Assistant Attorney General Leslie R. Caldwell Speaks at American Bar Association’s 30th Annual National Institute on White Collar Crime
San Diego, C A United States ~ Friday, March 4, 2016
Remarks as prepared for delivery
Good morning and thank you for that kind introduction. It is a pleasure to join you all, including many friends and colleagues on both sides of the bar, as we wrap up this 30th annual white collar crime conference.
For almost two years, I have had the pleasure of leading the Justice Department’s Criminal Division, which includes more than 600 attorneys from 17 sections and offices. As most of you know, the Criminal Division handles a wide variety of federal criminal matters, including fraud, public corruption, cybercrime, child exploitation, transnational organized crime, international drug trafficking, human rights violations and criminal appeals. We also work on capacity building in the justice sector in countries throughout the world.
At the Criminal Division, we focus our efforts – often in partnership with U.S. Attorneys’ Offices around the country – on issues that affect the nation as a whole. And, as a result of this national focus, we find that we are increasingly drawn into international investigations, sometimes involving many different countries.
We are dealing with a new era of crime on a global scale. During my first stint at the department, it was the exceptional case that involved international criminal groups or worldwide fraud schemes. Today, transnational criminal enterprises and global corporate misconduct are the new normal.
The increasingly international nature of crime is driven by a variety of factors. Perhaps the most significant is the global expansion of the footprint and market participation of U.S. and foreign companies, and the growing interdependency of our economy and those of nations around the world. Another major factor is the worldwide use of the Internet, which allows criminals to cross borders without leaving home.
Our efforts against cross-border crime reach every corner of the Criminal Division, from cyber-crime to child exploitation to transnational organized crime. But given the nature of this conference, I’d like to talk to you today about the Criminal Division’s efforts to meet the challenges associated with international investigations in the corporate fraud arena.
To address crime on a global scale, we are forging deep coalitions with our international enforcement and regulatory partners. Our evolving approaches already have yielded significant successes, a couple of which I will highlight to illustrate my point. And I would also like to discuss what this means for the global corporations and executives that you all represent when they are facing investigation by multiple enforcement agencies around the world.
Collaboration is especially important when it comes to threats posed by international corruption. Corruption renders countries less safe and less stable. It thwarts economic development, traps entire populations in poverty and undercuts credible justice systems. International corruption also inhibits the ability of American companies – and others – to compete overseas on a level playing field.
Let me highlight one recent example of our successful collaboration with foreign counterparts to combat international corruption. Just two weeks ago, the department – through the Criminal Division’s Fraud Section, Asset Forfeiture and Money Laundering Section and our partners at the U.S. Attorney’s Office in the Southern District of New York – together with the U.S. Securities and Exchange Commission (SEC) and the Public Prosecution Service of the Netherlands – reached coordinated resolutions with VimpelCom, the world’s sixth-largest telecommunications company, and its wholly-owned Uzbek subsidiary, Unitel. Unitel pleaded guilty to conspiring to commit bribery under the Foreign Corrupt Practices Act (FCPA). VimpelCom entered into a deferred prosecution agreement for violating the anti-bribery and books and records provisions of the FCPA.
This is one of the most significant FCPA resolutions in the history of the department. VimpelCom and Unitel admitted that from 2006 through 2012, they paid $114 million in bribes to a single government official in Uzbekistan, who had influence over the Uzbek governmental body that regulated the telecom industry. They structured and concealed bribes through various payments to a shell company that certain VimpelCom and Unitel management knew was beneficially owned by the foreign official.
VimpelCom also admitted that it falsified its books and records and attempted to conceal the bribery scheme by reclassifying payments as equity transactions, consulting and repudiation agreements and reseller transactions. The company also didn’t implement or enforce adequate accounting controls. And when the VimpelCom board of directors sought an FCPA legal opinion, certain VimpelCom management withheld crucial information from outside counsel.
While there is much to learn from this landmark case, I want to focus on one aspect today: the department’s close collaboration with our enforcement partners from around the globe.
The cases against VimpelCom and Unitel were made by the tracing of illicit funds through various countries around the world. Without the assistance of other countries in obtaining documentary evidence, such as bank records, and executing search warrants, the prosecution wouldn’t have been possible. In addition to the Dutch prosecutors, the department worked with the Swedish Prosecution Authority, the Office of the Attorney General in Switzerland and the Corruption Prevention and Combating Bureau in Latvia. We frequently communicated to share intelligence. Law enforcement colleagues in Belgium, France, Ireland, Luxembourg, Norway and the United Kingdom also provided significant assistance.
The VimpelCom case also is an example of our efforts to marry our FCPA enforcement actions with our Kleptocracy Initiative. In FCPA cases, the corrupt officials who receive bribes often are beyond the reach of U.S. law enforcement and may reside in countries where local anti-corruption efforts are weak, arbitrary or non-existent.
But just because we cannot get our hands on bribe recipients doesn’t mean we can’t try to get our hands on bribe proceeds if they enter the U.S. banking system. At the same time we announced the VimpelCom FCPA resolutions, we also filed the second of two actions seeking civil forfeiture, in the aggregate of $850 million in bribe proceeds held in accounts under the control of the same Uzbek government official. Again, we could not have taken this action without the assistance of our foreign partners, in this case in Ireland, Luxembourg, Belgium and Switzerland.
Our close collaboration with foreign partners in the FCPA arena, of course, did not start with VimpelCom. Last year, we had another significant resolution brought about by this collaboration in the Alstom case, the department’s largest FCPA resolution ever.
As you may recall, Alstom S.A., a French power and transportation company, admitted to paying bribes to government officials and falsifying books and records in connection with power, grid and transportation projects for state-owned entities around the world, including in Indonesia, Egypt, Saudi Arabia, the Bahamas and Taiwan. In Indonesia, for example, Alstom and its subsidiaries paid bribes to government officials in exchange for assistance in securing several contracts to provide power-related services valued at approximately $375 million. Alstom admitted to its criminal conduct and agreed to pay a penalty of more than $772 million.
Once again, the department could not have reached this resolution without extensive assistance from international law enforcement and regulators. Alstom did not voluntarily disclose the misconduct and refused to cooperate with our investigation until years later, after we had already charged several company executives. And so the department sought and obtained significant cooperation from other countries in order to conduct our own investigation.
The Switzerland Office of the Attorney General referred the case to us. Our law enforcement colleagues in Indonesia at the Komisi Pemberantasan Korupsi (Corruption Eradication Commission) prosecuted one recipient of Alstom’s bribes and he is serving a three year sentence. And the Switzerland Office of the Attorney General and the United Kingdom’s Serious Fraud Office and authorities in France, Germany, Italy, Singapore and Taiwan provided other assistance.
International collaboration is not without its challenges. As the old adage goes, “With big cases come big problems.” And nowhere is that more true than with cases that transcend international boundaries. Setting aside logistical and diplomatic concerns, transnational cases include thorny investigative and prosecution issues. For example, what happens when a foreign government undertakes surveillance that would otherwise be prohibited in the United States? Or when one country grants immunity to an individual during an investigation? Or when issues of privileges and immunities arise?
Over time, the Criminal Division has gained experience and expertise in these areas and is addressing these challenges. For example, this past November, two former traders with Rabobank were convicted in a Fraud Section and Antitrust Division case in the Southern District of New York for manipulating LIBOR interest rates. The investigation of the traders and Rabobank involved various enforcement agencies around the world.
Prior to our prosecution, the two traders had been compelled to make statements to the U.K.’s Financial Conduct Authority, or FCA. Under U.K. law, failure to respond to an FCA interview could result in criminal penalties, including imprisonment. The FCA then sent the transcripts of the two traders’ interviews to a third person, Mr. Robson, who reviewed them once and never looked at them again. Later, Mr. Robson and the two traders were indicted in New York. Mr. Robson pleaded guilty and testified at trial against the other two traders.
The traders filed a motion to dismiss the indictment on Kastigar grounds, alleging, in sum, that the indictment was tainted by Mr. Robson’s review of the compelled interviews. After trial, Judge [Jed] Rakoff held an evidentiary hearing and subsequently denied the defense motion a few weeks ago. In short, Judge Rakoff found that the U.S. prosecutors were not exposed to the defendants’ compelled testimony and that the evidence used against the defendants derived entirely from sources untainted by their compelled testimony.
He cited the steps that the department took to shield itself from exposure, including the department’s instructions to the FCA and Mr. Robson not to share any information from the compelled interviews, the department’s strategy of interviewing witnesses before the FCA did and the department’s presentation to the FCA regarding the Fifth Amendment and Kastigar.
This is all to say that as our cases increasingly cross international borders, the Criminal Division is gaining more experience in dealing with these tricky issues. We try to work collaboratively with our foreign counterparts to foresee future problems. For example, last December we had a cross-border symposium with our U.K. counterparts and discussed, among other things, our respective discovery obligations and attorney-client privileges.
The Criminal Division is also leveraging its collaborative relationships with foreign enforcement partners to assist corporations that are seeking to cooperate with our investigations in dealing with myriad foreign data privacy regulations. In working with the corporations and our foreign counterparts, we are often able to find a way forward despite perceived hurdles. On the flip side, we are leveraging these same relationships to obtain information when non-cooperative companies make invalid assertions about particular data privacy laws in an effort to shield themselves from our investigations.
The Criminal Division has made other strides to meet the challenges of the international scope of criminal activity. We have increased our global presence and resources available to combat international crime.
First, the department has lawyers serving as eyes and ears on the ground across the world. We have attachés in eight countries. They are stationed at U.S. Embassies in Bangkok, Bogota, Brussels, London, Manila, Mexico City, Paris and Rome, and we have 60 resident legal advisors and 45 intermittent legal advisors around the globe. Attachés work with U.S. prosecutors and law enforcement personnel as well as with foreign authorities in their assigned countries or regional areas on operational matters relating to criminal investigations and prosecutions, including requests for the return of fugitives and requests for mutual legal assistance.
We also recently placed Criminal Division prosecutors with Eurojust in The Hague and INTERPOL in France. We are exploring the possibility of embedding prosecutors with other foreign law enforcement as well. These positions will help to facilitate information sharing, improve cooperation on investigations and build even stronger relationships with our law enforcement partners in other countries.
The department also has increased the resources available to the Office of International Affairs, or OIA, whose workload has increased exponentially in the last few years. We have been actively hiring additional attorneys and professional staff for OIA’s Mutual Legal Assistance Treaty (MLAT) Modernization Project.
We hope to continue expanding our ability to help our overseas counterparts and our U.S. prosecutors. For example, OIA has been instrumental in helping obtain evidence from numerous countries in the pending FIFA soccer federation prosecution in the Eastern District of New York, as well as both of the FCPA cases I mentioned previously. We’ve also created a cyber unit in OIA that is dedicated to responding to and executing requests for electronic evidence from foreign authorities – requests that have increased by 1,000 percent over the last decade. Of course, mutual legal assistance cannot be our only means of obtaining evidence that may be stored overseas, but our efforts to improve our bilateral relationships and our own MLAT response are essential in a world of increasingly global crime.
The department has also provided more resources to the Fraud Section, specifically within the FCPA Unit. We have begun hiring ten new prosecutors in the unit, an increase of 50 percent. In a parallel effort, the FBI added three new fully operational squads to their International Corruption Unit. This will make a substantial difference in our ability to bring high-impact cases and greatly enhance the department’s ability to root out significant economic corruption.
Collaboration and coordination among multiple regulators in cross-border matters is the future of major white collar criminal enforcement. It is also a fact that in many cases multiple regulators each seek to prosecute companies and individuals or to share in a corporate resolution, sometimes for what essentially amounts to the same or closely related conduct. We recognize that this raises legitimate questions about fairness.
As to companies, we have heard concerns about regulatory “piling on.” We agree that there can be significant unfairness when a company is asked by different regulators to pay for the same misconduct over and over again. Different prosecutors and regulators obviously have different legitimate interests. And companies that voluntarily operate in multiple countries certainly know that by doing so, they subject themselves to those countries’ laws and regulatory schemes. That said we are trying to address this concern so that companies are not punished unfairly.
And we’re making strides. The Criminal Division tries to take into account the financial penalties that defendants are paying elsewhere. For example, as part of the VimpelCom deferred prosecution agreement that I mentioned earlier, VimpelCom agreed to pay a total of approximately $795 million in penalties. These fines will be divided among the various law enforcement and regulatory agencies – both foreign and domestic – with equities in the misconduct and the investigation. VimpelCom will pay a $230 million criminal penalty to the United States, including $40 million in criminal forfeiture. It will pay the same amount to the Public Prosecution Service of the Netherlands as a criminal penalty.
VimpelCom agreed to pay an additional $375 million in civil penalties, which will be divided between the SEC and the Public Prosecution Service of the Netherlands. Further, the SEC agreed to credit the forfeiture paid to the department as part of its agreement with the company.
Had VimpelCom resolved these matters separately on an ad hoc basis, it’s not certain that credit could have been afforded in this fashion. And, it certainly would not have resulted in this single resolution, which enables VimpelCom to put the matter behind itself and move forward.
In another example, in 2015 Deutsche Bank’s U.K. subsidiary, DB Group Services (UK) Limited, pleaded guilty to wire fraud for its role in manipulating the LIBOR. The parent company, Deutsche Bank AG, entered into a three-year deferred prosecution agreement. The company admitted its role in manipulating LIBOR and participating in a price-fixing conspiracy.
The department imposed a total penalty of $775 million and required Deutsche Bank to retain a corporate monitor for three years. This was the largest penalty imposed by the department to date in the LIBOR investigation, and is also the first time in a LIBOR case that the department has imposed a monitor on a bank.
But the penalty was only $775 million – and I don’t say that lightly – because of the other financial penalties imposed at the same time. As part of the deferred prosecution agreement, Deutsche Bank also agreed to pay $344 million as a result of a U.K. Financial Conduct Authority action, $800 million as a result of a Commodity Futures Trading Commission action and $600 million as a result of a New York Department of Financial Services action.
Now some will say, “The department is only willing to share with regulators and foreign countries because it demands a pot of money big enough to share.” But that’s not fair. In these cases, we calculated the total criminal sanctions that were appropriate based on the offense conduct and other factors, and then reduced the share payable to the U.S. to account for penalties imposed by other countries or by regulators for the same conduct.
And in assessing the total financial penalties imposed on corporate defendants, the department does not only consider the fines and forfeiture figures. The department also considers the totality of the penalties imposed on a defendant. This may include compliance monitors, which we recognize can be a significant burden on a corporation.
For example, in the Alstom case that I mentioned, the company’s criminal conduct certainly rose to a level that would warrant imposition of a monitor. Alstom, however, already had an ongoing monitorship with the World Bank. So, the department agreed that it would consider Alstom to have enacted a sufficient corporate compliance program if it complied with the World Bank’s integrity policies and practices.
Individual criminal defendants also are affected by the increasingly international scope of white collar cases, as well as the enhanced appetite among our foreign counterparts for prosecuting white collar crime. We recognize the potential for unfairness that exists when multiple enforcement agencies propose to bring multiple criminal prosecutions against the same individual for essentially the same misconduct.
While not all systems are like our own, with our double jeopardy and Fifth Amendment protections, we work with our counterparts to make sure that charging decisions relating to individuals are the most fair and sensible ones under the circumstances. And as we and our counterparts work together more frequently and better understand our respective systems, we are having those conversations earlier, so that individuals are much less likely to be caught in the middle of last minute turf battles over where and by whom a prosecution should be brought.
We make these considerations because they are fair and appropriate – but we also firmly believe that efforts to increase our transparency and consistency will result in increased accountability as foreign authorities are more likely to collaborate; companies are more likely to cooperate; and both individual and corporate resolutions will be reached more quickly.
Corruption, financial fraud and other white collar crimes have become truly international problems as our world shrinks. The Criminal Division is working to meet the challenges of investigating and prosecuting complex, international cases with difficult legal issues.
The department does not seek to be the world’s global police force. But we can – and I believe we should – lead by example: by vigorously investigating and prosecuting international crime when it violates U.S. laws, and by sustaining and increasing our commitment to international collaboration in our nations’ shared struggle to safeguard our markets, our networks and our citizens. We must do so to enforce our nation’s laws and keep our citizens safe. Indeed, in today’s world, anything less would be unacceptable.