Investigations and decisions
Hong Kong: Former senior executive of global investment bank arrested amid probe into hiring practices
Following the lead of the US authorities in probing potential breaches of the Foreign Corrupt Practices Act by banks due to their hiring practices, Hong Kong’s graft buster, the Independent Commission Against Corruption (“ICAC”), has reportedly arrested and questioned a former senior investment banker in an investigation believed to be also focusing on banks’ hiring practices. It is believed that the ICAC has searched the office of the former executive and has seized documents in connection with the investigation.
The US authorities started investigations in early 2013 against a number of banks, on allegations that relatives of Mainland Chinese officials and executives at state-owned enterprises had been hired in order to win business. That investigation has since expanded to other Asian jurisdictions and other banks. To date, the ICAC has not issued any press release regarding any investigation in this area.
UK: SFO opens criminal investigation into GSK
On 27 May 2014 the Serious Fraud Office (“SFO”) announced, in a short statement on its website, that it had opened a criminal investigation into “the commercial practices” of pharmaceutical giant GlaxoSmithKlein (“GSK”). This follows allegations that GSK employees have been paying bribes to doctors in China, Poland, Iraq, Jordan and Lebanon to prescribe its products.
Interestingly, the SFO used its statement regarding GSK to repeat its invitation to whistleblowers, saying: “Whistleblowers are valuable sources of information to the SFO in its cases. We welcome approaches from anyone with inside information on all our cases including this one…”
Earlier in May, police in China announced that they had uncovered bribery by GSK and its employees on a “massive scale”. They recommended that the company and its executives in China be prosecuted.
GSK has said that it will co-operate fully with the investigation and is committed to operating its business to the "highest ethical standards".
The SFO press release is available here.
UK: Court of Appeal reinstates prosecution of five unable to find adequate trial representation
The Court of Appeal has overturned the decision of a crown court judge that the prosecution of five men accused of a complex land-banking fraud should be halted, on the basis that cuts to legal aid had made it impossible for them to obtain adequate legal representation.
The case hit the headlines when, on 1 May 2014, Judge Anthony Leonard ruled that the inability of the five defendants to find barristers willing to represent them at the new lower rates of fees available under legal aid meant that they could not receive a fair trial. He halted the case. The Financial Conduct Authority, which was prosecuting the men, appealed.
On 21 May 2014 the Court of Appeal, led by Lord Justice Leveson, said that the judge had erred in his ruling. It was not for the judiciary to become involved in a dispute between barristers and the government over pay for complex cases. (Barristers’ pay in “very high cost cases” has been cut by 30% in recent reforms to the legal aid system.) It remains open to the defendants to apply for barristers from the Public Defender Service, despite claims that the service does not have enough senior barristers to deal with such cases.
The case has raised considerable interest, not only because the defendants’ barrister was none other than Alex Cameron QC, the Prime Minister’s brother, acting on a pro bono basis, but also because of its potential impact on other white-collar fraud trials currently in the system. These include the FCA’s biggest insider trading case, Operation Tabernula and the SFO’s pending prosecutions for alleged Libor rigging. The government will want to avoid these and other trials being stopped on the grounds that, due to the financial cuts the government has itself implemented, no barristers will represent the alleged offenders.
U.S.: D.C. Circuit denies motion to stay SEC’s Conflict Minerals Regulation
Regulation SD, a rule mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act and adopted by the U.S. Securities and Exchange Commission (the “SEC”), requires certain companies to publicly disclose their use of conflict minerals that originated in the Democratic Republic of the Congo (“DRC”) or an adjoining country. Disclosure is required if conflict minerals – such as tantalum, tin, gold, or tungsten – are “necessary to the functionality or production of a product” manufactured by those companies. The first conflict mineral disclosures are due June 2, 2014.
On April 14, 2014, the United States Court of Appeals for the D.C. Circuit, in National Association of Manufacturers v. SEC, invalidated a portion of the rule found to violate the First Amendment by requiring companies to disclose in SEC filings and on their websites if any of their products have “not been found to be ‘DRC conflict-free.’” Following the D.C. Circuit decision, the SEC issued guidance on April 29, 2014 to assist companies preparing disclosures by the quarter’s end. The guidance stated that companies do not need to declare any of their products as “not found to be ‘DRC conflict-free’” or “DRC conflict-undeterminable.”
The D.C. Circuit, on May 14, 2014, denied an emergency motion, filed by the National Association of Manufacturers, the U.S. Chambers of Commerce and the Business Roundtable, to stay the entire rule. The SEC has stated that it is committed to enforcing the portions of the rule upheld by the D.C. Circuit. As such, companies should proceed with the preparation of any Regulation SD disclosures.
The full text of the D.C. Circuit Court’s order is available here.
The full text of the SEC Guidance issued on April 29, 2014 is available here.