This newsletter provides a snapshot of the principal US and selected global governance and securities law developments during the fourth quarter of 2014 that may be of interest to Latin American corporations and financial institutions.
SEC and NYSE Developments
Conflict Minerals Rules
On 18 November 2014, the United States Court of Appeals for the District of Columbia Circuit granted a petition filed by the US Securities and Exchange Commission ("SEC") and Amnesty International for rehearing of a case that invalidated a portion of the SEC reporting requirements regarding conflict minerals originating in the Democratic Republic of the Congo and adjoining countries (the "Conflict Minerals Rule"). The court's decision, once the case is reheard, could potentially affect the existing scope and application of the Conflict Minerals Rule. The Conflict Minerals Rule is set forth in Form SD–Specialized Disclosure Report, which is required under Rule 13p-1 under the Securities Exchange Act of 1934 (the "Exchange Act").
Under the Conflict Minerals Rule, SEC reporting companies that manufacture products that contain tantalum, tin, tungsten or gold face specific reporting requirements. Conflict minerals disclosure for the year ended 31 December 2014 must be filed with the SEC on Form SD on or before 1 June 2015. Each SEC reporting company is required to make its Form SD available on its company website for one year.
Following a decision of the Court of Appeals in April 2014, which struck down a portion of the Conflict Minerals Rule, the SEC issued a statement clarifying that no company is required to describe its products as "DRC conflict free," having not been found to be "DRC conflict free," or "DRC conflict undeterminable." If a company voluntarily elects to describe any of its products as "DRC conflict free" in its Conflict Minerals Report, it would be permitted to do so provided it had obtained an independent private sector audit as required by the rule. Pending further action, such an independent private sector audit will not be required unless a company voluntarily elects to describe a product as "DRC conflict free" in its Conflict Minerals Report.
Subject to any further developments, companies should plan to prepare and file Form SD and, if required, a Conflict Minerals Report in the same manner as last year. However, now that the first year of Conflict Minerals Rule compliance is behind us, there is a universe of precedents that companies can use to benchmark their conflict minerals disclosure against peer companies and from which best practices can develop.
SEC Announces 2015 Examination Priorities for Financial Institutions
In January 2015, the SEC announced its Office of Compliance Inspections and Examinations' priorities for 2015. The 2015 examination priorities address issues across a variety of financial institutions, including investment advisers, investment companies, broker-dealers, transfer agents, clearing agencies and national securities exchanges. The examination priorities for 2015 focus on three areas: protecting retail investors, especially those saving for or in retirement; assessing market-wide risks; and using data analytics to identify signs of potential illegal activity.
The related SEC press release is available at: http://www.sec.gov/news/pressrelease/2015-3.html.
Recent Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act ("FCPA")
In January 2015, we published our bi-annual Recent Trends and Patterns in FCPA Enforcement report, part of our FCPA Digest, which together provide an insightful analysis of recent enforcement trends and patterns in the US, the UK and elsewhere, as well as helpful guidance on emerging best practices in FCPA and global anti-corruption compliance programs.
The 2014 FCPA enforcement year has been interesting to say the least.While the US Department of Justice (the "DOJ") and the SEC continue to prosecute individuals at a relatively steady pace, the big news concerns the government's pursuit of corporate defendants.With a surge of large corporate enforcement actions towards the end of the year, 2014 has generated the second highest corporate penalty total in history despite the fact that the total number of corporate enforcement actions has remained roughly the same as 2013. As a result, average corporate penalties continue to steadily increase, reaching their highest levels ever in 2014.
Among the highlights from 2014 are:
- a series of high profile enforcement actions have resulted in total corporate penalties of $1,566 million, the second highest on record;
- average corporate fines and penalties of $156.6 million—by all measures the highest average in history;
- the DOJ's prosecution of Alstom resulted in the largest FCPA-related criminal fine in history of $772 million—well over the $450 million criminal fine in Siemens;
- the DOJ's use of plea agreements and the SEC's use of administrative proceedings has increased over the use of deferred prosecution and non-prosecution agreements;
- the Eleventh Circuit issued its opinion in United States v. Esquenazi, largely supporting the government's view regarding the definition of "instrumentality" under the FCPA;
- recent paper victories by the SEC could be perceived as setbacks in the SEC's actions against individual defendants; and
- the SEC's 2014 enforcement actions reflect a number of concerning practices including the continued pursuit of a theory of strict liability against parent corporations for acts of corporate subsidiaries and an interpretation of the "obtaining or retaining business" element of the FCPA that contradicts United States v. Kay.
Our January 2015 report is available at: http://www.shearman.com/en/newsinsights/publications/2015/01/fcpa-digest.
Navigating Russia Sanctions: US, EU and Japan Update
On 10 November 2014, we published our client publication entitled Navigating Russia Sanctions: US, EU and Japan Update, which updates our previous note on the topic and highlights the key issues and differences in the US, EU and Japanese sanctions targeting Russia.
US, EU and Japanese sanctions targeting Russia are becoming increasingly aligned as a result of each jurisdiction's continued tailoring of sanctions targeting Russia. In each jurisdiction there are now laws which block funds being made available to certain individuals and entities close to the Russian political regime and, more recently, broader rules which aim to restrict Russia's finance, energy and defence sectors. Although the US, EU and Japanese rules are alike in a number of respects, they also diverge in many ways and may not give the same answer to a particular question. This is particularly relevant to international business, where the rules of more than one jurisdiction may be triggered.
On 14 January 2015, we published the fourth quarter 2014 issue of our quarterly Sanctions Round-Up.
The fourth quarter of 2014 was marked by a major shift in the US approach to Cuban relations. While the parameters of the new relationship between the United States and Cuba have yet to be defined, President Obama has made a strong commitment to thawing relations between the two countries. In contrast, the United States and the European Union maintained strong sanctions against Russia, in an effort to resolve the crisis in Ukraine. Finally, as the P5+1 was unable to reach an agreement with Iran regarding its nuclear program by the November deadline, the United States and the EU have extended temporary sanctions relief until this summer.
Included in this quarter's Sanctions Round-Up is a discussion of:
- the United States and the EU continue sanctions against Russia for its activity in Ukraine;
- US and EU sanctions against the Crimea region;
- the United States makes major change in Cuban relations;
- the EU extends its sanctions programs for Syria;
- US enforcement actions;
- US sanctions target terrorists abroad; and
- OFAC sanctions target drug-trafficking operations in Central and South America.
Our Sanctions Round-Up: Fourth Quarter 2014 is available at: http://www.shearman.com/en/newsinsights/publications/2015/01/sanctions-round-up--fourth.
New York Stock Exchange Publishes Corporate Governance Guide
In January 2015, the New York Stock Exchange (the "NYSE") published the NYSE: Corporate Governance Guide in order to help listed companies navigate key corporate governance issues. The NYSE: Corporate Governance Guide provides information on a variety of topics, including:
- navigating the changing landscape of corporate governance; selecting and developing a high-quality board;
- implementing risk-management controls;
- overseeing a succession plan for senior management;
- communicating effectively with shareholders; and
- assembling a comprehensive ethics and compliance program.
This guide also includes case studies from current sitting directors through the NYSE's Corporate Board Member magazine.
The NYSE: Corporate Governance Guide can be found at: https://www.nyse.com/cgguide.
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.