FCPA Compliance and Ethics Blog

February 4, 2014

Who Had the Worse Day – Peyton Manning or Banks and Investment Funds?

Rue the DayThe Seattle Seahawks gave the Denver Broncos an old-fashioned tail-whoopin’ in Super Bowl history on Sunday. I admit that I was pulling for the old guy, Peyton Manning to pull out another one but I did like Seattle, particularly getting +2.5 points. Not that they needed them and I certainly did not see such a beat down coming. Manning’s reaction was about what you might assume from a professional at this stage of his career, measured yet clearly disappointed. Yes he had a very bad day and one that he will probably rue the day for some time down the road.

But there was some other news on Monday that may cause other groups to do more than ‘rue the day’. You know when you are on the front page of the Wall Street Journal (WSJ) in an article about the Foreign Corrupt Practices Act (FCPA) it has the distinct possibility to be unpleasant. The said WSJ, entitled “Probe Widens Into Dealings Between Financial Firms, Libya” by Joe Palazzolo, Michael Rothfield and Justin Baer, reported that the Justice Department has joined an ongoing Securities and Exchange Commission (SEC) probe into “banks, private equity funds and hedge funds that may have violated anti-bribery laws (IE. FCPA) in their dealings with Libya’s government-run investment fund.” Ominously the WSJ noted that the Department of Justice’s (DOJ) participation had not been previously reported. As the DOJ generally investigates potential criminal violations of the FCPA and the SEC generally investigates the civil side of things this could be quite ominous indeed.

The firms named in the WSJ article included the following: Credit Suisse Group AG, J.P. Morgan Chase & Co., Société Générale SA, the private-equity firm Blackstone Group LP and hedge-fund operator Och-Ziff Capital Management Group. This is in addition to the previous announcement that Goldman-Sachs was being investigated. All of the claims relate to “investment deals made around the time of the financial crisis and afterward, these people said. In the years leading up to Libya’s 2011 revolution, Western firms—encouraged by the U.S. government—raced to attract investment money from the North African nation, which was benefiting from oil sales and recently had opened to foreign investment.”

The WSJ reported that the investigation is centering on certain third parties involved in the transactions, “At the center of the probe is a group of middlemen, known as “fixers,” operating in the Middle East, London and elsewhere, people familiar with the matter said. The fixers established connections between investment firms and individuals with ties to leaders in developing markets, including those in the Gadhafi regime.” The government is looking into these third party’s “roles in arranging deals between financial firms and Libyan officials, people familiar with the matter said. The fixers acted as placement agents, similar to those in the U.S. who have come under scrutiny for steering investments to large public retirement funds. In some cases, the sovereign-wealth-fund fixers collected a “finder’s fee”.”  It was reported that “Some of the fixers had connections to at least two of Gadhafi’s sons—primarily his second son, Seif al-Islam Gadhafi, who was most involved with the sovereign-investment fund, according to people familiar with the matter. Seif al-Islam Gadhafi was captured by rebels.” Interestingly, many of the underlying facts now being investigated came to light only after the overthrow of the Gadhafi Regime.

Further north, another group may have an occasion to rue the day. As reported in the FCPA Blog, in a post entitled “More SNC-Lavaline execs face charges in ongoing corruption probe”, two former SNC-Lavalin officials were charged by the Royal Canadian Mounted Police (RCMP) last Friday. The two men charged were Stephane Roy, a former vice-president at SNC-Lavalin, who was charged with fraud, bribing a foreign public official, and contravening a United Nations economic measures act related to Libya. Also charged was former executive vice-president Sami Abdallah Bebawi with fraud, two counts of laundering the proceeds of a crime, four counts of possession of property obtained by crime, and one count of bribing a foreign public official. These charge, added to prior charges bring the number of former SNC-Lavalin executives to four for their conduct regarding allegations of bribery and corruption in Libya. This is in addition to another two company executives who were charged for bribery and corruption regarding a company project in Bangladesh.

And finally are our friendly bankers and their continuing anti-money laundering (AML) woes. Just last week, UBS Chief Executive Officer (CEO), Sergio Ermotti, said at the World Economic Forum in Davos that it was not right to criticize bankers for criminal acts “most of the bad behavior that has landed UBS and others in hot water was caused by small groups of rogue employees and doesn’t reflect broader cultural problems in the industry.” Criticism could not come from interested stakeholders, such as stockholders, or those who had money in his bank. Indeed criticism could not even come from regulators.

Apparently some regulators take their jobs a bit more seriously than Ermotti might like. Reuters reported, in an article entitled “Bankers anxious over anti-money-laundering push to go after individuals”, that at the Securities Industry Financial Markets Association conference, John Davidson, E*Trade Financial’s global head of AML, said that the “new push by regulators and lawmakers to hold individuals, rather than just institutions, accountable for regulatory violations involving money laundering is spooking members of the U.S. financial industry.” He further said that this aggressive trend and a new vigorous AML bill, introduced in Congress by Representative Maxine Waters, entitled “Holding Individuals Accountable and Deterring Money Laundering Act”, were all “a little scary.” He found the trend towards more AML enforcement against individuals “an incredibly disturbing trend.” The reason it is so scary, an un-named top level compliance officer said, is “that compliance officers at the largest Wall Street institutions were feeling especially nervous because the power structures in those institutions sometimes did not give compliance officers enough authority to act.”

But more than compliance officers may rue the day. Jordan’s reported that the Board of Directors at financial institutions are also concerned. In article entitled “Money laundering tops boardroom concerns amid threat of criminal prosecution” it reported “concerns in boardrooms are now at an all-time high” and corporate boardrooms in some of the country’s leading banks are now sitting up and taking notice of money laundering as a concern, after the threat of criminal prosecution became something of a reality. The recently released KPMG Global Anti-Money Laundering Survey noted that 88 per cent of executives have now placed money laundering back at the head of a list of concerns addressed in their boardrooms. Brian Dilley, global head of the AML Practice at KPMG, was quoted as saying “Anti-money laundering has never been higher on senior management’s agenda, with regulatory fines now running into billions, regulatory action becoming genuinely license threatening, and criminal prosecutions of firms and individuals becoming a reality.”

So who do you think had the worse day or even couple of days?

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2014

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