FRA

Forensic Risk Alliance

Financial Services Regulation and Disputes Summit 2019

Last week FRA Director, Edward Nkune, attended the Legal Business Financial Services Regulation and Disputes Summit. This networking event brings together leading disputes specialists from private practice, the judiciary, regulators and in-house legal departments at financial services companies. Sessions covered included: A decade of post-crisis banking litigation – lessons, reflections and fault lines; Having the right dispute resolution strategy and are you cyber ready for the regulators?

Below are Edward’s key insights from the event:

  • Future trends may see banks fighting more cases, rather than settling litigation to provide certainty to shareholders. Especially with respect to regulatory enforcement.
  • FRC have upped cases (either section 166 reviews commissioned or enforcement actions taken) as a result of increased reporting to the regulator. From an FCA perspective this is still designed to encourage better behaviour.
  • Attitudes have changed over the last ten years and it is now not unusual to sue a bank.
  • Competition issues aren’t intuitive for banks. Unlike fraud where bad actors understand what they are doing, it is hard to get front line bankers to understand that some of the conversations they are having with their peers are inappropriate.
  • The Netherlands are an upcoming location for an increase in class actions.
  • The National Cyber Security Centre which was created in 2016 as part of the Government’s five-year cyber security strategy presented on some of their capability. Stressing that they act in a purely advisory capacity to help make the UK the safest place to work on-line. Their expertise stems from their capabilities along with their access to intelligence (SIGINT) from GCHQ of which they are a part.
  • A new trend in technology disputes are likely following on from “AI” apps being created by the business side of companies without sufficient Legal sign off. The creation of new actions that are taken automatically, for example, making a decision on a loan application. When a human makes this kind of decision they look at the surrounding facts of a particular application. An app can look at all data across the loan provider and is therefore susceptible to liability in one central area. For example, bias. This brings liability up the decision making chain for the bank.
  • Blockchain transactions also provide increased areas of liability. Whilst the transaction is protected the name and location of third parties may be unknown. It is also possible that the blockchain record does not mirror real life and cannot be changed. Moreover the blockchain community would argue that it shouldn’t be changed even if it is wrong.
  • If you are a regulated entity, supervision requires that an investigation is conducted to understand any potential bad behaviour. With the concerns around privilege still a topic of interest, it is likely that the result will be fewer and fewer interview notes being taken.

Key insights from the 13th Annual Forum on the FCPA

FRA Directors Umair Nadeem and Samantha Hsu recently attended the 13th Annual Forum on the FCPA. The two-day forum highlighted updates on the policy, as well as enforcement priorities. Below, Umair and Samantha share their key insights.

Monitorships

Since 2013, 1 in 3 corporate FCPA resolutions have involved monitors. There have been 15 FCPA monitorships announced that have not yet concluded, with the average monitorship lasting 30 months.

During a session that provided an insider view into monitorship considerations, Partners from King & Spalding LLP, Paul Hastings LLP, and Bilfinger suggested a few key points to focus on when considering monitorship agreements for both companies and forensic firms:

  • Privilege v. Confidentiality
  • Fee structure/discounts/budgets/billing/timekeeper approval
  • Supporting the Monitorship (Language(s), local law advice, access to third parties/ex-employees)
  • Coordination among monitors
  • Conceptually align on key points
  • Reporting obligation

Cross-Border Investigations

As anti-corruption policies and enforcement matures, the US DOJ continues to implement new policies and guidelines. The “No Piling-On” policy was added in 2018 and has led to the DOJ making concerted efforts to seek apportion penalties only between relevant jurisdictions. Efforts have also been made to better coordinate with foreign entities. The US DOJ has coordinated resolutions with foreign entities in nine cases since 2016, doubling the total of previous year’s resolutions combined

Updates to Mexico’s National Anti-Corruption System (SNA) led to an enactment of four new laws, as well as amendments to existing ones. Also new for SNA is the Citizen’s Participation Committee. In efforts to maintain transparency, one of the five non-government persons selected for the committee will chair the Coordinating Committee, the group responsible for SNA deployment and coordination at Federal and State levels. Companies operating in and in partnership with Mexico operators will face a few challenges when adapting to these new laws, including adjusting to a new regime, new legal concepts without precedent, and an unpredictable political environment that could influence enforcement.

In the LATAM space, there were 4 total LATAM FCPA enforcement actions between 2016 and 2018. New anti-bribery, anti-corruption, and anti-money laundering legislation has been introduced in Peru, Argentina, Uruguay, and Costa Rica.

Cases to Watch

With anti-corruption policies and enforcement increasing across the globe, multi-jurisdictional cases will continue to make headlines this year and beyond. Key cases to watch include:

• Unaoil-related cases between the US and UK
• Goldman Sachs/1MDB cases between the US, Malaysia, Singapore and Switzerland
• Airbus cases between US, UK and France
• Group Aval between US and Colombia; and
• Glencore between US and UK

For more information on the FCPA Forum in Houston and future FCPA events, visit their website.

FRA Director Mike Trahar Speaking at The Sedona Conference eDiscovery Negotiation Training

FRA Director, Mike Trahar, will join the The Sedona Conference Institute 2019 eDiscovery Negotiation Training: Practical Cooperative Strategies taking place in Washington, DC February 6 – 7. The Sedona Conference Institute is presenting the eDiscovery negotiation training, with the goal of fostering cooperation among parties during discovery, particularly with respect to Electronically Stored Information (ESI). The event will gather leading in-house counsel, outside counsel, and eDiscovery experts with the aim of helping participants develop practical skills in eDiscovery negotiation.

Mike is on the faculty with Sedona, and will help lead mock trial preparations of two teams, one each for plaintiff and defendant as part of a two-day training on eDiscovery negotiation.

Key insights will be featured on the FRA website following the event.

Key insights from the 5th Annual Conference on Anti-Corruption in the Nordics

FRA Director Tytti Saarinen attended C5’s leading Anti-Corruption Conference in the Nordics last week. The 5th Annual Conference focused on implementing an effective compliance strategy in line with international and local legislations to control corruption risks in overseas operations.

In her opening remarks before the panel, co-chair Bapsy Dastur asked the question, what is compliance and why do we need it? Is there a spirit that we want to develop compliance or are we fixing problems with rules? A third point of view according to Bapsy is that we don’t need compliance at all. These were the viewpoints reflected in the government panel with representatives from Norway, Sweden and Finland.

Government Panel

The government panel discussed, amongst other items, anti-corruption enforcement priorities and priorities for compliance in the Nordics. Norway and Sweden, unlike Finland, have put in place specific units to fight corruption, ØKOKRIM and Swedish National Anti-Corruption Unit respectively. Despite the lack of a specific unit in place, studies show Finland is characterized by larger-scale structural corruption that is difficult to detect. Such corruption often occurs in the interface between the public and the private sectors and takes the form of giving and accepting undue advantages, conflicts of interest and favouritism. Panellist Juuso Oilinki, Special Adviser in the Department of Criminal Policy pointed out that “you don’t find corruption unless you look for corruption”. He added that the third place in the recently published Corruption Perceptions Index gives the wrong picture to the Finnish politicians about the real state of matters.

The panellists also gave an update about current significant corruption cases in their countries. In Norway there is an ongoing Oslo municipality case as well as CAS Global and Tine. In Sweden there will be another verdict in the Telia corruption case on 15 February. According to Oilinki, Finland has about 20-30 cases per year with a conviction rate less than 50%. When struggling with scarce resources in the Nordic countries, all panellists agreed that the researching journalists have an important role, while many of the corruption cases under investigation come from the media. All panellists agreed that bad publicity punishes the companies but that alone is not enough – we need to get more predictable company liability regulation in place to raise the bar in fighting corruption in the Nordics.

Panellist Anna Møe, Deputy Director at ØKOKRIM talked about the challenges in implementing code of conducts and compliance programmes. She underlined the importance of risk assessment and refers to Tine case as an example of risk assessment gone wrong. She challenged the audience to think whether we always really recognize if we don’t get an answer? Also, sometimes we simply don’t ask questions because we might be afraid of the answers. Møe seems to be right on spot, as according to other panellists, also both DOJ and SEC are continuously pushing for better compliance risk assessment.

Compliance Programme 2.0 in the Nordics

Harri Spolander, Head of Internal Controls at Fortum Oyj and Camilla Nyhus-Møller, Chief Legal and Compliance Officer at Höegh LNG AS discussed the ongoing upgrades to global anti-corruption policies, procedures and internal controls. As Fortum is operating on the highly-regulated energy sector, compliance simply gives the company the license to operate and it needs to be the backbone in all the operations. Fortum has a rolling 18 months compliance program built on the COSO model and it is regularly updated and reviewed. Prior to the upgrades, there were manuals and policies in place but these were not known by employees. Spolander underlines that the problem might not be the rules or lack of the rules but simply the fact that people are not familiar with these. According to the panellists, compliance risk is regarded as the single largest reputational risk for companies.

Internal Investigation Protocols

The credibility of investigation comes from the process. At the same time, one of the hardest things is to trust the process. These were the opening remarks from Tom Best, Partner at Steptoe & Johnson on the panel discussing internal investigation protocols. The current state of investigation and whistle blowing cultures in the Nordics were also discussed. The panellists, Ryan D. Junck, Partner at Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates and Richard Fleetwood, Senior Compliance Advisor at Consilio International AB, shared the view that companies in the Nordics are lagging behind. Compliance officers have an important role in the process and development of these areas. The first question is, is there a process in place for investigation? According to Junck, investigation protocols are rather rare, while whistle blowing protocols more common. Also, if the compliance team is small, documented protocols in general are rarer.

What comes to managing internal investigations, Junck warned that without investigation protocols in place, things can go sideways very quickly as everyone tries to be involved. A good investigation, from a process point of view, is 1) documented findings, 2) documented remediation, 3) testing and 4) training.

Bapsy Dastur summarized the discussions of the conference by calling for a robust risk assessment and commitment to compliance from top management. The quote she made from Warren Buffet crystallized the importance of integrity: “Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without [integrity], you really want them to be dumb and lazy”.

FRA Dallas continues to grow with the addition of Susan Dillon as Senior Director

Susan joins FRA as a Senior Director in the Forensic Accounting team based in FRA’s Dallas, Texas office. Susan brings with her more than 25 years of experience in complex commercial litigation, forensic investigations and accounting for many Fortune 500 companies.

Prior to joining FRA, Susan was the Director of Consulting to experienced national trial lawyers. Susan has worked on litigation matters and disputes involving billions of dollars in damages regarding intellectual property, environmental law, breach of contract, breach of fiduciary duty, corporate governance and antitrust. In her roles she has worked for a broad range of industries, including insurance, banking, hospitality, and manufacturing. Susan also has extensive experience in all aspects of litigation, including expert testimony, damages, settlement and financial analysis, complex eDiscovery and forensic investigations.

Prior to joining the law firm, Susan worked as a financial executive at TIG Holdings Ltd. and Kemper insurance companies where she was responsible for planning, budgeting, and financial reporting, as well as managing due diligence and adherence to outsourced contracts. She also served in TIG Holdings Ltd. internal audit department identifying and evaluating significant exposures to risk and modifying risk management and control systems.

Susan explains that FRA’s reputation and expertise initially attracted her to the firm. “I had heard about FRA from multiple forensic consultants in the industry. When I met with the FRA team, I could easily see that FRA’s reputation was well-deserved. FRA is full of talented, enthusiastic professionals focused on delivering the best work product to their clients and I am excited to be a part of that team.”

FRA’s Dallas Partner and Head of the firm’s dispute services practice, Jerry Hansen, comments, “Susan’s litigation and industry experience is an asset to FRA’s operations not only in Dallas, but throughout the company. The combination of her business acumen, litigation and forensic accounting and investigation experience will allow FRA to continue to provide our clients insight into all aspects of investigations. We look forward to her contributions to existing and new projects.”

Susan Dillon, Senior Director