Top Government Settlements from 2014

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As the calendar year wraps up, we thought it would be interesting to take a look back at the companies paying more than $1 billion in 2014 to resolve investigations into corporate misconduct.  Twelve companies agreed to these large fines (if we include Suntrust which fell just shy of $1 billion) for a total of more than $45 billion in penalties to the US (and a handful to the UK from the forex settlement).  A few things worthy of note:

  • Only 2 companies were not financial institutions.
  • Only 5 cases involved mortgage fraud.
  • Not one pharmaceutical company is on the list.
  • We only used the calendar year.  J&J and JPMorgan Chase both had large settlements that would have qualified if we used Fiscal Year 2014.

Bank of America – $16.65 Billion in August
The largest civil settlement with a single entity in American history was agreed to by the financial institution to resolve misconduct by Countrywide, Merrill Lynch and BofA stemming from .  The $5 billion penalty imposed under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) is the largest under the law, eclipsing the $4 billion paid by Citigroup only a month before.  Four whistleblowers in this case were paid approximately $170 million in total under the False Claims Act and FIRREA.

BNP Paribas – $8.9 Billion in June
The French bank agreed to a guilty plea to charges it violated US economic sanctions by providing dollar clearing services to individuals and entities dealing with Sudan, Cuba and Iran between 2004 and 2012.  Three individuals helped the government make their case agains BNP.

Citigroup – $7 Billion in July
The settlement covered misrepresentations made to investors regarding the quality of mortgage securities.  It paid a short-lived record $4 billion as a civil penalty to settle the Justice Department claims under FIRREA.  It also paid $208.25 million to the Federal Deposit Insurance Corporation (FDIC) and nearly $300 million to five states participating in the agreement.  The remaining $2.5 billion was earmarked for consumer relief.

Anadarko – $5.15 Billion in April
Anadarko agreed to pay the largest recovery for the cleanup of environmental contamination.  It resolves the liability of Kerr-McGee, an Anadarko subsidiary acquired in 2006, for legacy liabilities spun off in an inadequately funded company which filed for bankruptcy in 2009.

Goldman Sachs – $3.15 Billion in August
Goldman agreed to pay the Federal Housing Finance Agency (FHFA) for securities law violations in the sale of private-label mortgage-backed securities to Freddie Mac and Fannie Mae between 2005 and 2007.

Credit Suisse – $2.6 Billion in May
The Swiss bank pleaded guilty to conspiracy to aid U.S. taxpayers in filing false income tax returns with the Internal Revenue Service.  It paid $1.8 billion to the Department of Justice for the U.S. Treasury, $100 million to the Federal Reserve, and $715 million to the New York State Department of Financial Services.  It also paid $196 million to the SEC earlier in the year for providing cross-border brokerage services without registering.

MF Global Holdings Ltd. – $1.3 Billion in December
A consent order in December 2014 requires the parent company of brokerage unit MF Global Inc. to pay $1.2 billion in restitution and $100 million in fines to the CFTC.  MF Global had liquidity problems in 2011 due to trading losses that caused its bankruptcy.

Morgan Stanley – $1.25 Billion in February
The FHFA settled its claims over private-label mortgage-backed securities sold to Freddie Mac and Fannie Mae between 2005 and 2007 for $625 million to each.

Toyota Motors – $1.2 Billion in March
Toyota agreed to the largest penalty for an automobile manufacturer to resolve allegations of misconduct related to its recall of vehicles for unintended acceleration.  The charges involved misleading statements made to consumers and regulators in 2009 and 2010 concerning the safety of its vehicles.

FOREX Manipulation – $4.3 Billion by six banks in November to three agencies in the US and UK.
Citigroup and JPMorgan each paid a total of about $1 billion in fines between the US Commodity Futures Trading Commission, Office of the Comptroller of the Currency and UK Financial Conduct Authority to resolve allegations its traders manipulated the FOREX market.  Four other banks paid amounts under $1 billion to resolve the investigations by these government agencies.  UBS, RBS, HSBC and Bank of America each paid between $250 million and $800 million.

Suntrust Mortgage – $968 Million in June
The mortgage company settled claims involving problems with improper mortgage origination, servicing and foreclosure arising between 2006 and 2012.  The settlement involved the Justice Dept., Housing and Urban Development (HUD), Consumer Financial Protection Bureau (CFPB) and 49 states plus the District of Columbia.  The deal was agreed to in principal in late 2013 but announced in 2014.

Other Settlements of Interest

While we were doing our research, we found a few other record settlements that we thought you would find interesting.

Alstom – The French engineering company agreed to the largest criminal tax penalty for an FCPA violation imposed by the Department of Justice, $772 million, in December 2014.  Alstom used consultants to pay $75 million in bribes to secure $4 billion in projects with state-owned companies in five countries.

Hyundai Motor and Kia Motors – The two related auto manufacturers agreed to a $100 million penalty, the largest ever for violation of the Clean Air Act, in November 2014.  They overstated the fuel economy and understated the greenhouse gas emissions of their cars and SUVs in 2012 and 2013.

AT&T Mobility – The $105 million settlement with the Federal Communications Commission over cramming unauthorized third party subscriptions and premium text messaging onto customer bills was the largest enforcement action in the FCC’s history.

Whistleblowers
We are aware of ten whistleblowers involved in four of these cases.  At this point, only payments to the individuals in the Bank of America case have become public knowledge.

There may have been additional cases involving insiders where the details have not yet been made publicly available.  For example, the CFTC has not yet issued a notice of covered action for the fines issued to the banks in the forex case.

We Now Have Twenty Years of Insight into Public Corruption Worldwide

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Transparency International released its annual Corruption Perceptions Index for 2014 today. For 20 years, it has solicited expert opinions to rank public sector corruption among the world’s nations. Started in 1995 with survey replies from international businessmen and financial journalists on their perceptions of corruption in 41 countries, there are now 175 countries ranked on the annual list.

The data for 2014 is not encouraging. More than two-thirds of the 175 countries and territories fell closer to “highly corrupt” (1 on a scale of 1 to 100) than they did “very clean”. No country received a perfect score of 100, which would indicate that the survey respondents believe bribery of public officials does not take place there.

In its statement released in conjunction with the scores, Transparency called for the G20 to take a leadership role to end money laundering and company facilitated corruption. Jose Ugaz, Chair of Transparency International, recommended that countries at the bottom adopt radical anti-corruption measures and countries at the top ensure they don’t export corrupt practices to other countries.

More than 25 years ago, the United States made a strong statement that corruption by American citizens and business operating abroad would not be tolerated when it passed the Foreign Corrupt Practices Act. Despite the strong position staked out by the U.S. Government condemning bribery, it appears corruption continues to be a worldwide problem.

Taking a look at the data from 1995 to 2014, there is some reason to be encouraged however. I pulled out the scores for five developing nations (China, Brazil, India, Mexico and Indonesia) which initially scored in the bottom half of the 1995 perceptions index. The average increase over the past 20 years in these five developing nations was 11.68 points.

The perception of each of the five countries has improved over the past 20 years. Four out of the five have improved by more than 10 points on a 1 to 100 scale (the totals were converted from an initial scale of 1 to 10). Only Mexico made a modest gain of 3.2 points (up just 2 points from its 1996 score). Indonesia, which scored below 20 points in both 1995 and 2000, finished 2014 with a substantially improved score of 34 out of 100.

The gains in these developing nations haven’t been matched by the countries I examined in the first world. Pulling out the scores for the United States, Canada, United Kingdom, Germany and Japan, they have, on average, decreased 2.58 points over the same period. Four out of the five fell on the index, with only Japan managing an increase of 8.8 points over its 1995 score.

The data for the United States is of particular interest given the FCPA. The US currently ranks 17th out of the 175 nations in the poll. After initially scoring between 76 to 78 in 1995, 1996 and 1997, it has been between 71 and 73 for seven of the past nine years.

I attempted to look at the data from 2010 to 2014 to see if there were any trends that would loosely correlate to the Dodd-Frank Act and SEC whistleblower program, but it is probably too early to draw any conclusions there.  Perhaps in another twenty years.

As part of our own effort to assist individuals in the fight against corruption,a FCPA whistleblower attorney at our law firm will provide a free, confidential consultation to individuals with evidence of bribery of foreign officials by a corporation.

Brazil Report Offers Clues Into Rise of Transnational Whistleblowers

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Earlier this year, Francesca West, the Director of Policy at UK whistleblower organization Public Concern at Work, noted an increase in individuals engaged in regulatory shopping. In a Wall Street Journal article about the surge of tips to a regulator in the UK, West indicated that more and more people were weighing the benefits and drawbacks of reporting to different jurisdictions. The justifications for choosing the best government agency to report could not be better elucidated than in a report about the problems facing Brazil whistleblowers reporting corruption.

The OECD Working Group on Bribery published an update about whistleblowing in Brazil as part of its attempt to encourage implementation of the OECD Anti-Bribery Convention in the country. The information about domestic whistleblowing within Brazil is disappointing but not altogether surprising. You can get a copy of the Phase 3 Report here (pdf).

Since 2000, there has not been one investigation of foreign bribery in Brazil started as a result of a tip from a domestic whistleblower. Of the 14 investigations that have been opened during that time period, only one resulted in prosecution. The company facing prosecution disclosed to shareholders that it was under investigation by the United States for the conduct in 2011.

There are also limited protections for private sector whistleblowers. Information provided to the government is only kept confidential until the indictment. And even that confidentiality guarantee is limited to instances of a formal statement made by the complainant. Although Brazil proposed a bill to address the lack of protections in 2009, it was not adopted.

A survey of whistleblower protections in G20 countries put Brazil in the bottom half in its protection of both the public and private sector.

Given these facts, it should be no surprise that Brazil has problems getting individuals to come forward. When corruption implicates a country with stronger protections, like the United States, why not report to the SEC instead? Indeed, there have been 7 tips originating from Brazil during the first two full years from the open of the SEC whistleblower office.

Brazil continues to have trouble getting whistleblowers to come forward despite implementation of tools for individuals to report corruption, including an anonymous hotline and website with a reporting mechanism. One panelist told the working group there is a cultural aversion to reporting. Others cited distrust of the government and the police as the reason.

Regardless, reports like this one specific to Brazil suggest that individuals will continue to forum shop internationally for the best place to report when they have information about bribery and corruption. When it implicates the FCPA, the SEC will generally be an excellent choice.  Our FCPA whistleblower lawyers provide a free, confidential consultation if you are interested.

Whistleblower Involvement Helps Government Recover $50 Million More.

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A new study reinforces the role of insiders as a key law enforcement tool.

Executives and corporations are fined an average of $50 million more when a whistleblower is involved in an enforcement action, according to the study by Andrew C. Call, Gerald S. Martin, Nathan Y. Sharp and Jaron H. Wilde. The paper, titled The Impact of Whistleblowers on Financial Misrepresentation Enforcement Actions, is available for download on the Social Science Research Network

The study examined all SEC and DOJ enforcement actions involving financial misrepresentation between 1978 and 2012. It discovered 1,133 enforcement actions brought by the DOJ or SEC under the accounting provisions of the Foreign Corrupt Practices Act. At least one whistleblower was identified in only 12.8 percent of the cases studied, for a total of 145 cases.

Despite the low percentage of enforcement actions, whistleblowers helped the government obtain judgments of more than $20 billion in excess of the amount they would have received without inside information from a tipster. If the government did not have information from whistleblowers, the data suggests it would have received 30% less in penalties during the time period studied.

The data adds further support to a Taxpayers Against Fraud Education Fund published paper by Jack A. Meyer of Health Management Associates called Fighting Medicare & Medicaid Fraud: The Return on Investment from False Claims Act Partnerships. The study of the costs of fighting fraud with the False Claims Act from 2008 to 2012 concluded that the whistleblower statute returns $20 for every $1 invested by the U.S. government.

The study by Call, Martin, Sharpe and Wilde also examined an interesting side issues that is frequently cited by opponents of the new laws rewarding informants. It suggested that the benefits of the excess penalties greatly exceeded any cost to the government of wading through frivolous claims. Although most tips do not lead to enforcement actions according to the data, the additional penalties received by the Government in successful cases would outweigh the cost of examining them as long as less than $25 million is spent on each frivolous tip investigation.

Blockbuster Year Predicted for the FCPA in 2014

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Less than two months in to the new year, individuals are already predicting a massive year for prosecutions and settlements in Foreign Corrupt Practices Act cases, according to the South China Morning Post. The Foreign Corrupt Practices Act was passed in 1977 to halt bribery of foreign officials by United States companies. It also requires public companies to maintain accurate books and records as well as an effective system of internal accounting controls.

The year started off with a large, $384 million dollar settlement by Alcoa. One of its majority-owned units pleaded guilty to bribing members of Bahrain’s royal family and officials. A consultant hired by the unit bribed government officials in order to retain a contract with state-owned Aluminum Bahrain.

This announcement was followed up in late January by a decision from an Administrative Law Judge at the SEC who censured the Chinese affiliates of Big Four accounting firms KPMG, Deloitte Touche Tohmatsu, PricewaterhouseCoopers and Ernst & Young. They cited Chinese law in refusing to provide audit work papers to regulators conducting accounting fraud investigations of their clients. The decision prohibits the units from conducting audits on U.S. listed companies for six months. It is suspended pending the outcome of their appeal.

The Department of Justice has begun a criminal investigation into conduct by six major financial firms in Libya, according to Compliance Week. The Libyan Investment Authority invested up to $1 billion in Goldman Sachs, JPMorgan Chase, Credit Suisse, Societe Generale and Och-Ziff Capital Management. Goldman has been under investigation by the SEC since at least 2011.

Finally, Avon has just increased its settlement reserve for a FCPA investigation conducted by the SEC and DOJ to $89 million. It estimated settlement negotiations may impose liability of up to $132 million for bribery to Chinese officials. According to Bloomberg, the company has spent more than $300 million in its internal investigation and compliance reviews over the past five years. Chinese and U.S. authorities are investigating other major corporations for bribery as well.

New investigations by the SEC into bribery overseas could also be strengthened by the SEC Whistleblower program. The SEC has reported an increase in tips from international whistleblowers. Foreign tips are eligible for an award the same as tips submitted domestically.

Eric L. Young and the attorneys of McEldrew Young Purtell Merritt represent whistleblowers submitting tips to the SEC. If you would like to report a violation of the Foreign Corrupt Practices Act, please call Eric at 1-800-590-4116 or fill out the contact form to schedule a free, confidential consultation with one of our FCPA whistleblower attorneys.

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SEC Foreign Corrupt Practices Act Guide

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SEC Publishes a Foreign Corrupt Practices Act Resources Guide

The United States Securities and Exchange Commission (“SEC”) published a new resource guide for the Foreign Corrupt Practices Act (“FCPA”).  The FCPA prohibits the payment of bribes to foreign officials to assist in obtaining or retaining business.  The FCPA can apply to prohibited conduct anywhere in the world and extends to publicly traded companies and their officers, directors, employees, stockholders, and agents. Agents can include third party agents, consultants, distributors, joint-venture partners, and others.

The FCPA also requires issuers to maintain accurate books and records and maintain adequate internal controls to provide reasonable assurances that transactions are executed and assets are accessed and accounted for in accordance with management’s authorization.

FCPA sanctions can be significant.  The SEC may bring civil enforcement actions against issuers and their officers, directors, employees, stockholders, and agents for violations of the anti-bribery or accounting provisions of the FCPA. Companies and individuals that have committed violations of the FCPA may have to disgorge their ill-gotten gains plus pay prejudgment interest and substantial civil penalties.

The sanctions for FCPA violations can be significant. The SEC may bring civil enforcement actions against issuers and their officers, directors, employees, stockholders, and agents for violations of the anti-bribery or accounting provisions of the FCPA.  Companies and individuals found in violation of the FCPA may have to disgorge their ill-gotten gains plus pay prejudgment interest and substantial civil penalties. Companies may also be subject to oversight by an independent consultant.

The SEC, among other things, enforces the Foreign Corrupt Practices Act and under the new SEC whistleblower program allows those who come forward with Foreign Corrupt Practices violations to share in any penalty imposed by the SEC.

The SEC report is available here:  http://www.sec.gov/spotlight/fcpa.shtml

McEldrew Young Purtell Merritt represents whistleblowers globally reporting to the U.S. Government. For a free confidential consultation with one of our Foreign Corrupt Practices Act whistleblower lawyers, please call Eric L. Young, Esquire at 1-800-590-4116 or contact us.

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