It's a Small World After All: Global Criminal Risk Trends and Strategies


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It's a Small World After All: Global Criminal Risk Trends and Strategies

  1. 1. It’s a Small World After All: Global Criminal Risk Trends and Strategies to Address Stephen L. Hill, Jr. Partner, Kansas City Dentons +1 816 460 2494 CLE Seminar for In-House Counsel May 20, 2014 Kansas City, MO
  2. 2. What We Cover Today • Review of local and global trends in criminal enforcement. • Discussion of factors generating those trends. • Discussion of "red flags" you can use to identify risk. • Strategies that may be used to respond to these risks in an effort to reduce negative outcomes. • The role of the attorney client privilege in responding to red flags. 2May 20, 2014
  3. 3. Globalization Is Changing What We Do And How We Do Things 3 "Globalization —broadly defined as increasing worldwide integration and interdependence, based on the flow across national borders of goods, services, capital, people, ideas, cultures, and values—has been an enduring driver of change and development." Eamonn Kelly " Business Trends 2014 - Navigating the next wave of globalization" Deloitte University Publications May 20, 2014
  4. 4. Globalization And Kansas City-Based Businesses? 4 Here is one possibility- • Over the next 15 years: • The global population will likely increase by more than a billion; • Food and energy requirements are both forecast to rise by 50 percent and 40 percent, respectively; • Water requirements (already under enormous stress in many parts of the world) will increase by around 30 percent. United Nations, Department of Economic and Social Affairs, Population Division, World Urbanization Prospects: the 2011 revision, highlights, March 2012, table 1, p. 4, These look like reasons your client is getting on a plane. May 20, 2014
  5. 5. Global Business Trends Will Lead To Your Client Asking You To Work On Projects Anywhere In The World 5 • More than half of the business executives that Chubb surveyed expect to increase overseas activity next year. • 45% of those surveyed consider overseas risks a greater threat than domestic risks. • 69% of companies surveyed currently have employees traveling overseas. • 27% of companies plan to increase employee travel in 2014. • Third on the list of the biggest overseas concerns for executives surveyed was government/regulatory investigation. May 20, 2014
  6. 6. Another Outcome Of Globalization Will Be That Laws Here And There Now Matter More Than Ever Before 6 Kelly argues one predicted outcome is a movement toward 'state capitalism' which would promote "a rise in preferential, if not openly protectionist, behaviors as governments around the world seek to promote a growing portfolio of 'strategically important' industries, sustain and create employment for their population, and promote their national security." So what will the rules be where you want to go? May 20, 2014
  7. 7. Local Trends 7 • Prosecutions tend to focus on medium sized economic crimes (embezzlement being the primary one), drugs, child pornography, healthcare fraud and gun charges. • Exception to local focus: Both offices have done an economic espionage case in the last three years. • Uptick in Qui Tam lawsuits filed under seal could mean increased investigations, particularly health care fraud. May 20, 2014
  8. 8. Trends In Global Criminal Enforcement 8 • The world is getting smaller when it comes to the U.S. jurisdictional reach on criminal matters such as FCPA, FATCA, Securities Fraud, Cyber-Security and Trade Secrets. • Other jurisdictions are expanding their criminal enforcement tools and related jurisdiction. • There is growing support for the belief that aggressive global enforcement of certain laws is good for business ( Anti-bribery, AML, FATCA, Currency and Market Manipulation). • Collaboration among enforcement partners is decreasing safe havens and increasing "foreign based" prosecutions both in the host country and the U.S. • More and more, access to improved technology, cross border asset movement, the importance of sensitive and proprietary information, attempts to control the marketplace, governments' ability and reliance on big data drive the largest share of global enforcement actions. • Start-up organizations and organizations transitioning from "small" or first generation versions to larger, transnational platforms with diffused leadership have a tendency to not keep up with legal risks. • There is slow, but steady movement toward criminal jurisprudence that credits self-policing and voluntary disclosure. May 20, 2014
  9. 9. Jurisdictional Approaches To Criminal Violations 9 U.S. Based Conduct U.S. Prosecution Foreign Based Conduct U.S. Prosecution Foreign Based Conduct U.S. and Global Prosecution Foreign Based Conduct Foreign Prosecution May 20, 2014
  10. 10. Examples of Common Criminal Theories 10 UNITED STATES GLOBAL - PROPERTY THEFT Anti-Corruption (Foreign Corrupt Practice Act) Anti-corruption laws widespread Anti-Counterfeiting/AML (Money Laundering) Trafficking 18 USC § 318 Anti-counterfeiting laws widespread with significant gaps Antiquities Act/Art Theft 18 § 668 Cultural laws widespread Anti-Trust (Anti-Cartel) 18 USC § 1505 Anti-competition laws with heavy focus on European Union countries Arms Control/International/Traffic in Arms Regulation (ITAR) Arms Control widespread Cybercrime (started with Computer Fraud and Abuse Act 18 USC § 1030) Cybercrime /Data Privacy/ Information Technology Crimes Export/Import Control/Economic Sanctions Customs/Export/Import Forfeiture Proceeds of Criminal Actions Fraud (Wire, Mail, Bank, Government and Healthcare) Fraud Human Trafficking Human Trafficking/Human Rights Illicit Drugs and Narcotics Illicit Drugs and Narcotics Securities Fraud/Insider Trading Fraud, Market Manipulation (LIBOR) Tax Evasion (FATCA) Widespread use of evasion laws Trade Secret (Economic Espionage Act of 1986) USC § 1831 General similarities in concepts but primarily Civil Actions May 20, 2014
  11. 11. Model For Risk Identification And Mitigation 11 Toolbox for Identification Red Flags Legal Analysis Gap X Risk of Prosecution factors Risk Evaluation Represents opportunity for counsel to interact Gap Analysis of legal standard vs. conduct May 20, 2014
  12. 12. Which Approach Is Better/Less Risk? 12 Proactive Due Diligence (Compliance audit, legal audit M&S due diligence) vs. Reactive Review and Investigation (hot-line, internal investigation, HR disciplinary review) May 20, 2014
  13. 13. Factors to Consider in Choosing a Course 13 The "Pros" for a proactive course (besides "it is the right thing to do"): • Successor liability concepts favor the proactive course. • It gives you an opportunity to develop strong representative and warranty clauses. • Greater ability to fight off U.S. criminal prosecutions. • Stronger case for less onerous penalties and fines. • Basis for limited post-settlement monitors and supervision. • Greater case for continuing in that business space. May 20, 2014
  14. 14. Interviews vs. Due Diligence Questionnaires? 14 • In person interviews are typically the best, because they confirm a specific understanding of the subject matter, identify unanticipated issues and factual considerations, can be more detailed than questionnaires, provide access to relevant documents for purposes of information confirmation and allow for personal judgment on the accuracy of the information. • In person interviews can be cost-prohibitive and impractical if the scope of the project is large. • Utilize a subject matter expert to identify relevant risk factors and if non-U.S. strongly consider teaming up with legal counsel familiar with information collection practices, laws, culture and language. May 20, 2014
  15. 15. Some (But Not All) Of The Considerations For Questionnaire Content 15 • If you choose questionnaires, consider these general requirements- • Including a glossary of defined terms including "red flags." • Provide written instructions how to complete the questions. • Define the applicable legal standards for the questionnaire and ask whether it is legal to do the activity where they conduct business. • Consider asking what the current customs of the country are for the relevant business practice. • Depending on the legal issues and business activity, customer identity and method of payment for the activity is almost always relevant. • Always ask if the entity utilizes third parties to carry out the business activity. • Ask open-ended questions to collect as much information as possible. • Provide them with a list of "red flag" events and ask if they are aware of any matter that would meet the defined examples. May 20, 2014
  16. 16. Whether Interviews, Questionnaires Or Hybrid Approach Consider… 16 • Utilize a subject matter expert to identify relevant risk factors. • Asking the who, what, where, when, and how questions for the organization. • Asking for any documents which describe what they understand to be the appropriate approach to the legal issue. • Request any documents which reflect an evaluation of whether the standard was met. • Confirm that each and every red flag that has been identified is addressed and resolved. • My own view is that you are always better off discussing the red flags and rationale for whatever decision is made. • If there are mitigating measures put in place to address the concerns they should be adequately documented. These measures include contract provisions, policy language, training and on-going monitoring. May 20, 2014
  17. 17. Examples of General Due Diligence "Red Flags" 17 • Is the organization in a heavily regulated industry? • Does the organization participate in historically high risk business activity? • Does the client undertake natural resource exploration and production with significant government interaction? • Is large currency movement part of the business model? • Is there international activity with multi-jurisdictional tax obligations? • Was there transfer of sensitive trade information and confidential data? • Does the organization conduct business with prohibited companies or entities? • Has there been a whistleblower allegation of inappropriate conduct? • Is there a well trained, well-supported compliance function present at the company? • Is there an effort to identify and mitigate legal risk? May 20, 2014
  18. 18. Examples of Country-Specific Due Diligence Red Flags 18 • Do we have a nexus connection to that country? • Does the country have a legal standard that is relevant? • Does the business participate in a highly competitive business environment? • Does the host country have a specific interest in supporting/challenging the business activity? • Does the host country have treaty obligations to support other nations' investigative activity? • Does the host country have a history of investigating and prosecuting the particular activity? • Has the host country been successful in prosecuting the particular activity start to finish? May 20, 2014
  19. 19. The U.S. Approach To Charging Decisions of Business Organizations 19 1. The nature and seriousness of the offense, including the risk of harm to the public, and applicable policies and priorities, if any, governing the prosecution of corporations for particular categories of crime (see section IV, infra); 2. The pervasiveness of wrongdoing within the corporation, including the complicity in, or condonation of, the wrongdoing by corporate management (see section V, infra); 3. The corporation's history of similar conduct, including prior criminal, civil, and regulatory enforcement actions against it (see section VI, infra); 4. The corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents (see section VII, infra); 5. The existence and adequacy of the corporation's pre-existing compliance program (see Section VIII, infra); 6. The corporation's remedial actions, including any efforts to implement an effective corporate compliance program or to improve an existing one, to replace responsible management, to discipline or terminate wrongdoers, to pay restitution, and to cooperate with the relevant government agencies (see section IX, infra); 7. Collateral consequences, including disproportionate harm to shareholders, pension holders and employees not proven personally, culpable and impact on the public arising from the prosecution (see section X, infra); 8. The adequacy of the prosecution of individuals responsible for the corporation's malfeasance; and 9. The adequacy of remedies such as civil or regulatory enforcement actions (see section Xi, infra). May 20, 2014
  20. 20. The Role Of The Attorney Client Privilege In Responding To Red Flags 20 • Most recent case: United States ex rel. Barko v. Halliburton Company et al., No. 1:05-CV-1276 (D.D.C. Mar. 6, 2014) • The case is a cautionary note on how you go about your due diligence/investigative activity. • Relator sought production of documents related to investigations into the same conduct that was the basis for the qui tam litigation. • Court required production of the documents because they were not privileged given the fact that the investigators were not attorneys, the decision to investigate was not made by a lawyer and the investigation was performed according to regulatory law and corporate policy rather than for the purpose of giving legal advice. All of the investigation was done by the non-lawyer investigators including interviews, document review and the drafting of the report which was sent to Legal Department. May 20, 2014
  21. 21. In Light Of Barko What Should Be The Course? 21 • If possible, have counsel directly oversee investigation. • If that is not possible then initiate the investigation with a letter of direction from counsel (preferably outside counsel) opining that the collection of information is necessary for the attorney to offer legal advice to the client. • The letter should direct that all information will be collected for this purpose, marked as "attorney client privileged" and treated as confidential information that will be disseminated to only those individuals that are necessary to provide or administer the legal advice. May 20, 2014
  22. 22. Thank you! Stephen L. Hill, Jr. Dentons US LLP 4520 Main Street, Suite 1100 Kansas City, MO 64111 USA © 2014 Dentons Dentons is an international legal practice providing client services worldwide through its member firms and affiliates. This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Please see for Legal Notices.