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Deputy Attorney General Yates Expands on Individual Accountability Policy
On May 10, Deputy U.S. Attorney General Sally Yates spoke at the New York City Bar Association’s White Collar Crime Conference and expanded on the DOJ’s Individual Accountability Policy, which informally bears Yates’ name (the Yates Memo). The DOJ issued the Yates Memo in September 2015, and Yates’ remarks were focused on why the DOJ issued the policy and how it has been working in practice. Yates made clear that “holding individuals accountable for corporate wrongdoing has always been a priority for” the DOJ, but that the policy memorandum was necessary to overcome “real world challenges” that the DOJ encounters (e.g., convoluted corporate structures and lines of authority, data privacy laws, and inability to compel foreign witness testimony) so that it can hold individuals responsible for corporate wrongdoing.
In practice, Yates said that the policy has not caused the parade of horrors that defense attorneys and client alerts have predicted. For example, she stated that she was not aware of any company refusing to cooperate with the DOJ as a result of the policy. She further added that “no one has told us that they will be forced to waive privilege in order to comply with the policy.” Instead, she said that the policy already has caused a shift toward higher compliance standards within companies.
Yates also highlighted how DOJ attorneys are focused on individuals from the outset of an investigation: “[t]he first thing the lawyers briefing me discuss is what we are doing to identify the individuals involved and what the company is doing during the course of its cooperation to meet its obligation to provide all the facts about individual conduct.” In addition, civil enforcement efforts have broadened to focusing on individuals. According to Yates, “[a]bility to pay is one of the factors considered, but it’s no longer the determinative factor in deciding whether to bring an action in the first instance.
DOJ Proposes Legislation Intended to Advance Anti-Corruption Efforts
On May 5, the DOJ announced that it plans to submit to Congress proposals for legislative amendments that would provide the DOJ with additional tools to advance anti-corruption work in the areas of pursuing illegal proceeds of transnational corruption and modifying the substance of criminal corruption offenses. The DOJ’s proposals regarding the illegal proceeds of transnational corruption would amend various sections of the U.S.C. to (i) expand foreign money laundering predicate crimes to include any violation of foreign law that, if committed in the U.S., would be a money laundering predicate; (ii) allow administrative subpoenas for money laundering investigations; (iii) enhance law enforcement’s ability to obtain overseas records by allowing access to foreign bank or business records by serving subpoenas on foreign bank branches located in the United States regardless of bank secrecy or data privacy laws in the foreign jurisdictions; (iv) create a framework to use and protect classified information in civil kleptocracy-related cases; and (v) extend the time period in which the United States can restrain property based on a request from a foreign country from 30 to 90 days. The proposals pertaining to substantive corruption offenses would amend 18 U.S.C. § 666 (theft or bribery concerning programs receiving federal funds) to (i) expressly criminalize the corrupt offer or acceptance of payments to “reward” official action; and (ii) lower the dollar threshold for liability from $5,000 to $1,000 to address cases where the dollar amount may be low but threat to the integrity of a government function is high.
DOJ Issues Supplemental Advance Notice of Proposed Rulemaking on Web Accessibility Requirements
On April 29, the DOJ issued a Supplemental Advance Notice of Proposed Rulemaking (SANPRM) titled Nondiscrimination on the Basis of Disability; Accessibility of Web Information and Services of State and Local Government Entities. According to the SANPRM, the DOJ “is considering revising the regulation implementing title II of the Americans with Disabilities Act (ADA or Act) in order to establish specific technical requirements to make accessible the services, programs, or activities State and local governments offer the public via the Web.” Due to advances in technology and website accessibility, the recently released SANPRM replaces a 2010 Advance Notice of Proposed Rulemaking and poses 123 questions related to, among other things, (i) the potential application of technical accessibility requirements to the websites of title II entities; (ii) the appropriateness of proposing alternate conformance levels, compliance date requirements, or other methods designed to minimize significant economic impact on small public entities; and (iii) additional costs imposed on public entities to ensure compliance with the 2008 version of Web Content Accessibility Guidelines. The SANPRM is scheduled to be published in the Federal Register on May 9, 2016; comments are due 90 days after publication.
DOJ Closes FCPA Investigation into Onshore, Rig-based Well Servicing Contractor Without Prosecution; SEC Negotiations Continuing
On April 28, an onshore, rig-based well servicing contractor with operations in the United States, Mexico, and Russia announced that the DOJ had closed its investigation into possible violations of the FCPA in relation to the company’s Mexico operations and declined prosecution. The company stated that it is still in negotiations with the SEC regarding possible violations involving the company’s Russian business. The company has been under investigation by the SEC and DOJ since 2014, when the company made a voluntary disclosure to both agencies about the Mexico allegations.
Colorado Mining Company Announces FCPA Investigation
Recently, a gold mining company based in Colorado disclosed in its quarterly filings an investigation of certain business activities of the company and its affiliates outside the U.S. for possible violations of the FCPA. The company stated that it had hired outside counsel to assist in the investigation, and it was working with the SEC and DOJ with respect to the investigation. The company also stated that, in March 2016, it entered into one-year tolling agreements with the SEC and DOJ. The company’s recent disclosure of the investigation did not specify the nature of the business activities being investigated or where the potential misconduct took place, but the company has mining operations in Ghana, Australia, Indonesia, Peru, and Suriname.
Consultant Pleads Guilty to FCPA Charges Before Trial
On April 20, the DOJ announced that Dmitrij Harder, the former owner and president of two Pennsylvania consulting companies pleaded guilty to violations of the FCPA. Mr. Harder pleaded guilty to two counts of violating the FCPA by bribing an official at the European Bank for Reconstruction and Development (EBRD) before U.S. District Judge Paul S. Diamond of the Eastern District of Pennsylvania. The EBRD was a development bank based in London that was owned by approximately 65 sovereign nations and provided financing for development projects in Eastern Europe. On March 2, Judge Diamond ruled that the FCPA covered EBRD as a public international organization, rejecting one of Harder’s key defenses at his upcoming trial.
Between 2007 and 2009, Mr. Harder was alleged to have paid approximately $3.5 million in bribes to an EBRD official in exchange for the EBRD’s approval of applications for financing from two of the Pennsylvania consulting companies’ corporate clients. The Pennsylvania consulting companies earned approximately $8 million in “success fees” as a result of the two deals, which provided the clients with nearly $300 million in investments and loans.
Mr. Harder’s sentencing is scheduled for July 21, 2016. He faces up to 10 years in prison. In a related action, the EBRD official, Andrey Ryjenko, and his sister, Tatjana Sanderson, were charged by the United Kingdom’s Crown Prosecution Service and are pending trial.
DOJ Settles with New Jersey Mortgage Lender Over False Claims Act Violations
On April 15, the DOJ announced a $113 million settlement with a New Jersey-based mortgage company to resolve allegations that the mortgage lender violated the False Claims Act. According to the DOJ, the mortgage company – acting as a direct endorsement lender in HUD’s Federal Housing Administration (FHA) program – knowingly originated and accepted FHA-insured mortgage loans that did not properly comply with HUD origination, underwriting, and quality control requirements. As part of the settlement agreement, the mortgage company agreed that it failed to (i) meet HUD underwriting requirements from January 1, 2006 through December 31, 2011; (ii) adhere to FHA’s quality control requirements between 2006 and 2008 by not sharing with production and underwriting management its early payment default quality control review; (iii) perform timely quality control reviews or perform audits of early payment defaults between 2008 and 2010; and (iv) report improperly originated loans between 2006 and 2011. The DOJ’s investigation further found that, after conducting a review of FHA loans underwritten between 2007 and 2012, the mortgage company self-reported to HUD only one of hundreds of loans that the company identified as not meeting FHA mortgage insurance requirements. Per the settlement agreement, the mortgage company must make an initial payment of $26 million by May 2, 2016.
DOJ Settles with National Bank Over Underwriting Practices
On April 8, the DOJ announced a $1.2 billion settlement with a San Francisco-based bank and the bank’s Vice President of Credit-Risk – Quality Assurance to resolve allegations that the bank submitted false claims for FHA insurance in connection with loans that did not meet FHA underwriting standards. According to DOJ, “[d]uring the period May 1, 2001 through on or about December 31, 2008, [the bank] (or its predecessor) submitted to HUD certifications stating that certain loans were eligible for FHA mortgage insurance when in fact they were not.” The settlement agreement further explains that when certain of these loans defaulted, HUD paid for the insurance claims out of the Mutual Mortgage Insurance Fund. In addition, the settlement agreement states that from January 2002 through December 2010, the bank failed to inform HUD that the bank’s quality assurance personnel had determined that some of the FHA-insured loans contained a material finding. In response to this failure to self-report, the DOJ also asserted claims against the bank’s VP of Credit-Risk – Quality Assurance, as the individual responsible for overseeing the bank’s self-reporting policy and procedures. Both the bank and the individual officer acknowledged responsibility for the alleged violations as part of the settlement agreement.
DOJ Announces New Pilot Program to Encourage FCPA Cooperation and Self-Reporting
On April 5, the DOJ announced a one-year pilot program designed to encourage corporations to voluntarily self-report FCPA-related misconduct and cooperate with the DOJ. The program emerges from the DOJ’s heightened focus on individual accountability as highlighted in the Yates Memo. For corporations that (i) voluntarily disclose the misconduct and all relevant facts related to the misconduct “within a reasonably prompt time after becoming aware of the offense”; (ii) fully cooperate with the DOJ investigation; and (iii) take appropriate actions towards remediation, the DOJ may offer up to a 50% fine reduction from the bottom of the applicable Sentencing Guidelines fine range calculation, and will generally not require the appointment of a monitor if the corporation has already implemented an effective compliance plan. Furthermore, the DOJ notes that in certain circumstances, it will consider declining prosecution altogether.
While the pilot program ends in one year, any corporation that voluntarily self-reports or cooperates in FCPA matters during the pilot period will be eligible for the benefits, even if the pilot period expires during the investigation. More details and specific requirements can be found in the DOJ’s Foreign Corrupt Practices Act Enforcement Plan and Guidance.
Indiana Medical Device Manufacturer's Deferred Prosecution Agreement with DOJ Extended for a Second Time
On March 25, an Indiana-based medical device manufacturer announced that the deferred prosecution agreement it entered into with the DOJ to settle FCPA charges in 2012 would be extended a second time. The company reported that the DOJ and SEC’s investigation into alleged misconduct in Brazil and Mexico, and into the company’s compliance program, was still ongoing.
The company settled FCPA charges with the DOJ and SEC in 2012 related to its conduct in Argentina, Brazil and China. As previously reported, the company disclosed in March 2015 that the deferred prosecution agreement it had agreed to as part of the settlement would be extended for one year because the company had discovered additional potential FCPA violations in Brazil and Mexico.