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 in the US and Switzerland. Four Swiss banks and the U.S. Department of Justice entered into settlements in connection with the Swiss Bank Program. In the Swissleaks case, a settlement was agreed between the Swiss public prosecutor and HSBC. Also, the Securities and Exchange Commission and Computer Sciences Corporation settled a case relating to alleged accounting fraud. Finally, a settlement was agreed on between IAP Worldwide Services, Inc. and the U.S. Department of Justice concerning alleged violations of the U.S. Foreign Corrupt Practices Act.
Banks reach resolutions under Swiss Bank Program
On 9 June 2015, the U.S. Department of Justice (DOJ) announced that two banks – Société Générale Private Banking (Suisse) SA (SGPB-Suisse) and Berner Kantonalbank AG (BEKB) – had reached resolutions under the DOJ's Swiss Bank Program. According to the DOJ, SGPB-Suisse will pay USD 17.8 million and BEKB will pay 4.6 USD million. The DOJ stated that SGPB-Suisse had held and managed approximately 375 US-related accounts since August 2008, including undeclared accounts, with assets under management of approximately USD 660 million at their peak. BEKB had held approximately 720 US-related accounts, including some undeclared, with total assets of approximately USD 176.5 million.
The DOJ announced on 19 June 2015 that two more banks – Bank Linth LLB AG (Bank Linth) and Bank Sparhafen Zurich AG (BSZ) – had reached resolutions under the Swiss Bank Program. Bank Linth had held 126 US-related accounts since August 2008, with approximately USD 102 million in assets. It will pay a settlement amount of USD 4.15 million. BSZ had held 91 US-related accounts since 2008, with approximately USD 25 million in assets and will pay a settlement amount of USD 1.81 million.
The Swiss Bank Program provides a path for Swiss banks to resolve potential criminal liability in the US. Eligible Swiss banks had to advise the DOJ by 31 December 2013 about tax-related criminal offences they might have committed in connection with undeclared US-related accounts. Banks where Swiss-banking activities were already under criminal investigation and any individuals were expressly excluded from this scheme.
To be eligible for a non-prosecution agreement (NPA), Swiss banks must:
- disclose all cross-border activities
- turn over detailed information about accounts in which US taxpayers have a direct or indirect interest
- cooperate in treaty requests for account information
- provide detailed information about other banks that transferred funds into secret accounts or accepted funds when secret accounts were closed
- agree to close accounts of account holders who fail to comply with US reporting obligations
- pay appropriate penalties.
The NPAs require banks to cooperate in any related criminal or civil proceedings, demonstrate controls to stop the use of undeclared US accounts, and pay penalties. The banks mitigated their penalties by encouraging US account holders to comply with US tax and disclosure obligations.
The DOJ has said that US account holders at banks who have not yet declared their accounts to the IRS can still make a voluntary disclosure under the IRS Offshore Voluntary Disclosure Program and pay a 50% penalty. In March 2015, Lugano-based BSI SA paid USD 211 million under the Swiss Bank Program and in May 2015, Finter Bank Zurich AG, paid USD 5.4 million. Thirteen banks have now resolved charges under the scheme, which started in 2013.
HSBC Private Bank (Suisse) SA
The public prosecutor of Geneva (Switzerland) announced in a press release on 4 June 2015 that HSBC Private Bank (Suisse) SA had agreed to pay USD 28 million to settle charges related to money laundering. This settlement concludes the investigation of the Swiss authorities into alleged money laundering, and does not include any admission by HSBC of wrongdoing, as HSBC did not plead guilty. According to the press release, the public prosecutor offered the bank a settlement in light of the payment and of the different measures taken by the bank to comply with Swiss standards in the fight against money laundering.
According to several media, the Swiss arm of HSBC is still facing investigations by US, French and Belgian authorities. Allegedly, the USD 28 million amount is the largest financial penalty ever imposed by Geneva authorities.
Computer Sciences Corporation
The Securities and Exchange Commission charged Computer Sciences Corporation (CSC) and former executives with manipulating financial results and concealing significant problems about the company's largest and most high-profile contract. The SEC also charged former finance executives involved in CSC's international businesses with ignoring basic accounting standards to increase reported profits. CSC agreed to pay USD 190 million to settle the charges. Five of the eight executives charged agreed to settle. The former CEO agreed to return approximately USD 3.7 million in compensation to CSC under the clawback provision of the Sarbanes-Oxley Act and to pay a USD 750,000 penalty. The former CFO agreed to return USD 369,100 in compensation and to pay a USD 175,000 penalty.
The SEC alleged that CSC's accounting and disclosure fraud began after the company learned it would lose money on a multi-billion dollar contract with the National Health Service (NHS) in the UK, because CSC was unable to meet certain deadlines. According to the SEC, a former CSC finance executive allegedly added items to CSC's accounting models that artificially increased the company's profits to avoid the large hit to earnings that CSC was required to record. CSC then continued to avoid the financial impact of its delays by basing its models on contract amendments it was proposing to the NHS-contract rather than to the actual contract. As a result, CSC artificially avoided recording significant reductions in its earnings in 2010 and 2011.
The sanctions in this case highlight the importance that the SEC attaches to truthfully disclosing information to investors, in this case relating to significant difficulties impacting the company's business.
IAP Worldwide Services Inc.
On 16 June 2015, the DOJ announced that IAP Worldwide Services Inc. (IAP), a Florida-based company which provides facility management services, contingency support and technical services, entered into an NPA and agreed to pay USD 7.1 million. The settlement resolved the government's investigation into whether the company conspired to bribe Kuwaiti officials in order to secure a government contract. According to the DOJ, a former vice president of IAP pleaded guilty to conspiracy to violate the Foreign Corrupt Practices Act for his involvement in the bribery scheme.
In 2004, the Ministry of Interior (MOI) of Kuwait launched a project to develop nationwide surveillance capabilities through closed-circuit television. It was responsible for, amongst other things, the selection of contractors to facilitate the implementation of the project. Phase I of the project was a planning and feasibility period and Phase II was an installation period. According to the DOJ, IAP and the former vice president of IAP allegedly conspired to ensure that IAP was the contractor selected for Phase I of the project. If that were the case, it could adapt the requirements for the Phase II contracts to IAP's own strengths. This would give the company an advantage in the bidding for Phase II of the project. According to the DOJ, in February 2006 IAP, IAP's former vice president, and other IAP executives and senior employees, set up a shell company (Ramaco) to bid on Phase I of the project, in part to conceal IAP's role in adapting the requirements for Phase II of the project, and its conflict of interest in connection with securing the Phase II contract.
The shell company secured the contract for Phase I of the project for approximately USD 4 million. According to the agreements, IAP, IAP's former vice president, and the other participating IAP executives and senior employees paid approximately USD 1,783,688 between September 2006 and March 2008, allegedly to bribe Kuwaiti officials of the MOI.
The DOJ said it entered into a NPA with IAP based on a variety of factors, including IAP's cooperation. The NPA requires IAP to:
- provide continued cooperation
- conduct a review of its existing internal controls, policies and procedures
- make necessary modifications to ensure accurate record keeping
- implement a rigorous anti-corruption compliance programme
- report periodically to the DOJ and to the US Attorney's Office of the Eastern District of Virginia regarding remediation and implementation of the anti-corruption compliance programme and internal controls, policies and procedures.
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