Quantcast
Channel: Uncategorized Archives | Global Investigations & Compliance Review
Viewing all 71 articles
Browse latest View live

Monthly China Anti-Bribery Update Report —May 2016

0
0

1. New laws or regulations

State level: No developments.

Local level (Beijing & Shanghai): No developments.

Communist Party Rules: No developments.

2. Upcoming laws or regulations

No developments.

3. Government Action

(1) It was reported on May 6, 2016 that Wang Tianchao (“Wang”), the former President of Yunnan First People’s Hospital, was prosecuted by Pu’er Municipal People’s Procuratorate of Yunnan Province for bribery. Yunnan Commission for Discipline Inspection reported this case as “a typical case of corruption with an adverse impact for the health sector”. The total amount involved in this case is up to RMB 129 million (USD 19.62 million).

The prosecutor asserted that from 2004 to 2014, Wang obtained improper benefits including RMB 45 million (USD 6.84 million) in cash, 100 units of real estate together with 100 parking spaces valued in the aggregate at RMB 84 million (USD 12.78 million) in exchange for abusing his position to seek illegal benefits for bribe-givers in connection with construction projects, medical equipment, medicine procurement, and the appointment of personnel.

(2) On May 17, 2016, Xu Liming (“Xu”), the former Director of Guangxi Zhuang Autonomous Region People’s Government Guangzhou Office was sentenced by the Intermediate People’s Court of Hechi City, Guangxi to 10 years’ imprisonment for accepting bribes, as well as confiscation of illegal proceeds of RMB 3.53 million (USD 537,151) and penalties of RMB 500,000 (USD 76,083).

During Xu’s term in office from 2004 to 2008, he abused his positions to seek illegal benefits for various entities and individuals in contracting projects, project payment settlement, investment attraction and job promotions. In return Xu received bribes up to RMB 3.78 million (USD 576,715). In light of Xu’s voluntary confession and return of the proceeds of his crimes, he was given a more lenient sentence.

(3) On May 23, 2016, Li Yunzhong (“Li”), the life sentence of the former Vice Secretary of Qujing Municipal Party Committee, Yunnan Province was affirmed by the Higher People’s Court of Yunan Province. Li had been found guilty of accepting bribes of more than RMB 40 million (USD 6.08 million). This case had received prominent attention from the Central Commission for Discipline Inspection because it involved abuse over a long span of time, very substantial sums of money, and a large number of people.

Li was accused of taking bribes of RMB 40.17 million (USD 6.11 million) in cash and 150 cartons of cigarettes valued at RMB 96,000 (USD 14,608) from dozens of individuals. In return he sought illegal benefits for them in contract projects and in the allocation of project funds. The ill-gotten gains were used by Li to purchase real estate and vehicles as well as for loan-sharking.

(4) It was reported on May 24, 2016 that Hong Jiaxiang (“Hong”), a former Member of the Standing Committee of Ningbo City Committee of the Communist Party and the former Head of the Publicity Department had been sentenced by the Intermediate People’s Court of Shaoxing City, Zhejiang Province to 11 years’ in prison and fined RMB 600,000 (USD 91,300) for bribe-taking.

The court found that during Hong’s term in office from 2006 to 2013, he took advantage of his various positions to seek benefits in the promotion of real estate projects, project planning approvals, and enterprise operation for selected entities and individuals. In return, Hong illegally received cash and properties from such persons through pre-declaration of dividends, distributions of profits, and the sale of properties at a relatively high price. These aggregated to RMB 8.34 million (USD 1.26 million). Hong was given a more lenient sentence due to his voluntary confession and his return of the proceeds in whole.

(5) On May 30, 2016, Huang Deyi (“Huang”), the former Deputy Mayor of Baise City, Guangxi Zhuang Autonomous Region, was sentenced by the Intermediate People’s Court of Hechi City, Guangxi to ten years and six months in prison for accepting bribes and abuse of power, plus fines of RMB 500,000 (USD 76,083).

Huang was found guilty of providing illegal assistance to others during his term of office from 2007 to September 2013 in exchange for bribes including RMB 3.9 million (USD 593,453), HKD 400,000 (USD 338,496) and 3 kilograms of gold.

4. Other

No developments.

5. China-related FCPA Action

No developments.


Monthly China Anti-Bribery Update Report — June 2016

0
0

1. New laws or regulations

State level: No developments.

Local level (Beijing & Shanghai): No developments.

Communist Party Rules: No developments.

2. Upcoming laws or regulations

No developments.

3. Government Action

(1) In early June, Zhang Longjun (“Zhang”), the former Dean of Shangyu Traditional Chinese Medicine Hospital (the “Hospital”), together with Chen An (“Chen”) and Zhao Zhigang (“Zhao”), the former Vice Dean of the Hospital, were respectively sentenced to ten years’, two years’ and eight months’ imprisonment respectively for taking bribes by the People’s Court of Shangyu District, Shaoxing City, Zhejiang Province. Additionally, Zhang, Chen, and Zhao were fined RMB 1.8 million (USD 270,148), RMB 300,000 (USD 45,024) and RMB 350,000 (USD 52,528) respectively.

Zhang was found to have manipulated medical supplies, job promotion arrangements, and medical resource allocations in return for illegal proceeds including RMB 3.83 million (USD 574,816), HKD 123,000 (USD 105,629), and USD 1,000 in cash, while Chen and Zhao were found to have accepted bribes of RMB 646,300 (USD 96,998) and RMB 700,000 (USD 105,057) respectively.

(2) On June 15, 2016, Ding Fengyun (“Ding”), the former Party Committee Secretary of Linyi University, was tried for embezzlement and bribe-taking by Intermediate People’s Court of Heze City, Shandong Province.

The prosecutor asserted that during her term of office from August 2010 to December 2012, Ding took advantage of her positions as the Member of Linyi Municipal Standing Committee, as the Director of the Propaganda Department of Linyi City, and as Party Committee Secretary of Linyi University to, independently or in collusion with others, embezzle public funds totaling more than RMB 7.58 million (USD 1.13 million). Ding was also found guilty of seeking illegal benefits for other individuals or entities in bidding processes, promotions or adjustments of job titles, and company restructurings by taking advantage of her multiple positions in exchange for bribes in the form of cash and shopping or debit cards amounting to RMB 1.26 million (USD 189,104).

The court determined that it would announce its judgement on another given day.

(3) On June 16, 2016, Bai Enpei (“Bai”), the former Vice Chairman of the Environmental and Resources Protection Committee of the National People’s Congress, was tried by the Intermediate People’s Court of Anyang City, Henan Province for taking bribes and holding a large amount of property from unidentified sources.

Allegedly, during his term of office from 2000 to 2013, Bai took advantage of his positions as the Secretary of Qinghai Province Party Committee, the Secretary of Yunnan Province Party Committee, and the vice chairman of the Environmental and Resources Protection Committee of National People’s Congress by furnishing assistance to 17 companies and individuals in engineering construction, real estate development, access to mineral rights, and title promotions. Bai, directly or indirectly through his wife, obtained illegal properties from the above companies and individuals exceeding RMB 246 million (USD 36.9 million) in total. Further, the amount of Bai’s family property and expenditure significantly exceeded his legitimate income, and Bai failed to explain the source of such property.

Bai pleaded guilty during the trial. The court said that it would announce its judgement on another day.

(4) On June 29, 2016, Wang Hanshen (“Wang”), the former Party Member of Yiwu Municipal People’s Government of Zhejiang Province was sentenced by the Jindong District People’s Court of Yiwu City to 10 years’ and 6 months’ imprisonment for taking bribes, plus the fines of RMB 1 million (USD 150,082).

Wang was accused of taking advantage of his position from 2007 to 2009 in seeking illegal benefits for others in exchange for bribes amounting to RMB 5.52 million (USD 828,455). Wang was given a lighter sentence due to his confession and his return of the illegal gains.
4. Other

No developments.

Monthly China Anti-Bribery Update Report — July 2016

0
0

1. New laws or regulations

State level: No developments.

Local level (Beijing & Shanghai): No developments.

Communist Party Rules:

(1) On July 17, 2016, the Central Commission for Discipline Inspection issued the Accountability Regulations of the Communist Party of China (the “Regulations”). The Regulations specify the intra-Party accountability mechanism for the serious consequences caused by mistakes, negligence and even poor work performance or leadership. The possible punishment includes circulating a notice of criticism within certain scope of the Party, admonishing, position adjustment and disciplinary sanction. In addition, relevant officers will be held responsible for life, even after their job adjustment, promotion or retirement. The Regulations were approved by the Political Bureau of Communist Party of China Central Committee on June 28, 2016.

2. Upcoming laws or regulations

No developments.

3. Government Action

(1) On July 8, 2016, Wei Huaizhong (“Wei”), the former Deputy Minister of the Propaganda Department of Haidian District Party Committee, was sentenced to four years’ imprisonment for bribe-taking by Beijing No. 4 Intermediate People’s Court and was fined RMB 300,000 (USD 45,264).

From 2008 to 2011, Wei was responsible for handling local cultural affairs, during which period he took advantage of his position to assist three companies in applying for special funds from Cultural Development of Haidian District. As a consequence, these companies succeeded in obtaining the allocation of special funds of RMB 3.95 million (USD 595,983). In return, Wei accepted bribes amounting to RMB 1.38 million (USD 208,217) in the form of a commercial contract between one of the three company and a company controlled by one of his relatives. Wei was given a lighter sentence due to his repentance and the refund of illegal proceeds.

(2) It was reported on July 12, 2016, that Hou Duanmin (“Hou”), the former Secretary of the Party Committee of Jining Medical College (the “College”), was sentenced by the Intermediate People’s Court of Weifang City to 11 years in prison for bribe-taking, plus a fine of RMB 600,000 (USD 90,529).

The prosecutor accused Hou of being involved in 28 bribery events from 2002 to the end of 2014, during which period Hou accepted illegal proceeds over RMB 3.13 million (USD 472,260) in total. Originally, the amount of accepted bribes remained relatively low, but things changed soon after his assumption of duties at Jining Medical College, where he received a large number of kickbacks from drug sales to the related hospitals affiliated with the College. Together with his wife, the couple took 70% of the profits generated from such drug sales.

(3) On July 12, 2016, Ji Haiyi (“Ji”), the former Secretary of Party Committee of Sunhe County, Chaoyang District, Beijing was sentenced to life imprisonment by Beijing No. 3 Intermediate People’s Court for accepting bribes approaching RMB 60 million (USD 9.05 million).

During Ji’s term of office from 2005 to 2011, he took advantage of his position to assist several companies and individuals in project contracts, company operations, and compensation for demolition and relocation. In exchange, Ji, individually and jointly with others, accepted properties valuing over RMB 59.32 million (USD 8.95 million) in the form of cash and real property from 11 individuals.

(4) It was reported on July 14, 2016, that Liu Qingcheng (“Liu”), the former Principal of Jiangxi East China University of Technology, was sentenced to 15 years imprisonment for taking bribes by the Intermediate People’s Court of Ji’an City, Jiangxi Province, plus a fine of RMB 1 million (USD 150,881).

According to the prosecution, from December 2002 to May 2014, Liu took advantage of his position to seek illegal benefits for others in campus project bidding, project construction, job arrangement, equipment purchase, etc., and cumulatively accepted bribes exceeding RMB 8.7 million (USD 1.31 million). Liu said he would appeal against the judgment.

(5) On July 25, Guo Boxiong (“Guo”), the former Deputy Chairman of Central Military Commission, was sentenced to life in prison for accepting bribes by the Military Court, deprived of political rights for life and the rank of general, and all of his personal property was confiscated.

4. Other

No developments.

5. China-related FCPA Action

None

Monthly China Anti-Bribery Update Report — August 2016

0
0

1. New laws or regulations

State level: No developments.

Local level (Beijing & Shanghai): No developments.

Communist Party Rules: No developments.

2. Upcoming laws or regulations

No developments.

3. Government Action

(1) On August 2, 2016, Hu Xuefan (“Hu”), the former Director of Tourism Bureau of Anhui Province, was sentenced by the Intermediate People’s Court of Anqing Municipal, Anhui Province to twelve (12) years in prison for taking bribes, with monetary fines of RMB 4 million (USD 598,784) and confiscation of illegal gains of an additional RMB 4.6 million (USD 688,602).

Hu was found to have taken advantage of his position from 1999 to 2014, seeking illegal benefits for over 20 legal entities and individuals through the allocation of special tourism funds, ratings for scenic spots, job adjustments and promotions, etc., and either accepted or solicited bribes in the forms of cash, shopping cards and gold bars, individually or together with his family, amounting to RMB 4.6 million (USD 688,602).

(2) On August 8, 2016, Jian Rujian (“Jian”), the former Deputy Inspector of the Local Tax Bureau of Guangzhou Municipal, Guangdong Province, was sentenced to 13 years imprisonment for accepting and providing bribes by Guangzhou Intermediate People’s Court, with fines of RMB 3 million (USD 449,088).

Jian was accused of offering help to various enterprises during tax inspection periods from 2005 to 2013, and accepting illegal proceeds including multiple real estate properties, calligraphy and paintings, cash and shopping cards aggregating more than RMB 9.54 million (USD 1.42 million).

(3) It was reported on August 15, 2016 that Zhou Yao (“Zhou”), the former Chief of the Management Commitment of Lu’an Economic & Technological Development Area of Anhui Province, was sentenced by the Intermediate People’s Court of Chuzhou Municipal, Anhu to 11.5 years in prison for taking bribes and abusing power. Zhou was also fined RMB 1.6 million (USD 239,513).

Reportedly, during his term of office from 2003 to 2013 Zhou accepted bribes valued at RMB 5.61 million (USD 839,795) in exchange for seeking illegal benefits in land grant price refunds, compensation for demolition, adjustments of construction planning, etc. Zhou was also charged with abusing his power to refund land grant prices and pay additional demolition compensation to two companies, causing economic losses for the state of up to RMB 15.55 million (USD 2.24 million).

(4) On August 19, 2016, Ma Yong (“Ma”), the former Party Secretary of Yiyang Municipal, Hunan Province, was sentenced by the Intermediate People’s Court of Chenzhou Municipal, Hunan to 12 years in prison for accepting bribes totaling RMB 3.68 million (USD 550,881) and for abuse of power.

Ma’s case drew attention in China due to the publication of reports regarding his alleged interference with the judiciary. Ma allegedly accepted bribes of RMB 100,000 (USD 14,969) and a bar of gold valued at RMB 33,000 (USD 4,939) from Hu Shuangfu (“Hu”) from 2012 to 2013, and helped Hu’s two sons get light sentence for their crimes of intentional assault, which eventually caused the death of the victim, abusing the power of his office. In addition, during his term from 2007 to 2013, Ma was found to have received bribes including RMB 910,000 (USD 136,223), USD 123,000, HKD 380,000 (USD 48,992), ERU 10,000 (USD 11,169), 4.7 kilograms of gold, and three watches.

(5) On August 26, 2016, Liu Guosheng (“Liu”), the former Deputy Mayor of Heze Municipal, Shandong Province, was sentenced by the Intermediate People’s Court of Taian Municipal, Shandong to 8-years in prison for taking bribes. Liu was found guilty of illegally seeking benefits for bribe-givers in land grant formalities, the allocation of supporting funds, contracts for greening projects, and other arrangements on fifty occasions. In exchange, Liu accepted cash and shopping cards aggregating to RMB 2.1 million (USD 314,361). Liu was given a lighter sentenced due to his confession and return of illegitimate gains.

4. Other

No developments.

5. China-related FCPA Action

None

Monthly China Anti-Bribery Update Report — September 2016

0
0

1. New laws or regulations

State level: No developments.

Local level (Beijing & Shanghai): No developments.

Communist Party Rules: No developments.

2. Upcoming laws or regulations

No developments.

3. Government Action

(1) On September 2, 2016, Wei Xinhong (“Wei”), the former Party Secretary of Qinyang Municipal, Henan Province, was sentenced by the Intermediate People’s Court of Jiaozuo Municipal, Henan Province to 13 years in prison and fined RMB 3 million (USD 449,879) for taking bribes. The court determined that Wei received and solicited from others RMB 9.504 million (USD 1.42 million), USD 20,000, and shopping cards valued at RMB 10,000 (USD 1,499) on 74 occasions in return for seeking benefits for them in real estate developments, business operations, land expropriations, position adjustments, etc.

(2) On September 8, 2016, Wu Xilin (“Wu”), the former Director of Department of Outbound Investment and Economic Cooperation of Ministry of Commerce of China, was sentenced by the No. 2 Beijing Intermediate People’s Court to 10-years in prison plus a fine of RMB 500,000 (USD 74,979) for taking bribes. Wu was found guilty of taking advantage of his position to provide assistance for bribe-givers in business operations, awards of contracts, and mitigation of the accident liabilities of enterprises from 2005 to 2009. In exchange, Wu received in the aggregate RMB 3.42 million (USD 512,862) from these enterprises.

(3) On September 9, 2016, Huang Shaoru (“Huang”), the former Director and Deputy Manager of Hainan State Farms Group Co., Ltd., as well as the former General Manager and Chairman of the board of Hainan State Farms South China Investment Co., Ltd., was sentenced by the Intermediate People’s Court of Sanya Municipal, Hainan Province to 13 years in prison for taking bribes and received a fine of RMB 2 million (USD 299,919). The related press release highlighted that Huang was accused of offering help to several individuals in approving project funds, project cooperation, project tendering and bidding, etc. in return for bribes of RMB 14.32 million (USD 2.147 million) and USD 30,000 from the said persons between 2003 and 2013.

(4) It was reported on September 18, 2016 that Zhang Suzhou (“Zhang”), the former President of Anhui Broadcast and TV Station (the “Station”), was sentenced by the Intermediate People’s Court of Huainan Municipal, Anhui Province to 14 years’ imprisonment for bribery and corruption and further subjected to a fine of RMB 2.5 million (USD 374,899). Allegedly, Zhang took advantage of his position to accept bribes in forms of cash, including RMB 11.23 million (USD 1.68 million), USD 47,000, EUR 2,000 (USD 2,237), shopping cards valued at RMB 179,000 (USD 26,842), and gold bars, jade, and watches valued at RMB 1.06 million (USD 158,957) from a number of entities and individuals during his term of office from 2006 to 2014. In addition, Zhang was found to have illegally embezzled public property amounting to RMB 3.39 million (USD 508,364) by means of fabricating bonuses and reimbursements for personal consumption.

Zhao Hongmei (“Zhao”), the Former Vice President of the Station, was sentenced to imprisonment for 12 years and received a fine of RMB 1.6 million (USD 239,935) for the same charges on the same day. Zhao was charged with taking advantage of her position to embezzle public property totaling RMB 1.61 million (USD 241,339) and taking bribes of RMB 5.69 million (USD 852,931).

(5) On September 27, 2016, Ren Jincheng (“Ren”), a former Member of the Standing Committee of the Municipal Committee of Dalian, Liaoning Province and a former Party Secretary of Changxing Island Economic and Technological Development Zone, was sentenced to 13 years in prison by the Intermediate People’s Court of Benxi Municipal, Liaoning Province for taking bribes. Ren also received a fine of RMB 2 million (USD 299,829).

During his term of office from 1998 to 2015, Ren was found to have received bribes on 37 occasions amounting to RMB 22.21 million (USD 3.32 million) in the form of cash, shopping cards, calligraphy, and paintings. In exchange, Ren provided assistance to bribe-givers in bank loan approvals, business operations, the reform of state-owned enterprises, etc.
4. Other

(1) On September 4 and 5, 2016, national leaders attending the G20 Hangzhou Summit unanimously approved and passed the High-level Principles on International Fugitive Repatriation and Asset Recovery (the “High-level Principles”), the 2017-2018 Anti-corruption Action Plan, and establishment of the Research Center on Fugitive Repatriation and Asset Recovery in China.

The High-level Principles, an international anti-corruption document drafted by China following the release of the Beijing Declaration on Fighting Corruption approved by Asia Pacific Economic Cooperation in 2014, provides that the G20 members will create a cooperative mechanism on fugitive repatriation and asset recovery, such as barring the entry of a corrupt individual and establishing a case-by-case investigation assistance system. The High-level Principles also emphasize joint and cooperative investigation and prosecution of corruption and the inter-state collaborative recovery of ill-gotten gains arising from the crime.
5. China-related FCPA Action

(1) It was reported on September 1, 2016 that AstraZeneca, a UK-based drug manufacturer, agreed to pay a fine of USD 5.5 million to settle an investigation instituted by US Department of Justice and US Securities and Exchange Commission (the “SEC”) relating to its violation of Foreign Corrupt Practices Act (the “FCPA”), including disgorgement of USD 4.325 million, prejudgment interest of USD 822,000 and a civil penalty of USD 375,000.

The SEC alleged that for the purpose of promoting and selling AstraZeneca’s drugs, sales and marketing staff of AstraZeneca’ subsidiaries in China and Russia provided gifts, conference support, travel, cash and other benefits to state-employed medical staff since 2005. AstraZeneca’s Chinese subsidiary is also found having bribed local officials for reduction of and exemption from financial sanctions it faced. The abovementioned fees were falsely recorded by AstraZeneca as “bona fide expense.” AstraZeneca was alleged to have turned a blind eye on the above misconducts of its subsidiaries and failed to carry out effective internal audit.

(2) It was reported on September 12, 2016 that Zhang Junping (“Zhang”), former Chairman and CEO of a Chinese subsidiary of Harris Corporation (“Harris”), Hunan CareFx Information Technology Co., Ltd. (“Hunan CareFX”), an information technology company, agreed to pay a penalty of USD 46,000 to settle charges of violating the FCPA.

Zhang, as the supervisor of Hunan CareFX’s sales staff, was alleged to have knowingly permitted or facilitated the sales staff to reimburse fake invoices to generate cash for the purchase of gifts, which would then be offered to government officials of state-owned hospitals and health departments to influence their decisions to buy the products and services of Hunan CareFX. These expenses were improperly recorded as legitimate expense in the book of Hunan CareFX.

Harris will not be charged, due to its prompt self-reporting, active cooperation during the investigation, and its effort to implement its anonymous complaint helpline and integration of Hunan CareFX into its internal accounting controls after acquisition of Hunan CareFX, which led to the discovery of Zhang’s misconduct.

(3) On September 20, 2016, Nu Skin Enterprises Inc. (“Nu Skin”), a Utah-based company, agreed to pay USD 765,688 to settle charges of violating the internal controls and books and records provisions of the FCPA.

In 2013, Nu Skin (China) Daily Use & Health Products Co. Ltd. (“Nu Skin China”), a subsidiary of Nu Skin, was threatened by the local Administration of Industry and Commerce (“AIC”) to be fined RMB 2.8 million (around USD 419,931) for its violation of China laws and regulations on direct selling. Some staff in Nu Skin China then contacted a Party official, to whom the head of the AIC previously reported, to intervene in this matter. In return, Nu Skin China agreed to donate RMB 1 million (USD 149,975) to a charity identified by this official. Nu Skin China received a notice issued by the AIC that it would not be fined or sanctioned for its wrongdoing after the donation. Supporting internal e-mails were found during the investigation, indicating that contacting this official was essential for Nu Skin China to resolve the matter peacefully.

Monthly China Anti-Bribery Update Report — October 2016

0
0

1. New laws or regulations

State level: No developments.

Local level (Beijing & Shanghai): No developments.

Communist Party Rules: No developments.

2. Upcoming laws or regulations

No developments.

3. Government Action

(1) It was reported on October 14, 2016 that Li Jie (“Li”), the former Deputy Mayor of Haikou City, Hainan Province, was sentenced to 11 years in prison for bribery-taking and fined RMB 1.6 million (USD 236,258) by the No.2 Intermediate People’s Court of Hainan Province.

The court found that from 2004 to 2015, Li accepted from 8 companies and 23 individuals various kinds of properties including cash totaling RMB 9 million (USD 1.32 million) and two bars of gold valuing RMB 19,000 (USD 2,805) (as of the valuation date) in exchange for taking advantage of his positions as the Director of the Road Transport Bureau of Haikou City, the Governor of Meilan District, Haikou City, the Secretary of Meilan District, and the Deputy Mayor of Haikou City in engineering projects, tendering and bidding projects, and project management.

(2) On October 14, 2016, Jin Daoming (“Jin”), the former Deputy Director of the Standing Committee of the National People’s Congress of Shanxi Province, was sentenced to life imprisonment by the Intermediate People’s Court of Zhenjiang City, Jiangsu Province for taking bribes, plus deprivation of political rights for life and confiscation of all his personal properties.

From 2007 to 2014, Jin was alleged to seek illegal benefits for others in such matters as coal mine resources integration, position promotion, and disciplinary investigation by taking advantage of his positions as the Member and Deputy Secretary of the Provincial Party Committee as well as the Secretary of the Provincial Discipline Inspection Commission. In return, Jin illegally accepted from others properties valuing RMB 123 million (USD 18.16 million).

(3) On October 17, 2016, Wei Pengyuan (“Wei”), the former Deputy Director of the Coal Division under National Energy Administration, was sentenced by the Intermediate People’s Court of Baoding City, Hebei Province to death with 2 years’ suspension of execution, plus deprivation of political rights for life for taking bribes and holding large amounts of property from unidentified sources. Wei will not be allowed to apply for any commutation of sentence or parole.

Reportedly, during his term in office from 2000 to 2014, Wei took advantage of his positions to seek benefits for others during the review and approval of coal projects, expert reviews, project contracting, collection of payment for goods, and sales promotion of equipment. In return, Wei illegally accepted properties valued around RMB 212 million (USD 31.3 million). Wei also held large amounts of property largely exceeding his legitimate income with no explainable sources.

(4) On October 18, 2016, Feng Zhiming (“Feng”), a former Member and Deputy Director of the Public Security Bureau in Hohhot City, Inner Mongolia Autonomous Region was sentenced by the Intermediate People’s Court of Hohhot City to 18 years in prison and fined RMB 1.1 million (USD 162,427) for bribe-taking, holding large amount of properties from unidentified sources, illegal possession of a gun and/or ammunition, and embezzlement.

Feng was found guilty of taking advantage of his positions to seek illegal benefits for 13 companies or individuals from 2008 to 2014. In addition, Feng, conspired with his wife, purchased real estate at a price significantly lower than the market price, and sold them to others at a price significantly higher than the market price. The value of the bribes accepted by Feng was over RMB 3.89 million (USD 574,402) in total. Feng was given a lighter sentence due to his confession.

(5) On October 21, 2016, Lin Cunde (“Lin”), the former Deputy Director of Organization Department of Guangdong Provincial Party Committee, was sentenced by the Intermediate People’s Court of Dongguan City, Guangdong Province for taking bribes to life imprisonment, plus deprivation of political rights for life, and confiscation of all his personal properties.

The court found that during his term of office in the Organization Department, Lin took advantage of his position and sought benefits for others in position appointment and promotion, project contracting, and arranging for admission to schools despite insufficient qualifications. The amount of bribes accepted by Lin exceeded RMB 24 million (USD 3.54 million).

4. Other

None.

Monthly China Anti-Bribery Update Report – November 2016

0
0

1. New laws or regulations

State level: No developments.

Local level (Beijing & Shanghai): No developments.

Communist Party Rules: No developments.

2. Upcoming laws or regulations

No developments.

3. Government Action

(1) It was reported on November 4, 2016 that Zhuang Yao (“Zhuang”), the former Chairman of Guangdong Materials Group Co., Ltd. (“GMGC”), a state-owned enterprise, attended his first trial from November 1 to 3 before the Intermediate People’s Court of Maoming City. Zhuang is accused of bribe-taking, embezzlement, and intentional destruction of accounting records. The ill-gotten gains in question amount to more than RMB 570 million (USD 82.7 million).

Zhuang was accused of abusing his position as the General Manager, Deputy Party Secretary, Chairperson, and Party Secretary of GMGC to seek large and improper interests for others from 2002 to 2012. In return, Zhuang accepted bribes amounting to RMB 16.5 million (USD 2.39 million). Zhuang was found guilty, alone or in collusion with others, of illegally embezzling public properties totaling RMB 554 million (USD 80.39 million) from 1999 to 2009. In addition, in violation of law, Zhuang destroyed a real estate company’s accounting books together with others to hide the corruption.

The court will render its judgement on another given date.

(2) On November 11, 2016, Zhao Liping (“Zhao”), the former Deputy Chairman of the Chinese People’s Political Consultative Conference of Inner Mongolia Autonomous Region, was sentenced to death by the Intermediate People’s Court of Taiyuan City, Shanxi Province for deliberate murder, bribery-taking, the illegal possession of a gun and ammunition, and the illegal storage of explosives. Plus, Zhao’s personal properties were also confiscated, amounting to RMB 2 million (USD 290,218).

The court found that Zhao was guilty of shooting to death a victim surnamed Li in Chifeng City, Inner Mongolia. During the on-site investigation by the Public Security Bureau, two guns along with 49 bullets were found and 91 detonators were also seized at Zhao’s office. In addition, from 2008 to 2010, Zhao took advantage of his position as the Head of the Public Security Bureau of Inner Mongolia to seek benefits for others in company operations and promotions. In return, Zhao received properties valued at RMB 23.68 million (USD 3.43 million).

(3) It was reported on November 11, 2016 that Zhu Mingguo (“Zhu”), the former Chairman of the Chinese People’s Political Consultative Conference (“CPPCC”) of Guangdong Province, was sentenced by the Intermediate People’s Court of Liu Zhou City, Guangxi Zhuang Autonomous Region to death with 2 years’ suspension of execution, plus deprivation of political rights for life, and confiscation of all personal properties for taking bribes and holding large amounts of properties from unidentified sources.

The court found that from 2004 to 2014, Zhu, directly, or indirectly via his wife, accepted various kinds of properties amounting to RMB 142 million (USD 20.60 million) for taking advantage of his positions as a Member and as the Deputy Secretary of the Standing Committee of Guangdong Province, Secretary of Committee for Discipline Inspection, Secretary of Political Bureau Standing Committee, and Chair of the CPPCC of Guangdong Province in project contracting, land development and position promotion in consideration for bribes. In addition, Zhu failed to identify any legitimate source for large amounts of properties amounting to RMB 91.04 million (USD 13.2 million).

(4) It was reported on November 21, 2016 that Wang Dengji (“Wang”), the former Head of the Bureau of Land and Resources of Shaanxi Province, had been sentenced by the Intermediate People’s Court of Langfang, Hebei Province to life imprisonment for taking bribes, plus deprivation of his political rights for life and confiscation of his personal property.

Wang was alleged to have taken advantage of his positions as the Mayor of Yulin City and as the Head of Shaanxi Land Bureau to seek benefits for others in the integration of mineral resources, the granting of mineral rights, and construction engineering. In return, Wang accepted bribes amounting to RMB 66.24 million (USD 9.62 million). This case involves the largest amount of ill-gotten gains ever in Shanxi Province.

(5) On November 22, 2016, Chen Tiexin (“Chen”), the former Deputy Chairman of Liaoning People’s Political Consultative Conference, was sentenced by the Intermediate People’s Court of Harbin, Hei Longjiang Province for taking bribes to 13 years plus 9 months imprisonment, plus confiscation of RMB 2 million (around USD 290,218) from his personal properties.

While acting as the Municipal Party Secretary of Chaoyang City from 2008 to 2013, Chen was found guilty of taking advantage of his position to assist others in business development, project construction, financing and loan, job promotion, etc. In return, Chen accepted properties from others valued at RMB 22 million (USD 3.19 million). Chen was given a lighter sentence due to his confession and his cooperation with the investigation authorities.
4. Other

None.

Rosenstein Pledges Reduced Regulation, Encourages Self-Reporting

0
0

Rod Rosenstein

U.S. Deputy Attorney General Rod Rosenstein pledged an enforcement environment in which businesses can thrive. In keynote remarks at the U.S. Chamber Institute for Legal Reform, he emphasized the Department of Justice’s (DOJ) commitment to “avoiding unnecessary interference in law-abiding enterprises.” Rosenstein also promoted the benefits of corporate compliance and self-reporting.

Although allegedly offering “no breaking news” about DOJ policies, Rosenstein’s vision provides insight into DOJ’s enforcement and compliance expectations. At a minimum his comments shed light on how DOJ will implement existing policies differently while he is second in charge at DOJ. These changes may dramatically impact resolution of future investigations.

Rosenstein offered apparent slights to the prior administration’s enforcement practices. For instance, he remarked that “[c]orporate enforcement and settlement demands must always have a sound basis in the evidence and the law.” DOJ “should never use the threat of federal enforcement unfairly to extract settlements.” These sentiments seem to respond to concerns expressed by those who object to DOJ’s tactics in the realm of the Foreign Corrupt Practices Act (FCPA).

Rosenstein emphasized that new DOJ leadership will reward businesses that self-report and cooperate with federal investigations. Although recognizing barriers to voluntarily disclosing internal wrongdoing, Rosenstein cited the benefits that DOJ can offer. “The Department can move forward not only to punish wrongdoers, but also to identify and implement policies that deter future crimes.” This will prevent those who compete unfairly from gaining any advantage.

A company’s choice to promptly self-report will affect DOJ’s enforcement decisions favorably. Further, DOJ “notices and evaluates carefully whether a corporate compliance program is applied faithfully.” Rosenstein acknowledged that certain compliance measures and cooperation might go beyond a company’s legal obligations. He warned, however, that a company thrives in the long term by working with, not against, the Department.

The newly established Working Group on Corporate Enforcement and Accountability will increase compliance efforts and protect those that “follow the rules.” The Working Group will offer recommendations on promoting individual accountability and corporate cooperation. Additionally, DOJ will evaluate whether the Financial Fraud Enforcement Task Force and the FCPA Pilot Program meet current needs.

Rosenstein also plans to clean up DOJ’s administrative landscape. He highlighted DOJ’s work to “reduce regulations and to control costs,” making it easier for companies to understand their obligations and comply with them. Rosenstein cited outdated and unnecessarily confusing policy guidance as a barrier to effective enforcement. He committed to updating the U.S. Attorneys’ Manual by consolidating and incorporating the outstanding policy memoranda. He also supported President Trump’s January 2017 Executive Order requiring two administrative regulations be identified for repeal for each new one proposed. Rosenstein claimed that making DOJ’s policies cleaner and more accessible will be good for DOJ as well as good for business.

Whether major policy changes are forthcoming remains to be seen, but from this and other recent speeches, it is clear that Rosenstein does not see the future as business as usual.

 


Mexico’s Anticorruption Legislation – Part 3

0
0

Mexico’s anticorruption legislation requires a strong corporate compliance program. In the third of his posts about the Mexican National Anticorruption System, Jose Martin explains effects of the law on compliance. Read the full post here.

Yahoo Fined Millions by SEC for Failing to Disclose Cybersecurity Breach

0
0

cybersecurity breachIn late April, the U.S. Securities and Exchange Commission (SEC) hit Yahoo with a $35 million dollar fine for failing to properly assess and disclose a 2014 data breach that affected more than 500 million user accounts. The case marks the first time the SEC has charged a public company with cybersecurity-related disclosure violations and serves as a reminder that the SEC remains laser-focused on cybersecurity issues.

Read our full client alert  here.

So You Think Tailored FCPA Training Does Not Matter? – Think Again

0
0

ComplianceAsk the bank that just paid the SEC more than $ 6 million for failing to adequately train its Asia Pacific Region (APAC) personnel on antibribery with respect to hiring practices.  The bank had policies against hiring personnel in exchange for business, but, according to the SEC’s order, the company “failed to effectively train APAC employees or monitor their compliance with those policies…. APAC bankers and compliance personnel lacked familiarity with and understanding of [the company’s] anti-bribery and corruption policies, particularly as those policies relate to hiring.” SEC Order in Administrative Proceeding File No. 3-19537.

Andrew Gentin, acting Assistant Chief of the DOJ’s FCPA Unit, recently spoke about the importance of compliance programs, including the necessity of customizing training to employees’ particular job responsibilities, at the Society of Corporate Compliance and Ethics’ 18th Annual Compliance & Ethics Institute in September.  “What we see a lot is companies coming in and presenting these really impressive statistics, like 99.2% of this group has training… That doesn’t tell us much.  We need to know that the training is well tailored to the specific function.”  An example he gave was that sales people working in high-risk jurisdictions require more sophisticated training than sales people working in the U.S.

The government’s emphasis on tailored training is not new. In the FCPA Resource Guide released by the DOJ and SEC in 2012, the agencies described training as being a critical part of a company’s compliance plan.  They stated in the Resource Guide:

Compliance policies cannot work unless effectively communicated throughout a company. Accordingly, DOJ and SEC will evaluate whether a company has taken steps to ensure that relevant policies and procedures have been communicated throughout the organization, including through periodic training and certification for all directors, officers, relevant employees, and, where appropriate, agents and business partners. For example, many larger companies have implemented a mix of web-based and in-person training conducted at varying intervals. Such training typically covers company policies and procedures, instruction on applicable laws, practical advice to address real-life scenarios, and case studies.  Regardless of how a company chooses to conduct its training, however, the information should be presented in a manner appropriate for the targeted audience, including providing training and training materials in the local language. For example, companies may want to consider providing different types of training to their sales personnel and accounting personnel with hypotheticals or sample situations that are similar to the situations they might encounter. Resource Guide at 59 (emphasis added).

The DOJ’s Justice Manual also addresses training specifically.  It provides that a hallmark of a well-designed compliance program is appropriately tailored training and communications.  The DOJ stated on pages 4-5 in its April 2019 guidance on Evaluation of Corporate Compliance Programs:

Prosecutors should assess the steps taken by the company to ensure that policies and procedures have been integrated into the organization, including through periodic training and certificate for all directors officers, relevant employees, and, where appropriate, agents and business partners.  Prosecutors should also assess whether the company has relayed information in a manner tailored to the audience’s size, sophistication, or subject matter expertise.  Some companies, for instance, give employees practical advice or case studies to address real-life scenarios, and/or guidance on how to obtain ethics advice on a case-by-case basis as needs arise.  Prosecutors should also assess whether the training adequately covers prior compliance incidents and how the company measures the effectiveness of its training curriculum.

Prosecutors, in short, should examine whether the compliance program is being disseminated to, and understood by, employees in practice in order to decide whether the compliance program is “truly effective.”  JM 9-28.800.

Tips for FCPA Training

Given the guidance from the DOJ and SEC and the lessons learned from recent cases, here are some training tips:

  • Examine where the company’s greatest risks of FCPA violations exist (e.g., sales and marketing; foreign government licensing and permits; third-party agents, distributors and consultants; subsidiaries’ and affiliates’ operations outside the U.S.).
  • Interview employees in those areas where interaction with foreign officials occurs and discuss real-life examples of scenarios they face when conducting the company’s business.
  • Create hypotheticals based on the real-life-scenarios to present in training sessions, accompanied by instruction on how to handle such situations in a lawful manner so as not to violate the FCPA or the anti-bribery laws of that country.
  • Conduct the discussions in the native language of the company’s employees.
  • Review the elements of the FCPA in the training sessions.
  • Make the training sessions mandatory and take attendance.
  • Require training certifications following the training session.
  • Determine whether training should be annual or bi-annual.
  • Schedule training on the FCPA for the company’s officers, directors, and upper management appropriate for their respective roles in the company.
  • Design a methodology for monitoring performance of FCPA compliance in a way that rewards compliance and punishes non-compliance.
  • When problems occur, repeat and/or revise the training to address the problems, so everyone can learn from them.

The post So You Think Tailored FCPA Training Does Not Matter? – Think Again appeared first on The Anticorruption Blog.

SBA PPP FORGIVENESS APPLICATION PROVIDES GUIDANCE FOR LENDERS AND BORROWERS

0
0

On May 15, 2020, the Small Business Administration (SBA) released the long-awaited Paycheck Protection Program (PPP) Loan Forgiveness Application.  Congress established the PPP as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), and the PPP is a key pillar in the Government’s response to the economic consequences of the COVID-19 pandemic.  The PPP allows eligible businesses to borrow up to ten weeks of payroll costs on favorable terms from private lenders, with the balance of the loan guaranteed by the SBA.

A key feature of the PPP is the opportunity for qualifying borrowers to have the loan balance forgiven provided the borrower’s use of the disbursed funds satisfies certain criteria.  For weeks, lenders and borrowers alike have sought clarity on the precise contours of loan forgiveness, including calculating the “covered period” for the loan, the treatment of certain non-payroll expenses, the SBA’s threshold for auditing PPP disbursements, record-keeping requirements, and the documents that will be required in submitting an application for forgiveness.

The loan application provides significant clarity on many of these questions, which we discuss in detail below.  Read in combination with existing guidance from the SBA, the application will provide borrowers with sufficient information to begin preparing to apply for forgiveness.

I.    The PPP and Prior Guidance on Loan Forgiveness

 From the outset, both Congress and the SBA made clear that loan forgiveness was available for PPP disbursements, if the borrowed funds were used by the borrower for certain eligible expenses.  The SBA’s Frequently Asked Questions (FAQ) on the PPP allows borrowers to seek forgiveness for all payroll costs paid over eight weeks beginning on the date the SBA lender made the first disbursement on the loan.[1]  The forgiven amount may include all federal payroll taxes,[2] applies to all full-time and part-time employees,[3] and if a borrower laid off employees during the eight-week period, the borrower may still receive forgiveness for reduced payroll costs if the borrower laid off a full-time equivalent employee, made an offer to re-hire the employee, and the offer was declined.[4]

The FAQ also indicates that the SBA will individually review all applications for forgiveness where the loan amount exceeded $2 million.[5]  Importantly, the FAQ makes clear that SBA review of loan files will not affect the SBA’s guarantee of the loan,[6] provided the lender complied with its obligation to perform a “good faith” review of the borrower’s documentation for the loan, including calculations and supporting documents regarding average monthly payroll cost.[7]

II.    The PPP Loan Forgiveness Application

The PPA Loan Forgiveness Application is comprised of four sections: (1) the PPP Loan Forgiveness Calculation Form, (2) PPP Schedule A, (3) the PPP Schedule A Worksheet, and (4) the optional PPP Borrower Demographic Information Form.  The Borrower must fill out the application and submit it to the lender that provided the PPP loan.

The application and its accompanying instructions clarify a number of outstanding issues regarding PPP loan forgiveness.  These include:

  • Alternative Payroll Covered Periods

Many PPP borrowers offer biweekly or more frequent pay schedules that do not fit neatly into the SBA’s Covered Period, the eight weeks beginning on the date of loan disbursement.  For such borrowers, the application indicates that in applying for loan forgiveness, the borrower may use an Alternative Payroll Covered Period, which is an eight-week period that begins with the first day of the first payroll period following the disbursement of the loan.[8]

  • Eligible Non-Payroll Expenses

The application confirms prior SBA guidance that a borrower must use at least seventy-five percent of the PPP loan to support payroll costs to be eligible for forgiveness.[9]  These expenses must be paid or incurred during the eight weeks following the disbursement of the loan.  Importantly, such expenses cannot be incurred during the “Alternative Payroll Covered Period” discussed above.[10]  In other words, while a business may seek forgiveness for payroll expenses that began, for example, one week after the funds were disbursed, and continued for eight weeks, non-payroll expenses must be incurred in the eight-week period beginning on the date that the loan was disbursed.

Eligible non-payroll expenses can include business mortgage interest payments, rent or lease payments for real or personal property, and business utility payments.[11]  To be eligible for forgiveness, such payments must be made during the eight-week Covered Period, or incurred during the Covered Period, and paid on or before the next billing date.[12]

  • Reductions in Loan Forgiveness Due to Terminations or Layoffs

In applying for a PPP loan, borrowers are required to calculate the eligible amount, by averaging payroll costs for the past calendar year, through February 15, 2020.  The PPP Schedule A and Schedule A worksheet require borrowers to provide all information related to compensation for all employees who were employed at any point during the Covered Period or Alternative Payroll Covered Period.[13]  Additionally, the Borrower must calculate the average full-time equivalency (FTE) during the Covered Period or Alternative Payroll Covered Period.  The Borrower must calculate the average FTE because the actual loan forgiveness amount may be reduced depending on whether the Borrower’s average weekly number of FTE employees during the Covered Period was less than during the Borrower’s chosen reference period, due to layoffs, terminations, or an employee’s resignation.[14]

The application also provides an “FTE Reduction Safe Harbor”.  If an employer reduced the number of FTE employees between February 15, 2020 and April 26, 2020, but ultimately restores its level of FTE employees by June 30, 2020, the loan forgiveness amount will not be affected by the FTE reduction.[15]

  • Supporting Documentation Requirements

The application requires borrowers seeking forgiveness to provide the lender with a number of documents.  These include (1) bank statements or statements from a third-party payroll provider for the periods that overlap with the Covered Period or Alternative Payroll Covered Period; (2) payroll tax filings reported; (3) state quarterly business and individual wage reporting and unemployment insurance tax filings reported or to be reported; and (4) payment receipts, cancelled checks, or account statements that document the amount of employer contributions to employee health insurance and retirement plans that were included in the forgiveness amount.[16]

Borrowers are also required to document (1) the average number of FTE employees on payroll per month, from February 15, 2019 to June 30, 2019; and (2) the average number of FTE employees on payroll per month, from January 1, 2020 through February 29, 2020.[17]  As to the latter requirement, if an employer is a seasonal business, an employer may substitute the average number of FTE employees for any consecutive twelve-week period between May 1, 2019 and September 15, 2019.[18]  Borrowers must also document the existence of any business mortgage payments, business rent or lease payments, and businesses utility payments, by providing statements or receipts from February, 2020, and from any payments made during the Covered Period that are included in the forgiveness amount.[19]

  • Record Retention Requirements

Borrowers are also required to retain additional records.  These include (1) documentation supporting the listing of each individual employee identified in the forgiveness application, (2) documentation of any employee job offers, refusals, firings for cause, voluntary resignations, or written requests for a reduced work schedule, and (3) documentation supporting the FTE Reduction Safe Harbor.[20]  Borrowers must retain these records, along with all materials submitted to the SBA, for six years from the date the loan is either forgiven, or paid in full.[21]

  • Determinations of Ineligibility

The application also shines some light on how the SBA will proceed if a borrower is determined to be ineligible for loan forgiveness. The application reflects that in that event, the SBA “may direct a lender” to disapprove the request for forgiveness.[22]

III.    Key Takeaways

While the application does provide much-needed clarity on the loan forgiveness process, many questions remain unanswered.  In particular, lenders continue to raise concerns about how the SBA will approach the “good faith” review standard for loans that are determined to be ineligible for forgiveness due to borrower error.

For borrowers, the application provides a timely notice of the need to maintain comprehensive documentation regarding disbursed PPP loans.  Borrowers should also view the application as a reminder that while loan forgiveness is possible, it is not guaranteed; and borrowers should carefully review their original loan application materials while preparing the application for forgiveness.

[1] See SBA FAQ, Question 20, available at https://www.sba.gov/sites/default/files/2020-05/Paycheck-Protection-Program-Frequently-Asked-Questions_05%2019%2020.pdf.

[2] See id. at Question 16.

[3] See id. at Question 36.

[4] See id. at Question 40.

[5] See id. at Question 39.

[6] See id.

[7] See id., at Question 1.

[8] See SBA Loan Forgiveness Application, available at https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf, at 1.

[9] See id. at 2.

[10] See id.

[11] See id.

[12] See id.

[13] See id. at 7-8.

[14] See id.

[15] See id. at 8.

[16] See id. at 10.

[17] See id.

[18] See id.

[19] See id.

[20] See id.

[21] See id.

[22] See id. at 4.

The post SBA PPP FORGIVENESS APPLICATION PROVIDES GUIDANCE FOR LENDERS AND BORROWERS appeared first on The Anticorruption Blog.

The White House Directs Federal Agencies to Focus on Fairness in Investigations and Enforcement

0
0

On May 19, 2020, in response to the COVID-19 pandemic, President Trump signed Executive Order 13924, to provide regulatory relief for entities economically impacted by the pandemic.  Section 6 of the Executive Order directed agencies to revise their procedures and practices in administrative investigations and enforcement in light of certain enumerated principles of fairness.  It also required the Director of the Office of Management and Budget (OMB), in consultation with the Assistant to the President for Domestic Policy and the Assistant to the President for Economic Policy, to issue memoranda needed to guide implementation of the EO.  On August 31, 2020, OMB issued such a memorandum, providing guidance on the implementation of Section 6.

OMB’s memorandum outlines a list of best practices for federal agencies to consider as they review and revise existing investigation and enforcement procedures.  In general, these best practices appear to be geared toward enhancing fairness in administrative enforcement.  They include, among others:

  1. Agencies should read any genuine statutory or regulatory ambiguities related to administrative violations and penalties in favor of the targeted party.
  2. Penalties should be proportionate, transparent, and follow consistent standards. Agencies should decline enforcement when the regulated party attempted in good faith to comply with the law.
  3. Administrative enforcement should be prompt, fair, and transparent. Tolling agreements should be disfavored, and agencies should publicize the conditions in which investigations and enforcement will occur.
  4. The Government should bear the burden of proving an alleged violation of law; the subject of enforcement should not bear the burden of proving compliance.
  5. The Government should provide favorable evidence in possession of the agency, including evidence material to the mitigation of damages or penalties, to the subject of an administrative enforcement action.
  6. All rules of evidence and procedure should be public, clear, and effective. Agencies should seek to reduce the use of hearsay evidence, with limited exceptions, and should utilize the framework in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), to determine the veracity of scientific evidence.
  7. Administrative enforcement should not be based upon improper government coercion, or retaliatory or punitive motives.
  8. Liability should be imposed only for violations of statutes or duly issued regulations, after notice and an opportunity to respond. This requires that documents initiating investigation or enforcement include citations to the statutes or regulations at issue, along with an explanation as to how the asserted conduct is prohibited.
  9. Agencies must be accountable for their administrative enforcement decisions. Investigations and enforcement actions should be approved by an agency official who is an Officer of the United States (i.e., an agency official with significant authority), and agencies should periodically publish data regarding their enforcement adjudications, including, for example, the number of matters pending with the agency over relevant time periods and the types of matters adjudicated by the agency.

In many respects, the “best practices” outlined by OMB reaffirm settled principles of law and well established agency enforcement rules (e.g., that the government bears the burden of proof and that agencies must notify parties of the alleged violations and provide an opportunity to respond).  That said, OMB’s guidance may provide helpful ammunition to regulated persons and entities in their dealings with the enforcement arms of federal agencies.  In particular, the memorandum’s instruction that agencies should decline enforcement when the regulated party attempted in good faith to comply with the law may provide additional support to “good faith” defenses.  Several of the instructions would be contrary to the established regulations or case law at many enforcement agencies.  For example, evidence rules in agency adjudications are often more accepting of hearsay, and more open to a range of expert testimony, than under court rules.  The direction that an agency should provide favorable evidence in its possession already exists in criminal cases, but extending it to civil enforcement would be of great value in defending those cases.

Thus, the guidance is a mix of statements that describe principles that are already in place, instructions that would require legal changes at some agencies, and directions that agencies can incorporate immediately into their enforcement practices, but that may be hard to measure.  Whether the memorandum actually impacts administrative enforcement programs remains to be seen.  Still, when you are facing off with the government, it is always good to use the government’s own policies to support your arguments when possible, and OMB’s memo may prove helpful in that respect.

 

The post The White House Directs Federal Agencies to Focus on Fairness in Investigations and Enforcement appeared first on The Anticorruption Blog.

FinCEN and Federal Reserve Seek Comments on Proposed Amendments to the Recordkeeping and Travel Rules

0
0

healthcare moneyOn October 23, 2020, the Board of Governors of the Federal Reserve System (the ‘‘Board’’) and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) (collectively, the “Agencies”) issued a joint Notice of Proposed Rulemaking (“NPRM”) soliciting public comment on questions relating to potential amendments to Bank Secrecy Act (“BSA”) regulations. The proposed amendments seek to modify the existing Recordkeeping Rule and Travel Rule by:

  • Lowering the requirement to collect, retain, and transmit information on funds transfers and transmittals of funds from $3,000 to $250 for transactions that begin or end outside the United States; and
  • Superseding the existing definition of money to include convertible virtual currencies (“CVCs”).

These proposed changes, especially the change to the definition of money, could significantly impact financial institutions’ BSA compliance requirements. The NPRM follows guidance issued by FinCEN in May 2019 indicating that CVC transfers by a nonbank financial institution could fall under the Recordkeeping and Travel Rules.  The proposed rule would implement FinCEN’s guidance subject to the Agencies consideration of the comments received.

Background

On January 3, 1995, the Agencies jointly issued the Recordkeeping Rule[1] requiring banks and nonbank financial institutions to collect and retain information related to funds transfers and transmittals of funds in amounts of $3,000 or more. At the same time, FinCEN issued the Travel Rule[2] that requires banks and nonbank financial institutions to transmit information on certain funds transfers and transmittals of funds to other banks or nonbank financial institutions participating in the transfer or transmittal. The proposed changes discussed below would amend both the Recordkeeping Rule and the Travel Rule.

Proposed Amendments

  1. Lowering of Threshold From $3,000 to $250 for International Funds Transfers and Transmittals of Funds by Financial Institutions

The Agencies are proposing to lower the value threshold under the Recordkeeping Rule, and FinCEN is proposing to lower the threshold under the Travel Rule, from $3,000 to $250 for cross-border funds transfers and transmittals of funds. The Agencies believe that these changes will benefit national security and facilitate law enforcement’s efforts to detect illegal activity because evidence indicates that a substantial amount of illicit international activity, particularly terrorism financing, occurs below the $3,000 threshold.  According to the NPRM, these changes are supported by the Department of Justice’s Money Laundering and Asset Recovery Section and are consistent with recommendations by the Financial Action Task Force (“FATF”).

The Agencies are seeking comment from financial institutions on the following questions:

  • To what extent the proposed rule would impose a burden on financial institutions, including with respect to information technology implementation costs?
  • To what extent would the burden be mitigated if nonbank financial institutions did not have to collect a social security number or employer identification number for non-established customers engaging in transmittals of funds between $250 and $3,000 that begin or end outside the United States?
  • To what extent would the burden be reduced if the Agencies issued specific guidance about appropriate forms of identification to be used in conjunction with identity verification?
  • To what extent would the burden be mitigated if the Agencies were to include the standard for determining when an institution would be subject to the $250 threshold for cross-border transfers, including what would satisfy the “reason to believe” standard?
  1. Applying the Recordkeeping and Travel Rules to Digital Assets That Have Legal Tender Status and Convertible Virtual Currency

The existing Recordkeeping and Travel Rules mirror the definition of money as provided by the Uniform Commercial Code—“a medium of exchange currently authorized or adopted by a domestic or foreign government.’’ However, since development of the Rules, CVCs such as Bitcoin and Ethereum, have grown in popularity and bad actors have capitalized of the proliferation of opportunities to use these currency equivalents to evade United States laws and regulations.  In response to similar developments globally, FATF has advised that countries should consider virtual assets as “property,” “proceeds,” “funds,” “funds or other assets,” or other “corresponding value” and should apply relevant FATF anti-money laundering/counter-terrorist-financing measures to virtual assets.

Accordingly, the proposed amendments seek to modify the definition to money to be more inclusive. The amendments would modify the definition of money to include “a medium of exchange currently authorized or adopted by a domestic or foreign government, including any digital asset that has legal tender status in any jurisdiction,” and “a medium of exchange (such as cryptocurrency) that either has an equivalent value as currency, or acts as a substitute for currency, but lacks legal tender status.”

The Agencies are seeking comment from financial institutions on the following questions:

  • What would be the additional cost, if any, to comply with the Recordkeeping Rule and Travel Rule in light of the clarification included in the proposed rule, including with respect to information technology costs?
  • What mechanisms have persons that engage in CVC transactions developed to comply with the Recordkeeping Rule and Travel Rule and what is the impact of adopting these solutions on the CVC industry, including on other BSA compliance efforts?

Why These Proposed Changes Matter

The proposed amendments potentially create additional burdens for financial institutions to comply with BSA requirements. While lowering the dollar threshold and including certain digital assets and virtual currencies may yield additional information of value to law enforcement, this will also significantly increase the number of transactions that will now become subject to the Recordkeeping and Travel Rules.

The Agencies are expressly requesting comments from interested parties in the financial industry to help tailor the proposed amendments such that they accomplish the desired law enforcement purpose, but do so in a way that minimizes the additional burden on financial institutions. Additionally, all financial institutions will be required to evaluate and update their BSA programs based on the rules the Agencies ultimately implement. Every financial institution should therefore take advantage of the invitation to provide input on these proposed changes that will shape their compliance obligations for years to come.

How Squire Patton Boggs Can Help

With our leading financial crimes defense and compliance, financial services, and public policy practices, Squire Patton Boggs is uniquely qualified to help clients craft compelling comments that highlight their perspective on the proposed changes. From our time in a number of key government agencies (including DOJ’s Bank Integrity Unit, the Securities and Exchange Commission, the OCC, and Congress, among others), our frequent interactions with regulators regarding BSA matters, and our many years as private practitioners handling BSA/AML and sanctions compliance and enforcement issues, we have extensive experience assisting clients in advocating their positions to government agencies, particularly those related to BSA/AML and sanctions. Squire Patton Boggs attorneys are well versed in developing compelling comments to FinCEN because we routinely advise clients on the design, implementation, and evaluation of BSA/AML compliance programs and defend the sufficiency of BSA/AML programs in enforcement matters.

Interested parties must submit written comments on the proposed amendments on or before November 27, 2020.

Squire Patton Boggs can help provide strategic advice, evaluate priorities for response, and draft effective comments. Please contact any member of our team with any questions regarding the NPRM or the public comments submission process.

 

[1] The Recordkeeping Rule is codified at 31 CFR 1020.410(a) and 1010.410(e).

[2] The Travel Rule is codified at 31 CFR 1010.410(f).

The post FinCEN and Federal Reserve Seek Comments on Proposed Amendments to the Recordkeeping and Travel Rules appeared first on The Anticorruption Blog.

The Fine Art of Money Laundering: The Treasury Department’s Study on Money Laundering and Terrorist Financing in the Art Trade

0
0

The National Defense Authorization Act for Fiscal Year 2021 (“NDAA”) became law early in 2021, after a congressional override of then-President Trump’s veto. Division F of the NDAA consists of the Anti-Money Laundering Act of 2020 (“AMLA”). The AMLA expands numerous Bank Secrecy Act (“BSA”) requirements, and amends the BSA’s definition of “financial institution” to include persons “engaged in the trade of antiquities.”[1] Section 6110(c) of the AMLA also requires the Secretary of the Treasury, in coordination with the Director of the Federal Bureau of Investigation, the Attorney General, and the Secretary of Homeland Security, to perform a study of the facilitation of money laundering and the financing of terrorism (“ML/TF”) through the trade in works of art. The Department of the Treasury released its report in February 2022, containing the findings and determinations made in carrying out the required study.

I.  Scope of the Study

The study focuses on high-value art, such as paintings, drawings, and sculptures that are sold in traditional, in-person art market venues, or online through certain marketplaces, and digital art sold through internet marketplaces.

The study evaluates the extent to which this type of high-value art is susceptible to ML/TF by illicit actors.

II.  Current Regulatory Framework

Though they are not subject to AML/CFT obligations, participants in the U.S. art market are subject to certain general reporting requirements.

First, art industry participants that are not financial institutions are required to report large currency and monetary instrument transactions.

Second, all U.S. persons must comply with Office of Foreign Assets Control (“OFAC”) regulations. OFAC defines U.S. persons to include all U.S. citizens and lawful permanent residents regardless of where they are located, all individuals and entities within the United States, and all U.S. incorporated entities and their foreign branches. While OFAC generally exempts transactions related to sanctioned countries that involve “the importation from any country, or the exportation to any country…of any information or informational materials, including but not limited to…artworks,”[2] the agency does not interpret this exemption to allow blocked persons or their facilitators to evade sanctions by exchanging financial assets for high-value artwork or vice versa.[3] Further, OFAC has stated it will apply its sanctions to transactions involving artworks in which a blocked person has an interest, to the extent the artwork functions primarily as an investment asset or medium of exchange.[4]

The study revealed that most art market participants are not mandated by federal regulations to maintain AML/CFT programs. Nevertheless, many maintain voluntary programs that include procedures for collecting information on customers. Though not legally mandated, adoption of these voluntary programs appears to be a best practice in the industry for high-value art. However, the lack of regulatory requirements for such programs also means that government authorities cannot take administrative or enforcement actions when such programs are ineffective or nonexistent.

While some art market participants may provide information in response to informal law enforcement requests, this is at the discretion of individual art market participants. There may be few other legal mechanisms for obtaining customer information other than a subpoena or court order. Based on these facts and the evidence presented throughout the rest of the study, Treasury concluded that there is some evidence of ML risk in the high-value art market and little evidence of TF risk.

III. Vulnerabilities of the Art Market

Several factors attract illicit actors to the art market. Specifically, the high-dollar values of single transactions, the ease of transporting works of art, the long-standing culture of privacy in the market including private sales and transactions where prices are subjective or can be manipulated, and the increasing use of art as an investment or financial asset all contribute to the ML vulnerabilities of art.

IV. Recommendations

The study provides recommendations to stem illicit actors’ abuse of the art market. For example, Treasury should consider encouraging the creation and enhancement of private sector information-sharing programs to foster transparency among art market participants and updating guidance and training for law enforcement, customs enforcement, and asset recovery agencies. From a regulatory perspective, Treasury should consider (i) using FinCEN recordkeeping authorities to support information collection and enhanced due diligence; and (ii) obligating certain art market participants to create and maintain AML/CFT programs.

The study also addresses whether AML/CFT requirements should be applied to the high-value art market.  While the study acknowledges that high-value art and the market in which it is traded can be abused to launder funds, it concludes that any imposition of additional regulatory obligations on the sector should be made while considering other gaps and vulnerabilities in the U.S. AML/CFT regime that Treasury has already prioritized (such as high-risk real estate transactions).  The study recommends that Treasury first complete any ongoing work to close outstanding gaps in the U.S. AML/CFT regime related to beneficial ownership, real estate, and potentially investment advisers and nonfinancial gatekeepers prior to potentially turning to the high-value art market.

 

[1] See Section 6110 of the AMLA.  FinCEN has issued an Advance Notice of Proposed Rulemaking to solicit public comment on a range of questions related to the implementation of amendments to the BSA regarding the trade in antiquities. 86 Fed. Reg. 53,021 (Sept. 24, 2021).

[2] See 50 U.S.C. § 1702(b)(3); 50 U.S.C. § 4305(b)(4).

[3] See U.S. Department of the Treasury, “Advisory and Guidance on Potential Sanctions Risks Arising from Dealings in High-Value Artwork,” October 30, 2020, https://home.treasury.gov/system/files/126/ofac_art_advisory_10302020.pdf.

[4] Id.

The post The Fine Art of Money Laundering: The Treasury Department’s Study on Money Laundering and Terrorist Financing in the Art Trade appeared first on The Anticorruption Blog.


New Law Requires 72-Hour Notice for Cyber Incidents

0
0

We recently shared a timely post on Consumer Privacy World that, given the focus of, we wanted to call to your attention.

“President Biden has recently delivered on a long stated priority of his presidency: requiring the disclosure of cyber security incidents for companies that operate critical infrastructure. After announcing an executive order in May 2021 aimed at modernizing the federal government’s cybersecurity practices, the same sweeping changes will now effect private companies that operate critical infrastructure. At the time of the executive order, some noted that the recent string of high profile ransomware attacks was leading to a bipartisan effort to require disclosures of such incidents by those effected in the private sector. Indeed, Congress has acted quickly in codifying disclosure requirements for those that operate critical infrastructure.”

Check out the full blog here.

The post New Law Requires 72-Hour Notice for Cyber Incidents appeared first on The Anticorruption Blog.

Slavery in Supply Chains

0
0

 Squire Patton Boggs  has published its first edition of the Commodities & Shipping Group’s (CSG) Quarterly Update.  The topic we chose to focus on for this publication is  slavery in supply chains.

The Global Survey Index reports over 45.8 million people are subject to modern slavery (26% of whom are children, and 55% are women and girls).  The statistics are not only sobering, they have attracted global attention and understandably raised alarm.

Read our full article here.

The post Slavery in Supply Chains appeared first on The Anticorruption Blog.

Series: Types of Industrial Espionage

0
0

Industrial espionage refers to various activities performed to gain an unfair competitive advantage, rather than for national security purposes.  As we discussed in a previous article, the ways in which industrial espionage can affect a company are numerous and include theft of trade secrets and disruption to operation.

Section 1832 of the Economic Espionage Act of 1996 (the “Act”) criminalizes the theft of trade secrets “intended for use in interstate or foreign commerce, to the economic benefit of anyone other than the owner.”  The trade secret owner is required to take “reasonable measures” to keep the information secret.  For individuals, convictions in violation of 18 U.S.C. § 1832 can result in a prison sentence of up to 10 years or a monetary penalty, or both.  For organizations, the fine may be “not more than the greater of $5,000,000 or 3 times the value of the stolen trade secret . . . including expenses for research and design and other costs of reproducing the trade secret.”  Section 1832 requires that the products be “produced for” or “placed in” interstate or foreign commerce.

Before the passage of the Defend Trade Secrets Act of 2016 (“DTSA”), which amends the Act to include a federal civil cause of action for the misappropriation of trade secrets, companies relied on state civil laws for the misappropriation of trade secrets, or an independent federal cause of action to seek redress for the misappropriation of trade secrets.  Currently, 48 states and the District of Columbia, Puerto Rico and the U.S. Virgin Islands have enacted some form of the Uniform Trade Secrets Act (“UTSA”).  New York and North Carolina are the only states that have not enacted some form of the UTSA.  The DTSA does not preempt existing state trade secrets laws, but provides companies another option for filing suits in federal court. A further discussion of the available remedies to affected entities will be examined in a subsequent blog post.

Cyberattacks

While cyberattacks (e.g. malware, ransomware, and denial of service attacks) can be used to collect confidential company information, they  can also be used to disrupt a company’s computer system(s) for commercial gain.

In 2017, River City Media, LLC, a Wyoming corporation that engages in internet-based marketing, alleged, among other things, that Kromtech Alliance Corporation, CXO Media Inc., International Data Group Inc., and related individuals, systematically infiltrated their data network, illegally gained access to their databases without authorization, and then copied, modified, and damaged its confidential, sensitive, and propriety information, in violation of Section 1832 of the Act.  River City Media, LLC. v. Kromtech All. Corp., No. 2:17-cv-00105-SAB, 2017 U.S. Dist. LEXIS 137938 (E.D. Wash. Aug. 28, 2017).

River City alleged that a then-unknown threat actor connected to one of its servers that was used to monitor River City’s network for potential intruders. The threat actor destroyed data that mapped River City’s network, thereby hamstringing River City’s ability to detect and stop additional cyberattacks.  Further, the threat actor accessed River City’s: (1) company email accounts; (2) Dropbox.com account; (3) accounts for affiliate networks; (4) PayPal accounts; and (5) its email service provider accounts.  River City alleged that the defendants used the data obtained by the cyberattack to attack and damage River City’s reputation via media and blog postings.  The parties settled the dispute prior to trial.

Disgruntled Employee

An outgoing employee can download or copy proprietary information and sell that information to a competitor or engage in unfair competition. In United States v. Lange, Matthew Lange was sentenced to thirty months in prison for violating Section 1832 of the Act.  312 F.3d 263 (7th Cir. 2002).  Lange was a former employee of Replacement Aircraft Parts Co. (“RAPCO”) accused of stealing and offering to sell computer data from RAPCO.  The computer data included computer-assisted drawing (“CAD”) information required to obtain certification of several components as identical to parts for which RAPCO held certification.  RAPCO stored all of its drawings and manufacturing data in its CAD room, which was protected by a special lock, an alarm system, and a motion detector.  Further, the number of copies of sensitive information was kept to a minimum and surplus copies were shredded.  Although engineers and drafters knew how to access the CAD room, the court held that RAPCO took “reasonable measures” to keep the information secret because the employees needed access to perform their jobs.

Garbage

One person’s trash may be another person’s treasure, but not in cases of economic espionage where “reasonable measures” are taken to keep the information secret and the information is used for an economic benefit.  In Novell, Inc. v. Weird Stuff, Inc., Novell, a company engaged in developing, manufacturing, and distributing various types of computer hardware and software, sued Mark and Rick Gold (the “Gold Brothers”) and Weird Stuff, Inc. for trademark infringement, copyright infringement, and false designation of origin in connection with its NetWare software. NO. C92-20467 JW/EAI, 1993 U.S. Dist. LEXIS 6674 (N.D. Cal. May 14, 1993).

The Gold Brothers were in the business of salvaging and reselling discarded software.  They admitted to retrieving 1,700 NetWare software disks from a dumpster located behind the manufacturing facility of Novell’s manufacturer.  The retrieved disks were sold to Weird Stuff, which was not an authorized reseller of Novell’s NetWare software.  Subsequently, Weird Stuff entered into a contract with a computer company for over 70 times the amount that Weird Stuff paid for the NetWare software.  The contract could be canceled if the disk could not be upgraded, because Weird Stuff was aware that Novell’s cooperation was required for an upgrade.  Novell learned of the disks when the computer company inquired about upgrades and an internal audit revealed that the serial numbers of the disks should have been scrapped.  The court found no genuine issue as to any material facts and granted summary judgment on Novell’s claims for trademark infringement, copyright infringement, and false designation of origin.

Hiring Away

Competitors frequently hire away employees from companies to gain the employee’s knowledge while working for competitors. Typically, the employee’s knowledge relates to industry standards, which can be legitimately transferrable, but an employee’s or executive’s knowledge of critical or proprietary information can cross the line.  In Magnesita Refractories Co. v. Tianjin New Century Refractories Co., Magnesita Refractories Company (“Magnesita”) alleged, among other things, that its former employee, Donald Griffin, misappropriated its trade secrets in violation of the DTSA.  No. 1:17-CV-1587, 2019 U.S. Dist. LEXIS 32559 (M.D. Pa. Feb. 28, 2019).

Griffin held several positions supervising the research and development of Magnesita’s products related to refractory materials for producers of cement, glass, steel, and other metals.  As a term of employment, Griffin acknowledged receipt of and agreed to Magnesita’s Code of Ethics, which extensively defines confidential information and prohibits distributing confidential information to third parties.  Magnesita alleged that during his assignment abroad as Technology Director, Griffin made contact with the Foreign-based co-defendants, one of whom owned a subsidiary located in the U.S. that competed directly with Magnesita.  Following Griffin’s return to the U.S., he retired from Magnesita and allegedly forwarded trade secrets and confidential information to his personal email, in addition to copying propriety information to an external drive before his retirement.  Griffin was subsequently hired by the co-defendants.  After learning that Griffin had not fully retired, Magnesita uncovered the forwarded e-mail.  The parties settled the case before trial.

Intellectual Property Theft

IP theft includes the theft of technical documents and drawings, source code, pricing sheets, manufacturing processes, customer lists, and marketing strategy.  Unauthorized access to these materials can be the result of cyberattacks or an employee copying the information.  In 2001, a judge ordered that software company Avant! Corp. pay $195 million in restitutions to rival software company Cadence Design Systems.  See Cadence Design Sys. v. Avant! Corp., 253 F.3d 1147 (9th Cir. 2001).  Cadence and Avant! competed in the field of integrated circuit design automation, which enables computer chip designers to place and connect tiny components on a computer chip.  Among other things, Cadence accused Avant! of stealing code provided by four senior employees who left Cadence and formed Avant! in 1991.

In 1995, a Cadence engineer discovered an error in Avant!’s software that was similar to a bug that they had inadvertently created several years earlier.  Subsequently, Cadence contacted the Santa Clara County District Attorney, which executed a search of Avant!’s headquarters and seized, among the items, a log that showed line-by-line copying of the Cadence source code in 1991 by Stephen Wuu, a former Cadence employee and Avant! founder.

In the State of California v. Wuu, et al., No. 206394 (Cal. Super. Ct. Santa Clara Cnty. Dec. 16, 1998), Wuu was sentenced to two years in prison, three years of probation, and fined $2.7 million.  Wuu received the harshest sentence, in part, because he took Cadence’s source code in 1991 while employed with the company and modified small parts of the code to compete against Cadence.  Another co-founder of Avant!, Yuh-Zen Liao, was sentenced to one year in prison, three years of probation, and fined $2.7 million.  Eric Cho, another co-founder of Avant!, was sentenced to one year in jail and fined $108,000.

Trespassing property

Industrial espionage can also involve obtaining company information by entering the physical premises or files of a company. The unauthorized access of company information can involve a current employee or an outsider.  In E. I. du Pont deNemours & Co. v. Christopher, the Fifth Circuit Court of Appeals affirmed the trial court’s determination that DuPont alleged a cause of action for the misappropriation of trade secret under Texas law.  431 F.2d 1012 (5th Cir. 1970).  DuPont alleged that Rolfe and Gary Christopher (the “Christophers”) were hired by an unknown third party to take aerial photographs of its new plant construction.  Sixteen photographs of the DuPont facility were taken by an airplane circling over the plant, and later developed and delivered to the third party.  The Christophers refused to disclose the identity of the unknown third party, so DuPont filed suit, alleging that the photographs taken by the Christophers showed the plant designed to produce methanol by its secret process.  The Fifth Circuit held that aerial photography of plant construction is an improper means of obtaining another’s trade secret and permitted the proceedings to continue.

While a separate article will discuss in greater detail methods to legally and practically protect your company from industrial espionage, basic steps to take to reduce risks include: limiting the access of outgoing employees to confidential information; immediately performing an audit of the confidential information that a former employee had access to in order to determine whether the information was downloaded or copied; and requiring outgoing employees to declare that they have not downloaded any company information or have any company information in their possession.

 

The post Series: Types of Industrial Espionage appeared first on The Anticorruption Blog.

Webinar: US Uyghur Forced Labor Prevention Act: Is Your Organization Prepared?

0
0
This image has an empty alt attribute; its file name is US-Customs-and-Border-Protection_GettyImages-483740270.jpg

President Biden signed the Uyghur Forced Labor Prevention Act (UFLPA) into law in December 2021. Beginning on June 21, US Customs and Border Protection (CBP) will apply a “rebuttable presumption” that all goods originating from China’s Xinjiang Uyghur Autonomous Region violate an existing ban on the importation of goods made with forced labor into the US.

Our team of seasoned specialists will discuss UFLPA’s implementation – including the latest guidance – and best practices for compliance.  Please join us on June 23 at 11am EDT for this timely webinar.

For additional detail and registration information, click here.

The post Webinar: US Uyghur Forced Labor Prevention Act: Is Your Organization Prepared? appeared first on The Anticorruption Blog.

Wolfsberg Group Releases Guidance on Negative News Screening

0
0
bank building

The Wolfsberg Group, an association of thirteen global banks which develops frameworks and guidance for the management of financial crime risks, particularly with respect to KYC, AML, and CFT policies, recently released a set of frequently asked questions on negative news screening and other forms of adverse information searches.

Negative news screening can assist financial institutions in performing customer due diligence, as well as evaluating transactions or activities that are unusual or potentially suspicious.   The Financial Action Task Force (FATF), an inter-governmental money laundering and terrorist financing watchdog, recommends that banks, as part of a risk-based approach, include verifiable adverse media searches as part of enhanced due diligence measures.[1]  Similarly, while the Bank Secrecy Act does not require negative news screening, U.S. regulators have encouraged banks, as appropriate, to consider negative news.[2]  The FFIEC BSA/AML Manual, for example, notes that banks should “establish policies and procedures for determining whether and/or when, on the basis of risk, obtaining and reviewing additional customer information, for example through negative media search programs, would be appropriate.”  The Manual continues that the results of negative news screening can help a bank determine when it is appropriate to review a customer relationship.

Recognizing that there is no single, universally agreed approach to negative news screening, the Wolfsberg Group developed its recent guidance to help financial institutions manage their financial crime risks.  The guidance is separate from politically exposed persons or sanctions screening, both of which are traditionally list-based.  For the purposes of the guidance, the Wolfsberg Group defined “negative news” as “‘information available in the public domain which FIs [financial institutions] would consider relevant to the management of Financial Crime risk.”

Importance of Credible and Relevant Sources

The guidance notes that the value that a bank is able to extract from negative news screening is “correlated to the availability of information and the credibility of the media source in the public domain.”  The guidance recommends that a bank may want to establish specific media sources, considering the credibility of the source and the coverage of adverse information within a specific geographical area: “The credibility of the media source will be a key factor in determining whether it should be used in [negative news screening]. For example, factors such as the completeness, accuracy and coverage of the source should be considered.”  The guidance suggests that banks consider conducting an assessment on the sources used in its negative news screening – if the bank uses an external party or vendor to provide the media sources, “it is recommended that the [bank] understands the evaluation of reliability performed by the vendor and the controls they have in place to mitigate the risk of unreliable sources influencing the screening process.”  The guidance provides a detailed list of what the Wolfsberg Group views as characteristics of reputable sources, including media type, content (e.g., material subject to editorial oversight versus social media), and geographical context (e.g., publications considered as politically neutral).

Similarly, a bank should ensure that negative news is relevant to financial crime – speeding fines and public disorder offenses, for example, would not be relevant for assessing financial crime risk. 

You’ve Identified Negative News – Now What?

The Guidance recommends that banks have in place a framework to investigate negative news results in a timely and consistent manner.  For example, a bank may choose to have a tier-based investigation approach: “e.g., an initial operational level undertaking high volumes of alert investigations against an agreed set of matching/discounting rules and procedures. Subsequent levels may be utilised where alerts cannot be discounted, or positive matches are identified, and due to the subjective nature of [negative news screening] outputs, require specialist subject matter expertise and input.”

As FinCEN and other federal regulators noted in 2021 guidance, a financial institution is not required to file a suspicious action report based solely on negative news.  Rather, “[a]s with other identified unusual or potentially suspicious activity, financial institutions should comply with applicable regulatory requirements and follow their established policies, procedures, and processes to determine the extent to which it investigates and evaluates negative news, in conjunction with its review of transactions occurring by, at, or through the institution, to determine if a SAR filing is required.”


[1] See FATF, Guidance for a Risk-Based Approach: The Banking Sector (Oct. 2014).

[2] See FinCEN, Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering Considerations (Jan. 19, 2021) (“[CDD] regulations … do not categorically require the performance of media searches or particular screenings.  However, in certain circumstances, a financial institution might assess, on the basis of risk, that a customer presents a higher risk profile and, accordingly, collect more information (such as media searches) to better understand the customer relationship. Such information also assists a financial institution in determining when transactions are potentially suspicious.”); FinCEN, Frequently Asked Questions Regarding Customer Due Diligence (CDD) Requirements for Covered Financial Institutions (Aug. 3, 2020) (“The CDD Rule does not categorically require … the performance of media searches or particular screenings.”).

The post Wolfsberg Group Releases Guidance on Negative News Screening appeared first on The Anticorruption Blog.

Viewing all 71 articles
Browse latest View live




Latest Images