Source: https://www.skadden.com/insights/publications/2017/07/cross-border-investigations-update-july-2017
Timestamp: 2019-04-26 10:54:11+00:00

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This issue of Skadden’s semiannual Cross-Border Investigations Update takes a close look at recent cases and enforcement trends, including the new Criminal Finances Act 2017, increased regulatory scrutiny of Chinese companies and multinationals with a presence in China, and the U.S. Supreme Court ruling in Shaw.
Since the publication of our December 2016 issue, the following significant cross-border prosecutions, settlements and developments have occurred.
Global money services giant Western Union Financial Services, Inc. entered into a deferred prosecution agreement with the U.S. Federal Trade Commission (FTC), the DOJ and four U.S. Attorneys’ offices for aiding and abetting wire fraud and failing to maintain effective anti-money laundering controls. Between 2004 and 2012, third parties orchestrated international consumer fraud schemes whereby they contacted victims in the U.S. and falsely posed as family members in need or offered fictitious lottery winnings, then directed the victims to send money through Western Union to help their relative or claim their prize. Western Union agents allegedly were complicit in this scheme by processing hundreds of thousands of transactions, often in return for a cut of the fraud proceeds. Despite consumer complaints and repeated compliance reviews identifying suspicious or illegal behavior by its agents, Western Union almost never reported the suspicious activity to law enforcement. The company also implemented certain procedures that it allegedly knew were not effective in limiting transactions with characteristics indicative of illegal gambling from the United States to other countries. Under the agreement, Western Union agreed to forfeit $586 million to compensate victims, enhance its compliance policies and procedures regarding anti-money laundering and consumer fraud, and impose an independent compliance auditor for a term of three years.9 The company was also assessed a $184 million civil money penalty from the Financial Crimes Enforcement Network (FinCEN) related to the same underlying conduct.
British supermarket chain Tesco Stores Limited agreed to a deferred prosecution agreement (DPA) with the U.K.’s Serious Fraud Office (SFO) to settle allegations relating to the misstatement of profits in its 2014 accounts.13 In 2014, Tesco admitted to having overstated its profits by £326 million. Tesco recorded supplier contributions to its balance sheet that were conditional on meeting sales targets that Tesco was unlikely to meet. Under the DPA, Tesco agreed to pay a £129 million fine to the SFO and £85 million in compensation to shareholders who purchased shares between August 29, 2014, and September 19, 2014. Tesco also announced it had agreed with the Financial Conduct Authority’s finding of “market abuse” in connection with a trading statement issued by the company on August 29, 2014, which overstated expected profits due to the accounting errors.
Stuart Scott, a former U.K.-based HSBC trader, was arrested on June 5, 2017, by British authorities following an extradition request from the DOJ.14 Scott, former head of cash trading for Europe, the Middle East and Africa, was charged in the U.S. in July 2016 for his alleged involvement in a fraudulent scheme involving a $3.5 billion currency transaction. Scott and his co-conspirator, Mark Johnson (a fellow senior HSBC executive) are alleged to have rigged foreign exchange markets by misusing client information relating to the conversion of $3.5 billion into pound sterling by trading ahead of the transaction. This trading caused the price of sterling to rise, which led to HSBC’s client incurring a loss, while Scott and Johnson allegedly profited by approximately $8 million. The first hearing on the U.S. authorities’ extradition request is scheduled for July 31, 2017, in London.
Six months into the Trump administration, it appears that the Department of Justice (DOJ) will continue its focus on Foreign Corrupt Practices Act (FCPA) prosecutions.15 The statute was a department priority in the George W. Bush administration and pursued aggressively under the Obama administration. President Donald Trump’s 2012 comments strongly criticizing the statute have been widely reported: At the time, he contended that official corruption should be prosecuted by the authorities in the country in which it occurred, and he asserted that the statute disadvantaged U.S. companies — presumably by prosecuting them for conduct that non-U.S. companies routinely engaged in.
While such statements could suggest that the DOJ may de-emphasize FCPA prosecutions in the new administration, it is unclear whether President Trump still holds these views five years later, particularly in light of the changing landscape. Since 2012, some countries, including China, Brazil and the U.K., have strengthened their anti-corruption laws and more aggressively prosecuted companies for corruption offenses. Non-U.S. authorities also increasingly initiate and lead such prosecutions against both U.S. and non-U.S. entities, arguably leveling the playing field. Furthermore, a number of the DOJ’s recent prosecutions have targeted non-U.S. companies as well as U.S. companies, for conduct that primarily occurs overseas.
Along similar lines, the DOJ announced on March 10, 2017, that it will temporarily extend the pilot program initiated in April 2016 that seeks to quantify benefits from voluntary self-disclosure of corruption-related conduct, full cooperation with the DOJ and remediation of any compliance deficiencies. Attorney General Sessions noted that these principles will continue to guide the DOJ’s prosecutorial discretion.
While it remains to be seen whether the DOJ will continue to impose the same hefty fines in new FCPA prosecutions that it has in recent years, the DOJ is nonetheless signaling that it will continue to invest significantly in its FCPA unit and not shift its priorities away from FCPA enforcement.
The failure of Prime Minister Theresa May’s Conservative Party to win a majority in the U.K.’s general election on June 8, 2017, has seen a previous manifesto pledge from Prime Minister May to merge the Serious Fraud Office (SFO) with the National Crime Agency (NCA) shelved, at least temporarily. The Conservative manifesto advocated a controversial merger between the two entities on the basis that it would improve intelligence sharing and aid the investigation of serious fraud, money laundering and financial crime. However, the plans were not included in the new government’s Queen’s Speech, which set out the legislative program for Parliament for the next two years. It remains to be seen whether proposals to merge or otherwise reform the SFO will re-emerge during the tenure of the current Conservative minority government, though the SFO’s conduct in opening a number of new investigations and announcing significant charging decisions — most recently against four senior Barclays executives in relation to emergency cash injections into Barclays by Qatari investors during the 2008 financial crisis — indicates that the ongoing debate over reform of the SFO is unlikely to have any significant practical impact in the short term.
Chinese companies and multinationals with a presence in China are facing increased scrutiny from U.S. and Chinese regulators. Four aspects of the current regulatory environment are responsible for this increased scrutiny: (i) the Department of Justice (DOJ) and Securities and Exchange Commission’s (SEC) embrace of the Foreign Corrupt Practices Act’s (FCPA) “territorial theory of jurisdiction”; (ii) the U.S. government’s continued enforcement of international sanctions and export controls; (iii) China’s ongoing anti-corruption campaign; and (iv) increased cooperation between U.S. and Chinese authorities.
Under the territorial theory of jurisdiction, even fleeting contacts with the U.S. — e.g., a physical meeting on U.S. territory, wire transfers through U.S. bank accounts, and emails transmitted and stored on U.S. servers17 — may be sufficient to provide the U.S. authorities with the requisite jurisdiction to charge the entity or persons involved, so long as those U.S. contacts can be said to be “in furtherance of” alleged bribery.
Last year, the DOJ entered into a settlement with the two Chinese subsidiaries of PTC Inc. (PTC China), the Massachusetts-based technology company, that illustrates the expansive scope of this theory of jurisdiction. The DOJ and SEC claimed that PTC China bribed Chinese government officials with trips to Los Angeles, Las Vegas and Hawaii, in return for contracts with state-owned entities worth more than $13 million. The DOJ and SEC asserted jurisdiction based solely on Chinese employees’ travel to the U.S. in the company of Chinese government officials. That was sufficient to enable the DOJ to assert jurisdiction over PTC China, and to charge it in a U.S. court, even though the two PTC China entities in question were not listed in the U.S. and did not have a physical presence in the U.S. PTC China subsequently paid the DOJ and SEC approximately $28 million in penalties and disgorgement, far exceeding the $13 million in contracts associated with the improper payments.
We also expect enhanced regulatory enforcement activity regarding Chinese companies and nationals in the area of economic sanctions and export controls.
Whether or not these actions intentionally were closely timed, together they amplify the message that enforcement of U.S. sanctions and export control laws will be a top priority in the new administration.22 Lest there be any doubt, the unusually blunt press statements issued by the authorities in the ZTE case — that “the world” is put “on notice [that] the games are over,” that the U.S. government “will use every tool we have to punish” violators, who “will suffer the harshest of consequences” — forcefully underscore the point.
Scrutiny by the U.S. authorities is only part of the picture. Now in its sixth year, China’s anti-corruption campaign shows no sign of waning. On a regular basis, the Chinese state media continue to feature the latest fallen “tigers,” including senior officials of Chinese state-owned enterprises. In the past few years, the Chinese government regularly uses the media to expose alleged corporate malfeasance, including wrongdoing by foreign companies that purportedly were to blame for various quality-of-life issues.
For example, on December 24, 2016, reporters with the China Central Television, equipped with video and audio equipment, went “undercover” to several Chinese hospitals to expose kickbacks that sales representatives of pharmaceutical companies allegedly paid doctors in exchange for writing more prescriptions. The popular Chinese TV program “315 Gala” — aired each year on March 15 to coincide with World Consumers’ Rights Day — “names and shames” companies for committing abuses that allegedly hurt Chinese consumers. Recent targets have included such well-known foreign brands as Apple, Hewlett-Packard, McDonald’s, Muji, Nike, Starbucks and Volkswagen. Alleged offenses ran the gamut from false advertising to food safety violations. In addition to damage to their reputations, the targeted companies faced the prospect of follow-on enforcement action by the Chinese authorities.
Further compounding the challenge for multinational companies is the new fact that law enforcement authorities in different jurisdictions, including those in the U.S. and China, are finding ways to bridge their differences and to advance cases of common interest. In the last two years, despite the absence of an extradition treaty, the U.S. has repatriated a number of high-profile Chinese fugitives who have been accused by the Chinese government of corruption. With less fanfare and out of public view, the U.S. authorities also have been able to obtain reciprocal assistance from the Chinese government on criminal matters. With increasing ease, prosecutors in the two countries are able to share information pursuant to the principle of reciprocity through various informal mechanisms.
The confluence of factors described above makes it all the more imperative for multinational companies with operations in China to ensure that their local compliance programs are robust enough to prevent wrongdoing and detect misconduct early. In the event of violations, companies should be alert to the likelihood that the same conduct may attract scrutiny from both U.S. and Chinese regulators, and perhaps other authorities, and should develop their responses with this possibility in mind.
Since December 2016, the English High Court has handed down two significant rulings that question the application of privilege in internal investigations. First, in RBS Rights Issue Litigation, the English High Court limited the availability of legal advice privilege and narrowed the application of the lawyers’ working papers doctrine in respect of interview notes prepared for the purposes of an internal investigation.25 The case arose in the context of a group litigation brought by thousands of claimants against the Royal Bank of Scotland (RBS) concerning the prospectus for a £12 billion fundraising in 2008 that allegedly was inaccurate. In the course of the proceedings, investors sought disclosure of interview notes taken by RBS’ internal and external legal counsel during internal investigations conducted for the bank. RBS sought to block access to these notes on two grounds, first, claiming legal advice privilege and, second, on the basis of the lawyers’ working papers doctrine.
The judgment, summarized below, raises important considerations for corporate clients seeking to obtain the benefit of legal advice privilege in England and Wales or seeking to rely on the lawyers’ working papers doctrine with respect to lawyers’ interview notes. The definition of the “client” for the purposes of legal advice privilege remains narrow and the privilege will only extend to communications between counsel and employees authorized to instruct and obtain legal advice on the corporation’s behalf. The lawyers’ working papers doctrine will only provide protection from disclosure of interview notes if the notes provide a clue as to the trend of legal advice being given to a client; verbatim transcripts or notes with mental impressions alone will not be protected. Further, the court did not accept RBS’ argument that privilege should be determined in accordance with U.S. law on the basis that the interview notes were prepared by or on behalf of U.S. law firms in the context of internal investigations.
Second, in the subsequent case Director of the Serious Fraud Office v. Eurasian Natural Resources Corporation, the judge followed the narrow interpretation of the “client” in the context of legal advice privilege of interview notes taken by lawyers for Eurasian Natural Resources Corporation (ENRC), among other things, prior to the commencement of criminal proceedings.26 The judge also restrictively interpreted the requirements for litigation privilege, which is of particular concern for interviews conducted during the course of an internal investigation. An application for permission to appeal is currently being considered by the English Court of Appeal.
Legal advice privilege attaches to confidential communications between a lawyer and a client where the communications have as their dominant purpose the giving or receiving of legal advice. RBS argued that the interview notes recorded communications between lawyers and persons authorized by RBS to give instructions to its lawyers.
The judge narrowly defined the “client” for the purposes of analyzing the application of legal advice privilege. The judge, relying on precedent, held that only those who are authorized to seek and receive legal advice on behalf of a corporate body classify as a “client” for purposes of the privilege. He concluded that the mere authority to provide factual information to lawyers is not sufficient to render the individual providing that factual information a client, and for that reason, RBS could not establish legal advice privilege with respect to the interview notes.
Some commentators have suggested that a “client” includes only those who are the “directing mind and will” of a corporate organization. Although the judge in this case did not make a determination on that issue, he stated that he was inclined to accept that view as correct.
This court followed the restrictive interpretation of the “client” in the subsequent case Director of the Serious Fraud Office v. Eurasian Natural Resources Corporation, holding that legal advice privilege only attaches to “communications between the lawyer and those individuals who are authorised to obtain legal advice on that entity’s behalf.”27 It was not sufficient that interviewees were authorized to communicate information and facts to the lawyers in order to enable them to provide legal advice. Employees falling within the definition of the “client” would be those tasked with obtaining the advice.
Lawyers’ working papers are privileged under the doctrine of legal professional privilege on the ground that the papers may betray, or “give a clue” to, the nature of advice that has been given to the client.
The starting point for the judge in the present case was that if RBS was not entitled to claim legal advice privilege over the interview notes, the interviews themselves must not have been privileged communications. That is, verbatim transcripts of an unprivileged interview could not be privileged. It was therefore incumbent on RBS, if it wanted to obtain the benefit of the lawyers’ working papers doctrine, to show that there was some attribute or addition to the interview notes that distinguished them from verbatim transcripts or revealed the nature of the legal advice given by RBS’s lawyers. One clear way to establish that the notes would reveal legal advice would be if the notes recorded counsel’s own thoughts or comments with a view to advising the client.
RBS also argued that the issue of privilege should be determined in accordance with U.S. law on the basis that the interview notes were prepared by or on behalf of U.S. law firms in the context of internal investigations, some of which arose from subpoenas from the U.S. Securities and Exchange Commission, broadly relating to RBS’s subprime exposures. However, based on the English choice of law rules, the judge held that privilege was to be determined in accordance with English law and that U.S. law was not applicable.
The final argument raised by RBS was that the judge should exercise his discretion under the English High Court’s Civil Procedure Rules to order that disclosure and inspection of the interview notes be prohibited. RBS argued that it had a right to withhold inspection under U.S. law and a reasonable expectation that the interview notes would remain privileged. The judge accepted that he had discretion but emphasized there is a general public policy that leans heavily in favor of disclosure, which can only be displaced where there are compelling grounds to do so, and such grounds were not present on the facts of this case.
The RBS Rights Issue Litigation case is significant because of its very narrow interpretation of the “client” for purposes of the legal advice privilege, its application of the lawyers’ working papers doctrine to interview memoranda, and the choice of law decision which resulted in the privilege being determined in accordance with English law rather than U.S. law.
The narrow interpretation of the “client” causes significant problems for corporate bodies wishing to obtain the benefit of legal advice privilege. This means that legal advice privilege will onl extend to communications with employees authorized to instruct and obtain legal advice from lawyers. It will not cover communications with employees who only provide factual information to lawyers, even if those employees are authorized to instruct lawyers and even if the information is needed by the lawyers in order to advise the corporate client. Although the judge granted a right to appeal directly to the Supreme Court (subject to the Supreme Court granting permission to appeal), RBS amended its case and the disputed documents were no longer relevant to the issues to be determined, and therefore no appeal will take place.
The application of the lawyers’ working papers doctrine is important in confirming that under English law, verbatim transcripts of unprivileged interviews will not be privileged. In order to obtain protection of interview notes, it will be necessary for interview notes to have some attribute that gives a clue as to the trend of legal advice being given to a client. The mere fact that interview notes are not a verbatim transcript, reflect a line of inquiry or include mental impressions will not be sufficient.
The restrictive application of the rules surrounding litigation privilege could dramatically impact the practice of internal investigations in the U.K., particularly those that are undertaken to address whistleblower allegations or compliance concerns prior to a formal enquiry by an external regulator.
Following a record year of Foreign Corrupt Practices Act (FCPA) enforcement in 2016, the Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) kicked off the new year by bringing enforcement actions against two companies concerning prior FCPA settlement agreements. While two cases do not necessarily make a trend, these actions shed light on the government’s aggressive approach to corporations who the government believes violate the terms of their deferred prosecution agreements (DPAs) and settlement orders.
In calculating Biomet’s penalty under the U.S. sentencing guidelines, the government increased Biomet’s culpability score for committing an offense less than five years after the 2012 DPA, and decreased it by the same amount in recognition of the company’s full cooperation and acceptance of responsibility. It imposed a fine in the middle of the guidelines range.
The increased use of NPAs and DPAs as settlement vehicles to resolve corporate FCPA investigations is part of a broader, long-term government strategy to motivate self-reporting and cooperation by “rewarding” companies that voluntarily self-disclose FCPA violations and cooperate with government investigations.46 The Biomet and Orthofix cases suggest that the government is willing to aggressively pursue noncompliance and punish according to the terms of its settlement agreements.
The revised guidelines continue to apply an effects-based analysis as to all IP areas and do not adjust that practice for any specific IP licensing activity. Indeed, the guidelines emphasize that for the purpose of antitrust analysis, they apply the same analysis to conduct involving intellectual property as to conduct involving other forms of property. The guidelines note that the Agencies do not presume that intellectual property creates market power in the antitrust context, and that the antitrust laws generally do not impose liability on a firm for a unilateral refusal to assist its competitors. The guidelines also note that there is no liability for excessive pricing without anticompetitive conduct; even if an intellectual property right confers market power, that market power alone does not violate the antitrust laws. Moreover, the guidelines make clear that while some licensing activities among horizontal competitors51 may be so plainly anticompetitive as to be challenged under the per se rule, the rule of reason governs purely vertical IP licensing restraints, including minimum resale price maintenance — a change to the prior guidelines in light of the Supreme Court’s decision in Leegin Creative Leather Products, Inc. v. PSKS, 551 U.S. 877 (2007), which held that vertical minimum resale price maintenance agreements were not per se illegal under the Sherman Antitrust Act, but rather the rule of reason was the appropriate standard for evaluating vertical price constraints.
The Agencies also address the global nature of IP licensing and acknowledge that if a sufficient nexus to the United States exists, and considerations of international comity and foreign government involvement do not preclude investigation or enforcement, the guidelines will apply equally to all licensing arrangements.
The updates to the Antitrust Guidelines for International Enforcement and Cooperation attempt to give businesses transacting overseas a roadmap of the Agencies’ current practices and an analytical framework for determining whether to initiate and how to conduct investigations with an international dimension.
Acting Assistant Attorney General Renata Hesse explained the impetus for the revised international guidelines, stating that “anticompetitive conduct that crosses borders can adversely affect our commerce with foreign nations. The Department’s antitrust enforcement is focused on ending that conduct in order to protect consumers and businesses in the United States.”52 The revisions reflect developments in the Agencies’ practices and in the law since the guidelines were last updated in 1995, particularly in light of increasing globalization and the tremendous expansion in trade between the United States and other countries in the last two decades.
The revised guidelines provide several important updates to the previous guidelines. Notably, the revised guidelines add a chapter on international cooperation. This chapter explains that the Agencies are committed to cooperating with foreign authorities on both policy and investigative matters. This cooperation may include initiating informal discussions and informing cooperating authorities of the different stages of investigations, engaging in detailed discussions of substantive issues, exchanging information, conducting interviews at which two or more agencies may be present, and coordinating remedy design and implementation. The new chapter also addresses the Agencies’ use of investigative tools (such as civil investigative demands and subpoenas) outside of the United States, application of confidentiality safeguards under U.S. law to information received both domestically and abroad, the legal basis for cooperation with foreign authorities, types of information exchanged with foreign authorities and waivers of confidentiality, remedies and potential conflicts with remedies contemplated by the Agencies’ foreign counterparts, and special considerations in criminal investigations.
This update to the guidelines also provides more clarity as to the application of U.S. antitrust law and agency practice to conduct involving foreign commerce, particularly with respect to the Foreign Trade Antitrust Improvements Act, foreign sovereign immunity, foreign sovereign compulsion, the act of state doctrine and petitioning of sovereigns. The guidelines include revised illustrative examples focused on commonly encountered issues in order to provide more effective guidance to businesses engaged in international activities.
The updates to the Antitrust Guidelines for the Licensing of Intellectual Property and the Antitrust Guidelines for International Enforcement and Cooperation were the last formal guidance published by the Agencies in the Obama administration. These updates should not prove controversial in the Trump administration, however, as the revisions are more a modernization of the 1995 guidelines to reflect developments in the law and advances in the way business is conducted, rather than a major overhaul of the guidelines. Indeed, since the inauguration, FTC Acting Chairwoman Ohlhausen has affirmed her support for the updates, noting that the revised IP Licensing Guidelines “will continue to protect strong IP rights in the United States”53 and that the revised Guidelines for International Enforcement and Cooperation “contain important limits on the agencies’ pursuit of extraterritorial remedies.”54 These views likely will be echoed by the DOJ if President Trump’s nominee for assistant attorney general for the Antitrust Division, Makan Delrahim, is confirmed. Mr. Delrahim’s previous stint at the DOJ from 2003-2005 included significant work in the areas of international cooperation and intellectual property policy. In that role, Mr. Delrahim repeatedly confirmed the position that antitrust enforcement policies both in the United States and abroad should be designed so as not to interfere with or discourage the legitimate exploitation of intellectual property rights.
The new Criminal Finances Act 2017 (Act) introduces a series of new provisions that reflect the government’s commitment to “clean up” the U.K. as a finance destination for foreign investors, as well as the recent momentum toward supporting domestic and cross-border enforcement actions by U.K. authorities by equipping them with effective investigatory tools and reducing the process-burdens that they face.
Among the most significant changes are the new corporate offense of failure to prevent the criminal facilitation of tax evasion (Failure to Prevent), which imposes criminal liability on businesses that fail to implement reasonable procedures to prevent their employees, agents and other persons providing services for or on behalf of the business from criminally facilitating tax evasion, and the introduction of unexplained wealth orders (UWOs), which require politically exposed persons and those suspected of committing serious crimes to explain the sources of their wealth.
failure by the Relevant Body to implement reasonable procedures to prevent its Associated Person from committing a tax evasion facilitation offense.
Thus, a U.K. Relevant Body may be found guilty of an offense if an Associated Person committed a U.K. tax evasion facilitation offense, and it did not have reasonable prevention procedures in place to prevent the commission of that offense. It is striking that the Failure to Prevent offense has a broad extraterritorial scope. The Act criminalizes foreign Relevant Bodies for U.K. tax evasion facilitation offenses. It also criminalizes U.K. Relevant Bodies for foreign tax evasion facilitation offenses, provided that such conduct also amounted to an offense in the U.K. A Relevant Body that carries on at least part of its business in the U.K. may be found guilty if an Associated Person committed a foreign tax evasion facilitation offense, or where any conduct constituting at least part of the foreign tax evasion facilitation offense took place in the U.K.
The Act closely mirrors Section 7 of the Bribery Act 2010, which imposes corporate liability for failing to prevent bribery, but the Act noticeably does not require evidence of any benefit to the Relevant Body from the tax evasion facilitation offense. In light of its extraterritorial reach in prosecuting the new offenses, it is likely that the U.K.’s Serious Fraud Office (SFO) and other U.K. enforcement authorities will track the practice that the SFO has adopted with regard to Bribery Act offenses, in particular the recent collaborative approach taken with foreign authorities. Investigations into global financial institutions and other large, commercial Relevant Bodies will require a coordinated approach by the authorities, and in this regard HMRC has confirmed that DPAs will be available for Failure to Prevent.
The Act expressly states that it is immaterial whether the conduct of the Relevant Body, Associated Persons or persons committing the underlying tax evasion offense takes place in the U.K. or a foreign jurisdiction (except in the case of a foreign tax evasion facilitation offense where the Relevant Body is neither a U.K. entity nor carries out part of its business in the U.K.). Accordingly, any evidence-gathering of potential U.K. and foreign tax evasion and facilitation offenses may require close coordination between the enforcement authorities of different jurisdictions.
The Failure to Prevent offense is of particular importance for financial institutions, requiring the implementation of reasonable preventative procedures to protect against liability by the time that the new corporate offense comes into force on September 30, 2017. The shift in burden of proof to the Relevant Body reduces the evidential burden for the enforcement authorities, placing Relevant Bodies at a relative disadvantage to the SFO.
As with the new Failure to Prevent offense, UWOs are intended to alleviate the burden on enforcement authorities. They will have a wide-ranging scope to gather evidence in other jurisdictions and to potentially support parallel enforcement actions.
The Act creates a new process for a number of U.K. regulators and enforcement agencies to apply to the High Court for a UWO, regardless of whether civil or criminal proceedings have been initiated against the respondent or whether the respondent is located in another jurisdiction.
There must be reasonable cause to believe that the respondent holds the property and that the value of the property is greater than £50,000. The respondent must also either be (i) a politically exposed person or (ii) someone for whom there are reasonable grounds for suspecting that he/she 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 lawfully obtained income would be insufficient for the purposes of enabling the respondent to obtain the property. The Act casts a wide net for the category of respondents to include anyone who is connected with a person who is or has been involved in serious crime, whether in the U.K. or another jurisdiction.
A UWO requires respondents to provide certain information about the specified property, including the nature and extent of the respondent’s interest, how it was obtained, and any other information specified in the order. Aside from contempt of court proceedings, failing to respond to a UWO creates a rebuttable presumption that the property is recoverable in civil proceedings, which reduces the burden imposed on enforcement authorities under the current Proceeds of Crime Act 2002 (PoCA) civil recovery regime to prove that property derives from criminal conduct or constitutes the proceeds of crime.
The Act also provides that a criminal offense is committed if a respondent intentionally or recklessly gives a false or misleading statement in response to a UWO, with a maximum penalty of two years’ imprisonment.
A respondent’s statements in response to the UWO cannot be used as evidence against the respondent in criminal proceedings, but the Act empowers the relevant enforcement authorities to take copies of any documents produced by the respondent in complying with the UWO and does not impose any restrictions on the information-sharing.
Based on the breadth of the potential respondents, enforcement agencies would be able to use UWOs as an evidence-gathering tool against associates and parties connected to the primary target of any enforcement action and potentially share this information with other U.K. and foreign enforcement authorities.
UWOs and the new Failure to Prevent offense follow the Bribery Act 2010 in attempting to facilitate enforcement actions against individuals and companies. By focusing on the individuals who act on behalf of companies, rather than by trying to attribute criminality through the “controlling mind” of the company, the U.K. government no doubt intends for the use of UWOs and the enforcement of the Failure to Prevent offense to mirror the growth in successful prosecutions for international bribery and corruption.
On December 12, 2016, the U.S. Supreme Court unanimously held that the fraudulent wiring of funds out of a bank customer’s account was sufficient under the federal bank fraud statute to sustain a conviction for defrauding a financial institution — even though the bank did not suffer any financial loss. The Court held that the bank had a property interest in the funds sufficient to trigger culpability under the first prong of the bank fraud statute, 18 U.S.C. § 1344(1), which prohibits knowingly executing or attempting to execute “a scheme or artifice to defraud a financial institution.” The primary consequence of Shaw may be that it emboldens prosecutors to bring bank fraud charges in a wider variety of cases to take advantage of the bank fraud statute’s 10-year statute of limitations and 30-year maximum prison sentence.
The Court found that a bank has certain property rights in funds that it holds for customers, such as the right to use the funds as a source of loans, from which the bank can profit. Thus, the Court held that knowingly misleading a bank to obtain funds that the defendant knows are held at the bank is sufficient to sustain a bank fraud conviction under Section 1344(1), even where the bank was not the intended victim of the fraud and where the bank did not suffer any financial loss.
In rejecting Shaw’s argument that he did not intend to defraud a financial institution, the Court found that for the purposes of the bank fraud statute, a scheme to obtain funds fraudulently from a bank depositor’s account also constitutes a scheme to obtain property fraudulently from a financial institution, at least where the defendant knew that the bank held the deposits, the funds obtained came from the deposit account and the defendant misled the bank to obtain the funds. The Court explained that when a customer deposits funds, the bank typically becomes the owner of the funds and can, for example, use the funds as a source of funding for loans. The Court noted that even where the contract between the bank and the customer specifies that the customer retains ownership of the funds, the bank still is akin to a bailee and can assert the right to possess the funds against anyone except the bailor. Accordingly, the Court found that a scheme to take funds from a bank customer was also a scheme to deprive the bank of certain property rights.
It is unclear how Shaw will impact the application of the bank fraud statute. While the Court has now made clear that financial institutions have a property interest in the funds deposited in accounts that they hold for customers, federal prosecutors already were able to charge bank fraud for fraudulent schemes to obtain assets held in the custody of a bank, using the “custody or control” provision of the second clause of the bank fraud statute.57 However, to the extent that the ruling expands the use of the bank fraud statute even marginally, the expansion is significant, given the statute’s 10-year limitations period and hefty 30-year maximum prison sentence.
1 See DOJ press release “Teva Pharmaceutical Industries Ltd. Agrees to Pay More Than $283 Million to Resolve Foreign Corrupt Practices Act Charges” (Dec. 22, 2016).
2 See SEC press release “Wire and Cable Manufacturer Settles FCPA and Accounting Charges” (Dec. 29, 2016); DOJ press release “General Cable Corporation Agrees to Pay $20 Million Penalty for Foreign Bribery Schemesin Asia and Africa” (Dec. 29, 2016).
3 See DOJ press release “Chilean Chemicals and Mining Company Agrees to Pay More Than $15 Million to Resolve Foreign Corrupt Practices Act Charges” (Jan. 13, 2017).
4 See DOJ press release “Former Guinean Minister of Mines Convicted of Receiving and Laundering $8.5 Million in Bribes From China International Fund and China Sonangol” (May 4, 2017).
5 See DOJ press release “U.S. Navy Admiral and Eight Other Officers Indicted for Trading Classified Information in Massive International Fraud and Bribery Scheme” (Mar. 14, 2017).
6 See Global Investigations Review, “EBRD Official in Harder FCPA Case Found Guilty in London” (June 8, 2017); Global Investigations Review, “Dmitrij Harder Pleads Guilty to Bribing EBRD Official” (Apr. 20, 2016).
7 See DOJ press release “Former Chairman and CEO of Credit Union and Operator of Unlawful Bitcoin Exchange Found Guilty in Manhattan Federal Court of Bribery and Fraud Scheme” (Mar. 17, 2017).
8 See New York State Department of Financial Services press release “DFS Fines Intesa Sanpaolo $235 Million for Repeated Violations of Anti-Money Laundering Laws” (Dec. 15, 2016).
9 See DOJ press release “Western Union Admits Anti-Money Laundering and Consumer Fraud Violations, Forfeits $586 Million in Settlement With Justice Department and Federal Trade Commission” (Jan. 19, 2017).
10 See FCA press release “FCA Fines Deutsche Bank £163 Million for Serious Anti-Money Laundering Controls Failings” (Jan. 31, 2017).
11 See DOJ press release “Volkswagen AG Agrees to Plead Guilty and Pay $4.3 Billion in Criminal and Civil Penalties; Six Volkswagen Executives and Employees Are Indicted in Connection With Conspiracy to Cheat U.S. Emissions Tests” (Jan. 11, 2017).
12 See DOJ press release “Bumble Bee Agrees to Plead Guilty to Price Fixing” (May 8, 2017).
13 See The Telegraph, “Tesco Pays £129m to Settle Serious Fraud Office Probe Into Accounting Scandal” (Mar. 28, 2017); SFO press release “SFO Agrees Deferred Prosecution Agreement With Tesco” (Apr. 10, 2017).
14 See Reuters, “Former HSBC Trader in Forex Probe Arrested by UK Police” (June 8, 2017).
15 Portions of this article were published in “Skadden’s 2017 Insights,” January 2017.
16 Trevor N. McFadden, Acting Principal Deputy Assistant Attorney General, Criminal Division, Department of Justice, Speech at ACI’s 19th Annual Conference on Foreign Corrupt Practices Act (Apr. 20, 2017).
17 See, e.g., Information ¶¶ 20(e), 22, United States v. JGC Corp., No. 4:11-cr-00260, (S.D. Tex. Apr. 6, 2011), ECF No. 1 (wire transfers through correspondent bank accounts in the United States in furtherance of a bribery scheme may be sufficient to satisfy territorial jurisdiction), Information ¶¶ 2, 24, 26(c), 47, United States v. Magyar Telekom, Plc., No. 1:11CR00597 (E.D. Va. Dec. 29, 2011), DCF No. 1 (territorial jurisdiction based solely on the transmission and storage of two emails on U.S. servers).
18 See Jamie Boucher et al., “US Announces Record-Setting Penalties for Violations of Export Controls and Economic Sanctions” (Mar. 9, 2017).
19 See CNN, “Tillerson to Warn China of Sanctions Over North Korea” (Mar. 16, 2017); Time, “Secretary of State Rex Tillerson Urges China-U.S. Cooperation on North Korea” (Mar. 18, 2017).
20 See Department of State press release “Iran, North Korea, and Syria Nonproliferation Act Sanctions” (Mar. 24, 2017).
21 See Department of the Treasury press release “Treasury Sanctions Agents Linked to North Korea’s Weapons of Mass Destruction Proliferation and Financial Networks” (Mar. 31, 2017).
22 See Department of Commerce press release “Secretary of Commerce Wilbur L. Ross, Jr. Announces $1.19 Billion Penalty for Chinese Company’s Export Violations to Iran and North Korea” (Mar. 7, 2017).
23 Kenneth A. Blanco, Acting Assistant Attorney General, Criminal Division, Department of Justice, Speech at the American Bar Association National Institute on White Collar Crime (Mar. 10, 2017).
24 See DOJ press release “United States Returns $1.5 Million in Forfeited Proceeds from Sale of Property Purchased with Alleged Bribes Paid to Family of Former President of Taiwan” (July 7, 2016).
27  EWHC 1017 (QB) ¶ 70.
28 Justice Andrews agreed with this approach in Director of the Serious Fraud Office v. ENRC.
29  EWHC 1017 (QB) ¶ 154.
30 See Deferred Prosecution Agreement, United States v. Zimmer Biomet Holdings, Inc., No. 1:12-cr-00080-RBW (D.D.C. Jan. 12, 2017); DOJ press release “Zimmer Biomet Holdings Inc. Agrees to Pay $17.4 Million to Resolve Foreign Corrupt Practices Act Charges” (Jan. 12, 2017).
31 See Deferred Prosecution Agreement, United States v. Zimmer Biomet Holdings, Inc., No. 1:12-cr-00080-RBW (D.D.C. Mar. 26, 2012).
32 See Deferred Prosecution Agreement, United States v. Zimmer Biomet Holdings, Inc., No. 1:12-cr-00080-RBW (D.D.C. Jan. 12, 2017).
33 See id.; DOJ press release “Zimmer Biomet Holdings Inc. Agrees to Pay $17.4 Million to Resolve Foreign Corrupt Practices Act Charges” (Jan. 12, 2017).
34 See Status Report, United States v. Zimmer Biomet Holdings, Inc., No. 1:12-cr-00080-RBW (D.D.C. June 6, 2016).
35 In May 2015, Barclays PLC agreed to plead guilty to conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange (FX) spot market. Barclays further agreed that its FX trading practices violated its June 2012 nonprosecution agreement resolving the DOJ’s investigation of the manipulation of LIBOR and other benchmark interests rates. Barclays has agreed to pay an additional $60 million criminal penalty based on its violation of the nonprosecution agreement. See DOJ press release “Five Major Banks Agree to Parent-Level Guilty Pleas” (May 20, 2015). UBS AG agreed to plead guilty to manipulating LIBOR and other benchmark interest rates and pay a $203 million criminal penalty, after the DOJ declared that UBS’ FX trading practices violated its December 2012 nonprosecution agreement resolving the LIBOR investigation. See id.
36 See Deferred Prosecution Agreement, United States v. Zimmer Biomet Holdings, Inc., No. 1:12-cr-00080-RBW (D.D.C. Jan. 12, 2017); In the Matter of Biomet, Inc., SEC Exchange Act Release No. 79780 (Jan. 12, 2017).
37 In the Matter of Orthofix Int’l N.V., SEC Exchange Act Release No. 79828 (Jan. 18, 2017).
38 See id. at 7.
39 See id. at 8-9.
42 Notice of Deferred Prosecution Agreement, United States v. Orthofix Int’l N.V., No. 4:12-cr-00150 (E.D. Tex. July 10, 2012); Consent, SEC v. Orthofix Int’l N.V., No. 4:12-cv-419 (E.D. Tex. Apr. 9, 2012).
43 See In the Matter of Orthofix Int’l N.V., SEC Exchange Act Release No. 79828 (Jan. 18, 2017).
44 Orthofix press release “Orthofix Announces Resolution of SEC Investigations” (Jan. 18, 2017).
45 See In the Matter of Orthofix Int’l N.V., SEC Exchange Act Release No. 79828 (Jan. 18, 2017).
46 In April 2016, the DOJ’s Fraud Section introduced the Foreign Corrupt Practices Act Enforcement Plan and Guidance, which included a one-year pilot program (Pilot Program) to encourage voluntary disclosure, extraordinary cooperation and demonstrated remediation in exchange for cooperation credit, a reduction in financial penalties under the U.S. sentencing guidelines, and more lenient charges or even a declination. DOJ, “The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance” (Pilot Program) (Apr. 5, 2016). In November 2015, Andrew Ceresny, director of the SEC’s Enforcement Division, announced that “a company must self-report misconduct in order to be eligible for the Division to recommend a DPA or NPA to the Commission in an FCPA case,” and stated that he was “hopeful that this condition on the decision to recommend a DPA or NPA will further incentivize firms to promptly report FCPA misconduct to the SEC.” He noted that there are “significant benefits available to companies who self-report violations and cooperate fully with our investigations,” including reduced charges and penalties, DPAs or NPAs, or even no charges when the violations are minimal. Andrew Ceresny, Director, SEC Division of Enforcement, ACI’s 32nd FCPA Conference Keynote Address (Nov. 17, 2015).
47 This article was published as a Skadden client alert, titled “Agencies Release Updated Guidelines for IP Licensing and International Enforcement and Cooperation,” on January 19, 2017.
48 FTC press release “FTC and DOJ Issue Updated Antitrust Guidelines for the Licensing of Intellectual Property” (Jan. 13, 2017).
50 Maureen K. Ohlhausen, Acting Chairwoman, FTC, ABA’s 32nd Annual Intellectual Property Law Conference (Apr. 6, 2017).
51 In the licensing context, horizontal competitors are actual or potential competitors in a relevant market in the absence of a license. On the other hand, vertical relationships exist where a licensing arrangement affects activities in a complementary relationship; for example, where a licensor is operating in research and development, and a licensee is operating as a manufacturer and buys the right to use the licensor’s technology. Antitrust analysis of licensing arrangements examines whether the relationship among the parties is primarily horizontal, vertical or both.
52 FTC press release “Federal Trade Commission and Department of Justice Announce Updated International Antitrust Guidelines” (Jan. 13, 2017).
53 Ohlhausen, supra note 48, at 5.
54 Maureen K. Ohlhausen, Commissioner, FTC, Antitrust Policy for a New Administration, Heritage Foundation Panel Discussion 3 (Jan. 24, 2017).
56 Shaw v. United States, 137 S. Ct. 462 (2016).

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