Global Investigations Newsletter
International Disputes Team, Tokyo
In this inaugural newsletter, we discuss key global developments in investigations, corporate crime, ESG issues, and economic sanctions. There have been many important movements, such as changes to the U.S. government’s approach to voluntary self-disclosures of corporate misconduct; sanctions; and corporate criminal liability. Many jurisdictions, including the US, EU, and UK, increasingly adopt legislation that applies beyond their borders, and could capture conduct by Asian companies that carry on business in those regions (or who have staff holding the nationality of those regions). Executive management, in-house counsel, and compliance specialists need to ensure they understand their potential exposure and be mindful of the ever-changing nature of this dynamic area of law.
As always, if you have any questions about the matters discussed in this newsletter, or about other disputes-related issues you are facing, we will be here to help.
SPOTLIGHT US Department of Justice (DOJ) revises its corporate enforcement policies
On 17 January 2023, the Department of Justice (DOJ) Criminal Division issued a revised version of its “Corporate Enforcement and Voluntary Self-Disclosure Policy” (Policy). The key point in the revised Policy is that a company is presumed to be eligible for a declination of prosecution (with disgorgement of profit) if it meets the requirements of voluntary self-disclosure, full cooperation, and remediation, and has no aggravating circumstances. However, even in the presence of aggravating factors, a company may still benefit from a declination where it has provided “extraordinary cooperation” (which is higher than the “full cooperation” standard). The guidance also addresses areas in which DOJ expects enhanced compliance efforts by companies:
- Communication policies should be tailored to each company’s individual risk profile, the key point being that business-related data should be preserved and accessible. Areas of concern include ‘bring your own device’ policies and the use of instant messaging services, such as WhatsApp, Line, and WeChat. DOJ will take into account three areas in evaluating the efficiency of a company’s compliance program: (1) communication channels; (2) the policy environment; and (3) risk management. DOJ has warned that failure to produce relevant data will be relevant to any charging decisions it takes.
- Compensation structures, disciplinary measures, and incentives (e.g., bonuses and promotions) should be designed to promote compliant behaviour by company staff. In addition, DOJ has announced a new pilot programme on compensation clawbacks, whereby companies that actively seek the return of compensation from corporate wrongdoers will be eligible for reductions in any fines that are imposed (which, where a criminal resolution is pursued, is the same as the amount of any compensation that is recouped). Even where clawback efforts are unsuccessful but had been pursued in good faith, the company will still be eligible for a reduced fine reduction. We recently published a blog post on compensation clawbacks in the context of DOJ and other regulatory action:
The background to the new Policy is the “Monaco Memo” of September 2022, in which US Deputy Attorney General Lisa Monaco directed all parts of the DOJ to implement a policy and minimum standards to incentivize the self-reporting of corporate criminal wrongdoing. The aim of the DOJ’s latest initiatives is to incentivize the implementation of effective compliance programs, remediation, and cooperation with law enforcement where things go wrong, as well as transparency and predictability. Against this background, we expect increased enforcement by the DOJ and other US regulators. In addition to the Criminal Division, other parts of DOJ have also adopted new self-disclosure policies in line with the Monaco Memo. It should be noted that while there is a great deal of commonality, the policies differ on the detail, and it remains to be seen how a case will be resolved where it falls under more than one applicable policy:
- 22 February 2023: the US Attorneys’ Offices (“USAOs”) issue a single new United States Attorneys’ Offices Voluntary Self-Disclosure Policy applicable to all 93 USAOs across the country;
- 28 February 2023: the Civil Division Consumer Protection Branch (“CPB”) issues its Voluntary Self-Disclosure Policy for Business Organizations policy;
- 1 March 2023: the Tax Division issues its Corporate Voluntary Self-Disclosure Policy;
- 1 March 2023: the National Security Division (“NSD”) issues its revised NSD Enforcement Policy for Business Organizations;
- 1 March 2023: the Environment and Natural Resources Division (“ENRD”) issues its updated Voluntary Self-Disclosure Policy.
Why self-report? Self-reporting criminal conduct may sound counter-intuitive, especially where there is no legal or regulatory requirement to do so. Self-reporting is however becoming an increasingly common tool in the corporate criminal justice framework in the US and other common-law jurisdictions such as the UK. Benefits include:
- Avoiding criminal convictions and the consequences attaching to a conviction (e.g., debarment from tendering for public contracts)
- Substantial reductions in fines and penalties (and in some cases, no fine is payable)
- Maintaining control over the investigation, “controlling the narrative”
- Avoiding imposition of a compliance monitor and similar orders
- Responding to a whistleblower complaint
Extraterritorial effects. DOJ policies matter to companies and individuals even outside the US. For example, the Foreign Corrupt Practices Act (FCPA) of 1977 has evolved into a “long-arm statute”, meaning that the FCPA even prohibits conduct by non-US persons outside of the US in certain circumstances. Such cases require the presence of a “US nexus” (sometimes called a “touchpoint”) linking the overseas conduct to the US. For example, paying a bribe in US dollars often results in the payment being routed via the US financial system, which can create FCPA jurisdiction. Similarly, US sanctions and export control laws have a broad extraterritorial reach. On the extraterritorial effect of sanctions, see our recent blog post here:
- Following a Law Commission Report from 2022, the UK Government announced on 11 April 2023 that it would introduce a “failure to prevent fraud” offence in the Economic Crime and Corporate Transparency Bill that is currently working its way through Parliament. As set out by the Government, under the proposed offence, “an organisation will be liable where a specified fraud offence [listed in the legislation] is committed by an employee or agent, for the organisation’s benefit, and the organisation did not have reasonable fraud prevention procedures in place. It does not need to be demonstrated that company bosses ordered or knew about the fraud.” However, a company may have a defence if it had “reasonable procedures” in place to prevent fraud. The Government will have to publish statutory guidance on the meaning of “reasonable procedures”. It is notable that the Government states that there may be circumstances where it would be reasonable not to have any fraud prevention procedures, “for example, organisations where the risk is extremely low”. The Bill will have some extraterritorial effect, i.e., where a UK fraud offence is made out, the employer may be liable even though the employee and/or the organisation are based overseas. The new offence has many similarities with the existing “failure to prevent bribery” and “failure to prevent tax evasion” offences, though a key difference is that only large entities (meeting two criteria out of (1) having more than 250 employees; (2) more than GBP 36 million annual turnover; (3) more than GBP 18 million in assets) are targeted by the offence. See our more detailed blog post here:
- The UK’s National Security Bill includes a proposed Foreign Influence Registration Scheme (FIRS) which, if enacted, would require overseas businesses and organisations to register every engagement they have with His Majesty’s Government. While countries such as the US and Australia also have foreign influence registration requirements, the British proposals have been criticized by parliamentarians and the EU for being unnecessarily broad and intrusive. We will continue to monitor the legislative progress of this bill.
- G7 trade ministers met on 4 April 2023. In their released statement, they stated that there will be continued cooperation in the field of export controls, especially of critical and emerging technologies such as microelectronics and cyber surveillance systems. Japan had already announced that it would impose restrictions on the export of 23 types of semiconductor manufacturing equipment, aligning Japan with the US and the Netherlands in terms of restricting the exportation of chip manufacturing tools to China.
- Just more than one year after the start of the war in Ukraine, the EU adopted its 10th Package of Russia-related sanctions on 25 February 2023. The new measures include, amongst others: further export bans on critical technology goods; prohibition on transit through Russia of dual-use goods; prohibition on Russian nationals holding any position in the governing bodies of EU critical infrastructures and entities; tougher reporting obligations for frozen funds and economic resources; additional designations of individuals and entities. The package has been hailed by the EU as the “toughest sanctions ever introduced by the European Union”. To date, the EU has sanctioned around half of its 2021 exports to Russia (and almost 60% of imports).
- Japan, alongside other countries such as the US, UK, Canada, Australia, New Zealand, Norway, Switzerland, and Ukraine took part in the first Sanctions Coordinators’ Forum on 23 February 2023. The Forum is a means for like-minded states to discuss and coordinate their response to the war in Ukraine.
- The US (both the Office of Financial Assets Control (OFAC) and the State Department) also adopted new sanctions measures, including sanctioning the metals and mining sector, as well as additional designations of individuals and entities.
- The UK has also implemented additional designations, and announced extending the existing measures in place for the Crimea, Donetsk and Luhansk regions to the non-government controlled areas of Kherson and Zaporizhzhia.
Key enforcement news
- Recent enforcement actions underline that FCPA risks continue across regions, with the use of third-party consultants and intermediaries requiring careful controls to ensure they are being used appropriately and not as a funnel to pay bribes to government officials.
- In the first quarter of 2023, there have been 4 corporate FCPA resolutions (2 each for DOJ and SEC). In one DOJ case, a major telecoms company agreed to resolve non-criminal breaches of its 2019 Deferred Prosecution Agreement (DPA) (relating to the timeliness of the disclosure of certain information to the DOJ while under the DPA) by pleading guilty to charges that were previously deferred (and which related to historic conduct). The DOJ also declined to prosecute a mining company for violations of the FCPA in line with the Corporate Enforcement and Voluntary Self-Disclosure Policy (see above). In announcing the declination, the DOJ cited the company’s timely and voluntary self-disclosure of the misconduct, full and proactive cooperation, and timely and appropriate remediation. Also relevant to the decision to decline to prosecute was the fact that the company agreed to disgorge what it had gained from the misconduct. The conduct underlying these enforcement proceedings occurred in China, Djibouti, Egypt, Guinea, Indonesia, Kuwait, Russia, and Vietnam.
- The British Government published its 2023-2026 Economic Crime Plan 2 on 30 March 2023. The plan focuses on (a) reducing money laundering and recovering more criminal assets; (b) combatting kleptocracy and reducing sanctions evasion; and (c) reducing fraud.
- The US Supreme Court has declined to consider a case about the proper test to be applied to determining whether the attorney-client privilege applies to multi-purpose communications. In re Grand Jury 598 US __ (2023) concerned, broadly speaking, legal advice that was mixed with tax advice. At present, federal Courts of Appeals across the US use different standards. The standards contended for before the Supreme Court were (a) the ‘primary purpose’ test (is the primary purpose of the communication or document to seek or give legal advice?) vs. (b) the ‘significant purpose’ and ‘bona fide purpose’ tests. Given the Supreme Court’s refusal, at the last minute, to consider the case on its merits, the circuit split in US courts’ approach to privilege is likely to continue for the foreseeable future. There has been much speculation about the reason for the Supreme Court’s refusal, with a key theory being that the Court regarded the secretive grand jury elements of this appeal as an improper vehicle for reconsidering such an important matter of public interest.
- The UK First-Tier Tribunal has confirmed that in transactional matters, only legal advice will be absolutely privileged from compelled disclosure; outside of the confines of privilege, lawyer/client confidentiality will apply, which is a qualified protection which can be overridden by statute or where public policy so demands: HM Revenue & Customs v Third Party & Taxpayer  UKFTT 00071 (TC).
1 Instruments: Council Regulation (EU) 2023/426; Council Regulation (EU) 2023/427; Council Implementing Regulation (EU) 2023/428; Council Implementing Regulation (EU) 2023/429; Council Implementing Regulation (EU) 2023/430; Council Decision (CFSP) 2023/431; Council Decision (CFSP) 2023/432; Council Decision (CFSP) 2023/433; and Council Decision (CFSP) 2023/434.