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All Things Investigations

All Things Investigations: Mike Huneke’s Top 5 Takeaways from The 2024 ECCP

Welcome to the Hughes Hubbard Anti-Corruption & Internal Investigations Practice Group’s podcast, All Things Investigation. In this podcast, host Tom Fox joins Mike Huneke as we explore the recently released 2024 ECCP

In this discussion, Tom and the speaker examine the extent to which the government issues detailed guidance, advice, and settlement documents in areas of law like the Foreign Corrupt Practices Act (FCPA). The conversation reflects on historical perspectives, including a statement by an SEC commissioner from the 1980s who compared issuing guidance on the FCPA to advising on committing murders. The dialogue also touches on lessons from the Enron collapse and the dissolution of Arthur Andersen, noting the government’s cautious approach to putting corporations, employees, and shareholders at risk. The speaker argues that while this guidance can be seen as helping companies avoid misconduct, ignoring or rejecting it can lead to significant legal trouble.

Key Highlights:

  • Introduction to ECCP
  • Government’s Approach to Corporate Risk
  • Mike’s Top 5 Takeaways
  • What does it all mean?

Resources:

Hughes Hubbard & Reed website

Mike Huneke

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Compliance Tip of the Day

Compliance Tip of the Day: TD Bank Lessons Learned – What Does AML/BSA Enforcement Have to Do With ABC?

Welcome to “Compliance Tip of the Day,” the podcast where we bring you daily insights and practical advice on navigating the ever-evolving landscape of compliance and regulatory requirements.

Whether you’re a seasoned compliance professional or just starting your journey, our aim is to provide you with bite-sized, actionable tips to help you stay on top of your compliance game.

Join us as we explore the latest industry trends, share best practices, and demystify complex compliance issues to keep your organization on the right side of the law.

Tune in daily for your dose of compliance wisdom, and let’s make compliance a little less daunting, one tip at a time.

Why does every type of compliance professional need to study the TD Bank enforcement Action?

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Corruption, Crime and Compliance

DOJ Charges Visa with Monopolization and Exclusionary Conduct in The Debit Card Market

What happens when a single company dominates a crucial segment of the financial market?

In this episode, Michael Volkov explores the Justice Department’s recent antitrust lawsuit against Visa, highlighting allegations of monopolization and exclusionary practices in the debit card market. With Visa controlling over 60% of debit transactions in the U.S., the DOJ aims to restore competition and prevent further stifling of innovation in this vital financial sector. Tune in as Michael breaks down the case details, Visa’s strategic responses, and the implications for the broader financial landscape.

Key Points

  • The DOJ has charged Visa with monopolization and exclusionary conduct under Sections 1 and 2 of the Sherman Act.
  • Visa holds over 60% of the U.S. debit transaction market, with MasterCard as its closest competitor at 25%.
  • The complaint alleges Visa engages in exclusionary agreements that penalize banks and merchants for using alternative debit networks.
  • The 2010 Durbin Amendment aimed to increase competition but has had minimal effect on Visa’s dominance, leading to ongoing scrutiny.
  • Visa’s strategies include partnering with potential competitors while leveraging significant market power to suppress competition.
  • Following successes in technology sector enforcement, the DOJ is now expanding its scrutiny into financial markets, indicating a potential shift in antitrust enforcement dynamics.

Resources:

Michael Volkov on LinkedIn | Twitter

The Volkov Law Group

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FCPA Compliance Report

FCPA Compliance Report: Unlocking Financial Gains Through Proactive Compliance: Insights with Nicolas Tollet

Welcome to the award-winning FCPA Compliance Report, the longest running podcast in compliance. In this edition of the FCPA Compliance Report, Tom Fox cross post the first episode of a new podcast series from Nicolas Tollet, partner at Hughes, Hubbard and Reed

In this episode, Tollet delves into the substantial financial benefits stemming from robust compliance measures. Tollet recounts a company’s journey through two deferred prosecution agreements (DPAs) related to bribery and corruption allegations in Africa and Brazil, detailing how proactive compliance actions saved the company approximately $100 million. He emphasizes the crucial role of an independent monitor and in-depth compliance reviews in identifying and mitigating misconduct. Tollet explores the implementation of compliance policies and training programs, drawing comparisons with high-profile cases like Walmart’s FCPA settlement, to illustrate the long-term financial stability and operational integrity gained through early compliance investment.

Highlights in this Episode:

  • The First Deferred Prosecution Agreement (DPA)
  • The Second DPA and Lava Jato Investigation
  • Compliance as a Competitive Advantage
  • Detecting and Addressing Misconduct
  • Remediation and Strengthening Compliance
  • Financial Benefits of Compliance
  • Comparing with Walmart FCPA Case

 Resources:

Nicolas Tollet at Hughes Hubbard & Reed

Tom Fox

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For an audio/video version of the Compliance Kids book, Speaking Up is AWESOME, contact Tom Fox.

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Adventures in Compliance

Adventures in Compliance: Compliance Lessons from The Adventure of The Blanched Soldier

In this new season of Adventures in Compliance, host Tom Fox takes a deep dive into the Sherlock Holmes collection The Case-Book of Sherlock Holmes  by Arthur Conan Doyle. It is final set of twelve Sherlock Holmes short stories by Arthur Conan Doyle first published in the Strand Magazine between October 1921 and April 1927.

In this episode, we consider the story, the Adventure of the Blanched Soldier. In this story, Sherlock Holmes investigates a case involving a missing man and an unusual illness, revealing a family secret in the process. This story provides several valuable compliance lessons for the 21st century compliance professional.

“The Adventure of the Blanched Soldier” teaches us that transparency, due diligence, and the ethical handling of sensitive information are core components of an effective compliance program. Holmes’s methods remind us that ignoring or concealing potential risks can have far-reaching consequences.

Highlights Include:

  • Transparency and Ethical Duty
  • Due Diligence and Investigation
  • Confidentiality and Sensitive Information
  • Responsibility to Act
  • Health and Safety Compliance

Resources:

The New Annotated Sherlock Holmes

Sherlock Holmes FAQ by Dave Thompson

For an audio/video version of the Compliance Kids book, Speaking Up is AWESOME, contact Tom Fox.

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Daily Compliance News

Daily Compliance News: October 21, 2024 – The Pillow Talk Edition

Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance, brings you compliance-related stories to start your day. Sit back, enjoy a cup of morning coffee, and listen to the Daily Compliance News. All from the Compliance Podcast Network.

Each day, we consider four stories from the business world: compliance, ethics, risk management, leadership, or general interest for the compliance professional.

In today’s edition of Daily Compliance News:

  • More evidence of fraud in the Houston Bankruptcy Court scandal (Bloomberg)
  • Did Tim Cook call Trump to complain about the EU? (BBC)
  • Union to vote on ending the Boeing strike. (NYT)
  • Not exactly New Coke but it’s too many balls. (WSJ)

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Blog

TD Bank, Part 6 – Caremark Claims – The Board of Directors

Today, I continue my exploration of the TD Bank AML/BSA enforcement action through two of the most significant cases regarding Boards of Directors and corporate compliance: the Caremark and Stone v. Ritter decisions. The former decision was released in 1996, and the latter, some ten years later, in 2006. The original Caremark decision laid the foundation for the modern obligations of Boards of Directors in oversight of compliance in general and a company’s risk management profile in particular. Stone v. Ritter confirmed the ongoing vitality of the original Caremark decision.

Caremark

In Caremark, the Court noted that director liability for a breach of the duty to exercise appropriate attention can come up in two distinct contexts. The first, liability can occur from a board decision that results “in a loss because that decision was ill-advised or “negligent.” In the second, board liability for a loss “may be said to arise from an unconsidered failure of the board to act in circumstances in which due attention would, arguably, have prevented the loss.”

However, there is a second type of liability that boards can run afoul of under Caremark, and it is the one that seems to be the liability under which most boards are found wanting in successful Caremark claims. It is when “director liability for inattention is theoretically possible to entail  circumstances in which a loss eventuates not from a decision but from unconsidered inaction.” Board obligations had changed, and the Caremark court noted the following: the “obligation to be reasonably informed concerning the corporation, without assuring themselves that information and reporting systems exist in the organization that is reasonably designed to provide to senior management and to the board itself timely, accurate information sufficient to allow management and the board, each within its scope, to reach informed judgments concerning both the corporation’s compliance with the law and its business performance.”

Stone v. Ritter

This case involved money laundering and a bank’s failure to report suspicious activity, which led to an employee running a Ponzi scheme. The bank in question was fined over $40 million. Once again, the plaintiffs needed to be more successful in their claims. The Stone v. Ritter court approved the Caremark Doctrine and further specified that Caremark required a “lack of good faith as a “necessary condition to liability.” It is because the Court was not focusing simply on the results but on the board’s overall conduct “of the fundamental duty of loyalty. It follows that because a showing of bad faith conduct “is essential to establish director oversight liability, the fiduciary duty violated by that conduct is the duty of loyalty.”

The Stone v. Ritter court ended by refining the Caremark Doctrine to define the necessary conditions for director liability under Caremark.

They are:

  1. Directors utterly failed to implement any reporting or information system or controls. This is called a Prong 1 claim or the ‘Information-Systems Theory and
  2. If they have implemented such a system or controls, they have consciously failed to monitor or oversee its operations, thus disabling themselves from being informed of risks or problems requiring their attention. This is called a Prong 2 claim or the ‘Red Flag Theory.’

In either situation, imposition of liability requires a showing that the directors knew they were not discharging their fiduciary obligations. Where directors fail to act in the face of a known duty to act, thereby demonstrating a conscious disregard for their responsibilities, they breach their duty of loyalty by failing to discharge that fiduciary obligation in good faith.

Board AML Obligations

TD Bank’s Board of Directors had a variety of obligations regarding compliance and the bank’s AML program. According to the Information, these duties included:

  1. Supervision and Strategy. The Board oversaw the Group’s overall operations to ensure the effective execution of major strategies and enterprise risk management.
  2. Executive Oversight. The Board is responsible for executive hiring and management and provides leadership across the Group’s subsidiaries.
  3. Internal Controls and Compliance. The Board was mandated to ensure that internal controls were effective and that the Group complied with applicable regulations. It was also mandated to set the tone for corporate integrity and culture and promote a compliance-oriented environment throughout the organization.
  4. Subsidiary Oversight. For TD Bank’s U.S. operations, the Board of TDBUSH was to oversee and monitor the BSA/AML program. They appointed the BSA Officer, were mandated to ensure the program’s effectiveness, and allegedly received regular updates on its performance. (More on this in a later blog.) The board also challenges information and actively participates in risk briefings to understand the program’s risks and controls adequately.

Overall, the Board was accountable for maintaining a strong compliance culture, particularly around AML policies, and ensuring a top-down commitment to these principles. Which, if any, of the above did the TD Bank actually fulfill?

Board Knowledge of AML and Compliance Deficiencies

Over at least eleven years, the Board of Directors at TD Bank Group and its subsidiaries was repeatedly made aware of failures in the Banks’ AML program through several channels. These channels included:

  1. Regulatory Actions. In 2013, enforcement actions by the OCC and FinCEN resulted in a $37.5 million penalty, with the board of TDBNA signing the agreement. The failure to identify $900 million in suspicious activity highlighted concerns about inadequate AML training.
  • Ongoing Audits. Between 2017 and 2020, internal audits identified multiple unresolved AML deficiencies, such as outdated transaction monitoring scenarios and governance issues. The Board was informed of these audit findings and the associated remediation plans.
  1. Third-Party Consultants. Between 2018 and 2021, external consultants flagged key weaknesses, including delays in AML technology upgrades, outdated parameters, and inefficiencies in testing transaction monitoring scenarios. The Board was informed of these reports.
  2. Direct Board Briefings. In 2021, the Boards of TD Bank Group, TDGUS, and TDBUSH were directly briefed on the need for a more adaptive AML framework to address evolving risks, which had yet to be adequately implemented over time.

Despite multiple alerts from regulators, auditors, and consultants, the Board of Directors needed to take sufficient action to resolve the identified deficiencies in the AML program, which led to significant unmonitored customer activity.

The Board and Caremark

As previously noted, the standard for violation of the Caremark Doctrine is one of two potential claims:

  1. Directors utterly failed to implement any reporting or information system or controls. This is called a Prong 1 claim or the ‘Information-Systems Theory and
  2. If they have implemented such a system or controls, they have consciously failed to monitor or oversee its operations, thus disabling themselves from being informed of risks or problems requiring their attention. This is called a Prong 2 claim or the ‘Red Flag Theory.’

It appears that the Board of Directors was well aware of its obligations regarding AML reporting and oversight. Yet, for some reason, the Board failed to act on any of the information presented to it.