Netherlands: Settlements In Brief: Regulators Issue High Monetary Penalties In Combatting Financial Crime

Enforcement actions by criminal and supervisory authorities are settled regularly. In light of these developments, companies are advised to take appropriate measures. This month we highlight recent settlements with companies and individuals in the US and the UK. The first settlement concerns violation of the US Foreign Corrupt Practices Act. Employees of technology developer FLIR Systems allegedly provided unlawful travel, entertainment and expensive watches to foreign government officials in Saudi Arabia to obtain or retain business. According to the SEC, FLIR lacked sufficient internal controls to detect and prevent the improper travel and gifts.

The US Department of Justice also charged four companies and five individuals with facilitating the illegal export of several commodities. The DOJ, and other US and UK regulators, also reached a settlement with Deutsche Bank AG for the bank's alleged involvement in the manipulation of the London interbank offered rate. The UK Financial Conduct Authority fined Merrill Lynch International for allegedly failing to accurately report transactions. Merrill Lynch International had earlier received a fine and a warning in the same context.

FLIR Systems, Inc.

On 8 April 2015, the US Securities and Exchange Commission (SEC) reached a settlement with FLIR Systems, Inc. (FLIR), an infrared technology developer based in Oregon. The SEC charged FLIR with violating the anti-bribery, books and records, and internal control provisions of the Foreign Corrupt Practices Act (FCPA). FLIR agreed to pay the SEC approximately USD 9.5 million. The settlement includes disgorgement of USD 7,534,000 and interest of USD 970,584. In addition, the SEC assessed a USD 1 million penalty, for a total of USD 9,504,584. Furthermore, FLIR must report to the SEC for two years on its efforts to comply with the FCPA.

In 2009, employees in FLIR's Dubai office allegedly provided unlawful travel (a "world tour"), gifts and entertainment to foreign government officials in Saudi Arabia in order to obtain business. The travel and gifts allegedly included personal travel and expensive watches. According to the SEC, the extent and nature of the travel and the value of the gifts were concealed by the FLIR employees and, consequently, falsely recorded in FLIR's books and records. In addition, from 2008 through 2010, FLIR allegedly provided additional trips to the same government officials, which were booked as business expenses. However, there is incomplete supporting documentation to confirm the business purpose of these additional trips. According to the SEC, FLIR lacked sufficient internal controls to detect and prevent the improper travel, gifts and entertainment.

On 18 November 2014, the SEC levied sanctions on the two former employees. FLIR purportedly earned more than USD 7 million in profit from the sales. The infrared technology developer self-reported the offences and cooperated with the SEC's investigation, but did not plead guilty.

Four companies and five individuals charged with violating US sanctions against Iran

On 17 April 2015, the U.S. Department of Justice (DOJ) charged four companies and five individuals with allegedly facilitating the illegal export of high-tech microelectronics, uninterruptible power supplies and other commodities through Taiwan and Turkey to Iran in violation of the International Emergency Economic Powers Act (IEEPA). Smart Power Systems Inc. and three of the individuals were alleged members of an Iranian procurement network operating in the US. Hosoda Taiwan Limited Corporation, Golsad Istanbul Trading Ltd., the Faratel Corporation and the other two individuals have also been charged as part of the scheme.

Between approximately July 2010 and the present, the defendants allegedly engaged in a conspiracy to obtain various commodities, including controlled US-origin microelectronics. They allegedly exported these commodities to Iran, while evading the government licensing system which is set up to control those exports. The microelectronics shipped to Iran purportedly included microcontrollers and digital signal processors. According to the DOJ, these commodities are frequently used in a wide range of military systems, including surface-air and cruise missiles. The defendants allegedly sent at least USD 24 million worth of commodities to Iran in the specific time period.

The DOJ considers this illegal export of sensitive US technologies and commodities a threat to national security. The prevention, investigation and prosecution of this export are among the DOJ's highest priorities. The individual defendants each face up to 20 years in federal prison. The corporate defendants face fines of up to USD 1 million for each count under the IEEPA. In conjunction with the unsealed indictment, the U.S. Department of Commerce designated seven foreign nationals and companies alleged to have facilitated the Iranian procurement network, adding them to its sanctions listings.

Merrill Lynch International

On 22 April 2015, the UK Financial Conduct Authority (FCA) fined Merrill Lynch International (MLI) USD 19.8 million for failing to accurately report 35,034,810 transactions and for entirely failing to report another 121,387 transactions between November 2007 and November 2014. According to the FCA, MLI failed over several years to correct problems with its transaction reports. Despite FCA guidance, an earlier fine in 2006 of USD 225,000 for inaccurately reporting 1,200,000 non-UK European equity transactions, and a private warning issued in 2002 for failing to report 300,000 transactions, the alleged misconduct continued.

MLI agreed to settle at an early stage of the investigation and received a 30% reduction in the overall fine. Despite the reduction, this is so far the biggest fine imposed by the FCA for transaction reporting failures.

Deutsche Bank AG

On 23 April 2015, the DOJ reached a settlement with DB Group Services (UK) Limited, a wholly-owned subsidiary of Deutsche Bank AG (Deutsche Bank). According to the DOJ, DB Group Services (UK) agreed to plead guilty to wire fraud for its involvement in the manipulation of the London Interbank Offered Rate (LIBOR). DB Group Services (UK) will pay a USD 150 million fine. In addition, Deutsche Bank entered into a Deferred Prosecution Agreement (DPA) and admitted its involvement in the manipulation of LIBOR and participation in a price-fixing conspiracy in violation of the Sherman Act by rigging Yen LIBOR contributions with other banks. The DPA requires the bank to continue cooperating with the DOJ in its ongoing investigation, to pay a USD 625 million penalty and to retain a corporate monitor for the three-year term of the DPA. In total, Deutsche Bank agreed to pay approximately USD 2.519 billion in fines and regulatory penalties to US regulators, including the DOJ, the Commodity Futures Trading Commission and New York State Department of Financial Services; and another GBP 226.8 million to a UK regulator, the FCA. This is part of the investigation into previous submissions for interbank offered rates benchmarks.

According to the agreements, from at least 2003 through early 2011, several Deutsche Bank derivatives traders, whose compensation was connected to their success in trading financial products tied to LIBOR, requested that the bank's LIBOR and EURIBOR submitters contribute rates that would benefit the trader's trading positions rather than rates that complied with the definition of LIBOR. As a result of this misconduct, Deutsche Bank defrauded counterparties that were not aware of the manipulation.

Deutsche Bank admitted that:

  • the misconduct affected the resulting LIBOR fix on various occasions
  • its employees engaged in this conduct through face-to-face requests, electronic communications and telephone calls
  • the bank cooperated with other banks to manipulate LIBOR contributions

In entering into a DPA with Deutsche Bank, the DOJ took several factors into account. One factor was that the bank's cooperation with the investigation, though often helpful, was not always full and complete according to the DOJ, but improved over time. The DOJ also took into account the extensive remedial measures undertaken by Deutsche Bank's management and its enhanced compliance program. Changes to procedures and controls across Deutsche Bank include:

  • the creation of a Benchmark and Index Control Group which will oversee the bank's interbank offered rates submissions and will report to an independent control function
  • segregating duties between EURIBOR and LIBOR submitters and traders
  • upgrading the bank's systems and controls so that electronic and voice communications can be identified more quickly

Deutsche Bank was a member of the panel of banks whose submissions were used to calculate the LIBORs for a number of currencies, including US Dollar LIBOR, Yen LIBOR, Pound Sterling LIBOR, Swiss Franc LIBOR and EURIBOR. The bank has agreed to continue cooperating with the investigation. The DPA does not prevent the DOJ from prosecuting culpable individuals for related misconduct.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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