Non-financial misconduct (“NFM”) within the financial sector has posed significant challenges for the U.K. Financial Conduct Authority (“FCA”) for several years. The FCA handbook prescribes that regulated firms must assess and certify to the FCA, at least annually, that senior individuals and those performing regulated activities meet the relevant standards of fitness and propriety to be approved to perform those roles.
Tom Firestone recently blogged on how the recent prosecutions of Senator Robert Menendez and Representative Henry Cuellar under a previously never used statute, 18 USC 219, raise serious Constitutional issues. 18 USC 219 makes it a crime for members of Congress (and other government officials) to engage in activity that requires registration under the Foreign Agents Registration Act (“FARA”). But members of Congress are not permitted to register under FARA. What’s more, FARA is extremely broad and covers acting at the “request” of a foreign principal. And 219 does not require evidence of corruption or improper intent. So, does a member of Congress commit a federal crime by supporting a foreign aid bill at the urging of a foreign leader? Tom offers insight on this complicated issue – check out his full blog on Bribery Matters: Are the Menendez and Cuellar FARA Charges Unconstitutional? (briberymatters.com)
Summer may be coming to an end, but whistleblower awards are far from over. On August 23, 2024, the Securities Exchange Commission (“SEC”) announced payment of over $98 million total to two whistleblowers who provided the SEC with information that led to successful enforcement actions – the fifth largest since the program’s inception in 2011, which to date has awarded nearly $1.8 billion to whistleblowers. This year the Department of Justice (“DOJ”) has followed in the SEC’s footsteps and created the Criminal Division Corporate Whistleblower Awards Pilot Program which allows for financial awards to whistleblowers. With increasing external incentives for speaking up on potential misconduct, there is also a need for similar internal reporting incentives.
Existing Programs and Incentives
There has been a major shift in the European Union (“EU”) in recent years around Environment, Social and Governance (“ESG“), from voluntary corporate social responsibility initiatives to a much more regulated and legislation-driven ESG regime. A key component driving this shift is the Corporate Sustainability Due Diligence Directive of June 13, 2024 (“CS3D”),[1] which established due diligence requirements for large EU companies and groups,[2] as well as large multinational entities, including those based in the US that are operating in the EU.[3]
The CS3D lays out rules that address (i) due diligence obligations for companies in relation to the adverse ESG impacts of their operations, (ii) liability for companies not complying with these requirements, and (iii) the obligation for companies to adopt and put into effect a transition plan for climate change mitigation.
The UK and US enforcement agencies have been actively pursuing insider dealing (“insider trading”, in US parlance) since the COVID-19 pandemic ended. The UK and US have different securities enforcement regimes, but both have seen recent developments expanding the scope of conduct that can be prosecuted. For individuals and organizations trading across multiple jurisdictions, it is important to keep abreast of the scope of these offenses and of the different rules that apply in key enforcement jurisdictions. In this article, we will summarize the UK and US criminal offenses of insider dealing and highlight some key similarities and differences between those enforcement regimes. We will review recent legislative changes and enforcement activity and touch upon how enforcement agencies are signaling greater abilities to identify insider dealing, through reporting and the use of more advanced technical capabilities.
On June 27, 2024, the Supreme Court issued its opinion in Securities Exchange Commission v. Jarkesy. The Court held that the Seventh Amendment entitles a defendant to a jury trial when the SEC seeks civil penalties for securities fraud, because these cases replicate common law fraud claims. S.E.C. v. Jarkesy, No. 22-859, slip op. at 6 (U.S. 2024), as we noted in our earlier post. Therefore, these types of claims must be heard by an Article III court. One impact of this ruling is that the SEC’s administrative proceeding (“AP”) enforcement mechanism is no longer available for matters where the SEC brings a fraud claim and seeks civil penalties, and otherwise fails to reach a negotiated settlement with the defendant prior to filing. However, even though Jarkesy did not address the Foreign Corrupt Practices Act (“FCPA”) directly, the case will potentially have some impact on FCPA enforcement because the SEC will likely be unable to use the AP process for contested FCPA matters where a penalty is sought, and instead will be required to file these matters in federal district court. This will pose additional risk and resource calculations for the SEC, as discussed below.
The President’s signing of the 21st Century Peace through Strength Act (the “Act”)[1] on April 24, 2024 marked one of the most significant expansions of the sanctions enforcement authority of the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). For many decades OFAC’s civil enforcement actions have been limited to five years pursuant to the statute of limitations found at 28 U.S.C. § 2462. Section 3111 of the Act extended “the amount of time that regulators and prosecutors have to investigate and prosecute civil and criminal sanctions violations from five to 10 years,” as discussed in a previous blog post. This extension applies to sanctions enforcement actions pursuant to both the International Emergency Economic Powers Act (“IEEPA”) and the Trading with the Enemy Act (“TWEA”).
At Global Investigations and Compliance Review, we’ve been keeping close tabs on the fallout from the Supreme Court decisions at the end of June. We mentioned in a previous post that the SEC v. Jarkesy opinion may have consequences beyond the specific situation of SEC civil penalties. As we think about this more, there could be further implications even for state enforcement programs.
State agencies usually aren’t concerned with the Seventh Amendment, because it is assumed not to apply to states. (The Seventh Amendment states the right to a jury in appropriate civil cases.) But contributor Keith Bradley points out, in the Yale Journal of Regulation’s Notice and Comment blog, that this assumption has not been well-tested, because states provide civil juries just like federal courts. Jarkesy creates an unusual moment with the federal constitutional right being different from state constitutions. We might start to see defendants in state enforcement argue that they have right to a jury under Jarkesy. This will take some time to develop, but keep an eye out.
In this article, we summarize the trends that have emerged from enforcement actions published between 2022 and the present day by the Dubai Financial Services Authority (the “DFSA”).
In May 2024, the US Department of Defense (DoD) published the long-awaited DoD Instruction [1] (FOCI Instruction) expanding the FOCI review process from solely US government contractors that access classified information to all US government contractors performing on certain unclassified contracts with a value exceeding US$5 million. For the uninitiated, the US government mitigates FOCI at US companies that require security clearances through the implementation of FOCI mitigation plans. These plans vary based on the nature of the FOCI (and other risks), and can include security controls at the cleared US companies, such as requirements for independent directors, visitation and access controls, restrictions on communications with the foreign owner, and limitations on shared services and operations, among other requirements. Typically, parties that work with the DoD to implement and comply with these mitigation plans do so in order to obtain or maintain facility security clearances (FCLs) required for performance on classified contracts.
