Key insights from the White Collar Crime 2019: Prosecutors and Regulators Speak conference

FRA Director Doel Kar and Manager Daniel Rosebery recently attended PLI's White Collar Crime 2019: Prosecutors and Regulators Speak conference in New York. The conference explored how best to handle white collar cases and civil enforcement actions in the current evolving environment, and how to design effective compliance and risk management strategies. The panel talks focused on a review of trends and developments in white collar enforcement, and the current environment within FCPA and anti-corruption investigations and enforcement. Below are their key insights from the event.

Review of Trends and Developments in White Collar Enforcement Panel

• Shades of Cyber: An overarching trend the panelists reported was that over the past year, they have seen a lot of fraud they have traditionally encountered. However, they now tend to contain a shade of "cyber "to them. In particular, securities fraud cases linked to initial coin offerings (ICOs) of digital assets are on the rise. The panel put the explosive growth of ICOs into perspective by noting that funds raised by ICOs increased from approximately $100 million in 2016 to over $10 billion in 2018. Another traditional fraud with a new twist has been insider trading. As of late, the panelists described an increase in newswire source hackings which include perpetrators unlawfully gaining access to material, non-public information for the purposes of insider trading.
• New Partners in Parallel Investigations: The increase in cooperation between multiple agencies in running parallel investigations was a common talking point amongst the panelists. Some new partners in the white collar investigation space included domestic agencies at the state and local levels (e.g., New York Department of Financial Services, New York Department of Investigations) and foreign agencies with an anti-bribery and corruption focus on Foreign Corrupt Practices Act (FCPA) matters. Overall, Rob Zink (Accounting Chief, Fraud Section, U.S. Department of Justice (DOJ)) noted visible changes in different countries to crack down on corruption, and was encouraged to see an increased anti-corruption focus in many of the countries they have worked with FCPA cases. At the conclusion of the discussion, Mr. Zink made it a point to add that FCPA cases are set to be on the rise.
• Concerns in the Financial Services Sector: Laura Grossfield Birger (Chief, Criminal Division, U.S. Attorney's Office, Southern District of New York (SDNY)) and Jacquelyn Kasulis (Chief, Criminal Division, U.S. Attorney's Office, Eastern District of New York) noted an uptick in anti-money laundering and Bank Secrecy Act investigations. Mr. Zink specifically discussed the importance of an effective Compliance Department rather than just the existence of the function. Banks' Compliance Departments have access to all of the data needed to conduct robust analyses and to effectively monitor. Therefore, Mr. Zink explained that the DOJ expects the banks' functions to perform their duty to monitor for compliance risks, and not be complacent.
• Deployment of RICO Act: A development in the prosecution of white collar crime has been the proliferation of the use of the Racketeer Influenced and Corrupt Organizations Act (RICO) as a complement to other charges raised against defendants. This is a shift from traditional RICO charges as they primarily were used to combat organized crime. However, it is now being relied on when prosecutors recognize a pattern of white collar criminal activity being conducted by high-ranking individuals of a company over a period of time. The panel emphasized that since RICO charges carry severe penalties and were not initially intended to be used in white collar crime prosecutions, it is heavily vetted before being utilized.
• Uptick in Accounting Fraud: Ms. Grossfield Birger talked about how their office has seen an uptick in accounting fraud cases as of late. Throughout the discussion, Ms. Grossfield Birger highlighted their reliance on forensic accountants to assist in unraveling the financial aspects of these cases, which have tended to be very complex.

FCPA and Anti-Corruption Investigations and Enforcement Panel

• United States v. Connolly: The matter United States vs. Connolly was a heavily discussed topic by the panel based on recent SDNY criticism aimed at the DOJ for outsourcing its criminal LIBOR investigation to Deutsche Bank and its outside counsel, rather than conducting a parallel investigation. In this case, the DOJ instructed the bank and it's outside counsel to interview certain employees as part of their internal investigation. The Court ultimately concluded that the internal investigation was, in fact, not "internal "due to the directions from the DOJ, and felt that certain interviewees were compelled to cooperate at the risk of losing their jobs. This conclusion by the Court initially rendered a key employee's interviews inadmissible based on precedent (United States vs. Garrity). However, the Court's decision to not allow the facts from the interviews was later reversed. Based on a separate precedent (United States v. Kastigar) and the DOJ being able to prove they could substantiate the facts learned in the interviews from other independent sources, the key employee's interviews were ultimately allowed to be used. The panelists agreed that United States v. Connolly served as a good reminder when requesting information from a company under investigation, and stressed the importance of presenting their requests for information in a way so that it cannot be misinterpreted. The panel unanimously agreed that the best way to achieve transparency and avoid misconstruction is for requests for information to be fully documented. Specifically, the documentation should clarify that the request is for information learned from the company's internal investigation and not as direction as to whom the regulator would like to be questioned.
• Individual Prosecution of the FCPA: Daniel Kahn (Chief, Foreign Corrupt Practices Act Unit, U.S. Department of Justice) emphasized that individual accountability of the FCPA remains a priority to the DOJ. In fact, Kahn highlighted that individual prosecutions of the FCPA resulting in a guilty plea recently reached record highs. This trend is evidence that the DOJ is not haphazardly including individuals in their corporate prosecutions, but they are rather able to build strong individual cases to achieve guilty pleas. Katherine Goldstein (Partner; Milbank, Tweed, Hadley & McCloy LLP) pointed out that even though individual FCPA prosecutions have increased, few have gone to trial which offers little guidance, or elaboration, on the law. The more that these types of cases are heard, the more defense attorneys will be able to understand where the law stands on the issue.
• Accounting Provisions of the FCPA: The panel discussed the regulators' use of the FCPA's accounting provision, specifically the defense bar's common criticism that the accounting provision is too broad. Ms. Goldstein echoed the criticism by explaining that if regulators are unable to prove the FCPA's anti-bribery provision, the accounting provision is frequently used as a fallback since they can be widely interpreted by the regulators. Charles Cain (Chief, FCPA Unit, Division of Enforcement, U.S. Securities and Exchange Commission (SEC or Commission)) pushed back on the criticism explaining that when the SEC brings a FCPA accounting provision charge, it is typically due to the Commission not being able to substantively charge the anti-bribery provision based on limitations in the case (e.g., interstate commerce was not used in the scheme, not being able to establish agency over the entity where the improper activity took place). Further, Mr. Cain explained that the SEC is not looking for accounting and internal control perfection when levying a FCPA accounting provision charge. Rather than a single trivial expense being recorded in the vague account, the Commission is more concerned with more adverse and pervasive conduct, including whether or not a robust control environment exists and if the tone of the organization is that of a true commitment to compliance.

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