Corporate Investigations

Last month, Guatemalan President Jimmy Morales effectively shut down the operation of the UN-operated International Commission against Impunity in Guatemala (called by its Spanish initials, “CICIG”) by declining to renew its mandate past its September 2019 expiration date and by barring the head of CICIG, Iván Velásquez, from re-entering the country.  CICIG, a uniquely independent organ of the United Nations (“U.N.”), was created in 2007 to support and assist Guatemalan institutions in identifying, investigating, and prosecuting public corruption.  Over the past decade, it has investigated nearly 200 public officials, and its efforts led to the prosecution and ultimate resignation of former Guatemalan President, Otto Pérez Molina.[1]  Continue Reading Anti-Corruption in Guatemala: A Critical Moment for CICIG

On September 27, 2018, in remarks delivered at the 5th Annual Global Investigations Review New York Live Event, Deputy Assistant Attorney General Matthew S. Miner reported on the accomplishments of the Department of Justice (“DOJ”) over the course of the last twelve months.  Importantly, he also discussed recent changes to the DOJ’s policies on prosecution of business organizations and how those changes have been implemented.[1]  Miner highlighted the DOJ’s efforts to incentivize and provide guidance to companies to self-report, cooperate and remediate corporate misconduct while underscoring the importance of robust compliance programs to detect and prevent wrongdoing and to obtain full credit in resolving investigations by the DOJ. Continue Reading DOJ Remarks Highlight Changes to White Collar Policy

On September 14, 2018, a federal judge in the Southern District of New York certified as a class action a securities fraud suit against hedge fund Och-Ziff Capital Management Group LLC (“Och-Ziff”) and two of its executives.[1]  Shortly after the decision certifying the class, the parties informed the court that they had reached an agreement in principle to settle the case, which had gone forward on the basis of allegations that Och-Ziff had failed to make adequate disclosures related to its knowledge of the investigation. Continue Reading Certification of Securities Class Action Against Och-Ziff Relating to FCPA Violations Highlights Potential Collateral Consequences of FCPA Investigations

On September 4, 2018, the Securities and Exchange Commission (“SEC”) announced a $25.2 million settlement with French pharmaceutical company Sanofi (“Sanofi” or the “Company”) for violating the books and records and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”) in connection with a scheme to bribe foreign officials to increase sales of Sanofi products.[2]  The Sanofi settlement encompasses conduct by three Sanofi subsidiaries organized in Kazakhstan, Lebanon and the United Arab Emirates (“UAE”).  The Sanofi settlement follows a recent enforcement action by U.S. authorities against another French company—Société Générale—for FCPA violations.[3]  In announcing the Sanofi resolution, the SEC signaled its intention to focus further on bribery risk in the pharmaceutical industry. Continue Reading Sanofi Settles FCPA Charges With SEC for $25.2 Million

On August 27, 2018, the Securities and Exchange Commission (“SEC”) announced a $34.5 million settlement with investment management firm Legg Mason, Inc. (“Legg Mason” or the “Company”) for violating the internal controls provision of the Foreign Corrupt Practices Act (“FCPA”) in connection with a scheme to bribe Libyan government officials to secure investments from Libyan state-owned financial institutions.[1]  The SEC settlement follows a June 2018 non-prosecution agreement between Legg Mason and the U.S. Department of Justice (“DOJ”) regarding the same conduct.[2]  Under the non-prosecution agreement, Legg Mason agreed to pay $64.2 million.  The Legg Mason settlements reflect the increased focus of U.S. authorities on coordinating with other authorities in imposing penalties on a company, including not “piling on,” and the continued enforcement of the FCPA, while highlighting the potential risks under the FCPA of not having proper controls in place for assessing use of third party intermediaries.

Continue Reading Legg Mason Settles FCPA Charge with SEC for $34.5 Million

When the U.S. Department of Justice opened an investigation against Volkswagen AG (“VW“) and its subsidiaries Audi AG (“Audi”) and Volkswagen Group of America, VW instructed an international law firm to conduct an internal investigation and to represent it (i.e., only VW) before the U.S. Department of Justice.  The lawyers, including German lawyers based in the firm’s Munich office, conducted the internal investigation throughout the Volkswagen group.  Audi, though not a client of the law firm, allowed the internal investigation within its sphere and accessed the internal investigation’s findings via VW.  In January 2017, VW and the U.S. Department of Justice concluded a plea agreement covering 2.0 liter diesel engines designed and produced by VW and installed in VW and Audi vehicles and 3.0 liter engines designed and produced by Audi and installed in VW vehicles. Continue Reading German Federal Constitutional Court: Seizure of Documents Relating to an Internal Investigation at German Office of International Law Firm Found Not to Violate Constitutional Rights

A recent report in the Wall Street Journal, drawing on a source “familiar with the matter”, indicates that the Securities and Exchange Commission’s Division of Enforcement has launched a probe into whether certain issuers may have improperly rounded up their earnings per share to the next higher cent in quarterly reports. While the SEC has neither confirmed the report nor otherwise disclosed the existence of any such investigation, the Journal reports that the SEC has sent inquiries to at least 10 companies requesting information about such accounting adjustments that could have inflated reported earnings. The targeted companies have not yet been identified. Whether the reported inquiries amount to a broad-based sweep of issuer accounting practices remains to be seen. However, such an investigation would be consistent with SEC Chairman Jay Clayton’s announced enforcement priorities, which include a focus on public-company accounting practices and the protection of retail investors.

Please click here to read the full alert memorandum.

In a February post, we discussed in detail recent changes to the U.S. tax rules governing the deductibility of settlement payments and court-ordered damages payments.  The IRS has now released some limited guidance on this new law (IRS Notice 2018-23), and this post addresses what is in this guidance (the “Notice”).

To recap, under the new law: a settlement or court-ordered payment made to (or at the direction of) a government in relation to the violation of any law (or the investigation or inquiry by such government into the potential violation of any law) is not deductible for U.S. tax purposes unless the payment constitutes “restitution (or remediation of property) ” or “a payment for the purpose of coming into compliance with a law”.

Continue Reading IRS Issues Guidance on Deductibility of Settlement Payments Under New Law

On Wednesday, the Supreme Court resolved a question that had created significant uncertainty concerning the scope of the anti-retaliation protections provided by Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

In Digital Realty Trust, Inc. v. Somers, the U.S. Supreme Court unanimously rejected the expansive interpretation of Dodd-Frank’s anti-retaliatory protections established by relevant Securities and Exchange Commission (“SEC”) regulations and previously accepted by the Second and Ninth Circuits. In so doing, the Court held that employees who report potential securities law violations internally but not to the SEC fall outside the definition of a “whistleblower” under Dodd-Frank and accordingly do not benefit from its anti-retaliation protections. Instead, the Court held that the plain text and purpose of Dodd-Frank make clear that its anti-retaliatory protections – and not just Dodd-Frank’s whistleblower bounty incentives – apply only to whistleblowers who report securities law violations to the SEC.

The decision provides an additional incentive for whistleblowers to report to the SEC, and limits some remedies that might otherwise be available to whistleblowers who face retaliation. However, the decision should not generally cause companies to change their whistleblower policies and practices.

Please click here to read the full alert memorandum.

Investigations into potential violations of U.S. and non-U.S. securities laws are often resolved by a settlement requiring the business to make one or more large settlement payments.  We have seen settlements paid to the DOJ, the SEC, other U.S. and non-U.S. regulators, and private plaintiffs.  An important question is whether the payment will be deductible for tax purposes.  Since 1969, the U.S. tax law has denied a deduction for “any fine or similar penalty paid to a government for the violation of any law.”[i]  This limitation was significantly changed by the U.S. tax reform law enacted in December of 2017 (known as the Tax Cuts & Jobs Act or “TCJA”).  These changes, which had been proposed in Congress over 30 times since 2003 but not enacted until now, respond in part to disputes the IRS has had with taxpayers in the past.  Continue Reading Settlement Payments Under the New Tax Reform Law