In a speech on the Senate floor last week, Senator Chuck Grassley (R-IA) announced that he plans to introduce legislation aimed at limiting the scope of the Department of Justice’s False Claims Act dismissal authority. Specifically, Sen. Grassley’s anticipated legislation would require DOJ to state its reasons and provide whistleblowers who bring the cases an opportunity to be heard by the court whenever DOJ moves to dismiss a qui tam False Claims Act case.

Sen. Grassley, the author of the 1986 amendments to the FCA, described DOJ’s practice of dismissing charges in many of the FCA cases brought by whistleblowers as “especially ironic,” given the “massive increase” in government funding related to the COVID-19 response that has “created new opportunities for fraudsters trying to cheat the government.” According to Sen. Grassley, “[if] there are serious allegations of fraud against the government, the Attorney General should have to state the legitimate reasons for deciding not to pursue them in court.” Courts have been split on the justification DOJ must provide in moving to dismiss a case, with some courts ruling that DOJ has “virtually unfettered discretion” to dismiss qui tam suits, while other holding that DOJ must provide a “legitimate reason” for dismissal. Courts falling in the latter camp have set forth varying standards for how thorough DOJ must be in justifying a motion to dismiss a qui tam case. Sen. Grassley indicated that his proposed legislation would clarify these ambiguities and rein in DOJ’s dismissal authority.

Continue Reading Senator Grassley May Seek Limits on DOJ’s Authority to Dismiss Qui Tam FCA Complaints

Global settlements, Part 5 of this series, require careful attention by counsel and parties in parallel proceedings. A global settlement may include just one settlement agreement, but is more likely to include multiple settlement agreements with different government agencies (including foreign ones) that are coordinated. The goal is to ensure that the overall impact of the settlement terms or penalties imposed is fair to each agency’s interests based on the specific circumstances of the enforcement action, but not ruinous to the company.

To ensure a good foundation for pursuing a global settlement, it is crucial to understand the topics covered in Parts 1-4 of this series:

  1. We identified the potentially relevant US government agencies (and the possibility of non-US government agency involvement) in Part 1;
  2. In Part 2, we discussed how the investigation may be impacted by the involvement of multiple agencies;
  3. We provided guidance on voluntary self-disclosures (VSDs) to those agencies in Part 3; and
  4. In Part 4, we covered the management of interagency communication.

As we previously noted, each agency has different authorities, powers, priorities, and timing; and all of these should be factored into the global settlement discussions. Continuous communication during the investigation can help identify each agency’s interests and priorities.

Continue Reading US Export Controls and Economic Sanctions Investigations: The Perils of Parallel Proceedings (Part 5 of 5, Global Settlements)

On July 29, 2020, US District Judge Nathaniel M. Gorton sentenced Hercules Capital, Inc. Founder Manuel Henriquez to six months in prison for his part in the “Varsity Blues” college admissions scheme.[1] In addition to the six-month term, Judge Gorton also ordered Henriquez to complete 200 hours of community service and pay a $200,000 fine.[2] Henriquez’s sentence is one month less than that of his wife, Elizabeth Henriquez, who received a seven-month sentence on March 31, 2020.[3] Manuel Henriquez, who pled guilty on October 21, 2019,[4] is the 16th parent sentenced, and the last of four parents federal prosecutors dubbed “the most culpable parents charged.”[5]

Manuel Henriquez’s Conduct

Prosecutors alleged Henriquez and his wife paid William “Rick” Singer nearly $50,000 to facilitate cheating on their two children’s college entrance exams.[6] According to prosecutors, the Henriquezes cheated on more standardized test than any other co-conspirator: twice for their oldest daughter and three times for their youngest daughter.[7] Prosecutors also alleged that the Henriquezes paid Singer $400,000 in bribes to get their oldest daughter into Georgetown as a fake tennis recruit in 2016, and that Manuel Henriquez agreed to use his position as a prominent alumnus and former Member of the corporation at Northeastern University to advocate for the admission of one of Singer’s other students.[8]

Continue Reading Federal Judge Sentences Financier to Six Months in Varsity Blues Scandal

The following article was originally published in Law360 on July 29.

To address the issues surrounding the incidental seizure of privileged communications within a broader seizure of electronic data, the U.S. Department of Justice recently created a new Special Matters Unit within
the Fraud Section.

The unit will function as a specialized team to address privilege-related issues. It will oversee one of the DOJ’s favorite methods of privilege
review — the use of “taint teams.”

The timing of the creation of this unit may reflect concern over recent
court decisions that have criticized the way in which the DOJ uses taint teams. In any event, the new unit will no doubt affect the DOJ’s overall approach to privilege issues moving forward.

Click here to read the full article.

Once multiple agencies are engaged in a US export control or sanctions enforcement action, or you’ve determined they should be, counsel should consider how to communicate with these agencies, both individually and together. Not only will such discussions provide valuable insight to guide the conduct of the internal investigation, it could provide information about the government investigation, and could also facilitate a global resolution. Part 4 of our series on parallel proceedings discusses why counsel might seek the role of communication coordinator amongst the agencies, and how and when to do so.

Which agencies might be involved in this communication were identified in Part 1 of our series on parallel proceedings. We discussed how the involvement of multiple agencies might impact the investigation in Part 2, and we provided guidance on voluntary self-disclosures (VSDs) to those agencies in Part 3. There are opportunities to engage with the relevant agencies at various points in the investigation, all of which should be considered and carefully structured.

Continue Reading US Export Controls and Economic Sanctions Investigations: The Perils of Parallel Proceedings (Part 4, Managing Interagency Communication)

Companies that operate in more than one jurisdiction that are either carrying out an internal investigation or are subject to a criminal or regulatory investigation by U.S. law enforcement agencies will almost certainly need to consider the legality of trans-Atlantic data transfers.  Under European law, in particular, companies falling short in compliance with data protection laws could face fines of up to the higher of €20 million or 4% of annual global turnover.

With the introduction, in 2018, of the General Data Protection Regulation (“GDPR”) which generally prohibits (with some exceptions) the transfer of EU-based personal data outside of the European Economic Area (“EEA”) and other legislation, the overhaul of the EU data protection framework often leaves companies under investigation by U.S. law enforcement with tough decisions to make between complying with their obligations – or their wish – to meet U.S. prosecutors’ demands and abiding by relevant data protection laws.  In particular, some EU-based companies have found themselves at the receiving end of U.S. prosecutors’ requests or subpoenas for documents, in circumstances where compliance with them could potentially risk hefty domestic fines for breaching data protection laws.  There may also be other considerations to be borne in mind, such as relevant bank secrecy laws and common law rights to privacy, where a failure to comply with the relevant law could result in criminal sanctions including imprisonment.

Developments in U.S. and U.K. law, however, have introduced a framework for the legal cross-border transfer of data via cooperation between international authorities.  In addition to ensuring compliance with the GDPR and other privacy obligations in conducting data transfers,  U.S.- and U.K.-based communication service providers (“CSPs”)[1] should familiarize themselves with the recently signed U.K.-U.S. Bilateral Data Access Agreement (the “Agreement”).  The Agreement facilitates the objectives of the U.S. Clarifying Lawful Overseas Use of Data Act (the “CLOUD Act”) and the U.K. Crime (Overseas Production Orders) Act 2019 (the “COPOA”).  According to a communication by U.S. Attorney General William Barr to Congress earlier this year, the Agreement was scheduled to become effective on July 8, 2020, but there has been no official announcement from either the U.S. or U.K. governments on the status of the Agreement.  Indeed, earlier this month, the U.K. government anticipated that the Agreement would “come[] into use later this year[.]”  We discuss the implications of these developments and considerations for U.S.- and U.K.-based companies needing to transfer personal data[2] across the Atlantic to facilitate investigations.

Continue Reading Data Transfer Considerations in Investigations

The FBI, in a leaked intelligence bulletin, has made a high-confidence assessment on the likely use of Private Investment Funds (PIFs) by “threat actors” for money laundering. Threat actors are defined in the FBI report as financially motivated criminals and foreign adversaries, and PIFs are defined to include hedge funds and private equity funds.

Of note, the FBI “assumes AML programs are not adequately designed to monitor and detect threat actors’ use of private investment funds to launder money.” The FBI’s assumption is based on open source reporting from DOJ, as well as intelligence from corroborated human and financial sources. The FBI also lists examples which highlight threat actors’ use of shell companies to launder money, and the failure of the PIFs’ standardized due diligence, if any, in establishing the source of funds. In one case, the FBI noted the involvement of a “former partner of a major US law firm” who “assisted others in laundering more than $400 million . . . through a series of purported private equity funds holding accounts at financial institutions . . . to conceal and disguise the nature, location, source, ownership, and control of the proceeds.

While traditional US broker-dealer funds are required to have an anti-money laundering (AML) program, make Bank Secrecy Act filings, and perform customer due diligence, the FBI noted that these requirements are not mandated for PIFs, which are largely exempt from regulatory oversight by the Securities Exchange Commission and other federal financial regulatory authorities. As a result, even where PIFs had in place AML measures, the FBI assessed that money launderers could circumvent traditional AML programs.

Continue Reading FBI Assessment Notes AML Risk to Private Investment Funds from use of Standardized Due Diligence

This third post in our parallel proceedings series discusses how to reconcile the conflicting requirements of making voluntary self-disclosures (VSDs) to multiple agencies. We listed the relevant agencies in our first post, all of whom may be interested in a VSD, depending on the potential violations. In our second post, we discussed how to structure an investigation that involves those agencies. While none of these agencies imposes an absolute requirement to voluntarily disclose a violation (with limited exceptions where disclosure is required), they all offer significant benefits for doing so.

Where more than one agency is involved, disclosure of violations to each of the relevant agencies should be done simultaneously, including the Department of Justice (DOJ) if there is or appears to be potential willfulness or intent. When making the decision to disclose, the company should also consider any potential violations in related subject areas (i.e., anti-money laundering, customs, or anti-bribery and corruption laws).

Continue Reading US Export Controls and Economic Sanctions Investigations: The Perils of Parallel Proceedings (Part 3, Voluntary Disclosures)

On July 3, the US Department of Justice (DOJ) and Securities and Exchange Commission (SEC) issued the second edition of the Resource Guide to the US Foreign Corrupt Practices Act (the 2020 Guide), the first full-scope overhaul of the Resource Guide since its issuance in 2012. As with the original edition, the 2020 Guide will be an important desktop reference for all whose work touches this area, if not as the definitive word, at least to provide the current perspective of the key US enforcement agencies.

Click here to read Steptoe’s distillation of the top 10 changes to the 2020 Guide, along with a more detailed discussion of these and other updates.

We live in a world where, almost overnight, “social distancing” entered both our lexicon and our way of life. The constraints associated with keeping a minimum distance with one another have caused, and will continue to cause, significant difficulty for restaurants, pubs, bars, gyms, sporting events, concerts and more. Another established practice, however, also must address the reckoning that it too faces: the jury trial.

While the coronavirus pandemic temporarily brought jury trials in England and Wales to a grinding halt, jury trials had for some time prior been beset with pressures and challenges as a result of austerity measures. In January 2020, a report by barristers in the west of England found that Her Majesty’s Courts and Tribunals Service had cut the number of sitting days for courts in the region by 15%. This had led to “rocketing delays”, some courts being booked up for months on end. Amanda Pinto QC, chair of the Bar Council, noted that the problems were not confined solely to the west of England; indeed, at a national level, the average time from commission of offence to resolution at Crown Court increased from 392 days in 2010 to 525 days in 2019. According to Ms. Pinto, the issue was “fast becoming a national crisis.”

Continue Reading Trial by Jury: Inalienable Right or Anachronistic Practice?