Trade Law

In a keynote address at the London Anti-Corruption Summit, Prime Minister David Cameron raised the possibility of new U.K. legislation to make corporations liable for “failure to prevent” fraud or money-laundering offenses committed by their “associated persons.” The concept already exists under the UK Bribery Act, and U.K. regulators have long been lobbying for a broadening of the criminal offense of “failure to prevent.” The U.K. government committed to expanding the offense to encompass tax evasion last month, but otherwise appeared to have limited appetite for expanding this form of corporate liability.¹ That stance appears to have now changed.

On April 3, 2016, it became public that an anonymous source had leaked 11 million confidential documents, known as the “Panama Papers,” belonging to the Panama-headquartered international law firm Mossack Fonseca. As more of the Panama Papers become public over the coming months, they will raise a host of issues for parties identified in the papers, as well as the business partners, customers, suppliers and other entities connected to those parties. This alert summarizes key legal issues for consideration as companies attempt to understand, assess and mitigate the potential impact and exposure of the Panama Papers on their business.

In a busy week for the Serious Fraud Office (SFO), the United Kingdom’s antibribery prosecutor, it has announced its first-ever deferred prosecution agreement (DPA) for bribery offences and the first guilty plea under the U.K. Bribery Act (UKBA). Both matters involved the application of the much heralded, but still infrequently enforced, corporate offense of failure to prevent bribery by associated persons, under Section 7 of the UKBA.

On April 21, 2015, the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) issued a Geographic Targeting Order (“GTO”) lowering reporting thresholds and triggering additional recordkeeping requirements for certain financial transactions in a move that is likely to have effects far beyond the 700 Miami-based electronics exporters that are specifically covered by the Order. The order, which went into effect on April 28, 2015, requires targeted businesses to make mandatory filings with FinCEN for any single transaction or for related transactions in which they receive more than $3,000 in currency – a stricter standard than the traditional $10,000 filing threshold imposed by the Bank Secrecy Act, and its implementing regulations. FinCEN has stated that the new reporting requirements are aimed at frustrating complex money laundering schemes believed to be employed in the Miami area by the Sinaloa and Los Zetas drug cartels.Issuance of the GTO in Miami continues the geographic and industry focus of money laundering enforcement that emerged last October when FinCEN issued a similar order for businesses in the Los Angeles Fashion District in an effort to root out suspected money laundering by Mexican and Colombian drug traffickers.

Broadly, issuance of a GTO falls within FinCEN’s authority to pursue a variety of criminal, civil and regulatory enforcement methods to combat money laundering and financial funding of terrorism in the U.S. More specifically, a GTO imposes additional recordkeeping and reporting requirements on domestic financial institutions or nonfinancial trades or businesses in a particular geographic area in order to assist regulators and law enforcement agencies in identifying criminal activity that may be occurring. The GTO tool was authorized in 1988, but has only become a key weapon in the fight against organized crime and money laundering in the past few years. A GTO may remain in effect for a maximum of 180 days, and violators of the order may face substantial civil or criminal liability.

Welcome to the April 2015 edition of Red Notice, a publication of Akin Gump Strauss Hauer & Feld LLP.

This month in anticorruption developments, Canadian transportation giant faces scrutiny for alleged bribery in South Africa, Oregon-based technology company settles Foreign Corrupt Practice Act (FCPA) charges after self-reporting to U.S. officials, the World Bank debars a French telecommunications company, two individuals are sued by their former employer for their roles in a bribery scheme that resulted in criminal charges for the company, Iceland draws criticism for failure to progress in its effort to fight bribery and a former Export-Import Bank official pleads guilty to bribery charges.

From November 18 to 19, 2014, the American Conference Institute held its annual U.S. Foreign Corrupt Practices Act (FCPA) conference outside of Washington, D.C. Keynote speakers including U.S. Department of Justice (DOJ) Assistant Attorney General Leslie Caldwell of the Criminal Division and U.S. Security and Exchange Commission (SEC) Director of Division of Enforcement Andrew Ceresney, as well as Organisation for Economic Co-operation and Development (OECD) Deputy Secretary-General William Danvers focused on anti-corruption enforcement, self-reporting of detected FCPA violations and compliance. In addition to current agency directors and officials, panelists included former DOJ and SEC officials, seasoned practitioners, vendors specializing in corruption detection and compliance and in-house counsel from companies around the world.

DOJ Year in Review

This year, Patrick Stokes, deputy chief of the DOJ’s Fraud Section and head of the Section’s FCPA unit, and Kara Brockmeyer, chief of the SEC’s FCPA unit in the Division of Enforcement, provided a review of anti-corruption enforcement efforts in 2014, discussed steps that the agencies recommend companies take when they discover a violation and noted compliance best practices from the government’s perspective. Mr. Stokes and Ms. Brockmeyer’s comments were accompanied by the standard disclaimer that their statements were not binding on their respective agencies and the views they expressed were their own.

On October 6, 2014, the Supreme Court declined to review the 11th Circuit’s decision in U.S. v. Esquenazi, et. al., leaving standing the appellate court’s expansive definition of “foreign official” under the Foreign Corrupt Practices Act (FCPA). The 11th Circuit’s May 16, 2014 decision defined the term “instrumentality of a foreign government”—a term included in the FCPA’s definition of “foreign official,” but left undefined by the statute.

The appropriate definition of the term arose as a key issue at trial in the context of the definition that would be included in jury instructions. The defendants argued for a narrow reading of the term that would apply only to non-state owned entities that “exist for the sole and exclusive purpose of performing a public function traditionally carried out by the government” and are thus “similar to political subdivisions.” The prosecution contended that this narrow reading of the term would render it superfluous by encompassing only entities captured by other prongs of the FCPA’s definition of a “foreign official.” Instead, the prosecution argued that the term “instrumentality” should be interpreted to include both state-owned and non-state owned entities that perform functions on behalf of the government, beyond just entities that are akin to state agencies.