Corporate crime, fraud and investigations in United States: overview

A Q&A guide to corporate crime, fraud and investigations in the United States.

The Q&A gives a high level overview of matters relating to corporate fraud, bribery and corruption, insider dealing and market abuse, money laundering and terrorist financing, financial record keeping, due diligence, corporate liability, immunity and leniency, and whistleblowing.

To compare answers across multiple jurisdictions, visit the Financial Crime Country Q&A tool.

This Q&A is part of the multi-jurisdictional guide to corporate crime, fraud and investigations law. For a full list of jurisdictional Q&As visit www.practicallaw.com/corporatecrime-mjg.

Karen Patton Seymour and Andrew C Gilman, Sullivan & Cromwell LLP
Contents

Fraud

Regulatory provisions and authorities

1. What are the main regulatory provisions and authorities responsible for investigating corporate or business fraud?

There are a number of regulatory provisions against corporate fraud and authorities responsible for investigating violations of these provisions.

The primary regulatory provisions are:

  • Title 18 and Title 26 of the United States Code (US Code).

  • Securities Exchange Act of 1934 (section 10(b)) and Securities Exchange Commission (SEC) Rule 10b-5.

  • Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), Pub. L. No. 111-203, 123 Stat. 1376-2223 2010.

  • Sarbanes-Oxley Act, Pub. L. 107-204, 116 Stat. 745 2002.

  • Foreign Corrupt Practices Act (FCPA), 15 U.S.C. § 78dd-1 et seq.

  • Money Laundering Control Act, 18 U.S.C. §§ 1956, 1957.

  • Bank Secrecy Act, Pub. L. 91-508, 84 Stat. 1114 1970.

  • False Claims Act, 31 U.S.C. §§ 3729-3733.

The authorities responsible for investigating corporate fraud include the:

  • US Department of Justice (DOJ).

  • SEC.

  • Financial Industry Regulation Authority (FINRA).

  • Internal Revenue Service (IRS).

  • US Department of the Treasury.

  • US Department of Labor

  • US Department of Commerce.

  • Federal Energy Regulatory Commission.

  • Commodity Futures Trading Commission (CFTC).

  • US Postal Inspection Service.

  • Environmental Protection Agency.

  • Federal Trade Commission (FTC).

The authorities often work closely together to investigate corporate fraud. In 2009, President Obama issued an executive order creating the Financial Fraud Enforcement Task Force, which is a coalition of law enforcement, investigatory and regulatory agencies assembled to fight corporate fraud.

In addition, local prosecutors (district attorneys) and state attorneys frequently investigate corporate fraud.

Neither the US listing bodies nor the US Code has adopted a code of best practices. The nearest equivalent is the New York Stock Exchange listing rules that contain corporate governance guidelines on key issues which listed companies follow.

For more information on the authorities referenced above see box: The regulatory authorities.

 

Offences

2. What are the specific offences relevant to corporate or business fraud?

Corporate or business fraud encompasses a number of specific offences, which are defined broadly and encompass a number of possible claims, including:

  • Anti-trust violations (that is, offences related to restraint of trade, monopolies, price-fixing and price discrimination).

  • Banking crimes.

  • Conspiracy, which is an agreement between two or more persons to commit an unlawful act where one or more of such persons do any act to further their agreement.

  • Mail (post) and wire fraud.

  • Securities fraud.

  • Tax crimes.

  • Environmental crimes.

  • Healthcare fraud.

  • Theft of trade secrets.

  • Computer crime.

  • Intellectual property crimes (that is, offences related to trade mark, copyright, patent rights, trade secret rights, publicity rights, and rights against unfair competition).

Generally, these crimes require proof of intent or knowledge. A demonstration of conscious avoidance (that is, wilful blindness) is sufficient to establish knowledge.

Attempt, conspiracy and aiding and abetting are also punishable for most of these crimes.

 

Enforcement

3. What are the regulator's powers of investigation, enforcement and prosecution in cases of corporate or business fraud and what are the consequences of non-compliance?

Criminal and civil regulators have broad powers to investigate, enforce and prosecute corporate fraud.

A court can, among other things:

  • Compel individuals to testify or produce evidence, at the request of a regulator.

  • Allow regulators to search a corporation's documents, including e-mails.

  • Allow regulators to wiretap a corporation's phone lines.

In the case of subpoenas, the corporation must respond or face penalties from the court. The corporation must preserve any documents that are the subject of the subpoena, even if the corporation intends to oppose the subpoena in court. If the corporation destroys responsive documents, and the subpoena is upheld, the corporation could face an obstruction of justice charge. Failure to comply with the regulators' requests may therefore result in additional civil or criminal charges.

Although the power of regulators is limited by the discretion of the court, regulators are generally empowered to obtain the relevant evidence they seek in their investigations. When investigating extraterritorial conduct, US federal law enforcement officials often use co-operative methods to investigate and prosecute offences overseas. US federal law enforcement agencies have also assigned increasing numbers of their personnel to foreign countries. Congress has assisted these efforts by enacting legislative measures to facilitate investigations abroad.

 

Penalties

4. What are the potential penalties or liabilities for participating in corporate or business fraud?

Civil/administrative proceedings or penalties

In civil proceedings, corporate actors face financial penalties and sanctions. In deciding whether to require a corporation to pay a monetary penalty, regulators consider a number of factors, including:

  • Whether the corporation received a direct and material benefit from the relevant offence.

  • The extent of the injury to innocent parties.

  • Whether the complicity in the violation was widespread through the corporation.

  • The presence or absence of remedial steps taken by the corporation.

Under civil law, individuals are also subject to financial penalties and sanctions.

Criminal proceedings or penalties

In criminal proceedings, the basic punishments for a corporate defendant are a term of probation or a fine. A court can also impose an order of:

  • Criminal forfeiture.

  • Notice to the victims of the crime.

  • Restitution.

Corporate probation is conditional on the corporation not committing another federal, state or local crime during the probationary period. If the corporation has been convicted of a felony (that is, a crime normally punishable by imprisonment of more than one year or, in rare cases, death) the court must also impose a fine and an order of restitution. The court also has discretion to impose additional probation conditions, where these are reasonably necessary deprivations of liberty or property that relate to the purposes of the sentence.

The most common sentence for a corporate defendant is a fine. Corporations face a maximum fine of US$500,000 per count, or twice the gain to the defendant or loss caused as a result of the offence, whichever is greater (section 3571(c), Title 18, United States Code (US Code)). The court must consider the size of the organisation and any measures taken by it to discipline any officer, director, employee or agent responsible for the offence and to prevent its recurrence. The court must also consider whether a defendant corporation is able to pass the expense of the fine on to consumers or others.

Individuals found to be criminally liable are subject to imprisonment and monetary penalties.

Civil suits

Private parties affected by corporate fraud can bring civil suits against the company or against individuals at the corporation, and class actions are generally possible. Private parties may be awarded damages, including punitive damages in certain cases, or obtain relief through settlement.

 

Bribery and corruption

Regulatory provisions and authorities

5. What are the main regulatory provisions and authorities responsible for investigating bribery and corruption?

The main regulatory provisions are the:

  • Foreign Corrupt Practices Act (FCPA).

  • Hobbs Act.

  • Travel Act.

  • Bribery and Graft Act, section 201.

  • Federal Program Bribery Statute.

The primary authorities responsible for investigating bribery and corruption are the:

  • Department of Justice (DOJ).

  • Securities Exchange Commission (SEC).

The DOJ allows parties to obtain an opinion from the Attorney General on whether specified, prospective conduct conforms with the DOJ's enforcement policy regarding the anti-bribery provisions of the FCPA. If the DOJ issues an opinion that the proposed action conforms with its enforcement policy, it creates a rebuttable presumption that the conduct is lawful.

For more information on the DOJ and SEC see box: The regulatory authorities.

 
6. What international anti-corruption conventions apply in your jurisdiction?

The US is a signatory to and/or has ratified the following international anti-corruption conventions:

  • UN Convention Against Corruption 2003 (Corruption Convention).

  • OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Anti-Bribery Convention).

  • UN Convention Against Transnational Organized Crime.

  • Inter-American Convention Against Corruption (IACAC) 1997.

The US has also subscribed to the OECD Declaration on International Investment and Multinational Enterprises.

 

Offences

7. What are the specific bribery and corruption offences in your jurisdiction?

Foreign public officials

Offences relating to the bribery of foreign public officials include the following.

Offences under the Foreign Corrupt Practices Act (FCPA). It is a federal offence to use any means of inter-state commerce (that is, facilities allowing trade and other business activities between US states or between a foreign country and any US state, such as telephones, wire transfers, or internet communications) to:

  • Make an offer or payment, or promise to pay or authorise the payment of, any money, offer, gift or any other thing of value to a foreign official, foreign political party or candidate for foreign political office.

  • Influence an official act or decision of the recipient or induce the recipient into violating their duties or using their influence in order to obtain, or retain, business (for the person or the entity).

This offence can be committed by any US person or entity (or its employees, officers or agents). Attempts are punishable, as the FCPA prohibits offers of payment.

This prohibition also applies to foreign nationals who, while in the US, corruptly make use of the mail system or other means of inter-state commerce.

  • Offences under the Travel Act. The Travel Act is a federal statute with broad application to bribery. It provides a creative way for the government to prosecute bribery of foreign officials.

    Under the Act, it is a crime to engage in any inter-state or foreign travel, or use the mail or facilities associated with foreign or inter-state travel, with the intent to carry on or facilitate any unlawful activity. Unlawful activity includes bribery, provided the bribery is in violation of federal law or the law of the state in which it is committed. As bribery of a foreign public official is forbidden under the FCPA, the Travel Act can apply to any related international activity or movement. Attempts are punishable.

Domestic public officials

Section 201 of Title 18 of the United States Code (US Code) prohibits bribery and attempted bribery of domestic public officials and witnesses. Section 201 is violated when a person or entity gives or offers something of value, with corrupt intent, to someone acting for, or on behalf of the US, in order to:

  • Influence an official act.

  • Influence a public official to commit, collude in, or allow any fraud.

  • Induce a public official to do or omit to do any act in violation of their lawful duty.

For bribery, there must be a quid pro quo (that is, a specific intent to give or receive something of value in return for the official act).

Bribery of public officials is prohibited where anyone corruptly offers or agrees to give anything of value of US$5,000 (or more) to any person, with intent to influence or reward an agent of a state, local or Indian Tribal Government or any agency of those entities (section 666, Title 18, US Code).

The Travel Act can also be used to prosecute extortion or bribery. To prove a violation of the Travel Act, prosecutors must demonstrate all of the following:

  • The defendant engaged in any inter-state or foreign travel, or used the mail or facilities associated with foreign or inter-state commerce.

  • The defendant intended to commit a corrupt act.

  • The recipient of the bribe acted, or attempted to act, to further the defendant's scheme.

The Hobbs Act carries the most severe penalties of all the federal corruption statutes. It also applies to bribery, although it only expressly prohibits extortion. To prove a violation of the Hobbs Act, prosecutors must establish that there was extortion or an attempt to extort that interfered with inter-state commerce. Extortion is defined as obtaining property from another person:

  • With that person's consent.

  • Induced by wrongful use of actual or threatened force, violence, or fear, or under the pretence of having the official right.

The US Supreme Court upheld the view that the coercive element required by the Act is satisfied by the fact of occupying public office itself.

Private commercial bribery

While private commercial bribery is generally forbidden at state rather than federal level, the Travel Act has been used to "federalise" the states' prohibitions in order to cover private commercial bribery. The unlawful activities forbidden under the Travel Act include bribery, if it violates the laws of the US or the state in which it is committed (see above, Foreign public officials and Domestic public officials). Generally, engaging in any inter-state or foreign travel, or using the mail or facilities associated with foreign or inter-state commerce to further a private commercial bribe, would violate the Travel Act if the state in which the bribe occurred outlaws bribery.

 

Defences

8. What defences, safe harbours or exemptions are available and who can qualify?

The anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) do not apply to any facilitating or expediting payment to a foreign official (that is, an attempt to secure a foreign official's performance of a routine government action, such as ministerial or clerical duties). The FCPA distinguishes between these payments and corrupt payments.

The anti-bribery provisions of the FCPA provide two affirmative defences:

  • The relevant payment was legal in the foreign official's country.

  • The payment of anything of value was a reasonable and legitimate expense, such as travel and lodging expenses, incurred by, or on behalf of, a foreign public official, and the expenditure was directly related to the promotion, demonstration or explanation of products or services, or the execution or performance of a contract with a foreign government or agent.

 
9. Can associated persons (such as spouses) and agents be liable for these offences and in what circumstances?

Associated individuals and agents may be liable for violations of anti-bribery and corruption statutes if they meet all elements of the relevant offence. Associated individuals may also be liable for conspiracy to violate anti-bribery and corruption statutes if they either:

  • Form an agreement to violate these statutes and take an act to further the agreement.

  • Aid and abet such a violation.

 

Enforcement

10. What are the regulator's powers of investigation, enforcement and prosecution in cases of bribery and corruption and what are the consequences of non-compliance?

As with general corporate fraud (see Question 3), regulators have broad powers to investigate, enforce, and prosecute bribery and corruption. With the supervision and authorisation of the court, regulators are empowered to conduct comprehensive searches for relevant evidence. Regulators can use search warrants and subpoenas to gather relevant evidence. Regulators can issue subpoenas directly, although law enforcement officials must seek warrants from the court. However, the court can grant warrants quickly (including, in some cases, the same day the law enforcement agency makes its request). Failure to comply with the regulators' orders may result in additional civil or criminal charges, for example:

  • Obstruction of justice.

  • False statements.

  • Contempt.

  • Perjury.

The relevant regulatory authorities may interact and, at times, co-ordinate the investigation, enforcement and prosecution of bribery and corruption with overseas regulators (particularly with UK authorities as there are areas of overlap between the Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act).

 

Penalties

11. What are the potential penalties for participating in bribery and corruption?

Civil/administrative proceedings or penalties

The Department of Justice (DOJ) or the Securities Exchange Commission (SEC) may bring a civil action to prohibit any act or practice of a corporation whenever it appears that the corporation is, or is about to be, in violation of the FCPA anti-bribery provisions. In a civil action, the corporation faces a fine of US$10,000 for each act committed in pursuit of the offence.

A corporation found in violation of the FCPA may be barred from doing business with the federal government. The SEC can suspend or bar a corporation from the securities business and impose civil penalties. The Commodity Futures Trading Commission (CFTC) can also impose a suspension or debarment from agency programmes for violations of the FCPA.

Individuals in violation of the FCPA may also be subject to civil action resulting in financial penalties and sanctions.

Criminal proceedings or penalties

A corporation can lose its right to do business with the US government simply by being formally charged with a criminal violation of the FCPA.

Corporations and other business entities are subject to a fine of up to US$2 million for violations of the FCPA's anti-bribery provisions. A violation of the FCPA may also result in civil and criminal forfeiture of assets.

Persons that violate section 201 of Title 18 of the United states Code (US Code) face a fine and/or a maximum prison sentence of 15 years, and may be disqualified from holding any public office in the US.

Persons that violate section 666 of Title 18 (US Code), face a fine and a maximum prison sentence of ten years.

 

Tax treatment

12. Are there any circumstances under which payments such as bribes, ransoms or other payments arising from blackmail or extortion are tax-deductible as a business expense?

Individuals and corporations cannot deduct bribes or illegal payments from their taxes.

However, ransom may be tax deductible, provided the individual or corporation has records to prove the loss.

 

Insider dealing and market abuse

Regulatory provisions and authorities

13. What are the main regulatory provisions and authorities responsible for investigating insider dealing and market abuse?

There is no statute that expressly forbids insider trading, though the law has been interpreted to proscribe insider trading as a "deceptive device" (section 10(b), Securities Exchange Act of 1934 and SEC Rule 10b-5). To find a violation, there must be trading on material, non-public information in breach of a duty. The duty arises out of the specific relationship of trust and confidence between the parties.

Regulatory provisions addressing insider dealing and market abuse include:

  • Sections 5, 17(a), 24 of the Securities Act of 1933.

  • • Sections 9, 10, 18, and 20 of the Securities Exchange Act of 1934.

  • Sections 206 and 217 of the Investment Advisers Act of 1940.

  • Sections 17, 34, 37, and 49 of the Investment Company Act of 1940.

  • Sections 4 and 9 of the Commodities Exchange Act.

  • Section 807 of the Sarbanes-Oxley Act.

The Department of Justice (DOJ) investigates and prosecutes insider trading under criminal law. The Securities Exchange Commission (SEC) is responsible for enforcement under civil law (including Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5).

There are no best practice regulations or guidelines.

For more information on the regulatory authorities see box: The regulatory authorities.

 

Offences

14. What are the specific insider dealing and market abuse offences?

In general, wilful violations of federal securities laws amount to criminal offences. "Wilfulness" has been defined as intentional or knowing conduct involving a realisation on the defendant’s part that the defendant was doing a wrongful act. Many of the specific insider dealing and market abuse offences are overlapping, with Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 serving as widely-used anti-fraud provisions, which prohibit the use of a "deceptive device" or a scheme to defraud in connection with the purchase or sale of any security. Attempts may be punishable under alternative provisions that prohibit mail or wire fraud.

Insider trading (section 10(b), Securities Exchange Act of 1934 and SEC Rule 10b-5 (section 78j, Title 15, US Code and 17 C.F.R. 240.10b-5)). To prove an offence, the government generally must establish that company insiders bought or sold stock in their company when in possession of material, non-public information, or alternatively, that an outsider to a company traded on material non-public information either:

  • In violation of a duty owed to the source of the information.

  • Where the source of the information was an insider who breached a fiduciary duty or comparable relationship by disclosing the information in order to receive an improper personal benefit.

Insider trading in connection with tender offers (section 14(e), Securities Exchange Act of 1934 and Rule 14e-3 (section 78n, Title 15, US Code and 17 C.F.R. 240.14E-3)). To prove an offence, the government must establish all of the following:

  • A substantial step to commence a tender offer was taken.

  • There was trading in such securities by a trader who possessed "material information" relating to the tender offer.

  • Unless the information and its source were publicly disclosed by press release or otherwise within a reasonable time, the trader knew or had reason to know that:

    • the tender offer was non-public; and

    • the source of the information was the offerer, the target, or their representatives.

Securities fraud and market abuse (primarily, section 10(b), Securities Exchange Act of 1934 and SEC Rule 10b-5 ( section 78j, Title 15, US Code and 17 C.F.R. 240.10b-5 ). The basic elements of a securities fraud claim are as follows:

  • A material misrepresentation or omission by the defendant.

  • Intent or knowledge of wrongdoing, which, for a criminal charge, requires wilfulness.

  • A connection between the misrepresentation or omission and the purchase or sale of a security.

The elements of securities fraud are sufficiently broad to encompass a variety of fraudulent activity, including reporting violations, "pump and dump" schemes and options back-dating schemes. Other market manipulation practices, such as wash sales, matched orders, or rigged prices, that are intended to mislead investors by artificially affecting market activity may also constitute securities fraud under section 10(b) (in addition to constituting offences under section 9 of the Securities Exchange Act of 1934, which specifically prohibits such manipulation).

There are corresponding anti-fraud provisions in other US statutes, which proscribe fraudulent schemes that often overlap with, or run parallel to, the offences prosecutable under section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, including:

  • The Securities Act of 1933, sections 5 (registration of securities), 17(a) (anti-fraud), and 24 (criminalising wilful violations of the Act), addressing the "offer or sale" of securities.

  • Investment Advisers Act of 1940, sections 206 (anti-fraud) and 217 (criminalising wilful violations of the Act), addressing investment advisers’ reporting obligations, client duties, and prohibited transactions.

  • Investment Company Act of 1940, sections 17 (self-dealing proscriptions), 34 (falsifying records), 37 (larceny and embezzlement from an investment company’s assets), and 49 (criminalising wilful violations of the Act).

  • Commodities Exchange Act, sections 4 (criminalising wilful registration and position reporting violations), 6 (prohibiting manipulation and false information) and 9 (prohibiting wilful conversion of customer funds, attempted or actual price manipulation and violation of anti-fraud provisions).

  • Rules 180.1 and 180.2, adopted by the Commodity Futures Trading Commission (CFTC) under the Dodd-Frank Amendments, which are modelled after Section 10(b) and Rule 10b-5 and broadly prohibit fraud and fraud-based manipulations of the commodities markets.

Sarbanes-Oxley Act section 807 ( section 1348, Title 18, US Code). The Sarbanes-Oxley Act created the specific offence of securities fraud involving a public company. To prove an offence, the government must establish that someone knowingly executed or attempted to execute a scheme or artifice either to:

  • Defraud any person in connection with a class of securities registered under the Securities Exchange Act of 1934.

  • Obtain through false or fraudulent pretences, representations or promises, any money or property in connection with the purchase or sale of such registered securities.

Mail and wire fraud (sections 1341 and 1343, Title 18, US Code). To prove an offence, the government must establish all of the following elements:

  • Existence of a scheme or artifice to defraud.

  • Use of mails or wires (inter-state electronic communication) for the purpose of carrying out the scheme.

  • Culpable participation by the defendant, either by direct use of the mails or wires, or by knowingly causing another to make such use.

Although these provisions do not explicitly mention securities, in practice, most (if not all) securities frauds satisfy these elements. These offences are therefore often charged alongside securities fraud offences. Attempts are punishable.

 

Defences

15. What defences, safe harbours or exemptions are available and who can qualify?

There is a defence to insider trading where a trade is not considered to be on the basis of material non-public information and the person making the purchase or sale demonstrates that, before becoming aware of the information, the person had either (SEC Rule 10b5-1):

  • Entered into a detailed, binding contract to purchase or sell the security.

  • Instructed another person to purchase or sell the security for the instructing person's account.

  • Adopted a written plan for trading securities.

To be considered an acceptable plan (SEC Rule 10b5-1), the plan must contain all of the following elements:

  • The pre-existing contract, instruction or plan to buy or sell securities must have been entered into in good faith, and not as part of a scheme to evade insider trading laws.

  • The plan must have been adopted at a time when the person trading was not aware of any material non-public information.

  • The terms of the plan specified the amount, price and date of the transaction(s) (or included a written formula, algorithm or computer programme for determining the amount, price and date).

  • The person trading under the plan did not have the power over how, when or whether to make purchases or sales after the plan was in place.

  • The purchase or sale at issue was made in accordance with the plan.

Both corporate insiders and non-insiders can establish a plan for trading securities.

The advice of counsel defence is also available for insider trading and securities fraud offences. To successfully assert advice of counsel, defendants must show that they:

  • Sought the advice of counsel in good faith.

  • Made a complete disclosure to counsel of all relevant facts they knew.

  • Reasonably relied on and followed counsel’s opinion. The assertion of an advice of counsel defence requires an examination of the communications with counsel that otherwise would be privileged, and is therefore likely to result in the waiver of that privilege, because a defendant cannot use privilege as "both a shield and a sword".

 

Enforcement

16. What are the regulator's powers of investigation, enforcement and prosecution and what are the consequences of non-compliance?

The Department of Justice (DOJ) and the Securities Exchange Commission (SEC) (once granted formal investigative power) can issue subpoenas and compel testimony. Both agencies can obtain personal telephone records, address/contact records, email accounts and bank statements. The DOJ may receive court authorisation to wiretap a target's phone calls, provided the DOJ can demonstrate a probable cause. If the court grants the order, the surveillance is usually limited to a specific period of time (usually 30 days). Wiretapping is becoming much more frequently used in insider trading cases.

Under Dodd-Frank, both the DOJ and the SEC have authority to bring actions based on extraterritorial conduct.

As for other corporate crimes, non-compliance with the regulators' investigation orders may result in additional civil or criminal charges (for example, obstruction of justice, false statements, contempt or perjury).

 

Penalties

17. What are the potential penalties for participating in insider dealing and market abuse?

Civil/administrative proceedings or penalties

The Securities Exchange Commission (SEC) can fine an individual or corporate offender up to three times the profit gained or loss avoided.

Criminal proceedings or penalties

Under the Securities Exchange Act of 1934, individuals face up to 20 years' imprisonment for criminal securities fraud and a fine of up to US$5 million for each wilful violation. Corporations face penalties of up to US$25 million.

Civil suits

Injured parties may bring private securities fraud class actions, seeking monetary damages, including punitive damages in certain cases.

 

Money laundering, terrorist financing and financial/trade sanctions

Regulatory provisions and authorities

18. What are the main regulatory provisions and authorities responsible for investigating money laundering, terrorist financing and/or breach of financial/trade sanctions?

Money laundering

The main regulatory provisions are:

  • Section 1956 of Title 18 (US Code).

  • Section 5332 of Title 31 (US Code).

  • Bank Secrecy Act, Section 5311 of Title 31 (US Code).

Terrorist financing

The main regulatory provisions are:

  • Section 2339A, Title 18 (US Code).

  • Section 2339B, Title 18, (US Code).

Financial/trade sanctions

The main regulatory provisions are:

  • International Emergency Economic Powers Act (IEEPA), sections 1701 to 1707, Title 50 (US Code).

  • Trading with the Enemy Act of 1917 (TWEA), sections 1 to 44, Title 50, Appendix (US Code)

  • International Security and Development Cooperation Act, section 2349aa-9, Title 22 (US Code).

  • 31 C.F.R. 501 et seq.

The primary authorities responsible for investigating are the:

  • Department of Justice (DOJ).

  • Securities Exchange Commission (SEC).

  • US Department of the Treasury, Office of Foreign Assets Control (OFAC).

  • Financial Industry Regulatory Authority (FINRA).

There are no best practices regulations or guidelines.

For more information on the DOJ, SEC, US Department of the Treasury and FINRA see box: The regulatory authorities.

 

Offences

19. What are the specific offences relating to money laundering, terrorist financing and breach of financial/trade sanctions?

Money laundering

The offences related to money laundering are:

  • Domestic money laundering (section 1956(a)(1), Title 18, US Code). To prove an offence, the government must establish that the defendant:

    • conducted, or attempted to conduct, a financial transaction that involved the proceeds of illegal activity;

    • knew that the proceeds resulted from illegal activity; and

    • intended to promote an illegal activity or to evade taxes, or knew that the transaction was designed to disguise proceeds or to avoid a state or federal reporting requirement.

  • International money laundering (section 1956(a)(2), Title 18, US Code). To prove international money laundering, the government must establish that:

    • the defendant transported, or attempted to transport, financial instruments or funds across the US border;

    • the defendant knew that the proceeds resulted from illegal activity;

    • the transaction was designed to conceal the origin of the proceeds or avoid reporting requirements, or was intended to promote the illegal activity.

  • Bulk cash smuggling (section 5332, Title 31, US Code). To prove bulk cash smuggling, the government must establish that the defendant:

    • intended to evade a currency reporting requirement; and

    • knowingly concealed more than US$10,000 in currency and transported, or attempted to transport, the currency across the US border.

  • Material support of foreign terrorist organisations (section 2339B, Title 18, US Code). To prove an offence, the government must establish that the defendant:

    • knowingly attempted to or provided material support (that is, money or services) to a foreign terrorist organisation; and

    • knew that the organisation has been designated a foreign terrorist organisation by the US Secretary of State or engages, or has engaged, in "terrorism" or "terrorist activity".

      "Terrorism" and "terrorist activity" are defined by reference to other statutes. They generally include the violent acts associated with terrorism, but also providing money or services when the person knows or reasonably should know that such money or services are being provided in material support of terroristic acts or organisations endorsing or perpetrating such acts.

In addition to these criminal provisions, the Bank Secrecy Act requires financial institutions to take a number of preventative measures to identify potential money laundering customer accounts.

Attempt, conspiracy and aiding and abetting are punishable.

Terrorist financing

  • Material support of terrorists (Section 2339A, Title 18, US Code). To prove an offence, the government must establish that the defendant:

    • provided or attempted to provide material support (that is, money or services); or concealed the nature, location, source or ownership of material support; and

    • knew or intended that they be used in preparation for, in carrying out, in preparation of concealment or in carrying out the concealment of a federal crime of terrorism.

  • Material support of foreign terrorist organisations (Section 2339B, Title 18, US Code). To prove an offence, the government must establish that the defendant:

    • knowingly attempted to or provided material support (that is, money or services) to a foreign terrorist organisation; and

    • knew that the organisation has been designated a foreign terrorist organisation by the US Secretary of State or engages, or has engaged, in "terrorism" or "terrorist activity".

      "Terrorism" and "terrorist activity" are defined by reference to other statutes. They generally include the violent acts associated with terrorism, but also providing money or services when the person knows or reasonably should know that such money or services are being provided in material support of terroristic acts or organisations endorsing or perpetrating such acts.

Attempt, conspiracy and aiding and abetting are punishable.

Financial/trade sanctions

The Office of Foreign Assets Control (OFAC) is the primary administrator of US sanctions programmes. Country-based sanctions and activity-based sanctions are the two basic types of OFAC sanctions programmes. The specific programmes (for example, the Iranian Transactions Regulations, Terrorism Sanctions and so on) are authorised by statute and implemented by Executive Orders and regulations appearing in the C.F.R. Generally, OFAC sanctions:

  • Apply to US persons.

  • Extend to any property that comes within the US (including through the provision of US dollar clearing services).

  • Prohibit certain transactions and freeze assets regarding a targeted country or person.

To establish criminal liability for breach of trade sanctions, the government must prove that the defendant:

  • Breached a regulation issued under an authorising statute (for example, the International Emergency Economic Powers Act (IEEPA) or the Trading With the Enemy Act (TWEA)).

  • Acted wilfully.

  • Is a US citizen or otherwise subject to the jurisdiction of the United States.

Attempt, conspiracy and aiding and abetting are punishable.

For more information on the regulatory authorities see box: The regulatory authorities.

 

Defences

20. What defences, safe harbours or exemptions are available and who can qualify?

Money laundering

The primary defence to money laundering under US federal law is lack of intent. A conviction under section 1956(a) of Title 18 (US Code) requires the government to prove that the defendant intended to conceal the illicit source of laundered funds. If the government fails to do so, then the defendant cannot be convicted of money laundering.

A similar defence is available in cases involving allegations of bulk cash smuggling (see Question 19, Money laundering). The provision prohibiting such smuggling requires that the defendant knowingly conceals the allegedly smuggled funds and that the concealment be done with intent to evade a currency reporting requirement. Therefore, defendants who can raise reasonable doubt as to their knowledge of concealment or intent to avoid reporting requirements will not be convicted under section 5332 of Title 31 (US Code).

Financial institutions are protected from certain liabilities in connection with sharing information with other financial institutions for the purposes of identifying and reporting money laundering or terrorist financing activities. Financial institutions intending to share information must:

  • File an annual notice with the US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN).

  • Have procedures to protect the security and confidentiality of the information.

  • Take reasonable steps to verify that the financial institution receiving the information has filed the required notice with FinCEN.

Terrorist financing

Lack of knowledge or intent is the primary defence to a terrorist financing charge. The government must prove that the defendant knew or intended the material support to be provided in preparing for, carrying out, or concealing an offence identified as a federal crime of terrorism (section 2339A, Title 18 (US Code)). This offence therefore requires that defendants, at a minimum, knew that the ultimate aim of their actions was to contribute to a specific crime of terrorism. The government must show both a defendant's (section 2339B of Title 18 (US Code)):

  • Intention to provide material support.

  • Knowledge that the organisation being supported is a terrorist organisation or engages in acts of terrorism.

These requirements can make it difficult for the government to prove intent beyond a reasonable doubt.

Financial/trade sanctions

A lack of wilfulness, and therefore a lack of intent or knowledge, is the primary defence to a breach of financial/trade sanctions criminal charge. Wilfulness is usually only established if defendants are aware that their actions violate the law. Defendants must therefore be aware of the specific sanctions programme (see Question 19, Financial/trade sanctions) allegedly violated and the connection between the conduct at issue and the sanctions programme. The "advice of counsel" defence, particularly the good faith requirement it entails, may demonstrate a sufficient lack of wilfulness. However, the government can prove knowledge of the law and wilfulness on the basis of conscious avoidance (that is, where the defendant knows it is highly probable that the conduct in question violates the law but consciously avoids learning about it).

In civil proceedings, there is typically strict liability for breaching of financial/trade sanctions. However, voluntary reporting and the use of a risk-based compliance programme may mitigate an offence. Conversely, flagrant violations may call for more severe enforcement.

In addition, the Office of Foreign Assets Control (OFAC) regulations often provide general licences authorising certain categories of transactions that would otherwise be prohibited (for example, a general licence permitting the export of basic medical supplies to Iran even though trade with Iran is for the most part prohibited under the Iranian Transactions and Sanctions Regulations). OFAC also accepts applications for and grants specific licences on a case-by-case basis which authorise individual transactions that otherwise might be prohibited.

For more information on the regulatory authorities see box: The regulatory authorities.

 

Enforcement

21. What are the regulator's powers of investigation, enforcement and prosecution and what are the consequences of non-compliance?

Money laundering

As with general corporate fraud (see Question 3), regulators have broad powers to investigate, enforce and prosecute money laundering, terrorist financing and financial/trade sanctions offences.

Regulators can conduct comprehensive searches for relevant evidence under the supervision and with the authorisation of the court. This includes interception of wire and telephone communications. Regulators can also identify, designate and freeze the US-based assets of persons who finance terrorism.

The courts and the regulators have extra-territorial jurisdiction (sections 1956, 1957 and 2339B, US Code).

Terrorist financing

See above, Money laundering.

Financial/trade sanctions

For criminal proceedings, see above, Money laundering.

In civil proceedings, the Office of Foreign Assets Control (OFAC) can issue administrative subpoenas that may require any or all of the following:

  • Written responses.

  • Attendance and testimony of witnesses.

  • Production of documents.

OFAC has broad discretion to take a number of enforcement actions depending on the facts, including:

  • Sending a cautionary letter.

  • Imposing a civil monetary penalty.

  • Issuing a cease and desist order.

OFAC can also refer matters to the Department of Justice (DOJ) to be considered for criminal prosecution.

For more information on the regulatory authorities see box: The regulatory authorities.

 

Penalties

22. What are the penalties for participating in money laundering, terrorist financing offences and/or breaches of financial/trade sanctions?

Money laundering

The recent multibillion-dollar settlements for breaches of economic sanctions, money laundering and related offences illustrate an increase in the regulators' actions to impose penalties, particularly with respect to financial institutions. Recent examples include:

  • BNP Paribas: US$8.9 billion settlement in connection with economic sanctions violations.

  • HSBC: US$1.92 billion settlement in connection with economic sanctions and anti-money laundering programme violations.

Civil/administrative proceedings or sanctions. Non-compliance with money laundering regulations can result in monetary penalties. Both section 1956 of Title 18 and section 5332 of Title 31 authorise civil penalties (US Code).

Criminal proceedings. Domestic and international money laundering (section 1956, Title 18, Code) are punishable by a maximum of 20 years' imprisonment and a fine equal to the greater of US$500,000 or twice the value of the property involved in the transaction. Civil and criminal forfeiture statutes can be used to seize any property involved in, or traceable to, money laundering crimes.

Bulk cash smuggling (section 5332, Title 31, US Code) is punishable by a maximum of five years' imprisonment and a fine of US$250,000, or twice the profit gained by the defendant, the loss suffered by another, or the value of criminally derived property involved, whichever is larger.

Terrorist financing

Offenders connected with terrorist offences (sections 2339A and 2339B, Title 18, US Code) face a fine and a maximum prison term of 15 years. Offenders face life imprisonment where anyone dies in connection with the terrorism.

Financial/trade sanctions

The penalties for violations of the International Emergency Economic Powers Act (IEEPA), Trading with the Enemy Act (TWEA) and regulations of the Office of Foreign Assets Control (OFAC) can be considerable.

Civil/administrative proceedings. Civil penalties vary depending on the offence. For example, the fine for a violation of the TWEA can be up US$65,000. The fine for a violation of the IEEPA can be up to US$250,000 or twice the amount of the underlying transaction for each violation.

Criminal proceedings. According to the US Treasury Department, criminal penalties may include fines up to US$20 million and imprisonment of up to 30 years. In assessing criminal penalties under these provisions, the Department of Justice (DOJ) has relied on a general sentencing provision to impose fines (section 3571, Title 18 (US Code)). Under this provision, the applicable fine for an organisation committing a felony offence is the greatest of:

  • US$500,000.

  • Twice the gross pecuniary gain derived from the offence.

  • Twice the pecuniary loss to persons other than the defendant resulting from the offence.

For more information on the regulatory authorities see box: The regulatory authorities.

 

Financial record keeping

23. What are the general requirements for financial record keeping and disclosure?

The Sarbanes-Oxley Act establishes the accounting and auditing standards for all publicly traded companies in the US and the affiliates of those companies. Corporate executives are accountable for the:

  • Security of all systems used in financial reporting.

  • Accuracy of all systems used in financial reporting.

  • Reliability of all systems used in financial reporting.

The corporate records must both:

  • Comply with applicable requirements.

  • Fairly present the financial condition and results of the operations of the company.

The Foreign Corrupt Practices Act (FCPA) also contains accounting provisions that require all inter-state issuers of securities with securities traded on a national stock exchange, assets in excess of US$1 million and at least 500 shareholders, to make and keep books, records, and accounts that accurately and fairly reflect the company's financial position. The accounting provisions also provide that an issuer must use a system of internal accounting controls that provide reasonable assurances that:

  • Transactions and access to assets are only with the management's general or specific authorisation.

  • Transactions are recorded to permit preparation of financial statements in accordance with generally accepted accounting principles or any other criteria applicable to such statements.

  • Accountability is maintained for assets and the recorded accounts for assets are compared with the existing assets at reasonable intervals, with the appropriate action taken with respect to any differences.

The Bank Secrecy Act provides that any resident or citizen of the US doing business within the country must keep records and file reports whenever the person makes a transaction or maintains a relationship with a foreign financial agency.

 
24. What are the penalties for failure to keep or disclose accurate financial records?

Failure to comply with record keeping requirements can result in severe criminal penalties.

The Sarbanes-Oxley Act makes it a crime punishable by up to 20 years of imprisonment to knowingly alter, destroy, mutilate, conceal, cover up, falsify or make a false entry in any record with the intent to impede, obstruct or influence any government investigation. Additionally, the Act criminalises an accountant or auditor's wilful failure to maintain audit or review records, prescribing a criminal penalty of up to ten years of imprisonment for any violation.

The Foreign Corrupt Practices Act (FCPA) also provides severe criminal sanctions for violations of book and record-keeping provisions. Any person who knowingly circumvents or fails to implement a system of internal accounting controls, or knowingly falsifies any book, record or account, is subject to criminal liability. The potential consequences of wilfully breaching these provisions, or any agency rule or regulation related to these provisions, include a fine of up to US$25 million and imprisonment of up to 20 years.

Wilful violation of the Bank Secrecy Act requirement and any related regulations may result in a fine of US$250,000, imprisonment of five years, or both. The potential penalties double if the violation occurs in conjunction with the violation of any other US law or as part of a pattern of illegal activity involving more than US$100,000 over a 12-month period.

 
25. Are the financial record keeping rules used to prosecute white-collar crimes?

The Department of Justice (DOJ) has prosecuted violations of the various record keeping regulations. However, it is more common for the Securities Exchange Commission (SEC) to bring a civil enforcement action.

 

Due diligence

26. What are the general due diligence requirements and procedures in relation to corruption, fraud or money laundering when contracting with external parties?

Financial institutions are subject to a number of due diligence requirements with regard to money laundering.

The Department of the Treasury issued a rule that requires financial institutions to establish appropriate, specific, risk-based and, where necessary, enhanced due diligence policies, procedures and controls. The policies must be reasonably designed to allow the financial institution to detect and report, on an ongoing basis, any known or suspected money laundering activity conducted through or involving any correspondent account established, maintained, administered, or managed by the covered financial institution in the US for a foreign financial institution.

Financial institutions must also maintain due diligence programmes that are reasonably designed to detect and report known or suspected money laundering or suspicious activity conducted through or involving any private banking account that is established, maintained, administered, or managed in the US by the financial institution for a foreign person or entity.

The Foreign Corrupt Practices Act (FCPA) creates anti-bribery due diligence requirements for public and private companies. Companies can be liable for the FCPA violations of any third-party agent where a payment is made to that agent with the knowledge that the payment will then be offered or given to a foreign public official.

 

Corporate liability

27. Under what circumstances can a corporate body itself be subject to criminal liability?

A corporation can be subject to criminal liability under virtually any general criminal statute.

When deciding whether to prosecute a corporation, federal prosecutors consider the same factors as they would when deciding to prosecute an individual including:

  • The sufficiency of the evidence.

  • The likelihood of success at trial.

  • The probable deterrent or rehabilitative effects.

  • Whether a non-criminal approach, such as civil or regulatory enforcement actions, would be sufficient to redress the violation.

In addition to these general considerations, a federal prosecutor considers the following in whether to prosecute a corporation:

  • The nature and seriousness of the offence, including the risk of harm to the public.

  • The pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management.

  • The corporation's history of similar misconduct, including prior criminal, civil, and regulatory enforcement actions against it.

  • The corporation's timely disclosure of wrongdoing and its willingness to co-operate in the investigation of its agents.

  • The existence and effectiveness of the corporation's pre-existing compliance programme.

  • The corporation's remedial actions.

  • The collateral consequences, including whether there is disproportionate harm to shareholders, pension holders, employees and others who are not proven to be personally culpable, and the impact on the public arising from the prosecution.

  • The adequacy of the prosecution of individuals responsible for the misconduct.

 

Cartels

28. Are cartels prohibited in your jurisdiction? How are cartel offences defined? Under what circumstances can a corporate body be subject to criminal liability for cartel offences?

This question was added in the 2015/16 edition of the guide.

 

Immunity and leniency

29. In what circumstances is it possible to obtain immunity/leniency for co-operation with the authorities?

In the criminal context, a corporation's timely and voluntary disclosure of misconduct and its co-operation with the government's investigation may be considered by the prosecutor when deciding whether to charge the corporation and how to resolve the case. Even in a case that is appropriate for criminal charges and prosecution, co-operation is a mitigating factor through which a corporation can gain credit and receive leniency.

 

Cross-border co-operation

30. What international agreements and legal instruments are available for local authorities?

Obtaining evidence

The Convention on the Taking of Evidence Abroad in Civil or Commercial Matters (Hague Evidence Convention) provides procedures by which judicial authorities can request evidence located in other judicial authorities.

In addition, the Inter-American Convention Against Corruption (IACAC) 1997 provides for mutual assistance by sharing evidence. The US is not a signatory to the Inter-American Convention on the Taking of Evidence Abroad.

The US is also party to numerous mutual legal assistance conventions, bilateral consular treaties, and other treaties and agreements that provide for varying degrees of judicial assistance between countries in sharing evidence. Under these agreements, foreign countries and the US agree to gather and share evidence in connection with the investigation, prosecution and prevention of offences.

Seizing assets

Local authorities in the US may be able to seize assets from overseas jurisdictions through the:

  • United Nations Convention Against Corruption 2003 (Corruption Convention).

  • United Nations Convention Against Transnational Organized Crime.

  • OECD Convention on Combating Bribery of Foreign Public Officials in Interested Business Transactions (OECD Anti-Bribery Convention).

  • IACAC.

Mutual legal assistance conventions and other treaties and agreements also provide means for local US authorities to seize assets held abroad. Under such agreements, the US may request that the foreign party freeze and/or seize assets obtained in bad faith abroad and repatriate the property for forfeiture.

Sharing information

Following the global financial crisis, there has been an increased focus on cross-border collaboration among enforcement agencies, particularly between the US and the UK. Even before the crisis, regulatory authorities in the US and UK (notably, the SEC, CFTC and the Financial Services Authority (now split into the Financial Conduct Authority (FCA) and the Prudential Regulation Authority)) had entered into memoranda of understanding providing for cross-border co-operation in the regulation and protection of the markets.

In the current highly regulated environment, there appears to be a renewed commitment to cross-border co-operation among enforcement agencies. For example, in the recent enforcement actions concerning LIBOR manipulation, the US authorities (that is, the DOJ, SEC and CFTC) conducted joint-investigations and co-ordinated agreements and settlements with their UK counterparts (that is, the FCA and the Serious Fraud Office). This pattern of co-operation is likely to continue as the global markets are increasingly interconnected.

 
31. In what circumstance will domestic criminal courts assert extra-territorial jurisdiction?

Criminal prosecutions for offences occurring extra-territorially are generally limited to where some elements of the offence are committed within US borders. The extra-territorial jurisdiction of a domestic criminal court over an offence occurring entirely extra-territorially requires sufficient authorisation from Congress, and is therefore subject to a statute-specific analysis. As the US Supreme Court clarified in Morrison v National Australia Bank, there is a "longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States" (561 U.S. 247, 130 S. Ct. 2869, 2877 (2010)). Following Morrison, other courts have found that this presumption against extra-territoriality applies to criminal statutes. Whether domestic criminal courts may assert extra-territorial jurisdiction therefore depends on the wording and congressional intent of the relevant criminal provision. The following examples illustrate the practical application of the principles of extra-territorial jurisdiction:

  • Securities fraud (section 10(b), Securities Exchange Act of 1934 and SEC Rule 10b-5 (section 78j, Title 15, US Code and 17 C.F.R. 240.10b-5)). In Morrison, the US Supreme Court held that section 10(b) did not apply extra-territorially. Subsequently, Congress amended the Securities Exchange Act of 1934 (through the Investor Protection and Securities Reform Act of 2010 (Title IX of Dodd-Frank)), to provide courts with jurisdiction over an action or proceeding brought by the Department of Justice (DOJ) or the Securities Exchange Commission (SEC) involving:

    • conduct within the US that constitutes significant steps in furtherance of the violation, even if the securities transaction at issue occurs outside the US and involves only foreign investors; and

    • conduct occurring outside the US that has a foreseeable substantial effect within the US.

    While Congress’s intent in amending the Securities Exchange Act appears to have been to facilitate criminal and civil enforcement of section 10(b) extra-territorially, there remains a question as to whether the wording of the amendment achieves that effect. The amendment purports to vest US courts with jurisdiction over extra-territorial violations of section 10(b). However, in Morrison, the Supreme Court did not take issue with whether US courts could assert jurisdiction over such conduct, but rather found that the geographic scope of the substantive regulatory provision at issue, section 10(b), did not allow for it. However, certain courts have favoured Congress’s apparent intent to facilitate extra-territorial jurisdiction.

  • Money laundering (section 1956f, Title 18, US Code). This section provides for extra-territorial jurisdiction over the prohibited money-laundering conduct (see Question 19, Money laundering) if:

    • the conduct is by a US citizen; or

    • in the case of a non-US citizen, the conduct occurs in part in the US and the transaction or series of related transactions involves funds exceeding US$10,000.

  • Theft of trade secrets (sections 1832-37, Title 18, US Code). This section provides for extra-territorial jurisdiction over the conduct prohibited if:

    • the offender was a US national or entity organised under US law; or

    • an act in furtherance was committed in the US.

  • Foreign Corrupt Practices Act (FCPA) (sections 78dd-1 - 78dd-3, Title 15, US Code). The FCPA provides for extra-territorial jurisdiction over:

    • US persons and businesses, including their agents, who engaged in prohibited corrupt conduct extra-territorially;

    • any issuer of securities, including its agents, on a US stock exchange, whether the issuer is a US or non-US company, where the issuer or its agents used the US mail or any instrumentality of inter-state commerce in furtherance of the relevant, extra-territorial corrupt conduct; and

    • non-US persons, who used the US mail or any instrumentality of inter-state commerce in furtherance of the relevant extra-territorial corrupt conduct.

  • Conspiracy (section 371, Title 18, US Code). Courts have upheld the exercise of extra-territorial jurisdiction over conspirators who have never entered the US, where the object of the conspiracy was the violation of US law and co-conspirators committed overt acts within the US.

 
32. Does your jurisdiction have any statutes aimed at blocking the assertion of foreign jurisdictions within your territory?

In contrast to countries that have implemented "blocking statutes" designed to frustrate the assertion of a foreign jurisdiction within their territories (particularly in the context of discovery), the US has not implemented parallel statutes. Rather, the US has implemented a provision (28 U.S.C. § 1782) that permits its courts to assist in the production of evidence for use in a foreign or international tribunal. In determining whether to order production of evidence to a foreign or international tribunal, US courts consider, among other items:

  • Whether the person from whom discovery is sought is a participant in the foreign proceeding.

  • The receptivity of the foreign tribunal and government to US assistance.

  • Whether the request for production is an attempt to circumvent "foreign proof-gathering restrictions".

  • Whether the request is unduly intrusive or burdensome (and should therefore be restrained or rejected).

 

Whistleblowing

33. Are whistleblowers given statutory protection?

There are a number of federal statutes that provide protection to whistleblowers across diverse regulatory areas, including:

  • Employment law (for example, the Fair Labor Standards Act).

  • Environmental law (for example, the Toxic Substances Control Act).

  • Competition law (for example, the Clayton Act).

The Sarbanes-Oxley Act and the False Claims Act provide additional protection for whistleblowers, which was recently expanded through the Dodd-Frank Act. Dodd-Frank also provides whistleblower protection to corporate insiders who report misconduct. Dodd-Frank provides incentives to whistleblowers, authorising the Securities Exchange Commission (SEC) to pay between 10% and 30% of the total monetary sanctions collected in an SEC action or related criminal proceeding to the whistleblower, provided the whistleblower voluntarily provides the SEC with original information that leads to a successful enforcement action yielding monetary sanctions of over US$1 million.

 

Reform

34. Are there any impending developments or proposals for reform?

There is currently a heightened regulatory environment in the US, and globally. Dodd-Frank was signed into law in 2010, and stands as the most significant financial regulation reform enacted in response to the recent global financial crisis. Dodd-Frank affects all federal financial regulatory agencies and almost every aspect of the nation's financial services industry. It also created the Consumer Financial Protection Bureau and the Financial Stability Oversight Council. Some components of Dodd-Frank have not come into effect to date.

Regulators have stepped up efforts to identify and combat corporate misconduct. Following the financial crisis, the Department of Justice (DOJ), Securities Exchange Commission (SEC) and the Federal Deposit Insurance Corporation asserted to Congress that they were increasing their respective enforcement of regulations prohibiting corporate crime. President Obama created the Financial Fraud Enforcement Task Force to combine and co-ordinate multi-agency efforts to investigate and prosecute corporate fraud.

Given the far-reaching and continuing effects of the economic collapse, it is safe to assume that financial regulations enforcement and reform efforts will continue at an increased pace.

 

Market practice

35. What are the main steps foreign and local companies are taking to manage their exposure to corruption/corporate crime?

Corporations are increasingly aware of the need to be diligent with compliance efforts and to co-operate with law enforcement.

Compliance

Corporate actors are implementing internal compliance policies to detail the procedures for preventing, identifying and remedying corporate misconduct. According to the Department of Justice (DOJ), compliance programmes should be designed for maximum effectiveness in preventing and detecting wrongdoing by employees, and corporate management must enforce the programme.

Internal investigations

Corporations are also recognising the value of conducting internal investigations, either on their own initiative or at the encouragement of the relevant regulatory authority, to identify whether any wrongdoing occurred and, if so, who was responsible. After gathering the relevant information, the corporation can then make an informed decision as to its next steps. By conducting an internal investigation and disclosing any evidence of wrongdoing to the government, a corporation may receive credit for its co-operation, which decreases its risk of indictment and the imposition of severe penalties. In addition, a corporation may benefit by focusing the government's investigation in a way that will cause minimal disruption to the corporation's legitimate business activities.

 

The regulatory authorities

Department of Justice (DOJ)

W www.justice.gov

Status. Governmental organisation.

Principal responsibilities. The DOJ is the ultimate federal authority responsible for enforcing the law, defending legal interests, ensuring public safety, preventing and controlling crime, punishing those guilty of unlawful behaviour and ensuring fair and impartial administration of justice.

Securities and Exchange Commission (SEC)

W www.sec.gov

Status. Governmental organisation.

Principal responsibilities. The SEC aims to protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation.

Financial Industry Regulatory Authority

W www.finra.org

Status. Governmental organisation.

Principal responsibilities. The Financial Industry Regulatory Authority aims to protect investors by ensuring the securities industry operates fairly and honestly.

Internal Revenue Service (IRS)

W www.irs.gov

Status. Governmental organisation.

Principal responsibilities. The IRS is responsible for collecting taxes and the enforcement of the Internal Revenue Code.

Department of the Treasury, Office of Foreign Assets Control (OFAC)

W www.treasury.gov

Status. Governmental organisation.

Principal responsibilities. OFAC administers and enforces trade sanctions in furtherance of US foreign policy and national security goals concerning, among others, foreign countries and regimes, terrorists and traffickers. OFAC acts under Executive Orders and specific authority granted by legislation to impose controls on transactions and freeze assets under US jurisdiction. OFAC's sanctions are often based on United Nations or other international mandates, and therefore involve significant co-operation with US-allied governments.

Department of Commerce

W www.commerce.gov

Status. Governmental organisation.

Principal responsibilities. The Bureau of Industry and Security Export Enforcement within the Department of Commerce protects US national security, homeland security, foreign policy and economic interests through a law enforcement programme focused on sensitive exports to hostile entities or those that engage in onward proliferation, prohibited foreign boycotts and related public safety laws.

Commodity Futures Trading Commission (CFTC)

W www.cftc.gov

Status. Governmental organisation.

Principal responsibilities. The CFTC protects market users and the public from fraud, manipulation, abusive practices and systemic risk related to products that are subject to the Commodity Exchange Act, and fosters open, competitive and financially sound markets.

Federal Trade Commission (FTC)

W www.ftc.gov

Status. Governmental organisation.

Principal responsibilities. The principal responsibilities of the FTC include preventing business practices that are anti-competitive, deceptive or unfair to consumers and enhancing informed consumer choice and public understanding of the competition, without unduly burdening legitimate business activity.



Online resources

US Government Printing Office (GPO)

W www.gpo.gov

Description. The US Government Printing Office (GPO) is the official source for providing public access to the US Code and other federal information.

Securities and Exchange Commission (SEC)

W www.sec.gov

Description. The SEC maintains a webpage with links to "major pieces of legislation", including the Securities Exchange Act of 1934, the Dodd-Frank Act, the Foreign Corrupt Practices Act and the Sarbanes-Oxley Act, which provide the framework for oversight of the securities markets.

Department of Justice (DOJ)

W www.justice.gov

Description. The DOJ maintains webpages with links to the Foreign Corrupt Practices Act (FCPA) and related resources.



Contributor profiles

Karen Patton Seymour

Sullivan & Cromwell LLP

T +212 558 3196
F +212 558 3588
E seymourk@sullcrom.com
W www.sullcrom.com

Professional qualifications. New York

Areas of practice. Criminal defence and investigations; litigation.

Recent transactions

  • Representing ING Bank in proceedings relating to economic and trade sanctions violations.
  • Representing Eni SpA and Snamprogetti Netherlands in proceedings relating to Foreign Corrupt Practices Act violations.

Andrew C Gilman

Sullivan & Cromwell LLP

T +212 558 7907
F +212 291 9648
E gilmana@sullcrom.com
W www.sullcrom.com

Professional qualifications. New York

Areas of practice. Criminal defence and investigations; litigation.


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