Author: Syedur Rahman
30 October 2019
6 min read
Syedur Rahman of Rahman Ravelli details the issues involved when more than one agency investigates wrongdoing and explains how these should be assessed by the subject of the investigation.
After a global investigation by United States, British, Swiss and European Union (EU) regulators into allegations of foreign exchange market manipulation, five major global banks had a total fine of €1.07 billion imposed by EU anti-trust regulators.
The central allegation was that prices in the foreign exchange market – which is worth $5.1 trillion a day – were being manipulated by Barclays, Citigroup, JPMorgan, Mitsubishi UFJ Financial Group and Royal Bank of Scotland RBS. Citigroup was given the largest fine (€311 million) followed by RBS (€249M), JPMorgan (€229M), Barclays (€210M) and Mitsubishi (€70M). The Swiss bank UBS Group escaped penalties, which were imposed in May this year, as it had told the authorities about the cartels.
Individual traders at the accused banks were involved in forming two cartels to manipulate 11 currencies, including the US dollar, the euro and the pound. Between 2007 and 2013 they exchanged information on their risk positions, shared confidential data and on occasions synchronised their trading strategies.
As a case, it made the headlines because of the high-profile nature of the banks and the sums involved. But it was also an indicator of how regulatory authorities can and will conduct investigations that cross borders and involve a number of legal jurisdictions.
Another example followed a month later, when TechnipFMC agreed to resolutions with both the United States’ Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) as well as with a number of Brazilian authorities. The resolutions, which included a three-year deferred prosecution agreement with the DOJ, followed charges of conspiracy brought against the company to violate the US’ anti-bribery Foreign Corrupt Practices Act (FCPA).
According to admissions and court documents, Technip conspired with others from 2003 to 2013 to violate the FCPA by making tens of millions of dollars’ worth of corrupt payments to Brazilian and Iraqi officials to obtain and retain oil-related business. It agreed to pay a total of $296M to conclude the investigations which, in announcing the payments, US Attorney Richard P Donoghue said were “the result of a continuing multinational effort to hold accountable corporations and individuals who seek to win business through corrupt payments to foreign officials’’.
As financial crime becomes more sophisticated and multinational, it increasingly requires investigation by agencies in more than one country. A 2011 report by the United Nations Office on Drugs and Crime, estimated that the total proceeds from crime that crossed borders between 2000 and 2009 was the equivalent of 1.5% of global gross domestic product. The challenge facing agencies, therefore, is to work with their counterparts in other countries to investigate and prosecute crime (and the resulting movement of money) that crosses a number of jurisdictions.
But such multinational efforts do not always run smoothly. Issues such as the sharing of documents between jurisdictions, cooperation agreements and mutual legal assistance can be of great value in an investigation that crosses borders – but they also offer the potential for problems among those seeking to investigate and prosecute. Disputes about anything from extradition and who should be leading the investigation can undermine the investigation itself. While regulators or law enforcement agencies from various countries may take an interest in the same allegations – and the same corporates or individuals alleged to be involved in the alleged wrongdoing – they may not always find it easy to work together. Despite the benefit to them of working together and presenting a united front, this can be eroded by competition and disagreements.
There is little doubt that international regulators have disagreed on a number of multi-jurisdictional investigations in recent years, covering everything from manipulation of the inter-bank offering rate, forex and SSA bond trading through to suspected wrongdoing in the aviation insurance sector, not to mention numerous multinational bribery investigations.
Each and every investigating body will have its own priorities and a desire to control most or all aspects of an investigation. But these will often fail to dovetail with the aims and approaches of others that are involved in a multi-agency, multi-jurisdictional investigation. The most crucial factors in an investigation can lead to major disagreements: access to documents, scheduling witness interviews (and who should conduct them), who will be the lead investigator, who will prosecute and the dividing of any fines imposed can all prompt problems.
It is true that formal cooperation agreements exist between authorities from different jurisdictions, as do mutual legal assistance arrangements. But the effectiveness of these can be diminished if agencies seek to act in defiance of them to hasten their access to witnesses or other aspects of an investigation that are in another jurisdiction.
That can happen if the agency that is first to investigate believes that alerting a local agency in that other jurisdiction may prompt it to start its own investigation, which may (according to the first agency) hamper the original investigation. Such an outlook can lead to agencies making direct contact with witnesses outside of their jurisdiction. Competition between agencies can, therefore, hamper a cross-border investigation.
But even if this does not happen and the agencies from various jurisdictions do work together, there is still the potential for problems. While the questioning of a witness is usually led by an agency that is based where the witness is based, this is not always welcomed by other agencies who would prefer to control or direct the questioning.
The decision on which agency will prosecute individuals is also a major issue where the wrongdoing is believed to have been committed in a number of jurisdictions. Attempts by one agency to extradite someone to face questioning in its country can lead to disputes with investigators where that individual is based, who will want to keep that individual within their borders. The waters can be further muddied when one agency wants to use an individual as a prosecution witness in its investigation – after possibly offering a plea bargain or immunity in exchange for testimony – whereas another agency wants to prosecute the same individual.
Usually, the state authorities where the individual lives will be given first chance to bring a prosecution. But disputes can arise if the individual is in another jurisdiction at the time one or more agencies are looking to prosecute.
There may also be the possibility that national courts refuse to extradite an individual. This has happened in Europe even though the European Arrest Warrant system is in place; one example being Germany and France’s refusal to extradite suspects to the UK in relation to investigations into Euribor. In that case, the Serious Fraud Office (SFO) secured European Arrest Warrants against five individuals at a hearing at Westminster Magistrates’ Court in February 2016. Extradition was refused by the French and German courts; although one of the five was later arrested in Italy, extradited to the UK to stand trial and acquitted by a jury in July 2019.
Such situations are a clear indicator that different agencies in different countries will often have differing priorities and even different interests. An even clearer one can be arguments about sharing the financial penalties imposed between the agencies involved in the investigation. Such a division can serve as an indicator of the relative success of each agency and the importance of their role in such an investigation.
From a defence point of view, such inter-agency rivalries can provide opportunities. A legal team representing an individual under investigation by agencies in more than one country should be taking time to assess the potential conflicts between the investigators in order to determine the best course of action.
Reaching a settlement – or even “doing a deal’’ and becoming a prosecution witness – in one country can lead to leniency in that country. Taking such a step could boost an individual’s chances of escaping what could have been the far more severe consequences of a prosecution in another state. Even going to trial in one country as opposed to another can be a way of minimising the penalties imposed.
Such an approach needs to be carefully planned and based on analysis of the various agencies involved, the powers that they can wield and the legal means by which the least damaging outcome can be worked towards. This approach is worthwhile even if there are no apparent conflicts between agencies from varying jurisdictions.
There needs to be a detailed assessment of what each agency expects or demands from those under investigation. If these requirements differ significantly, careful thought should be given to precisely how they should be met.
Factors that may vary from country to country can also be a key determinant in exactly how and when you deal with the various agencies. For example, the issue of legal privilege may differ in various jurisdictions. This can mean the level of protection afforded legal advice and other relevant materials is often inconsistent, with such items being more vulnerable to disclosure to regulators and third parties in some jurisdictions than others. Such variations need to be considered in detail when weighing up precisely how and when to respond to enquiries from a number of investigating agencies.
The signs from the United States in the past year or so are that the DOJ expects US prosecutors to work closely and in a coordinated way with agencies within and beyond its borders. In the UK, the SFO Director Lisa Osofsky has made clear her intent to make her agency work more closely with international counterparts in order to achieve mutually beneficial global settlements to cases.
We may, as a result, see more cohesion from agencies in future multi-jurisdictional investigations. But for now the potential for a lack of togetherness among agencies can offer opportunities to those being investigated.
This article was also featured on Lexology and can be viewed here.
Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, civil recovery, cryptocurrency and high-stakes commercial disputes.