October 2016 Alert Q3 2016: Regulatory Round-Up
White Collar This round-up contains a summary by sector of certain key global regulatory developments which occurred during the third quarter of 2016. The sectors Defense & covered in this round-up include: Investigations Financial Services
Energy
Cyber/Data
Transport
Sport
“Other” Detail contained within is publicly available information. This Alert does not contain any legal commentary on the aforementioned.
Financial Services On 17 August, a former Deutsche Bank (“DB”) employee and whistleblower refused to accept his portion of the whistleblower award ($16.5 million) from the Securities and Exchange Commission (“SEC”). The whistleblower, Ben-Artzi, provided information which enabled the SEC to fine DB $55 million in May 2015 for false accounting. Ben-Artzi rejected the award stating that the corporate fine should be paid by individual executives, not shareholders.1
On 21 July, the FCA published a thematic review aimed to address concerns about the operation of “dark pools” in the UK. The report concluded that trading platforms with no pre-trade transparency and where the price and volume of orders are hidden have made significant progress in addressing conflict of interest issues. The FCA has outlined certain areas in which improvements could be made, including the provision of more information about the design and operation of dark pools to users, and improving the monitoring activity of the pools.2
On 19 July, the new head of the FCA, Andrew Bailey, set out his vision of the regulator’s future. In his speech, Mr Bailey paid tribute to the introduction of the senior managers regime which expands the FCA’s scope of enforcement against individual executives for wrongdoings within their area of responsibility. He also stated that he wanted to implement a “cohesive yet flexible and proportionate regime” that “provides a credible deterrent for misconduct” across the industry.3
Weil, Gotshal & Manges Q3 2016: Regulatory Round-Up
On 3 July, the Market Abuse Regulation (“MAR”) Services Authority. According to the report, Mr and the Criminal Sanctions (Market Abuse) Directive Holder overruled an internal recommendation by the came into force in Europe. MAR establishes a new, DOJ to seek a guilty plea from HSBC over concerns common regulatory framework on market abuse that “prosecuting the bank would have serious intended to ensure the integrity of the EU financial adverse consequences on the financial system”. markets and enhance investor protection and This decision was made in November 2012 confidence. Key changes include an extension of following a letter from Mr Osbourne to the US the civil market abuse regime to new markets and Federal Reserve in which he expressed “the UK’s instruments, a new offence of “attempted market concerns regarding US enforcement actions against manipulation” and a new requirement for issuers to British banks.” Although HSBC did not face criminal inform the FCA if they have delayed the disclosure charges, the bank agreed to a DPA in which it paid of insider information.4 the DOJ $1.9 billion for allegedly allowing Mexican drug cartels to launder $881 million through its LIBOR/Forex account and to settle allegations that the bank On 20 July, HSBC’s head of global foreign exchange conducted business in sanctioned countries such as cash trading and HSBC’s former head of foreign Iran, Burma and Cuba.8 exchange cash trading were arrested by US Energy authorities and charged with fraud for currency trades that allegedly generated profits of $8 million On 5 September 2016, Russia’s Investigative at the expense of a corporate client. These charges Committee announced that it was investigating one relate to the use of confidential information provided former and two current executives at T Plus, a major by an unnamed “victim company” to execute trades Russian energy company owned by Viktor that benefited HSBC. In particular, it is alleged that Vekselberg. The allegations relate to alleged the traders caused a $3.5 billion purchase of pound payments of over 800 million roubles ($12.3 million) sterling in order to cause the price of sterling to to officials in the Komi region between 2007 and spike, to the benefit of HSBC and at the expense of 2014. The investigation follows the charging of the the victim company. A statement from the US former governor of the Komi region earlier in attorney for the Eastern District of New York stated September for his alleged involvement in setting that “the defendants placed personal and company up and participating in an organised crime scheme profits ahead of their duties of trust and and laundering 1.1 billion roubles ($17 million) of confidentiality owed to their client, and in doing so, illicit funds.9 defrauded their client of millions of dollars.”5 On 19 July, the SFO announced that it was On 7 July, four former Barclays employees were conducting a criminal investigation into the activities sentenced to a total of 17 years in prison following of the Monaco-based oil and gas company Unaoil, their convictions for manipulating US Dollar LIBOR. its officers, its employees and its agents in In passing sentence, HHJ Leonard QC stated that connection with suspected offences of bribery, the culpability of the defendants was high and their corruption and money laundering.10 behaviour showed an “absence of integrity”.6 The On 17 August, the English High Court rejected a jury could not reach a verdict on two further co- judicial review application by Soma Oil & Gas defendants, who will be retried in February 2017.7 (“Soma”) to shut down an SFO corruption Money Laundering investigation. In the application, Soma claimed that the investigation, which started in July 2015, risked On 11 July, a US House of Representatives’ causing the company financial ruin, and that it has financial services committee published a report been fully cooperative with authorities. The entitled “Too Big To Jail: Inside the Obama Justice investigation relates to alleged improper payments Department’s Decision Not to Hold Wall Street made to officials in Somalia’s Ministry of Petroleum, Accountable”. The report found that the former US which granted Soma permission to explore the attorney general Eric Holder made the Department country for oil reserves. The court rejected the of Justice (“DOJ”) drop its prosecution of HSBC for application on the basis that it had no prospect money laundering and sanctions violations following of success.11 an intervention from the former UK Chancellor George Osbourne and the then existing Financial
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On 15 July, Dutch energy company SBM Offshore to co-operate with federal prosecutors investigating reached a settlement agreement with the Brazilian VW’s conduct. Liang is the first person to be authorities, ending a corruption investigation over criminally charged over the diesel emissions improper payments to Petrobras. Under the scandal which emerged in September 2015 when agreement, SBM Offshore will pay a total of VW admitted that 11 million cars contained software $162.8 million to Petrobras, the Brazilian Public that disguised vehicles’ emission levels. The charge Prosecutor’s Office and the Brazilian Council of relates to conspiracy to commit wire fraud and Control of Financial Activities. Additionally, SBM violate the US Clean Air Act.16 Offshore remains under the obligation to cooperate On 8 August, a German court ruled that it would with procedures that may be conducted by the allow a collective complaint of 277 private and authorities against third parties. In a statement, an institutional investors against VW over the SMB Offshore spokesman said that the company emissions cheating scandal to proceed. The total accepts the economic sanctions, adding that it is value of these 170 pending damage claims is worth pleased that the company is now able to “fully close to €4 billion. This ruling comes after VW resume a normal business relationship with a key reached a $15 billion settlement in June with US client, Petrobras.”12 environmental authorities, state attorneys general Cyber/Data and affected customers who received compensation for violations of environmental laws and damages On 15 September, Swedish telecoms company Telia after VW admitted it rigged diesel-powered vehicles announced that it had been contacted by the DOJ to cheat on emissions tests.17 and Dutch Public Prosecutor’s Office with proposals for a settlement to settle a number of foreign bribery On 7 August, the SFO opened a criminal allegations. The claims concern alleged payments investigation into allegations of fraud, bribery and related to Telia’s entry into Uzbekistan’s telecoms corruption in the civil aviation business of Airbus market in 2007. In the statement, Chairman Marie Group. These allegations relate to irregularities Ehrling said that the Telia is “cooperating fully with the concerning third party consultants. Airbus Group has 18 authorities to bring clarity to the matter” but that the stated that it continues to cooperate with the SFO.” 13 figure proposed for the settlement was “very high”. On 25 July, South American airline LAN agreed to On 7 September, Denmark became the first country pay more than $22 million to settle civil and criminal to buy data from the Panama Papers leak, and now charges under the Foreign Corrupt Payments Act plans to investigate whether the 500-600 Danes following a SEC investigation. According to the who feature in the offshore archive may have SEC’s findings, LAN’s chief executive, Ignacio evaded tax.14 Cueto Plaza, approved $1.15 million in payments to be channelled to an Argentine intermediary in order On 9 August, the Australian Department of Justice to negotiate a union dispute, knowing that he would announced the creation of a new cyber team make payments to third parties who had influence dedicated to identifying online terrorism financing over those unions. In February, the Cueto Plaza activities, money laundering and financial fraud. The agreed to personally pay a $75,000 penalty and new cyber team will work with Australia’s primary attend anti-corruption training without denying or financial intelligence agency by using financial and admitting the charges. In this settlement, LAN also cyber intelligence to investigate online payment accepted a condition that it must retain an platforms and crack down on money-laundering and independence compliance monitor for at least 27 criminal networks. The team was created in months. Following the agreement, the SEC response to the recommendations of the Australian announced: “this settlement, along with our prior government’s AML/CTF Review, which was focused case against the CEO shows that public companies on delivering a modern, simplified, streamlined and and their executives must be truthful and 15 strengthened regime. forthcoming about its overseas consulting 19 Transport agreements or otherwise pay the consequences.” On 13 July, the freight operations company FH On 9 September, former Volkswagen AG (“VW”) employee James Liang pled guilty to conspiring to Bertling Ltd and seven officers were charged by the defraud US regulators and consumers and agreed SFO for allegedly making a corrupt payment contrary to the Prevention of Corruption Act 1906.
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The charge relates to the alleged bribe of an agent court’s decision to acquit Sharef of fraud charges of the Angolan state oil company, Sonangol, made relating to the “slush fund”, citing legal errors.24 between 2005 and 2006 with the intention of On 5 September, the UK’s attorney general Jeremy furthering FH Bertling’s operations in the region. FH Wright announced plans to consult on the extension Bertling Ltd is a UK-based subsidiary of the of the criminal offence of failure to prevent bribery German-headquartered Bertling group.20 found in section 7 of the UK Bribery Act to economic Sport crimes such as fraud, false accounting and money laundering.25 On 9 September, FIFA’s Ethics Committee opened formal proceedings against former FIFA executives On 30 August, the SEC announced it had awarded Sepp Blatter, Jérôme Valcke and Markus Kattner. a whistleblower $22.4 million who helped the The committee’s investigatory chamber will now agency uncover a ‘well-hidden fraud’. The award is investigate possible violations of the FIFA Code of the second largest award granted by the SEC to a Ethics in the context of salaries and bonuses paid to whistleblower and follows an $80 million settlement Mr Blatter, Mr Valcke and Mr Kattner. Blatter and with agricultural business company Monsanto to Valcke are already serving ethics bans and face resolve claims that it failed to properly account for criminal proceedings by Swiss federal prosecutors the costs of a sales rebate programme. as part of a wider investigation of corruption Subsequently, the individual has identified himself in implicating FIFA and leading soccer officials.21 order to encourage the SEC to take action against Monsanto’s auditor.26 “Other” On 29 July, a senior South Korean prosecutor was On 19 September, Ernst & Young (“EY”) was fined charged with bribery after allegedly receiving more $9.3 million following an investigation by the SEC than $854,000 in cash and shares from the founder into its relationships with key clients. One example of Nexon, the country’s biggest online gaming of this improper relationship included a senior EY company. The scandal arose after Jin Kyung-joon partner spending more than $100,000 on corporate reported a sharp increase in his personal wealth entertainment for a client’s chief financial officer. In a in 2015.27 statement, the SEC announced that: “Ernst & Young On 8 July, the English court approved an application did not do enough to detect or prevent these by the Serious Fraud Office (“SFO”) for a second partners from getting too close to their clients and deferred prosecution agreement (“DPA”) with a UK compromising their roles as independent auditors”.22 SME (“XYZ Ltd”) that cannot currently be named On 9 September, the SFO charged three former due to ongoing, related legal proceedings. XYZ Ltd Tesco executives for fraud and false accounting. generated most of its revenue from exports to Asian The investigation is continuing and the SFO has not markets and from February 2000 (before the announced whether it will charge other senior Tesco offending occurred), it was a wholly owned executives. Tesco itself has co-operated with the subsidiary of a US LLC. XYZ Ltd was the subject of investigation. The executives will appear before an indictment alleging conspiracy to corrupt and magistrates on 22 September.23 conspiracy to bribe, contrary to section 1 of the Criminal Law Act 1977 and failure to prevent bribery On 6 September, the German Federal Court of Justice partially overturned the 2014 acquittal of a contrary to section 7 of the Bribery Act 2010. The former Siemens AG board member for charges in charges relate to a series of offers and/or payments connection with a historic bribery scandal. Uriel made by a number of XYZ Ltd’s employees and Sharef stood trial in Munich for three counts of fraud agents between 2004 and 2012 to secure contracts for his alleged involvement in the payment of bribes in foreign jurisdictions. Under the DPA, XYZ Ltd has totalling $14.2 million in Latin American and for agreed to continue to cooperate fully with the SFO allegedly failing to close out a $35 million utilisation in providing a report addressing the controls, payment fund. Sharef was acquitted in 2014 when policies and procedures relating to anti-bribery and the Munich court held that he was not involved in corruption every twelve months of the DPA’s the ordering of bribes and had not known that the duration. In addition, XYZ Ltd agreed to pay fund still existed. However, in its latest ruling, the financial orders of £6,553,085. In passing the Federal Court of Justice overturned the Munich judgment, Lord Justice Leveson stated: “[this conclusion] provides an example of the value of self-
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report and co-operation along with the introduction 25. http://www.bloomberg.com/news/articles/2016-09-05/u-k- of appropriate compliance mechanisms, all of which government-to-open-talks-on-new-criminal-laws-for-companies can only improve corporate attitudes to bribery and 26. https://www.sec.gov/news/pressrelease/2016-172.html 28 corruption.” 27. https://www.ft.com/content/70b2be64-555e-11e6-9664- e0bdc13c3bef 1. https://www.ft.com/content/9edb953a-655e-11e6-8310- 28. https://www.sfo.gov.uk/2016/07/08/sfo-secures-second-dpa/ ecf0bddad227#axzz4HmXZhVDw 2. https://www.fca.org.uk/news/press-releases/fca-publishes- thematic-review-dark-pools 3. https://www.fca.org.uk/news/speeches/chief-executive-speaks- apm-about-recent-work-and-future-challenges 4. http://eur-lex.europa.eu/legal-content/EN/ TXT/?uri=celex%3A32014R0596 5. https://www.justice.gov/opa/pr/global-head-hsbc-s-foreign- exchange-cash-trading-desks-arrested-orchestrating- multimillion 6. https://www.sfo.gov.uk/2016/07/07/convicted-libor- manipulators-sentenced/ 7. https://www.sfo.gov.uk/cases/libor-barclays/ 8. http://financialservices.house.gov/news/documentsingle. aspx?DocumentID=400908 9. http://en.sledcom.ru/news/item/1065053/ 10. https://www.sfo.gov.uk/2016/07/19/unaoil-investigation/ 11. http://www.bloomberg.com/news/articles/2016-08-17/soma- loses-u-k-court-bid-to-force-sfo-to-end-corruption-probe 12. http://www.sbmoffshore.com/?press-release=leniency- agreement-signed-brazilian-authorities-petrobras-sbm-offshore 13. http://www.teliacompany.com/en/newsroom/news/news/ press-releases/2016/9/the-u.s.-and-dutch-authorities-present- proposed-settlement-amount/ 14. https://www.theguardian.com/news/2016/sep/07/panama- papers-denmark-becomes-first-country-to-buy-leaked-data 15. https://www.ministerjustice.gov.au/Mediareleases/Pages/2016/ ThirdQuarter/New-cyber-team-to-target-terrorism-financing- and-financial-crime.aspx 16. https://www.ft.com/content/04322dcc-76a3-11e6-b60a- de4532d5ea35 17. http://www.wsj.com/articles/german-court-allows-lawsuits- against-volkswagen-to-move-forward-1470664803 18. https://www.sfo.gov.uk/2016/08/08/airbus-group-investigation/ 19. https://www.sec.gov/news/pressrelease/2016-151.html 20. https://www.sfo.gov.uk/cases/f-h-bertling-ltd/ 21. http://www.fifa.com/governance/news/y=2016/m=9/ news=investigatory-chamber-of-the-independent-ethics- committee-opens-formal-2831503.html 22. https://www.sec.gov/news/pressrelease/2016-187.html 23. https://www.sfo.gov.uk/2016/09/09/charges-tesco-investigation/ 24. http://globalinvestigationsreview.com/short-cut/2016/ september/07#1068438
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Weil, Gotshal & Manges October 2016 6 Q3 2016: Regulatory Round-Up White Collar Defence and Investigations Contacts
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