In late December, the United States Court of Appeals for the Second Circuit affirmed the conviction of Chi Ping Patrick Ho on seven counts alleging multiple FCPA and money laundering (and related conspiracy) violations.[1] The decision is notable for its construction of various FCPA provisions, and further demonstrates the expansive jurisdictional reach of anti-money laundering laws to dollar-denominated transfers.

Ho, a citizen of Hong Kong, served as an officer and director of the Hong Kong-based non-governmental organization China Energy Fund Committee (CEFC-NGO), which was funded by Shanghai-based energy conglomerate China CEFC Energy Company Limited (CEFC).[2] Ho also served as an officer and director of a CEFC-affiliated US non-profit (US NGO), funded by CEFC NGO.[3]

Ho’s conviction, for which he was sentenced to 36 months imprisonment and a US$400,000 fine,[4] stemmed from two alleged bribery schemes involving (1) an attempted US$2 million cash delivery to the President of Chad (which was purportedly rejected by the President) and (2) a US$500,000 wire transfer to a charity associated with the foreign minister of Uganda.[5] Notably, the US dollar-denominated wire originated from a bank in Hong Kong, which was transmitted through its operating unit in the United States as a correspondent to another bank in New York, which in turn was acting as a correspondent for a beneficiary bank in Uganda for final credit to an ultimate beneficiary NGO. Both acts were allegedly made for the benefit of CEFC’s commercial interests in Africa.[6]

Continue Reading United States v. Ho

Earlier this year, we wrote about a decision from the Fourth Circuit[1] that seemed to cast doubt on the legality of taint teams. Since then, two recent district court cases affirmed the legality of the practice, but emphasized limitations on government review of privileged material. These cases, together, suggest that the days of courts rubber-stamping whatever privilege review protocol the government proposes may be over, and provide a preview for how courts will handle privilege review in the future. In both, courts set limits on filter team review, ruling that sending non-privileged material straight to the prosecution without prior review by the privilege-holder fails to adequately protect the privilege-holder’s interests.

Continue Reading DOJ ‘Taint Team’ Practice Affirmed but Protocols Questioned

On November 16, the Health and Human Services (HHS) Office of Inspector General (OIG) issued a Special Fraud Alert highlighting fraud and abuse risks associated with payments to physicians related to speaker programs sponsored by pharmaceutical and medical device companies.

Despite the pharmaceutical and device companies’ longstanding use of speaker programs to educate heath care professionals about their products, OIG appears to take a different view of company-sponsored speaker programs, expressing doubt as to whether those programs have any educational value at all. Given prior guidance regarding the anti-kickback statute (AKS) risks posed by speaker programs, the health care industry is poised to discover the answer to two key questions: What does the new Special Fraud Alert really add to the mix? And, will the new Special Fraud Alert signal a new wave in AKS enforcement priorities? While only time will definitively answer both questions, this client advisory takes a closer look at the new Special Fraud Alert with a view towards managing compliance.

For more information, click here to read the full client advisory.

This month has so far seen two significant actions taken by the Department of Justice (DOJ) Antitrust Division (Antitrust Division) on wage-fixing and no-poach litigation and enforcement matters, which has shed additional light in an enforcement area that has needed it. Over the last few weeks, the Antitrust Division both served up its first indictment in a criminal wage-fixing case, and filed an amicus brief in a “no-poach” case to clarify its view of how the law should be interpreted relating to franchise agreements. Continue Reading A Busy Month for DOJ on No-Poach/Wage-Fixing Enforcement Front

One of the most difficult questions faced by any management team is whether, absent a legal, regulatory or statutory duty to do so, its company should commence an internal investigation. The answer is simpler when a law enforcement agency is knocking at the company’s door, when the company receives a request for information to which it is compelled to respond or when it is the subject of a whistleblower or adverse press report. However, it is perhaps far less simple when an investigation is being voluntarily contemplated to assess the general health of the company. What happens if an issue is identified that might otherwise have remained undetected, that leads to significant costs, demands on management time, adverse press and, perhaps worse still, regulatory sanction or criminal prosecution? Might it be better to let sleeping dogs lie?

The question as to whether to undertake a voluntary investigation is one that, for many years, has caused management teams to scratch their collective heads. Given the issues that have affected many companies as a result of the worldwide COVID-19 pandemic, the question is increasingly being raised. As a result of the effects of COVID-19, some companies were rushed into decisions that they might otherwise have spent more time considering, compliance processes were shortened or even overlooked, and employees were afforded more opportunity to take autonomous decisions, often within the less supervised confines of a remote environment. Is 2021 the time to revisit some of the decisions that were made over the past year and to lift up the floorboards?

In this article, we suggest some of the advantages and disadvantages of undertaking a proactive, voluntary internal investigation. We also consider some of the ways in which a company could mitigate those potential disadvantages.

Continue Reading The Benefits and Risks of Conducting an Internal Investigation: Is it Better to Let Sleeping Dogs Lie?

Increasingly frequent cross-border investigations have raised difficult questions of privilege and work product protection over the last few years. In the United States, attorney-client privilege protects confidential communications between attorneys and clients for the purpose of seeking or rendering legal advice, and the work product doctrine protects documents or materials prepared in anticipation of litigation from discovery. Not every country offers those protections. Although many other countries recognize some form of privilege or confidentiality between attorneys and clients, that privilege or confidentiality may be construed to cover a narrower subset of communications. International businesses therefore must recognize that communications deemed privileged in the United States may not be considered privileged in other countries. For example, in France in-house counsel are not considered members of a “bar” and professional secrecy typically does not protect communications between a company’s management and its in-house counsel. In Germany, privilege may apply to communications with in-house counsel in civil proceedings but not in criminal proceedings. Moreover, in those jurisdictions in which privilege is recognized, the circumstances under which privilege is waived also differ across jurisdictions. Japanese law, for example, provides no baseline attorney-client privilege although specific rules such as those issued by the Japan Fair Trade Commission may protect such communications when related to the particular subject matter. English law, on the other hand, is more similar to US attorney-client privilege but does not extend as safely to internal investigation notes. Under English law, documents generated during an internal investigation will only be privileged if the communication is with the narrowly defined “client,” the documents betray the trend of legal advice or litigation (which can include criminal proceedings) was in reasonable contemplation. Comparing France, Germany, Japan, England, and the United States exemplifies how decisions to disclose attorney-client communications to third parties may have different consequences in different jurisdictions, even if the disclosure may not effect waiver in the jurisdiction in which it is made. When these differences in privilege law are present, the question must be addressed: which privilege rule controls? The US Court of Appeals for the Second Circuit’s recent decision in Mangouras v. Squire Patton Boggs may offer new insight into that question.

For more information, click here to read the full client alert.

On Wednesday, November 18, 2020, head of the DOJ Antitrust Division, Makan Delrahim, signed a Memorandum of Understanding (MOU) between the DOJ and the Korean Prosecution Service (KPS) that supports increased cooperation between the two agencies in criminal antitrust enforcement and policy development. Delrahim was joined virtually by Prosecutor General Yoon from KPS for the signing ceremony.

In his signing ceremony remarks, Delrahim stated: “The Memorandum of Understanding is a shared recognition of the close ties between our agencies and our commitment to assisting one another in criminal cartel matters… [It] serves to memorialize and formalize what we have been implementing over the past few years.” He went on to highlight DOJ and KPS’s recent collaborations: shared enforcement training, cooperation and coordination on investigations, and exchange of information regarding policy initiatives.

Continue Reading DOJ Antitrust Division, Korean Prosecution Service Sign MOU

A little over a year after its creation the Procurement Collusion Strike Force has announced its first public indictments. The Strike Force was created to focus on rooting out collusion and related schemes aimed at impeding competition in public contracting. As DOJ made clear when the Strike Force was created, DOJ views price-fixing in government contracting as a particularly harmful since it directly harms U.S. taxpayers. The Strike Force includes prosecutors from both the DOJ Antitrust Division and United States Attorney’s offices, the FBI, and Inspectors General from the Department of Defense, the U.S. Postal Service, and the General Services Administration.

A federal grand jury in North Carolina indicted Contech Engineered Solutions LLC and Brent Brewbaker, a former executive at the company for their roles in a nearly decade-long conspiracy to rig bids for aluminum structure projects funded by the United States and the North Carolina Department of Transportation (NCDOT). Contech and Brewbaker were also charged with mail and wire fraud arising from acts in furtherance of the conspiracy. The case is part of a larger ongoing investigation into the aluminum structures industry.

Continue Reading Procurement Collusion Strike Force Issues Its First Indictment

In its 2019-2020 Annual Report (the Report), the UK’s sanctions office (the UK Office of Financial Sanctions Implementation (OFSI)) revealed that, between April 2019 and March 2020, it had received 140 voluntary disclosures of potential sanctions violations related to transactions worth a total of £982 million.  This represents a record number of reports, and an increase from the 99 reports concerning payments worth just over £262 million it received in the same period between 2018 and 2019.

According to the Report, the majority of the voluntary disclosures are being made by the banking and financial sectors, although reports are also being made by those in the legal, charity, insurance and travel sectors.  It is not clear from the Report whether the disclosures concern potential violations by the reporting company or whether they relate to potential violations by third parties.

OFSI’s Report also reveals that the agency has received more reports relating to potential breaches of sanctions in place against Libya, as compared to any other regime.  This is perhaps not surprising.  A 2019 parliamentary report revealed that the UK holds over £12 billion in blocked assets tied to former Libyan leader Muammar Gaddafi and his former associates.

Outside of the enforcement arena, the Report also sets out OFSI’s stall as to post- BREXIT arrangements including its engagement with international agencies, and the issuing of licences.

With the imminent end of the Brexit transition period and with the UK Foreign, Commonwealth and Development Office’s Sanctions Unit spreading its own message as to how UK sanctions policy and compliance will operate from 2021, could 2021 be the new dawn for OFSI with the further flexing of its enforcement muscles?

Who are OFSI?

OFSI was established in March 2016 and is part of Her Majesty’s Treasury (HMT).  Its role is to assist HMT in ensuring that financial sanctions are properly understood, implemented and enforced in the United Kingdom.  In April 2017, the agency gained significant new powers to impose civil monetary penalties under the Policing and Crime Act 2017 (PACA) for financial sanctions violations.  Under PACA, OFSI can impose civil monetary penalties for financial sanctions violations, of up to the greater of £1 million or 50% of the funds or assets involved, employing the lower civil standard of proof (namely, on the balance of probabilities) rather than the higher criminal standard (of beyond reasonable doubt).

Despite the new powers under PACA, OFSI has, until 2020, kept a low profile as compared to other regulators.  It has imposed only four penalties in its entire history; three of which hardly deserve a footnote in the annals of financial sanction enforcement fines.  In January 2019, OFSI imposed its first penalty of £5,000, followed by a penalty of £10,000 in March 2019 and then, in September 2019, a penalty of £146,341.  Its fourth penalty, against Standard Chartered Bank, was its first multi-million pound penalty and arguably a sign that those who write off OFSI as a regulator, may live to regret it.

On 31 March 2020, OFSI announced that it had imposed a £20.47 million fine on Standard Chartered Bank (a UK headquartered bank) for breaching sectoral sanctions imposed against Russia by the EU (which, at that time, included the UK).  The penalty was imposed following a voluntary report to OFSI by the bank in which it disclosed that it had lent approximately £266 million to the Turkish bank Denizbank A.Ş., at a time when Denizbank was majority owned by the Russian bank Sberbank and therefore subject to the sectoral sanctions.  According to OFSI, Standard Chartered Bank’s conduct represented a “most serious” breach of financial sanctions, although credit was given for Standard Chartered Bank’s investigative report as well as the fact that the bank did not willfully breach the sanctions regime, had acted in good faith, had intended to comply with the relevant restrictions, had fully co-operated with OFSI and had taken remedial steps following the breach.

OFSI is sharpening its teeth

Against the background of the Standard Chartered penalty, the Report is further evidence that OFSI is committed to establishing itself as a financial regulator with teeth.

The Report highlights that:

  1. Since its establishment less than five years’ ago, OFSI has achieved a number of milestones. Most notably, the number of voluntary disclosures made to it during the past year suggest that it is not just OFSI itself that views itself as integral to the UK government’s strategy to fight financial crime.  Participants in the UK also see the importance of OFSI in that fight.
  2. As detailed in our client alert “The UK’s Post-Transition Period Sanctions Regime – Continuity or Change?”, the end of the Brexit transition period does not signal an end of the UK’s engagement with financial sanctions compliance. The UK government remains committed to its autonomous financial sanctions regimes, and to ensuring that they are properly understood and enforced.
  3. Arguably the buzzword of almost every UK law enforcement agency too, the Report highlights OFSI’s current – and projected – “cooperation” with international agencies. The Report notes that, in the past year, OFSI has undertaken engagements in 83 countries across 6 continents, which is close to double the number of jurisdictions with which it engaged in the preceding year.  The focus of OFSI’s multilateral and international engagements was on “sanctions related to counter-terrorism and counter-proliferation”.  Co-operation doubtless brings OFSI increased resources, intelligence and zeal.
  4. Although outside the enforcement world, OFSI professes to have implemented measures to consolidate the licencing process and ensure that licences can be issued as fast as possible. At the end of the transition period, OFSI will also have the ability to issue “general licences” which, if granted, will permit the holder to undertake specific types of behaviour (typically, after notifying OFSI in advance) without the need for an application process.

Conclusion

Although it remains to be seen how robust OFSI’s sanctions enforcement will be, it is clear that the UK’s financial sanctions landscape continues to evolve and, as a result, OFSI’s importance is growing in stature and influence.  It should remain on the top of compliance agendas with a close eye focused on developments.

In what some are calling potentially “radical and seismic changes,” on 3 November 2020, the UK government announced that it had finished a three-year examination of the case for reform of the UK’s corporate criminal liability laws and tasked the Law Commission, an independent body designed to recommend legal reforms, to conduct further analysis and make recommendations for improvement. The Law Commission has said that it aims to publish its recommendations in late 2021.

With some limited exceptions (most notably, the section 7 offence under the UK Bribery Act 2010 and the facilitation of tax evasion offences under the UK Criminal Finances Act 2017), corporate criminal liability in the UK is based on the “identification principle.” This principle provides that a company can only be held criminally liable for financial crime offences if prosecutors can prove beyond reasonable doubt that the “directing mind and will” of the company committed or was aware of the misconduct.

Continue Reading The UK (Slowly) Inches Toward Corporate Criminal Liability Reform