BUILDING RESILIENCE IN AN ERA OF INCREASING

investigations






Regulatory scrutiny is rising as government
agencies worldwide increasingly work together
on bribery, antitrust and corruption issues

and countries expand their extraterritorial reach.




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Businesses face cross-border investigations by multiple authorities

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In the wake of the financial crisis, there has been a sustained rise in the number and variety of investigations and enforcement actions taken by regulatory authorities globally. Multinational corporations and financial institutions are now more likely than ever to find themselves subject to cross-border investigations conducted in parallel by multiple authorities.


Regulatory authorities worldwide are continuing to investigate and prosecute business conduct aggressively and to impose record-setting penalties in the process. And there is no sign that this trend will abate. Quite the contrary. While US authorities remain in the vanguard of such initiatives, now more than ever non-US authorities can be expected not only to cooperate with and facilitate US enforcement initiatives, but also to pursue their own criminal or regulatory investigations and to exact their own significant penalties.


This trend of global scrutiny of certain business conduct and enforcement against it is facilitated by the broad jurisdiction of anti-corruption laws, such as the US Foreign Corrupt Practices Act and the UK Bribery Act, as well as various antitrust sanctions and anti-money laundering regimes. Enforcement authorities, particularly in the United States, have used such laws and accompanying legal doctrines to prosecute corporate and individual misconduct in far-flung markets that may have little apparent nexus, for example, to the United States.






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Sanctions and export controls can materialize unexpectedly and expand rapidly


EU, US and Japanese sanctions in response to the Ukraine crisis show how sanctions can materialize unexpectedly and expand rapidly. Their effects deliberately extend beyond the designated organizations and individuals themselves, presenting challenges for business and nations. Sanctions are complex and multilayered, imposed by different international and regional organizations, such as the United Nations and the European Union, and by individual states, such as Canada, Japan and the United States.


US sanctions can be comprehensive: country- or territory-based (e.g., against Crimea, Iran, Syria and Sudan) or “list-based” (e.g., against specific entities and individuals engaged in activities such as terrorism, narcotics trafficking and efforts to undermine democratic processes). Measures for EU sanctions are either “list-based” or impose wider restrictions on certain sectors, products or transactions. The Russia sectoral sanctions are a new form of US and EU sanctions targeting the finance, energy and defense sectors by restricting narrow categories of activities involving certain identified entities or products.


US enforcement is increasing, with tough penalties and settlements on US and non-US banks and corporations. In the European Union, licensing and enforcement activity is also up, though it does vary between countries (national authorities are responsible for enforcement). Sophisticated compliance procedures, therefore, have become essential for international businesses to ensure they are not unwittingly conducting business with sanctioned parties. Furthermore, if found to be subject to or in violation of sanctions, individuals and businesses may wish to consider challenging that determination. Recent EU cases and, to a more limited extent, US cases suggest that although very difficult, a meaningful challenge could be mounted.


In the future, sanctions and export controls are likely to expand further—and continue to appear without warning. They may also be suspended unexpectedly. President Obama announced his intention to ease the US embargo against Cuba in December 2014. Selective imposition and easing of sanctions have become preferred foreign policy tools. As a result, companies must continually adapt to the changing sanctions landscape, the increased risk of potential sanctions violations and the number of sanctions audits and investigations needed to ensure compliance. Extraterritorial application of economic sanctions restrictions, particularly by the United States, places even more of a premium on robust and comprehensive sanctions compliance procedures.






EU continues tough stance against anticompetitive behavior


In 2014, the European Union showed no signs of relaxing its tough stance against anticompetitive behavior. In 2014, it imposed fines of more than €1.67 billion, which included one fine of €953.3 million.


The scope and targeting of the EU’s fines were also expanded. In 2014, for the first time, a private equity fund was fined more than €37 million by virtue of its controlling stake in a suspected cartelist, without any evidence that it was aware of any infringement.


EU fines are significantly higher than fines imposed by antitrust authorities in the United States and China. “EU authorities tend to use the size of fines as a benchmark to show they are doing a good job,” said White & Case partner James Killick. “The underlying idea is that the best way to get people to comply is to fine their companies increasing amounts of money. On top of that, each successive competition commissioner wants to show they are more successful than the previous one, so there is a tendency to increase fines.”



While imposing high fines, the EU system does not afford companies the usual criminal due process guarantees. Separation of powers is lacking, and the final decision is made by a political body sensitive to public perceptions. In addition, the appeals process before the EU Court of Justice is inadequate because there is no hearing of witnesses and no full court review.


The appointment of the new European Commission (EC) president and teams of commissioners offers an opportunity for reform. But until reforms take place, the current environment makes it even more critical for companies to embed a robust compliance program to lower the risk of an investigation and fines. Trade associations and consultancies should also consider compliance programs to ensure their clients stay on the right side of antitrust rules.



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EU authorities tend to use the size of fines as a benchmark to show they are doing a good job. The underlying idea is that the best way to get people to comply is to fine their companies increasing amounts of money.
James Killick
Partner, Antitrust