Palau Trinidad & Tobago Guam Panama Tunisia Macau United Arab Emirates In its announcement on December 5 the EU noted that these seventeen jurisdictions had “taken no meaningful action to effectively address the deficiencies [identified by the EU in relation to their tax legislation and policies] and do not engage in a meaningful dialogue…that could lead to…commitments” to resolve issues raised. The EU confirmed that the jurisdictions will remain on the Black List until they meet certain criteria it identified in a publication of November 8, 2016 in relation to tax transparency, fair taxation, and the implementation of the OECD Base Erosion and Profit Shifting (BEPS) package. In addition the EU published a Grey List containing a total of 47 other jurisdictions, and identified one or more specific ongoing concerns in relation to each of those jurisdictions. The jurisdictions on the Grey List are: Armenia Guernsey Niue Aruba Hong Kong Oman Belize Isle of Man Peru Bermuda Jamaica Qatar Bosnia and Herzegovina Jersey Saint Vincent and Grenadines Botswana Jordan San Marino Cape Verde Liechtenstein Serbia Cayman Islands Malaysia Seychelles Cook Islands Maldives Swaziland Curaçao Mauritius Taiwan Faroe Islands Montenegro Thailand Fiji Morocco Turkey FYR Macedonia Nauru Uruguay Georgia New Caledonia Vanuatu Greenland Vietnam In its conclusions on the Grey List the EU described these 47 jurisdictions as presenting concerns in relation to the criteria published on November 8, 2016 referred to above, and noted that it will continue to monitor the implementation of agreed steps to address the identified deficiencies. The stated purpose of the Grey List is therefore to act as a spur to continuing reform and progress in these jurisdictions. Having expressed its sympathy for jurisdictions hit by the severe hurricanes in the Caribbean this year, the EU has put its screening process for eight Caribbean jurisdictions on hold.  These jurisdictions are: Anguilla, Antigua and Barbuda, Bahamas, British Virgin Islands, Dominica, Saint Kitts and Nevis, the Turks and Caicos Islands, and the United States Virgin Islands. Contacts with those jurisdictions will resume by February 2018, with the screening process in relation to those jurisdictions to be completed by the end of 2018. While there is much to debate and dispute as to the allocation of jurisdictions to these lists, it should also be noted that the EU excluded from consideration EU member states themselves. This spares from consideration Gibraltar, as it is (pending BREXIT) formally part of the EU. After BREXIT there will be no bar to the United Kingdom or Gibraltar being considered for inclusion on either list. In the run up to the publication of the lists, there was much speculation as to the sanctions and punishments that the EU would impose on jurisdictions included in the Black List. It had been suggested the EU could impose an EU-wide withholding tax on financial transfers into such jurisdictions, as well as a transfer tax on transfers out of those jurisdictions. While such measures may be adopted if the European Commission considers blacklisted jurisdictions to be continuing to be non-cooperative, in the short term the EU has decided to leave the question of the imposition of sanctions to the individual EU member states themselves. This decision undercuts one of the stated purposes of the Black List – namely that of replacing the existing patchwork of national measures against non-cooperative jurisdictions with a coordinated approach by the EU. Nonetheless, inclusion on the Black List signals the EU’s view that a particular jurisdiction fails to comply with tax good governance standards. This carries with it a measure of reputational damage for the jurisdictions in question vis-à-vis investors. Clients and friends operating in the United Kingdom or in Europe may well have become familiar during the course of this year with the need to conduct a “risk assessment” for the purposes of complying with the EU’s Fourth Money Laundering Directive (implemented in the United Kingdom, for example, by The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017). One of the risks to be assessed as part of such work is “geographic risk”, with the assessing body required to take into consideration published views of international bodies. The publication of the Black List and Grey List should now be taken into account in the conduct, or periodic review, of that risk assessment. Those conducting risk assessments may need to consider the appropriateness of enhanced due diligence for entities incorporated in, doing business in, or with links to jurisdictions included on either list. Clients and friends operating in the United Kingdom may also have completed, or be embarking on, a similar risk assessment under the United Kingdom’s Criminal Finances Act 2017 regarding the “failure to prevent the facilitation of tax evasion” offences. Our recent  client alert on these offences can be found here. Again “geographic risk” forms part of such assessments. As in the AML sphere, best practice will be to take account of the EU’s Black  List and Grey List in the conduct of, or periodic review of, such a risk assessment. Operations in these jurisdictions (especially those blacklisted) or work relating to these jurisdictions may require enhanced scrutiny as part of any risk assessment, and, where necessary, possibly enhanced controls or training as part of the implementation of “reasonable prevention procedures”. When it comes time to update a company’s Bribery Act risk assessment, again the impact of these lists should be considered as part of that process. Finally, it is worth noting that these designations are relevant only with respect to the EU. In the United States, for example, no such list has been proposed to date, and the imposition of sanctions by EU member states is not expected to have any direct US legal or tax consequences for entities from the blacklisted jurisdictions. We will continue to monitor developments and will provide an update when the EU makes its decision in 2018 on eight outstanding Caribbean jurisdictions. The following Gibson Dunn lawyers assisted in preparing this client update: Mark Handley and Meghan Higgins. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. For further information, please contact the Gibson Dunn lawyer with whom you usually work or any of the following members of the firm’s Tax and White Collar Defense and Investigations practice groups in the firm’s London office: Nicholas Aleksander (+44 (0)20 7071 4232, naleksander@gibsondunn.com) Jeffrey M. Trinklein (+44 (0)20 7071 4224; +1 212-351-2344, jtrinklein@gibsondunn.com) Patrick Doris (+44 (0)20 7071 4276, pdoris@gibsondunn.com) Allan Neil (+44 (0)20 7071 4296, aneil@gibsondunn.com) Mark Handley (+44 (0)20 7071 4277, mhandley@gibsondunn.com) Meghan Higgins (+44 (0)20 7071 4282, mhiggins@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

November 17, 2017 |
Potential FCPA Liability for Third-Party Conduct

​Denver partners Robert Blume and John Partridge and associate Tafari Lumumba are the authors of “Potential FCPA Liability for Third-Party Conduct,” [PDF] published in Thomson Reuters’ Practical Law on November 17, 2017.

September 29, 2017 |
UK Criminal Finances Act 2017: New Corporate Facilitation of Tax Evasion Offence – Act Now to Secure the Reasonable Prevention Procedures Defence

I. Introduction The UK Criminal Finances Act 2017 (the CFA) became law on 27 April 2017. On 30 September Part 3 of the CFA, which creates two new corporate criminal offences, will come into force. The two new offences are: Section 45 – failure of a relevant body to prevent facilitation of UK tax evasion (the UK Offence), and Section 46 – failure of a relevant body to prevent facilitation of foreign tax evasion (the Non-UK Offence). The Offences are similar in design to the ‘corporate’ failure to prevent bribery offence under section 7 of the Bribery Act 2010.  A key similarity is that the only available defence is to have in place reasonable prevention procedures designed to prevent the facilitation. The Offences represent a very significant development in corporate criminal law in the UK. On September 1, 2017 the HM Revenue and Customs (HMRC) published the required guidance on measures to be taken by businesses to put in place the reasonable prevention procedures (the HMRC Guidance).  The HMRC Guidance amends and replaces the draft guidance published in October 2016. The CFA also empowers the Chancellor to approve guidance issued by other bodies, such as sectoral regulators.  This sort of recognition mechanism has been used previously in anti-money laundering legislation; for example the Joint Money Laundering Steering Group (a grouping of trade associations in the UK financial services industry) publishes guidance which has been given official approval.  The CFA envisages that similar industry guidelines will be produced in this context. The HMRC Guidance contains useful practical examples and discussion that will inform any interpretation of the legislation.  However, it is not definitive, nor does it operate as a ‘safe-harbour’ to provide immunity from prosecution in cases where it has been followed. As with the similar Bribery Act guidance, it is not binding on the courts, although it is expected to be of highly persuasive effect at the very least. This Client Alert provides an overview of the Offences, analyses some of the more interesting issues which have the potential to shape the scope of their application, as well as examining the political drivers and regulatory appetite in this space. II. The Offences A. Overview In order to commit either of the two new Offences, it is necessary for two underlying predicate offences to have been committed.  First, there must be an underlying tax evasion offence committed by a taxpayer. Secondly, the associated person of the “relevant body” must have facilitated that evasion.  The HMRC Guidance describes the offence by the taxpayer as “Stage 1“; the facilitation by the associated person as “Stage 2“.  The failure to prevent as “Stage 3“. In outline, a relevant body commits one of the Offences where a person associated with it, acting in that capacity, criminally facilitates an act of fraudulent tax evasion by another person, and that relevant body does not have reasonable prevention procedures in place. It must be stressed that “tax” is defined very broadly in the CFA. Under section 52(1) tax is stated to include “duty and any other form of taxation (however described)”. All government levies, excises, tariffs, as well as VAT, national insurance contributions, capital gains tax, income tax, corporation tax, inheritance tax – and all other taxes – are covered. B. Jurisdiction The two offences both have extraterritorial effect and both require a nexus to the UK, although the minimum nexus required differs between the two Offences. The only UK nexus required for the UK Offence is that it involves the evasion of UK tax. There is no other required link to the UK – not the location of any conduct and nor does the relevant body need to be incorporated or formed in the UK. For the Non-UK Offence the required minimum nexus is that the relevant body either be incorporated or formed in the UK, or that it carries on a business or part of the business in the UK or any conduct constituting part of the foreign tax evasion facilitation offence takes place in the UK.  Note that this minimum nexus may be more readily satisfied than at first it might appear, as the offence may be committed through a non-UK affiliate of the relevant body if the affiliate is an “associated person” of the relevant body under the CFA.  Moreover, case law suggests that the requirement for conduct taking place in the UK may be satisfied by payments or correspondence through the UK. The definitions of the elements of the Offences repay closer scrutiny.  They raise a number of interesting questions regarding their own scope as well as highlighting potential practical difficulties associated with implementation of the new legislation. C. “relevant body” Under the CFA, it is only a “relevant body” that can be charged with either of the Offences. A “relevant body” means a body corporate or partnership.  This also extends to an entity of a similar character formed under the law of a foreign country. The Offences therefore apply to all companies, LLPs and partnerships. The Offences cannot be committed by individuals. The relevant body’s liability is strict in the sense that liability does not require any mental element on the part of the relevant body to be established. The importance of this is that enforcement of the Offences will not be restricted by the historical difficulties associated with successfully prosecuting corporations in the UK due to the need to find a “controlling mind and will” (broadly, a director) of the company to whom the relevant mens rea can be attributed.  This strict liability approach is similar to that taken under the offence of failure to prevent bribery in section 7 of the Bribery Act 2010.  It is noteworthy in this respect that the majority of Deferred Prosecution Agreements (DPAs) in the UK to date have related to section 7 of the Bribery Act. A relevant body can be found guilty of an Offence, even if the “associated person” has not been convicted or even prosecuted for a tax evasion offence, and even if the underlying tax evader has not faced prosecution.  It is open to an “associated person” to report tax evasion and facilitation to the prosecuting authorities in return for immunity for themselves, whilst opening the door to a prosecution of a relevant body. Such agreements are available under the Serious Organised Crime Prevention Act 2005, and have been upheld by the courts (R v Dougall [2010] EWCA 1048). This scenario is likely to be a particularly concerning one for relevant bodies given the incentive it gives associated persons and the authorities to seek to strike deals with one another. D. “associated person” The CFA (section 44(4)) defines a person as being an “associated person” of a relevant body if that person is an employee, agent acting in that capacity or any other person who performs services for or on behalf of the relevant body.  The associated person can be an individual or a body corporate. While under the Bribery Act there was only a rebuttable presumption that an employee, was an “associated person”, under the CFA, an employee (when acting in that capacity) is an associated persons. By contrast, subsidiaries are not specifically identified as associated persons on the face of the CFA.  Nonetheless, where subsidiaries or affiliates (or their employees) act on behalf of or, or perform services for, the relevant body, the subsidiary or affiliate will be an “associated person”. It is notable that the width of this definition is capable of including third party organisations, such as suppliers and subcontractors, and it has even been speculated that it could potentially extend to persons to whom the relevant body refers work. In one recent Bribery Act enforcement in Scotland (Rand-Rex Limited) a company’s customer (in the form of a distributor who purchased the company’s goods for on-sale) was its “associated person”. The question as to whether a person is performing services for or on behalf of an organisation is to be determined by reference to all the circumstances and not just the nature of the relationship between that person and the organisation. The contractual status or the formal title given to an individual performing services for or on behalf of the organisation does not matter.  The HMRC Guidance (p. 7) states that “The concept of a person who ‘performs services for or on behalf of’ the organisation is intended to be broad in scope, to embrace the whole range of persons who might be capable of facilitating tax evasion whilst acting on behalf of the relevant body“. The outer limits of this broad definition can be most easily seen in respect to referrals.  The HMRC Guidance states that a “vanilla” referral would not attract liability on the basis that it was “not a case of sub-contracting“.   Such a referral is explained (p. 36) as being “an introduction in good faith where the referrer believes the external service provider is unlikely to be involved in facilitating tax evasion“. E. “in that capacity” The offence is only committed where the facilitation or evasion is undertaken by someone acting in the capacity of an associated person. This is an evolution of a similar concept in the Bribery Act and serves to restrict liability that would otherwise flow from the broadly drawn definition of “associated person“.  There are at least two situations in which one can envisage this becoming relevant. First, where an employee engages in criminal facilitation outside the scope of his employment, amounting to a “frolic of his own“, he will not be acting in the capacity of an associated person. An example of this (given in the HMRC Guidance, page 32) would be where an associated person facilitates their spouse’s avoidance of tax.  In such circumstances, the employer of the associated person would not be committing the offence. Secondly, where an associated person is associated with multiple relevant bodies, that person’s conduct will not automatically have the potential to trigger liability for all of the relevant bodies.  Instead, any activity of the associated person that does not fall within its relationship with a relevant body cannot be said to be a situation in which the individual is acting in their capacity as an associated person of that relevant body.  Here, the example given in the HMRC Guidance (at page 32) is of a consultancy firm introducing clients to a bank. The consultancy is not used by the bank to provide tax advice to its clients but, unbeknownst to the bank, the consultancy offers additional services to those clients and criminally facilitates tax evasion. Here the bank would not be liable as the tax services were provided outside of the consultancy’s relationship with the bank and therefore not provided for or on its behalf. F. “tax evasion offence” and “tax evasion facilitation offence” In respect of the UK Offence, identifying a UK tax evasion offence at stage 1 is relatively straightforward.  It is either: the common law offence of cheating the public revenue; or an offence in any part of the UK consisting of being knowingly involved in, or taking steps with a view to, the fraudulent evasion of tax. This latter category is narrower than it might first appear.  It does not extend to all tax evasion offences, only those involving an element of deliberate fraud.  The HMRC Guidance offers as relevant offences for this purpose fraudulent VAT evasion (section 72, Value Added Tax Act 1974), fraudulent evasion of income taxes (section 106A, Taxes Management Act 1970) and the Law Society Guidance further adds fraudulent evasion of national security contributions (section 114, Social Security Administration Act 1992), false accounting (section 17, Theft Act 1968), and the offences in sections 2 to 7, Fraud Act 2006 (in so far as they relate to tax evasion). Tax avoidance – the adoption of legal means to limit one’s tax – will not trigger liability. Although the HMRC Guidance makes clear that aggressive tax avoidance schemes and not the target for the Offences, the boundary between aggressive tax avoidance and tax evasion is not always clear-cut. The same is true when dealing with stage 2 in respect of the UK Offence. For the purposes of the CFA, criminal facilitation by an associated person is committed where a person: is involved in or knowingly concerned in, or takes steps with a view to; or aids, abets, counsels or procures, cheating the public revenue and/or the fraudulent evasion of UK tax by another person. Things are slightly different when it comes to the Non-UK Offence, where there is a double criminality requirement.  For the Non-UK Offence to be made out both the criminal evasion of tax (stage 1) and the criminal facilitation of evasion (stage 2) must represent conduct amounting “to an offence under the law of a foreign country” (section 46(5)).  And, in addition, both the foreign tax evasion offence and the foreign tax evasion facilitation offence must amount to offences under English law.  In short, the Non-UK Offence cannot be committed in respect of any act that would be lawful in relation to a UK tax. Under English law, the content of foreign law is an issue of fact determined by the trial court on the basis of expert evidence.  Consequently, if prosecutions are brought under the Non-UK Offence, criminal courts in the UK will have to consider expert evidence of foreign criminal tax law. A High Court judge making findings of facts about foreign law whilst sitting alone in the Commercial Court is one thing, but the prospect of a lay jury in a Crown Court being asked to determine matters of criminal guilt or innocence in connection with technical aspects of the French tax code, or that of any other country, having heard conflicting expert foreign law evidence on the issue, is a prospect that prosecutors are likely to find unappealing.  The difficulties inherent in such a prosecution invites the hypothesis that the Non-UK Offence may have been designed to be dealt with more by way of DPA than by actual prosecutions. This is made possible as both of the Offences have been added to the list of offences for which DPAs are available to prosecutors in the UK.  Readers will recall that a DPA is an agreement between a company or partnership and a prosecuting agency under which the company or partnership admits certain facts, cooperates with prosecutors (including in relation to other potential defendants), accepts certain outcomes (potentially including fines, disgorgements, compensation payments, compliance requirements, liability for investigation costs, etc) and in return avoids a criminal conviction. III. The defence A. Overview As the offence is one of strict liability, once the predicate offences (stage 1 and stage 2) are made out, and it is established that the facilitator is an associated person of the relevant body, the only defence is the one of having reasonable prevention procedures in place. This defence is made out where a relevant body shows that, at the time the tax evasion facilitation offence was committed, it had in place such “prevention procedures” as it was reasonable in all the circumstances to expect it to have in place, or that it was not reasonable in all the circumstances to expect the relevant body to have any prevention procedures in place (section 45(2)). This is very similar to the “adequate procedures“ defence in section 7 of the Bribery Act, although the CFA defence is supplemented by a further safe harbour in which it is possible to show that it was not reasonable to expect the company to have any procedures in place to prevent the facilitation of tax evasion in question. B. Prevention procedures  The “Reasonable prevention procedures” can refer to both formal policies and the practical steps taken to enforce compliance. Whilst it is possible to augment anti-money laundering and Bribery Act policies, any policy must consider the risk of tax evasion facilitation independently. The simple addition of wording relating to tax evasion to a company’s compliance manuals will not be sufficient. Any measures put in place will need to be regularly reviewed to reflect changes to the company’s risk profile. Examples of procedures that companies should consider include: A formal anti-tax evasion policy; Internal training, including specific content for operations most exposed to risk ; Revisions to terms of engagement with clients and customers; Monitoring of their high-risk operations; Identification of, and appropriate engagement and communication with, those persons, both within the relevant body’s corporate group and beyond, who act in the capacity of associated persons of the relevant body; Due diligence processes for service providers (and others), and revisions to their contractual terms and conditions; Consideration of risks associated with finance, billing and invoicing; and Increased supervision and monitoring of employees where appropriate. Ultimately, the prevention measures that should be implemented will flow from a proper assessment of the circumstances of the relevant body’s business. The assessment of what procedures are needed is intrinsically linked to a proportionate, risk-based evaluation of the scope of operations of the relevant body, and the risks arising from those operations. C. Reasonable in all the circumstances The procedures do not, in order to meet the demands of the defence, have to eliminate all conceivable risk; even if they fail to prevent an associated person from facilitating tax evasion, the company will still be able to claim the defence as long as the procedures were “reasonable in all circumstances“. What is considered “reasonable in all circumstances” will depend upon the particular business of the company. The HMRC Guidance confirms that the procedures should be proportionate to the risk the company faces. High-risk factors, which mean that more robust policies and procedures are required, include: Customers – unusual circumstances, non-residents, cash intensive businesses or complex or opaque ownership structures; Countries – countries with inadequate anti-money laundering and counter-terrorist financing measures as well as those subject to sanctions; Sectors – e.g. private banking, legal services, tax advice and company service providers. Wherever these factors are found, preventative measures will have to be correspondingly more stringent in order to satisfy the reasonableness threshold. It is also worth highlighting that the HMRC Guidance (p. 12) contains an explicit acknowledgement that any consideration of what is reasonable on the part of HMRC will change as time passes. What is reasonable on the day that the new Offences come into force will not be the same as when the offences have been established for some time. The HMRC Guidance clearly envisages that it will take time for relevant bodies to get accustomed to the new duties and obligations imposed by the CFA, along with allowances being made in the early stages of implementation.  Organisations should consider this a clear signal on the part of the authorities that they expect a real shift in corporate behaviour following the CFA’s entry into force. The reasonableness of the measures implemented should also be viewed through the lens of the HMRC Guidance which identifies six guiding principles that should inform the formulation of prevention procedures. They are the same as under the Bribery Act: Risk assessment Proportionality of risk-based prevention procedures Top level commitment Due diligence Communication (including training) Monitoring and review These can be examined in turn. Firstly, the HMRC Guidance (p. 16) describes risk assessment as ultimately requiring relevant bodies to “‘sit at the desk’ of their employees, agents and those who provide services for them or on their behalf and ask whether they have a motive, the opportunity and the means to criminally facilitate tax evasion offences, and if so how this risk might be managed“. Secondly, by addressing proportionality, it is acknowledged (p. 21) that the authorities are not intending the required measures to be unduly burdensome, albeit they cannot be mere lip-service to the goals of the CFA. Thirdly, the HMRC Guidance (p. 25) stresses the desirability of senior management being involved in the formulation and implementation of procedures. Whilst recognising that senior level time cannot be spent on the minutiae of these sorts of issues, expressions of board-level commitment to and endorsement of preventative measures will go a long way to demonstrate that a relevant body has an appropriate culture and attitude towards dealing with tax evasion. The fourth principle is a recognition of the need to undertake due diligence in sufficient depth to identify risks and enable companies to respond accordingly. The HMRC Guidance (p. 27) acknowledges that some organisations in high-risk sectors such as lawyers and tax advisors will already have such systems in place, albeit noting that simply applying the old measures to this new risk will be unlikely to be enough. Principle five focuses upon the requirement to propagate the details of any measures throughout a relevant body. It is made clear (at p. 28) that HMRC expects that all staff, officers and employees of businesses should be made aware that they are expected to have a zero tolerance policy towards the facilitation of tax evasion. This does not however mean that everyone must undergo extensive training. Nor is it necessary for all associated persons to gain a deep understanding of tax law in any jurisdiction, with training only needing to be proportionate to the risks found in each instance. Principle six makes express a theme that runs throughout the guidance, namely that the risks relating to the facilitation of tax avoidance must be kept under constant review by relevant bodies and changes to procedures made as appropriate. Although understandably generic, these principles can be useful in the preparation of an outline of an organisation’s formal anti-tax evasion policies.  As with similar guidance produced to accompany the Modern Slavery Act 2015, the HMRC Guidance should be looked at as a touchstone for organisations when drafting the relevant procedures and materials envisaged by the legislation.  There is no sense here that the CFA is seeking to “catch out” companies.  The Government noted (in a memorandum relating to the human rights law compliance of the Criminal Finances Bill as it made its way through Parliament) that “There is very little prospect of a defendant relevant body being wrongly convicted as a result of practical difficulties in proving a defence that it in fact has; the defence will be easy to prove if it exists”.  Relying on the implementation of policies and procedures that have been drafted with these principles running through them will clearly place a defendant company in a stronger position than simply pointing to existing policies that have been lightly edited. IV. Penalties If a company is found guilty of either of the Offences, it faces unlimited financial penalties.  The approach to setting the fines for corporate offenders pursuant to Section 164 Criminal Justice Act 2003 requires that the fine must reflect both the seriousness of the offence and the factual circumstances of the offender.  The sentencing guidelines for corporate tax evasion offenders set the level of fine by using the offender’s actual or intended net gain as a starting point.  This is then multiplied depending on the aggravating and mitigating factors in the specific case.  The mid-range multiplier for a mid-level case is to double the starting point in order to arrive at the fine – the offender will be fined double the amount that they tried to evade.  We would expect a similar approach to be taken in respect of the new Offences.  It is likely that there would be adverse publicity for a company found guilty of an Offence, and a regulated business would need to consider the regulatory impact resulting from any prosecution. A professional services firm is unlikely to take much comfort from a DPA as opposed to a criminal prosecution and conviction. V. Enforcement appetite and political drivers The UK Offence will be investigated by HMRC, with prosecutions brought by the Crown Prosecution Service (the CPS). The Non-UK Offence will be investigated by the Serious Fraud Office (the SFO), or the National Crime Agency, and prosecutions brought by the SFO or the CPS. Due to the extra-territorial implications of the Non-UK Offence, proceedings cannot be brought against a company for this offence unless the Director of Public Prosecutions or the Director of the SFO gives their consent (although it is anticipated that consent is most likely to be denied in cases where the overseas tax in question is repugnant to UK foreign policy). The HMRC Guidance notes that it will be preferable for the jurisdiction that has suffered the tax loss to bring any prosecution. The tone of the HMRC Guidance appears to suggest that the appetite for enforcement is outweighed by the desire to affect self-started change in high risk sectors.  The existence of the HMRC Guidance and the availability of for DPAs may be expected to lead to a balanced and nuanced approach to enforcement. Companies should be under no illusion, however, that egregious failure to put in place prevention procedures leading to tax evasion going unchecked, particularly when coupled with a failure to report failings to the authorities, is likely to result in prosecution. Enforcement agencies (both criminal and fiscal) across a range of countries, including HMRC, have established a highly integrated network of systematic co-operation, particularly across Europe and between Europe and the U.S., and the broad political appetite to clamp down on tax evasion shows no sign of diminishing. Enforcement under the CFA will form a useful new tool for enforcement authorities. VI. What should companies do next? It is not too late.  The reasonable prevention procedures defence is not available only to those companies who have put all the necessary procedures in place in advance of the 30 September 2017 deadline.  A proportionate, risk-based risk assessment can be provided quickly and efficiently, and can provide substantial comfort going forward.  Moreover, if companies are confident in their existing AML and anti-bribery procedures, they may well find that the incremental work needed to manage CFA risks (and potentially avail themselves of the defence should it ever prove necessary to seek to do so), is more modest than might otherwise be imagined. We will keep our clients and friends updated on developments in the enforcement of these new offences. This alert was prepared by Nick Aleksander, Patrick Doris, Mark Handley, Steve Melrose and Jonathan Cockfield. Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following lawyers in the firm’s London office: Nicholas Aleksander (+44 (0)20 7071 4232, naleksander@gibsondunn.com) Philip Rocher (+44 (0)20 7071 4202, procher@gibsondunn.com) Patrick Doris (+44 (0)20 7071 4276, pdoris@gibsondunn.com) Charles Falconer (+44 (0)20 7071 4270, cfalconer@gibsondunn.com) Osma Hudda (+44 (0)20 7071 4247, ohudda@gibsondunn.com) Penny Madden (+44 (0)20 7071 4226, pmadden@gibsondunn.com) Allan Neil (+44 (0)20 7071 4296, aneil@gibsondunn.com) Ali Nikpay (+44 (0)20 7071 4273, anikpay@gibsondunn.com) Deirdre Taylor (+44 (0)20 7071 4274, dtaylor2@gibsondunn.com) Mark Handley (+44 20 7071 4277, mhandley@gibsondunn.com) Steve Melrose (+44 (0)20 7071 4219, smelrose@gibsondunn.com) Sunita Patel (+44 (0)20 7071 4289, spatel2@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

July 18, 2017 |
2017 Mid-Year United Kingdom White Collar Crime Update

The UK has faced a period of extreme political flux and public policy uncertainty in the last year.  While most of the political focus in 2017 has been on Brexit and the recent general election, the criminal enforcement authorities and courts have remained busy and there have been significant and far-reaching developments in the UK white collar crime space in the six months since our 2016 End of Year UK White Collar Crime Update. Between them the Criminal Finances Act 2017 and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 bring substantial changes to the UK’s money laundering laws; the Policing and Crime Act 2017 does likewise for trade sanctions enforcement.  At the same time the Serious Fraud Office (“SFO”) has secured two further deferred prosecution agreements (“DPA”s), including the first outside the bribery and corruption sphere, and announced the first ever criminal charges brought against the head of a global bank for activities during the financial crisis. We have seen enforcement action at record levels across multiple areas of the white-collar space: the Financial Conduct Authority (“FCA”) has imposed its highest ever fine for money laundering failings; the Competition and Markets Authority (“CMA”) has issued its highest ever fine, as has the Information Commissioner.  The European Commission has imposed its highest ever fine against a single entity.  We have also seen the longest custodial sentence given for bribery offences since at least the mid-1990s.  Yet all of these actions pale in comparison with the Rolls-Royce DPA which has established new benchmarks for financial disgorgements and potential fines in cases of bribery and corruption offences. Against this background of accelerating enforcement activity, increasing enforcement risk for companies and emboldening of leading enforcement authorities, there have also been important developments in the English law of legal professional privilege (“LPP”) that may impact the way that companies exposed to UK risk conduct internal investigations.  Moreover, there have been major proposals for institutional change among the major UK white collar criminal enforcement agencies, the ultimate outworkings of which have been cast into doubt by political developments.  We find ourselves in a remarkable period for UK white collar practice. __________________________ Table of Contents 1.       Developments Relating to the White Collar Section as a Whole Legislation: Criminal Finances Act 2017 Future of the SFO Continued use of DPAs Significant decisions regarding the scope of legal professional privilege Continued concerns about the SFO’s insistence on solicitors’ undertakings for interviews FCA and PRA publish changes to decision-making processes Continuing enforcement activity by the FCA 2.      Bribery and Corruption Enforcement: Bribery Act section 7 Enforcement: Bribery Act sections 1-2 – giving/receiving bribes Enforcement: Prevention of Corruption Act 1906 and Public Bodies Corrupt Practices Act 1889 Enforcement: Ongoing Foreign Bribery Prosecutions Enforcement: Ongoing Foreign Bribery Investigations Enforcement: Ongoing Domestic Bribery and Corruption Prosecutions and Investigations Introduction of a new anti-bribery reporting regime 3.      Fraud Investigations: SFO Enforcement: SFO Confiscation orders: SFO Enforcement: FCA Confiscation orders: FCA City of London Police and Crown Prosecution Service Scotland 4.      Financial and Trade Sanctions Enforcement Legislative developments BREXIT Trade and Export 5.     Anti-Money Laundering Money Laundering Regulations 2017 enter into force FCA final guidance on treatment of PEPs for AML purposes FCA anti-money laundering annual report for 2016/17 Case Law Enforcement 6.      Competition Enforcement 7.      Market abuse and Insider Trading and other Financial Sector Wrongdoing FCA Enforcement – Insider Dealing Civil enforcement for Market Abuse __________________________ 1.    Developments Relating to the White Collar Section as a Whole Legislation: Criminal Finances Act 2017 The Criminal Finances Act 2017 (“CFA”) became law on April 27, 2017, with a date for it coming into force to be determined by later regulations. The Criminal Finances Act 2017 (Commencement No. 1) Regulations 2017 published on July 12, have now set the date of September 30, 2017 as the date on which the new offences of failing to prevent tax evasion will come into force. The official Guidance should now follow shortly to give parties time to have the required “prevention procedures” in place. The date when the rest of the CFA will come into force is as yet uncertain. The stated aim of the CFA is “to make the legislative changes necessary to give law enforcement agencies, and partners, capabilities and powers to recover the proceeds of crime, tackle money laundering and corruption, and counter terrorist financing.”  In particular, the CFA amends the Proceeds of Crime Act 2002 (“POCA”), which forms the basis for the UK’s anti-money laundering regime. As stated in our 2016 Mid-Year Alert, the background to these legislative changes is outlined in the UK Government’s Action Plan for Anti-Money Laundering and Counter-Terrorist-Finance, which was published in April 2016. Unexplained wealth orders The CFA grants courts in the UK the power to make unexplained wealth orders (“UWOs”), as a means of requiring those suspected of holding criminal property to explain the origin of certain assets.  The National Crime Agency (“NCA”), Crown Prosecution Service (“CPS”), FCA, SFO and HM Revenue and Customs (“HMRC”) will all be able to apply for a UWO by making an application to the High Court. In order to make a UWO, the High Court needs to be satisfied that the respondent to the application for a UWO is a politically exposed person, or that there are reasonable grounds for suspecting that the respondent is, or has been, involved in serious crime whether in the UK or elsewhere. It will be sufficient to show that a person connected with the respondent is, or has been involved, in serious crime. The Court must also be satisfied that there are reasonable grounds for suspecting that the known sources of the respondent’s obtained income (such as his or her salary and any other known assets) would have been insufficient for the purposes of enabling them to obtain the property. A UWO will require the respondent to set out the nature and extent of his interest in the property in respect of which the order is made, and an explanation of how that property was obtained. A failure to provide a satisfactory explanation may lead to a presumption that the property is “criminal property“. The property that is the object of a UWO must be valued over £50,000. There is no requirement for the subject of the UWO to be resident in the UK. It will be an offence to knowingly or recklessly make a false or misleading statement in response to a UWO. The High Court will also have the power to make an interim freezing order where it considers it necessary to do so for the purposes of avoiding the risk of any recovery order that might subsequently be obtained being frustrated. New offences of failure to prevent the facilitation of tax evasion The CFA creates two new offences of failure to prevent the facilitation of tax evasion: a domestic tax evasion offence and an overseas tax evasion offence. A corporate person can be guilty of the domestic tax evasion offence if a person commits a UK tax evasion offence whilst acting in the capacity of someone associated with the corporate person (for example, as an employee). It will be a defence to show that the corporate person had “prevention procedures” in place that were reasonable in all the circumstances. The overseas tax evasion offence has additional requirements: there must be a sufficient nexus between the corporate person and the UK, and the relevant conduct must be recognised as criminal in both the UK and in the foreign jurisdiction in question. The CFA provides for guidance as to what will constitute adequate “prevention procedures“. HMRC published draft guidance in October 2016. That draft guidance notes that prevention procedures ought to be informed by the following six principles: (i) risk assessment; (ii) proportionality of risk-based prevention procedures; (iii) top level commitment; (iv) due diligence; (v) communication (including training); and (vi) monitoring and review. It also acknowledged that such procedures might be independent, standalone procedures, but that as long as they properly addressed the risk of facilitating tax evasion, they might form part of a wider package of procedures, e.g. internal anti-money laundering (“AML”), Bribery Act 2010 (“Bribery Act”) or fraud prevention procedures. As just stated, we expect final guidance to be published very shortly. Importantly, the CFA also amends the Crime and Courts Act 2013 so as to allow a company to enter into a DPA in respect of these new offences.  As mentioned above, we will be issuing a detailed alert on these new offences as soon as the final guidance is published. Suspicious activity reporting regime The CFA modifies a number of aspects of the UK’s anti-money laundering regime, as set out in POCA. At present, “regulated sector” entities must disclose knowledge or suspicion of money laundering to the NCA by way of a suspicious activity report (“SAR”). The submission of a SAR may provide a defence to a principal money laundering offence set out in POCA. Whilst a transaction cannot proceed without risk of committing an offence under POCA if the NCA refuses consent, the NCA is deemed to have consented if it does not notify the company that consent is refused within seven working days, or if it notifies the company within seven working days that consent is refused, but takes no further action after a further 31 calendar days (the “moratorium period”). The CFA amends POCA so as to allow the moratorium period to be extended by the court, on an application by the NCA. The court will have the power to extend the moratorium period, on more than one occasion if necessary, but only up to a further 186 days in total. The court will have to be satisfied that the NCA is carrying out its investigation “diligently and expeditiously“. The CFA also grants the court the power, on application by the NCA, to make a “further information order” against the entity that either filed the SAR, or which is an entity in the “regulated sector“. Disclosure orders The CFA extends the current use of disclosure orders (which require a person subject to an order to answer questions or provide information or documents to an investigator) from their current use in POCA for corruption and fraud investigations, to money laundering and terrorist financing investigations.                 Information sharing The CFA amends POCA so as to allow explicit information sharing between regulated companies relating to money laundering prevention. A condition of sharing such information is that the sharing party must be satisfied that “the disclosure of the information will or may assist in determining any matter in connection with a suspicion that a person is engaged in money laundering“. That information sharing may result in a joint SAR which, if made in good faith, will be treated as satisfying any requirement to make disclosure on the part of the persons who jointly make the report. Future of the SFO In our last update, we noted that the SFO’s future could be subject to some uncertainty, given that the then newly appointed Prime Minister, Theresa May, had been looking at ways to abolish the SFO during her time as Home Secretary. In the lead up to the recent British election the governing Conservative Party (of which Theresa May is the leader) included in its election manifesto an intention to subsume the SFO into the NCA. The manifesto read: “We will strengthen Britain’s response to white collar crime by incorporating the Serious Fraud Office into the National Crime Agency, improving intelligence sharing and bolstering the investigation of serious fraud, money laundering and financial crime.“ A worse-than-expected election result for the Conservative Party has meant that this pledge has not subsequently been incorporated in the government’s legislative programme (which is dominated by Brexit-related matters), indicating that the Government has, at least for the time being, parked its idea to disband the SFO. On July 6, 2017, SFO Director David Green QC, in a speech at a London conference on corporate crime, vigorously defended the agency and called for its future to be put beyond doubt, saying it “works well in a very difficult field” and is a “huge brand abroad“. He noted that doubt over the SFO’s future had already affected recruitment, retention and the agency’s credibility with “allies” such as the U.S. Department of Justice (“US DoJ”). At the same time, Mr Green, who is due to step down in April 2018, reiterated his support for law reform in relation to corporate criminal liability, which would ease the burden of proof required to prosecute companies for economic crimes other than bribery. Continued use of DPAs The SFO secured one DPA in 2015 and one in 2016, whereas it secured two in the first half of 2017: one with Rolls Royce Plc in January 2017 and the other with Tesco Plc in April 2017. The Rolls Royce DPA was noteworthy for a number of reasons, including that the company received a significant discount on the potential penalty, despite the fact that the SFO learned initially of potential concerns from an internet blog and subsequently approached the company; unlike the two DPAs that had gone before there was no self-report. The SFO (which had sole right of initiative in this respect) nonetheless offered Rolls Royce a DPA, in recognition of the level of cooperation provided by the company to the SFO following the start of its investigation. We report extensively on this DPA in the Bribery and Corruption section below. Little is available regarding the terms and scope of the April 2017 Tesco DPA, as reporting restrictions are in place pending the prosecution of three individuals in relation to the conduct of Tesco Stores Limited’s business. That trial is scheduled to take place in London from September 4, 2017. Lord Justice Leveson, President of the Queen’s Bench Division of the High Court, has approved all four DPAs the SFO has secured since the regime came into force. Significant decisions regarding the scope of legal professional privilege The judgments of Hildyard J in the RBS Rights Issue Litigation [2016] EWHC 3161 (Ch) (“RBS“) and Andrews J in Serious Fraud Office v Eurasian Natural Resources Corporation Limited [2017] EWHC 1017 (QB) (“ENRC“) have cast doubt over the scope of LPP and in particular its availability in the context of criminal and regulatory investigations. In RBS, the claimants sought disclosure of notes recording interviews with current and former employees of RBS. The interviews were conducted by in-house and outside counsel as part of two internal investigations carried out by the bank. RBS sought to withhold disclosure of the interview notes on different bases, including that they were subject to legal advice privilege, that they were “lawyers privileged working papers”, or that the English Court should apply US law which recognises the notes as privileged. The High Court rejected these arguments and held that the notes of interviews were not privileged, for reasons that follow. Legal advice privilege applies to communications between lawyer and “client“. The RBS judgment narrowly defines a corporate ‘client’ for the purposes of legal advice privilege. As legal advice privilege only applies to lawyer-client communications, a restriction on who can be considered a client will drastically reduce the availability of this strand of LPP. In RBS, Hildyard J followed (and arguably went further than) the earlier, and much criticised, Court of Appeal authority in Three Rivers (No 5)  [2003] QB 1556. The Court held that interview notes and other recorded communications with lawyers were not privileged where interview subjects were not the individuals actually authorised to or responsible for instructing lawyers and receiving legal advice.  The result of this line of reasoning is a sharp restriction on the availability of legal advice privilege in the context of an internal investigation, given that it will not extend to lawyers’ communications with the majority of employees within a company or organisation. The Court also rejected the notion that the interview notes were lawyers’ working papers, which can be protected by legal privilege. The Court rejected the notion that privilege would apply simply because the documents could reveal the lawyer’s train of enquiry; it found that the documents must at least give a clue as to the actual advice given or sought before legal privilege will apply. The ENRC judgment concerns an investigation by the SFO into the activities of Kazakh mining company ENRC, now owned by Eurasian Resources Group (“ERG”). The opening of the investigation followed a period of dialogue between the SFO and ENRC, during which ENRC was reporting to the SFO. The investigation focused on allegations of fraud, bribery and corruption. As part of its investigation, the SFO sought to compel the production of documents (including interview notes and factual updates) that had been prepared by ENRC’s lawyers during the course of an internal investigation.  Assertions of both legal advice privilege and litigation privilege were made in respect of the documents sought by the SFO. All assertions of privilege, save for a limited legal advice claim in respect of a narrow group of documents, failed. Litigation privilege protects certain communications between lawyers and their clients, as well as third parties, made for the purpose of obtaining information or advice in connection with litigation that is in reasonable contemplation, where the communications are made for the sole or dominant purpose of conducting that (anticipated) litigation, and where the litigation is adversarial and not investigative or inquisitorial. In ENRC, Andrews J held that a criminal investigation by the SFO is not adversarial litigation; it is a preliminary step that comes before any decision to prosecute. According to the Court, in such cases litigation privilege can only apply in circumstances where a prosecution is in reasonable contemplation. Whether or not a prosecution is in reasonable contemplation will depend on an assessment of the facts of each case. The assessment would include a consideration of what an internal investigation had unearthed and whether or not a prosecutor would be likely to satisfy the test for commencing a prosecution. The court also distinguished between documents whose dominant purpose was to conduct litigation and those that were created as part of an internal investigation that was intended to avoid rather than conduct adversarial proceedings. ENRC represents an unexpected narrowing of both the ‘adversarial proceedings’ and the ‘dominant purpose’ elements of litigation privilege. The treatment of arguments in respect of legal advice privilege followed the approach taken in RBS. Andrews J took the view that none of the interviewees were individuals authorised to instruct lawyers or receive legal advice. As such, interview notes and the materials used to compile them were only preparatory to the actual process of seeking legal advice and therefore not privileged. The only claim for LPP that succeeded was a claim for legal advice privilege in respect of PowerPoint slides used to give legal advice to the ENRC board. Notably, following the ENRC decision the President of the Law Society of England and Wales wrote in an open letter to the editor of The Financial Times that the outcome of the decision is “deeply alarming“, as it appears to narrow the scope of LPP available to corporations facing criminal investigations. He noted that “The Law Society has vigorously opposed other recent attempts to undermine legal privilege — always supposedly for some ‘greater good’.” The ENRC decision is a disappointing one and leaves many questions unanswered. Given the various types and stages of Government authority investigations that we now see so frequently, proper focus needs to be given to how LPP applies in the investigations context. ENRC is appealing the decision. It is hoped that the appellate Courts will take the opportunity to properly consider the scope of LPP under English law in the criminal and regulatory context. The status quo is deeply undesirable. Continued concerns about the SFO’s insistence on solicitors’ undertakings for interviews In our 2016 Year-End United Kingdom White Collar Crime Update we reported that the SFO had issued guidance in June 2016 on the presence of interviewee’s legal adviser at a section 2 interview (in which a person is compelled to provide answers in furtherance of the SFO’s investigation). We indicated that while it is possible to sympathise with the SFO’s desire to have unimpeded conduct of its investigation, the fact that access to legal advice for those being interviewed by the SFO is subject to restriction at the discretion of the SFO will not be welcome in all quarters. This has certainly turned out to be the case. Many practitioners have reported negative experiences with the SFO’s implementation of the guidance and are concerned by the limited “consultation” the SFO carried out before the guidance was issued. In a Practice Note dated May 4, 2017, the Law Society for England and Wales set out a number of issues that could arise for practitioners as a result of the guidance. The Practice Note recognises that SFO interviews can be difficult and stressful experiences for clients and that witnesses are entitled to receive proper legal advice. In strongly worded terms the Note reminds lawyers that “they do not have to accept unnecessary and inappropriate restrictions on their ability to represent clients.” At a minimum the SFO should consider launching a consultation to hear the valid concerns of practitioners. FCA and PRA publish changes to decision-making processes Following a long period of consultation, on February 1, 2017 the FCA and Prudential Regulation Authority (“PRA”) published a Policy Statement that sets out the changes the organisations agreed to make to their enforcement decision making processes. While some changes came into effect in January, most of the changes came into effect on March 1, 2017. Changes were made to both the Decision Procedure and Penalties Manual (“DEPP”) and the Enforcement Guide. The PRA is expected to publish a policy statement later this year. Changes have been to many stages of the investigations process, including how decisions are made to refer a matter to formal enforcement or regulatory action, greater provision of information to the subject of an investigation, and a process for dealing with partly contested cases: Where a decision is made to refer a matter to FCA Enforcement, the FCA will now provide to the subject of the investigation an explanation of the referral criteria applied to come to this decision and give a summary of the circumstances and reasons for the referral. When making a referral decision the FCA will consider factors addressing: available supporting evidence and the proportionality and impact of opening an investigation; the purpose or goal to be served by enforcement action in the relevant case; and relevant factors to whether or not the goal of the enforcement action will be met.  In market abuse cases greater emphasis will be put on the severity and deterrent value of a particular case. The FCA will give periodic updates to the subjects of an investigation on at least a quarterly basis.  These will cover the investigative steps taken to date and the next steps that are anticipated. Provision for FCA Supervision to be involved in and updated on investigations and for senior individuals at the FCA to be involved in settlement discussions. The FCA will give 28 days’ notice of the beginning of the “Stage 1” settlement period and will identify the key evidence on which its case relies and which underpins its outline findings.  It will now also offer a preliminary “without prejudice” meeting at this stage “where appropriate“.   Stage 1 is the period from the start of an investigation until the point at which the FCA has “sufficient understanding of the nature and gravity of the breach to make a reasonable assessment of the appropriate penalty; and communicated that assessment to the person concerned and give them reasonable opportunity to reach agreement on the amount of the penalty“. Changes are made to the stages at which a subject can receive an early settlement discount as part of the FCA’s settlement regime. Previously there were three levels of discount. Discounts for settlement at stages two and three of the investigative process are abolished, meaning that discounts for early settlement are no longer available after a subject has been issued with a warning notice. It will now be possible for the subject of an FCA investigation to partially contest the case against them (including challenging particular findings as well as challenging penalty), but still settle on certain matters. This will give a subject the opportunity to obtain a discount on the penalty that will reflect the extent to which issues have been agreed. Where a partially contested case then goes to the Regulatory Decisions Committee (“RDC”), the RDC will not be able to depart from findings set out in the settlement agreement. Continuing enforcement activity by the FCA On July 5, 2017 the FCA issued its Annual Report and Accounts for 2016/17 (“Report”). In the foreword to the Report, the Chairman of the FCA writes “regulatory arbitrage, at least in the conduct area, is a game no longer worth playing“. The regulator’s main challenge going forward, he opines, will be to make sure that the focus of firms remains firmly on conduct, with neither complacency nor “the pendulum of regulation” being allowed to creep or swing back in. The FCA’s Report notes that in 2016/17 the FCA issued 180 final notices (155 against firms and 25 against individuals), secured 209 outcomes using its enforcement powers (198 regulatory/civil and 11 criminal) and imposed 15 financial penalties. The cumulative value of the penalties imposed was £181 million. This compares to 34 financial penalties with a combined value of £884.6 million in 2015/16 and 43 penalties with a cumulative value of £1.4 billion in 2014/15. The 2015/16 and 2014/15 figures included exceptional fines related to FX and LIBOR misconduct. 115 cases (excluding threshold condition cases) were concluded by executive settlement in 2016/17. The section 166 power – which enables the FCA to obtain an independent view on aspects of a firm’s activities that cause concern or where further analysis is required – was used 49 times. The FCA’s significant achievements in 2016/17, each of which is discussed in further detail in their respective sections below, included its action against Deutsche Bank over failed AML controls that led to the imposition of a £163 million financial penalty, the largest for such failures; its action against Tesco plc and Tesco Stores Ltd for market abuse arising from a misleading trading update issued in August 2015, that will, it is estimated, lead to Tesco making payment of c. £85 million plus interest to c. 10,000 retail and institutional investors; and the completion of the FCA’s longest and most complex insider dealing case, which led to five convictions, with one defendant sentenced to 4.5 years – the largest jail term ever imposed for insider dealing. The Report acknowledges that Brexit will have important implications for the financial sector’s regulatory framework and how the FCA operates, including in respect of its engagement with counterparts around the world. The FCA has been, the Report notes, working with HM Treasury to provide technical input on the Great Repeal Bill, and working with the Government to provide impartial technical advice to support the EU withdrawal negotiations. Other headline points arising from the Report include: the market cleanliness statistic for takeover announcements in 2016 remains steady at the 2015 rate of 19%; that figure is up against the 2014 figure of 15.2%; the number of whistleblowers is down for the second year in a row, with only 900 intelligence cases from whistleblowers during 2016/17. The FCA believes that this reduction is attributable to the fact that whistleblowers are now more aware of their firm’s internal reporting mechanisms and so are reporting internally instead of proceeding straight to the FCA; and in an effort to further embed the importance of good conduct at the core of the UK’s financial sector, the Senior Managers and Certification Regime will be, from 2018, extended from banking and insurance firms to all other regulated firms. Separate annual reports on Competition, Enforcement, Anti-Money Laundering and Diversity were also issued. The Annual Reports follow the publication of the FCA’s Mission in April 2017 and its Business Plan for 2017/18. 2.    Bribery and Corruption It is fair to say that enforcement of the UK’s anti-corruption laws has continued apace during the first half of 2017. These six months have seen the largest ever fine imposed for breaches of the UK’s anti-corruption legislation; the largest ever disgorgement of profits in this space; and the three longest individual custodial sentences to be imposed in many years, as well as a total of seven custodial sentences in all. The number of companies actively facing investigation or prosecution is growing. Indeed a recent report stated that there are 38 active foreign bribery investigations being conducted by the UK authorities, while the NCA is the headquarters of International Anti-Corruption Coordination Centre for the next four years. This is a new body jointly set up by the authorities of the UK, Australia, Canada, New Zealand, Singapore, the US and Interpol to provide a hub for the combatting of corruption, embezzlement and the abuse of power. At the very end of 2016 we have also seen a new reporting regime introduced by way of the Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016. Enforcement: Bribery Act section 7                 Rolls-Royce PLC – Deferred Prosecution Agreement On January, 17 2017, Rolls-Royce PLC (“Rolls-Royce”) entered into the UK’s most significant deferred prosecution agreement (“DPA”) to date, following its approval by Lord Justice Leveson. The resolution represents the highest ever criminal enforcement action against a company in the UK following an extensive four-year investigation by the SFO. The investigation concerning the conduct of individuals remains ongoing. Under the terms of the DPA, Rolls-Royce agreed to pay £497.25 million (comprising disgorgement of profits of £258.17 million and a financial penalty of £239.08 million) plus interest, as well as the SFO’s costs of the investigation amounting to approximately £13 million. As the table below shows, this total penalty is significantly larger than any penalty previously imposed. These sums, when added to settlements reached by the company with the US DoJ (US$170 million) and Brazil’s Ministério Público Federal (US$25 million), amounts to a global penalty of approximately £671 million. The Rolls-Royce DPA provides significant insight into the considerations and approach of the SFO and High Court when awarding a DPA, including how the financial penalties, and any discounts, may be determined, including under the relevant Sentencing Guidelines. The Rolls-Royce DPA was the third DPA to be awarded in the UK. There has subsequently been a fourth  and Lord Justice Leveson has presided over all four. This consistency was designed to establish guiding jurisprudence on DPAs, which now feature prominently among the SFO’s armoury to combat corruption. The indictment against Rolls-Royce comprised 12 counts falling into three categories: (i) conspiracy to corrupt under the Prevention of Corruption Act 1906, (ii) false accounting, and (iii) failure to prevent bribery under section 7 of the Bribery Act. It involved Rolls-Royce’s Civil Aerospace and Defence Aerospace businesses and its former Energy business, and related to the sale of aero engines, energy systems and related services. The conduct covered by the DPA took place across seven jurisdictions and over the last three decades. In Indonesia, it is alleged that senior employees of Rolls-Royce agreed to pay US$2.25 million to an intermediary, as a reward for Rolls-Royce winning a contract for engines for six Airbuses when the intermediary acted as an agent of the President’s office. There was also an indictment for failure to prevent bribery allegations arising from Rolls-Royce’s appointment of an intermediary to bribe a member of a competitor consortium to submit an uncompetitive bid, and a separate intermediary to bribe state officials in relation to airline engines and care packages. In Thailand, the allegations concerned Rolls-Royce agreeing to pay nearly US$19 million to two intermediaries, with the intention that part of these funds would be paid to state agents and Thai Airways employees to procure the purchase Rolls-Royce engines. Two further counts relate to the actions of those intermediaries concerning other contracts. In India, there were counts of false accounting and conspiracy to corrupt, the latter in relation to the Indian tax authorities. In Russia, the allegations relate to Rolls-Royce using an intermediary to pay a commission to a Gazprom official in order to win a contract to support Gazprom with gas compression equipment. In Nigeria, there was a count of failure to prevent bribery concerning Rolls-Royce’s failure to prevent a company, with which it worked in Nigeria, from paying bribes to Nigerian officials in a bid to aid the company win two key tenders. In China, there was another count of failure to prevent bribery in relation to Rolls-Royce failing to prevent its employees from providing US$5 million cash credit to China Eastern Airlines at the request of a board member, in return for the board member favouring the company in the purchase of a number of engines and associated care agreements. Finally, in Malaysia, there was a failure to prevent bribery count on the basis that Rolls-Royce had failed to prevent its employees from providing an Air Asia Group executive with credits worth US$3.2 million to pay for the maintenance of a private jet, in order for Rolls-Royce to win contracts. Importantly, this conduct spanned three decades from 1989 until 2013. Under English law, there is no limitation period in respect of corruption matters. This is unlike the FCPA which only permits the sanction of conduct that took place within the last five years. Rolls-Royce did not self-report to the SFO. The criminal conduct came to the SFO’s attention via a whistleblower’s blog which detailed allegations against the engineering company’s civil aviation business in China and Indonesia. On the basis of that information, the SFO launched an investigation and requested a response from the company. At this point, Rolls-Royce was under new management, and it conducted significant internal investigations, and engaged in a highly cooperative and proactive manner with the SFO’s investigation. It reported back to the SFO in relation to the China and Indonesia issues, as well as other civil and defence issues of which the SFO had not been aware. The SFO investigation quickly became both broad and deep, and scrutinized Rolls-Royce’s business across multiple jurisdictions over the course of four years. Rolls-Royce waived privilege over some 30 million un-reviewed documents, and allowed the SFO to conduct interviews with former and current employees. The investigation absorbed considerable resource from the SFO, involving over 70 members of its staff, four Case Controllers, and a counsel team of six (including two Queen’s Counsel). The investigation into Rolls-Royce led to 36 staff members being investigated, followed by the dismissal of six and the resignation of 11. The company also reviewed 250 intermediary relationships, and suspended 88. While the Rolls-Royce DPA has resolved the SFO’s investigation of the company, as noted above, the SFO’s investigation into some of the company’s former employees is ongoing. In the SFO deciding to offer a DPA to Rolls-Royce, and in the High Court approving it, it was necessary to weigh up the very serious criminal conduct of Rolls-Royce against public interest considerations of pursuing a criminal conviction against the company. There was no doubt that the conduct in question was serious. Lord Justice Leveson’s judgment states (at paragraph 61): “My reaction when first considering these papers was that if Rolls-Royce were not to be prosecuted in the context of such egregious criminality over decades, involving countries around the world, making truly vast corrupt payments and, consequentially, even greater profits, then it was difficult to see when any company would be prosecuted.“ Indeed, the investigation revealed systemic bribery in the company that was notable for its aggravating features. This included the wide-range of offences across multiple jurisdictions and multiple parts of Rolls-Royce’s business, the conduct spanning three decades, the substantial funds being made available to fund bribe payments, the evidence of careful planning, the involvement of senior employees, the very substantial amounts of profit earned on the back of that conduct, and the fact that the offences had caused and/or will cause substantial harm to the integrity and confidence of markets. There were, however, a number of countervailing factors that the SFO took into account when deciding to offer the DPA to Rolls-Royce, and which the High Court took into account when approving the DPA. Broadly, these were: (i) the extraordinary cooperation of the company with the SFO’s investigation; (ii) the change in culture and personnel; (iii) the negative impact that a conviction of company would have on the company itself, its employees, and other third parties; (iv) the financial penalties imposed by a DPA would have the same effect as a fine imposed by a conviction; (v) the costs (including financial) the SFO would incur if it were to proceed to a full trial; and (vi) the fact that a DPA would likely incentivise self-reporting from other companies. For more detail on the reasoning of the High Court see our 2017 Mid-Year NPA and DPA Alert. The DPA is accompanied by a Statement of Facts. Under the DPA’s terms, Rolls-Royce agrees that the Statement of Facts is true and accurate to the best of its knowledge and belief, and that it may be treated as an admission in the event that it becomes necessary for the SFO to pursue the prosecution deferred by the DPA.                 (i) Duration of the DPA The DPA expires on the earlier of January 17, 2022 or a date after January 17, 2021 on which the SFO notifies the company that the DPA has concluded. Should Rolls-Royce fully comply with all of its obligations under the DPA, then at the conclusion of the term, the SFO agrees that it will not continue the prosecution against Rolls-Royce, and that the proceedings against the company will be discontinued.                 (ii) Carve-outs Importantly, the DPA does not provide any protection against prosecution for conduct not disclosed by Rolls-Royce prior to the date on which the DPA comes into force, nor against prosecution for any future criminal conduct committed by Rolls-Royce. In addition, these terms do not provide any protection against prosecution of any present or former officer, director, employee or agent of Rolls-Royce. Further, after the DPA expires, the SFO may institute fresh proceedings if it believes that during the course of negotiations of the DPA, Rolls-Royce provided inaccurate, misleading or incomplete information and Rolls-Royce knew, or ought to have known the same (Rolls-Royce, and its legal advisors, provided a warranty in respect of the same in the DPA).                 (iii) Financial consequences Under the terms of the DPA, Rolls-Royce has agreed to the following payments: Rolls-Royce’s disgorgement of profit of £258,170,000; a financial penalty of £239,082,645; costs of approximately £13 million which represents the costs of the SFO’s investigation; and financing of a compliance and reporting programme. The disgorgement and financial penalty are to be paid by Rolls-Royce in four tranches over the next five years, with the first tranche of £119 million payable by June, 30 2017, and the final tranche of approx. £148 million to be paid by January, 31 2021. Late payment by Rolls-Royce will lead to significant interest being charged, along with the risk of the DPA being breached. The financial penalty was calculated by reference to the Sentencing Guidelines and the harm caused and the company’s culpability in relation to the charges. The culpability was classed as “high” for all but one charge, which led to “harm multipliers” of 250-400% being applied to the financial gain intended to be derived from the conduct. This led to a figure of £478 million. Importantly, Rolls-Royce received a 50% discount on this financial penalty because of its cooperation, thereby saving it £238 million in fines . The substantial discount marks a departure from the Sentencing Guidelines. Under the Deferred Prosecution Agreement Code, financial penalties imposed in a DPA “must provide for a discount equivalent to that which would be afforded by an early guilty plea…“. In the Sentencing Guidelines for bribery, this discount is stated as being 33%. Nonetheless, Lord Justice Leveson considered that, in light of Rolls-Royces extraordinary co-operation, a discount of 50% was warranted (see our observations on this discount below).                 (iv) Compliance programme Under the DPA Rolls-Royce is required to provide the SFO, by no later than June 31, 2017, a written plan to implement recommendations contained in the Third Report of Lord Gold (who was retained by Rolls-Royce in January 2013 to conduct an independent review of the approach of Rolls-Royce to anti-bribery and corruption compliance), as well as any outstanding recommendations contained in his First and Second Interim Reports. Further, Rolls-Royce must implement the recommendations within a one-year period. Upon completion of the plan, Lord Gold is to provide a final report to Rolls-Royce and the SFO assessing whether the plan had been successfully complied with. In addition, Rolls-Royce must continue to review its internal controls, policies and procedures regarding compliance and if necessary and appropriate it must adopt new or modify existing controls, policies and procedures in order to ensure it complies with all applicable anticorruption laws. The DPA stresses that the ultimate responsibility for identifying, assessing and addressing risks remains with the Board of Directors of Rolls-Royce.                 (v) Requirement to cooperate Under the DPA Rolls-Royce is required to fully and honestly cooperate with the SFO in relation to any prosecution brought by the SFO in respect of any conduct under investigation or pre-investigation by the SFO at any time during the term of the DPA. Further, at the reasonable request of the SFO, Rolls-Royce must cooperate with other domestic or foreign law enforcement and regulatory authorities and agencies, as well as the Multilateral Development Banks, in any investigation or prosecution of any of its present or former officers, directors, employees, agents, and consultants, or any other third party, in any and all matters relating to the conduct which is the subject of the indictment and described in the Statement of Facts. Rolls-Royce is to provide disclosure of the relevant information and material in its possession, and to use its best efforts to make available for interview present or former officers, directors, employees, agents and consultants of Rolls-Royce.                 (vi) Ongoing disclosure obligation Rolls-Royce has on ongoing legal obligation, throughout the term of the DPA, to notify the SFO if it becomes aware of information that it knows or suspects would have been relevant to the offences particularised in the indictment.                 (vii) Breaches of the DPA Should Rolls-Royce breach any of the terms of the DPA, the SFO must decide whether to accept a proposal from Rolls-Royce in respect of remedying the breach. If it does not accept such a proposal it may make a breach application to the High Court. In the event that the High Court terminates the DPA, the SFO may make an application for the lifting of the suspension of the indictment and reinstitute the criminal proceedings.                 Observations The first two UK DPAs, concerning ICBC Standard Bank (November 2015) and XYZ Limited (July 2016), involved companies that had self-reported to the SFO. The significant emphasis on self-reporting placed by Lord Justice Leveson in his judgments for those companies had led certain commentators to assert that self-reporting was a pre-condition to obtaining a UK DPA. The Rolls-Royce DPA dispels this myth, and comments by the SFO and the judge made in relation to the Rolls-Royce DPA emphasize instead the critical importance of cooperation. As noted above, the SFO Director noted in a speech at the International Bar Association’s anti-corruption conference in Paris on June, 13 2017 that Rolls-Royce had been offered a DPA because of its “genuine and demonstrable cooperation“. This was echoed in the DPA judgment itself which greatly emphasized the “extraordinary” level of co-operation that the SFO had received from Rolls-Royce, and the fact that its proactive method of co-operating meant the SFO received some information which may not otherwise have come to light. In a speech given to the Fraud Lawyers Association on June, 16 2016, Lord Justice Leveson said that companies can receive a benefit for cooperating if they self-report, or “even if the first murmurings about misbehavior come out via a whistleblower or press report.” He said that companies may be awarded a DPA if the announcement of the misconduct is then followed by “full, unambiguous cooperation, directly focused on uncovering what’s happened and how what’s gone wrong has come about“. The Court applied a further 16.7% discount on top of the 33% discount for pleading guilty at the first possible opportunity to reward Rolls-Royce for its cooperation. This was similar to the approach to the DPA with XYZ Limited, which saw its fine halved for cooperation. The SFO’s approach has shown that a company that only starts to cooperate after being approached by the authorities may still find that a DPA is within reach. There will be those that wonder what incentive remains for a company to self-report in such circumstances. The fact that Rolls-Royce received a 50% discount in the absence of a self-report begs the question of whether companies which self-report should receive even greater reductions. In the US, for example, self-reporting entities may benefit from a discount up to and including 100% (excluding disgorgement of profits). In his June 16, 2016 speech, Lord Justice Leveson emphasised the point that it is “individuals who arrange payments to bribe officials“. In this regard, he was of the view that a company which takes appropriate measures to address systemic issues should be offered a DPA to avoid catastrophic consequences to the company and those in the market that could be affected by its demise. The SFO’s approach is to separate the company and its shareholders on the one hand, and senior executives accused of improper behavior, on the other. The company can avoid prosecution and obtain a significant discount on its fine but it must first lose its implicated management and embark upon a root-and-branch overhaul of its compliance systems. Lord Justice Leveson confirmed in his judgment that some of the corruption involved the “senior management and, on the face of it, controlling minds of the company“. There are outstanding prosecutions against individuals, and it is likely, in light of the above comments, that these will be diligently pursued. Enforcement: Bribery Act sections 1-2 – giving/receiving bribes                 Tracey Miller On July 4, 2017 Tracey Miller, an insurance firm manager, was sentenced for the offence of receiving a bribe under section 2 of the Bribery Act and ordered to pay disgorgement of the bribe within 12 months. She was also sentenced to two-years in prison, suspended for two years. Ms Miller pleaded guilty to having provided confidential information in exchange for a £4,500 bribe to a man who used the information to make cold calls to potential claimants following road accidents. This is the second conviction under the Bribery Act against an insurance company employee selling confidential information, the first was reported in our 2016 Mid-Year United Kingdom White Collar Crime Update. This case demonstrates the continuing trend in the UK for prosecution in respect of low value bribes, and Ms Miller’s is the seventeenth conviction of an individual under the Bribery Act.                 Gary West As mentioned in our 2016 Year-End United Kingdom White Collar Crime Update, Gary West, James Whale and Stuart Stone were convicted on December 5, 2014 of fraud and section 1 and 2 offences under the Bribery Act following the SFO’s investigation into the Sustainable Growth Group including its subsidiaries Sustainable AgroEnergy PLC and Sustainable Wealth Investments (UK) Limited. Gary West’s contested section 23 POCA (reduction of confiscation order) application hearing was heard at Southwark Crown Court on June, 26 2017, which resulted in a reduction of £7,986.45 from the original order. Enforcement: Prevention of Corruption Act1906 and Public Bodies Corrupt Practices Act 1889                 Lynden Scourfield, David Mills, Michael Bancroft, Mark Dobson On February 7, 2017, six individuals were found guilty at Southwark Crown Court of corruption, fraudulent trading and money-laundering offences and sentenced to a total of 47 years imprisonment. The case is worthy of note due to the length of the sentences handed down. Lynden Scourfield, lead director of Halifax Bank of Scotland (“HBOS”) in Reading, formed a corrupt relationship with business consultant David Mills between 2003 and 2007. In return for expensive gifts and meals, cash and money transfers, foreign travel with luxury accommodation and parties with sex workers, Scourfield referred his clients (small companies in financial distress) to Mills and his associates Michael Bancroft and Tony Cartwright as a condition for those clients being able to obtain any further credit from HBOS. This allowed Mills and his associates to demand huge fees and take over some of the struggling companies for personal benefit. In addition, Mills provided Scourfield with his own American Express card and expensed foreign travel to one of the struggling companies. Following trial, Mr Mills was sentenced to a total of 15 years’ imprisonment, Bancroft was sentenced to 10 years’ imprisonment, and Scourfield to 11 years. As demonstrated in the graph below, these are the three longest custodial sentences to be given for corruption offences by a considerable order of magnitude. Not since 1997 (R v Donald [1997] 2 Cr App R (S) 272) has a defendant been sentenced to 11 years, and we are unaware of any sentence as long as that imposed on Mr Mills. Another colleague was sentenced to four and half years’ jail. On April 7, 2017, the FCA announced that it had resumed it probe, suspended in early 2013, into the events surrounding the discovery of misconduct within the Reading-based Impaired Assets team of HBOS. The FCA’s investigation is focused on the extent and nature of HBOS’ knowledge of the misconduct and its communications with the FCA’s predecessor, the Financial Services Authority (“FSA”) after the initial discovery of the misconduct.                 Stephen Dartnell and Simon Mundy – R v Alexander & others In our 2016 End of Year UK White Collar Crime Update, we reported that trial had commenced on September 5, 2016 against six defendants charged with conspiracy to make corrupt payments in connection with the purchase of agreements by KBC Lease (UK) Limited and Barclays Asset Finance from Total Asset Finance Limited. The case began after the SFO commenced an investigation in 2010 into Total Asset Finance Limited, the main source of funding of the company H20 Networks Limited, one of the UK’s early pioneers of alternative fibre optic broadband networks. On February 7, 2017, four individuals, Stephen Dartnell, George Alexander, Carl Cumiskey and Simon Mundy, were convicted at Southwark Crown Court, two for corruption offences. KCB’s Mr Mundy was found to have received a £900,000 bribe to be the “inside man” at KBC to approve nearly £160 million in finance. He, and Mr Dartnell, were each sentenced to six years’ jail.                 Andrey Ryjenko and Tatjana Sanderson On June 20, 2017, Andrey Ryjenko was sentenced to six years’ jail following a five-week trial. During his time at a global development bank based in London Mr Rykenko received over US$3.5 million in bribes between July 2008 and November 2009 to approve loans to finance oil and gas projects in former Soviet states. The bribes were paid by Dmitri Harder, who himself pleaded guilty to FCPA charges in April 2017, and paid into bank accounts owned by Ryjenko’s sister, Tatjana Sanderson, in an attempt to disguise the money. Dmitri Harder testified for the prosecution and Ms Sanderson was not tried due to mental health issues.                 Peter Chapman Peter Chapman was sentenced on May 12, 2016 to 30 months’ imprisonment for making corrupt payments to a Nigerian official under the Prevention of Corruption Act 1906 in order to secure contracts of polymer for his company, Securency PTY Limited. The total value of the bribes amounted to £143,000. Having already spent one year and five months remanded in custody, this time was deducted from his 30 month sentence meaning that Chapman was released immediately on licence. In relation to confiscation proceedings against him, there is a hearing scheduled at Southwark Crown Court on September 29, 2017, followed by  a confiscation hearing on March 29, 2018.                 Edinburgh City Council – disgorgement As we reported in our 2015 Year-End UK White Collar Crime Alert, four individuals pleaded guilty to offences under the Public Bodies Corrupt Practices Act 1889 for giving and receiving bribes to or as government officials in return for the awarding of public contracts. On March 16, 2017 one of the government officials Charles Owenson was made subject to a confiscation order for £22,000, and on April 4, 2017 the two bribe payers, Kevin Balmer and Brendan Cantwell received their own confiscation orders in the sums of £95,000 and £171,223.92 respectively. Enforcement: Ongoing Foreign Bribery Prosecutions                 Wassim Tappuni On July 13, 2017 the trial commenced of health equipment consultant Wassim Tappuni for his alleged involvement in a corrupt scheme designed to defraud World Bank and United Nations development projects. At the time Mr Tappuni was arrested in October 2011, he was engaged as a consultant by the World Bank and United Nations Development Programme. The CPS alleges that Mr Tappuni entered into corrupt agreements with medical equipment suppliers from the Netherlands, Germany, France, Austria and Kazakhstan. The Crown estimates the value of those corrupted contracts at approximately £43 million. Mr Tappuni admits to receiving some payments from medical companies; however, he maintains that those payments were legitimate. The UK authorities previously sought extradition of Anton Schlenger, who is alleged to have acted as an intermediary for Mr Tappuni. However, extradition was denied on the basis that Mr Schlenger is currently the subject of a German investigation into matters related to the Tappuni case.                 Sarclad Limited – individuals As noted in our 2016 Year-End UK White Collar Crime Update, a company named only as XYZ Limited entered into the UK’s second DPA with the SFO for offering/ the payment of bribes to secure contracts in foreign jurisdictions. It has now been confirmed that this company is in fact Sarclad Limited, a Rotherham-based company that specialises in producing technology products for the metal industry. Michael Sorby, former director, and Adrian Leek, former sales manager of Sarclad were both charged with conspiracy to corrupt, contrary to section 1 of the Prevention of Corruption Act 1906 and one count of conspiracy to bribe under section 1 of the Bribery Act. Their next hearing is due to take place at Southwark Crown Court on September 4, 2017. For an in-depth discussion of the terms of the XYZ DPA, see our 2016 Mid-Year United Kingdom White Collar Crime Update.                 ENRC Along with its many other implications the judgment in ENRC v SFO, referred to in the opening section of this Update, also reveals that the SFO continues with its investigation relating to allegations of bribery in Kazakhstan and Africa.                 Alstom The long-running global investigation of French transport and infrastructure company Alstom is well documented the trial of Alstom Network UK Limited, Michael John Anderson, Terence Watson and Jean-Daniel Lainé in relation to allegations regarding the supply of trains to the Budapest Metro in Hungary between 2003 and 2008 will commence at Southwark Crown Court in May 2017. Two other trials are scheduled in the coming months: the trial of Alstom Power Limited, Nicholas Reynolds and John Venskus in relation to allegations regarding the refurbishment of a Lithuanian power plant will commence at Southwark Crown Court in September 2017; and the trial of Alstom Network UK Limited, Robert Hallett and Graham Hill relating to projects in India, Poland and Tunisia, is expected to start at Southwark Crown Court in January 2018. Enforcement: Ongoing Foreign Bribery Investigations There are currently 38 active foreign bribery investigations in the UK The UK has been an increasingly dominant force in international anti-bribery efforts. It was reported in late 2016 that there were 38 active foreign bribery investigations being conducted in the UK. The UK’s regulators have been cooperating closely with those in the US, Canada, and Australia to investigate credible allegations of foreign bribery.                 Airbus In March 2017, the French authorities joined the SFO in investigating allegations of fraud and bribery in relation to Airbus‘ use of third party consultants to win international aircraft orders. For further information, see our 2016 Mid-Year UK White Collar Crime Update.                 Unaoil In our 2016 Year-End UK White Collar Crime Update, we drew attention to the growing tactic of using judicial review proceedings to challenge decisions taken by prosecutors. We also drew attention to Unaoil’s judicial review of the SFO’s steps in gathering evidence via raids in Monaco. Consistent with our conclusions that British authorities are not yet welcoming to this practice of judicial review, the High Court rejected Unaoil’s judicial review claim in R (on the application of) Unaenergy Group Holding Pte Limited & others v The Director of the Serious Fraud Office [2017] EWHC 600. The claimants (Unaoil) argued that the SFO had acted unlawfully when it sent a letter of request for mutual legal assistance to Monegasque authorities (“LOR”) to search the premises of the claimants and obtain business records, which resulted in the offices of Unaoil and the homes of its directors being raided on March 29, 2016 and the seized material taken to London. As remedy, the claimants asked the Court to declare the SFO’s LOR unlawful and to order the return of all material seized during the raid on the grounds that the LOR had (1) failed to disclose key information, and (2) was so impermissibly wide that it could be considered a fishing expedition. In its decision, the Court ruled that the SFO had not failed to give key information in the LOR and also rejected the claimants allegation of an unlawful fishing expedition by the SFO. The SFO continues to investigate allegations of corruption and bid-rigging in the oil and gas industry made against Unaoil and its directors, employees, and agents. For earlier background, see our 2016 Mid-Year UK White Collar Crime Update and 2016 Year-End UK White Collar Crime Update. The SFO’s ongoing inquiries on Unaoil have opened up the doors for the SFO to begin investigating a number of other companies’ involvement with Unaoil.                 Unaoil – ABB In connection with the activities of Unaoil, the SFO announced on February 10, 2017 that it had “commenced an investigation into the activities of ABB Limited’s United Kingdom subsidiaries, their officers, employees and agents for suspected offences of bribery and corruption“. ABB Limited had already reported two days earlier on its 2016 Annual Report (see page 179) that they self-reported to the SFO about past dealings with Unaoil and their subsidiaries and that the SFO had begun an investigation into the matter, which includes allegations of improper payments made by Unaoil and its subsidiaries to third parties.                 Unaoil – Amec On April 28, 2017, the SFO required Amec Foster Wheeler to produce information relating to its past dealings with Unaoil. Amec Foster Wheeler is cooperating with the SFO in connection with the Unaoil matters. In a press release dated 11 July, 2017, the SFO confirmed that it had commenced an investigation into the activities of Amec Foster Wheeler “and any predecessor companies owning or controlling the Foster Wheeler business, together with the activities of any subsidiaries, company officers, employees, agents and any other person associated with any of these companies.” While there was no mention of Unaoil in the news release, the SFO nonetheless announced that their investigation into Amec Foster Wheeler was for “suspected offences of bribery, corruption and related offences.”                 Unaoil – Wood Group According to a published prospectus British oil services company John Wood Group has also been conducting their own internal investigation into their past dealings with Unaoil, and has provided information to the SFO, and informed the Scottish Crown Office and Procurator Fiscal Service of its progress in the matter.                 Unaoil – Petrofac On May 12, 2017, the SFO confirmed that it was “investigating the activities of Petrofac PLC, its subsidiaries, and their officers, employees and agents for suspected bribery, corruption and money laundering” in connection with Unaoil. In response, Petrofac immediately announced their prior engagements with Unaoil for the “provision of local consultancy services in Kazakhstan between 2002 and 2009“. Petrofac has been and continues to cooperate with authorities, and the SFO has questioned Petrofac’s Chief Executive Officer and Chief Operating Officer. On May 25, 2017, Petrofac’s shares dropped by as much as 29% following their announcement that Chief Operating Officer, Marwan Chedid, had been suspended and had resigned from the board. Petrofac noted that the decision had been taken to “retain its focus on its operations and clients, whilst also ensuring the Company is able to continue to engage with the SFO’s investigation.” In its statement, Petrofac also explained that they had set up a Committee of the Board and engaged a senior external specialist to cooperate with the SFO’s investigation in light of an earlier refusal by the SFO to accept Petrofac’s independent investigatory findings in relation to its dealings with Unaoil.                   Arrests in the UK re cricket corruption/spot fixing As part of an ongoing investigation into spot-fixing in international cricket, in February 2017 the NCA arrested three men in their thirties on charges of bribery offences. All three men have since been released on bail pending further enquiries from the NCA, who have been working closely in the matter with the anti-corruption units of the International Cricket Council (“ICC”) and the Pakistan Cricket Board (“PCB”). One of the arrested three men has had his passport confiscated until the NCA concludes its inquiries. The NCA’s arrests followed shortly after reports came out on February 10,  2017 that two cricketers from the Pakistan Super League (“PSL”) had been questioned and provisionally suspended by the PCB’s anti-corruption unit for spot-fixing. Since February 2017, the PCB have suspended six players from the PSL and formed a three-man anti-corruption tribunal to hear the cases against some of the players suspended. On May 18, 2017, Sir Ronnie Flanagan, the head of ICC’s anti-corruption and security unit, appeared as a witness in PCB’s three-man anti-corruption tribunal. Flanagan testified that the ICC first received a tip-off about the spot-fixing allegations from the NCA which was then shared with the PCB: “At a certain stage, we received intelligence that was passed to us by the British National Crime Agency, we passed that intelligence to PCB’s vigilance and security unit. And it coincided exactly with intelligence they already had.”                 Cas-Global and former Norwegian official As reported in our 2015 Mid-Year FCPA Update, UK company Cas-Global is being investigated by the City of London Police for possible offences under section 6 of the Bribery Act, as well as anti-corruption investigators in the US, Nigeria, and Norway. The investigation relates to an alleged bribe paid by Cas-Global to a Norwegian official, Bjorn Stavrum, as part of the sale of seven decommissioned naval vessels from 2012 onwards. It is alleged that Stavrum was paid to assist Cas-Global to disguise the real destination of the vessels from the Norwegian authorities. The vessels were being sold to a former Nigerian warlord, Government Ekpemupolo. The joint investigation with the Norwegian authorities has led to the arrest of Bjorn Stavrum and three British nationals. On May 16, 2017 Bjorn Stavrum was convicted by a Norwegian court, and sentenced to four years and eight months jail. Enforcement: Ongoing Domestic Bribery and Corruption Prosecutions and Investigations                 F.H. Bertling Limited Between April 28, 2017 and May 17, 2017, the SFO announced charges against F. H. Bertling Limited and seven individuals (Colin Bagwell, Robert McNally, Georgina Ayres, Giuseppe Morreale, Stephen Emler, Peter Smith, and Stephen Emler). The charges relate to an alleged conspiracy to “give or accept corrupt payments for assisting F.H. Bertling Limited in being awarded or retaining contracts for the supply of freight forwarding services relating to a Northern Sea oil exploration project“. The offences are alleged to have taken place between January 2010 and May 2013. In addition, Colin Bagwell, Christopher Lane and Peter Smith were also charged with a separate count of conspiracy to give or accept corrupt payments between January and December 2010. These charges follow separate charges made last year against F.H. Bertling Limited and seven individuals in relation to an alleged conspiracy to bribe an agent of the Angolan state oil company, Sonangol.                 Barratt Developments PLC Following the arrests mentioned in our 2016 Year-End Update of the London Chief of Barratt Developments PLC, Alistair Baird as Managing Director and an unnamed employee in October 2016, two further arrests were made on November 8, 2016. The names of the 47-year-old man and 49-year-old woman were not given by police and internal investigations are continuing.                 National Assets Management Agency (“NAMA”) The NCA investigation into NAMA‘s sale of its Northern Ireland property portfolio to Cerberus Capital Management in 2014 continues. In addition, the Irish Government approved a draft Order and Terms of Reference for a Commission of Investigation into NAMA on May 9, 2017. Before the Commission can be established, the draft Order requires approval from both the Dáil and Seanad. For further information, see our 2016 Year-End UK White Collar Crime Update. Introduction of a new anti-bribery reporting regime The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 (the “Regulations”) implement the Non-Financial Reporting Directive (2014/95/EU). The Regulations came into effect on December 26, 2016 and amend Part 15 of the Companies Act 2006 by creating two new sections requiring public interest entities (e.g. listed companies, banks, insurers and financial services institutions) with over 500 employees to prepare a non-financial statement as part of their strategic report and prescribing the contents of that statement. The information that must be set out in the statement includes (to the extent necessary to understand the company’s development, performance and position and the impact on its activities) a description of the company’s anti-corruption and anti-bribery policies, the results of such policies and the management of the principal risks relating to those matters. Similar disclosures are required for environmental matters, employees and social matters, and respect for human rights. Where a reporting entity does not pursue policies in relation to any of the above matters, the statement must provide a reasoned explanation for the entity not doing so. Whilst the Regulations provide for situations where there may be duplication of information in terms of overlap with the enhanced business review, they go further than the current strategic report in terms of requiring disclosure of anti-corruption and anti-bribery matters. There is an exception to the required disclosures in relation to information about impending developments or matters in the course of negotiation if disclosure would, in the opinion of the directors, be seriously prejudicial to the commercial interests of the company. The Explanatory Notes to the Regulations fail to provide further commentary on what is deemed to be covered by this exception, but a likely example would be ongoing negotiations with a regulator or prosecutor in order to resolve an enforcement action. The Regulations apply in relation to all financial years commencing on or after January 1, 2017. 3.    Fraud The SFO has launched ambitious investigations and criminal prosecutions in the first half of 2017. Particularly notable were high profile investigations into Airbus and Tesco and an increasing focus on investigations into serious frauds emerging after a financial collapse of a company. In a speech at a conference on January 19, 2017, the SFO’s Joint Head of Fraud, Hannah von Dadelszen, highlighted that the SFO did not make charging decisions on the basis of a monetary threshold but rather based on the overall seriousness and complexity of the case. In the meantime, the FCA appears to be focused on pursuing lower-profile fraud prosecutions. Investigations: SFO                 Ethical Forestry Limited In March 2017, the SFO opened a criminal investigation into an alleged fraudulent investment scheme in a forestry plantation in Costa Rica marketed by Ethical Forestry Limited and associated companies between 2007 and 2015. According to reports , around 3,000 investors invested a minimum of £18,000 each in the scheme – and a total of around £50 million. The investment scheme entered into liquidation in early 2016, and in June 2016 it was reported that the FCA was probing whether Ethical Forestry Limited and its connected entities had been operating an unauthorised collective investment scheme. According to press reports, HMRC is also investigating the company’s tax liability. The SFO has confirmed that the investigation includes, but is not limited to, the following companies: Avacade, Cherish Wealth Management, Alexandra Associates and Think About Money. On March 8, 2017, the SFO executed search warrants at three addresses in Dorset in connection with the investigation.                 Capita Oak Pension and Henley Retirement Benefit schemes, SIPPS and others    On May 22, 2017 the SFO announced that it was opening an investigation into an alleged pensions scam involving the Capita Oak Pension and Henley Retirement Benefit schemes, Self-Invested Personal Pensions (“SIPPS”) as well as other storage pod investment schemes. The investigation includes the Westminster Pension Scheme and Trafalgar Multi Asset Fund. Over a thousand individual investors have purportedly been affected, and the amounts invested total over £120 million between 2011 and 2017. According to the Guardian, it is unclear whether investors will ever recover their money as the two companies acting as trustees to Capita Oak Pension and Henley Retirement Benefit were wound up by the High Court in July 2015 following allegations of “cold calling”. The SFO is bringing its investigation under the mantle of Project Bloom, a multi-agency group set up to tackle pension liberation fraud, and is being assisted by the NCA, the Pensions Regulator and Spanish authorities.                 Bank of England liquidity auctions In our 2015 Year-End UK White Collar Crime Update we reported that the SFO had opened a criminal investigation into the Bank of England’s liquidity auctions carried out during the financial crisis in 2007 and 2008 when it was holding money-market auctions for UK lenders. We noted in our 2016 Year-End White Collar Crime Update that charges had yet to be pursued. On June 23, 2017 the SFO closed its investigation, which had centred on whether banks and building societies were told by the Bank of England to bid for liquidity funding in late 2007 and early 2008 at a particular rate to avoid questions about the health of their balance sheets. In a statement on its website, the SFO announced that after “a thorough investigation the SFO concluded that there is no evidence of criminality in relation to this matter“. Enforcement: SFO                 R v Alexander and others As mentioned above in the Bribery section, on February 7, 2017, after a 5-month trial, George Alexander, Stephen Dartnell, Simon Mundy and Carl Cumiskey were found guilty of conspiracy to commit fraud and conspiracy to make corrupt payments against two business lenders, in order to obtain close to £160 million between 2007 and 2010. George Alexander and Stephen Dartnell, both of Total Asset Limited, trading as Total Asset Finance (“TAF”), were sentenced to 12 and 15 years’ imprisonment respectively for the fraud counts. Simon Mundy, who worked for KBC Lease (UK) (“KBC”) and Carl Cumiskey of H2O Networks Limited (“H2O”) were sentenced to seven and 10 years’ imprisonment respectively for their fraud counts. Two other defendants in the case were found not guilty. Dartnell, Alexander and Cumiskey had conspired to create, sign and sell falsely inflated or entirely false contracts from the company H2O to high profile business lenders, including KBC Lease (UK). H2O supplied fibre-optic internet cable connections, using sewers as channels for the cables, and targeted public institutions such as local authorities, universities, colleges and the NHS for long-term payment contracts. Mundy was paid nearly £900,000 to approve the funding provided by KBC to TAF.                 Solar Energy Savings Limited Following the announcement on December 5, 2014 of its criminal investigation into Solar Energy Savings Limited, PV Solar Direct Limited and Ultra Energy Global Limited, the SFO released a statement on March 29, 2017 that five British men, including three former directors of Solar Energy Savings Limited, have been charged with conspiracy to commit fraud. The fraud is said to involve the selling of solar panels to customers of Solar Energy Savings Limited with the promise of a return of 100% of the investors’ purchase monies on maturity (known as a “360 Returns Scheme”). The total loss of the victims of the scheme is estimated at over £13 million. Two further individuals allegedly involved in the scheme failed to report to police in February 2017 and are still being sought by the SFO.                 Tesco As mentioned earlier in this Update, on March 28, 2017, the SFO confirmed that it had entered into a DPA in principle with Tesco Stores Limited. The DPA was approved on April 10, 2007 at a public hearing before Lord Justice Leveson. It was the fourth DPA to be entered into in England, and the first for offences other than bribery and corruption. The Tesco DPA follows a two-and-a-half year investigation into Tesco Stores Limited for allegedly overstating its profits in 2013 and 2014 by £284 million. The DPA “only relates to the potential criminal liability of Tesco Stores Limited and does not address whether liability of any sort attaches to Tesco PLC or any employee, agent, former employee or former agent of Tesco PLC or Tesco Stores Limited“. The publication of the DPA has been postponed until after the trial of three individuals in relation to the conduct of Tesco Stores Limited’s business, following a contempt of court order. See our 2016 Year-End United Kingdom White Collar Crime Update for more information on the proceedings against the three individuals charged, who are due to be tried in September 2017 at Southwark Crown Court. The settlement reached is for a total of £235 million, comprising a £129 million settlement with the SFO, a £85 million settlement with the FCA in compensation for investors who lost money in relation to a £326 million accounting scandal, and related costs. Tesco Stores Limited is also required to retain an external auditor to recommend and review the implementation of additional financial and accounting controls. The SFO’s efforts in brokering a DPA appear to have been closely coordinated with the FCA. When the SFO announced its criminal investigation into Tesco in October 2014, the FCA was already  investigating the company for the same underlying conduct. The FCA subsequently discontinued its investigation, allowing the SFO to take the lead. Though the SFO spearheaded the investigation, the two enforcement agencies acted in concert when it came time for final resolution. On the same day that Tesco Stores Limited announced that it had negotiated a DPA, the FCA released its statement that Tesco Stores and its parent company, Tesco PLC, agreed that they had committed market abuse by disseminating false and misleading information concerning the value of Tesco shares. In lieu of imposing a financial penalty, and perhaps due to the existing monetary payouts under the DPA, the FCA for the first time exercised its authority to establish a restitution fund for investors.  Under the terms of their agreement with the FCA, Tesco Stores Limited and Tesco PLC must pay an estimated £85 million to the fund. Whether and to what extent Tesco Stores Limited’s cooperation with the SFO resulted in a reduction in fines remains to be seen.  In the SFO’s two most recent DPAs, XYZ Limited and Rolls Royce received a 50 percent discount owing to “extraordinary” cooperation. The FCA’s order, which “relates to substantially similar conduct” to that set forth in the DPA, offers high praise to Tesco Stores Limited and its parent company, characterizing their cooperation as “exemplary“. If the FCA’s order is any indication, one would presume that £129 million represents a substantially-reduced fine due to cooperation.                 Barclays On June 20, 2017, the SFO announced that it was charging Barclays PLC and four former officers and employees with conspiracy to commit fraud by false representation and the provision of unlawful financial assistance contrary to the Companies Act 1985. Barclays PLC issued a statement saying that it “is considering its position in relation to these developments” and confirming that it was defending related civil claims brought against it. In June 2017, the SFO had made what was then described as an unprecedented argument to claim litigation privilege over the interviews with the suspects in the investigation in order to prevent third parties from accessing transcripts. In a statement sent to Global Investment Review on June 5, 2017, an SFO spokesperson indicated that the authority had asserted privilege, public interest immunity and confidentiality over its interviews to stop them being disclosed or used in two sets of related civil proceedings, “in order to protect the investigation and any subsequent prosecution principally on the grounds of witness contamination.”                 LIBOR As reported in our 2015 Year-End White Collar Crime Update, the SFO continued to pursue defendants accused of manipulating the benchmark following the trial and conviction of Tom Hayes in 2015. On April 6, 2017, in the fourth LIBOR trial brought by the SFO during its five-year criminal enquiry, two former junior Barclays traders were unanimously acquitted of conspiring to rig the benchmark. The SFO had alleged that American Ryan Reich and Greek national Stylianos Contogoulas plotted with other Barclays staff between June 2005 and September 2007 to skew the rate. This was their second trial on a single charge of conspiracy to defraud, after the jury that convicted four Barclays co-defendants in July 2016 had been unable to reach a verdict, and  more than a year after the SFO failed to prove its case against six brokers accused of conspiring with Tom Hayes.  For more information on the SFO’s LIBOR prosecutions, see our 2016 Year-End White Collar Crime Update. On June 29, 2017, Bloomberg reported that lawyers for convicted traders Jonathan Mathew and Alex Pabon were attacking the credibility of an expert prosecution witness, Saul Haydon Rowe, whose expertise was called into question during Mr. Reich’s re-trial. Mr. Rowe acknowledged texting traders he knew for help on some terms while on the witness stand. Mr. Reich’s lawyers have reportedly contacted the NCA to urge an investigation into Mr. Rowe’s conduct, and Mr. Pabon, Mr. Mathews and Mr. Hayes are now appealing their convictions (although Mr. Mathews and Mr. Hayes have exhausted their routes of appeal and have lodged appeals with the Criminal Cases Review Commission, an independent organization which investigates suspected miscarriages of justice and has the power to return cases to the Court of Appeal). Any findings by an appellate court or prosecutors on Mr. Rowe’s credibility could impact all of the SFO convictions related to the London interbank offered rate because Rowe testified in all of the SFO trials.                 David Ames (Harlequin Group Companies) On February 17, 2017, the SFO charged David Ames, chairman of the Harlequin Group of companies, with three counts of fraud by abuse of position between January 2010 and June 2015. The SFO and Essex Police had been conducting an investigation into pensions fraud since March 2013. The charges pertain to the companies Harlequin Management Services South East Limited (HMSSE) and Harlequin Hotels and Resorts Limited, and Mr Ames is alleged to have induced six thousand mainly UK pension investors to pay around £390 million into an unregulated overseas property scheme via financial advisers, hoping for “guaranteed returns” of 10 per cent a year. Most investors have been left without either their capital or any of the promised returns. Mr Ames is due to stand trial on September 10, 2018 at Southwark Crown Court. The SFO’s list of upcoming court appearances can be found here. Confiscation orders: SFO The SFO continues to pursue confiscation orders and to seek significant penalties in the event of default of payment. On June 28, 2017, Nigel Thorne, who had been convicted of various fraud offences relating to car sales in May 2009, had his default sentence of 27 months’ imprisonment activated for failure to pay a £198,000 confiscation order. Enforcement: FCA                 HBOS As mentioned above in the Bribery section, on April 1, 2017, the FCA announced that it was resuming an investigation into misconduct within the Reading-based Impaired Assets team of HBOS which was put on hold in early 2013 pending the outcome of the Thames Valley police investigation. This arose out of a corruption and fraud case involving HBOS bank employees and private business advisors. Pursuant to the police investigation, six people were jailed for a total of 47 years and nine months after being found guilty of corruption, fraudulent trading and money-laundering. The FCA’s investigation will focus on the extent of knowledge of these matters within HBOS and its openness with the FSA after it discovered the misconduct amongst its employees. Confiscation orders: FCA On May 24, 2017, the FCA announced that it had secured confiscation orders totalling £2,195,496 against all eight defendants following their convictions in Operation Cotton. As we reported in our 2016 Year-End United Kingdom White Collar Crime Update, on November 1, 2016, Scott Crawley, Daniel Forsyth, Adam Hawkins, Ross Peters, Aaron Petrou and Dale Walker were banned from performing any function in relation to any regulated activity following their involvement in the operation of an unauthorized collective investment scheme through three companies. The scheme led to over 100 investors losing just under £4.3 million in total. All sums confiscated from the defendants will be paid by way of compensation to the victims. Dale Walker was a conveyancing solicitor who was convicted of receiving criminal property in his accounts contrary to POCA. City of London Police and Crown Prosecution Service So far in 2017, City of London Police have secured nearly 60 individual fraud convictions valued at a total of over £150 million, and prison sentences totalling nearly 70 years. On January 27, 2017, two city traders, Georgy Urumov and Vladimir Gersamia were sentenced to twelve and seven years’ imprisonment, respectively, after being found guilty of multiple fraud offences worth more than £141 million following a four-month trial at Southwark Crown Court. On March 21, 2017, Martin Turner was sentenced to five years for fraud by abuse of position of trust at Inner London Crown Court after he masterminded the theft of more than £1.8m from the insurance underwriting agency he worked for. Mr. Turner was a claims manager for a risk solution company who, between June 2012 and July 2016, doctored insurance claims emails to redirect payments to third parties. The company discovered the fraud and reported it to City of London Police, who uncovered more than 50 false payments to the value of £1,810,779. On March 22, 2017, Edward Tully, was sentenced at Inner London Crown Court to eight years imprisonment for defrauding three companies of more than £5 million.  Mr. Tully, an accountant who oversaw the interests of the three companies, processed unauthorised payments by writing out cheques and transferring funds from the company accounts to his own personal account or to third parties. On May 2, 2017, Emanual Leahu and Gheorge Mirzac, members of an Eastern European crime gang targeting ATM sites, were sentenced to a total of seven years’ and eight months’ imprisonment for participating in a malware attack on UK cash machines in May 2014 that caused £1.6 million to be stolen from accounts. On January 27, 2017, Simon Kenny and Emma Coates were convicted of two counts of fraud by the CPS Specialist Fraud Division at Southwark Crown Court. They defrauded clients at their law firm of nearly £1 million by removing money from a client account over a four year period. Kenny was a former district judge and Coates was his assistant and received six years. Each was sentenced to six years’ imprisonment. Scotland On June 13, 2017, following the longest criminal trial in UK legal history, Edwin McLaren was sentenced by the High Court in Glasgow to a total of 11 years’ imprisonment for orchestrating a highly complex series of mortgage frauds which conned dozens of victims over the course of several years. During the trial, which began in September 2015, the Court heard evidence over 320 days, and McLaren was convicted of 29 charges related to the £1.6m property fraud scheme, during which he preyed on vulnerable people and arranged for the title deeds of their homes to be transferred to their associates without the victims’ knowledge. 4.    Financial and Trade Sanctions Enforcement                 Limited enforcement activity in UK Across the European Union, regulators have been taking action against companies for failing to comply with financial and trade sanctions. In Latvia, three banks were fined in June by the national Finance and Capital Market Commission for weaknesses in their customer due diligence process, transaction monitoring and compliance systems, which allowed their clients to circumvent the EU sanctions against North Korea. Privatbank, and Baltikums Bank were fined €35,575, whilst Regionala Investiciju Banka was fined €570,364. Similarly, French authorities confirmed in June that they had begun a judicial inquiry into LafargeHolcim, a Swiss-French building materials manufacturer, for allegedly having helped finance terrorist organisations in Syria. LafargeHolcim is accused of having made indirect payments to sanctioned persons to ensure that they would not attack one of its Syrian plants as civil war broke out in the country. The company has also confirmed that it made ransom payments to secure the release of kidnapped employees. LafargeHolcim’s CEO has stepped down as a result of these issues. Meanwhile, Dutch public prosecutors are understood to have been investigating since May transactions with two sanctioned Ukrainian individuals carried out by companies in the BK Group. Local media have reported that the fiscal police seized documents from BK’s office in March 2014, the day after the two individuals were designated by the EU in relation to embezzlement of Ukrainian state funds. In April 2017, Italian Finance Police confiscated Crimean wine from the Russian stand at an international wine fair, following the Ukrainian Embassy’s protestations that the importation of the wine, from a territory annexed by Russia, was in breach of EU sanctions. Whilst other EU countries have seen enforcement activity in the sanctions space, the situation in the UK has been rather quieter, at least in terms of what is in the public domain. Although the framework for sanctions enforcement and compliance has continued to develop, there have been no major enforcement actions. This quiet spell contrasts with statistics for the last year released by the Office of Financial Sanctions Implementation (“OFSI”). In 2016 HM Treasury dealt with over 100 suspected violations of financial sanctions rules in the UK, including intentionally channelling money to sanctions persons subject to asset freezes. The costliest breach of financial sanctions in 2016 was worth around £15 million. OFSI has not published any details of the outcomes of these matters or whether any fines or penalties were imposed.                 Self-reporting by CSC The only individual case which has been made public relates to Computer Sciences Corporation (“CSC”). According to a recent SEC filing, in February 2017 CSC submitted an initial notification of voluntary disclosure to both the US Treasury’s Office of Foreign Assets Control (“OFAC”) and OFSI. The disclosure concerned possible breaches of sanctions law relating to insurance premiums and claims data by Xchanging, a company that CSC had recently acquired. The internal investigation is continuing.                 Enforcement guidance In a number of interviews this year, OFSI head Rena Lalgie has given further indications of how the body will enforce sanctions compliance. According to Ms. Lalgie, “voluntary disclosure will be an important part of determining the level of any penalties that might be imposed“. OFSI has already said that companies that voluntarily come forward will see reductions in fines of up to 50% in “serious” cases and 30% in the “most serious” cases. Ms. Lalgie also made the following noteworthy comments: OFSI’s enforcement action has focused on “preventing and stopping non-compliance and ensuring compliance improves in the future“. The agency has used its information powers numerous times to “require companies which haven’t complied to tell [OFSI] how they intend to improve their systems and controls in future“. Any continuing sanctions non-compliance could lead to criminal prosecution, with fines “fill[ing] the gap between prevention and criminal prosecution“. The most important actions a company can take to avoid violating sanctions rules are to “know [its] customers and promote active awareness among relevant staff of high-risk areas“. Ms. Lalgie believes that a company also ought to know what sanctions are in place in the countries in which it does business and have appropriate, up-to-date procedures that are regularly monitored and understood by staff. OFSI will “remain focused on administering the penalty system in a way which will be fair, transparent, and robust” to tackle non-compliance.                 OFSI: voluntary disclosure and guidance on penalties and enforcement In April 2017, and after a public consultation, OFSI published its final Guidance on the new financial sanctions framework providing detailed guidelines relating to the imposition of the new civil monetary penalties. For further information about the consultation, please see our 2016 Year-End UK White Collar Crime Update. The final OFSI Guidance on monetary penalties was also published in April 2017. It provides a detailed overview of OFSI’s approach to investigating potential breaches, as well as the penalty process and procedures for review and appeal. Of note are the following key points from the guidance: Penalties can be imposed on natural or legal persons, meaning that separate penalties could be imposed on a legal entity and the officers who run it, if the officer consented to or connived in the breach, or the breach was attributable to the officer’s negligence; OFSI will regularly publish details of all monetary penalties imposed, including by reference to the name of the person or company in breach, and a summary of the case; and Under sections 147(3)-(6) of the Policing and Crime Act 2017, decisions to impose a penalty can be reviewed by a government minister and then by appeal to the Upper Tribunal. In OFSI’s “penalty matrix“, factors which may escalate the level of penalty imposed include the direct provision of funds or resources to a designated person, the circumvention of sanctions, and the actual or expected knowledge of sanctions and compliance systems of the person or business in breach. Voluntary and materially complete disclosure to OFSI is a mitigating factor that may reduce the level of penalty imposed by up to 50%.                 Changed guidance on sanctions from the Joint Money-Laundering Steering Group The UK Joint Money Laundering Steering Group (“JMLSG”) has published proposed revisions to its guidance on the prevention of money laundering and the financing of terrorism, which includes changes to the guidance on compliance with the UK financial sanctions regime to reflect the new powers introduced by the Policing and Crime Act 2017 and OFSI guidance. The JMLSG Board has said that the revisions at this stage are fairly minor, but it is preparing more detail revisions to be published later in the year. Legislative developments                 Policing and Crime Act 2017 Part 8 of the Policing and Crime Act 2017, which came into force on April 1, 2017, strengthened UK sanctions enforcement by increasing the maximum custodial sentence for violating sanctions rules from two to seven years, and giving the National Crime Agency (“NCA”) and OFSI power to offer DPAs and impose Serious Organised Crime Prevention Orders. Importantly, it also gives OFSI the power to impose, as an alternative to criminal prosecution and by reference to the civil standard of proof, monetary penalties for infringements of EU/UK sanctions. OFSI can impose penalties of either £1 million or 50% of the value of the breach, whichever is greater. The lower evidential burden to impose the new civil penalties means that OFSI need only be satisfied on the balance of probabilities that a person (legal or natural) acted in breach of sanctions and knew or had reasonable cause to suspect they were in breach. The Act also addresses the delay between the United Nations Security Council adopting a financial sanctions resolution and the EU adopting an implementing regulation, which can take over a month. OFSI can adopt temporary regulations to give immediate effect to the UN’s resolutions, as if the designated person were included in the EU’s consolidated list. OFSI put this power into practice in June of this year by adding a militia leader, Hissene Abdoulaye, to its consolidated list of Central African Republican sanctions targets, before the EU had done so. Businesses relying on a version of the Consolidated List prepared by the European Union, or by a member state other than the United Kingdom, may miss listings done by the UK in this manner. These sweeping changes highlight the importance of companies being fully conversant in the scope of the new regime and having in place robust compliance programmes. OFSI head Rena Lalgie told Bloomberg that the “new powers could be very transformational for the way in which we approach and address breaches in financial sanctions, but also the way in which we promote compliance with them“. Clients and friends interested in learning more about the effect of the Policing and Crime Act 2017 are invited to refer to the 2016 Year-End UK White Collar Crime Update and 2016 Mid-Year United Kingdom White Collar Crime Update.              Criminal Finances Act 2017 – “Magnitsky sanctions” The CFA amended the Proceeds of Crime Act 2002 (“POCA”) to include a “Magnitsky amendment”. This expands the definition of “unlawful conduct” for the purposes of civil recovery orders under Part 5 of POCA to include human rights abuses and applies to those who profited from or materially assisted in the abuses. The amendment is modelled on the US Magnitsky Act, which imposes sanctions on individuals linked to the death of Sergei Magnitsky, a whistleblower who died in custody after he implicated a number of Russian state officials in a $230 million tax fraud against the Russian treasury and was accused of committing fraud by authorities.               EU cyber security sanctions The Council of the European Union announced in late June that for the first time it would be prepared to impose sanctions against “state and non-state actors” as part of a broader policy response to malicious cyber activity. The imposition of sanctions is one element within what the EU is describing as its “cyber diplomacy toolbox”. The Council has published Conclusions on a Framework for a Joint EU Diplomatic Response to Malicious Cyber Activities, which clarifies the policy objectives behind this development: “The EU affirms that measures within the Common Foreign and Security Policy, including, if necessary, restrictive measures, adopted under the relevant provisions of the Treaties, are suitable for a Framework for a joint EU diplomatic response to malicious cyber activities and should encourage cooperation, facilitate mitigation of immediate and long-term threats, and influence the behavior of potential aggressors in a long term“.               Human Trafficking Sanctions At the recent G20 meeting in Germany, the EU tabled a proposal for the United Nations to designate people and entities for human trafficking. This proposal was rejected by both the Russians and the Chinese. As two permanent members of the UN Security Council there appears little prospect for the time being of UN sanctions in this sphere. The EU, however, may proceed to implement the sanctions using its own powers. We will keep our clients and friends updated on this development. BREXIT                 Government White Paper on post-Brexit sanctions regime On April 21, 2017, shortly after the UK served notice under Article 50 TEU to trigger its eventual withdrawal from the European Union, the Government published a White Paper consultation to consider the future legal framework of the UK’s sanctions regime. Much of the UK’s regime, and many of the sanctions that are in place, derive from EU law. The Government has therefore recognised that new legislation will be needed, not only to allow the UK to preserve and update United Nations sanctions (which are currently implemented through EU legislation), but also to permit the imposition of autonomous UK sanctions. The consultation, issued by the Foreign and Commonwealth Office, HM Treasury and the Department for International Trade, set out the Government’s views on what powers will be needed following Brexit. The period of consultation ended on June 23. It also sought stakeholder input on issues including the scope, exercise and enforcement of these proposed new powers. At present, the UK has standalone domestic asset-freezing powers under the Terrorist Asset-Freezing Act 2010, but these are insufficient to replicate the far more comprehensive EU and UN sanctions regimes that currently apply. The Government therefore proposes to introduce primary and secondary legislation prior to, but timed to take effect on, the date of the UK’s withdrawal from the EU. The primary legislation will be in the form of the International Sanctions Bill announced as part of the Queen’s Speech during the opening of this session of parliament. It will “create a framework containing powers to impose sanctions regimes“, including rules on notification obligations, review and challenge mechanisms and enforcement. The secondary legislation will be used to introduce sanctions regime-specific measures and will allow the Government’s stated goal of flexibility; secondary legislation can more easily be amended to allow sanctions to be rapidly suspended or lifted to reflect political developments, e.g. increased cooperation by targeted persons. The Government’s expectation is that the new powers will: (i)       complement existing deportation powers; (ii)     enable freezing of designated persons’ assets; (iii)    expedite freezing and/or suspension of assets; (iv)    allow adoption of financial and trade restrictions; and (v)     allow sanctions to be established in support of counter-terrorism activity. The White Paper suggests that the new sanctions regime will broadly mirror the existing one. For instance, the Government commits to: (i) continuing to implement all UN sanctions regimes; (ii) introducing a mechanism allowing sanctioned persons to request a review of their listing similar to the one that exists under EU law; and (iii) creating provisions similar to the EU rules that limit the ability of third parties to seek damages from persons who have merely complied with sanctions obligations. However, consultation was also sought on the introduction of new powers, such as the ability for law enforcement authorities to seize funds/assets, e.g. if non-licensed goods are brought into the territory. Trade and Export                 Judicial reviews: boycotts and arms exports Two judicial reviews concerning trade and sanctions have made their way to the High Court this year. In February, the Administrative Court heard an application brought by the Campaign Against the Arms Trade (“CAAT”) to review the UK government’s decision to grant licences allowing strategic military items to be exported to Saudi Arabia. The CAAT claimed that the Secretary for State for International Trade acted unlawfully in granting such licences to British arms manufacturers, given the significant risk that these weapons have been used in Saudi Arabia’s airstrikes against Yemen in contravention of international law. Judgment in R (on the application of Campaign Against Arms Trade) v Secretary of State for International Trade [2017] EWHC 1754 (Admin) was handed down on July 10. Lord Justice Burnett and Mr Justice Haddon-Cave held that “the Secretary of State was rationally entitled to conclude … [that] the Coalition were not deliberately targeting civilians, … Saudi processes and procedures have been put in place to secure respect for the principles of International Humanitarian Law … [and that] the Coalition was investigating incidents of controversy, including those involving civilians casualties“. Moreover, the “closed material“, i.e. sensitive material not open to the public for reasons of national security, provided “valuable additional support for the conclusion that the decisions taken by the Secretary of State not to suspend or cancel arms sales to Saudi Arabia were rational“. The decision will likely come as a relief to the government; not only is Saudi Arabia its most important arms customer, but the decision impacts arms trading with numerous other countries accused of human rights violations. The CAAT has indicated that they will appeal the ruling. In a second judicial review the High Court handed down judgment in June in relation to a claim brought by the Palestine Solidarity Campaign (“PSC”) against the Department for Communities and Local Government (“DCLG”). In its guidance advising councils on how they can invest and divest of funds under the Local Government Pension Scheme, the DCLG had sought to prevent funds set up under the scheme from engaging in boycotts and “ethical divestment” of investments in companies involved in Israel’s occupation of Palestine. However, the High Court allowed the PSC’s application, ruling that the DCLG acted outside of the scope of its statutory powers, since the guidance was issued for non-pension purposes (R (on the application of Palestine Solidarity Campaign v Secretary of State for Communities and Local Government [2017] EWHC 1502 (Admin)). The decision follows a June 2016 decision by the High Court in favour of three councils that had passed motions supporting the “boycott, divest from and sanction” Israel movement. These rulings, however, stand in contrast to other cases brought in other EU Member States in the past few years. In Spain, for example, the courts have ruled again and again against the adoption by municipalities of boycotts against Israel. In October 2016, the Asturias High Court upheld the lower court’s ruling that Langreo City Council lacked the “competencies to decree an international boycott” against Israel. Similar decisions were handed against the Vélez-Málaga city council (August 2016) and other city councils. In June of this year, the Superior Tribunal of Madrid upheld a lower court judgment against a similar boycott by the Rivas Vaciamadrid city council. Meanwhile, in France, the Cour de Cassation – the highest appeals court – upheld in October 2015 the convictions for inciting racial hatred or discrimination of 14 individuals who encouraged anti-Israel boycotts outside supermarkets.                 Export Control Order: amendments The Export Control Organisation (“ECO”) has twice amended the Export Control Order 2008 this year, as set out in one notice to exporters in February and another in July. The amending orders make a number of changes to both the main order itself and Schedule 2, which sets out the military goods, software and technology that are subject to export controls. These updates reflect changes made to the EU Common Military List that must be incorporated into UK export control rules to honour its commitment to the international non-proliferation regime. The main changes made in February are to the definitions of “library“, “spacecraft” and “software“, changes to ML1 (note on deactivation) and text revisions to ML9, ML13, ML17 and ML21. The national control (PL5017) within this schedule has also been deleted (on equipment and test models). The main changes made in July include amendments to the definitions of “airship“, “laser“, “lighter-than-air vehicles“, “pyrotechnics” and “software” and changes to ML1, ML8 and ML10. 5.    Anti-Money Laundering In the legislative sphere, activity continues in order to implement the UK Government’s Action Plan for Anti-Money Laundering and Counter-Terrorist-Finance, with legislative developments strengthening the tools available to UK authorities to detect and prosecute financial crime. Long-expected new money laundering rules entered into force on June 26, 2017, with little advance warning, and firms must now urgently take steps to get up to speed with the changes. Enforcement activity has continued with the FCA imposing the largest ever fine for AML controls failings and a Solicitor’s Disciplinary Tribunal (“SDT”) decision against Clyde & Co LLP, providing a reminder to the legal profession of the importance of AML risk controls. The first half of 2017 has also seen setbacks in the English Courts for the NCA and City of London Police, at the same time as far too many individual convictions for money laundering offences to mention them all. Money Laundering Regulations 2017 enter into force The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017  (the “Regulations”) entered into force on June 26, 2017. The Regulations implement the European Union’s 4th Directive on Money Laundering. The Regulations replace the Money Laundering Regulations 2007 and the Transfer of Funds (Information on the Payer) Regulations 2007. The 4th Directive was finalized in June 2015. The Government then launched a consultation in September 2016 on how it should transpose the Directive, which closed in November 2016. A draft set of regulations was released in March 2017. The draft regulations were laid before Parliament on June 22, 2017 and then entered into force only one business day later, giving firms very little time to prepare for their implementation. The Joint Money Laundering Steering Group, which is made up of UK Trade Associations in the Financial Services industry, issued revised guidance after the draft regulations were laid before Parliament. The Law Society of England and Wales’ Money Laundering Task Force has worked with the Legal Sector Affinity Group (a group representing the legal sector AML supervisory bodies to government including the Law Society and Solicitors Regulation Authority) to update guidance for the legal profession, which is currently awaiting approval from HM Treasury. While the old regulations required firms to implement and maintain policies relating to risk assessment and due diligence measures, the Regulations are more prescriptive and require a firm’s responsible person to carry out a risk assessment for potential exposure to money laundering and terrorist financing. In this sense the Regulations place a greater emphasis on each firm conducting a bespoke risk assessment based on the risk factors it faces. As part of such an assessment, the relevant person must take into account any information made available to them by the responsible supervisory authority in the relevant sector, its customers, the countries in which it operates, its product or services, its transactions and delivery channels. A person is required to keep a record of the steps taken to conduct the risk assessment, unless it is told by its supervisory authority that this is not necessary. The responsible person must then establish and maintain policies, controls and procedures based on that risk assessment, which must be regularly reviewed and updated, and be proportionate to the size and nature of the firm, covering matters such as: risk management practices; how customer due diligence (“CDD”) is conducted (see below); the firm’s reporting and record keeping systems; how monitoring and compliance with policies, procedures and controls is carried out. The relevant person must also make sure that relevant employees are made aware of the law relating to money laundering and terrorist financing and regularly given training in how to recognise and deal with transactions and other activities which may give rise to such risks. The Regulations introduce new and more prescriptive CDD requirements, which will increase the burden on firms subject to the Regulations. CDD measures must be applied to new business relationships as well as existing ones, where there are doubts as to the veracity or adequacy of documents previously obtained for verification purposes. The Regulations recognise “simplified” and “enhanced” due diligence requirements. Simplified due diligence is available in fewer circumstances than under the old regulations: a relevant person needs to consider both customer and geographical risk factors in deciding whether simplified due diligence is appropriate; firms can no longer automatically apply only simplified CDD requirements in certain circumstances. Enhanced CDD measures will need to be applied in relation to any transaction or business relationship with a person established in a “high risk third country“, which is any country recognised as such by the European Commission in regulations made under the 4th Directive. Currently the list of such jurisdictions is Afghanistan, Bosnia and Herzegovina, Iran, Iraq, Laos, North Korea, Syria, Uganda, Vanuatu and Yemen. Guyana was removed from the list by Regulation 2016/7495 in November 2016. Additional situations in which Enhanced CDD measures are required include cases in which the relevant person determines that a customer or potential customer is a politically exposed person (“PEPs”), or a family member of known close associate of a PEP, in which the relevant person discovers that a person has provided false or stolen identification, in which a transaction is complex and unusually large, or there is an unusual pattern of transactions and the transactions have no apparent legal or economic purpose. While the Legal Sector Affinity Group is awaiting HM Treasury to approve its guidance, it has indicated publicly that it feels “that a sensible supervisory approach towards the new regulations would be to give firms and individuals a period of time to adjust to their new obligations.” Time will tell what his guidance will look like for those operating in the sector. FCA final guidance on treatment of PEPs for AML purposes On July 6, 2017, the FCA published its finalised guidance (FG17/5) on the treatment of PEPs in connection with the Regulation. The guidance seeks to clarify the manner in which firms should apply the definitions of a PEP in respect of business relationships undertaken in the course of business in the UK. The FCA notes that firms should only treat these in the UK who hold “truly prominent positions” in the UK as PEPs, and that “as such it is unlikely in practice that a large number of UK customers should be treated as PEPs“. The guidance also reiterates that not all PEPs will pose the same risk, and that the FCA will expect firms to take a differentiated approach that considers the risks an individual PEP poses. The guidance also sets out the FCA’s view as to what will constitute an indicator that a PEP poses a “lower” or “higher” risk. The publication of this guidance followed a period of consultation in March and April 2017 with a range of stakeholders. A summary of feedback received, published by the FCA, noted that whilst all but one respondent were supportive of the FCA providing guidance to firms about how to meet their obligations to treat PEPs on a risk-based, differential basis, there was significant divergence amongst stakeholders as to how the FCA could best support a risk-based approach while meeting the policy intention behind the requirement to provide guidance. The FCA responded to this concern by noting that it appreciated that firms wanted certainty, and that they had sought to balance requests for more detailed guidance against the importance of the risk-based approach (bearing in mind the requirement under MLR 2017 that firms assess and mitigate their own risks as they feel appropriate). FCA anti-money laundering annual report for 2016/17 On July 5, 2017, the FCA published its anti-money laundering annual report for 2016/17. The report reiterates that financial crime and AML remains one of the FCA’s key priorities for 2017/18. It also notes that the FCA continues to develop its AML supervision strategy, including existing supervisory programmes. These include the Systematic Anti-Money Laundering Programme, a programme of regular, thorough scrutiny that covers 14 major retail and investment banks operating in the UK, as well as their overseas operations with higher risk business models or strategic operations. In addition, the FCA has a programme of regular AML inspections for a group of other high risk firms that present higher financial crime risk. The population of these firms is dynamic, but has recently been expanded to 150 firms over four years. The FCA also reported that it had found that much day-to-day work designed to tackle money laundering worked reasonably well, and that the steps the industry was taking to manage the risks presented by most of its standard risk customers were broadly adequate. Common root causes identified by the FCA were weaknesses in governance and longstanding and significant under-investment in resourcing. In larger firms, this under-investment had led to adverse effects on the systems used to identify, screen and monitor risk. In smaller firms, the most important challenge was one of resourcing, with key individuals having multiple roles and competing priorities. HM Treasury has announced that the FCA will become responsible for monitoring the AML supervision carried out by professional bodies such as the Institute of Chartered Accountants in England and Wales. The report notes that the FCA is expected to receive the relevant formal powers towards the end of 2017. A new Office for Professional Body AML Supervision will operate within the FCA, and will be funded by a new fee on the professional body supervisors. Case Law                 Merida Oil Traders, Bunnvale and Ticom Management On April 11, 2017, the High Court ruled, on an application for judicial review in R (on the application of Merida Oil Traders Ltd & others v Central Criminal Court & others [2017] EWHC 747 (Admin), that the City of London Police had abused their power under POCA in seizing US$21 million from Merida Oil Traders, Bunnvale and Ticom Management (and Intoil SA, which was not party to the judicial review) as part of a money laundering investigation. The City of London Police’s investigation began in February 2016, following a suspicious transaction report that was made by the Intercontinental Exchange (“ICE”) in London to the FCA in May 2015. Both Bunnvale and Merida traded on the ICE through a broker, Archer Daniels Midlands Investor Services International Limited (“ADMISIL”), which held a clearing account with the ICE. Ticom was a Russian company affiliated with Bunnvale. In April 2016, the City of London Police invited ADMISIL to create cheques or drafts for the closing balances payable to Merida, Bunnvale, Ticom and Intoil. ADMISIL agreed to do so. Thereafter, on May 6, 2016, the City of London Police applied to the Central Criminal Court for a production order, requiring ADMISIL to produce the cheques. The order was made and the City of London Police then seized the cheques. The High Court held that that the statutory requirements for making production orders were not met, in that the production of the cheques was not of substantial value to a money laundering investigation. The purpose of an investigation, whatever its subject matter, was to find out information with a view to taking some action or decision, whereas production of the cheques was sought so that they could be seized and detained as cash. The High Court went on to rule that the cheques were unlawfully seized, and that the City of London Police had abused their power under POCA. Merida, Bunnvale, Ticon and Intoil did not choose to hold their money in cash, and the cheques, which were classified as cash, only existed because the City of London Police had arranged with ADMISIL – without the claimants’ knowledge or consent – for the cheques to be created. Had the cheques not been created, they could not have been seized. Instead, they would have had to seek a restraint order or a property freezing order. As the High Court noted: “Parliament cannot sensibly be taken to have intended that the power to seize cash should be exercisable where the person to whom the cash belongs is not itself in possession of the cash, has not chosen to convert its property into cash and did not even know that this was being done. Still less can Parliament sensibly be taken to have intended that the power should be exercisable where the police themselves have engineered this situation in order to take advantage of the statutory provisions. Such an exercise of the power of seizure amounts, in our view, to a clear abuse of the statutory power.“                 Clyde & Co On April 12, 2017, the SDT gave judgment in respect of allegations made against Clyde & Co LLP and three of its partners, Christopher Duffy, Simon Gamblin and Nick Purnell. In its decision, it held that both Clyde & Co and the partners in question committed breaches of accounting and money laundering rules. Two key money laundering allegations were made: (i) that the firm had become involved, as escrow agent, with a fraudulent scheme, and that by unintentionally becoming involved had lent the scheme credibility; and (ii) a number of breaches of money laundering rules, including by allowing their client account to be used as a banking facility. The judgment noted that the firm had accepted responsibility for these matters and that these matters “evidenced that certain aspects of its risk functions required strengthening“. The SDT also noted that there had been a systemic failure by the firm in failing to have proper procedures in place to ensure that residual balances on files were returned to clients in a timely manner at the end of a retainer. The SDT imposed a fine of £50,000 on Clyde & Co, with fines of £10,000 each imposed on Mr Duffy, Mr Gamblin and Mr Purnell.                 National Crime Agency v N and Royal Bank of Scotland PLC (“RBS”) [2017] EWCA Civ 253 On April 7, 2017, the Court of Appeal gave judgment in an appeal brought by the NCA against RBS and an authorised payment institution referred to as “N”. That appeal concerned whether, and if so, in what circumstances, the court can disapply the consent regime under POCA. N had several bank accounts with RBS. RBS froze those accounts, and made a disclosure to the NCA on the basis that it suspected that the credit balance on certain of N’s accounts constituted criminal property. That disclosure sought the NCA’s consent to return the funds in the accounts to N. Such consent was granted by the NCA on October 15, 2015. Meanwhile, N commenced proceedings for an interim mandatory injunction requiring RBS to continue operating N’s accounts. On October 20, 2015, Mr Justice Burton made several interim orders compelling RBS to execute past payment instructions and to continue operating N’s bank accounts. The Judge also declared that RBS, in so doing, “will not commit any criminal offence under the Proceeds of Crime Act 2002 or otherwise (the “Criminal Law”)” and that it “is not obliged to make any disclosure as would or may be required by the Criminal Law or any other law“. The NCA appealed against those interim orders, on the basis that the only appropriate mechanism was the statutory procedure set out in POCA. The Court of Appeal did not agree with the NCA’s submission that Mr Justice Burton had no jurisdiction to make the orders that he did. The court’s jurisdiction to grant interim relief was not ousted. However, it accepted the NCA’s alternative submission that the statutory procedure under POCA was highly relevant to the court’s discretion. It could not be displaced “merely on a consideration of the balance of convenience as between the interests of the private parties involved. The public interest in the prevention of money laundering as reflected in the statutory procedure has to be weighed in the balance and in most cases is likely to be decisive.“ The Court of Appeal, therefore, overturned Burton J’s orders. Ikram Mahamat Saleh v Director of the Serious Fraud Office 2017] EWCA Civ 18 On January 23, 2017, the Court of Appeal gave judgment in an appeal brought by Mrs Saleh against the SFO. That appeal concerned a Property Freezing Order (“PFO”) made by Mr Justice Mostyn in respect of £4.4 million plus interest, credited to an account at RBS in the name of Computershare Investor Services PLC. That money was the proceeds from the sale of 800,000 shares in a Canadian oil and gas company, Caracal Energy Inc (formerly Griffiths Energy International Inc, or “Griffiths”). Mrs Saleh was the owner of those shares. The SFO alleged that Mrs Saleh’s acquisition of the shares was part of a series of corrupt transactions, said to involve personnel and companies connected to the diplomatic staff at the Chadian Embassy in Washington DC, and that the transactions were entered into by Griffiths in order to promote its commercial interests in Chad. See the discussion in our 2015 Year-End UK White cCollar Crime Alert. On appeal, Mrs Saleh sought to discharge the PFO. The sole issue on appeal was whether a decision of the Court of Queen’s Bench in Alberta, Canada, was an order in rem (i.e. an order that is valid against the whole world and not merely between the parties) whose effect was such as to preclude the SFO from contending that the money is or was recoverable property for the purposes of Part 5 of POCA. As part of those proceedings, and in the light of Griffiths’ self-reporting following an internal investigation, the Crown sought forfeiture of the shares issued to Mrs Saleh as being the proceeds of crime. The resulting order (the “Canadian Order”) held that the shares issued to Mrs Saleh were not the proceeds of crime, whilst also noting by way of recital that no evidence had been adduced on the issue. The Court of Appeal, dismissing the appeal, held that the Canadian Order was not final and conclusive on the merits, so as to bar enforcement action in the UK on the basis that the point had already been the subject of express adjudication. It was clear from the terms of the order that it was plainly not the product of a decision-making process, in which the relevant facts were considered and weighed, and in which the relevant principles of law were set out and applied to the facts found, and from which a conclusion was reached. Because the court was able to dismiss the appeal on this narrow point, it declined to deal with the question of whether the court could retain a residual discretion to depart from the ruling in an in rem judgment, or whether allowing the Canadian Order to preclude the SFO from pursuing proceedings in the UK would be inconsistent with the statutory regime in POCA. Enforcement                 Deutsche Bank AG On January 30, 2017, the FCA issued a final notice against Deutsche Bank AG (“Deutsche Bank”) for failing to maintain an adequate AML control framework during the period between January 1, 2012 and December 31, 2015. The FCA’s investigation followed Deutsche Bank’s notification to the FCA, in early 2015, of concerns regarding its AML control framework. Those concerns arose out of an internal investigation into suspicious securities trading involving Deutsche Bank Moscow. The FCA found that Deutsche Bank had breached Principle 3 of the FCA’s Principles for Businesses (taking reasonable steps to organise its affairs responsibly and effectively, with adequate risk management systems), together with various other provisions of the Senior Management Arrangements, Systems and Controls (“SYSC”) rules. More specifically, it found that Deutsche Bank’s Corporate Banking and Securities (“CB&S”) division in the UK: (i) performed inadequate due diligence; (ii) failure to ensure that its front office took responsibility for the CB&S division’s KYC obligations; (iii) used flawed customer and country risk rating methodologies; (iv) had deficient AML policies and procedures; (v) had an absence of an appropriate AML IT infrastructure; (vi) lacked automated AML systems for detecting suspicious trades; and (vii) failed to provide adequate oversight of trades booked in the UK by traders in non-UK jurisdictions. In connection with its AML controls, Deutsche Bank was identified as having been used by unidentified customers to transfer amounts totalling approximately US$10 billion of unknown origin from Russia to offshore bank accounts. Deutsche Bank was fined £163,076,224, the largest financial penalty for AML controls failings ever imposed by the FCA (or its predecessor, the FSA).                 Laundromat money laundering scheme On March 21, 2017, the NCA released a statement in relation to a money laundering scheme known as “the Laundromat“. That statement was prompted by revelations, published in The Guardian newspaper, that the FCA and NCA would be examining allegations that British banks had processed hundreds of millions of pounds from Russian criminals. The article in The Guardian alleged that detectives had exposed a money laundering scheme that was run by Russian criminals with links to their government and the former KGB, and that British banks had played a prominent role in that scheme. Money was allegedly introduced into the EU through Latvian and Moldovan banks. The NCA statement confirmed that “the NCA remains willing to consider any formal request for assistance from the Moldovan authorities in connection with their investigation, and will consider whether information provided by the Guardian or other media sources would allow the progression of an investigation“. The statement was followed by remarks in the House of Commons by Simon Kirby MP, the Economic Secretary to the Treasury at the time, who noted that “the Financial Conduct Authority and the National Crime Agency take any such allegations seriously and will investigate closely whether recent information from The Guardian newspaper—or, indeed, any other media source—regarding money laundering from Russia would allow the progression of an investigation.”                 Sun Life Financial Investments (Bermuda) On February 27, 2017, the Bermuda Monetary Authority (the “Authority”) announced that it had imposed civil penalties on Sun Life Financial Investments (Bermuda) Limited (“Sun Life”), as well as restricting Sun Life’s Investment Business Licence. The civil penalties were said to have been imposed for Sun Life’s failure to comply with the requirements of the Proceeds of Crime (Anti-Money Laundering & Anti-Terrorist Financing) Regulations 2008. These failures arose out of an onsite review by the Authority in May 2016. More particularly, the Authority found that there had been a failure to comply with the following requirements of the Regulations: (i) the application of CDD measures; (ii) ongoing monitoring of business relationships; (iii) ceasing transactions where it was not possible to apply CDD measures; (iv) the application of Enhanced Due Diligence; and (v) the establishment and maintenance of appropriate and risk sensitive policies and procedures. The Authority’s findings indicated that several of these compliance gaps represented Sun Life’s failure to adequately remediate similar findings that had been made following an onsite review in 2013. The Authority’s statement noted that it “views these breaches as serious because of their extent and  duration, and because they demonstrated systemic weaknesses in the Company’s internal AML/ATF controls.” Sun Life was fined US$1.5 million and was, among other things, prohibited from accepting or soliciting any new investment business. These restrictions will remain in place until the Authority is satisfied that Sun Life is fully compliant with its obligations. This fine continues a notable trend of the last few years which has seen offshore regulators taking a much more active enforcement role than previously. 6.    Competition The first half of 2017 has seen the CMA develop a number of civil investigations. The CMA has also launched its first ever advertising campaign to stamp out cartel activity. The “cracking down on cartels” campaign aims to encourage whistleblowers by offering a reward of up to £100,000. Adverts will appear in social media feeds as well as on key websites. Enforcement               Estate agents In  March 2017, the CMA announced that four estate agents based in Somerset (Abbott and Frost Limited, Gary Berryman Estate Agents Limited (and its parent company Warne Investments Limited), Greenslade Taylor Hunt and West Coast Property Services (UK) Limited) have agreed to pay total fines of £370,000 to the CMA. This settlement followed a year-long investigation by the CMA. The estate agents admitted that they had taken part in a price-fixing cartel in which they had colluded to set minimum commission rates for residential property sales at 1.5%.               Pharmaceuticals In March 2017, the CMA issued a statement of objections to Concordia and Actavis UK, alleging that the companies signed agreements under which Actavis UK incentivized Concordia not to enter the market with its own competing version of hydrocortisone tablets. The CMA’s provisional findings are that the agreements breached competition law and that Actavis UK abused its dominant market position by inducing Concordia’s delay into the market. The result of the agreements was that the NHS (and thus ultimately the taxpayer) was deprived of significant price falls that would have been expected to result from true competition.               Pharmaceuticals (Pfizer and Flynn Pharma) As reported in last year’s 2016 Year-End UK White Collar Crime Update, in December 2016, the CMA imposed a record £84.2 million fine on Pfizer, the manufacturer of for phenytoin sodium (an anti-epilepsy drug) and a £5.2 million fine on its distributor Flynn Pharma.  The CMA found that both companies had charged excessive and unfair prices in a deliberate exploitation of the opportunity offered by de-branding to increase the price of the drug. On February 14, 2017, Pfizer and Flynn Pharma appealed the CMA’s decision, arguing that the CMA had incorrectly found the parties to each be dominant within their relevant markets and that the CMA had misapplied the test for excessive pricing. The parties also challenged the level of the fine, with Pfizer arguing that no fine should have been imposed due to “the novel and unforeseeable nature of the test applied by the CMA in the present case to impugn Pfizer’s prices“, and Flynn Pharma arguing that its fine was disproportionately high. The appeal is listed to be heard starting on October 30, 2017. Pending the outcome of the appeal Flynn Pharma applied in January 2017 for interim relief against the direction imposed along with the fie that it reduce its prices. The Competition Appeal Tribunal refused this application in Flynn Pharma Limited and Flynn Pharma (Holdings) Limited v Competition and Markets Authority [2017] CAT 1.               Furniture Industry In March 2017, the CMA issued two decisions finding that three suppliers of furniture parts (Thomas Armstrong (Timber) Limited, Hoffman Thornwood Limited and BHK (UK) Limited) had infringed competition law. The CMA imposed fines totaling £2.8 million. The investigation was launched on the basis of information provided to the CMA’s dedicated cartel hotline. However, BHK (UK) Limited was the first to come forward under the CMA’s leniency policy and received a 100% reduction of its fine. In one decision the CMA found that between 2006 and 2008 two suppliers of drawer wraps had infringed competition law by engaging in an agreement to share the market and coordinate pricing practices. In the other decision, the CMA found that between 2006 and 2008, and in 2011, two suppliers of drawer fronts had infringed competition law by agreeing to share the market and coordinate pricing practices.               Online price comparison websites As reported in last year’s 2016 Year-End UK White Collar Crime Update, in September last year the CMA launched a market study into digital comparison tools (“DCTs”). The CMA published its interim report on March 28 2017. This report found that consumers are generally satisfied with how DCTs work. However, the CMA identified areas for further investigation: 1.        whether sites could be more transparent, for example with respect to their market coverage, business models and use of personal data; 2.       whether the benefits that DCTs can offer could be improved by suppliers making more information available; 3.       whether certain practices and arrangements between DCTs might restrict competition; and 4.       the regulation of DCTs. The CMA’s final report is expected in September this year. 7.    Market abuse and Insider Trading and other Financial Sector Wrongdoing As highlighted in the 2017/18 Business Plan, preventing, detecting and punishing market abuse remains a high priority for the FCA. The FCA’s 2016/17 Enforcement Performance Account noted that in the financial year 2016/17 the FCA opened 120 market abuse cases, imposed three financial penalties with a total value of £0.6 billion and secured six criminal convictions (two detailed below and the four others discussed in our 2016 Year-End White Collar Crime Alert).  122 market abuse cases remained open as at March 31, 2017. The key initiatives in this area for the FCA relate to the Market Abuse Regulation 596/2014 (“MAR”) and the Market in Financial Instruments Regulation 600/2014 (“MiFIR”). As we noted in our 2016 Year-End UK White Collar Crime Update, MAR came into force on July 3, 2016, and a number of consequential changes have already been made to the FCA Handbook. From January 2018, MiFIR will require firms to report to the FCA a wider range of information about their trades, and for more asset classes. The FCA’s Business Plan notes that the FCA expects this information to “significantly increase the effectiveness” of its market abuse work. On June 1, 2017, the European Securities and Markets Authority published its final Implementing Technical Standards (“ITS”). The ITS clarify how national competent authorities should cooperate with each other when exchanging information and rendering assistance under Article 25 of MAR, which obliges national competent authorities to cooperate with each other without undue delay, unless one or more of the specified exceptions applies. The ITS have been communicated to the European Commission for endorsement. FCA Enforcement – Insider Dealing Fabiana Abdel-Malek and Walid Anis Choucair On June 16, 2017, the FCA announced that it had charged Fabiana Abdel-Malek, a former compliance officer employed by a global investment bank, and Walid Anis Choucair with five counts of insider dealing, contrary to section 52(2)(b) and 52(1) of the Criminal Justice Act 1993. The decision to charge Ms Abdel-Malek and Mr Choucair followed a joint investigation between the FCA and the NCA. The alleged insider dealing took place between June 3, 2013 and June 19, 2014. In that period, it is alleged that Mr Choucair used inside information that was passed to him by Ms Abdel-Malek to trade stocks in Kabel Deutschland, BRE Properties, Elizabeth Arden, Northstar Realty Finance, and Targa Resources, realising a profit of almost £1.4 million. The case has been transferred to Southwark Crown Court, and Ms Abdel-Malek and Mr Choucair are expected to enter a formal plea at a later date. Manjeet Mohal and Reshim Birk In our 2015 Year-End United Kingdom White Collar Update, we reported that the FCA had charged Manjeet Singh Mohal and Reshim Birk in respect of offences of insider dealing, contrary to sections 52(1) and 52(2)(b) of the Criminal Justice Act 1993. The offences related to the passing on, in 2012, of insider information relating to a takeover of Logica PLC by CGI Holdings (Europe) Limited. That information had come into Mr Mohal’s possession during his employment at Logica. Mr Mohal passed on that information to his neighbour, Reshim Birk, and another individual. Reshim Birk made a profits in excess of £100,000 by trading on the basis of that inside information. Mr Mohal and Mr Birk were sentenced on January 13, 2017. Mr Mohal was sentenced to 10 months’ imprisonment suspended for two years, together with 180 hours of community work. Mr Birk was sentenced to 16 months’ imprisonment suspended for two years, together with 200 hours of community work. The FCA has now secured over 30 convictions for insider dealing, a crime that had not been prosecuted by the authority prior to 2008. Prior to that date, the FSA (the FCA’s predecessor) had relied on civil enforcement powers under FSMA to sanction those accused of market abuse. Civil enforcement for Market Abuse                 Tesco PLC and Tesco Stores Limited As noted elsewhere in this Update, on March 28, 2017, the FCA issued a final notice against Tesco PLC and Tesco Stores Limited (together, “Tesco”) for market abuse contrary to s 118(7) FSMA (as it was in force at the material time). The FCA noted that Tesco had agreed that they had committed market abuse. The market abuse concerned a trading update published on August 29, 2014 by Tesco PLC, which stated that it expected trading profit for the six months ending August 23, 2014 to be in the region of £1.1 billion. A further trading update, published on September 22, 2014, announced that Tesco PLC had “identified an overstatement of its expected profit for the half year, principally due to the accelerated recognition of commercial income and delayed accrual of costs“. The FCA found that Tesco knew or could reasonably have been expected to know that the information in the August 29, 2014 announcement was false or misleading. In making that finding, the FCA expressly noted that Tesco PLC board knew or could reasonably have been expected to know that the information was false or misleading. The FCA considered that the false or misleading information within the August 29, 2014 trading update, meant that the market price for Tesco shares and bonds had been inflated until the further trading update was issued on September 22, 2014. Tesco acknowledged that it had committed market abuse and agreed to pay compensation to each purchaser of Tesco shares and bonds in an amount equal to the inflated amount for each share of bond. That amount was established with the assistance of an independent expert engaged by the FCA, and it is estimated that the total amount of compensation that may be payable will be approximately £85 million, plus interest. The FCA declined to impose a financial penalty on Tesco, on the basis that Tesco had cooperated with the FCA, that Tesco Stores Limited had entered into a DPA with the SFO (See above in the Fraud section) under which it had agreed to pay a fine of £128,992,500, and that Tesco had accepted the order to pay compensation to investors. In a speech given at New York University on March 31, 2017, Mark Steward, the FCA’s Director of Enforcement and Market Oversight identified Tesco’s acceptance of the compensation order as being a fundamental element of the decision not to impose a financial penalty. He stated that this was a “strong example of corporate responsibility”, noting that “A firm’s response to discovering wrongdoing in its affairs is perhaps the best test of its integrity. This is a test that Tesco has passed.” This is the first time the FCA has used its powers under section 384 of FSMA to require a listed company to pay compensation for market abuse. These powers have been in place since FSMA came into effect in 2001. It remains to be seen how the FCA’s order will impact the shareholder action that is currently being pursued in the Commercial Court pursuant to section 90 of FSMA (statutory civil liability for misleading statements in periodic disclosures to the market). Stewarts Law, who act for the shareholders, have confirmed that the action will go ahead.                 Niall O’Kelly and Lukhvir Thind On April 7, 2017, the FCA issued a final notice against Mr O’Kelly and Mr Thind for market abuse contrary to section 123(1) FSMA. Both were former employees of Worldspreads Limited (“WSL”), which operated a spread betting business. Mr O’Kelly was formerly the CFO of WSL. He was closely involved with the drafting and approval of admission documentation for the flotation of Worldspreads Group, WSL’s holding company, on the Alternative Investment Market of the London Stock Exchange in August 2007. The FCA considered that this documentation contained materially misleading information, and omitted key information. The FCA also considered that Mr Kelly artificially inflated the value of assets on WSG’s balance sheet through the use of an undisclosed “internal hedging” strategy at WSL. Mr O’Kelly and Mr Thind were also found to have knowingly falsified financial information in WSL’s Annual Accounts for 2010 and 2011 regarding WSL’s client liabilities and cash position. As a result, material shortfalls in WSL’s client money position were concealed from investors. On March 31,  2011 the shortfall amounted to £15.9 million. Mr O’Kelly and Mr Thind were both permanently banned from performing any function relating to a regulated activity, and also fined £11,900 and £105,000 respectively.                 Damian Clarke In our 2016 Mid-Year United Kingdom White Collar Crime Update we reported that Damian Clarke, a former equities trader at Schroders, was sentenced to two years in prison for insider dealing over a nine-year period between 2003 and 2012. He pleaded guilty to seven charges of insider dealing in July 2015, and to two more charges in March 2016, just two weeks before his trial was to commence.  On June 1, 2017 the FCA issued a final notice banning Mr Clarke from performing any function related to a regulated activity. The following Gibson Dunn lawyers assisted in the preparation of this client update:  Steve Melrose, Patrick Doris, Mark Handley, Deirdre Taylor, Syamack Afshar, Emily Beirne, Jonathan Cockfield, Georgia Derbyshire, Helen Elmer, Moeiz Farhan, Besma Grifat-Spackman, Jon Griffin, Samirah Haujee, Yannick Hefti-Rossier, Korina Holmes, Harriet Maes, Nooree Moola, Rose Naing, Rebecca Sambrook, Kimberley Simmons, Frances Smithson, and Ryan Whelan. 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July 10, 2017 |
2017 Mid-Year FCPA Update

These are uncertain times and the subject of continuing enforcement of the Foreign Corrupt Practices Act (“FCPA”) is certainly not immune from question as a new administration takes the reins of the U.S. Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”).  On the one hand, a combined 18 FCPA enforcement actions initiated by DOJ and the SEC during the first half of 2017 would suggest business as usual, if not more robust than usual.  On the other hand, a careful observer would note that nearly all of these cases were brought in the final days before Chief Justice Roberts administered the presidential oath to Donald J. Trump—who in his prior life as a real estate mogul was openly hostile to the role of the American prosecutor as a global policeman under the FCPA.  And yet, with scores of dedicated career lawyers and law enforcement agents driving the train, what we see in the hallways of the Bond Building, the Home Office, and the regional outposts of each agency is a continued commitment to anti-corruption enforcement.  We advise our clients to stay the course of FCPA compliance that has been blazed in recent years and await what, if any, differences will present themselves in the new enforcement regime. This client update provides an overview of the FCPA as well as domestic and international anti-corruption enforcement, litigation, legislation, and policy developments from the first half of 2017. FCPA OVERVIEW The FCPA’s anti-bribery provisions make it illegal to corruptly offer or provide money or anything else of value to officials of foreign governments, foreign political parties, or public international organizations with the intent to obtain or retain business.  These provisions apply to “issuers,” “domestic concerns,” and “agents” acting on behalf of issuers and domestic concerns, as well as to “any person” who violates the FCPA while in the territory of the United States.  The term “issuer” covers any business entity that is registered under 15 U.S.C. § 78l or that is required to file reports under 15 U.S.C. § 78o(d).  In this context, foreign issuers whose American Depository Receipts (“ADRs”) are listed on a U.S. exchange are “issuers” for purposes of the FCPA.  The term “domestic concern” is even broader and includes any U.S. citizen, national, or resident, as well as any business entity that is organized under the laws of a U.S. state or that has its principal place of business in the United States. In addition to the anti-bribery provisions, the FCPA also has “accounting provisions” that apply to issuers and their agents.  First, there is the books-and-records provision, which requires issuers to make and keep accurate books, records, and accounts that, in reasonable detail, accurately and fairly reflect the issuer’s transactions and disposition of assets.  Second, the FCPA’s internal controls provision requires that issuers devise and maintain reasonable internal accounting controls aimed at preventing and detecting FCPA violations.  Prosecutors and regulators frequently invoke these latter two sections when they cannot establish the elements for an anti-bribery prosecution or as a mechanism for compromise in settlement negotiations.  Because there is no requirement that a false record or deficient control be linked to an improper payment, even a payment that does not constitute a violation of the anti-bribery provisions can lead to prosecution under the accounting provisions if inaccurately recorded or attributable to an internal controls deficiency. FCPA ENFORCEMENT STATISTICS The following table and graph detail the number of FCPA enforcement actions initiated by the statute’s dual enforcers, DOJ and the SEC, during each of the past ten years. 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (as of 6/30) DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC 20 13 26 14 48 26 23 25 11 12 19 8 17 9 10 10 21 32 12 6 2017 MID-YEAR FCPA ENFORCEMENT ACTIONS In the world of FCPA enforcement, the first month of 2017 came in like a lion and the next five months went out like a lamb.  More than 80% of the FCPA enforcement actions brought during the first half of 2017 (15 of 18) were filed in January.  A description of the first half of 2017 in FCPA enforcement actions follows. Corporate Enforcement Actions  Cadbury Limited and Mondelēz International, Inc. The first corporate FCPA action of 2017 reflects one of the most aggressive theories of liability advanced by enforcers in recent years.  On January 6, 2017, former ADR-issuer and UK confectionery company Cadbury and U.S. issuer parent Mondelēz International jointly settled an SEC-only cease-and-desist proceeding arising from alleged violations of the FCPA’s accounting provisions, agreeing to pay a $13 million civil penalty.  But the basis for the alleged violations is far from clear on the face of the resolution document. According to the SEC, in early 2010 Cadbury’s Indian subsidiary hired an agent to assist the company with obtaining licenses and approvals for a planned factory expansion.  In total, the subsidiary paid the agent just over $90,000 for consultation services associated with the necessary licenses.  There appears to have been no direct evidence of corruption, but based on allegations that the company failed to conduct due diligence on the agent, failed to monitor or require written documentation of his activities, and the agent’s withdrawal of his payments from the bank in cash, the SEC asserted that there was a “risk that funds paid to [the agent] could be used for improper or unauthorized purposes.”  This purportedly caused the Indian subsidiary’s books and records to be inaccurate and reflected a lack of internal controls by Cadbury.  Further, because Mondelēz acquired Cadbury during 2010 while the agency relationship was ongoing, the SEC asserted that “Mondelēz is also responsible for Cadbury’s violations.” The SEC acknowledged Mondelez’s cooperation in the investigation, as well as the “substantial, risk-based, post-acquisition compliance-related due diligence review” it engaged in following the acquisition of Cadbury.  Companies frequently do not receive extensive pre-acquisition due diligence under the controlling UK corporate laws.  The SEC imposed no ongoing reporting requirement on Mondelēz. Zimmer Biomet Holdings, Inc. Biomet’s FCPA woes have been the subject of public scrutiny for several years now.  As reported in our 2012 Mid-Year FCPA Update, Biomet settled FCPA charges with DOJ and the SEC in March 2012 stemming from alleged improper payments to doctors employed by public institutions in Argentina, Brazil, and China.  An independent compliance monitor was imposed as part of that resolution with a three-year term, set to expire in 2015.  As reported in our 2015 and 2016 Mid-Year FCPA Updates, the compliance monitor’s term was extended as the company (by that point, acquired by Zimmer Holdings) investigated new allegations in Brazil and Mexico.  On January 12, 2017, the combined company Zimmer Biomet Holdings reached an unprecedented second joint FCPA resolution with DOJ and the SEC involving conduct in Brazil and Mexico that occurred prior to Zimmer’s acquisition. The new allegations in Brazil were directly related to the company’s first settlement.  Biomet represented to DOJ and the SEC during the initial investigation that it had terminated the distributor who allegedly made the corrupt payments leading, in part, to the 2012 settlement.  But according to the 2017 charging documents, Biomet continued for years to use the unauthorized distributor through a related company, even after an internal audit identified the relationship between the two distributors.  The government did not allege that the distributor continued to make corrupt payments in Brazil, but rather alleged that Biomet’s books and records were inaccurate by virtue of its recording transactions with the pass-through distributor when in reality the work was performed by the unauthorized distributor.  The new allegations in Mexico were that a subsidiary used a customs broker to move unlicensed products across the border by making improper payments to customs officials. To resolve the SEC proceeding, Zimmer Biomet consented to an administrative cease-and-desist order alleging FCPA bribery and accounting violations.  To resolve the DOJ investigation, Zimmer Biomet entered into a deferred prosecution agreement charging a willful failure to implement internal controls and a subsidiary pleaded guilty to a single count of causing the parent company’s books and records to be inaccurate.  Between the joint DOJ-SEC resolutions, Zimmer Biomet paid over $30 million and, notably, agreed to retain a second compliance monitor for an additional three-year term, meaning that the company is scheduled to operate under the supervision of a monitor for nearly eight years in total. Sociedad Química y Minera de Chile On January 13, 2017, Chilean chemical and mining company and ADR-issuer Sociedad Química y Minera de Chile (“SQM”) entered into a joint FCPA resolution with the SEC and DOJ arising from allegations that between 2008 and 2015 SQM made nearly $15 million in improper payments to and for the benefit of Chilean government officials.  According to the charging documents, a high-level SQM executive used funds from his discretionary account to funnel money to charitable foundations controlled by or closely tied to Chilean politicians.  SQM also allegedly routed money to officials through vendors that purported to, but in reality did not, provide services to the company. To resolve the criminal investigation, SQM entered into a deferred prosecution agreement on charges of failing to implement internal controls and falsifying books and records and agreed to pay a $15.5 million criminal fine.  To resolve the SEC’s investigation, SQM consented to an administrative cease-and-desist order charging FCPA accounting violations and agreed to pay a $15 million civil penalty.  SQM also engaged an independent compliance monitor with a two-year term, and agreed to self-report on its FCPA compliance for a third year. The focus on charitable giving as a conduit to government officials has been a priority of enforcers since the Schering-Plough FCPA enforcement action more than a decade ago.  The cautionary advice is to scrutinize all charitable contributions for linkage to government officials. Rolls-Royce plc Our 2016 Year-End FCPA Update identified multi-jurisdictional anti-corruption enforcement as one of the most significant developing enforcement trends.  That continued into 2017 when, on January 17, UK-based engineering company Rolls-Royce entered into an $800 million-plus combined resolution with UK, U.S., and Brazilian anti-corruption authorities. According to the U.S. charging documents, between 2000 and 2013, Rolls-Royce caused millions in bribes to be paid to officials of state-owned oil companies in Angola, Azerbaijan, Brazil, Iraq, Kazakhstan, and Thailand.  To resolve these charges with DOJ, Rolls-Royce agreed to pay a criminal fine of approximately $195.5 million as part of a deferred prosecution agreement alleging conspiracy to violate the FCPA’s anti-bribery provisions.  The company also agreed to report on its anti-corruption compliance program for the three-year term of the agreement.  Rolls-Royce is not listed on U.S. securities markets, hence the SEC was not involved in the resolution. As discussed below, Rolls-Royce also entered into a deferred prosecution agreement with the UK Serious Fraud Office, agreeing to pay a fine of approximately $605 million, based on allegations that between 1989 and 2013 it paid or failed to prevent the payment of bribes in China, India, Indonesia, Malaysia, Nigeria, Russia, and Thailand.  Finally, under terms finalized with the Brazilian Ministério Público Federal, Rolls-Royce agreed to pay a penalty of approximately $25.5 million in connection with conspiring to bribe Brazilian officials between 2005 and 2008.  Rolls-Royce will receive dollar-for-dollar credit for the Brazilian settlement as a reduction in its DOJ penalty, bringing the actual U.S. component of the payment down to just under $170 million. Orthofix International N.V. On January 18, 2017, the SEC announced a settled cease-and-desist action against Texas-based medical device company Orthofix International relating to alleged FCPA accounting violations arising from improper payments to doctors at state-run hospitals in Brazil.  According to the SEC, from 2011 to 2013, third-party representatives and distributors of the company’s Brazilian subsidiary used funds from commissions and discounts on sales to make these payments, which allegedly were inaccurately recorded on the subsidiary’s books.  Regarding its internal controls charge, the SEC alleged that Orthofix lacked policies or mechanisms to centrally approve and monitor discounts and commissions provided by the subsidiary, which the SEC viewed as particularly egregious in light of the company’s earlier 2012 FCPA resolution premised on improper subsidiary payments in Mexico (covered in our 2012 Year-End FCPA Update).  Like the Biomet case discussed above, the facts leading to this second FCPA settlement were disclosed pursuant to the company’s reporting obligations arising from the first settlement. To settle the SEC’s allegations, Orthofix consented to an administrative cease-and-desist order and agreed to pay more than $6 million, which included nearly $3.2 million in disgorgement and prejudgment interest and a $2.9 million civil penalty.  Orthofix also agreed to retain an independent compliance consultant for one year and, in a relatively unusual move for an SEC-only settlement (Orthofix announced that DOJ has closed its investigation without taking any action), the company was required to admit the facts forming the basis for the settlement.  Finally, in a coordinated non-FCPA resolution, Orthofix and four former executives on the same day settled with the SEC a revenue recognition case relating to distributor sales. Las Vegas Sands Corp. On January 19, 2017, the day before the new administration, DOJ announced a non-prosecution agreement with Nevada-based resort and casino company Las Vegas Sands.  The allegations described substantially overlap with those from the company’s April 2016 FCPA settlement with the SEC, covered in our 2016 Mid-Year FCPA Update.  DOJ alleged that subsidiaries of Las Vegas Sands made approximately $60 million in payments to a Chinese consultant between 2006 and 2009, for among other things the purchase of a Chinese basketball team and a building in Beijing, continuing to make the payments even after being warned of the consultant’s allegedly dubious business practices and learning that more than $700,000 in payments could not be accounted for.  No corruption was alleged, but nevertheless DOJ asserted that the company failed to maintain adequate controls to ensure the legitimacy and proper accounting of payments to the consultant. To resolve the allegations, Las Vegas Sands agreed to pay a criminal fine of $6.96 million.  DOJ will receive the reports of the compliance monitor imposed as part of the 2016 SEC FCPA resolution, and Las Vegas Sands will thereafter self-report on the state of its FCPA compliance program for the balance of the three-year term of the non-prosecution agreement. This resolution is unusual because typically the SEC and DOJ resolve investigations on the same day and not months apart.  The public record does not reveal why these resolutions were not announced simultaneously. Pilot Program Declinations – Linde North America & CDM Smith The only corporate FCPA enforcement actions of the Trump Era thus far have been two FCPA Pilot Program “declinations” with disgorgement and admissions during the second half of June 2017.  As reported in our 2016 Mid-Year FCPA Update, the one-year Pilot Program was scheduled to expire in April 2017, but has been extended for further study as announced by Acting Assistant Attorney General Kenneth Blanco in a March 10, 2017 speech.  These two declination agreements represent the sixth and seventh such agreements, respectively, under the Pilot Program. On June 16, 2017, DOJ reached a declination letter agreement with New Jersey-based industrial gas supplier Linde North America Inc. and Linde Gas North America LLC.  According to the letter agreement, from 2006 to 2009, a subsidiary acquired by Linde paid bribes to secure the purchase of certain income-producing assets from a Georgian state-owned entity.  The bribes were allegedly paid by granting two officials at the state-owned entity a portion of the profits generated by the assets after their purchase.  After identifying the conduct, Linde withheld payments purportedly due to the corrupt actors, voluntarily disclosed the matter, conducted an investigation, and remediated the conduct, including terminating or disciplining the implicated employees.  As part of the declination letter agreement, Linde disgorged $7.82 million in alleged illicit gains, forfeited another $3.415 million owed to the sham companies set up to funnel the payments, and agreed to DOJ’s brief statement of facts. On June 29, 2017, DOJ reached a declination letter agreement with Boston-based engineering and construction firm CDM Smith Inc.  According to the letter agreement, from 2011 to 2015, employees of CDM Smith’s division responsible for Indian operations and a subsidiary of CDM Smith in India paid $1.18 million in bribes to government officials in India in exchange for highway construction supervision and design contracts and a water project contract.  CDM Smith voluntarily disclosed the payments to DOJ.  As part of the declination letter agreement, CDM Smith agreed to disgorge just over $4 million in profits from the tainted contracts and admitted to DOJ’s brief statement of facts.  On the same day, CDM Smith reached an agreement with the World Bank Integrity Vice Presidency sanctioning the company for its failure to disclose a sub-agent who worked on a project in Vietnam.  The conditional non-debarment agreement will still permit CDM Smith to participate in World Bank projects provided it meets the compliance terms set forth in the agreement for its 18-month term. Individual Enforcement Actions Additional PDVSA Corruption Scheme Defendants On January 4, 2017, DOJ filed criminal FCPA informations against Charles Quintard Beech III and Juan Jose Hernandez-Comerma, two new defendants in an alleged “pay to play” corruption scheme involving Venezuelan state-owned oil company Petróleos de Venezuela, S.A. (“PDVSA”).  According to the charging documents, Hernandez and Beech engaged in separate schemes to bribe PDVSA officials to ensure that their respective companies were placed on PDVSA bidding panels.  Hernandez and Beech each pleaded guilty to one count of conspiracy to violate the FCPA, with Hernandez additionally pleading guilty to one substantive count of FCPA bribery. Hernandez and Beech represent the seventh and eighth defendants charged in the PDVSA investigation.  As we reported in our 2016 Year-End FCPA Update, six individuals—including three former officials of PDVSA (Alfonzo Eliezer Gravina Munoz, Christian Javier Maldonado Barillas, and José Luis Ramos Castillo) and three U.S.-based businesspersons (Abraham Jose Shiera Bastidas, Roberto Enrique Rincón Fernandez, and Moisés Abraham Millán Escobar)—previously pleaded guilty.  Sentencing for all eight defendants is currently set for August 30, 2017. Vietnamese Skyscraper Corruption Defendants On January 10, 2017, DOJ unsealed and announced a December 2016 indictment of Joo Hyun Bahn, Ban Ki Sang, Sang Woo, and Malcolm Harris for an alleged scheme to pay bribes to facilitate the $800 million sale of a skyscraper in Hanoi, Vietnam.  According to the charging documents, Bahn, a Manhattan real estate broker, and his father Sang, an executive at a South Korean construction company that owned the skyscraper, conspired to pay a $2.5 million bribe to an official at an unnamed Middle Eastern sovereign wealth fund through Harris, a New York fashion designer, to induce the sovereign wealth fund to purchase the skyscraper from Sang’s company.  Woo, a co-worker of Bahn’s, allegedly helped to secure the funds to deliver to Harris.  Little did they know, however, that Harris was lying about his purported connections to the foreign official and instead of delivering a bribe stole the $500,000 down payment for his own use. Bahn and Ban were each charged with substantive FCPA bribery and money laundering, as well as conspiracy to commit the same.  Bahn and Harris were each charged with wire fraud, conducting monetary transactions in illegal funds, and aggravated identity theft.  Woo was charged with one count of FCPA conspiracy.  Bahn has pleaded not guilty; Sang has yet to be extradited from South Korea; Woo is reportedly in plea negotiations with DOJ; and Harris has pleaded guilty to wire fraud and aggravated identity theft, with an initial sentencing date scheduled for September 2017. According to the charging documents, the foreign official with whom Harris feigned a connection was unaware of the scheme and his sovereign wealth fund had no intention of purchasing the skyscraper in question.  This case has drawn considerable media attention because Ban is the brother (and Bahn the nephew) of former U.N. Secretary General Ban Ki-moon, and news of his family members’ arrests reportedly contributed to his surprise decision to end his bid to become president of South Korea. Och-Ziff Defendants In our 2016 Year-End FCPA Update, we covered the September 2016 FCPA resolution with New York-based hedge fund Och-Ziff Capital Management Group LLC and two of its executives relating to an alleged corruption scheme in various African counties.  On January 26, 2017, the SEC filed an unsettled FCPA case against Michael L. Cohen and Vanja Baros arising out of the same alleged misconduct.  In its press release announcing the charges, the SEC characterized Cohen, the former head of Och-Ziff’s European office in London, and Baros, a former analyst on Och-Ziff’s African Special Investment Team, as the “driving forces” and “masterminds” behind the scheme. According to the civil complaint filed in the U.S. District Court for the Eastern District of New York, Cohen and Baros allegedly explored business opportunities in African countries known for corruption and worked with agents and intermediaries known to have close connections with high-ranking government officials.  Cohen and Baros allegedly made payments to the intermediaries knowing that all or a portion of the funds would be used as bribes.  In addition to the FCPA allegations, Cohen is also charged with Investment Advisers Act violations.  The parties are currently briefing defendants’ motion to dismiss. Samuel Mebiame, the son of the former Prime Minister of Gabon and a consultant to a mining company owned by a joint venture between Och-Ziff and another entity, was sentenced to 24 months in prison on May 31, 2017.  As discussed in our 2016 Year-End FCPA Update, Mebiame pleaded guilty to a criminal conspiracy to violate the FCPA’s anti-bribery provisions. New FCPA Charges in U.N. Bribery Case On April 27, 2017, Francis Lorenzo, the former U.N. Deputy Ambassador for the Dominican Republic, pleaded guilty to an eight-count superseding information adding FCPA bribery and conspiracy charges to his pre-existing criminal case alleging corruption at the United Nations.  As reported in our 2015 Year-End FCPA Update, in October 2015, bribery and related charges were announced against Lorenzo, now-deceased former President of the U.N. General Assembly John Ashe, and four businesspersons from whom Ashe and Lorenzo allegedly accepted bribes.  The charges stem from an alleged scheme whereby the businesspersons paid more than $1 million in bribes between 2011 and 2015 to advance their interests before the United Nations, including a plan to build a U.N.-sponsored conference center in Macau. As reported in our 2016 Year-End FCPA Update, a superseding indictment filed with respect to two of the businesspersons, Ng Lap Seng and Jeff C. Yin, added FCPA bribery charges in connection with the Macau conference center bribery scheme, based on the fact that U.N. officials qualify as foreign officials under the FCPA due to the U.N.’s designation by Executive Order as a “public international organization.”  Yin pleaded guilty in April 2017 to conspiring to defraud the United States by evading taxes.  As discussed below, Seng is currently in trial and Lorenzo has testified as a witness against him. FCPA-Related Charges Unsealed in Korean Bribery Investigation On March 14, 2017, the U.S. District Court for the Central District of California unsealed criminal money laundering charges (originally filed in December 2016) against Heon-Cheol Chi, a principal researcher at the Korea Institute of Geoscience and Mineral Resources (“KIGAM”) and the Director of KIGAM’s Earthquake Research Center.  The indictment alleges that Chi solicited and received more than $1 million in purportedly corrupt payments from at least two companies—one based in the UK and one based in California—in exchange for preferential treatment and otherwise assisting the companies in selling their products in South Korea. Chi filed a motion to dismiss the indictment, arguing among other things that the fees he received did not amount to an offense under U.S. or Korean law because they represented payments for technical advisory services unrelated to his official duties.  The Court denied the motion to dismiss, finding that the arguments went well beyond the four corners of the indictment and in effect asked the Court to “grant summary judgment in a criminal case and invade the province of the jury.”  Trial is currently set to begin on July 11, 2017. 2017 MID-YEAR FCPA-RELATED DEVELOPMENTS The first six months of 2017 also saw important guidance issued from DOJ in how it administers its FCPA enforcement program and a Supreme Court decision with ramifications for FCPA enforcement. DOJ Evaluation of Corporate Compliance Programs On February 8, 2017, DOJ’s Fraud Section released a comprehensive set of topics and sample questions related to corporate compliance programs that companies may now expect DOJ to inquire about during investigations and related proceedings.  This new guidance document, “Evaluation of Corporate Compliance Programs,” represents the first document formally issued by a DOJ component dedicated to corporate compliance matters.  As reported in our 2015 Year-End FCPA Update, DOJ retained a compliance consultant to assist prosecutors in evaluating compliance programs and monitorships (the compliance consultant recently parted ways with DOJ, reportedly due to differences with the current presidential administration).  Although a helpful reference document, the guidance largely reinforces the same core standards by which corporate compliance programs have traditionally been evaluated rather than plowing new ground. The DOJ Evaluation document identifies 11 “sample” topics that it considers relevant when evaluating a corporate compliance program.  Those topics relate to the full range of compliance pillars that will be familiar to our readership, including tone at the top, policies and procedures, training, compliance independence, incentives and disciplinary measures, risk management processes and analytics, and periodic testing and review.  As DOJ explains, the 11 sample topics enumerated in the guidance build upon existing guidelines, such as the Resource Guide to the U.S. Foreign Corrupt Practices Act and the U.S. Sentencing Guidelines. As a practical matter, the new guidance converts the conventional benchmarks of a strong compliance program into “common questions that [DOJ prosecutors] may ask” when evaluating the effectiveness of a company’s compliance program.  To that end, the document lists questions?119 in total?related to each of the 11 topics.  Several of the questions call for detailed and granular information, including the “turnover rate for compliance and relevant control function personnel” and whether “requests for resources by the compliance and relevant control functions have been denied.” Unlike prior compliance guidelines, which prospectively offer benchmarks for corporate compliance programs, the new guidance—particularly the first sample topic, “Analysis and Remediation of Underlying Misconduct”—presupposes the existence of wrongdoing and evaluates the adequacy of the company’s program and response in light of that wrongdoing.  This is because the guidance is offered to clarify how DOJ will assess a corporate compliance program under the Principles of Federal Prosecution of Business Organizations—commonly known as the “Filip Factors”—the standards guiding DOJ’s evaluation of whether to bring charges against a corporate entity.  Consequently, companies should be prepared to address questions going to root causes. Although the new guidance covers much of what is contained in the FCPA Resource Guide and other compliance literature, certain questions suggest additional emphasis or expectations compared to prior guidance.  For example, some questions probe a company’s disciplinary measures for managers’ “failures of oversight,” the level of resourcing dedicated to the compliance function, the extent to which compliance expertise is available to board members, and a company’s compensation structure as it relates to incentivizing compliance and ethical behavior.  Other questions may increase the importance of documenting risk assessments, particularly as they evolve over time.  The new guidance asks, among other questions, “what methodology has the company used to identify, analyze, and address the particular risks it faced” and “what information or metrics has the company collected and used to help detect the type of misconduct in question?”  These types of questions, particularly if asked years after the fact or in the context of evolving risks, are a reminder that companies should document their risk assessments. The document also includes questions that probe the independence and integrity of an investigation.  Although prior guidelines mention the need for independent investigations generally, the section entitled “Properly Scoped Investigation by Qualified Personnel” suggests that companies should be prepared to justify whether an investigation was “independent, objective, appropriately conducted, and properly documented.”  Practically, whether handled internally or by outside counsel, companies will need to show that the investigation was appropriately thorough and not tilted to a given outcome. This new guidance can be a resource to all companies, even those looking to enhance their compliance policies and procedures outside of an acute investigation.  Whether in a proactive or reactive posture, these sample topics and questions are a helpful benchmark for companies to use in defending or fine-tuning their compliance programs.  The new administration has not commented on these guidelines, so it is unclear whether it will build further on this foundation. U.S. Supreme Court Limits Temporal Scope of SEC Disgorgement As our readership well knows, disgorgement of purportedly illicit profits frequently is the key driver in determining the cost of an FCPA resolution with the SEC.  Whether SEC claims for disgorgement are subject to the five-year statute of limitations in 28 U.S.C. § 2462 has been a long-standing question.  For example, as reported in our 2016 Mid-Year FCPA Update, in May 2016, the Eleventh Circuit in SEC v. Graham held that such claims are subject to the statute of limitations, which directly contravened the position consistently taken by the SEC that disgorgement is an equitable remedy not subject to any defined temporal limitation. On June 5, 2017, the Supreme Court provided the answer the SEC did not want to hear.  In Kokesh v. SEC, the Court unanimously held that disgorgement in an SEC enforcement proceeding is a “penalty” within the meaning of 28 U.S.C. § 2462 and therefore is subject to the five-year statute of limitations.  This decision, discussed fully in our separate client alert United States Supreme Court Limits SEC Power to Seek Disgorgement Based on Stale Conduct, is significant because it limits the SEC’s ability to seek disgorgement based on conduct that occurred more than five years earlier, and also rejects the SEC’s long-held position that claims for equitable relief are not subject to any limitations period.  The Court’s position is similar to that advocated by Gibson Dunn on behalf of amicus curiae Cato Institute. 2017 MID-YEAR CHECK-IN ON FCPA ENFORCEMENT LITIGATION Conviction in FCPA-Related Money Laundering Trial Our 2016 Year-End FCPA Update reported on the December 13, 2016 arrest by U.S. authorities of Mahmoud Thiam, the former Guinean Minister of Mines and Geology and a U.S. citizen who for years worked as a Wall Street banker, on money laundering charges associated with the alleged receipt of bribes to secure valuable investment rights in Guinea.  The case proceeded quickly to trial and on May 4, 2017, Thiam was found guilty of one count of transacting in criminally derived property and one count of money laundering. Thiam’s sentencing is scheduled for August 25, 2017.  The prosecution was tried in part by Gibson Dunn alum and current DOJ FCPA Unit prosecutor Lorinda Laryea. Lengthy U.N. Bribery Trial of Macau Billionaire Underway As discussed above and covered in our 2016 Year-End FCPA Update, DOJ has indicted numerous businesspersons and U.N. officials on allegations that the former paid more than $1 million in bribes to induce the latter to advance their interests before the United Nations, including a plan to build a U.N.-sponsored conference center in Macau.  After three days of jury selection (complicated by the fact that the trial is expected to last four to six weeks), trial began on June 29, 2017 in the U.S. District Court for the Southern District of New York for the last-remaining defendant, Macau billionaire Ng Lap Seng. Based on the opening statements, it appears that the defense theory is that Ng’s efforts to support the U.N. conference center in Macau were acts of philanthropy and that the prosecution is a politically-influenced effort by the United States to limit Chinese influence over developing nations.  DOJ has countered that narrative with, among other things, testimony from former U.N. diplomat and bribe recipient Francis Lorenzo, who answered the question “Why did you do what Ng asked you to do?,” with “Because I was getting paid.”  Early motions in limine briefing has focused on defense access to classified information, the extent to which a U.N. report critical of the organization’s anti-corruption efforts may be shared with the jury, and whether the payments at issue were lawful under the laws of Antigua and the Dominican Republic (where the U.N. officials were posted), thus potentially availing Seng of the “lawful under foreign law” affirmative defense set forth in the FCPA. Odebrecht / Braskem Criminal Fine Reduced Based on Ability to Pay We reported in our 2016 Year-End FCPA Update on the December 2016 multi-jurisdictional resolution of Brazilian construction conglomerate Odebrecht S.A. and its petrochemical production subsidiary Braskem S.A. with authorities in Brazil, Switzerland, and the United States.  At the time, the $419.8 million DOJ/SEC component of the multi-billion dollar resolution stood as fifth on the all-time Corporate FCPA Top 10 List.  We noted that the criminal fine amounts facing Odebrecht remained an open matter, however, because DOJ and Brazilian authorities planned to review during the first quarter of 2017 Odebrecht’s representation that it could pay no more than $2.6 billion in total. In its sentencing memorandum filed before the U.S. District Court for the Eastern District of New York, DOJ explained that it and Brazilian authorities had analyzed Odebrecht’s ability to pay and determined that the company could pay only $93 million in DOJ criminal penalties—rather than the approximately $260 million figure originally announced.  After this reduction, when combined with the $94.89 million and $65 million that Braskem agreed to pay to DOJ and the SEC, the (still sizable) $252.89 million DOJ/SEC component of the resolution now falls outside of the all-time Corporate FCPA Top 10 List. Hunt Pan Am Aviation Inc. Defendants As reported in our 2016 Year-End FCPA Update, on December 27, 2016, DOJ announced guilty pleas by six individuals—four businesspersons and two government officials—in connection with a bribery scheme involving the payment of more than $2 million by representatives of Hunt Pan Am Aviation Inc., a Houston-based aviation services company, to secure aircraft maintenance, repair, and overhaul contracts with Mexican government-owned customers.  All six defendants were sentenced during the first six months of 2017 as follows: Ernesto Hernandez Montemayor – 24 months in prison; Douglas Ray – 18 months in prison, plus $590,000 in restitution; Ramiro Asencio Nevarez – 15 months in prison; Victor Hugo Valdez Pinon – 12 months and one day in prison; Kamta Ramnarine – 3 years’ probation; and Daniel Perez – 3 years’ probation. Magyar Telekom Defendants As reported in our 2011 Year-End FCPA Update, in December 2011 the SEC brought civil FCPA charges against three former executives of Magyar Telekom, Plc.  The unsettled enforcement action has for the past five-plus years made slow but steady progress towards what would have been the first FCPA trial ever involving the SEC.  But it was not to be as, one by one, each of the three defendants reached an out-of-court settlement as follows: Elek Straub– $250,000 civil penalty, plus five-year officer and director bar; Andras Balogh – $150,000 civil penalty, plus five-year officer and director bar; and Tamas Morvai – $60,000 civil penalty. Amadeus Richers Extradited from Panama We have been reporting for years on the long-running FCPA and money laundering prosecutions stemming from the alleged corruption of officials from state-owned Telecommunications d’Haiti (“Haiti Teleco”), though the case has been quiet for some time.  That changed in February 2017, when  Amadeus Richers, the former director of two Florida telecommunications companies, was extradited from Panama to face the FCPA, wire fraud, and money laundering charges we first reported on in our 2011 Year-End FCPA Update. A change of plea hearing has been scheduled in the U.S. District Court for the Southern District of Florida for July 19, 2017, at which Richers is expected to enter a guilty plea to some or all charges.  Two other Haiti Teleco defendants, Washington Vasconez Cruz and Cecelia Zurita, remain outside the jurisdiction of the Court. Dmitry Firtash Extradition Litigation In another long-running FCPA case with an extradition angle, early 2017 saw developments in the 2013 indictment of Ukrainian billionaire Dmitry Firtash on charges that he authorized $18.5 million in bribes to government officials in India to procure mining rights.  As noted in our 2015 Mid-Year FCPA Update, the Austrian trial court before which Firtash was presented after being arrested at DOJ’s request rejected the aggressive assertion of jurisdiction over conduct undertaken almost exclusively by foreign nationals outside U.S. borders and denied the U.S. extradition request. In February 2017, an Austrian appeals court reversed the trial court’s decision, thereby authorizing Firtash’s extradition to the United States.  In another setback for Firtash, he was almost immediately re-arrested by Austrian police—this time based on a warrant issued by authorities in Spain, where he reportedly faces additional money laundering charges.  The Austrian Ministry of Justice will determine whether and where to extradite Firtash.  In a statement, his lawyers suggested that they will escalate the matter to Austria’s Supreme Court and to the European Court of Human Rights.  Meanwhile, on May 9, 2017, Firtash moved in the U.S. District Court for the Northern District of Illinois to dismiss the U.S. indictment, arguing inappropriate venue, that the laws he is charged with violating have no extraterritorial effect, and that “the prosecution is a violation of [his] due process rights because the United States has no legitimate interest in prosecuting the charged conduct.”  DOJ is scheduled to respond by July 17, 2017. John Doe Litigation over “LNG Consultant” Reference in Charging Document Taking the prize for new development in an old FCPA case during the first half of 2017 was a decision by the U.S. Court of Appeals for the Fifth Circuit tied to the September 2008 FCPA guilty plea by former Kellogg, Brown & Root, Inc. Chairman and CEO Albert Stanley.  The charges against Stanley mentioned an unidentified “LNG Consultant” as allegedly involved in the corruption scheme. In August 2015, the LNG Consultant filed a “John Doe” complaint in the U.S. District Court for the Southern District of Texas alleging that DOJ violated his due process rights by accusing him in connection with Stanley’s guilty plea and sentencing.  Doe requested a declaration that his rights had been violated and an expungement of the prosecutorial statements that allegedly identified and accused him of criminal conduct.  The District Court granted DOJ’s motion to dismiss on grounds that Doe’s claim was time barred. On April 11, 2017, the Fifth Circuit (Owen, J.) affirmed the dismissal, finding that the six-year statute of limitations for an expungement claim begins to run when the government purportedly accuses an individual of criminal activity even without indicting him.  Because the indictment was filed in 2008 and the lawsuit not filed until 2015, the claim was untimely. 2017 MID-YEAR KLEPTOCRACY FORFEITURE ACTIONS DOJ’s Kleptocracy Asset Recovery Initiative uses civil forfeiture actions to freeze, recover, and, in some cases, repatriate the proceeds of foreign corruption.  In remarks delivered at the American Bar Association National Institute on White Collar Crime in March 2017, Acting Assistant Attorney General Kenneth Blanco stated that DOJ’s “white collar criminal enforcement efforts[, including its] Kleptocracy efforts[,] are only becoming more pronounced with each passing year.”  In his remarks, he specifically noted DOJ’s efforts with respect to 1Malaysia Development Berhad (“1MDB”)—the Malaysian sovereign wealth fund focused on promoting economic development in the country—which saw additional activity in the first half of the year. As reported in our 2016 Year-End FCPA Update, in July 2016, DOJ filed civil forfeiture complaints seeking the forfeiture of more than $1 billion in assets associated with 1MDB.  According to the complaints, from 2009 through 2015, government officials and their associates misappropriated billions from 1MDB.  On December 21, 2016, certain family members referenced in the forfeiture complaints filed motions to dismiss the actions, advancing arguments that the Court lacks jurisdiction, venue is improper, and DOJ has failed to adequately plead a predicate offense.  On February 22, 2017, the Honorable Dale S. Fischer of the U.S. District Court for the Central District of California denied the motions while also approving a cooperation agreement between the government and investors that will enable the development of a midtown Manhattan hotel partially financed by money allegedly misappropriated from 1MDB. In June 2017, DOJ sought the forfeiture of another $540 million in assets, including property, jewelry, artwork, and the rights to the 2014 film Dumb and Dumber To.  Already the largest single action brought by the Kleptocracy Initiative when filed in 2016, DOJ now has moved against some $1.7 billion in assets allegedly tied to 1MDB. 2017 MID-YEAR FCPA SPEAKERS’ CORNER U.S. anti-corruption enforcement personnel continued to be active on the speaking circuit during the first half of 2017.  The common theme trumpeted through the vast majority of these speeches was that the Trump Administration remains committed to enforcing the FCPA. Attorney General Jeff Sessions:  In a speech at the Ethics and Compliance Initiative’s Annual Conference in Washington, D.C., on April 24, 2017, Sessions described FCPA enforcement as a “critical” part of DOJ’s focus.  He said that DOJ “will continue to strongly enforce the FCPA and other anti-corruption laws.  Companies should succeed because they provide superior products and services, not because they have paid off the right people.” SEC FCPA Unit Acting Chief Charles Cain:  In a February 24, 2017 speech at the 46th annual SEC Speaks conference in Washington, D.C., the experienced and talented Cain discussed anticipated FCPA enforcement trends for 2017.  He predicted that the SEC would bring “more significant cases,” particularly in the financial services sector, and use cooperation tools, such as non-prosecution and deferred prosecution agreements. SEC Commissioner Michael Piwowar:  Speaking at the same SEC Speaks conference, then-Acting SEC Chairman Piwowar focused on the “forgotten investor” and discussed why the assessment of penalties against corporations for securities violations is not always appropriate, because investors often are harmed by such penalties.  Nevertheless, Piwowar acknowledged that, in certain circumstances, including FCPA violations, corporate penalties are warranted.  He said, “I am generally comfortable with assessing civil monetary penalties in Foreign Corrupt Practices Act cases.  According to academic literature, there is evidence that when such violations are revealed to the market, the stock price does not always fall, and may even increase.” DOJ Criminal Division Deputy Assistant Attorney General Trevor McFadden:  McFadden, a Gibson Dunn alum and recent nominee for the federal district court bench in Washington, D.C., was by far the most prolific U.S. government speaker on the anti-corruption circuit in early 2017.  At several different events, McFadden emphasized DOJ’s commitment to “vigorously” enforce the FCPA to “creat[e] an even playing field for honest businesses.”  In an April 18, 2017 speech at the Anti-Corruption Export Controls & Sanctions 10th Compliance Summit, McFadden noted the increasing trend of international cooperation and global resolutions, including apportionment of penalties between jurisdictions, for transnational misconduct.  McFadden reiterated these priorities and trends days later in an April 20 speech at the American Conference Institute’s (“ACI”) 19th Annual Conference on the FCPA, during which he said FCPA enforcement is “as alive as ever” and described international cooperation as a “hallmark” of DOJ’s work.  Later, in a May 24 speech at ACI’s 7th Brazil Summit on Anti-Corruption in São Paulo, Brazil, McFadden emphasized DOJ’s increasing cooperation with international counterparts—including those in Brazil, which he described as “one of [DOJ]’s closest allies in the fight against corruption”—and noted that DOJ will be detailing an anti-corruption prosecutor to the UK’s Financial Conduct Authority. DOJ Criminal Division Acting Assistant Attorney General Kenneth Blanco:  Speaking at the ABA’s National Institute on White Collar Crime on March 10, 2017, Blanco also discussed DOJ’s continued commitment to FCPA enforcement.  In addition to his remarks concerning the FCPA Pilot Program discussed above, he described how more and more countries are rigorously enforcing anti-corruption laws, leading to a proliferation of cross-border cooperation in investigations and enforcement. 2017 MID-YEAR FCPA-RELATED PRIVATE CIVIL LITIGATION Although it is clear that the FCPA currently provides no private right of action (as described below, a bill has been reintroduced in the House of Representatives to change this), a variety of other causes of action have been used—with varying degrees of success—to seek private redress in U.S. courts for losses allegedly associated with public corruption abroad.  A selection of matters with developments in the first half of 2017 follows. Shareholder Lawsuits Shareholder litigation frequently follows a company’s announcement of an FCPA event, such as a settlement with governmental authorities or even just the disclosure of an investigation.  The most frequent vehicles are as a class action brought on behalf of shareholders whose stock value has dropped allegedly as a result of the misconduct or as a shareholder derivative suit brought against the company’s directors for allegedly violating their fiduciary duties to ensure corporate compliance.  Examples with developments during the first half of 2017 include: General Cable Corporation – On January 5, 2017, a shareholder filed a putative class action lawsuit against General Cable and certain of its executives, alleging, among other things, that the company failed to disclose that it paid millions of dollars in bribes to foreign officials and that each of General Cable’s eventual disclosures caused stock prices to fall.  This suit followed General Cable’s December 2016 resolution with DOJ and the SEC outlined in our 2016 Year-End FCPA Update.  The case, originally filed in the U.S. District Court for the Southern District of New York, was then promptly transferred by consent to the U.S. District Court for the Eastern District of Kentucky, where General Cable is headquartered.  Various law firms are currently jostling to take control as lead class counsel. PTC Inc. – In March 2016, PTC investors filed a putative class action lawsuit in the U.S. District Court for the District of Massachusetts alleging, among other things, that PTC failed to disclose the full results of its investigation into whether its Chinese subsidiary violated the FCPA, which ultimately led to PTC’s FCPA settlements with DOJ and the SEC as discussed in our 2016 Mid-Year FCPA Update.  On March 23, 2017, Judge William G. Young of the District of Massachusetts issued a preliminary approval order for a proposed class action settlement to resolve all claims for $2.1 million.  The final approval hearing is set for July 13, 2017. Centrais Electricas Brasileiras SA (“Electrobras”) – On March 27, 2017, the Honorable John G. Koeltl of the U.S. District Court for the Southern District of New York declined to dismiss the majority of a putative shareholder class action against Brazilian government-controlled electric utility Electrobras, in which plaintiffs allege that Electrobras participated in a bribery and bid-rigging scheme and misled investors by making false statements about the company’s ethics and financial well-being.  Judge Koeltl held that plaintiffs had adequately pleaded the allegations, as well as allegations that Electrobras acted with intent.  The Court dismissed claims against Electrobras’s former CEO, holding that plaintiffs failed to adequately allege that he knew of false information in a code of ethics he signed.  Plaintiffs are currently moving for class certification. Sociedad Química y Minera de Chile (“SQM”) – As noted above, SQM in January 2017 settled dual FCPA enforcement actions with DOJ and the SEC.  Two months later, on March 28, the Honorable Edgardo Ramos of the U.S. District Court for the Southern District of New York denied SQM’s motion to dismiss a putative class action based on allegedly false statements concerning the company’s compliance with law and the effectiveness of its internal controls.  The Court also denied SQM’s motion to dismiss for forum non conveniens.  SQM has since answered the complaint and the parties are headed into discovery. Petróleo Brasileiro S.A. – Petrobras – Our 2016 Year-End FCPA Update noted that Petrobras’s shareholder litigation in the U.S. District Court for the Southern District of New York had been stayed pending the resolution of an interlocutory appeal challenging class certification.  On July 7, 2017, the Second Circuit vacated Judge Rakoff’s ruling that the plaintiffs satisfied the predominance requirement under Rule 23(b)(3), holding that the district court failed to verify the domesticity of the transactions as required by Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010).  The Second Circuit affirmed Judge Rakoff’s ruling that the class was entitled to a presumption of reliance under Basic Inc. v. Levinson, 485 U.S. 224 (1988).   Employee Dodd-Frank Whistleblower Lawsuits In our 2016 Year-End FCPA Update, we discussed the potential overlap of Dodd-Frank whistleblower litigation and the FCPA that can arise when former employees claim they were fired or otherwise discriminated against in their employment based on protected reports of FCPA violations.  One example we noted was the case brought by former Bio-Rad Laboratories, Inc. general counsel Sanford S. Wadler.  On February 7, 2017, after a three-week trial that made public much of the company’s internal investigation leading to the FCPA settlement covered in our 2014 Year-End FCPA Update, a jury empaneled in the U.S. District Court for the Northern District of California found that Bio-Rad and its CEO violated federal and state whistleblower protections when it terminated Wadler for allegedly reporting FCPA concerns to management and the Board.  The jury awarded Wadler $2.96 million in lost wages, to be doubled under Dodd-Frank, in addition to $5 million in punitive damages for Wadler’s state law wrongful termination claim.  Additionally, the parties agreed to more than $3.5 million in attorneys’ fees to be awarded to Wadler.  The Honorable Joseph C. Spero denied defendants’ motion to vacate the jury’s verdict on May 10, 2017, and Bio-Rad has appealed to the Ninth Circuit Court of Appeals. Employee Defamation Action In April 2017, the U.S. District Court for the Northern District of Indiana ruled on Zimmer Biomet‘s motion to dismiss a defamation lawsuit filed by Alejandro Yeatts, a former employee of Biomet’s Argentinian subsidiary who appears to have been caught up in the company’s reinvestigation of Brazilian misconduct leading to the DOJ and SEC FCPA settlements described above.  Yeatts alleged that the parent company’s chief compliance officer and general counsel sent an e-mail accusing Yeatts of engaging in criminal activity and thereby including him on a “Restricted Parties List” of persons with whom Zimmer Biomet could not conduct business.  The Honorable Michael G. Gotsch dismissed related intentional and negligent infliction of emotional distress claims, but denied the company’s motion to dismiss the defamation claims.  Notably, the Court opted not to convert the motion to dismiss to a motion for summary judgment (as requested by Zimmer Biomet) and therefore declined to address Yeatts’s alleged release of all claims against the company in connection with a settlement agreement he executed upon his separation. Civil Fraud / RICO Actions On February 14, 2017, the Government of Bermuda initiated a Racketeer Influenced and Corrupt Organizations Act (“RICO”) action in the U.S. District Court for the District of Massachusetts against Lahey Clinic, Inc. and Lahey Clinic Hospital, Inc.  Bermuda alleges that, for nearly two decades, the defendants conspired with Dr. Ewart Brown—the former Premier of Bermuda, a member of Bermuda’s Parliament, and owner of two private health clinics in Bermuda—in a scheme to bribe Brown in exchange for preferential treatment in government healthcare contract bids, access to patients, and millions of dollars in medically unnecessary tests.  The defendants moved to dismiss the RICO suit in April 2017, arguing, among other things, that Bermuda failed to allege with particularity any official acts Brown took to benefit the defendants.  In May, 11 Bermudian legislators filed an amicus curiae brief, arguing that the statute of limitations on Bermuda’s claims has expired and that the lawsuit is politically motivated in light of Bermuda’s upcoming general election in 2018.  The motions are currently pending before the Court. The shareholder litigation noted above is not the only lawsuit filed against Petróleo Brasileiro S.A. – Petrobras stemming from its alleged involvement in the Operation Car Wash scandal.  In another such action, eight investment funds and their investment advisor filed a civil fraud suit in the U.S. District Court for the District of Columbia alleging that they financed an entity embroiled in the corruption scheme to the tune of hundreds of millions of dollars, then lost their investment when the scandal broke and the entity went bankrupt.  On March 30, 2017, the Honorable Amit P. Mehta largely denied Petrobras’s motion to dismiss, finding in significant part that the plaintiffs had standing, the District of Columbia was not an overly inconvenient forum for litigating the dispute, Petrobras was not immune from civil lawsuit under the Foreign Sovereign Immunities Act, and plaintiffs adequately pleaded fraud and conspiracy claims against Petrobras.  The district court litigation is presently stayed pending Petrobras’s interlocutory appeal to the U.S. Court of Appeals for the District of Columbia Circuit. FOIA Litigation We have been covering for several years the Freedom of Information Act (“FOIA”) lawsuit filed by media organization 100Reporters LLC against DOJ in the U.S. District Court for the District of Columbia.  100Reporters is seeking records relating to DOJ’s 2008 FCPA resolution with Siemens AG and the monitorship reports prepared by Dr. Theo Waigel and his U.S. counsel, F. Joseph Warin of Gibson Dunn. On March 31, 2017, the Honorable Rudolph Contreras issued a comprehensive 73-page opinion that partly grants and partly denies defendants’ motions for summary judgment and denies in its entirety 100Reporters’ cross-motion for summary judgment.  Notably, the Court accepted Gibson Dunn’s position on behalf of Dr. Waigel that the “consultant corollary” to the deliberative process privilege may extend to communications between a government agency and an independent monitor and thereby shield information from disclosure under FOIA Exemption 5.  This is the first time a court has applied the consultant corollary to a compliance monitor.  The Court denied summary judgment on these grounds because DOJ did not specifically identify the deliberative process at issue with respect to each type of documents withheld by DOJ, but will allow DOJ, Siemens, and Dr. Waigel to submit further affidavits to support this argument.  The Court has also ordered DOJ to submit a copy of one monitorship work plan and one monitorship report for in camera review to assess whether any of the withheld materials can be segregated from non-exempt material. As discussed in our 2016 Year-End FCPA Update, on December 9, 2016, Just Anti-Corruption journalist Dylan Tokar filed a FOIA lawsuit in the U.S. District Court for the District of Columbia challenging DOJ’s failure to respond to his request seeking the names of monitor candidates for 15 companies that resolved FCPA allegations with a monitorship requirement, as well as information about the DOJ committee responsible for evaluating and ultimately selecting monitors.  On January 27, 2017, DOJ provided Tokar with the names of the firms associated with the candidates, as well as the names of members of the DOJ committee, but DOJ continues to withhold the names of the monitorship candidates on privacy grounds.  DOJ’s motion for summary judgment is currently due on July 19, 2017. 2017 MID-YEAR LEGISLATIVE DEVELOPMENTS After a relative break in recent years in legislative developments pertinent to the FCPA, the first half of 2017 saw three such developments relevant to FCPA enforcement. Foreign Business Bribery Prohibition Act of 2017 (H.R. 1549):  U.S. Representative Ed Perlmutter (D-Colo.) reintroduced a bill substantially the same as the one he proposed in 2016 (and before that, in 2011, 2009, and 2008), which would “authorize certain private rights of action under the [FCPA] for violations that damage certain businesses.”  As discussed in our 2009 Mid-Year FCPA Update, this legislation would create a private right of action enabling individuals and entities subject to the FCPA to sue foreign concerns not subject to the statute for actions that would be FCPA violations if the jurisdictional element of the statute were satisfied.  Successful plaintiffs would be awarded treble damages (and attorneys’ fees and costs) for the value of any contract that they lost because of the defendants’ corrupt practices or for the value of any contract that the defendants thereby gained.  Because the bill implicates issues under the jurisdiction of the House Judiciary, Financial Services, and Energy and Commerce Committees, portions of it were assigned to each committee in March 2017.  There has been no action on the bill since it was referred to the House Subcommittee on the Constitution and Civil Justice in March 2017. Dodd-Frank Section 1504 & SEC Rule 13q-1 (Extractive Resource Payments):  Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) requires drilling and mining companies to disclose, on a project-by-project basis, any non-de minimis payments made to the U.S. federal government or any foreign governmental entity for the purpose of commercial resource development.  Although Dodd-Frank became law in 2010, the SEC implemented Section 1504’s disclosure provisions in July 2016 by adopting Rule 13q-1, which would have required most companies to begin disclosing payments of greater than $100,000 in 2019 (an earlier version of the rule was struck down by the U.S. District Court for the District of Columbia upon challenge by Gibson Dunn on behalf of the U.S. Chamber of Commerce and other industry groups).  Because Rule 13q-1 was adopted late in President Obama’s second term, it was subject to the Congressional Review Act, which allows Congress to strike down end-of-term regulations with a simple majority vote.  In February 2017, the Republican-controlled Congress did just that in a joint resolution that President Trump signed on February 14, 2017.  The Administration concluded that Rule 13q-1 “would impose unreasonable compliance costs on American energy companies” and potentially create for American businesses “a competitive disadvantage in cases where their foreign competitors are not subject to similar rules.”  Given these comments, and that the Congressional Review Act prohibits reissuance of Rule 13q-1 (or a similar rule) without specific authorization by a subsequently enacted law, the SEC is unlikely to promulgate new implementing regulations for Section 1504 in the near term. Financial CHOICE Act of 2017 (H.R. 10):  Legislation currently working its way through Congress would repeal many provisions of Dodd-Frank, including Section 1504.  On June 8, 2017, the House of Representatives voted 233-186 along party lines to pass H.R. 10, Representative Jeb Hensarling’s (R-Tex.) Financial CHOICE Act of 2017 (CHOICE Act 2.0).  As detailed in a recent Gibson Dunn Client Alert, the bill would dramatically scale back Dodd-Frank and overhaul the administrative state by, among other things, placing major constraints on the Consumer Financial Protection Bureau and reining in the SEC’s enforcement authority.  The bill would completely repeal Dodd-Frank Section 1504, while also significantly increasing statutory criminal fines for FCPA anti-bribery violations—$4 million for issuers (up from $2 million) and $250,000 for individuals (up from $100,000)—though, as a practical matter, criminal fines are in most criminal cases governed by the Alternative Fines Act, which allows for financial penalties of up to twice the gain or loss of the activity.  2017 MID-YEAR INTERNATIONAL ANTI-CORRUPTION DEVELOPMENTS New World Bank Integrity Vice President In April 2017, the World Bank announced that Chief Suspension and Debarment Officer Pascale Hélène Dubois would succeed Leonard McCarthy as World Bank Group Integrity Vice President, effective July 1, 2017.  Ms. Dubois is extremely knowledgeable and has a wealth of experience.  The Bank’s Integrity Vice Presidency (“INT”) investigates and seeks sanctions with respect to misconduct in Bank-funded activities.  This will be somewhat of a change for Dubois, who in her prior role served as an independent check on INT by reviewing its allegations for sufficiency. In her new role, Dubois will lead a unit that, as we have been reporting for several years now, is playing an increasingly robust global enforcement role.  Under McCarthy’s leadership, between Fiscal Year 2008 and Fiscal Year 2016, more than 400 entities and individuals were sanctioned and a number of new functions were added within INT, including an Integrity Compliance Office, which monitors sanctioned companies’ satisfaction of conditions for release from debarment. Australia In the first half of 2017, the Australian government introduced proposals to amend the country’s foreign bribery law and implement a deferred prosecution agreement scheme similar to those in place in the United States and United Kingdom.  On the enforcement front, the Victorian Supreme Court upheld civil charges arising from the U.N. Oil-for-Food Program (“OFFP”). Australia’s Criminal Code prohibits foreign bribery and implements the country’s obligations as a party to the OECD Anti-Bribery Convention.  On April 4, 2017, the Australian Minister for Justice released a public consultation paper, proposing amendments to both refine the existing law and introduce two new offenses for:  (1) recklessly bribing a foreign official; and (2) failing to prevent bribery.  For the latter, like the UK Bribery Act, a company that failed to implement adequate procedural safeguards could be strictly liable for bribes by employees, contractors, and agents.  The deadline for commentary on the amendments closed on May 1—notably including criticism from the Law Council of Australia (the top national representative body of the Australian legal profession), that the recklessness offense would be out of step with UK and U.S. law—and the government is now giving further consideration to the proposed amendments in light of the feedback received. On March 31, 2017, the Australian government issued a separate consultation paper, inviting comment on a proposed corporate deferred prosecution scheme.  Under the proposed approach, prosecutors could agree to defer charges if a company complies with conditions aimed at rectifying the harm and preventing further wrongdoing.  Key features of the proposed scheme include:  (1) it would apply only to a list of economic crimes, including foreign bribery; (2) prosecutors would have discretion with respect to offering these agreements, but the government would publish factors to guide those decisions; (3) deferred prosecution agreements may include financial penalties and costs of administration; and (4) independent monitors may be appointed to assure compliance with an agreement.  The commentary period closed on May 1, with a strong measure of support.  For more on this development, we direct our readers to our forthcoming 2017 Mid-Year Update on Corporate NPAs and DPAs, which will be released on July 11, 2017. In April 2017, the Victorian Supreme Court upheld a civil charge brought by the Australian Securities and Investment Commission (“ASIC”) alleging that former Chairman and Director of the Australian Wheat Board (“AWB”) Trevor Flugge failed to exercise due care and diligence in connection with AWB sales in Iraq under the OFFP.  As our longtime readers will recall, a U.N. commission headed by Paul Volcker identified massive amounts of illicit surcharges imposed by the Iraqi government in connection with OFFP contracts in violation of U.N. sanctions.  After the AWB was singled out in these reports, Australia established a Royal Commission to investigate, resulting in civil charges by ASIC against Flugge and another former senior AWB official, Peter Geary.  The Victorian Supreme Court ultimately dismissed charges against both defendants alleging they knew that the fees in question violated U.N. sanctions, but with respect to Flugge only found that he breached his duty to exercise reasonable care by failing to inquire into the AWB’s transportation fee payments after being informed in 2000 that the U.N. was examining whether the AWB was making improper payments.  The Court imposed a fine of AUD 50,000 and barred Flugge from managing a corporation for five years. Europe United Kingdom The first half of 2017 saw a new high-water mark for foreign bribery enforcement in the United Kingdom, with the largest fine and disgorgement of profits ever imposed for violations of the UK’s anti-corruption laws.  For much more on anti-corruption enforcement in the UK, we direct our readers to our forthcoming 2017 Mid-Year UK White Collar Crime Alert, which will be released on July 17, 2017. Rolls-Royce plc As noted above, on January 17, 2017, Rolls-Royce received a deferred prosecution agreement in the largest UK criminal corporate enforcement action ever.  According to the public allegations, which involved counts under both the Prevention of Corruption Act 1906 and Bribery Act 2010, as well as false accounting charges, the company for three decades offered, paid, or failed to prevent bribes involving the sale of engines, energy systems, and related services in seven foreign jurisdictions—China, India, Indonesia, Malaysia, Nigeria, Russia, and Thailand.  The UK Serious Fraud Office (“SFO”) opened an inquiry after a whistleblower’s blog made allegations against the company’s civil aviation business in China and Indonesia, at which point a significant internal investigation was launched and the company began cooperating with the SFO.  Four years later, the company agreed to pay £258 million in disgorgement, a £239 million financial penalty, and the SFO’s investigative costs of approximately £13 million.  While Rolls-Royce received a 50% discount on its penalty because of its significant cooperation, which included a limited waiver of privilege for certain materials, combined with its settlements with DOJ and Brazil’s Ministério Público Federal, Rolls-Royce will pay approximately £671 million in all. The Rolls-Royce deferred prosecution agreement is the fourth awarded in the UK.  For an in-depth analysis of the Rolls-Royce deferred prosecution agreement, we direct our readers to our forthcoming 2017 Mid-Year Update on Corporate NPAs and DPAs, which will be released on July 11, 2017. Former EBRD Banker Who Received FCPA Bribes On June 8, 2017, following a five-week trial, former European Bank for Reconstruction and Development (“EBRD”) banker Andrey Ryjenko was convicted on Prevention of Corruption Act 1906 charges.  He was subsequently sentenced to six years for receiving more than $3.5 million in bribes to approve loans to finance gas and oil projects in former Soviet states.  The payer of those bribes, Dmitrij Harder, was convicted on FCPA charges in April 2016, as covered in our 2016 Mid-Year FCPA Update.  Harder testified against Ryjenko in the UK trial and is scheduled to be sentenced in U.S. court on July 18, 2017. F.H. Bertling Limited Between April and May 2017, the SFO announced charges against logistics and freight operations company F.H. Bertling Limited and seven individuals (Georgina Ayres, Colin Bagwell, Stephen Emler, Christopher Lane, Robert McNally, Giuseppe Morreale, and Peter Smith) pertaining to an alleged conspiracy to “give or accept corrupt payments for assisting F.H. Bertling Ltd in being awarded or retaining contracts for the supply of freight forwarding services relating to a North Sea oil exploration project.”  The offenses are alleged to have taken place between January 2010 and May 2013.  These charges are in addition to those announced in July 2016 pertaining to F.H. Bertling and individuals relating to an alleged conspiracy to bribe an agent of Angolan state-oil-company Sonangol, discussed in our 2016 Year-End FCPA Update. Norwegian Official Convicted for Receipt of Bribes As reported in our 2015 Mid-Year FCPA Update, in January 2015, the SFO brought its first foreign-bribery case under the Bribery Act 2010 relating to a bribe allegedly paid to a Norwegian official to procure the sale of decommissioned naval vessels.  It is alleged that the official, Bjorn Stavrum, was paid to help hide from Norwegian authorities the real destination of the vessels, which were being sold to a former Nigerian warlord.  The joint investigation with Norwegian authorities led to the arrest of Stavrum and three British nationals.  In May 2017, Stavrum was convicted by a Norwegian court, and sentenced to nearly five years in prison. France Our recent check-ins concerning anti-corruption developments in France have centered around the passage into law of the Loi Sapin II anti-corruption legislation.  During the first half of 2017, there were enforcement developments (relating to other statutory regimes) to report on. In June 2017, Teodoro Nguema Obiang Mangue, the son of the President of Equatorial Guinea, went on trial in France for allegedly embezzling more than $112 million from his country’s treasury.  Obiang is the Second Vice President of Equatorial Guinea, and has claimed immunity from prosecution based on his current position.  Obiang earned less than $100,000 a year while serving as minister of agriculture and forestry in his father’s government, but during this same period allegedly spent $225 million abroad.  The trial is ongoing and expected to conclude in early July.  As reported in our 2014 Year-End FCPA Update, Obiang settled a 2011 Kleptocracy forfeiture action against Obiang’s property worth approximately $70 million.  French authorities have seized his $28 million Paris mansion, luxury cars, and his art collection in connection with the current proceedings. Also in June 2017, it was reported that the Paris Court of Appeals held that the French corruption prosecution of British-Israeli lawyer Jeffrey Tesler is precluded by a 2011 plea agreement entered in U.S. court.  As covered in our 2011 Mid-Year FCPA Update, Tesler was extradited to the United States where he pleaded guilty to FCPA bribery and conspiracy charges and served nearly a year in U.S. prison.  As is typical in U.S. plea agreements, Tesler waived his right to challenge the agreed-upon facts in any future proceeding.  French prosecutors also charged Tesler in 2012 in connection with the same course of conduct, but in late 2016 the Court of Appeals deemed that this prosecution was precluded because his inability to contest the statement of facts from the FCPA plea agreement deprived him of his right against self-incrimination in the French proceedings. Germany On June 2, 2017, the German Parliament (Bundestag) passed a law to establish a federal register of companies convicted of certain offenses, including bribery, money laundering, tax evasion, and breaches of competition law.  The legislation requires public authorities to consult the register before tendering contracts in excess of €30,000 and enables them to exclude blacklisted companies.  In light of the lack of corporate criminal liability under German law, a company will be registered based upon a criminal act by a corporate executive acting on behalf of the company.  Records will generally be stored for up to five years, although the Federal Antitrust Authority (Bundeskartellamt), which will administer the database, may delete an entry early if the company has established its remediation in view of the misconduct.  The draft bill, which has received some criticism based on the possibility of inaccurate entries, still needs to pass the German upper house (Bundesrat). Other 2017 developments that may impact anti-corruption issues in Germany include a new tool launched by the European Commission in March to make it easier for individuals to alert the Commission about cartels and other competition violations and the entry into force in April of Germany’s “law to strengthen companies’ non-financial disclosure in their management reports and group management reports” (Gesetz zur Stärkung der nichtfinanziellen Berichterstattung der Unternehmen in ihren Lage- und Konzernlageberichten), which law adopts EU Directive 2014/95/EU.  With respect to the latter Corporate Social Responsibility Directive, reporting of a covered company’s anti-corruption activities may consist of a description of the processes and controls implemented by the company to prevent as well as detect corrupt behavior. Romania On January 31, 2017, Romania’s government, under Prime Minister Sorin Grindeanu, passed “Emergency Ordinance 13,” which repealed the previous law’s criminalization of official misconduct involving financial damage of less than £38,000.  Tens of thousands of anti-corruption protestors flooded the streets of Bucharest (and thousands in other Romanian cities), leading Grindeanu to withdraw the ordinance less than a week later.  Perhaps bolstered by the public outcry, the National Anti-Corruption Directorate continues to aggressively investigate local politicians and international companies alike. Russia On March 26, 2017, thousands of anti-corruption protesters took to the streets of Moscow, St. Petersburg, and more than 80 other Russian cities led by Alexei Navalny, the most prominent opposition figure in Russia.  Despite efforts by Navalny and his supporters to register these planned marches and to obtain permission from the municipal governments, most cities denied these requests and, as a result, many of the marches were unsanctioned and led to arrests of hundreds of participants.  Navalny himself was jailed 15 days for resisting arrest. The impetus behind the March 26 marches was a documentary released on YouTube earlier that month by Navalny and his Anti-Corruption Fund titled, “He Is Not Dimon to You.”  In the film, Navalny discusses the findings of his investigation into the wealth of Dmitry Medvedev, Russia’s current prime minister and former president.  Navalny alleges that Medvedev oversees and profits from a complex, multi-tier corruption scheme and also uses a number of non-profit companies and companies registered under other names to conceal his real estate holdings.  Despite public pressure and demands, Russian investigators thus far have not opened an official investigation, and government officials (including Medvedev) have dismissed Navalny’s investigative findings.  Alisher Usmanov, a billionaire who, according to Navalny, “gifted” to Medvedev a luxury residence, filed a lawsuit against Navalny and his Anti-Corruption Fund.  A court in Moscow ruled in Usmanov’s favor on all counts and ordered Navalny to take down his investigative films, as well as the hosting websites, and to issue a public repudiation with respect to another claim that Usmanov bribed Igor Shuvalov, the First Deputy Prime Minister.  Navalny has vowed to appeal the ruling. Sweden On March 10, 2017, Swedish authorities arrested Evgeny Pavlov, a Russian citizen and sales executive at the Canadian aerospace and transportation company Bombardier, as part of an investigation into corruption in Azerbaijan.  In 2013, Bombardier’s Stockholm-based train division won a $350 million contract to supply Azerbaijan with an interlocking system for railway switches and signals.  Investigators are reportedly probing allegations that Bombardier’s Swedish affiliate sold equipment to a British intermediary, Multiserv Overseas Ltd., which then sold the identical equipment back to Bombardier’s Azerbaijan affiliate at an inflated price.  The reports suggest a link between Multiserv and associates of Vladimir Yakunin, the former president of Russian Railways. Switzerland On February 20, 2017, the Swiss unit of German printing press manufacturer Koenig & Bauer announced that it has entered into a corruption-related settlement with the Office of the Attorney General of Switzerland.  According to the settlement, the company agreed to disgorge 30 million Swiss francs associated with its alleged failure to prevent corruption in connection with contracts in Brazil, Kazakhstan, Morocco, and Nigeria.  Koenig & Bauer also agreed to set up an “integrity fund” aimed at promoting ethical corporate behavior, with a 5 million Swiss franc seed grant.  Due to its reportedly being the first company ever to voluntarily disclose corruption-related conduct to Swiss authorities, the company was fined only 1 franc. Ukraine As of May 31, 2017, the National Anticorruption Bureau of Ukraine (“NABU”) reported that it was in the process of investigating 333 cases, which had resulted in the issuance of 207 notices of suspicion.  These NABU investigations had also led to 108 indictments and 68 criminal court proceedings.  As of May 31, the NABU had assessed approximately 85 billion Ukrainian hryvnias (approximately $3.3 billion) in damages to state property because of corruption.  Nevertheless, press reports suggest that an air of political pressure exerted by corrupt members of the political elite continues to hamper prosecutorial efforts.  This risk is particularly acute given that the special judicial tribunal designed to move corruption cases from the main judiciary will not be established until 2018. The Americas Brazil Brazil remained at the forefront of international anti-corruption enforcement during the first six months of 2017.  Operation Car Wash, the investigation into allegations of corruption related to contracts with state-owned oil company Petrobras, remains a focus with four new phases in 2017.  To date, Brazilian authorities have brought charges against more than 270 individuals and have obtained 141 convictions, with sentences totaling more than 1,428 years in prison. Brazilian authorities, empowered by their success in Operation Car Wash and enjoying strong popular support, are now turning their attention to other allegations of corruption.  On May 30, 2017, on the heels of another multi-billion dollar resolution with Odebrecht S.A. and its petrochemical production subsidiary Braskem S.A. covered in our 2016 Year-End FCPA Update, Brazilian authorities reached a $3.2 billion leniency agreement with J&F Investimentos S.A., the controlling shareholder of Brazilian meatpacker JBS S.A.  Owners Joesley Batista and Wesley Batista entered into leniency agreements with Brazilian authorities and admitted to paying approximately R$600 million (approximately $182 million) to nearly 1,900 politicians to secure financing from pension funds and state-run banks.  These loans and investments allegedly helped JBS grow into an international giant.  The plea bargain testimony states, among other things, that JBS paid millions of dollars in bribes to President Michel Temer and former presidents Dilma Rousseff and Luiz Inácio Lula da Silva.  Notably, Brazil’s Supreme Court has released a recording in which President Temer, secretly recorded by Joesley Batista, appears to condone Batista’s bribing of a potential witness.  Citing this recording, among other things, Attorney General Rodrigo Janot brought corruption charges against President Temer on June 26, 2017, alleging that he accepted a $152,000 bribe from an intermediary for Batista.  If Brazil’s Chamber of Deputies accepts the indictment, President Temer will be suspended from office and tried by the Supreme Court. The investigation of JBS illustrates how broadly Brazilian authorities have expanded their efforts beyond Operation Car Wash.  In addition to Operation Car Wash, JBS is a target of at least four other probes. Canada Enforcement of the Corruption of Foreign Public Officials Act (“CFPOA”) suffered a setback in the SNC-Lavalin Group Inc. prosecutions in Canada that we have been following for the past several years.  In February 2017, more than four years after being charged with CFPOA violations in connection with a multi-billion dollar bridge project in Bangladesh, former Vice President of Energy and Infrastructure Kevin Wallace, former Vice President of International Development Ramesh Shah, and businessperson Zulfiquar Ali Bhuiyan were acquitted.  The Royal Canadian Mounted Police previously dropped its charges against two other defendants, former SNC-Lavalin engineer Mohammad Ismail and former official Abdul Hasan Chowdhury. The RCMP’s case fell apart after Superior Court Justice Ian Nordheimer refused to admit wiretap evidence against Wallace, Shah, and Bhuiyan.  Justice Nordheimer ruled that the initial wiretap application contained “nothing more than speculation, gossip and rumour” in “language that tricks the reader into believing something, the truth of which is, in fact, unknown.”  The Court concluded that, because the “information provided by the tipsters was hearsay (or worse) added to other hearsay,” the wiretaps should never have been approved.  Following this ruling, the prosecution called no witnesses and asked the Court to acquit the three defendants. Colombia On June 27, 2017, Luis Gustavo Moreno Rivera, the head of anti-corruption for Colombia’s Office of the Attorney General, was arrested in Colombia on a provisional arrest warrant alleging that he accepted bribes to obstruct his own corruption investigations.  That same day, U.S. prosecutors charged Moreno and Leonardo Luis Pinilla Gomez, a Colombian attorney who allegedly acted as a middleman for the bribes, in federal court with conspiracy to commit money laundering.  The charges stem from an exchange that occurred in Miami on June 15, 2017.  According to the charging document, while in the United States to give an anti-corruption presentation to the U.S. Internal Revenue Service, Moreno allegedly accepted a $10,000 bribe as a down payment in exchange for obstructing a corruption investigation into a former governor of Colombia’s Cordoba region.  Moreno and Gomez now face extradition to the United States. Mexico As reported in our 2016 Year-End FCPA Update, Mexico enacted new anti-corruption legislation in July 2016.  Most of the legislation went into effect in 2016, but the General Law of Administrative Responsibility (“GLAR”) takes effect on July 19, 2017.  We detailed the GLAR’s key provisions, including liability for a variety of corruption-related offenses and mitigated damages for companies with adequate integrity policies, in our recent client alert Mexico’s New General Law of Administrative Responsibility Targets Corrupt Activities by Corporate Entities. Panama On February 9, 2017, Panamanian authorities arrested Ramón Fonseca and Jürgen Mossack, the co-heads of Panama-based law firm Mossack Fonseca, on money laundering charges related to Brazil’s Operation Car Wash.  Authorities detained a third Mossack Fonseca employee, Edison Teano, and the firm’s former representative in Brazil, Maria Mercedes Riano.  Mossack Fonseca allegedly transferred bribe money connected to Operation Car Wash to Panama and later destroyed evidence.  Brazilian authorities, who first identified Mossack Fonseca as a target of Operation Car Wash in January 2016, have worked closely with Panamanian authorities throughout the investigation. Asia China The first half of 2017 saw several noteworthy developments in China’s anti-corruption laws and enforcement regime, as well as a new focus on financial sector enforcement. The multi-year effort to update the Anti-Unfair Competition Law, the country’s primary civil statute regulating commercial bribery, continued.  Following the set of draft amendments covered in our 2016 Mid-Year FCPA Update, a second set of draft amendments was released for public comment in February 2017.  One difference between the 2016 and 2017 amendments relates to an employer’s vicarious liability for employee misconduct.  The new draft exempts employers from liability if the bribe was an employee’s “personal conduct,” even if it was in the employer’s interest.  Penalties for commercial bribery are another area of change.  The current Anti-Unfair Competition Law imposes fines for commercial bribery of ¥10,000 RMB to ¥200,000 RMB, plus possible confiscation of illegal earnings.  The 2016 draft amendments would have set penalties as 10–30% of illegal revenue, with no cap.  The 2017 draft amendments, in contrast, would set penalties from ¥100,000 RMB to ¥3,000,000 RMB, plus the possibility of having business licenses revoked. China is moving forward with its plan to overhaul its anti-corruption enforcement structure with the creation of a new State Supervision Commission, previously covered in our 2016 Year-End FCPA Update.  The plan would merge existing anti-graft authorities, including the State Council’s Ministry of Supervision and the Chinese Communist Party’s Central Commission for Discipline Inspection (“CCDI”), into one powerful new body.  The State Supervision Commission will become a new branch of government, parallel to the Executive and Judiciary branches.  It will be vested with police and semi-judicial powers, including the power to detain and interrogate not only party cadres suspected of corruption but also civil servants, military personnel, judges, prosecutors, executives of state-owned enterprises, and state hospital personnel.  Pilot programs have now been implemented in Beijing, Shanxi, and Zhejiang, and the operation of the Administrative Supervision Law, certain provisions of the Criminal Procedure Law, and laws relating to prosecutors, local governments, and people’s congresses have been suspended in these locales.  A new State Supervision Law, which will lay out the legal framework for the State Supervision Commission, is slated for consideration later this year and for passage by next March. While structural changes are afoot, President Xi’s anti-corruption campaign continues with a new focus on the financial sector, as seen in a flurry of recent CCDI investigations netting officials of escalating ranks.  For example, in April 2017, China Insurance Regulatory Commission chairman Xiang Junbo, China’s top insurance regulator, was detained and removed from his position reportedly for taking bribes in return for issuing insurance licenses.  Yang Jiacai, assistant chairman of the China Banking Regulatory Commission, was detained and sacked in May for suspected corruption.  Further, Tomorrow Group tycoon Xiao Jianhua and Anbang Insurance chairman Wu Xiaohui both recently disappeared and are thought to be detained by Chinese law enforcement.  The investigation of financial regulators and rumored detention of key figures appear to signal a concerted crackdown on the financial sector. Hong Kong In February 2017, a Hong Kong High Court jury convicted former Chief Executive Donald Tsang on one charge of misconduct in public office relating to Tsang’s dealings with Wave Media shareholder Bill Wong, from whom Tsang rented a penthouse apartment he intended to use as his post-retirement residence.  At the time, Wave Media was applying for a broadcasting license from the Hong Kong government.  Tsang was sentenced to 20 months of imprisonment, because he approved Wave Media’s license and other related applications without disclosing his relationship with Wong. India We reported on the sudden announcement last November to withdraw 500 and 1,000 rupee bank notes as legal tender in our 2016 Year-End FCPA Update.  In January 2017, the Indian government launched “Operation Clean Money” to investigate large cash deposits made into banks in India after the demonetization announcement.  It is reported that it has detected over 54 billion Indian Rupees (more than $830 million) in undisclosed income, which may well lead to corruption investigations in the years to come. South Korea The seismic fallout from anti-corruption investigations continued in South Korea during the first half of 2017.  As reported in our 2016 Year-End FCPA Update, President Geun-Hye Park was impeached in December 2016 amid allegations of influence peddling and corruption.  Massive street protests continued as the Constitutional Court deliberated on the validity of the impeachment vote.  Then, on March 10, 2017, the Court unanimously upheld the impeachment, marking the first successful impeachment of a sitting president in South Korean history.  President Park was subsequently arrested on March 31, 2017, on charges of abuse of power and bribery.  Her trial is ongoing. President Park’s impeachment also shined a light on the actions of Korean conglomerates, known as the chaebol.  On February 16, 2017, Samsung Electronics Vice Chairman Jae-Yong Lee was arrested in connection with allegations that he and his company made payments totaling KRW 43 billion (approximately $37 million) to charitable organizations connected to President Park to secure her administration’s support for a controversial merger between two Samsung entities.  On April 17, 2017, Lotte Group Chairman Dong-Bin Shin was indicted on charges of bribery, with media reporting that the charges stem from allegations that his company provided KRW 7 billion (approximately $6 million) in payments to organizations linked to President Park in an effort to secure lucrative duty-free licenses.  Lee and Shin have both settled in for what are likely to be lengthy court proceedings. Middle East and Africa Israel We reported in our 2016 Mid-Year FCPA Update on a settlement between the Israel Securities Authority and Siemens AG officials in connection with a corruption investigation at state-owned Israel Electric Corporation (“IEC”), pursuant to which Siemens agreed to pay approximately $43 million and appoint an external compliance monitor for its operations in Israel.  In 2017, five former IEC officials—former senior deputy director general David Kohn, former senior deputy CEO Yakov Hain, former engineering and planning department director Yona Schweitzer, former engineering and planning department deputy director Haim Bar-Ner, and former planning department departmental head Zvi Eyal—pleaded guilty in connection with their receipt of improper payments from Siemens’s Israeli subsidiary connected to the power station turbine project under review.  In June 2017, the Tel Aviv District Court sentenced the former officials to prison terms ranging from 28 to 49 months. CONCLUSION As has become our semiannual tradition, over the following three weeks Gibson Dunn will be publishing a series of enforcement updates for the benefit of our clients and friends as follows: Tuesday, July 11 – 2017 Mid-Year Update on Corporate NPAs and DPAs; Wednesday, July 12 – 2017 Mid-Year False Claims Act Update; Monday, July 17 – 2017 Mid-Year UK White Collar Crime Alert; Tuesday, July 18 – 2017 Mid-Year Securities Enforcement Update; Thursday, July 20 – 2017 Mid-Year Securities Litigation Update; Monday, July 24 – 2017 Mid-Year Government Contracts Litigation Update; Tuesday, August 1 – 2017 Mid-Year FDA and Health Care Compliance and Enforcement Update – Providers; Wednesday, August 2 – 2017 Mid-Year E-Discovery Update; Thursday, August 3 – 2017 Mid-Year FDA and Health Care Compliance and Enforcement Update – Drugs and Devices; and Thursday, August 3 – 2017 Mid-Year M&A and Activism Update. The following Gibson Dunn lawyers assisted in preparing this client update:  F. Joseph Warin, John Chesley, Richard Grime, Patrick Stokes, Christopher Sullivan, Cassie Therese Aprile, Liang Cai, Ella Alves Capone, Hanna Chalhoub, Winson Chu, Stephanie Connor, Tanya Fridland, Tzung-Lin Fu, Melissa Goldstein, Jonathan Griffin, Mark Handley, Daniel Harris, William Hart, Patricia Herold, Korina Holmes, Florian von Kampen, Derek Kraft, Sebastian Lenze, Zachariah Lloyd, Lora MacDonald, Andrei Malikov, Coreen Mao, Jesse Melman, Nooree Moola, Laura Musselman, Jaclyn Neely, Virginia Newman, Jeff Rosenberg, Rebecca Sambrook, Katharina Saulich, Nicholas Scheiner, Michael Selkirk, Jason Smith, Pedro Soto, Karthik Ashwin Thiagarajan, Eric Veres, Oleh Vretsona, Caitlin Walgamuth, Oliver Welch, Eric Westlund, and Jutta Wiedemann. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues.  We have more than 110 attorneys with FCPA experience, including a number of former federal prosecutors and SEC officials, spread throughout the firm’s domestic and international offices.  Please contact the Gibson Dunn attorney with whom you work, or any of the following: Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Richard W. Grime (+1 202-955-8219, rgrime@gibsondunn.com) Patrick F. Stokes (+1 202-955-8504, pstokes@gibsondunn.com) Judith A. Lee (+1 202-887-3591, jalee@gibsondunn.com) David P. Burns (+1 202-887-3786, dburns@gibsondunn.com) David Debold (+1 202-955-8551, ddebold@gibsondunn.com) Michael S. Diamant (+1 202-887-3604, mdiamant@gibsondunn.com) John W.F. Chesley (+1 202-887-3788, jchesley@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) Stephanie Brooker (+1 202-887-3502, sbrooker@gibsondunn.com) Stuart F. 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Alfaro (+55 (11) 3521-7160, lalfaro@gibsondunn.com) Fernando Almeida (+55 (11) 3521-7095, falmeida@gibsondunn.com)     © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.  

June 22, 2017 |
Mexico’s New General Law of Administrative Responsibility Targets Corrupt Activities by Corporate Entities

Mexico’s new General Law of Administrative Responsibility ("GLAR") takes effect on July 19, 2017.  The GLAR establishes administrative penalties for improper payments to government officials, bid rigging in public procurement processes, the use of undue influence, and other corrupt acts.[1]  The law reinforces a series of Mexican legal reforms from 2016 that expanded the scope of the country’s existing anti-corruption laws and created a new anti-corruption enforcement regime encompassing all three levels of government (federal, state, and municipal).  Among the GLAR’s most significant changes are provisions that target corrupt activities by corporate entities and create incentives for companies to implement compliance programs to avoid or minimize corporate liability. The GLAR applies to all Mexican public officials who commit what the law calls "non-serious" and "serious" administrative offenses.[2]  Non-serious administrative offenses include the failure to uphold certain responsibilities of public officials, as defined by the GLAR (e.g., cooperating with judicial and administrative proceedings, reporting misconduct, etc.).[3]  Serious administrative offenses include accepting (or demanding) bribes, embezzling public funds, and committing other corrupt acts, as defined by the GLAR.[4]  The GLAR also applies to private persons (companies and individuals) who commit acts considered to be "linked to serious administrative offenses."[5]  A wide array of conduct—including bribery, influence-peddling, improper hiring of former public officials, and collusion in procurement processes conducted by federal, state, and municipal governments—may be considered to be "linked" to serious administrative offenses.[6]  Private companies can be held liable for such conduct when natural persons act on the company’s behalf and attempt to obtain benefits for the company through the wrongdoing.[7]  Only the provisions governing collusion have exterritorial reach, prohibiting misconduct in connection with foreign public procurement processes.[8]  Notably, the GLAR will repeal and replace Mexico’s 2012 Public Contracting Anti-Corruption Law, a decree that established penalties for improper payments in connection with federal procurement processes.[9]  The GLAR, by comparison, will govern a wider array of conduct.  In addition to addressing offenses outside the context of public procurement processes (including improper hiring of former public officials, use of false information, etc.),[10] the GLAR also prohibits payments to a wider range of government officials (including payments to state and municipal officials) and bars collusive behavior by participants in federal, state, and municipal procurement processes.[11]  Mexico’s continued efforts to strengthen anti-corruption enforcement have been building for some time, and they are part of a larger trend of increased anti-corruption enforcement in various countries in Latin America.  From Brazil’s Clean Companies Act and massive Operation Car Wash investigation to anti-corruption reforms in Colombia, Argentina, and Chile, nations across Latin America are not relying on U.S. authorities for stepped-up domestic anti-bribery enforcement.  Regardless of the direction U.S. Foreign Corrupt Practices Act ("FCPA") enforcement takes in 2017, public-driven movements in Latin America have inspired increased anti-corruption reforms, investigations, and prosecutions in the region.  Companies operating in Mexico should review the GLAR’s scope and compliance program incentives with local counsel to assess anti-corruption enforcement risk and identify adjustments to compliance programs that may mitigate liability for potential misconduct. Origins of Mexico’s Anti-Corruption Reforms Fighting corruption was a key element of Mexican President Enrique Peña Nieto’s 2012 campaign platform.[12]  Peña Nieto vowed to create new laws and institutions to combat corruption, and in July 2016, he signed a package of anti-corruption bills into law.  A number of core reforms—including the creation of a National Anti-Corruption System—immediately went into effect, while the GLAR was scheduled for implementation in July 2017.  The National Anti-Corruption System coordinates enforcement efforts across federal, state, and municipal levels to "prevent, investigate, and sanction administrative offenses and acts of corruption."[13]  To that end, it creates a number of bodies to carry out the country’s anti-corruption efforts, including a Coordinating Committee to design and implement new policies.[14]   Prohibited Conduct under the GLAR As previously noted, the GLAR establishes different categories of conduct carrying administrative penalties applicable to Mexican officials.  The GLAR describes "serious" and "non-serious" administrative offenses that can only be committed by Mexican public officials and generally relate to their responsibilities as public servants.[15]  The GLAR also sanctions private persons (corporations and individuals) for acts considered "linked to serious administrative offenses," including the following:  Bribery of a public official (directly or through third parties);[16] Participation in any federal, state, or municipal administrative proceedings from which the person has been banned for past misconduct;[17] The use of economic or political power (be it actual or apparent) on any public servant to obtain a benefit or advantage, or to cause injury to any other person or public official;[18] The use of false information to obtain an approval, benefit, or advantage, or to cause damage to another person or public servant;[19]   Misuse and misappropriation of public resources, including material, human, and financial resources;[20]  The hiring of public officials who were in office the prior year, acquired confidential information through their prior employment, and give the contractor a benefit in the market and an advantage against competitors;[21] and  Collusion with one or more private parties in connection with obtaining improper benefits or advantages in federal, state, or municipal public contracting processes.[22]  Notably, these provisions apply extraterritorially and ban coordination in "international commercial transactions" involving federal, state, or municipal public contracting processes abroad.[23]  The GLAR contains language similar to the FCPA with respect to bribery and influence-peddling, but the law also addresses other issues, such as collusion in public procurement processes and hiring public officials with confidential information.[24]  The prohibitions are rather broad, and there is no facilitating payments exception. Penalties under the GLAR As noted above, the GLAR provides administrative penalties for violations committed by both physical persons and legal entities.  Physical persons who violate the GLAR can be subjected to the following penalties: Economic sanctions (up to two times the benefit obtained, or up to approximately 597,000 USD);[25] Preclusion from participating in public procurements and projects (for a maximum of eight years);[26] and Liability for any damages incurred by any affected public entities or governments.[27] Legal entities, on the other hand, can be fined up to twice the benefit obtained, or up to approximately 5,970,000 USD; precluded from participating in public procurements for up to ten years; and held liable for damages.[28]  The GLAR also creates two additional penalties for legal entities:  suspension of activities within the country for up to three years; and dissolution.[29]  Article 81 limits the ability to enforce these two stiffer penalties to situations where (1) there was an economic benefit and the administration, compliance department, or partners were involved, or (2) the company committed the prohibited conduct in a systemic fashion.[30]  The GLAR’s penalties for physical and legal persons are administrative, rather than criminal.  The GLAR’s "Integrity Program" Provisions Under Article 25, Mexican authorities can take into account a company’s robust compliance "Integrity Program" in determining and potentially mitigating corporate liability under the GLAR.[31]  The law requires the Integrity Program to have at least the following elements: An organization and procedures manual that clearly delineates the functions and responsibilities of each business area and clearly defines the leadership structure and reporting chains; A code of conduct that is publicized and promoted to all members of the organization and consists of effective mechanisms and systems; Adequate and effective control, compliance, and audit systems that provide constant and periodic review of the integrity standards of the entire organization; Adequate self-reporting systems, both internally and outside the company, that delineate the company’s discipline procedures and concrete consequences for prohibited conduct; Adequate systems and programs for training regarding the integrity programs; Human Resources policies that can prevent the inclusion of individuals who could add risk to the integrity of the company; and Mechanisms that ensure transparency regarding the company’s interests.[32]  The U.S. Securities and Exchange Commission ("SEC") and U.S. Department of Justice ("DOJ") highlight many of these same factors—including, for example, policies, training, reporting and disciplinary functions, and ongoing audit and monitoring—in their guidance for typical hallmarks of an effective compliance program.[33]  Yet there are some key differences between the GLAR and the FCPA regarding how a compliance program influences the authorities’ prosecutorial decision-making.  For example, the GLAR’s Integrity Program criteria give weight to a Human Resources policy that carefully reviews and identifies potential employees that could be a risk to the company.  There is no equivalent factor in the FCPA guidance issued by the U.S. authorities and it is not yet clear how Mexican authorities will define and interpret the Human Resources aspect of the GLAR’s Integrity Program provisions.  For example, it is not clear whether this component of the GLAR might apply to the quality and extent of employee background checks undertaken during employee hiring, or whether the GLAR might incentivize companies to conduct periodic Human Resources reviews of current employees who may have incurred disciplinary sanctions for high-risk conduct.  Additional guidance regarding the Human Resources clause and other undefined aspects of the GLAR may become available—through enforcement actions, government statements, or judicial interpretations—once the law becomes effective this year. Self-Reporting and Penalty Reduction The GLAR contains a self-reporting incentive that provides for up to a fifty to seventy percent reduction of penalties for those who report past or ongoing misconduct to an investigative authority.[34]  As previously noted, the GLAR’s nonmonetary sanctions include preclusion from participating in public procurements and projects for up to eight years (for physical persons) or ten years (for companies).[35]  According to the statute, if a person subject to a preclusion sanction self-reports GLAR violations, the preclusion sanction can be reduced or completely lifted by the Mexican authorities.[36]  Requirements for obtaining a reduction of penalties through self-reporting include, but are not limited to, the following: Involvement in an alleged GLAR infraction and being the first to contribute information that proves the existence of misconduct and who committed the violations; Refraining from notifying other suspects that an administrative responsibility action has been initiated; Full and ongoing cooperation with the investigative authorities; and Suspension of any further participation in the alleged infraction.[37] Notably, other participants in the alleged misconduct who might be the second (or later) to disclose information could receive up to a fifty percent penalty reduction, provided that they also comply with the above requirements.[38]  If a party confesses information to the investigative authorities after an administrative action has already begun, that party could potentially receive a thirty percent reduction of penalties.[39] Complementary Anti-Corruption Reforms While the GLAR and its Integrity Program defense are particularly relevant to companies operating in Mexico in 2017, the law is only one component of a broader effort to reform how corruption is penalized.  Other notable reforms undertaken by the Mexican government in the last two years include the establishment of the following: A National Anti-Corruption System that coordinates anti-corruption efforts at the federal, state, and municipal levels of government;[40] Specialized tribunals for administrative responsibility actions contemplated by the GLAR;[41] A specialized and autonomous anti-corruption prosecutor;[42] and Changes to the Federal Criminal Code that, among other reforms, expand the list of acts considered to be "corruption crimes" and impose penalties of up to fourteen years in prison and a fine of 150 days’ salary for any person who "gives, promises, or delivers any benefit" to a "public servant" so that the public servant "commits or omits an act related to their functions, employment, charge, or commission."[43] The GLAR and 2017 Anti-Corruption Enforcement in Mexico It remains to be seen whether the GLAR and Mexico’s other anti-corruption reforms will result in significantly increased enforcement actions.  A 2016 Global Impunity Index study for Mexico published by the Center for Studies on Impunity and Justice at the University of the Americas Puebla concluded that "less than 1% of crimes in Mexico are punished."[44]  The GLAR’s effectiveness could depend, in part, on broader enforcement improvements in the country.  The future of anti-corruption enforcement in Mexico via the FCPA may remain unclear until the new U.S. administration gives further direction to the market via official statements about enforcement priorities.  While time will tell whether the GLAR will become a vehicle for more aggressive and independent enforcement rather than just another statute on the books, Mexico’s reforms are a part of a larger trend observed in Latin America of national efforts to create or strengthen domestic anti-corruption regimes.  In February 2016, for example, Colombia enacted the Transnational Corruption Act, which creates administrative liability for corporate entities that pay bribes to foreign government officials.[45]  Accordingly, companies should take both the FCPA and legal developments in local jurisdictions into account when designing and improving their anti-corruption compliance programs.  Mexico’s GLAR and corresponding reforms to its enforcement regime indicate that corporate entities, while increasing focus on anti-corruption efforts, also have a significant incentive to strengthen compliance programs to reduce the potential for corrupt activities.  Recent legislative developments suggest that the benefits come not only through prevention, but also through potential mitigation of penalties based on good-faith efforts if such acts occur.      [1]   Ley General de Responsabilidades Administrativas, Artículos 2, 52, 66, 70 (July 18, 2016) [hereinafter "GLAR"].    [2]   GLAR, Artículos 49, 51.    [3]   Id. at Artículo 49.    [4]   Id. at Artículos 51-64.    [5]   Id. at Artículos 3, 4, 65.    [6]   Id. at Artículos 65-72.    [7]   Id. at Artículo 24.    [8]   Id. at Artículo 70.    [9]   See Ley Federal Anticorrupción en Contrataciones Públicas (June 11, 2012); GLAR, Transitorios ¶ 3. [10]   GLAR, Artículos 66-69, 71-72. [11]   Id. at Artículos 4, 66, 70. [12]   See, e.g., Mauricio Torres, Las 7 Reformas que Propone Peña Nieto Para México, Expansión (Aug. 27, 2012), http://expansion.mx/nacional/2012/08/27/una-reforma-fiscal-integral; Randal C. Archibold and Karla Zabludovsky, New President of Mexico Vows to Focus on Economy, NY Times (Dec. 1, 2012), http://www.nytimes.com/2012/12/02/world/americas/enrique-pena-nieto-takes-office-as-mexicos-president.html. [13]   Ley General del Sistema Nacional Anticorrupción, Artículo 1 (July 18, 2016). [14]   Id. at Artículo 7. [15]   GLAR, Artículo 2, 49-64. [16]   Bribery includes promising, offering, or giving any benefit, whether it be through money, valuables, property, services well below market value, donations, or any other benefit, to a public servant or their spouse in return for the public servant performing or refraining from performing any act related to their duties, or using their influence in their position, for the purpose of obtaining or maintaining a benefit or advantage, irrespective of the benefit actually being achieved.  Id. at Artículo 52, 66. [17]   Id. at Artículo 67. [18]   Id. at Artículo 68. [19]   Id. at Artículo 69. [20]   Id. at Artículo 71. [21]   Id. at Artículo 72. [22]   Id. at Artículo 70. [23]   Id. [24]   Compare GLAR, Artículos 66-72, with 15 U.S.C. § 78dd-1(a). [25]   Under Article 81 of the GLAR, if no benefit is obtained through the corrupt act, the financial penalty is calculated by multiplying a statutorily defined value by the daily tenor of a Mexican government economic reference rate called the Unidad de Medida y Actualización ("UMA").  While the UMA is a variable rate that changes over time, the statutory multiple is static and defined by the GLAR.  For physical persons—if no benefit was obtained—the penalty can be up to 150,000 times the UMA (approximately 597,000 USD as of May 2017).  GLAR, Artículo 81.  [26]   Id. [27]   Id. [28]   Id. [29]   Id. [30]   Id. [31]   Id. at Artículo 25. [32]   Id. [33]   The SEC and DOJ’s FCPA Resource Guide lists the following hallmarks of an effective compliance program: (1) commitment from senior management and a clearly articulated policy against corruption; (2) a clear and concise code of conduct and compliance policies; (3) oversight, autonomy, and resources for the compliance program; (4) risk assessment; (5) training and continuing advice; (6) incentives and disciplinary measures; (7) third-party due diligence; (8) confidential reporting and internal investigations; (9) continuous improvement of the policy; and (10) pre-acquisition due diligence and post-acquisition integration.  U.S. Dep’t of Justice and Sec. & Exch. Comm’n, A Resource Guide to the U.S. Foreign Corrupt Practices Act 39, available at https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2015/01/16/guide.pdf. [34]   GLAR, Artículos 88-89. [35]   Id. at Artículo 81. [36]   Id. at Artículos 88-89. [37]   Id. at Artículo 89. [38]   Id. [39]   Id. [40]   See Ley General del Sistema Nacional Anticorrupción (July 18, 2016). [41]   See Ley Orgánica del Tribunal Federal de Justicia Administrativa (July 18, 2016). [42]   See Reformas a la Ley Orgánica de la Procuraduría General de la República (July 18, 2016). [43]   See Código Penal Federal, Artículos 212-222 (last amended Apr. 7, 2017). [44]   Global Impunity Index Mexico 2016, Fundación Universidad de las Américas Puebla 14 (Feb. 2016), http://www.udlap.mx/igimex/assets/files/igimex2016_ENG.pdf. [45]   See Ley No. 1778 (Feb. 2, 2016) (Colombia).   The following Gibson Dunn lawyers assisted in preparing this client update: Partners F. Joseph Warin and Michael Farhang, and associates Tafari Lumumba, Mike Galas, Abiel Garcia, Patricia Herold, and Pedro Soto. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues.  We have more than 110 attorneys with FCPA experience, including a number of former prosecutors and SEC officials, spread throughout the firm’s domestic and international offices.  Please contact the Gibson Dunn attorney with whom you usually work in the firm’s FCPA group, or the authors: F. Joseph Warin – Washington, D.C. (+1 202-887-3609, fwarin@gibsondunn.com)Michael M. Farhang – Los Angeles (+1 213-229-7005, mfarhang@gibsondunn.com) Please also feel free to contacts the following Latin America practice group leaders: Kevin W. Kelley – New York (+1 212-351-4022, kkelley@gibsondunn.com) Jose W. Fernandez – New York (+1 212-351-2376, jfernandez@gibsondunn.com)Tomer Pinkusiewicz – New York (+1 212-351-2630, tpinkusiewicz@gibsondunn.com) Lisa A. Alfaro – São Paulo (+55 (11) 3521-7160, lalfaro@gibsondunn.com)   © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 29, 2017 |
Regional Risk Spotlight: Recent Developments in German Anti-Corruption Law

​Munich partner Benno Schwarz annd associates Jutta Wiedemann and Lukas Inhoffen are the authors of "Regional Risk Spotlight: Recent Developments in German Anti-Corruption Law," [PDF] published in Volume 6, Number 6 of The FCPA Report on March 29, 2017.

March 20, 2017 |
Boletín de fin de año 2016 sobre la FCPA

El 2016 fue un año que sentó precedentes en cuanto a la Ley de Prácticas Corruptas en el Extranjero (“FCPA”, por sus siglas en inglés). Después de varios años manteniendo cifras constantes de aplicación de la ley, el Departamento de Justicia, (“DOJ”, por sus siglas en inglés) y la Comisión de Bolsa y Valores (“SEC”, por sus siglas en inglés) presentaron lo que probablemente es el año de aplicación de la ley más significativo en los 39 años de historia de dicha normativa. Con 53 acciones combinadas de aplicación de la ley, más de $2 mil millones en multas corporativas impuestas por las autoridades estadounidenses y otros miles de millones por parte de los organismos extranjeros de regulación en procesos coordinados de enjuiciamiento, retornos anticipados por el Programa Piloto de la FCPA del Departamento de Justicia, así como una clara y creciente intersección entre la FCPA y las disposiciones de informantes de la Ley Dodd-Frank, todavía queda mucho por discutir. El presente boletín para nuestros clientes ofrece una descripción general de la FCPA, así como las novedades de 2016 relacionadas con el cumplimiento anti-corrupción, los litigios, y las políticas tanto a nivel nacional como internacional. Para ayudar a nuestros clientes a conducirse a través de estos desafíos, nos complace destacar que en el 2016 Gibson Dunn contrató a varios expertos del Departamento de Justicia, incluyendo al Jefe de la Unidad de la FCPA, Patrick Stokes; al Fiscal de los Estados Unidos para el Distrito Este de California, Ben Wagner; y al Fiscal General Asociado en Funciones, Stuart Delery. Boletín de fin de año 2016 sobre la FCPA (click to view alert) Los abogados de Gibson Dunn están disponibles para prestar su asistencia respondiendo a cualquier pregunta que tenga con respecto a los temas aquí presentados. Contamos con más de 110 abogados expertos en FCPA, incluyendo a una serie de exfiscales y exfuncionarios de la SEC, desplegados en todas las oficinas nacionales e internacionales del bufete. Comuníquese con el abogado de Gibson Dunn con quien por lo general trabaja, o con cualquier de los abogados de esta lista: F. Joseph Warin – Washington, D.C. (+1 202-887-3609, fwarin@gibsondunn.com)Michael M. Farhang – Los Angeles (+1 213-229-7005, mfarhang@gibsondunn.com) Latin America practice group co-chairs: Kevin W. Kelley – New York (+1 212-351-4022, kkelley@gibsondunn.com) Jose W. Fernandez – New York (+1 212-351-2376, jfernandez@gibsondunn.com)Tomer Pinkusiewicz – New York (+1 212-351-2630, tpinkusiewicz@gibsondunn.com) Lisa A. Alfaro – São Paulo (+55 (11) 3521-7160, lalfaro@gibsondunn.com)   © 2017 Gibson, Dunn & Crutcher LLP Anuncio de los abogados: Los materiales anexos fueron elaborados únicamente con fines de información general y no se emiten en calidad de asesoría jurídica.

March 7, 2017 |
Analysis of March 6, 2017 Executive Order on Immigration

Gibson Dunn previously issued several client alerts regarding President Trump’s January 27, 2017, Executive Order restricting entry into the United States for individuals from certain nations and making other immigration-related policy changes. This client alert addresses the replacement Executive Order entitled "Protecting the Nation from Foreign Terrorist Entry into the United States," signed on March 6, 2017.[1]  It also addresses a recent announcement suspending expedited processing of H-1B visas. I.          Overview of March 6, 2017 Replacement Executive Order The new order is in some regards narrower than the prior order, and its scope appears to be more clearly defined.  However, there is still some ambiguity as to the process for obtaining waivers, and the order continues to provide for the possible extension or expansion of the travel ban.  The order and the accompanying official statements also include considerably more material seeking to justify the provisions than contained in the prior order.[2] The Department of Homeland Security has released detailed Q&As[3] and a fact sheet regarding the new order;[4] additional guidance from the Department of State is expected.[5]  Key features of the new order include: Effective Date.  The effective date of the order is deferred for 10 days; the order goes into effect at 12:01 am ET on March 16, 2017.  Sec. 14. Status of Prior Order.  The new order fully rescinds and replaces the January 27 order.  Sec. 13. Travel Ban For 6 Countries.  Like the prior order, the new order suspends for 90 days entry for nationals of a number of Muslim-majority countries: Iran, Libya, Somalia, Sudan, Syria, and Yemen.  Sec. 1(e). Exclusions and Exceptions to Travel Ban.  The travel ban and related provisions have been narrowed and clarified in various respects: Iraq.  Iraq is no longer identified among the affected countries.  The other six nations designated in the original order are still covered.  However, the order specifically calls for additional review when an Iraqi national who holds a visa applies for "admission," meaning upon arrival to the U.S.  Secs. 1(g), 4.   Lawful Permanent Residents.  Lawful permanent residents (green-card holders) are explicitly excluded from the order.  Sec. 3(b)(i). Current Visa Holders.  Existing visas are not revoked by the order, and they can be used during the 90-day period otherwise covered by the order by the visa-holders under their existing terms, regardless of whether the visa-holder has previously been to the United States or is arriving for the first time.  Those who had a visa physically marked as cancelled as result of the January order are also entitled to admission.  Secs. 3(a), 12(c)-(d); Q&As 3, 5, 7. Dual-Citizens.  Dual citizens of one of the designated nations are also explicitly excluded from the order provided that they are travelling on a passport of a country other than the six designated.  For example, a dual-citizen of Somalia and the United Kingdom would still be eligible for admission to the United States if travelling on his U.K. passport.  Sec. 3(b)(iv). Refugees, Asylees, and Convention Against Torture.  Foreign nationals who are granted asylum status prior to the March 16 effective date, refugees already admitted, and those granted withholding of removal, advance parole, or protection under the Convention Against Torture are not barred from entry into the U.S. Sec. 3(b)(vi).  Note, however, that under existing law, individuals with those statuses may need certain advance permission or authorization if they wish to leave and return to the United States without jeopardizing that status. Certain Diplomatic and Related Visas.  As in the January order, diplomatic and diplomatic-type visas, NATO visas, C-2 (United Nations) visas, and G-1 through G-4 visas are excluded from the order.  Sec. 3(b)(v) Travel Ban Waivers.  The new order provides authority to certain Department of State and Homeland Security officials to grant waivers to the travel ban’s limitations on a case-by-case basis.  The new order identifies nine scenarios in which such treatment "could be appropriate."  These include a variety of hardship scenarios which arose under the January order, such as those needing urgent medical care or those who can document that they have "provided faithful and valuable service" to the United States government (e.g. foreign translators).  Sec. 3(c).  Importantly, these are still case-by-case waivers, not automatic exemptions.  It is also not yet clear if individuals seeking waivers will be allowed to board flights to the U.S. Suspension of Visa Interview Waiver Program.  As before, the Visa Interview Waiver program (often used by repeat business travelers from certain nations) is suspended.  Sec. 9. Suspension of Refugee Admission Program.  As in the January order, the Refugee Admission Program is suspended for 120 days, with a cap of 50,000 entrants for the current fiscal year upon resumption.  Sec. 6.  Unlike the January order, the new order does not indefinitely halt refugee admissions from Syria or prioritize religious minorities upon resumption.  The treatment of those already granted refugee status but not yet in the United States is somewhat unclear.  The DHS Q&A says such individuals "whose travel was already formally scheduled by the Department of State … are permitted to travel to the United States and seek admission," and they are covered by the text of the carve-out in Section 3(b)(vi). See Q&A 10.  But the Q&A also says those individuals "are exempt from the Executive Order."  Q&A 27.  Admission thus may require a case-by-case waiver. Possible Expansion and Extension.  Like the prior order, this order requires a global review to identify categories of individuals appropriate for further limitations.  Secs. 2(e)-(f).  Another provision requires re-alignment of any visa reciprocity programs, under which the United States offers visas of similar validity period and type (e.g. multiple-entry) on the basis of those offered to U.S. citizens.  Sec. 10. II.        Impact on Current Litigation There are approximately 20 active lawsuits challenging aspects of the January order.  Additional, key parts of that Order are currently subject to a preliminary injunction issued by the United States District Court for the Western District of Washington.  The Ninth Circuit declined to temporarily stay that injunction pending a fuller appeal.[6]  The Eastern District of Virginia has also issued a preliminary injunction against certain parts of the January order as it applies to Virginia residents and institutions. There are hearings and briefing deadlines scheduled in both the Washington and Ninth Circuit proceedings, as well as in many of the other cases.  Because the new order rescinds the old order, effective March 16, those challenges may become moot, and the Department of Justice has said it will be seeking dismissal.[7]  However, it is highly likely that some of the existing complaints and requests for relief will be amended to challenge the new ban.  New challenges to the newly announced Executive Order are also anticipated.  It is difficult to predict how the courts will approach litigation, either substantively or procedurally.  Given that the new order does not go into effect until March 16, there will be opportunity for more substantive (although expedited) proceedings than was the case with the original order.  Gibson Dunn will continue to monitor challenges for possible impacts on the new order. III.       Issues for Companies to Consider As with the January order, there is no "one size fits all" approach for companies addressing employee and business issues related to the new Executive Order. Accordingly, companies should again evaluate whether they will need to develop strategies to deal with the impact of the replacement Executive Order, both internally and as it relates to potential shareholder and business relations. In the immediate term, companies should consider outreach to their employees, particularly those who are or may be affected by the Executive Order.  Companies should also consider whether plans or policies are needed for travel by executives, employees, or other stakeholders.  In many ways, the new order is clearer than the January order, but as we describe in more detail below it not clear how all aspects of the order will be implemented.  Accordingly, employers may want to consider the following: Outreach to employees who may be affected.  Companies should consider proactively identifying and reaching out to all employees who may be affected.  As noted above, the Executive Order, on its face, applies to both immigrants and non-immigrants from the six covered countries.  Thus, employees traveling for business or leisure may be equally affected.  Note that different employees’ immigration statuses may compel differing guidance on how to approach any issues that arise in the enforcement of the Order. Outreach to employees who may have family members affected.  It is important to remember that some of your employees, even if not directly impacted by the Executive Order, will have family and loved ones who are or may be impacted.  Companies may consider providing counseling and support for employees with these concerns. Communicating with employees.  Companies should consider identifying employees who frequently travel to and from the affected countries or who are visa holders from affected countries, to explain company plans with respect to the Executive Order.  Given issues that arose for travelers in connection with the implementation of the original Executive Order in January, employees from affected countries who are currently outside the United States, but have a legal right to enter, should be advised to stay in communication with individuals in the United States about their travel plans, in the event they have difficulty re-entering the country, and have a plan to obtain appropriate assistance in that event.  Identifying a point of contact.  Consider identifying a contact point for any employee questions or concerns regarding the Executive Order.  Furthermore, ensure that this contact is prepared to field questions from affected or potentially affected employees, to discuss visa renewal or travel to and from the affected countries, and to refer employees with specific issues to the appropriate resources. Communicating with shareholders, business partners and other stakeholders.  Companies should consider whether communications with shareholders, business partners or other stakeholders regarding potential impacts on business as a result of enforcement of the Executive Order are appropriate. Modifying travel and meeting obligations.  Companies should consider modifying (or allowing for employee choice regarding) employee travel obligations, as appropriate to the company’s business needs, to avoid potential difficulties with travel to and from the United States.  Likewise, if companies have board members or executives affected by the Executive Order, or business stakeholders who will not be able to enter the United States due to the Executive Order, consider whether meetings can be conducted remotely or outside the United States.  Companies involved in pending litigation that may require employee travel to the United States should consider seeking the advice of litigation counsel to determine what, if any, notice to the relevant court or parties may be advisable at this stage. Reviewing non-discrimination policies.  Companies may wish to send reminders of applicable equal employment policies.  Many employers included such statements in communications regarding the original Order.  Companies may also wish to consider how their policies apply to employment and hiring decisions in light of travel restrictions.  This list addresses just some of the issues that companies will face in light of the Executive Order.  Gibson, Dunn & Crutcher’s lawyers, including its employment, securities, administrative law, constitutional law, and sanctions teams, are available to assist clients with navigating these and other issues that arise with respect to enforcement of the March 6 Order. IV.       Suspension of Expedited Processing for H-1B Visas On March 3, U.S. Citizen and Immigration Services (USCIS) announced it will suspend "premium processing" of applications for H-1B visas.[8]  This change is effective April 3, 2017, the first date for filing FY18 applications.  The agency says that this is necessary to process back-logged petitions.  It also says that "expedited" processing is still available for applications meeting certain criteria, and subject to "the discretion of office leadership."  Applications that remain eligible for premium processing include those involving:  Severe financial loss to company or ​person​;​ Emergency situation;​ Humanitarian reasons;​ Nonprofit organization whose request is in furtherance of the cultural and social interests of the United States​;​ Department of Defense or ​national ​interest ​​situation; USCIS error; or​ compelling interest of USCIS.​[9] *      *      * Gibson Dunn will continue to monitor these rapidly developing issues closely.    [1]   "Executive Order Protecting The Nation From Foreign Terrorist Entry Into The United States," Mar. 6, 2017, https://www.whitehouse.gov/the-press-office/2017/03/06/executive-order-protecting-nation-foreign-terrorist-entry-united-states.    [2]   See, e.g., Letter from Attorney General and Sec’y of Homeland Security, Mar. 6, 2017, https://www.dhs.gov/sites/default/files/publications/17_0306_S1_DHS-DOJ-POTUS-letter.pdf    [3]   U.S. Dep’t of Homeland Security, "Q&A: Protecting the Nation From Foreign Terrorist Entry To The United States," Mar. 6, 2017, https://www.dhs.gov/news/2017/03/06/qa-protecting-nation-foreign-terrorist-entry-united-states.    [4]   U.S. Dep’t of Homeland Security, "Fact Sheet: Protecting the Nation From Foreign Terrorist Entry To The United States," Mar. 6, 2017, https://www.dhs.gov/news/2017/03/06/fact-sheet-protecting-nation-foreign-terrorist-entry-united-states.    [5]   U.S. Dep’t of State, "Executive Order on Visas," Mar. 6, 2017, https://travel.state.gov/content/travel/en/news/important-announcement.html.    [6]   http://cdn.ca9.uscourts.gov/datastore/general/2017/02/27/17-35105%20-%20Motion%20Denied.pdf; https://cdn.ca9.uscourts.gov/datastore/opinions/2017/02/09/17-35105.pdf.    [7]   http://www.politico.com/story/2017/03/trump-releases-new-travel-ban-executive-order-235720.    [8]   U.S. Citizenship and Immigration Services, "USCIS Will Temporarily Suspend Premium Processing for All H-1B Petitions," Mar. 3, 2017 https://www.uscis.gov/news/alerts/uscis-will-temporarily-suspend-premium-processing-all-h-1b-petitions.    [9]   U.S. Citizenship and Immigration Services, "Expedite Criteria," https://www.uscis.gov/forms/expedite-criteria. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following: Theodore J. Boutrous, Jr. – Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com)Rachel S. Brass – San Francisco (+1 415-393-8293, rbrass@gibsondunn.com)Anne M. Champion – New York (+1 212-351-5361, achampion@gibsondunn.com)Ethan Dettmer – San Francisco (+1 415-393-8292, edettmer@gibsondunn.com) Theane Evangelis – Los Angeles (+1 213-229-7726, tevangelis@gibsondunn.com) Kirsten Galler – Los Angeles (+1 213-229-7681, kgaller@gibsondunn.com) Ronald Kirk – Dallas (+1 214-698-3295, rkirk@gibsondunn.com)Joshua S. Lipshutz – Washington D.C. (+1 202-955-8217, jlipshutz@gibsondunn.com) Katie Marquart, Pro Bono Counsel & Director – New York (+1 212-351-5261, kmarquart@gibsondunn.com) Samuel A. Newman – Los Angeles (+1 213-229-7644, snewman@gibsondunn.com) Jason C. Schwartz – Washington D.C. (+1 202-955-8242, jschwartz@gibsondunn.com) Kahn A. Scolnick – Los Angeles (+1 213-229-7656, kscolnick@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

February 21, 2017 |
French Legal Briefing – France Continues to Adopt the Highest International Standards to Attract Investors

Despite a net fall in the global M&A activity in 2016 (the total deal value amounted last year to US$ 3.7tn, down 16 % compared to 2015[1]), French M&A market has been supported by a few domestic deals while the level of in-bound investments has dramatically dropped. Another distinctive feature of the 2016 M&A market, both globally and in France, has been an exceptional activity during the last quarter suggesting that French M&A market may be poised to accelerate and gain a new momentum in 2017. Several significant factors of uncertainty do remain, including in relation to the Brexit and Trump’s victory. In addition, the as-of-now unpredictable outcome of major elections to come later this year in the Netherlands, France and Germany may trigger political and economic disturbances. Combined, they may hamper 2017 perspectives for the EU and France. In this uncertain environment, businesses will need to be stronger and over-performing. Recent surveys[2] show that companies are, thus, likely, first, to refocus on their core businesses (leading to an increase of divestitures). Second, they will be required to remain alert to potential technology shifts. As in 2016, digital and technology will remain in fashion and should surge as top strategic drivers of M&A activity this year. In this context, France has continued to adopt in 2016 the highest legal international standards whether it be in terms of governance, by enacting the say-on-pay, or fight against corruption by modernizing and strengthening its judicial arsenal which will now have an extra-territorial reach. It has also chosen to be at the forefront of the protection regarding personal data. To assist French and foreign investors navigating through these important recent changes, the Paris office of Gibson, Dunn & Crutcher LLP is pleased to provide this French legal briefing. Executive Summary: Anti-corruption Compliance. The "Sapin 2 Law" adopted on December 9, 2016, broadly inspired by the US and UK regimes, intends to bring France to the highest standards in the areas of transparency and anti-corruption, setting up, among other things, new obligations for companies to establish adequate procedures to prevent and detect corruption and influence peddling. Corporate Governance / Directors’ Compensation: One of the other key provisions of the "Sapin 2 Law" provides for a binding say-on-pay for French listed companies, which will have an impact as from this year’s annual general meetings. Equity Incentive Plans: The tax and social regime of French equity-based incentive plans has gone through its 3rd reform since 2012, in a less favorable direction this time, including for foreign issuers. However, the negative effects of this reform may not be felt immediately as future grants may still benefit from the previous regime set up by the Macron Law provided that they are made pursuant to an authorization granted by a shareholders’ resolution adopted prior to January 1, 2017. Data Protection: The Law for a Digital Republic adopted on October 7, 2016 intends to strengthen the protection of personal data and anticipate the forthcoming entry into force of the European Union Regulation 2016/679 adopted on April 27, 2016. ______________________________________ 1.   Anti-corruption Compliance: The announcement of a more robust era in French anti-corruption enforcement and compliance expectations. On December 9, 2016, a new major statute on transparency, the fight against corruption and the modernization of the economy (better known as the "Sapin 2 Law") was enacted. The Sapin 2 Law, mainly inspired by the US and UK regimes, intends to bring France to the highest standards in the areas of transparency and anti-corruption.  Creation of a French Anti-Corruption Agency. The French Anti-Corruption Agency will replace the Central Service for the prevention of corruption which did not have any investigation or sanction powers. The new agency is the result of the French government’s aspiration to set up an independent and fully effective body (somewhat equivalent to the French financial markets authority (the Autorité des Marchés Financiers) or the French authority for the supervision of prudential insurance and reinsurance (the Autorité de Contrôle Prudentiel et de Résolution)). The Agency will include an Enforcement Commission ("commission des sanctions") vested with disciplinary powers and the ability to fine non-compliances (which are in addition to the existing criminal sanctions). One of the initial priorities of the Agency will be to assist French corporations in implementing the new arsenal by releasing recommendations. Obligation to establish adequate procedures to prevent and detect corruption and influence peddling. Which corporations are concerned? French companies with at least 500 employees and an annual turnover exceeding €100 million (such threshold being assessed on a consolidated basis with respect to group of companies the parent company of which is headquartered in France). Anti-corruption measures will have to be implemented in such companies and in their subsidiaries (even located outside France). What key measures will be implemented? Besides the introduction of a full set of anti-corruption procedures such as codes of conduct, training program for employees, accounting control systems or clients risk-based assessment procedures, the Sapin 2 Law also introduces two innovative measures: A risk mapping of external solicitations for corruption purposes to which the company may be exposed: this risk mapping will be key. It will need to be adapted to the industries and countries in which the corporation operates as well as to its clients, suppliers and intermediaries. It will need to be regularly monitored to take into account changes in business and risks. Therefore, corporations will be likely required to (a) identify actual and potential risks, (b) assess the risks, (c) elaborate appropriate measures to prevent and eradicate the identified risks and finally (d) implement those specific measures; Appropriate internal control procedures will need to be applied. These will likely require implementation of three types of processes (i) controlling operations, (ii) risks monitoring and managing and (iii) documenting internal controls to ensure compliance traceability. Failure to implement the corruption prevention plan may entail the liability of both the corporations and their legal representatives. Corporations may be fined up to EUR 1 million and individuals up to EUR 200,000. The Sapin 2 Law is somewhat similar to the United Kingdom Bribery Act (and also the Swiss regime) pursuant to which corporations may be sanctioned if they have not taken sufficient measures to prevent bribery (failure of commercial organizations to prevent bribery). Reinforcement of whistleblowing protection. The new statute strengthens the protection offered to whistleblowers by guaranteeing their confidentiality and offering an increased safeguard against retaliation. It extends whistleblowing protection to situations where the whistleblower has reported "a serious threat or damage to the public interest" and not only a violation of applicable laws. However, despite what was first enacted by the Sapin 2 Law, no financial assistance to the whistleblower to cover his/her proceedings costs will be provided as the French Constitutional Council considered this provision as unconstitutional. New extraterritorial reach of French anticorruption laws. The Sapin 2 Law considerably extends the jurisdiction of French criminal courts. It enables them to prosecute acts of corruption committed abroad by anyone who "carries on its business or a part of its business in France". This will need to be taken into account by foreign companies which conduct even part only of their business in France. Adoption of a judicial agreement process. The Sapin 2 Law introduces a new legal agreement mechanism, named public interest judicial agreement (convention judiciaire d’intérêt public) and resembling the DPA process in the United States. Under such mechanism, so long as prosecution has not been set in motion, the Public Prosecutor may offer companies accused of corruption, influence peddling or laundering of tax fraud proceeds to enter into a judicial agreement imposing payment of a financial penalty up to a maximum of 30% of the company’s average turnover over the past three years and/or the implementation of a three-year maximum anti-corruption compliance program supervised by the French Anti-corruption Agency. In addition, the agreement shall provide for indemnification of identified victims. If validated by the court following a public hearing, the judicial agreement is published on the French Anti-corruption Agency website. However, there is no recognition of guilt from the companies concerned and the judicial agreement is not recorded in the companies’ criminal record. In anticipation of the French Anti-Corruption Agency’s expectations, companies will have to implement adequate procedures (particularly internal control and risk-mapping) which will be broadly inspired by the US and UK regimes, as well as the best risk management practices already implemented by French insurance and banking institutions. 2.   Corporate Governance / Directors’ compensation: A new French binding say-on-pay Scope of the say on pay The say-on-pay process will concern compensation granted to the chairman of the board of directors, CEO or deputy CEO, members of the executive board ("Directoire") or members of the supervisory board ("Conseil de Surveillance") of a French société anonyme listed on a regulated market (Euronext). Surprisingly, the new scheme does not apply to the members of the board of directors ("Conseil d’administration") but this is likely due to the fact that the determination of the amount of attendance fees to be received by board members already lies within the power of the shareholders. No say-on-pay process is required with respect to the compensation received by the managers pursuant to an employment agreement. Two votes by the shareholders Prior vote. The principles and criteria for fixing, allocating and awarding the total compensation (including fixed, variable or exceptional compensation) to be paid to the managers shall be approved by the shareholders at each annual general meeting. A new vote is required (i) in case of any modification of such compensation policy and (ii) at each renewal of the managers’ office. In case of a negative vote of the shareholders, the principles and criteria approved for the preceding fiscal year shall continue to apply. If no principle or criteria was previously approved or in the absence of prior compensation paid to the managers, compensation shall be determined "in accordance with the existing practices of the company". Compensation committees of French listed companies will need to adopt such practices as soon as possible in view of the next ordinary general meeting of 2017, in the absence thereof. Subsequent vote. The shareholders will subsequently have to approve the total amount of compensation granted to the executive for the preceding year. In case of a negative vote of the shareholders, the fixed portion of the compensation will not be at risk but the variable and exceptional remunerations could not be paid. One should note that a subsequent vote is not required for the members of the supervisory board (except for its chairman). Practical considerations The provisions regarding the prior vote will apply from the annual general meeting for the first fiscal year ended after the promulgation of the law (December 9, 2016). Regarding the subsequent vote, the rule will apply from the end of the fiscal year following the first fiscal year ended after the promulgation of the law. In other words, companies which ended their fiscal year on December 31, 2016 will have to make a prior vote from their ordinary general meeting of 2017 and a subsequent vote in 2018. This new statute intends to reassure investors in French companies by preventing the allocation of abnormal compensation. However, this new statute could lead to emphasis being placed on fixed compensation (guaranteed by the prior vote) rather than variable compensation. This would go against established corporate governance principles which recommend to index officers’ compensation on the company’s financial performance by using variable and exceptional remunerations. It is likely that companies will have, during the next annual general meeting, to determine a level of fixed remuneration that will ensure the presence of the officers for the next years.    Depending on the level of constraint imposed by the shareholders when implementing this new say-on-pay process, the management of listed companies may also be keen to find out ways to circumvent it. To this end, they may try to use foreign companies to compensate their group officers. If that happened, this would obviously not improve transparency. The conditions of this new binding say-on-pay will be soon specified in a decree. However, listed companies should already take into consideration the "Sapin 2 Law" while organizing their new strategy and financial communication. 3.   Equity Incentive Plans: Free shares allocation – a step backwards the negative effects of which may be delayed. On December 29, 2016, the French Parliament adopted the Finance Act for 2017 (the "Finance Act"), which partially amends the legal and tax regimes of free shares allocation. The free shares allocation legal framework had been substantially improved by the so-called "Macron Law" enacted on August 6, 2015, with a view to improve the attractiveness of French equity-based incentive plans for employees. The new regime resulting from the Finance Act will apply to awards authorized by a resolution of the extraordinary general meeting of the shareholders passed on or after January 1, 2017 only. Consequently, new awards of free shares that have been authorized by a shareholders’ resolution passed between August 8, 2015 and December 31, 2016 (included) will still benefit from the favorable regime provided by the Macron Law, regardless of the date on which such awards will effectively be granted. Therefore, the negative effects of the reform may be delayed for issuers using multiannual stock inventive plans, as is commonly the case for foreign issuers, so long as they have been adopted prior to or on December 31, 2016 (but as from August 8, 2015). Vesting and holding periods The provisions related to the vesting and holding periods remain unchanged. Therefore, free shares can still vest 1 year after their grant date, provided that the aggregate vesting and holding periods are at least equal to 2 years. Increase of employers’ social security contribution Under the Finance Act, the employer social security contribution rate is increased from 20% to 30%, bringing it back to the former rate into force before passing of the Macron Law. The contribution remains due within the month following the date of the effective acquisition of the shares by the beneficiary. The employer contribution applying to small and medium-sized companies that have not distributed any dividend in the past five years shall remain unchanged at the rate of 20%. An increased taxation for the portion of the acquisition gain exceeding EUR 300,000 Contrary to the Macron Law, which provided for the taxation of all of the acquisition gain realized by the beneficiary as a capital gain, the 2017 Finance Act states that only the portion of such profit not exceeding EUR 300,000 per year will be treated as capital gain. The fraction of the acquisition gain exceeding EUR 300,000 per year will be taxed as employment income, losing the benefit of the 50% tax base reduction when the shares are held for at least 2 years and the 65% tax base reduction when the shares are held for more than 8 years. Accordingly, the 8% social security contribution applicable to activities income will apply to the portion of the annual acquisition profit in excess of EUR 300,000, instead of the 15.5% rate applicable to capital gains. The 15.5% social security withholding remains however applicable to any acquisition profit (or portion thereof) up to EUR 300,000. The 10% employee social security contribution that had been fully abolished by the Macron Law is partially reinstated for the part of the annual acquisition gain in excess of EUR 300,000. Summary table of the major changes to the free shares allocation legal and tax regimes   Previous regime Macron Law Regime Finance Act Regime Concerned free shares Awards authorized by an extraordinary shareholders’ resolution passed on or before August 7, 2015 Awards authorized by an extraordinary shareholders’ resolution passed between August 8, 2015 and December 31, 2016 (included) Awards authorized by an extraordinary shareholders’ resolution passed on or after January 1, 2017 Employer social contribution 30%due upon grant on market value of the free shares on the grant date 20%due upon vesting on the market value of the free shares as of such date 30%due upon vesting on the market value of the free shares as of such date Employee social contributions 10%+8% social security contributions due on acquisition profit (out of which 5.1% is tax deductible) 15.5% social security contributions due on acquisition profit (out of which 5.1% is tax deductible) Part of the annual acquisition gain up to EUR 300,000:15.5% social security contributions due on acquisition profit (out of which 5.1% is tax deductible)       Part of the annual acquisition gain exceeding EUR 300,000:10%+8% social security contributions due on acquisition profit (out of which 5.1% is tax deductible) Employee Income tax Acquisition profit subject to income tax (impôt sur le revenu) (at rates of up to 45%) Acquisition profit subject to income tax (at the applicable progressive rates) with a 50% tax base reduction when the shares are held for at least 2 years and a 65% tax base reduction when the shares are held for more than 8 years Part of the annual acquisition gain up to EUR 300,000: Acquisition profit subject to income tax (at the applicable progressive rates) with a 50% tax base reduction when the shares are held for at least 2 years and a 65% tax base reduction when the shares are held for more than 8 years Part of the annual acquisition gain exceeding EUR 300,000: Acquisition profit subject to income tax (impôt sur le revenu) (at rates of up to 45%) Total cost for employees(1) 60.7%(+3% or 4% in case special highincome contribution applies) 36.8%(2)(+3% or 4% in case special high income contribution applies) Illustrative examples: For an annual acquisition gain of up to EUR 300,000: 36.8%(2) For an annual acquisition gain of EUR 600,000: 48.75%(2) (plus, in each case, 3% or 4% in case special high income contribution applies) (1) Based on marginal rates.(2) if shares held at least for 2 years and less than 8 years after vesting 4.   Data Protection – The Law for a Digital Republic: anticipating the EU Regulation on data protection? The French Data Protection Act adopted on January 6, 1978 (the "French Data Protection Act") was amended twice in 2016. First, on October 7, 2016, when the French Parliament adopted the Law for a Digital Republic with the aim to create new rights for citizens in the digital environment. Amongst other rights, the Law for a Digital Republic intends to strengthen the protection of personal data. Secondly, on October 12, 2016 with the adoption of the Law for the modernization of justice. Interestingly, some provisions of these pieces of legislation anticipate the European Union Regulation 2016/679 adopted on April 27, 2016 relating to the protection of personal data and which will be applicable only as of May 25, 2018. Reinforcement of data subjects’ rights First of all, the Law for a Digital Republic creates specific provisions in the French Data Protection Act extending the right to be forgotten for minors. Indeed, the general right for data subjects to have their data deleted applies only where the data is "inaccurate, incomplete, equivocal, outdated or which processing is forbidden." According to the new provisions arising out of the Law for a Digital Republic, any individual can ask for the deletion of his/her data where such data was collected when he/she was still minor without having to demonstrate that he/she has a legitimate interest. Companies receiving such requests would be due to delete the data without undue delay. If the right mentioned above should have limited impact on our clients’ direct obligations, two other provisions of the Law for a Digital Republic should be considered closely as they need to be taken into account directly in companies’ data protection compliance measures. Companies are indeed expected to enable data subjects to exercise their rights directly online wherever possible. In practice, this means that all companies should create a specific email address dedicated to the handling of data subjects’ requests but also need to make sure that it creates a mechanism to ensure that such requests are actually handled. With always the idea to enable data subjects to master the use of their personal data, the French legislator also provides for additional obligations of information for companies processing personal data. As a result of this provision, companies are now expected to inform data subjects about (i) the data retention period of the data collected and processed and (ii) the right of data subjects to give instructions in relation to the processing of their personal data after their death. Such information shall be provided as part of the information notice which companies were already required to provide under the French Data Protection Act. Therefore, companies shall make sure that their existing and future information notices are compliant with these new provisions. The Law for a Digital Republic also granted data subjects with the right to data portability (i.e. the right to recover for free all the personal data and files). At this stage, companies shall therefore anticipate this new obligation by starting to consider the procedure they should implement to ensure that this right of portability is actually applied and what would be the consequences from a business point of view. However, this should be only initial thoughts since a decree shall further detail this upcoming obligations for companies. Finally, the Law for the modernization of justice has extended the right to class action in particular regarding the right for data subjects to bring a class action in case of data breach. Data protection litigation may therefore increase considerably – this will need to be taken into consideration by companies in their risks assessment. Strengthening of the CNIL enforcement authority According to the Law for a Digital Republic, the French data protection authority (the "CNIL") can now impose to companies a maximum fine of 3 million euros while it was previously limited to 150,000 euros. The amount of the penalty should be proportionate to the seriousness of the breach committed and the CNIL will take into consideration notably the intentional nature of the infringement, the measures taken by the data controller to mitigate the damage suffered by the data subjects and the degree of cooperation with the Commission to remedy the infringement. The Law for a Digital Republic shall therefore be considered by companies as a first step toward the EU Regulation 2016/679 which reinforces even further companies’ obligations and on which we will comment in future alerts. [1]      Source: Thomson Reuters. [2]      Notably, Deloitte’s M&A trends report 2016. The following Gibson Dunn lawyers assisted in preparing this client update:  Ahmed Baladi, Benoît Fleury, Ariel Harroch, Judith Raoul-Bardy and Clarisse Bouchetemble. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update.  TheParis office of Gibson Dunn brings together lawyers with extensive knowledge of all aspects of business law, covering corporate transactions, restructuring/insolvency, litigation, compliance, public law and regulatory, as well as tax and real estate.  The Paris office is comprised of a dynamic team of lawyers who are either dual or triple-qualified, having trained in both France and abroad.  Our French lawyers work closely with the firm’s practice groups in other jurisdictions to provide cutting-edge legal advice and guidance in the most complex transactions and legal matters.  For further information, please contact the Gibson Dunn lawyer with whom you usually work or any of the following members of the Paris office by phone (+33 1 56 43 13 00) or by email (see below):  Corporate/M&A/Private EquityBenoît Fleury (bfleury@gibsondunn.com)  Bernard Grinspan (bgrinspan@gibsondunn.com)Ariel Harroch (aharroch@gibsondunn.com)Patrick Ledoux (pledoux@gibsondunn.com)Judith Raoul-Bardy (jraoulbardy@gibsondunn.com)Jean-Philippe Robé (jrobe@gibsondunn.com)Audrey Obadia-Zerbib (aobadia-zerbib@gibsondunn.com) IT/ Data Protection Ahmed Baladi (abaladi@gibsondunn.com)Bernard Grinspan (bgrinspan@gibsondunn.com)Vera Lukic (vlukic@gibsondunn.com) Audrey Obadia-Zerbib (aobadia-zerbib@gibsondunn.com) Compliance Benoît Fleury (bfleury@gibsondunn.com) Bernard Grinspan (bgrinspan@gibsondunn.com)Ariel Harroch (aharroch@gibsondunn.com)Judith Raoul-Bardy (jraoulbardy@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.