Compliance Programs and International White-Collar Crime

White-Collar Crimes: Incidence and Trends
White-collar crime is varied and prevalent.

White-collar crime takes many forms. Some of the major international white-collar crimes requiring compliance programs include bribery of government officials / Foreign Corrupt Practices Act (FCPA), export control, Office of Foreign Asset Controls (OFAC) sanctions, customs, antitrust, environmental, and financial institution violations. Other areas of heavy criminal activity include government procurement and tax fraud.

Another type of important international crime is computer crime. Over the past three years, there has been an increase in computer and Internet fraud and fraud involving the theft and sale of massive amounts of credit card data. As in the case with Sony, where North Korea was behind the hacking, nation states are often backing the criminals. China and Russia are behind some of the largest hacks. This type of crime costs companies billions of dollars a year and is difficult or impossible for any one country to address. The U.S. government has also been affected, as in the case of Russian hacking in the 2016 presidential election and the Chinese hack of the records of the Office of Personnel Management. And the hacking of hundreds of thousands of computers in a ransomware scheme in May 2017 is believed by some experts to be the work of North Korea.

International financial institution crime includes OFAC violations for allowing sanctioned governments and individuals to use banking services. Other crimes involve financial institutions making loans that they should not be making or favoring preferred insiders on loans made across borders. In May 2015, BNP Paribas, a large French bank, settled its case involving facilitation of payments to Sudan, Cuba, and Iran in violation of U.S. OFAC law. It is worth noting that in this blockbuster case, where the total settlement was $8.9 billion, $2.2 billion of the settlement went to New York State to resolve a related falsification of business records allegation. This state involvement in international white-collar crime may be a new trend.

Under U.S. law, money laundering can be charged in almost any circumstance where there is illegal activity if the proceeds of that crime are moved internationally. For example, money laundering may be charged when a foreign official is bribed and a contract results. The act of transferring profits from that contract can be viewed as money laundering. These revenues, when transferred back to the United States, can be considered to have been laundered because they are proceeds of criminal activity. As another example, drug cartels could invest their money in a legitimate U.S. company that manufactures tractors; such an investment would be considered money laundering even though the investment, if made with lawfully obtained funds, would not be illegal.

Like money laundering, securities fraud may build on other crimes because the books and records of the listed company in question do not accurately reflect the crime or its proceeds. This creates a false report to a stock exchange.

Finally, the internationalization of media and commerce has led to mass marketing fraud. An example of mass marketing fraud is a company that manufactures a device and claims that it will cure your diabetes if you wrap it around your wrist every day. The perpetrator might be a U.S. company selling all over the globe, or it might be a Chinese company selling only to countries outside the United States and Europe because it fears the consumer protection laws in those nations.

Trends indicate increasing white-collar crime. The year 2016 saw the largest total of FCPA fines ever: $1.17 billion. There had been a decline from 2014 to 2015 in the amounts of fines, penalties, and disgorgements levied against companies and individuals. This anomaly stemmed in part from massive cases settled in 2014 and in part from the U.S. Department of Justice's (DOJ) focus on individuals, who do not necessarily have the kind of financial resources to pay the huge fines that companies can pay. Nonetheless, as 2016 shows, the general trend is in the direction of a steady increase. Furthermore, more prosecutors have been added to the DOJ’s FCPA unit.

One country in particular that has experienced a huge increase in white-collar crime prosecutions is Brazil, largely because of the revelations stemming from the Petrobras investigation, which involves the country’s largest oil company and billions in U.S. dollars paid in bribes. The directors of Petrobras colluded with politicians and contractors to extract billions from Petrobras. More than 100 people have been charged so far.

It is worth noting that the 10 most corrupt countries are also among the 10 least peaceful places on the planet—places such as Afghanistan and Angola. Countries that are impoverished also tend to be the most corrupt. However, when there is an economic slowdown, corruption escalates regardless of the nation. The Scandinavian countries are always listed as the least corrupt of any countries, although even there corruption has crept in.

White-Collar Crime and Willful Blindness
Willful blindness is an important concept used by the United States in prosecuting white-collar cases in, for example, the FCPA arena. This is a tricky and controversial area of the law because it comes very close to the concept of strict liability—that is, you are guilty of a crime whether or not there is any element of willfulness or knowledge involved. In other words, the intent requirement is largely taken out of the equation in these situations.

For example, suppose a company in Vietnam is a subsidiary or is in a partnership with a U.S. entity. The company in Vietnam does business with a marketing company, and the amount being spent on marketing is out of keeping with the normal amount of marketing expenses. The excess money is going toward bribes; however, the U.S. entity does not, in fact, know that the money is going toward bribes and finding its way into the pockets of government officials in Vietnam. Nonetheless, the U.S. government may see the U.S. entity as having engaged in willful blindness. The U.S. government can take the position that when certain red flags are present, ignoring such red flags constitutes willful blindness, meeting the intent element. In other words, a company can be held responsible for not looking further into a situation where there may be question marks.

Compliance Programs and Risk Minimization
Due to the widespread incidence of white-collar crime and the threat of the willful blindness trap, all corporations that are active in the international arena simply must have compliance policies and audits, standards, procedures, and oversight. Education and training must be provided to employees and executives and should include procedures for reporting violations. Procedures for enforcement, discipline, general response, and prevention are also needed.

In the Foreign Corrupt Practices Act (FCPA) context, a 2012 resource guide provides guidelines for elements of compliance programs that are similar to ones under the U.S. Sentencing Guidelines (to achieve reduced sentences). First, a commitment from senior management and a clearly articulated policy against corruption are crucial, leading to promulgation of a code of conduct and compliance policies and procedures. In addition to oversight, autonomy, and resources dedicated to the compliance project or program, the guidelines call for risk assessment, training, and continuing advice presented in the language of the local people in the country of concern. There must be incentives and disciplinary actions; the carrot and the stick have to be made clear. Third-party due diligence and payment reviews are especially important because a great deal of the corruption happens in that area. There must also be clear channels for confidential reporting and internal investigations. Finally, there must also be continuous improvement—some process for reviewing, improving, and testing the compliance program.

Investigations Emanating from Compliance Programs
The government on its own discovers crimes at times. For example, the U.S. Securities and Exchange Commission (SEC) may be monitoring purchasing patterns for stocks and sees unusual trading activity just prior to an announcement that affects a stock. That might suggest inside knowledge, and the government may undertake an investigation. Investigations are also often triggered when a whistle-blower comes forward to an agency with information or a news reporter gets hold of some information—or when a compliance program reveals a problem.

When an investigation is triggered, then information is gathered by the enforcement agency. That process can vary by country. In the United States, information gathering at the federal and state levels is done in the grand jury context after an initial enforcement agency investigation. In continental European countries, the process can include a referral to a magistrate judge, who then conducts the investigation using the police. The investigation can also vary a great deal, depending on the crime and the perpetrators.

Once a company is aware of an enforcement proceeding targeting the company, it should initiate a stop to any document destruction as a routine part of its document-retention program. This is to avoid destroying any important documents and being accused of obstructing an investigation.

In response to an investigation, a company should immediately try to assess the situation by beginning an internal investigation. If the government has already begun an investigation of its own, the company’s attorney should discuss the concern with the agency in question. If, as is often the case, the company has received a subpoena, the requested documents will provide clues to what is going on. The lawyer should try immediately to gather any information to come to grips with what is occurring so that the important initial strategic decisions—such as the level of cooperation with the government, what to do about individuals, and the posture of the company—can be determined. Government investigations can go far beyond the immediate problems that are disclosed, and that makes for a difficult calculus for those representing companies. Companies have to be careful when deciding whether to disclose information because once the government starts looking around, a company never knows where that may lead.

As an attorney, it is important to stay ahead of the investigation to provide the best advice. The initial investigation should be done under cloak of the attorney-client and work-product privileges. Therefore, it is best that the investigation be done by outside counsel because some in-house counsel have been accused of serving in a business, rather than legal capacity and thus of having no privilege to cover their communications.

It is usually important to have the company pay for separate counsel for key individuals. Separate representation for individuals is particularly important in light of the 2015 Yates Memo, which pits companies against their employees. The memo, by former Deputy Attorney General Sally Q. Yates, states that the DOJ should honor cooperation agreements with companies only when they disclose the roles of individuals in any criminal activities: “[a]ll relevant facts about the individuals involved in corporate misconduct” must be revealed for a company to “be eligible for any cooperation credit.” Of course, companies remain targets. But the task of defending companies now may involve an early choice: either turn in your involved employees and executives or decline to cooperate—with all the collateral consequences that brings. In fact, those consequences often make it no choice at all. Corporations must cooperate.

The Need for Global Cooperation
Globalization, increased trade, and new technologies not only aid but also impede enforcement efforts against white-collar crime. Information is widespread, and crimes often involve various countries and interactions among different countries.

One major problem in investigating white-collar crime is the lack of cross-border cooperation. Cooperation is challenging given countries’ different systems of law, different levels of attention and focus on individual types of crimes, and different discovery rules. Cooperation between agencies is always a significant issue. Jurisdictional and territorial issues as well as personality issues between prosecutors may exist.

As one example of how different systems of law affect cross-border cooperation, insider trading is a crime that is present only in certain nations. For instance, Italy and Germany do not consider it a crime, but the United States does. Thus, a German inside trader whose trades are in a German company listed on a U.S. exchange may be prosecuted in the United States but not in Germany. Securities agencies, such as the SEC and its parallels in other countries, are moving toward more cooperation. However, cooperation from Germany may be limited in this example. Furthermore, even when there is an extradition treaty, the treaty usually excludes extradition to a country if that country has charged the individual with a crime that does not exist in the nation where the individual is present.

New technologies also create enforcement problems. For example, it is increasingly difficult to obtain information in computer crime investigations, with very sophisticated criminal actors to be found in remote parts of the globe. With the exception of the United States and the United Kingdom, which gather data from all over the globe, there are limits on the use of technology to ferret out international criminals.

There are technology issues with respect to export controls as well. Exports can occur through exposure to a software program containing prohibited technology or simply through access to information about certain technologies. The globalization of corporations creates situations where it is easy for those in one country to get access to a computer owned by the same company in a different country. In fact, such synergistic efforts are encouraged by these companies. Yet such efforts may result in a crime being committed via access to a company’s export-controlled software or other kinds of information. These crimes are difficult to discover and prosecute because the nature of the information being exchanged and the channels through which the information is exchanged are difficult to track.

Unfortunately, there is no true global approach to these problems and no global prosecutor for white-collar crime as there is for other crimes, such as genocide. The approaches are almost always bilateral or trilateral among various countries. A major trend has been a continued increase in cooperation between prosecutors in certain nations and even between certain nations and international agencies, such as the World Bank and other bilateral banking institutions. These institutions have started working more with the United States, which remains the largest driver of international white-collar anticrime efforts, and other countries to disclose information and develop cases. This effort, however, is limited by a focus on the concerns of only those nations involved. Often, poorer nations with fewer resources are left to fend for themselves against sophisticated white-collar criminals.

An international body with staff and funding from a variety of nations would go a long way toward addressing this problem. It might, perhaps, be associated with the United Nations. In the meantime, joint task forces by two or more nations must fill the void.

Bruce J. Casino is the managing partner of the Law Office of Bruce J. Casino in Washington, D.C.