On November 29, 2017, the U.S. Department of Justice (“DOJ” or the “Department”) announced a new FCPA Corporate Enforcement Policy (the “Enforcement Policy”) applicable to investigations of companies under the Foreign Corrupt Practices Act (“FCPA”). The Enforcement Policy builds on the FCPA Pilot Program (the “Pilot Program”) that has been in effect since April 2016, and provides additional transparency regarding the credit the Department will provide to companies that self-report FCPA violations and then cooperate with the resulting investigation. By and large, the new policy, which is now part of the U.S. Attorney’s Manual (“USAM”), makes key provisions of the Pilot Program permanent, and significantly, it also promises additionalbenefits to companies that qualify. The Enforcement Policy signals a further effort by DOJ to encourage companies to self-report and cooperate, although the policy also leaves the Department with considerable leeway in assessing key threshold questions for eligibility even for companies that do self-report.

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On November 15, 2017, the Securities and Exchange Commission Division of Enforcement released its annual report detailing its priorities for the coming year and evaluating enforcement actions that occurred during Fiscal Year (“FY”) 2017. The Report captures the SEC during a period of transition—Chairman Jay Clayton assumed the helm of the Commission in May 20172 and Stephanie Avakian and Steven Peikin were named co-directors of the Enforcement Division soon thereafter.3 The Report provides insight into changes in the SEC’s approach to enforcement actions and a glimpse into its priorities for the coming year. The following summarizes key shifts from FY 2016, outlines the Enforcement Division’s current priorities, and, in view of its stated focus on the conduct of investment professionals and protection of retail investors, provides guidance to the investment management industry as it gears up for the coming year.

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Following the 2016 election, it has been widely assumed that the SEC’s Division of Enforcement would no longer pursue the “broken windows” policy implemented under then-SEC Chair Mary Jo White.  Under that approach, the Division of Enforcement intentionally pursued smaller, non-fraud cases in an attempt to improve the overall compliance culture within the securities industry.  Pronouncements this fall by the Co-Directors of the Division of Enforcement, Stephanie Avakian and Steven Peikin, on their face confirm that assumption, suggesting an end to “broken windows” as a broad-based strategy focused on street-wide sweeps for strict liability and other non-scienter conduct.  However, signs persist that the Enforcement Division will continue to pursue some varieties of non-scienter cases, particularly where there exists, even indirectly, the potential for harm to retail investors.

Continue Reading Is the SEC’s Broken Windows Initiative Over? The Picture Is Somewhat Mixed.

On October 26, the SEC staff provided, in three related no-action letters, a 30-month grace period during which it will not pursue enforcement actions against U.S. broker-dealers and their client money managers subject to European Union regulations, including investment advisers, for accepting or making direct and separate (i.e., hard dollar) payments for research.  This grace period temporarily relieves a regulatory conflict concerning how market participants provide and pay for research between current U.S. securities laws and the European Union’s new Markets in Finance Instruments Directive (MiFID II) rules, which will take effect on January 3, 2018. Continue Reading The SEC’s Temporary Enforcement Grace Period to Mitigate Legal Status and Operational Implementation Issues Over the EU’s New Research Regulation

On October 27, 2017, the Hong Kong Securities and Futures Commission (“SFC”) issued Guidelines for Reducing and Mitigating Hacking Risks Associated with Internet Trading (the “Guidelines”),1 a set of baseline cybersecurity requirements that all persons licensed or registered with the SFC and engaged in internet trading will be required to implement. The Hong Kong Monetary Authority (“HKMA”) simultaneously issued a circular to CEOs of Registered Institutions requiring them to apply the Guidelines.

The new guidelines should be viewed as requirements for securities and futures dealers and asset managers registered with the SFC and banks supervised by the HKMA (which include a number of foreign banks that operate branches in Hong Kong). For e-commerce firms and other companies that do business in or have connections to Hong Kong, the new guidelines should additionally be viewed as relevant guidance for best practices in cybersecurity.

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In a September 25, 2017 speech in New York, U.S. Commodity Futures Trading Commission (the “CFTC”) Division of Enforcement (the “Division”) Director James McDonald outlined the CFTC’s focus on creating greater incentives for self-reporting and cooperation in order to deter and detect misconduct in the commodities markets. Director McDonald’s speech accompanied the release of an Updated Advisory on Self Reporting and Full Cooperation, which supplements the guidance issued by the CFTC earlier this year.

The new guidance reflects an effort by the CFTC to rebalance the incentives facing firms who identify potential misconduct to favor voluntary reporting and pro-active cooperation, reinforced by the potential for concrete benefits in the form of fine reductions and, potentially, declination of prosecution in appropriate cases. Commodities market participants and financial institutions should take note of this guidance when considering how to respond to potential evidence of misconduct and in dealing with the Division.

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On August 18, 2017, in United States v. Krug, the Second Circuit revisited the boundaries of attorney-client privilege in the context of joint defense agreements, reversing a district court order to preclude testimony of a cooperating co-defendant.  The decision serves as a useful reminder of certain best practices when participating in joint defense (or “common interest”) agreements to ensure that the communications are protected by the privilege. Continue Reading Second Circuit Decision Reiterates The Limitations of Joint Defense Agreements