Tag: Criminal Law

Shooting Canons out of your Cannon

Recently published in the National Law Review an article by Kendall M. Gray of Andrews Kurth LLP regarding press coverage of the case after giving media interviews and posting comments on Facebook

Hat tip to the ABA Blog for another tale of woe about attorneys who worsened their fate with bad spelling.

A New York judge was concerned that defense counsel lacked the necessary “game” to handle the high profile murder case before the court.

Among the reasons? Facebook comments and bad spelling. According to the ABA Blog:

Firetog scolded the lawyers for complaining about press coverage of the case after giving media interviews and posting comments on Facebook. He even chastised the lawyers for misspelling “canon” in a reference to ethics, the Times says. “Two N’s means a cannon that shoots at something,” he said.

So remember, campers, an ethical canon is what attorneys must obey. An ethical cannon is an artillery piece that obeys the rules of engagement.

The career you save could be your own.

© 2011 Andrews Kurth LLP

New York’s Highest Court Reinstates $5 Billion Lawsuit By Big Banks Against MBIA

Posted recently at the National Law Review by Michael C. Hefter and Seth M. Cohen of Bracewell & Giuliani LLP news about New York’s highest court reinstating a $5 billion lawsuit brought by a group of banks, including Bank of America and Wells Fargo, against MBIA. 

New York’s highest court yesterday reinstated a $5 billion lawsuit brought by a group of banks, including Bank of America and Wells Fargo, against insurance giant MBIA. ABN AMRO Bank, et al. v. MBIA Inc., et al., — N.E. 2d –, 2011 WL 2534059, slip op. (June 28, 2011). The Plaintiffs-banks sought to annul MBIA’s 2009 restructuring, which separated the insurer’s municipal bond business from its troubled structured finance unit, on the grounds that the transactions left the insurer incapable of paying insurance claims in violation of New York’s Debtor and Creditor Law. The Superintendent of Insurance in New York approved the transactions that effectuated the split of MBIA’s business in 2009. 

The Court of Appeals’ decision represents a victory for Wall Street banks in one of the many battles being fought in connection with the collapse of the financial markets. Those banks saw their fraudulent transfer claims against MBIA dismissed earlier this year by the Appellate Division, First Department. The intermediate appellate court determined that the banks’ fraudulent transfer claims were a “collateral attack” on the Superintendent’s authorization of the restructuring and that an Article 78 proceeding challenging that authorization was the sole remedy available to the Plaintiffs. The banks’ remedies under Article 78 – a procedure entitling aggrieved parties to challenge agency decisions – would be limited compared to those remedies available in state or federal court under a fraudulent transfer theory. 

At issue for the Court of Appeals was whether the Plaintiffs-banks had the right to challenge the restructuring plan in light of the Superintendent’s approval. Plaintiffs argued that the restructuring was a fraudulent conveyance because MBIA Insurance siphoned approximately $5 billion in cash and securities to a subsidiary for no consideration, thereby leaving the insurer undercapitalized, insolvent and incapable of meeting its obligations under the terms of the respective insurance policies. MBIA countered that, as held by the First Department, Plaintiffs’ claims were impermissible “collateral attacks” on the Superintendant’s approval of the restructuring. 

In a 5-2 decision, the Court of Appeals modified the First Department’s decision and reinstated the Plaintiffs’ breach of contract, common law, and creditor claims. In an opinion authored by Judge Carmen Beauchamp Ciparick, the Court held that NY Insurance Law does not vest the Superintendent with “broad preemptive power” to block the banks’ claims. MBIA Inc., 2011 WL 2534059, slip op. at 16.

“If the Legislature actually intended the Superintendent to extinguish the historic rights of policyholders to attack fraudulent transactions under the Debtor and Creditor Law or the common law, we would expect to see evidence of such intent within the statute. Here, we find no such intent in the statute.” Id.

Critical to the Court’s holding was that Plaintiffs had no notice or input into the Insurance Department’s decision to approve MBIA’s restructuring. “That the Superintendent complied with lawful administrative procedure, in that the Insurance Law did not impose a requirement that he provide plaintiffs notice before issuing his determination, does not alter our analysis,” Judge Ciparick wrote. “To hold otherwise would infringe upon plaintiffs’ constitutional right to due process.” MBIA Inc., 2011 WL 2534059, slip op. at 21. Moreover, the Court noted that Plaintiffs’ claims could not be properly raised and adjudicated in an Article 78 proceeding. Id.

The Court’s decision re-opens claims by multiple financial institutions that MBIA instituted the restructuring in order to leave policyholders without financial recourse. 

The case is ABN AMRO BANK NV. et al., v. MBIA Inc., et al, 601475-2009 (N.Y. State Supreme Court, New York County.)

© 2011 Bracewell & Giuliani LLP

Interview with C. David Morris, Senior Counsel International at Northrop Grumman Corporation

Recently postd at the National Law Review by Michele Westergaard of marcus evans an interview with a Senior in house Counsel of Northrop Grumman about FCPA compliance issues: 

With the steady increase in enforcement, organizations need to now move beyond FCPA compliance and embrace a global anti-corruption compliance program. Global companies should assess their existing anti-corruption compliance programs and adjust them to meet potentially more stringent requirements.

C. David Morris, Senior Counsel International at Northrop Grumman Corporation is a speaker at the 6th FCPA & Anti-Corruption Compliance Conference taking place on June 22-24, 2011 in Washington, DC.

Mr. Morris is Senior Counsel in the Northrop Grumman Corporation International Law Department located in Linthicum, MD. His practice focuses on international regulatory compliance and cross-border transactions involving the corporation’s domestic and international businesses and joint ventures. David answered a series of questions on how to enhance FCPA and anti-bribery initiatives to adapt to heightened global anti-corruption enforcement.

What is the importance for companies to conduct regular compliance training for FCPA and foreign anti corruption laws?

DM:  From a legal perspective, the U.S. Government has made it clear through many Department of Justice and Securities and Exchange Commission settlement agreements and the Federal Sentencing Guidelines that regular training is an essential component of a corporate compliance program for companies that conduct business with foreign government entities. As such, a company’s history of conducting anti-corruption training can be viewed as either a mitigating or aggravating factor should a company find itself in litigation on a FCPA matter. Likewise, the Guidance to the UK Bribery Act also identifies training as a key component to the corporate defense of having adequate compliance procedures. In this regard, the failure to provide training could be detrimental to the statutory defense. From a business perspective, anti-corruption training is a wise investment as part of a preventative law program.  Regular anti-corruption training helps to reinforce and shape a corporation’s ethical culture and standards of business conduct. When clear policies and expectations are communicated, a culture for ethical behavior becomes engrained throughout the enterprise.    

How can companies not only meet the minimal expectationsforFCPA compliancebut also exceed them?

DM: Two features of a robust compliance program that companies can undertake to achieve top tier status are to conduct benchmarking activities relative to their industry peer companies and to regularly conduct comprehensive internal risk assessments on a periodic basis. Collaboration with outside experts on these activities can be particularly helpful because they can bring an independent perspective to aid in the decision making process. In addition, there are numerous webinars, conferences, and bar association committees that provide useful practice tips and networking opportunities to stay abreast of best practices. Finally, the OECD published guidance in this area last year with their Good Practice Guidance on Internal Controls, Ethics, and Compliance, which is often cited by enforcement authorities as a model for companies to embrace.

What are the effects of non-compliance on share price, organizational reputation etc?

DM:  The effects of a corruption related enforcement action can be devastating on all of a company’s constituencies. For shareholders, it is fairly common to see a company’s market capitalization decline following the announcement of a government investigation or a financial reserve set aside to cover potential fines and penalties. In 2010 alone, there were five settlements with the DOJ and SEC in excess of $100M.  For customers and trading partners, uncertainties about the reliability of a company undergoing an enforcement action can be problematic because of the possibility of suspension, debarment, and/or revocation of export privileges in some cases. For employees, morale can take a hit when they observe their leaders prosecuted for criminal activity. Lastly, the enterprise as a whole can suffer because the lifecycle of a typical enforcement action (investigation, litigation, consent decree, and compliance monitor) can consume management focus for many years.

How can existing anti corruption programs be strengthened to take account of emerging global anti-corruption trends?

DM:  Given the extra-territorial reach of the FCPA, the jurisdictional reach of the UK Bribery Act, and the level of inter-country prosecutorial cooperation, companies need to review their policies, procedures, and internal controls to ensure their anti-corruption compliance program is in lock-step with their corporate footprint. As with any business activity, capital, human, and technological resources need to be deployed where they will be most effective and adjusted as the business evolves. An internal risk assessment and procedural gap review are two features of a healthy continuous improvement program. Lastly, I would add that partnering with Internal Auditors, Country Managers, Ethics Officers, Finance personnel and others with an anti-corruption focus can be a beneficial way to leverage and extend the reach of existing resources.

How best can red flags of possible FCPA violations be identified?

DM:  The FCPA’s accounting and internal controls provisions require companies to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are executed in accordance with management’s authorization and are recorded as necessary to maintain accountability for assets. In addition, there are Sarbanes-Oxley requirements for management to provide a statement of the effectiveness of the company’s internal control structure and procedures for financial reporting. As such, procedures and controls should be established for entering into third party commitments, making payments, and cash disbursements to detect red flags which may require additional due diligence. In addition to periodic internal risk assessments and related interviews of key personnel, it is a good practice to provide awareness training on red flags and to require those involved with international transactions to certify if they are aware of red flags or adverse information at milestones throughout a business transaction. The establishment of an anonymous hot line to report ethical concerns is also often cited as a best practice to detect red flags. In terms of identifying red flags of external trading partners, periodic media searches can reveal a wealth of information.  The commercial attaché of the US Embassy of the country in question can also be a valuable red flag identification resource, as well as in-country employees and outside counsel.

© Copyright 2011 marcus evans

 

 

 

Highlights of the UK Bribery Act Guidance: What It May Mean For Your Company

Recently posted by Bracewell & Giuliani LLP – a great overview of the recently passed UK Bribery Act:  

On March 30, 2011, the UK Ministry of Justice issued its highly anticipated guidance (Guidance) for the UK Bribery Act (the Act), a criminal anti-corruption statute that will become effective July 1, 2011.1 The Act covers both commercial and official bribery, within and sometimes outside the UK, and a company may be criminally liable for failing to prevent bribes from being offered or paid by its employees, agents or subsidiaries.

Following a brief overview of the new Guidance, in this Update we review:

  • The jurisdictional reach of the Act
  • The impact of extended liability for business organizations
  • Six fundamental principles that can form a full defense for companies
  • Facilitation payments, which are considered illegal bribes under the Act
  • The treatment of hospitality and promotional expenses

Overview

The newly-released Guidance offers some assistance to commercial companies doing business in the UK seeking to implement “adequate procedures” – both to prevent violations and serve as an affirmative defense against liability under the Act. For United States companies doing business in the UK, both the Act and the Foreign Corrupt Practices Act (FCPA) form essential components of a comprehensive global anti-corruption compliance program.

The Guidance sets out six fundamental principles (see below), but one overarching theme is clear:  Companies would be wise to fully evaluate and understand their entire business operations – how and where they do business — assess the differing risks they face and tailor common sense programs to address those specific risks. In pursuing a risk-based approach, companies may be afforded reasonable flexibility (depending on the size, structure, and complexity and the sophistication of their operations) to implement appropriate, and varying, programs.

Jurisdictional Reach Over US and Other Companies

The Act’s jurisdictional reach extends to business organizations that are incorporated or formed in the UK, and also to those that conduct business in the UK (wherever they are incorporated or formed). Whether a business is deemed to “carry on” business, or even part of its business, for the purposes of the Act – and be rendered a “relevant commercial organisation” — will be a fact-sensitive determination, which the Guidance submits will be based on a common-sense approach. Ultimately, the courts will make the final determination based on the particular facts and circumstances of each case. The Guidance provides two examples which in and of themselves will not confer jurisdiction on the company: (1) where the company’s securities are listed and may be traded on the London Stock Exchange; and (2) where it merely has a UK subsidiary (which “may act independently of its parent or other group companies”).

Extended Liability for Business Organizations

A “relevant commercial organization” risks prosecution if the government determines there is sufficient evidence to establish that an “associated person” bribed someone else with the intent to obtain or retain business or an advantage for that business entity. The associated person — someone who merely needs to “perform[] services” for or on behalf of the company — is not required to be prosecuted as a predicate for the company’s prosecution. Nor is the associated person required to have a close connection with the UK. Moreover, the determination of who performs such services is to be based on a broad interpretation. Employees are presumed to perform services, agents and subsidiaries qualify, and contractors and suppliers may also qualify depending on the circumstances. Titles and position are not determinative; far more important are the underlying conduct and the practical realities.

In addition to liability for failing to prevent bribery from occurring, the business organization may also be prosecuted if the government can prove that the bribe giving or receiving (or offering, encouraging or assisting) took place by someone “representing the corporate ‘directing mind.'” JPG.

An Adequate Compliance Program Is A Full Defense: Six Fundamental Principles

The Act creates a full defense for companies that can demonstrate they have implemented “adequate procedures” to prevent associated persons from engaging in bribery (even if a case of bribery has been proved). The affirmative defense is required to be proved by “the balance of probabilities.” In deciding whether to proceed with its case, the government will also consider the adequacy of compliance procedures, which can turn on the case-by-case facts and circumstances, including the level of control exercised over the conduct of the relevant associated persons and the degree of risk for which mitigation is required.

Six core principles have been set out in the Guidance and accompanying commentary to help advise companies in devising and implementing adequate procedures to prevent bribery:

  1. Proportionality of response to the bribery risks that the organization faces and to the nature, scale and complexity of the organization’s activities
  2. Commitment of top-level management to prevent bribery by associated persons (e.g., effectively communicating no tolerance policy from top to bottom)
  3. Risk Assessment (to promote periodic, informed and documented assessment proportionate to the company’s size and structure and to the nature, scale and location of its operations)
  4. Due Diligence: Demanding that companies investigate and are aware of who is acting on their behalf in order to mitigate bribery risks
  5. Communication (and training): Ensure that policies and programs are “embedded and understood” throughout the company through internal and external communication.
  6. Monitoring and Review: Undertake systematic review to assess changed circumstances and new risks and implement improved procedures where deemed appropriate

Facilitation Payments Constitute Illegal Bribes Under the Act

Unlike the FCPA, the Act prohibits facilitation payments – small grease payments to low-level government officials to perform or expedite routine, non-discretionary services (e.g., processing immigrations or customs forms, turning on the electricity, etc.)… Nonetheless, the Guidance makes clear that the UK government appreciates that given the realities in certain global regions and in certain sectors, overnight elimination is not feasible. Moreover, “eradication” of facilitation payments is recognized as a “long-term objective.” However, the JPG identifies factors tending in favor of and against prosecution:

Factors in favor of prosecution: (i) large or repeated payments; (ii) planned or accepted payments that may reflect standard operating procedure; (iii) payments reflective of an official’s corruption; and (iv) the failure to follow the organization’s facilitation payment policies and procedures

Factors against prosecution: (i) a single small payment; (ii) payment identified as part of genuinely proactive approach involving self-reporting and remedial action; (iii) adherence to the organization’s clear and appropriate procedures for facilitation payment requests; and (iv) the particular circumstances placed the payer in a vulnerable position

Hospitality and Promotional Expenses Are Not Prohibited by the Act

Like the promotional expense exception under the FCPA, the Act does not criminalize bona fide hospitality and promotional expenses, as long as there is no improper intent. Specifically, the guidance makes clear that providing tickets to sporting events or taking clients to dinner to promote and continue good relations, or paying for reasonable travel expenses in order to demonstrate your company’s goods or services, if reasonable and proportionate, will not run afoul of the Act. However, where hospitality expenses are made to mask an intent to bribe or improperly induce advantageous business conduct, the authorities can be expected to view the expense payment as an illegal bribe under the Act. The extent of the hospitality and promotional expenses offered, the way in which they were provided and the level of influence the client exercised or could exercise in the business decision will all be examined.

Current Considerations

The next three months, until July 1, when the Act goes into effect, will provide a special opportunity for U.S. and other companies doing business in the UK to re-evaluate their operations and take a fresh look at the effectiveness, or “adequacy,” of their anti-corruption policies and procedures. Conducting a measured, proportionate and risk-based assessment makes eminent good sense in light of the UK Bribery Act, the FCPA and an evolving global propensity for strict anti-corruption enforcement.

The Ministry of Justice Guidance can be found here.

_______________________

1Also issued that same day is the Joint Prosecution Guidance of the Director of the Serious Fraud Office and the Director of Public Prosecutions (JPG), which provides some insight into the Directors’ views as to “prosecutorial decision-making” regarding violations of the Act.

© 2011 Bracewell & Giuliani LLP

China Adopts Amendment to the Criminal Law to Outlaw Bribery of Foreign Officials

Recent guest bloggers at the National Law Review from Squire Sanders & Dempsey (US) LLP.…Nicholas Chan, Zijie (Lesley) Li, Amy L. Sommers, and  Laura Wang outline some of the recent changes in Chinese law related to bribery of foreign officials: 

On February 25, 2011 the PRC adopted Amendment No. 8 of the PRC Criminal Law, criminalizing bribery of foreign government officials and “international public organizations” to secure illegitimate business benefits. This amendment goes into effect on May 1, 2011.

The PRC did not have any law addressing cross-border bribery before and this law will be the first law to condemn bribery of foreign officials. This amendment is the PRC’s effort to comply with the United Nations Convention Against Corruption to which the PRC is a signatory.

The amendment was made to Article 164 of the PRC Criminal Law prohibiting entities or individuals from offering bribes to employees of companies and enterprises who are not government officials. With the amendment, it is a criminal act to bribe foreign government officials or international public organizations.

According to this Article 164, if the payor is an individual, depending on the value of the bribes, he or she is subject to imprisonment up to 10 years; if the payor is an entity, criminal penalties will be imposed against the violating entity and the supervisor chiefly responsible and other directly responsible personnel may also face imprisonment of up to 10 years. Penalties may be reduced or waived if the violating individual or entity discloses the crime before being charged. According to the PRC Supreme Procuratorate issued in 2001, individuals offering bribes of more than RMB10,000 and entities offering bribes of more than RMB 200,000 may be prosecuted under Article 164.

Unlike other bribery-related crimes in the PRC, which focus on the receipt by the briber of ”illegitimate benefits,” bribery of foreign officials or international organizations prohibits securing illegitimate business benefits. In advance of the release of judicial interpretation of what may be “illegitimate business benefits,” the current legal understanding of what is “to secure illegitimate benefits” means in other bribery-related crimes may provide a reasonable basis for understanding this amendment.

The law refers to “officials of foreign countries and international public organizations,” but does not define these terms. For example, it is not clear whether international public organization includes foreign non-governmental organizations.

As of this Alert, no judicial interpretation or administrative regulations regarding the implementation of this provision has been promulgated. It is not clear whether foreign companies may also be subject to jurisdiction under the PRC Criminal Law with respect to this new amendment. We will continue to closely monitor future development related to this amendment.

©Squire, Sanders & Dempsey All Rights Reserved 2011

ABA – The Fifth Annual National Institute on Securities Fraud Oct 7 & 8th New Orleans

Looking for a good excuse to head to New Orleans?  The National Law Review would like to remind you that the American Bar Association’s Business Law Section, Criminal Justice Section, Section of Litigation, and the Center for Continuing Legal Education are sponsoring the 5th Annual National Institute on Securities Fraud: 

The aftermath of the global financial crisis continues to cause uncertainty in the areas of securities regulation and enforcement. SEC and DOJ collaboration has increased, with both agencies pursuing aggressive legal theories.  Congress has passed the most sweeping changes to the federal securities laws since they were enacted in the 1930s. And state attorney generals continue to assert a significant role in enforcing state securities laws.

This unprecedented confluence of events raises significant questions for industry participants and publicly traded companies that require a forward-looking and flexible approach to avoiding missteps.

The 2010 program will squarely address the issues and trends that are shaping the direction of securities regulation and enforcement for decades to come, including the status and potential impact of financial reform legislation,  the enforcement trends suggested by recent cases, and the priorities of top enforcers.  The program will provide valuable strategic and tactical insights to navigate this ever-changing terrain, from the perspective of thought leaders of every persuasion, including judges, prosecutors, regulators, compliance officers, and defense counsel.

The Securities Fraud National Institute Planning Committee, in cooperation with the Criminal Justice Section White Collar Crime Committee and the Business Law Section, will provide an educational and professional forum to discuss the legal and ethical issues that arise in securities fraud matters. For More Information – Click Here:

Public Defenders as Effective as Private Attorneys

This week’s featured blogger at the National Law Review is Tom Jacobs of Miller-McCune – who discusses a recent study done comparing the relative effectiveness of public defenders and private attorneys in the Cook County criminal court system. The research team led by Richard Hartley of the University of Texas at San Antonio came up with some interesting and somewhat startling results.  Read on:

Perhaps it’s time for someone to come to the defense of public defenders. A newly published look at Chicago-area courts finds that, when you consider the actual outcomes of judicial hearings, these underpaid and underappreciated attorneys do just as well as their private-sector counterparts.

“This study suggests that there is little difference in the quality of legal defense provided to defendants by private attorneys and public defenders,” a research team led by Richard Hartley of the University of Texas at San Antonio writes in the Journal of Criminal Justice. “The type of attorney representing the defendant was not influential on any of the four decision-making points examined here.”

The researchers examined a random sample of 2,850 offenders convicted of felonies in Cook County Circuit Court, “a large Midwestern jurisdiction which is similar to other large, urban jurisdictions in the country.” They compared cases where the defendant was represented by a private attorney or public defender, focusing on four stages of the judicial process:

  • The decision to grant bail. The researchers looked at whether bail was set rather than whether it was made, since the latter is more a function of ability to pay rather than quality of legal representation.
  • Plea-bargaining decisions. This served as a measure of whether an attorney was successful in getting the initial charge reduced.
  • Whether the defendant, once convicted, served jail time.
  • The length of sentence imposed on those convicts who were incarcerated.

“The overall results of this study generally support the idea that there is no difference between private attorneys and public defenders regarding case outcomes,” the researchers conclude. “The type of attorney representing the defendant was not influential on any of the four decision-making points examined here.”

Two important caveats. The researchers did not look at convictions vs. acquittals. And they found that retaining a private attorney is apparently beneficial “for certain offenders and at certain stages” of the process. Specifically, they noted some interestingly varied outcomes when looking at a defendant’s race.

“White defendants are the only defendants who benefit from having a private attorney at the release decision,” they write. Specifically, they found whites with private attorneys are 2.7 times more likely than whites with public defenders to have bail granted.

For people of color, private attorneys may not help in getting bail, but they do facilitate plea bargains. “Black defendants who retain a private attorney are almost two times more likely to have the primary charge reduced than black defendants who are represented by a public defender,” the researchers write.

Why are public defenders so effective at representing their clients? One theory, according to Hartley, involves the “courtroom workgroup” model of justice, where the public defender, prosecutor and judge work together to dispose of cases.  He notes that when the system functions in this way, “public defenders are in better positions than private attorneys to negotiate favorable plea bargains and to mitigate punishment.”

These findings are not likely to put any law firms out of business. But given the negative media coverage of public defenders offices, they do offer some reassurance that the system is reasonably fair, even for those who can’t afford an attorney.

“This study provides evidence that contradicts the idea that you get what you pay for, at least in Cook County,” Hartley and his colleagues conclude. In Chicago courtrooms, “Public defenders are as effective as private attorneys.”

Miller-McCune © 2010 

About the Author:

Tom Jacobs is a veteran journalist with more than 20 years experience at daily newspapers. He has served as a staff writer for The Los Angeles Daily News and the Santa Barbara News-Press. His work has also appeared in The Los Angeles Times, Chicago Tribune and Ventura County Star.

TheEditor@miller-mccune.com / www.miller-mccune.com / 805-899-8620