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Thomson Reuters Presentation Business Ethics and Long Arm Enforcement The New Paradigm A Presentation to the Financial Services Club - Ireland 5th June 2013 David Bermingham Challenges Facing Businesses and Individuals in the new Paradigm The NatWest Three: A Cautionary Tale Understanding the nature of cross border regulation Convergence on the US-led model of civil/criminal enforcement Capitalism vs Morality: The new ethical paradigm 2 The NatWest Three Giles Darby David Bermingham Gary Mulgrew 3 The NatWest Three: Chronology of Events Mar 2000 Investment with CFO of Enron: Andy Fastow 19 Nov 2001 Report to FSA (suspect Enron insider dealing) 9 Jan 2002 Criminal Investigation into Enron Begins 4 Mar 2002 FSA gives the All Clear, sends files to SEC 12 Jun 2002 FBI fly to London. Meet with FSA and SFO 27 Jun 2002 NatWest Three charged with Wire Fraud 1 Jan 2004 Extradition Act 2003 comes into effect 13 Jul 2006 NatWest Three extradited to Texas 28 Nov 2007 NatWest Three enter into plea bargain 4 NatWest Three: International Co-Operation “The investigation that led to today's complaint was coordinated with Britain's Financial Services Authority, Britain's Serious Fraud Office and the Securities and Exchange Commission”. Deputy Attorney General Larry Thompson 5 NatWest Three: International Co-Operation 6 NatWest Three: International Co-Operation 7 The US Dimension Aggressive Extra-territorial Jurisdiction Prosecutors: Judge, Jury & Executioner System characterised by Threat and Bargain Individuals trade information, don’t offer it Companies and individuals may get caught in crossfire Politics and money are often the drivers Very few cases ever make it to court 8 The US Dimension Thompson Memorandum – Jan 2003 Corporate Indictments can be fatal Deferred Prosecution Agreements Companies required to waive attorney-client privilege and withhold legal fees for employees KPMG Tax Shelters: US v Stein & Others 98% Plea Bargain Rate The truth tends to be the first casualty 9 Extra-territoriality: Legislative Options Wire Fraud/FCPA/FATCA/OFAC….. We are all now subject to US law § 1343. FRAUD BY WIRE, RADIO, OR TELEVISION Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both. If the violation [........] affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both. 10 Modus Operandi: The Enron Template Enron files for bankruptcy protection Court appoints Bankruptcy Examiner Shareholder suits commence Criminal investigation begins (ETF: Mob Prosecutors) FBI uses Examiner as evidence gatherer - Targets institutions for DPAs Civil suits and criminal cases feed off each other Huge settlements by banks and accountants Individuals targeted for indictment 11 Corporate Indictments Kill Companies Arthur Andersen Plea Bargaining: Game Theory US v Olis (legal fees withheld) Standard Chartered/Libor Banks 12 Standard Chartered – Strained Ethics? Allegations of Iranian Sanctions Busting Investigation by multiple US agencies Wrongdoing strenuously denied by Standard Chartered Prosecutor Benjamin Lawsky threatens NY banking licence $340m settlement with NYDFS $327m settlement and DPA with other agencies Narrative ‘truth’ established Sir John Peace statement and retraction 13 Libor Fixing: Following the US Model Investigation led by CFTC and DoJ Local regulators way behind the curve Deferred Prosecution Agreements establish the narrative First in (Barclays) gets the best deal Will the ‘truth’ ever be known? Once DPAs all signed, indictments will follow Individuals will be thrown under the bus to save the firms Is this ethical behaviour? Politics, not justice, will likely determine forum of trials 14 Legalised Extortion? Wealth Transfer UK-US Barclays $360m GSK $3bn Standard Chartered $667m BP $4.5bn (criminal penalties only) HSBC $1.9bn UBS $1.2bn RBS $500m TOTAL $11.6BN IN 7 MONTHS….. “because that’s where the money is” (Willie Sutton) 15 Americanisation of the UK System Trend to follow the US lead Politicians focus on ‘outcomes’ Plea Bargaining (including immunity) Deferred Prosecution Agreements (s32 Crime & Courts Act 2013) Move for fines to go to the public purse Conflict of Interest? Extradition on demand It may be expeditious, but is it Justice? 16 Recognising the Issues US agencies flexing their muscles overseas Convergence on US model by regulators Companies reacting to regulators Emphasis on processes But the real issues tend to be with PEOPLE Needs a fundamental change of culture/behaviour And an awareness of the new paradigm 17 Capitalism vs Morality: Ethics by Force? First duty of a company is to shareholders Conflict between ethics and profits? Blurred distinction between unethical and illegal Who regulates the regulators?? Conflict between company and employee Leadership is the key Carrot & stick approach? Responsibility to educate, educate, educate….. 18 Capitalism vs Morality: Food for Thought www.dbsc.co.uk www.facebook.com/apricetopay www.apricetopay.co.uk 19 .
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