Supply Chain Regulations Call for Increasing Due Diligence

U.S. companies face mounting demands to examine their supply chains to comply with increasingly complex sanctions and trade controls, particularly targeting China and Russia. Businesses cannot relax just because they have conducted due diligence on one or two tiers of partners or are not active in an especially scrutinized sector. This article addresses strategic approaches that businesses can take to ensure they are on the right compliance track and show regulators they are making good-faith efforts. It distills insights offered during a presentation hosted by data analytics company Kharon, featuring its own officers, a Miller & Chevalier attorney, and Resilinc's president for government and defense. See “Navigating the ‘Uncharted Waters’ of Global Supply-Chain Risks” (Dec. 7, 2022).

Enforcement Actions Resulting From SEC Sweep Keep Off-Channel Communications in the Spotlight

Off-channel communications have been squarely in the SEC’s sights for nearly two years, and the Commission shows no signs of softening its focus. On August 8, 2023, the SEC announced charges against 10 Wall Street firms in their capacity as broker-dealers and one additional firm as a dually registered broker-dealer and investment adviser. The charges were for “widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications.” The firms agreed to pay penalties totaling $289 million. This article summarizes key takeaways from the SEC settlement orders and insights from industry experts. See “Messaging Apps Come Under Increasing Regulatory Scrutiny” (Jun. 7, 2023).

Former SEC Officials Discuss Aggressive Enforcement Climate

The SEC Division of Enforcement brought 760 enforcement proceedings in FY2022, consistent with pre-pandemic activity. The SEC also ordered respondents and defendants to pay a record $6.44 billion in penalties and disgorgement. An aggressive enforcement approach is expected to continue, and the SEC appears to be stretching the boundaries of what constitutes securities fraud. This article distills remarks made at a Securities Docket program by Linklaters partner Doug Davison, WilmerHale partner William R. McLucas, and Ankura Consulting Group directors Jason Flemmons and Martin Wilczynski. See “Discussing 2022 Enforcement Results, SEC Enforcement Director Stresses Trust-Building Measures” (Jan. 18, 2023). 

How Deputy AG’s Focus on Clawbacks and National Security Impacts Enforcement and Companies’ Compliance Efforts

Deputy Attorney General Lisa Monaco recently highlighted the DOJ Criminal Division’s pilot program regarding compensation incentives and clawbacks, unveiled in March. Promising more lenient penalties, the DOJ’s clawback policy encourages companies to reclaim monies paid to executives if they turned out to have been involved in FCPA violations. In her comments, Monaco also emphasized the DOJ’s focus on national security as a consideration for corporations. With insights from Miller & Chevalier, Cadwalader, Davis Polk and General Electric, this article distills Monaco’s remarks and what they mean for companies’ compliance efforts. See “Safe Harbor Policy Seeks to Encourage Self-Reporting of Issues in M&A Transactions” (Oct. 11, 2023). 

Safe Harbor Policy Seeks to Encourage Self-Reporting of Issues in M&A Transactions

Through the DOJ’s new Safe Harbor Policy impacting mergers and acquisitions, announced last week by Deputy Attorney General Lisa O. Monaco, acquiring companies will be able to avoid charges if they voluntarily disclose misconduct of the acquired company to the DOJ. Monaco’s latest remarks build upon the DOJ’s previous announcements in 2022 and 2023 encouraging companies to voluntarily self-disclose misconduct and emphasizing the importance of strong corporate compliance programs. The new policy lays out department-wide standards for dealing with acquiring companies’ reporting and remediating malfeasance at target firms. With insights from attorneys at Miller & Chevalier, Morgan Lewis, Cadwalader and Ropes & Gray, we evaluate what this new development means for companies and their compliance advisors. See “Reading the Regulators: Shifts in FCPA Enforcement” (Aug. 16, 2023).

SEC and CFTC Continue to Penalize Firms for Electronic Communications Recordkeeping Violations

Since 2021, the SEC and CFTC have imposed approximately $2 billion in aggregate penalties on more than a dozen registered firms for failure to preserve records of business-related communications, particularly those made on unapproved devices or apps (off-channel communications). The agencies continue to target such violations, recently resolving four parallel enforcement proceedings against the U.S. broker-dealer, swap dealer and futures commission merchant arms of HSBC and The Bank of Nova Scotia based on the firms’ failures to preserve records of electronic communications and associated supervisory failures. This article parses the four settlement orders. See “Compliance Challenges in Records Management” (Aug. 16, 2023). 

Reading the Regulators: Shifts in FCPA Enforcement

This year has seen shifts in several key areas of anti-corruption expectations, and its second half might see a solidification of what is changing as cases proceed. Exactly what FCPA regulators expect from companies, for example in terms of voluntarily disclosing possible violations and cooperating with investigations, might become clearer in the coming months. So might regulators’ expectations of incentive clawbacks and off-channel message retention. In enforcement methodology, the use of data analytics is expected to become more prevalent. We distill insights offered by Davis Polk attorneys during a firm webinar regarding what to expect in FCPA enforcement in the remainder of this year. See “FCPA Corporate Enforcement Actions More Than Triple in 2022” (May 10, 2023). 

SEC Remains Focused on Off‑Channel Communications

Maintaining appropriate business records is a fundamental compliance duty and a core component of the SEC’s examination and enforcement regime. In recent years, the SEC has zeroed in on how firms monitor and maintain records of so‑called “off‑channel” electronic communications, imposing $2 billion in penalties on firms that failed to do so. In a recent firm presentation, Seward & Kissel partners discussed the SEC’s recent enforcement actions, its pending sweep of investment advisers and what advisers can do to ensure they have appropriately addressed use of off‑channel communications. This article distills their insights. See “Messaging Apps Come Under Increasing Regulatory Scrutiny” (Jun. 7, 2023).

SEC Clawback Rule Requires Focused, Coordinated Compliance

The threat of clawbacks may be a tool to keep executives in line, but clawbacks prompted by a new SEC rule on erroneously awarded compensation require separate treatment from ones related to misconduct. While happening in parallel with a DOJ program on recovering compensation from executives culpable of wrongdoing, and envisioning similar mechanisms, the SEC rule needs to be addressed on its own terms. The SEC requirement, pertaining to the 2010 Dodd-Frank Act, is now being implemented. With the timeline being updated in June, December 1, 2023, was revealed as the date when companies must have relevant policies in place. In a webinar, Davis Polk partners discussed how companies should meet this goal. This article distills their insights. See “DOJ’s Pilot Program on Clawbacks to Foster Individual Accountability Poses Challenges for Companies” (Mar. 29, 2023).

You’ve Got Mail . . . So What? Messaging Issues for Business in Southeast Asia

Ephemeral messaging apps and personal devices pose important questions for investigations in Southeast Asia. What are the implications of the March 2023 DOJ guidance on ephemeral and personal messaging? Why does this particularly matter to companies doing business in Asia? The increased use of third-party messaging applications, especially since the pandemic, is going to alter the emphasis of companies’ compliance policies and practices, particularly in Asia. See “Messaging Apps Come Under Increasing Regulatory Scrutiny” (Jun. 7, 2023).

Implications of CJEU Ruling on Compensation for GDPR Claims

E.U. privacy attorneys received much-awaited clarification on May 4, 2023, when the European Court of Justice ruled that not every infringement of the General Data Protection Regulation (GDPR) is eligible for financial compensation. The Ruling declared that a “certain degree of seriousness” must be achieved to qualify for non‑material damages and that domestic rules of E.U. Member States should inform the amount of compensation awarded, if any. This article offers insights on the implications of the decision and compliance advice from attorneys at Cordery, Wiggin and McDermott, and Will & Emery, who found the ruling to be largely measured and equitable to those on both sides of privacy complaints. See “Advice From a CISO and Lawyer on Best Practices in Information and Data Governance” (Apr. 12, 2023).

Gartner’s Settlement for FCPA Violations in South Africa Raises Important Issues

On May 26, 2023, the SEC announced settled civil charges against U.S.-headquartered Gartner, Inc., its second settlement in two years with a global company for FCPA violations related to contracts in South Africa. Amidst the flurry of recent enforcement activity, the Gartner settlement could easily fall off the radar for its relatively low settlement amount. But the geopolitical, socioeconomic, cultural, regulatory and enforcement environment within which Gartner operated in South Africa makes this case worthy of close attention by the legal, compliance and business communities. The Anti-Corruption Report spoke with Hogan Lovells partner Peter S. Spivack and Kudzai Chaka, CEO of KC Compliance, about the case and the wider topics concerning global companies’ operations in South Africa. See “ABB Settles With Multiple Authorities for Its Third FCPA Strike” (Dec. 7, 2022). 

Messaging Apps Come Under Increasing Regulatory Scrutiny

As enforcement actions increase, the intensifying spotlight on WhatsApp and other mobile texting software is prompting many companies to actively seek legal guidance and make compliance and technology changes, while some in the lesser regulated space may be taking more of a “wait and see” approach. Already this year, the SEC, FINRA and the Commodity Futures Trading Commission have lodged enforcement actions against companies over improper use of off-channel messaging apps, and the DOJ issued updated guidance in March on its expectations for compliance programs, including a warning that all companies facing investigations are expected to have stated policies and procedures around usage. This article offers a glimpse into current corporate concerns about messaging apps and how attorneys at Ballard Spahr and Paul Hastings are helping clients address them. See “Electronic Communications: Useful Training Techniques and Policies and Procedures to Adopt” (Oct. 13, 2021).

Tone at the Top: Considered Crucial Factor for Successful Corporate Compliance

The "tone at the top" of a company is a crucial factor for successful compliance at a time when antitrust, corporate culture, cybersecurity and ESG considerations are among the imminent challenges, according to several participants at Compliance Week’s 18th annual national conference in Washington, D.C., last week. Moderators and panelists included members of the DOJ and U.S. Department of Commerce (DOC), cognitive neuroscientists, authors, a whistleblower, in-house compliance executives and other subject matter experts, as well as governance, risk, and compliance (GRC) technology providers and sponsors. “Every compliance failure starts with a leadership failure,” proclaimed Asha Palmer, SVP of Compliance Solutions at Skillsoft. See "How Lawyers Can Leverage the Shifting Environment to Enhance Compliance Programs" (Aug. 17, 2022).

Lessons from Glencore’s $29.6‑Million Restitution Order

The risk of an FCPA case saddling a violating company with large restitution payments is one of the lessons that can be drawn from the news that a federal district court in late February ordered Glencore International to pay millions of dollars in restitution. The multinational commodity trading and mining company pleaded guilty in 2022 to conspiring to violate the FCPA. The court ordered that Glencore pay $29.6 million in restitution. The case highlights how important it is for companies to anticipate that risk when involved in FCPA investigations. See “Glencore Pleads Guilty and Agrees to Pay $1.1 Billion to Multiple Authorities, But Can It Change?” (Jun. 22, 2022).

FCPA Corporate Enforcement Actions More Than Triple in 2022

Whether it was an appetite for carrots, a demand for sticks or the result of cooperative international investigations, FCPA corporate enforcement actions and resolutions by the DOJ and SEC more than tripled in value in 2022 over the prior year and suggest a rebound for enforcement, said attorneys at the third annual FCPA Year-End Update recently presented by Gibson Dunn and featuring partners Patrick Stokes and John W.F. Chesley and attorneys Ella Alves Capone and Bryan Parr. See “Deputy Assistant AG Miller Discusses Robust DOJ Anti-Corruption Efforts, Stressing Individual Accountability, Self-Reporting, Remediation and Cooperation” (Mar. 1, 2023).

Assistant AG Polite Discusses Declinations in Cases With Aggravating Circumstances and Revised ECCP

The DOJ recently updated both its Corporate Enforcement and Voluntary Self-Disclosure Policy and its Evaluation of Corporate Compliance Programs. In a March 23, 2023, keynote address at the Spring conference of the Global Investigations Review, Assistant Attorney General Kenneth A. Polite, Jr., discussed the genesis and impact of those updates. Stressing the DOJ’s desire to be transparent about its efforts to promote good corporate citizenship, Polite focused on the availability of declinations in cases with aggravating circumstances and the requirement for “immediate” self-reporting and “extraordinary” cooperation and remediation. This article distills the key takeaways from his speech. See “Corporate Enforcement Policy Revisions: A More Amenable DOJ Looks to Negotiate” (Feb. 1, 2023).

How the New DOJ and PNF Corporate Enforcement Guidelines Affect Self-Reporting, Cooperation and Remediation

The first two months of 2023 have seen considerable corporate enforcement guidance announcements in both the United States and France. The DOJ issued revised guidance governing voluntary disclosures, cooperation, remediation, and evaluation of compliance programs. And the French National Prosecutor Office similarly announced new guidelines on its corporate enforcement efforts and negotiated resolutions. In this guest article, Dan Kahn, a partner at Davis Polk, and Sophie Scemla, a partner at Gidde Loyrette Nouel, explain that though there are differences in the agencies’ approaches to corporate enforcement, these differences are becoming increasingly smaller, and the similarities are growing larger. They discuss how these changes are important for companies to consider as they determine whether and when to voluntarily-self disclose identified misconduct, and how to approach cooperation and remediation. See “Insiders Tsao, Soltes and Kahn Share Insights on Investigations” (Jan. 4, 2023).

Compliance Takeaways From Activision Blizzard's $35-Million SEC Resolution Regarding Whistleblower Protections and Workplace Misconduct

Activision Blizzard Inc., a California-based video game development and publishing company, has agreed to pay $35 million to settle charges that it failed to maintain disclosure controls and procedures to ensure that the company could assess whether its disclosures pertaining to its workforce, specifically allegations of misconduct, were adequate. As part of the resolution, Activision Blizzard also settled charges that it violated an SEC whistleblower protection rule. Notable aspects of the settlement include a rarely seen dissenting opinion by SEC Commissioner Hester Peirce that takes exception to the SEC’s standing in this case and the underlying arguments of harm to investors, and the SEC's use of fairly broad risk statements found in Activision’s regular business filings related to attracting and retaining talent as evidence of a known problem with the company’s culture. The Anti-Corruption Report spoke with Ropes & Gray partner Jeremiah Williams and senior advisor Hui Chen about the resolution and what it signals for compliance practitioners. See “ Discussing 2022 Enforcement Results, SEC Enforcement Director Stresses Trust-Building Measures” (Jan. 18, 2023).

Silicon Valley Bank: Receivership, Ripple Effects and Reactions

The collapse of Silicon Valley Bank, and the government’s actions, may have repercussions that reach into various industries. In this article, our sister publication Debtwire provides an overview of the FDIC and the receivership process, and highlights some of the effects of the bank’s failure on other companies, both in and out of Chapter 11.