Resolution of external
investigations: strategies
and limitations
Paul Lomas
Helen Buchanan
Tim Coleman
Laurent Garzaniti
10 July 2012
Freshfields Bruckhaus Deringer LLP
Today’s agenda and speakers
Introduction
Do you have to make admissions?
What about publicity?
Paul Lomas
Process for reaching a settlement
Helen Buchanan
Partner, London
T +44 20 7832 7059
M +44 7802 972 376
E paul.lomas@
freshfields.com
Partner, London
T +44 20 7716 4884
M +44 7834 889 875
E helen.buchanan@
freshfields.com
Reasons for settlement– pros and
cons
Tim Coleman
Multi-jurisdictional settlements
Follow on litigation risks
Laurent Garzaniti
Partner, Washington
T +1 202 777 4560
M +1 347 446 3854
E tim.coleman@
freshfields.com
Partner, Brussels
T +32 2 504 7115
M +32 478 42 11 15
E laurent.garzaniti@
freshfields.com
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Introduction
Companies should aim to coordinate a global resolution with all regulators
that have an interest in the investigation
Issues to consider include:
• What form of resolution is available in each jurisdiction
• How to coordinate resolutions with multiple jurisdictions
• What disclosures and admissions are required to reach resolution in each
jurisdiction
• The impact of settlements on related investigations and related civil litigation
• How to minimise the PR and capital market impact of any resolution
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Process for reaching a settlement
Process for reaching a settlement will vary across jurisdictions
Also depends on the regulator that you are dealing with
Examples:
• US – can reach deferred prosecution agreements/non-prosecution agreements
with DoJ/SEC/settlements with other regulators
• Brazil – settlements possible with federal and state prosecutors; leniency
programme offered by Brazilian anti-trust authorities
• UK – negotiated settlements possible with the FSA and HMRC; leniency
programme/early resolution offered by OFT, proposals for deferred prosecution
agreements with the SFO
• Hong Kong – settlements available with SFC, HKMA and stock exchange
• France – AMF can settle cases involving administrative breaches using
composition administrative; settlement also available with Autorité de la
Concurrence; Law of 13 December 2011 now enables public prosecutor to
accept guilty pleas for all offences
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Process for reaching a settlement
NB Not all regulators are able to enter into settlements
• Japan – unable to agree formal settlements
• Italy – regulators unable to enter into formal settlements but possible to reach an
understanding with the regulator(s) that no further action will be taken. Plea
bargaining is available for criminal actions
• Germany – no official settlement mechanism but regulators will often enter into
discussions and reach informal agreements
• China – no official settlement procedures to resolve enforcement action by CSRC,
SAIC, NDRC for market manipulation, bribery and securities law related offences;
no plea bargaining or amnesty arrangements under criminal-procedural law BUT
settlement mechanism is available with SAIC and NDRC for anti-monopoly law
offences. Leniency programme has been introduced in anti-trust context
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Do you have to make admissions?
Again practices vary between jurisdictions and between regulators
• UK – anti-trust regime requires admission to infringement to benefit from
leniency regime; but FSA/UKLA only requires that facts and matters in
enforcement notice won’t be disputed; certain admissions likely under proposals
for DPA
• US – SEC, DOJ and other civil settlement agreements can include no
admissions or even denials; criminal plea agreements and DPAs require
binding admissions
• Spain – admissions are not necessary in proceedings with CNMV or
competition authorities; enables a corporate to undertake to change conduct
without admitting a prior infringement
• Italy – making an admission likely to be viewed as cooperative behaviour by the
regulator and could lead to a reduction in sanction
• Hong Kong – admission not required for settlements with SFC or stock
exchange but SFC will only do so in appropriate cases, eg Lehman ‘minibonds’
settlement
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What about publicity?
Can you negotiate terms of the settlement announcement with the
regulator?
Settlement will usually trigger disclosure obligations to the capital markets
• Timing of disclosure?
• What information should the announcement contain?
- Information about the termination of the investigation
- Report on the findings/conclusions
- Any remediation steps that are being taken
- Details of any redress
• Include details in normal reporting requirements eg auditing reports/periodic
returns (eg US SEC 10K filings)
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What about publicity?
Dealing with other interested parties:
• other regulators (potentially in other jurisdictions)
• briefings to analysts
• inquiries from shareholders to the investor relations department
• employees
• customers
• the press
• trade bodies – when industry-wide issues are involved
• consumer bodies
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Reasons for settlement – pros and cons
Pros
• Enables the company to demonstrate good corporate governance – being ‘a
responsible corporate citizen’
• Implementation of remediation and redress plans
• Reduced penalty may be possible eg DPA/NPA/leniency programmes
• Avoids further civil or criminal litigation by regulator
• Generally minimises damage to the company’s reputation
- one PR hit vs continued PR coverage
• Can minimise impact on shareholder value
• Brings finality to the investigation
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Reasons for settlement – pros and cons
Cons
• Impact of disclosures/admissions made during the settlement process
• Can lose control over the outcome
• The penalty (can be significant in some jurisdictions)
• Other consequences – eg debarment risk
• Impact on the business model – significant changes may be required as part of
the settlement deal (eg exiting certain lines on business)
• Ongoing conditions of settlement – eg use of monitors
• Risk of follow-on civil litigation from other interested third parties
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Follow-on litigation risks
Risk of follow-on litigation from a number of parties
• Other regulators in same jurisdiction
• Regulators in other jurisdictions
• Civil litigation by third parties
• Examples:
- cartel damages claims
- securities litigation
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Can you do multi-jurisdictional settlements?
Trend towards coordinated multi-jurisdictional settlements
• Recent examples:
- European Commission settlement with DRAM producers
- DOJ/SEC/Munich prosecutors with Siemens
- DOJ/SEC/OFAC/SFO with Innospec
- DOJ/SFO with BAE
- World Bank/SFO with Macmillan
- CFTC/DOJ/FSA settlement with Barclays
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Can you do multi-jurisdictional settlements?
Need a coherent strategy that considers actual/potential interests of all
relevant regulators and prosecutors
Issues to consider:
• Different objectives in different jurisdictions
• Substance of resolution in each jurisdiction
• Disclosures and admissions in each jurisdiction
• Cross-impact of resolutions
• Impact on related investigations/civil litigation
• PR and capital markets impacts
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Conclusion
A coordinated approach to resolution across jurisdictions is vital to the
success of any cross-border investigation.
Regulators are increasingly cooperating with each other’s efforts and
sharing information, so consistency of approach between jurisdictions is
essential.
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Questions?
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