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Thursday, September 19, 2019

Panel explores overlapping criminal enforcement actions against companies and how penalties are determined

By Nicholas Malfitano | Jun 20, 2017

NEW YORK (Legal Newsline) – Insight into the process of crafting of financial penalties for companies alleged to have engaged in corporate misconduct was a prominent topic of discussion in a recent seminar held June 7.

The Federal Bar Council’s Federal Criminal Practice Committee hosted the event at the U.S. District Court for the Southern District of New York courthouse in Lower Manhattan. The seminar was titled “Navigating Multi-Agency Enforcement Actions: Strategy, Policy and What Lies Ahead" and featured a seven-member discussion panel that included Andrew Weissman, the chief of the Fraud Section at the U.S. Department of Justice.

Weissman says the DOJ typically starts with the sentencing guidelines but also takes into account if the company in question had performed voluntary self-disclosure and remediation of its violations. The DOJ also determines whether a compliance monitor is necessary.

“If you don’t remediate, the penalty would be within range of the sentencing guidelines, even when cooperating,” Weissman explained.

Acting as moderator of the panel was Christina Dugger, Managing Director and Associate General Counsel of JP Morgan Chase.

Dugger introduced the topic of discussion by asking the panel both how regulatory agencies consider financial penalties and how they devise the proper number in that circumstance.

Yoon Hi Greene, Deputy General Counsel and Senior Vice-President at the Federal Reserve Bank of New York, explained in such a matter that the first goal isn’t just determining a monetary penalty value, but instead, to look at the facts of the violation(s) in question, and consult the proper assessment guidelines.

Matthew Levine, Executive Deputy Superintendent for Enforcement at the New York State Department of Financial Services, added that the DFS considers a number of factors when assessing penalties, such as the violation itself, along with “prior history, senior management involvement, cooperation and reform effort and the financial resources of the entity.”

“Getting to the right number is a difficult thing,” Levine said.

Dugger also brought up the topic of how yardstick measurements for penalties have changed in the last 15 years and posed the question of whether they are an effective deterrent for corporate criminal misconduct.

“We’ve never been able to have good empirical data [on that subject] because it’s compounded by changes in corporate enforcement policy,” said Jennifer Arlen, Director of the Program on Corporate Compliance and Enforcement at the New York University School of Law.

Arlen added that there wasn’t much of said enforcement before 2006, but that deterrence can be shown if the sanctions are “done right” and ensure that crime “doesn’t pay.”

Arlen also feels that nothing about the penalty process works unless self-reporting was being induced among employees.

A related topic discussed at the panel was the concept of more coordination and structure regarding penalties handled by multiple regulatory agencies, including those outside the U.S.

“Traditionally, the Fed’s policies were concurrent, but they are now independent,” Greene said, naming other factors being considered in such circumstances as the different mandates involved, jurisdictional concerns, how systemic is the corporate entity, and whether they’re located entirely in the U.S. or elsewhere.

Stephen M. Cutler, Vice-Chair of JP Morgan Chase, spoke to Greene’s position, which he labeled as “indefensible.”

“Everything you said...doesn’t fundamentally determine sanctions for conduct. If we consider all of these factors, justice becomes a multiple of the numbers of regulators at the table, which I think is indefensible,” Cutler said.

Weissman expressed his view that he felt the panelists were “talking past each other” and said “explicit uniformity” of guidance in these matters was provided in manual rules from the U.S. Attorney’s Office.

Cutler posited hypothetically if an action featuring five regulatory agencies were consolidated before a single judge, that he believed “appropriate sanctions should be thought about in their totality.”

George Canellos, partner at Milbank Tweed Hadley & McCloy in New York City added sanctions from the DOJ and the Securities and Exchange Commission and through the Foreign Corrupt Practices Act (FCPA) were duplicative and often sanction the same conduct, something he termed “more the norm than the exception.”

Dugger asked if there were any factors driving cooperation with regulatory agencies outside the country, to which Weissman responded the U.S. is ahead of the game in dealing with such cases and indicated it maintains a position of being “outward-facing to the rest of the world and willing to help.”

Canellos continued that it’s a common assumption in some of these cases that it’s normal to have five or six agencies regulating the same conduct, which he called “deleterious to the cause of justice” and something that creates competition between those agencies.

“In a [company’s] bonafide defense, they face the prospect of charges by the criminal [section of the] DOJ, then civil DOJ, three state regulators. There’s no res judicata, no possibility of defense and it affects leverage while producing a different result. At most, it should be one or two [regulators],” Canellos said.

Weissman contended with the amount of “rampant” corporate misconduct that occurs, the DOJ was pleased to have assistance from other agencies.

“Companies should be treated fairly, but it can’t be 10 percent [of corporate crime] that we’re prosecuting, let alone investigating. It’s great we have foreign regulators prosecuting. It’s not competitive as much as it is music to my ears. We are completely inundated. This isn’t such a limited pool of conduct that we’re fighting over it,” Weissman said.

From Legal Newsline: Reach Reporter Nicholas Malfitano at nickpennrecord@gmail.com

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