Compliance Hotspots: To Self Report or Not? Plus, Papa John's Orders Up Big Law

Welcome to Compliance Hot Spots, our briefing on compliance, enforcement and government affairs. The Justice Department has been promoting voluntary self-disclosure of white-collar misconduct for months now, but in a new report, Gibson, Dunn & Crutcher notes that the benefits for financial institutions are “neither easy to anticipate nor to quantify.” Also: Thanks to the Supreme Court, the Securities and Exchange Commission is running into more roadblocks in its enforcement efforts. Thanks for reading—and please do send feedback. It’s always helpful to get tips, ideas and just hear what's on your plate. I'm at cbarber@alm.com and 202-828-0315, or follow me on Twitter @cryanbarber.

To Self-Report or Not? For Financial Firms, It's Especially Complicated

Under the Trump administration, the U.S. Justice Department has made a point of pitching the corporate community on the benefits of coming forward to self-report misconduct. It all started with the department’s decision to effectively make permanent a pilot program aimed at incentivizing voluntary disclosures of overseas bribery. Then the Criminal Division broadened the message, announcing in March that it would consider declinations even outside of the Foreign Corrupt Practices Act context when companies cooperate and take proper steps to right their ways. (One early beneficiary: Barclays, which avoided charges in a front-running investigation after reporting improper trades, improving its compliance systems and paying nearly $13 million in restitution and disgorgement.) Still, the calculation around self-reporting is far from clear for financial institutions. In a recent report, Gibson, Dunn & Crutcher examined the “conflicting signals” DOJ has sent to financial institutions in its enforcement guidance. DOJ, the firm notes, has not offered any specific guidance for how it would consider voluntary self-disclosure in the money laundering context. And where DOJ has mentioned voluntary self-disclosures and financial institutions—a 2016 guidance document from the national security division—the news has not necessarily been good for the defense bar: It specifically exempted financial firms from the benefits of self-reporting sanctions violations, citing the “unique reporting obligations” imposed on them. The report, spearheaded by Gibson Dunn partner M. Kendall Day, notes that DOJ mentioned Banamex’s self-disclosure of money laundering violations in a $97 million settlement last year—but only in the course of explaining why the Citigroup subsidiary was not receiving credit. On the bright side (possibly): "The fact that the Banamex USA resolution affirmatively explains why the defendant did not receive [voluntary self-disclosure] credit may imply that this type of credit may be available to financial institution defendants when they do make adequate [self-disclosures],” the Gibson Dunn report states. In short, the decision of self-reporting to the Justice Department is a “fraught one,” the report states, forcing financial firms to weigh the likelihood of misconduct becoming known to the government—perhaps through a whistleblower or another institution filing a “suspicious activity report.” There’s also the question of whether to immediately report misconduct or first complete an internal investigation—and whether a federal agency other than the DOJ should be notified first. “In some cases,” the report states, “a financial institution potentially facing both regulatory and criminal liability may be well-advised to engage civil regulators first in the hope that, if DOJ does get involved, they will stand down and piggyback on a global resolution with other regulators rather than seeking more serious penalties.”

Compliance Reading: SEC Outta Time | CFTC Steps Up Its Whistleblower Game

>> The SEC is feeling the consequences of a Supreme Court decision restricting its ability to order disgorgement of ill-gotten gains. A federal judge in Brooklyn recently ruled that the SEC filed a lawsuit too late against two Och-Ziff Capital Management executives accused of masterminding a scheme to bribe high-ranking officials across Africa. The SEC’s claims against the hedge fund executives were “time-barred,” the judge ruled, citing a 2017 decision in which the Supreme Court ruled that the agency’s authority to claw back ill-gotten gains was subject to a five-year statute of limitations. [Wall Street Journal] >> Let’s not forget: A month earlier, in June, SEC Chairman Jay Clayton told lawmakers that he was bothered “from a practical point of view” by the Supreme Court’s decision in Kokesh v. United States. He said the “most well-concealed frauds may fall outside of that limitations period” and suggested legislation might be necessary to give the SEC more power to return money to harmed investors. >> The Commodity Futures Trading Commission has been on a tear with whistleblower awards. The commission’s whistleblower office, which has been criticized in the past over the small number of awards it has issued compared with the SEC’s program, issued a record-setting $30 million award last week to a tipster who aided an enforcement action against JPMorgan Chase. The tipster, a former SEC lawyer who now does forensic investigations for the investment management industry, is in line for an additional award—of $48 million—from his old agency. On Monday, the CFTC followed up with a relatively modest award of more than $70,000 to the first foreign tipster who’s benefited from the commission’s program. >>Medicines. Cars. Facial Recognition. In a blog post, Microsoft said the three are similar in that they are deserving of regulation. The company’s president, Bradford Smith, urged Congress to study facial recognition and oversee its use, making Microsoft the first tech giant to join a growing call for rules around the technology. Smith's full post is here. [New York Times] >> Enforcement of the Foreign Corrupt Practices Act was relatively slow in the first half of this year, at least compared to 2016, when the Justice Department and SEC brought 53 foreign-bribery cases. But there were noteworthy developments, according to recent reports from Shearman & Sterling and Gibson, Dunn & Crutcher. Among them: The whopping $1.3 billion settlement between the Justice Department and Paris-based Société Générale, which involved the first-ever instance of coordination between the department and France on a bribery case. [Corporate Counsel] >> Mick Mulvaney is continuing to put his mark on the Consumer Financial Protection Bureau’s enforcement efforts. At his direction, the CFPB opted against seeking $60 million in restitution and debt forgiveness from a debt collector accused of illegally harassing consumers for debt they owed to payday lenders. Former CFPB Director Richard Cordray had wanted that relief out of the Kansas-based National Credit Adjustors, and its former CEO. Instead, the CFPB fined the company and its former chief executive $500,000 and $300,000, respectively, as part of a settlement. [Reuters]

Who Got the Work: Papa Johns Orders Up Hogan Lovells, With A Side of Akin Gump

>> Papa John’s International Inc. has turned to Hogan Lovells and Akin Gump Strauss Hauer & Feld as it grapples with the tumultuous departure of its founder, John Schnatter, who was booted from the company’s headquarters Monday after stepping down as chairman days earlier. Hogan Lovells partners John Beckman and Joseph Connolly Jr. are representing the Papa John’s board, and Akin Gump was hired to advise a committee of independent directors that will “ evaluate and take action with respect to all of the company’s relationships and arrangements” with Schnatter, the company has said. [American Lawyer] >> McDermott Will & Emery partner Stephen Ryan and former members of Congress Jeff Miller and James Moran are helping VTA Telecom "acquire US or US licensed technology, including but not limited to radar equipment and other defense or dual use technologies," according to U.S. Justice Department filings made under the Foreign Agents Registration Act. The contract is worth $60,000 through the end of September. >> Covington & Burling partner David Kornblau, chairman of the firm’s securities enforcement group, helped BGC Financial reach a $1.25 million settlement with the SEC resolving charges that the New York-based broker dealer inaccurately recorded expenses and failed to preserve audio files requested by regulators. According to the SEC, BGC deleted audio files for the recorded telephone lines of eight brokers after receiving document requests from the agency’s enforcement division in 2014. The SEC’s order states that the department responsible for the audio was unaware of the SEC’s request and deleted the files in accordance with the firm’s policy of not maintaining them after one year. >> T-Mobile has turned to Wilmer Hale’s Jonathan Yarowsky, co-chair of the firm’s public policy and legislative affairs group, to lobby on its proposed merger with Sprint, a tie-up that would reduce the number of nationwide carriers from four to three. A former general counsel of the House Judiciary Committee, Yarowsky previously lobbied on antitrust issues for Charter Communications during its merger with Time Warner Cable. [Politico]

New Hires & Promotions: Amazon Beware

>> Leonardo Real, a former anti-money laundering quality control manager at the Bank of Montreal, is joining the controversial cryptocurrency company Tether as its chief compliance officer. The hire comes as Tether grapples with questions about whether its tokens are backed one-for-one by the U.S. dollar, as the company claims. In an announcement of the hire, Tether CEO Jean-Louis van der Velde said Real’s “depth of experience managing AML risk in capital markets, as well as the wealth management and commercial banking sectors, combined with his proven expertise in quality control management and strategy formulation will make him an invaluable asset to our company.” [Chepicap] >> Lina Khan, director of legal policy at the think tank Open Markets Institute, has joined the staff for Rohit Chopra, a Democratic member of the Federal Trade Commission. Khan rose to prominence as a student at Yale Law School, where she wrote a widely-circulated paper for the Yale Law Journal question whether the current antitrust enforcement framework is adequate to check the growing dominance of Amazon. [Bloomberg]