14 June 2018

Panasonic, Barclays, Société Générale – regulatory and criminal enforcement developments

In this edition of Settlements in Brief, we highlight three significant developments in Regulatory and Criminal Enforcement:

  • A settlement between Panasonic Avionics Corporation (PAC) and the US authorities. PAC will pay a total of USD 280 million to the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) to resolve Foreign Corrupt Practices Act (FCPA) charges. The charges concern the violation of the FCPA’s books and records, and internal control provisions.
  • A GBP 642,430 fine imposed on the Barclays Group’s (Barclays) CEO by the UK authorities. Both the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) fined the CEO for failing to “act with due skill, care and diligence” in response to a whistleblower report.
  • Settlement agreements reached between Société Générale (SocGen), the DOJ, the U.S. Commodity Futures Trading Commission (CFTC) and the French Parquet National Financier (PNF) in the first-ever coordinated resolution between France and the US. SocGen now ranks fifth on the FCPA top ten.

 

Panasonic Avionics Corporation pays USD 280 million to settle Foreign Corrupt Practices Act charges

Panasonic Corporation’s (Panasonic) California-based subsidiary PAC has agreed to pay the US authorities a total of USD 280 million to resolve FCPA charges. PAC has agreed to pay a USD 137.4 million criminal penalty to the DOJ. In addition, Panasonics’ in-flight entertainment subsidiary agreed to pay USD 143 million in disgorgement and pre-judgment to the SEC. The authorities allege that PAC violated the FCPA’s applicable anti-bribery and anti-corruption rules, books and records, and internal controls provisions.

According to court documents, PAC employees engaged a third party service provider to retain consultants for purposes other than providing actual consulting services. These irregularities were allegedly used to contract two consultants who at that time had influence over, or were involved with, contracts that would eventually earn profit for PAC. According to the court documents, one of the consultants, who was hired by a foreign state-owned airline at that time, had influence over a contract that would earn the company more than USD 92 million. The consultant allegedly received USD 875,000 as compensation between 2008 and 2014. The other consultant, who worked for a domestic airline at the time, was allegedly involved in a contract that would earn the company nearly USD 22.7 million. This consultant allegedly received USD 852,000 as compensation between 2007 and 2013.

Furthermore, court documents contained allegations that PAC employees used the third party service provider scheme to rehire previously-contracted foreign sales agents who did not meet the company’s due diligence requirements. According to court documents, these sales agents were paid more than USD 7 million between 2008 and 2014.

In addition, PAC allegedly concealed the payments made to the consultants and sales agent by falsely classifying the payments in its books, records and accounts. This mischaracterising caused the parent company, Panasonic, to also falsely record the payments in its own books, records and accounts.

As a part of the settlement, PAC entered into a Deferred Prosecution Agreement (DPA) with the DOJ. Under this three-year DPA, the company accepts responsibility for its actions and agreed to pay USD 137.4 million to the DOJ. The company also agreed to “continue to cooperate with the department’s investigation, enhance its compliance [programme], implement rigorous internal controls and retain an independent corporate compliance monitor for at least two years.” Despite the fact that PAC did not timely and voluntarily self-disclose the irregularities, the DPA was still reached due to the company’s cooperation. Moreover, the company’s cooperation in connection with its remediation efforts resulted in a 20% discount of the criminal fine.

Barclays Chief Executive pays GBP 642,430 fine for inappropriate response to whistleblower

The FCA and the PRA imposed a combined fine of GBP 642,430 on Barclays Group’s (Barclays) Chief Executive for allegedly failing to “act with due skill, care and diligence” in response to a whistleblower report. The Chief Executive agreed to pay GBP 321,200 to the FCA and another GBP 321,230 has to be paid to the PRA.

In June 2016, Barclays’ board received an anonymous letter raising concerns over the recruitment of an employee, and the Chief Executive’s involvement with that hiring. Later that month, a second letter raising the same concerns followed. According to the authorities’ final notices, only the second letter was purported to have been sent by someone at Barclays. This triggered the company’s Whistleblowing Policy to grant protection to only the second letter’s author. Following the second letter, the Chief Executive allegedly instructed Barclays’ Group Security to track down the first letter’s author. In ordering this, the Chief Executive complete disregarded the chance that the author of the first letter was also a Barclays employee and, with that, the possibility that the Whistleblowing Policy applied to the second author as well.

See also:
More information on the FCA’s notice can be found here.
More information on the PRA’s notice can be found here.

Barclays’ Compliance Department started an investigation into the allegations in the first letter which, together with other factors, led the Chief Executive to order Group Security to stop their investigation into the first author of the letter. On 8 July 2016, the Compliance Department stated in an update requested by the Chief Executive that the allegations concerning the hiring process appeared to be unsubstantiated. According to the authorities’ final notices, this update led to the Chief Executive instructing Group Security to resume their attempts to identify the author. The Chief Executive did not discuss his intent to resume tracking down the first author with the Compliance Department.

The FCA and PRA argue that the Chief Executive had a conflict of interest because some of the allegations concern him. The authorities believe that the Chief Executive should have kept an appropriate distance because of this conflict; instead of attempting to identify the first letter’s author, he should have spoken about this intent with Barclays’ whistleblowing experts and should have obtained permission to do so from the company’s experts before taking any action. According to the authorities, the Chief Executive’s failure to properly do this constitutes a breach of the requirement to act with due skill, care and diligence. Both authorities find that a penalty of 10% of the Chief Executive’s relevant annual income is appropriate. However, the FCA and PRA have taken into account that the Chief Executive settled at an early stage and have therefore granted him a 30% discount.

Not only did the FCA and PRA impose a fine on Barclays’ Chief Executive, the authorities also imposed requirements on Barclays because of concerns over the company’s whistleblowing systems and controls. Most notably, Barclays must annually disclose any whistleblowing cases where allegations are made against its senior management, and any instances where the company tried to identify a whistleblower. This is the first time that the FCA and the PRA have imposed such requirements on a regulated firm in relation to whistleblowing.

See also:
More information on the requirements agreed with the FCA can be found here and here.

More information on the requirements agreed with the PRA can be found here and here.

Société Générale reaches agreements with DOJ, CFTC and PNF

On 4 June 2018, France’s National Financial Public Prosecutor announced the first-ever coordinated resolution between France and the US in relation to SocGen. SocGen will pay a USD 585 million fine to the DOJ and the PNF for violating the FCPA. Additionally, it will pay a USD 750 million fine to the US to resolve allegations of the Libor manipulation.

The FCPA case

According to the DOJ, between 2004 and 2009 SocGen allegedly paid bribes through a Libyan “broker” in connection with 14 investments made by Libyan state-owned financial institutions. SocGen paid the Libyan “broker” over USD 90 million which was allegedly used to bribe high-level Libyan officials to secure investments from Libyan state institutions for SocGen. As a result, SocGen allegedly obtained 13 investments and one restructuring worth a total of approximately USD 3.66 billion and earned profits of USD 523 million.

Both the US and French authorities agreed on separate deferred prosecution agreements with SocGen. Under the DPAs, the total USD 585 million fine will be split equally between the two authorities. As part of the French DPA (created by Sapin II, see also In context February 2018) the French authorities will monitor the bank’s compliance procedures; therefore, the DOJ declined to impose a monitor.

Libor settlement

The DOJ also announced on 4 June that SocGen had agreed to pay the CFTC USD 475 million, and the DOJ USD 275 million, for violations of the Exchange Act. Together with the bribery violations, the total fines to be paid by the bank exceed USD 1 billion.

According to the DOJ, SocGen admitted that it “falsely deflated US dollar LIBOR submissions to make it look as though SocGen was able to borrow money at more favourable interest rates than it was actually able to do.”

For more information on the Libor settlement, see also the press release of the CFTC