SEC ALLEGES FORMER EXECUTIVE AT ENGINEERING FIRM BRIBED FOREIGN OFFICIAL

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Former Executive at Tampa-Based Engineering Firm With FCPA Violations
01/22/2015 10:40 AM EST

The Securities and Exchange Commission today charged a former officer at a Tampa, Fla.-based engineering and construction firm with violating the Foreign Corrupt Practices Act (FCPA) by offering and authorizing bribes and employment to foreign officials to secure Qatari government contracts.

The SEC also announced a deferred prosecution agreement (DPA) with The PBSJ Corporation that defers FCPA charges for a period of two years and requires the company to comply with certain undertakings.  PBSJ must immediately pay $3.4 million in financial remedies as part of the agreement, which reflects the company’s significant cooperation with the SEC investigation.   PBSJ is now known as The Atkins North America Holdings Corporation and no longer offers public stock in the U.S.

An SEC investigation found that Walid Hatoum, who has agreed to settle the SEC’s charges, offered to funnel funds to a local company owned and controlled by a foreign official in order to secure two multi-million Qatari government contracts for PBSJ in 2009.  The foreign official subsequently provided Hatoum and PBSJ’s international subsidiary with access to confidential sealed-bid and pricing information that enabled the PBSJ subsidiary to tender winning bids for a hotel resort development project in Morocco and a light rail transit project in Qatar.

“Hatoum offered and authorized nearly $1.4 million in bribes disguised as ‘agency fees’ intended for a foreign official who used an alias to communicate confidential information that assisted PBSJ,” said Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit.  “PBSJ ignored multiple red flags that should have enabled other officers and employees to uncover the bribery scheme at an earlier stage.  But once discovered, the company self-reported the potential FCPA violations and cooperated substantially.”

According to the SEC’s order instituting a settled administrative proceeding against Hatoum, he also offered employment to a second foreign official in return for assistance as the bribery scheme began to unravel and PBSJ lost the hotel resort contract.  Even though the bribes themselves were not consummated before the scheme was uncovered by the company, PBSJ earned approximately $2.9 million in illicit profits because it continued work on the light rail project until a replacement company could be found.

Under the DPA, PBSJ agreed to pay disgorgement and interest of $3,032,875 and a penalty of $375,000.  PBSJ took quick steps to end the misconduct after self-reporting to the SEC, and the company voluntarily made witnesses available for interviews and provided factual chronologies, timelines, internal summaries, and full forensic images to cooperate with the SEC’s investigation.

The SEC’s order against Hatoum finds that he violated the anti-bribery, internal accounting controls, books and records, and false records provisions of the Securities Exchange Act of 1934.  Without admitting or denying the findings, Hatoum agreed to pay a penalty of $50,000.

The SEC’s investigation was conducted by FCPA Unit members Tracy L. Price and Jim Valentino.  The SEC appreciates the assistance of the Justice Department’s Fraud Section and the Federal Bureau of Investigation.

TOYOTA MOTOR CORP. ADMITS TO MISLEADING CONSUMERS, REGULATORS ABOUT UNINTENDED ACCELERATION ISSUES

FROM:  U.S. JUSTICE DEPARTMENT  

Wednesday, March 19, 2014
Justice Department Announces Criminal Charge Against Toyota Motor Corporation and Deferred Prosecution Agreement with $1.2 Billion Financial Penalty

Toyota Motor Corporation Admits to Misleading Consumers and U.S. Regulator About Safety Issues Related to Unintended Acceleration in Its Cars Independent Monitor to Be Appointed to Oversee Toyota’s Public Statements and Reporting of Safety Issues

U.S. Attorney General Eric Holder, U.S. Secretary of Transportation Anthony Foxx, U.S. Attorney for the Southern District of New York Preet Bharara, Inspector General of the U.S. Department of Transportation (DOT) Calvin L. Scovel III, National Highway Traffic Safety Administration (NHTSA) Acting Administrator David Friedman and Federal Bureau of Investigation (FBI) Deputy Assistant Director Joe Campbell announced a criminal wire fraud charge against Toyota Motor Corporation (“TOYOTA” or “the company”), an automotive company headquartered in Toyota City, Japan, that designs, manufactures, assembles, and sells Toyota and Lexus brand vehicles.  The charge is that TOYOTA defrauded consumers in the fall of 2009 and early 2010 by issuing misleading statements about safety issues in Toyota and Lexus vehicles.  

Also today, the Department of Justice announced a deferred prosecution agreement with TOYOTA (“the agreement”) under which the company admits that it misled U.S. consumers by concealing and making deceptive statements about two safety issues affecting its vehicles, each of which caused a type of unintended acceleration.  The admissions are contained in a detailed statement of facts attached to the agreement.  The agreement, which is subject to judicial review, requires TOYOTA to pay a $1.2 billion financial penalty – the largest penalty of its kind ever imposed on an automotive company, and imposes on TOYOTA an independent monitor to review and assess policies, practices and procedures relating to TOYOTA’s safety-related public statements and reporting obligations.  TOYOTA agrees to pay the penalty under a Final Order of Forfeiture in a parallel civil action also filed today in the Southern District of New York.            

The criminal charge is contained in an Information (“the information”) alleging one count of wire fraud.  If TOYOTA abides by all of the terms of the agreement, the Government will defer prosecution on the information for three years and then seek to dismiss the charge.

“Rather than promptly disclosing and correcting safety issues about which they were aware, Toyota made misleading public statements to consumers and gave inaccurate facts to Members of Congress,” said Attorney General Eric Holder.  “When car owners get behind the wheel, they have a right to expect that their vehicle is safe.  If any part of the automobile turns out to have safety issues, the car company has a duty to be upfront about them, to fix them quickly, and to immediately tell the truth about the problem and its scope. Toyota violated that basic compact.  Other car companies should not repeat Toyota’s mistake: a recall may damage a company’s reputation, but deceiving your customers makes that damage far more lasting.”

“Safety is our top priority,” said Transportation Secretary Anthony Foxx.  “Throughout this recall process, NHTSA investigators worked tirelessly to make sure that Toyota recalled vehicles with defects causing unintended acceleration, and to determine when they learned of it, and as we learned today, they succeeded in this effort in spite of extraordinary challenges.  Today’s penalties follow NHTSA’s own record civil penalties of more than $66 million – together, they send a powerful message to all manufacturers to follow our recall requirements or they will face serious consequences.”

“Toyota stands charged with a criminal offense because it cared more about savings than safety and more about its own brand and bottom line than the truth,” said U.S. Attorney Preet Bharara for the Southern District of New York.  “In its zeal to stanch bad publicity in 2009 and 2010, Toyota misled regulators, misled customers, and even misstated the facts to Congress.  The tens of millions of drivers in America have an absolute right to expect that the companies manufacturing their cars are not lying about serious safety issues; are not slow-walking safety fixes; and are not playing games with their lives.  Companies that make inherently dangerous products must be maximally transparent, not two-faced.  That is why we have undertaken this landmark enforcement action.  And the entire auto industry should take notice.”

“To the families and friends of those who died or were injured as a result of these incidents, I offer my deepest sympathies for your loss and my highest admiration for the strength you demonstrate every day,” said DOT Inspector General Calvin L. Scovel III.  “As is true for Secretary Foxx and DOT, safety is and will remain the highest priority of my office.  The OIG is committed to working with our law enforcement and prosecutorial partners in pursuing those who commit criminal violations of the Department of Transportation’s or related laws. The efforts of this dedicated multi-agency team and the agreement reached with Toyota must serve as a clarion call to all auto manufacturers of the need to always be as vigilant and forthcoming as possible to keep the public safe.”

According to the allegations in the information, as well as other documents filed today in Manhattan federal court, including the Statement of Facts:

In the fall of 2009, TOYOTA deceived consumers and its U.S. regulator, the National Highway Traffic Safety Administration (“NHTSA”), by claiming that it had “addressed” the “root cause” of unintended acceleration in its vehicles through a limited safety recall of eight models for floor-mat entrapment, a dangerous condition in which an improperly secured or incompatible all-weather floor mat can “trap” a depressed gas pedal causing the car to accelerate to a high speed.  Such public assurances deceived customers and NHTSA in two ways:  First, at the time the statements were made, TOYOTA knew that it had not recalled some cars with design features that made them just as susceptible to floor-mat entrapment as some of the recalled cars.  Second, only weeks before these statements were made, TOYOTA had taken steps to hide from NHTSA another type of unintended acceleration in its vehicles, separate and apart from floor-mat entrapment: a problem with accelerators getting stuck at partially depressed levels, known as “sticky pedal.”

Floor-Mat Entrapment: A Fatal Problem

TOYOTA issued its misleading statements, and undertook its acts of concealment, against the backdrop of intense public concern and scrutiny over the safety of its vehicles following a widely publicized Aug. 28, 2009 accident in San Diego, Calif., that killed a family of four.  A Lexus dealer had improperly installed an incompatible all-weather floor mat into the Lexus ES350 in which the family was traveling, and that mat entrapped the accelerator at full throttle.  A 911 emergency call made from the out-of-control vehicle, which was speeding at over 100 miles per hour, reported, “We’re in a Lexus . . . and we’re going north on 125 and our accelerator is stuck . . . there’s no brakes . . . we’re approaching the intersection . . . Hold on . . . hold on and pray . . . pray.”  The call ended with the sound of the crash that killed everyone in the vehicle.

The San Diego accident was not the first time that TOYOTA had faced a problem with floor-mat entrapment.  In 2007, following a series of reports alleging unintended acceleration in Toyota and Lexus vehicles, NHTSA opened a defect investigation into the Lexus ES350 model (the vehicle involved in the 2009 San Diego accident), and identified several other Toyota and Lexus models it believed might likewise be defective.  TOYOTA, while denying to NHTSA the need to recall any of its vehicles, conducted an internal investigation in 2007 which revealed that certain Toyota and Lexus models, including most of the ones that NHTSA had identified as potentially problematic, had design features rendering entrapment of the gas pedal by an all-weather floor mat more likely.  TOYOTA did not share these results with NHTSA.  In the end, the Company negotiated a limited recall of 55,000 mats (no vehicles) – a result that TOYOTA employees touted internally as a major victory:  “had the agency . . . pushed for recall of the throttle pedal assembly (for instance), we would be looking at upwards of $100 million + in unnecessary costs.”

Shortly after TOYOTA announced its 2007 mat recall, company engineers revised internal design guidelines to provide for, among other things, a minimum clearance of 10 millimeters between a fully depressed gas pedal and the floor.  But TOYOTA decided those revised guidelines would only apply where a model was receiving a “full model redesign” –  something each Toyota and Lexus model underwent only about once every three to five years.  As a result, even after the revised guidelines had been adopted internally, many new vehicles produced and sold by TOYOTA – including the Lexus ES350 involved in the 2009 San Diego accident – did not comply with TOYOTA’s 2007 guidelines.

After the fatal and highly publicized San Diego accident, TOYOTA agreed to recall eight of its models, including the ES350, for floor-mat entrapment susceptibility.  Thereafter, as part of an effort to defend its brand image, TOYOTA began issuing public statements assuring customers that this limited recall had “addressed the root cause of unintended acceleration” in its U.S.-sold vehicles.

As TOYOTA knew from internal testing it had completed by the time these statements were made, the eight-model recall had not in fact “addressed the root cause” of even the floor-mat entrapment problem.  Models not recalled – and therefore still on the road – bore design features rendering them just as susceptible to floor-mat entrapment as those within the recall population.  One engineer working at a TOYOTA facility in California had concluded that the Corolla, a top-selling car that had not been recalled, was among the three “worse” vehicles for floor-mat entrapment.  In October 2009, TOYOTA engineers in Japan circulated a chart showing that the Corolla had the lowest rating for floor-mat entrapment under their analysis.  None of these findings or this data were shared with NHTSA at the time.

The Sticky Pedal Problem

What is more misleading, at the same time it was assuring the public that the “root cause” of unintended acceleration had been “addressed” by the 2009 eight-model floor-mat entrapment recall, TOYOTA was hiding from NHTSA a second cause of unintended acceleration in its vehicles: the sticky pedal.  Sticky pedal, a phenomenon affecting pedals manufactured by a U.S. company (“A-Pedal Company”) and installed in many Toyota brand vehicles in North America as well as Europe, resulted from the use of a plastic material inside the pedals that could cause the accelerator pedal to become mechanically stuck in a partially depressed position.  The pedals incorporating this plastic were installed in, among other models, the Camry, the Matrix, the Corolla, and the Avalon sold in the United States.

The sticky pedal problem surfaced in Europe in 2008.  There, reports reflected instances of “uncontrolled acceleration” and unintended acceleration to “maximum RPM,” and customer concern that the condition was “extremely dangerous.”

In early 2009, TOYOTA circulated to European Toyota distributors information about the sticky pedal problem and instructions for addressing the problem if it presented itself in a customer’s vehicle.  These instructions identified the issue as “Sudden RPM increase/vehicle acceleration due to accelerator pedal sticking,” and stated that should a customer complain of pedal sticking, the pedal should be replaced with pedals manufactured by a company other than A-Pedal Company.  Contemporaneous internal TOYOTA documents described the sticky pedal problem as a “defect” that was “[i]mportant in terms of safety because of the possibility of accidents.”

TOYOTA did not then inform its U.S. regulators of the sticky pedal problem or conduct a recall.  Instead, beginning in the spring of 2009, TOYOTA quietly directed A-Pedal Company to change the pedals in new productions of affected models in Europe, and to plan for the same design changes to be rolled out in the United States (where the same problematic pedals were being used) beginning in the fall of 2009.  The design change was to substitute the plastic used in the affected pedal models with another material and to change the length of the friction lever in the pedal.

Meanwhile, the sticky pedal problem was manifesting itself in U.S. vehicles.  On or about the same day the San Diego floor-mat entrapment accident occurred, staff at a U.S. TOYOTA subsidiary in California sent a memorandum to staff at TOYOTA in Japan identifying as “critical” an “unintended acceleration” issue separate and apart from floor-mat entrapment that had been identified in an accelerator pedal of a Toyota Matrix vehicle in Arizona.  The problem identified, and then reproduced during testing of the pedal on Sept. 17, 2009, was the sticky pedal problem.  Also in August, the sticky pedal problem cropped up in a U.S. Camry.

On Sept. 9, 2009, an employee of a U.S. TOYOTA subsidiary who was concerned about the sticky pedal problem in the United States and believed that TOYOTA should address the problem prepared a “Market Impact Summary” listing (in addition to the August 2009 Matrix and Camry) 39 warranty cases that he believed involved potential manifestations of the sticky pedal problem.  This document, which was circulated to TOYOTA engineers and, later, to staff in charge of recall decisions in Japan, designated the sticky pedal problem as priority level “A,” the highest level.

By no later than September 2009, TOYOTA recognized internally that the sticky pedal problem posed a risk of a type of unintended acceleration – or “overrun,” as Toyota sometimes called it – in many of its U.S. vehicles.  A September 2009 presentation made by a manager at a U.S. TOYOTA subsidiary to TOYOTA executives gave a “current summary of O/R [overrun] types in NA [North American] market” that listed the three confirmed types as: “mat interference” (i.e., floor-mat entrapment), “material issue” (described as “pedal stuck and . . . pedal slow return/deformed”) and “simultaneous pedal press” by the consumer.  The presentation further listed the models affected by the “material issue” as including “Camry, Corolla, Matrix, Avalon.”

Hiding Sticky Pedal from NHTSA and the Public

 As noted, TOYOTA had by this time developed internal plans to implement design changes for all A-Pedal-Company-manufactured pedals in U.S. Toyota models to address, on a going-forward basis, the still-undisclosed sticky pedal problem that had already been resolved for new vehicles in Europe.  On Oct. 5, 2009, TOYOTA engineers issued to A-Pedal Company the first of the design change instructions intended to prevent sticky pedal in the U.S. market.  This was described internally as an “urgent” measure to be implemented on an “express” basis, as a “major” change – meaning that the part number of the subject pedal was to change, and that all inventory units with the old pedal number should be scrapped.

On Oct. 21, 2009, however, in the wake of the San Diego floor-mat entrapment accident, and in the midst of TOYOTA’s discussions with NHTSA about its eight-model entrapment recall, engineers at TOYOTA and the leadership of TOYOTA’s recall decision group decided to cancel the design change instruction that had already been issued and to suspend all remaining design changes planned for A-Pedal Company pedals in U.S. models.  U.S. TOYOTA subsidiary employees who had been preparing for implementation of the changes were instructed, orally, to alert the manufacturing plants of the cancellation.  They were also instructed not to put anything about the cancellation in writing.  A-Pedal Company itself would receive no written cancellation at this time; instead, contrary to TOYOTA’s own standard procedures, the cancellation was to be effected without a paper trail.

TOYOTA decided to suspend the pedal design changes in the United States, and to avoid memorializing that suspension, in order to prevent NHTSA from learning about the sticky pedal problem.

In early November 2009, TOYOTA and the leadership of a U.S. TOYOTA subsidiary became aware of three instances of sticky pedal in U.S. Corollas.  Shortly thereafter, the leadership of the recall decision group within TOYOTA discussed a plan to finally disclose the sticky pedal problem to NHTSA.  The recall decision group was aware at this time not only of the problems in the three Corollas in the United States but also of the problems that had surfaced in a Matrix and a Camry in August 2009 and been reproduced through testing in September 2009.  The group was also familiar with the sticky pedal problem in Europe, the design changes that had been implemented there, and the cancellation and suspension of similar planned design changes in the United States.  Knowing all of this, the group’s leadership decided that (a) it would not disclose the September 2009 Market Impact Summary to NHTSA; (b) if any disclosure were to be made to NHTSA, it would be limited to a disclosure that there were some reports of unintended acceleration apparently unrelated to floor-mat entrapment; and (c) NHTSA should be told that TOYOTA had made no findings with respect to the sticky pedal problem reflected in the reports concerning the three U.S. Corollas, and that the investigation of the problem had just begun.

On Nov. 17, 2009, before TOYOTA had negotiated with NHTSA a final set of remedies for the eight models encompassed by the floor-mat entrapment recall, TOYOTA informed NHTSA of the three Corolla reports and several other reports of unintended acceleration in Toyota model vehicles equipped with pedals manufactured by A‑Pedal Company.  In TOYOTA’s disclosure to NHTSA, TOYOTA did not reveal its understanding of the sticky pedal problem as a type of unintended acceleration, nor did it reveal the problem’s manifestation and the subsequent design changes in Europe, the planned, cancelled, and suspended design changes in the United States, the August 2009 Camry and Matrix vehicles that had suffered sticky pedal, or the September 2009 Market Impact Summary.

TOYOTA’s Misleading Statements

After the August 2009 fatal floor-mat entrapment accident in San Diego, several articles critical of TOYOTA appeared in U.S. newspapers.  The articles reported instances of TOYOTA customers allegedly experiencing unintended acceleration and the authors accused TOYOTA of, among other things, hiding defects related to unintended acceleration.

On Nov. 25, 2009, TOYOTA, through a U.S. subsidiary, announced its floor- mat entrapment resolution with NHTSA.  In a press release that had been approved by TOYOTA, the U.S. subsidiary assured customers: “The safety of our owners and the public is our utmost concern and Toyota has and will continue to thoroughly investigate and take appropriate measures to address any defect trends that are identified.”  A spokesperson for the subsidiary stated during a press conference the same day, “We’re very, very confident that we have addressed this issue.”

In truth, the issue of unintended acceleration had not been “addressed” by the remedies announced.  A-Pedal Company pedals which could experience stickiness were still on the road and still, in fact, being installed in newly-produced vehicles.  And the best-selling Corolla, the Highlander, and the Venza – which had design features similar to models that had been included in the earlier floor-mat entrapment recall – were not being “addressed” at all.

Again, on Dec. 23, 2009, TOYOTA responded to media accusations that it was continuing to hide defects in its vehicles by authorizing a U.S. TOYOTA subsidiary to publish the following misleading statements on the subsidiary’s website: “Toyota has absolutely not minimized public awareness of any defect or issue with respect to its vehicles.  Any suggestion to the contrary is wrong and borders on irresponsibility.  We are confident that the measures we are taking address the root cause and will reduce the risk of pedal entrapment.”   In fact, TOYOTA had “minimized public awareness of” both sticky pedal and floor-mat entrapment.  Further, the measures TOYOTA had taken did not “address the root cause” of unintended acceleration, because TOYOTA had not yet issued a sticky pedal recall and had not yet recalled the Corolla, the Venza, or the Highlander for floor-mat entrapment.

TOYOTA’s False Timeline

When, in early 2010, TOYOTA finally conducted safety recalls to address the unintended acceleration issues it had concealed throughout the fall of 2009, TOYOTA provided to the American public, NHTSA and the United States Congress an inaccurate timeline of events that made it appear as if TOYOTA had learned of the sticky pedal in the United States in “October 2009,” and then acted promptly to remedy the problem within 90 days of discovering it.  In fact, TOYOTA had begun its investigation of sticky pedal in the United States no later than August 2009, had already reproduced the problem in a U.S. pedal by no later than September 2009, and had taken active steps in the months following that testing to hide the problem from NHTSA and the public.

*                *                *

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorney Bonnie Jonas, Deputy Chief of the Criminal Division and Assistant U.S. Attorney Sarah E. McCallum are in charge of the prosecution, and Assistant U.S. Attorney Sharon Cohen Levin, Chief of the Money Laundering and Asset Forfeiture Unit is responsible for the forfeiture aspects of the case.

RBS SECURITIES JAPAN LTD SENTENCED FOR MANIPULATION OF YEN LIBOR

FROM:  JUSTICE DEPARTMENT 

WASHINGTON — RBS Securities Japan Limited, a wholly owned subsidiary of The Royal Bank of Scotland plc (RBS) that engages in investment banking operations with its principal place of business in Tokyo, Japan, was sentenced today for its role in manipulating the Japanese Yen London Interbank Offered Rate (LIBOR), a leading benchmark used in financial products and transactions around the world.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, Deputy Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division and Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office made the announcement.

RBS Securities Japan was sentenced by U.S. District Judge Michael P. Shea in the District of Connecticut.  RBS Securities Japan pleaded guilty on April 12, 2013, to one count of wire fraud for its role in manipulating Yen LIBOR benchmark interest rates.  RBS Securities Japan signed a plea agreement with the government in which it admitted its criminal conduct and agreed to pay a $50 million fine, which the court accepted in imposing sentence.  In addition, RBS plc, the Edinburgh, Scotland-based parent company of RBS Securities Japan, entered into a deferred prosecution agreement (DPA) with the government requiring RBS plc to pay an additional $100 million penalty, to admit and accept responsibility for its misconduct as set forth in an extensive statement of facts and to continue cooperating with the Justice Department in its ongoing investigation.  The DPA reflects RBS plc’s cooperation in disclosing LIBOR misconduct within the financial institution and recognizes the significant remedial measures undertaken by new management to enhance internal controls.

Together with approximately $462 million in regulatory penalties and disgorgement – $325 million as a result of a Commodity Futures Trading Commission (CFTC) action and approximately $137 million as a result of a U.K. Financial Conduct Authority (FCA) action – the Justice Department’s criminal penalties bring the total amount of the resolution with RBS and RBS Securities Japan to approximately $612 million.

“Today’s sentencing of RBS is an important reminder of the significant consequences facing banks that deliberately manipulate financial benchmark rates, and it represents one of the numerous enforcement actions taken by the Justice Department in our ongoing LIBOR investigation” said Acting Assistant Attorney General Raman. “As a result of the department’s investigation, we have charged five individuals and secured admissions of criminal wrongdoing by four major financial institutions.  Our enforcement actions have had a lasting impact on the global banking system, and we intend to continue to vigorously investigate and prosecute the manipulation of this cornerstone benchmark rate.”

“By colluding to manipulate the Yen LIBOR benchmark interest rate, RBS Securities Japan reaped higher profits for itself at the expense of unknowing counterparties, and in the process undermined the integrity of a major benchmark rate used in financial transactions throughout the world,” said Deputy Assistant Attorney General Snyder.  “Today’s sentence, in conjunction with the department’s agreement with parent company RBS, demonstrates the Antitrust Division’s commitment to prosecuting these types of far-reaching and sophisticated conspiracies.”

“The manipulation of LIBOR impacts financial products the world over, and erodes the integrity of the financial markets,” said Assistant Director in Charge Parlave.  “Without a level playing field in our financial marketplace, banks and investors do not have a threshold to which they can measure their hard work.  I commend the Special Agents, forensic accountants and analysts, as well as the prosecutors, for the significant time and resources they committed to investigating this case.”

According to court documents, LIBOR is an average interest rate, calculated based upon submissions from leading banks around the world, reflecting the rates those banks believe they would be charged if borrowing from other banks.  LIBOR serves as the primary benchmark for short-term interest rates globally, and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products.  The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were valued at approximately $450 trillion.

LIBOR is published by the British Bankers’ Association (BBA), a trade association based in London.  At the time relevant to the conduct in the criminal information, LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year.  The LIBOR for a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks for that currency (the Contributor Panel) selected by the BBA.

According to the plea agreement, at various times from at least 2006 through 2010, certain RBS Securities Japan Yen derivatives traders engaged in efforts to move LIBOR in a direction favorable to their trading positions, defrauding RBS counterparties who were unaware of the manipulation affecting financial products referencing Yen LIBOR.  The scheme included efforts to manipulate more than one hundred Yen LIBOR submissions in a manner favorable to RBS Securities Japan’s trading positions.  Certain RBS Securities Japan Yen derivatives traders, including a manager, engaged in this conduct in order to benefit their trading positions and thereby increase their profits and decrease their losses.

The prosecution of RBS Securities Japan is being handled by Deputy Chief Patrick Stokes and Trial Attorney Gary Winters of the Criminal Division’s Fraud Section, and New York Office Assistant Chief Elizabeth Prewitt and Trial Attorneys Eric Schleef and Richard Powers of the Antitrust Division.  Deputy Chiefs Daniel Braun and William Stellmach and Trial Attorney Alex Berlin of the Criminal Division’s Fraud Section, Trial Attorneys Daniel Tracer and Kristina Srica of the Antitrust Division, Jeremy Verlinda of the Antitrust Division’s Economic Analysis Group, Assistant U.S. Attorneys Eric Glover and Liam Brennan of the U.S. Attorney’s Office for the District of Connecticut, and the Criminal Division’s Office of International Affairs have also provided valuable assistance in this matter.  The investigation is being conducted by special agents, forensic accountants and intelligence analysts of the FBI’s Washington Field Office.

The investigation leading to these cases has required, and has greatly benefited from, a diligent and wide-ranging cooperative effort among various enforcement agencies both in the United States and abroad.  The Justice Department acknowledges and expresses its deep appreciation for this assistance.  In particular, the CFTC’s Division of Enforcement referred this matter to the department and, along with the FCA, has played a major role in the investigation.  Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the department is grateful for their cooperation and assistance.  In particular, the Securities and Exchange Commission has played a significant role in the LIBOR investigation, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation.

This prosecution is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force.  President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.  The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets and recover proceeds for victims of financial crimes.

SUBSIDIARY OF CONVERGEX GROUP & 2 EMPLOYEES PLEAD GUILTY TO SECURITIES FRAUD

FROM:  U.S. JUSTICE DEPARTMENT 
Wednesday, December 18, 2013
Convergex Group Subsidiary and Two Employees Plead Guilty to Securities and Wire Fraud Charges

A brokerage subsidiary of ConvergEx Group LLC pleaded guilty today to charges of wire fraud and conspiracy to commit securities fraud and wire fraud.   ConvergEx Group has also agreed to pay $43.8 million in criminal penalties and restitution as part of a deferred prosecution agreement with the Department of Justice.   In addition, Jonathan Daspin, the head trader at the brokerage subsidiary, and Thomas Lekargeren, a sales trader at a different ConvergEx subsidiary, both pleaded guilty today to conspiracy to commit securities and wire fraud before U.S. District Judge Jose Linares in the District of New Jersey.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office, and Inspector in Charge Phillip Bartlett from the U.S. Postal Inspection Service (USPIS) made the announcement.

ConvergEx Global Markets Limited (CGM Limited), a former broker-dealer registered in Bermuda, has also agreed to plead guilty today.   The department also filed today a criminal information in connection with a deferred prosecution agreement, charging ConvergEx Group with one count of conspiracy to commit securities fraud and wire fraud and one count of wire fraud.   To resolve the charges, ConvergEx Group and CGM Limited have agreed to pay in total a criminal penalty of approximately $18.0 million and forfeit approximately $12.8 million, for a total penalty of $30.8 million, and additionally to pay restitution of approximately $12.8 million to defrauded customers.

In a parallel action, the U.S. Securities and Exchange Commission also reached a resolution today with three ConvergEx Group subsidiaries, Daspin and Lekargaren.

“As described in the guilty plea agreements and charging documents announced today, ConvergEx – which was a broker for some of the most sophisticated institutional investors in the world – along with several of its employees, engaged in a concerted and coordinated effort to fleece its clients by charging them millions of dollars in unwarranted fees – which ConvergEx called “trading profits,” or “spread” – and then concealing those charges from its clients through a pattern of deception,” said Acting Assistant Attorney General Mythili Raman.  “Although the theft of money from ConvergEx’s clients was large in scale, the fraud scheme was committed in the most basic of ways:  ConvergEx and its traders, plain and simple, lied to their clients to hide that they were stealing their money.  This coordinated bilking of clients by a broker-dealer – accomplished through intentional and repeated misrepresentations – not only inflicted real financial losses on investors, but also undermines investors’ confidence in the integrity and reliability of the financial markets.  As the guilty pleas and resolutions announced today show, we will not tolerate this type of criminal conduct and we will hold both institutions and individuals to account.”

“With today’s guilty pleas, ConvergEx and two of its employees admitted their roles in a scheme in which they committed securities fraud,” said Assistant Director in Charge Parlave.  “By doing so, they hid the fact that they were secretly earning millions of dollars by deliberately fabricating transaction reports which were provided to clients with false details regarding their orders.   The FBI will continue to investigate allegations of securities fraud and abuse to ensure those who participate in the global trading market are doing so fairly.”

“This is yet another example of the significant results that can be achieved when law enforcement agencies partner, share information, and collaborate,” said USPIS Inspector Bartlett.   “The Inspection Service values its partnership with the FBI and SEC in this case.”

According to court documents, certain ConvergEx Group broker-dealers that provided agency brokerage services and disclosed to clients that they would charge commissions for their services regularly routed securities orders to CGM Limited in Bermuda so that it could take a mark-up (an additional amount paid for the purchase of a security) or mark-down (a reduction of the amount received for the sale of a security) when executing the orders.   ConvergEx employees referred to such mark-ups and mark-downs as “spread,” “trading profits,” or “TP.”

To hide the fact that spread had been taken on trades, traders at CGM Limited and sales traders at a ConvergEx Group subsidiary in New York sent false transaction reports to clients with fabricated details regarding the execution orders, including the number of shares involved in a trade, the time at which a trade was executed and the price at which shares were either purchased or sold.   CGM Limited traders, including Daspin, created these false reports using exchange data from transactions entered into by others on the same trade date as the trades that had been executed by CGM Limited on behalf of its clients.   Daspin instructed a sales trader while creating a false report to “Please put all Prints in one spreadsheet in the least Friendly Format….If possible take this out of spreadsheet Format and make a PDF – Or put this in picture file or something tricky to manipulate.”   In another instance, Daspin notified an executive that “We need to be creative putting something together as did not have time and sales for the price given. Fyi.”   In total, CGM Limited took approximately $12.8 million in trading profits from these clients after it had sent the false statements to them.

Daspin and others also came up with a plan to continue taking spread on a client by violating the client’s instructions to provide “real-time” transactional data, i.e., an immediate data feed of the details of trades that CGM Limited executed for the client in offshore markets through  foreign brokers.   If the client’s instructions had been followed, CGM Limited’s traders would not have been able to take spread on the client’s trades.   Daspin and other CGM Limited traders “turned off” real time for certain portions of the client’s orders and took spread while “real-time” was turned off.   On several occasions, when the client asked why it was not receiving real-time data, Lekargeren falsely blamed it on various “IT” issues.

Certain employees of CGM Limited and the broker-dealers offering agency brokerage services also took other steps designed to conceal the fact that CGM Limited was taking spread and the fact that spread was included in the trade prices reported to clients, including: taking smaller amounts of spread on certain price-sensitive clients; taking larger amounts of spread when it was less likely to be discovered; insuring that the marked-up price they charged to clients was within the high or low price at which the security traded that day; and using multiple local brokers during the course of a trade so that a client would not be able to track the execution of the client’s order through publicly available resources.

The head of the division offering transition management services – which provided clients in the process of changing fund managers or investment strategies the ability to execute large orders to buy and sell securities – provided several clients with false information to hide trading profits.   In July 2010, for example, this executive caused a client to be told that “no principal trading has been carried out in any transition” for that client, when this executive knew CGM Limited had traded in a principal capacity and had taken approximately $1.75 million of trading profits on the client’s trades a month earlier.   After that false response was sent to the client, CGM Limited’s traders took approximately $4.5 million of additional trading profits on that client’s trades.

In addition, ConvergEx employees assisted an unaffiliated provider of transition services in concealing that it was receiving a 50 to 60 percent share of the trading profits CGM Limited was taking on the unaffiliated company’s clients, in violation of the unaffiliated company’s client agreements.   The unaffiliated company sent invoices addressed to ConvergEx Group that falsely stated that they were for trading cost analysis, when in fact the invoices were sent to cover up that the payments were in fact for the unaffiliated company’s share of the spread taken by CGM Limited on its clients.

As part of the deferred prosecution agreement with ConvergEx Group, the department highlighted the internal investigation conducted by the company; its extraordinary and ongoing cooperation; its extensive remediation, including terminating officers and employees, ceasing all trading activities at CGM Limited and voluntarily relinquishing the subsidiary’s Bermudan securities license; and enhancing its compliance program and internal controls; as well as the guilty plea by CGM Limited and its agreement to pay restitution and the significant sanctions imposed by the SEC.

The case was investigated by the FBI’s Washington Field Office and the Washington, D.C., and New York offices of the U.S. Postal Inspection Service.   The case is being prosecuted by Trial Attorneys Justin Goodyear, Jason Linder and Patrick Pericak of the Criminal Division’s Fraud Section.

The SEC referred the matter to the Justice Department for investigation, and the department expresses its appreciation for the significant assistance provided by the SEC.

The department also recognizes the assistance of the Criminal Division’s Office of International Affairs, the Financial Industry Regulatory Authority, and the United States Attorney’s Office for the District of New Jersey.

GERMAN ENGINEERING FIRM RESOLVES FCPA CHARGES, WILL PAY $32 MILLION

FROM:  U.S. JUSTICE DEPARTMENT 
Wednesday, December 11, 2013
German Engineering Firm Bilfinger Resolves Foreign Corrupt Practices Act Charges and Agrees to Pay $32 Million Criminal Penalty

Bilfinger SE, an international engineering and services company based in Mannheim, Germany, has agreed to pay a $32 million penalty to resolve charges that it violated the Foreign Corrupt Practices Act (FCPA) by bribing government officials of the Federal Republic of Nigeria to obtain and retain contracts related to the Eastern Gas Gathering System (EGGS) project, which was valued at approximately $387 million.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office made the announcement.

As part of the agreed resolution, the department today filed a three-count criminal information in U.S. District Court for the Southern District of Texas charging Bilfinger with violating and conspiring to violate the FCPA’s anti-bribery provisions.   The department and Bilfinger agreed to resolve the charges by entering into a deferred prosecution agreement for a term of three years.   In addition to the monetary penalty, Bilfinger agreed to implement rigorous internal controls, continue cooperating fully with the department, and retain an independent corporate compliance monitor for at least 18 months.   The agreement acknowledges Bilfinger’s cooperation with the department and its remediation efforts.

According to court documents, from late 2003 through June 2005, Bilfinger conspired with Willbros Group Inc. and others to make corrupt payments totaling more than $6 million to Nigerian government officials to assist in obtaining and retaining contracts related to the EGGS project.   Bilfinger and Willbros formed a joint venture to bid on the EGGS project and inflated the price of the joint venture’s bid by 3 percent to cover the cost of paying bribes to Nigerian officials.   As part of the conspiracy, Bilfinger employees bribed Nigerian officials with cash that Bilfinger employees sent from Germany to Nigeria.   At another point in the conspiracy, when Willbros employees encountered difficulty obtaining enough money to make their share of the bribe payments, Bilfinger loaned them $1 million, with the express purpose of paying bribes to the Nigerian officials.

Including today’s action, the department has filed criminal charges in the Southern District of Texas against three institutions and four executives and consultants in connection with the EGGS bribery scheme:

·          On Sept. 14, 2006, Jim Bob Brown, a former Willbros executive, pleaded guilty to one count of conspiracy to violate the FCPA in connection with his role in making corrupt payments to Nigerian government officials to obtain and retain the EGGS contract and in connection with his role in making corrupt payments in Ecuador.  Brown was sentenced on Jan. 28, 2010, to serve 12 months and one day in prison, to be followed by two years of supervised release, and ordered to pay a $17,500 fine.

·          On Nov. 5, 2007, Jason Steph, also a former Willbros executive, pleaded guilty to one count of conspiracy to violate the FCPA in connection with his role in making corrupt payments to Nigerian government officials to obtain and retain the EGGS contract.   Steph was sentenced on Jan. 28, 2010, to serve 15 months in prison, to be followed by two years of supervised release, and ordered to pay a $2,000 fine.

·          On May 14, 2008, Willbros Group Inc. and Willbros International Inc. entered into a deferred prosecution agreement and agreed to pay a $22 million criminal penalty in connection with the company’s payment of bribes to government officials in Nigeria and Ecuador.   On March 30, 2012, the government moved to dismiss the charges against Willbros on the grounds that Willbros had satisfied its obligations under the deferred prosecution agreement, and on April 2, 2012, the court granted the United States’ motion.

·          On Dec. 19, 2008, Kenneth Tillery, a former Willbros executive, was charged with conspiring to make and making bribe payments to Nigerian and Ecuadoran officials in connection with the EGGS project and pipeline projects in Ecuador and conspiring to launder the bribe payments.   Tillery remains a fugitive.   The charges against Tillery are merely accusations, and he is presumed innocent unless and until proven guilty.

·          On Nov. 12, 2009, Paul Grayson Novak, a former Willbros consultant, pleaded guilty to one count of conspiracy to violate the FCPA and one substantive count of violating the FCPA in connection with his role in making corrupt payments to Nigerian government officials to obtain and retain the EGGS contract.   Novak was sentenced on May 3, 2013, to serve 15 months in prison, to be followed by two years of supervised release, and ordered to pay a $1 million fine.

The case was investigated by the FBI’s Washington Field Office and its team of special agents dedicated to the investigation of foreign bribery cases.   The case is being prosecuted by Senior Trial Attorney Laura N. Perkins of the Criminal Division’s Fraud Section.

RABOBANK AGREES TO PAY $325 MILLION CRIMINAL PENALTY IN LIBOR/EURIBOR INTEREST RATE MANIPULATION SCHEME

FROM:  U.S. JUSTICE DEPARTMENT 
Tuesday, October 29, 2013
Rabobank Admits Wrongdoing in Libor Investigation, Agrees to Pay $325 Million Criminal Penalty

Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank)   has entered into an agreement with the Department of Justice to pay a $325 million penalty to resolve violations arising from Rabobank’s submissions for the London InterBank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (Euribor), which are leading benchmark interest rates around the world, the Justice Department announced today.

A criminal information will be filed today in U.S. District Court for the District of Connecticut that charges Rabobank as part of a deferred prosecution agreement (DPA).  The information charges Rabobank with wire fraud for its role in manipulating the benchmark interest rates LIBOR and Euribor.  In addition to the $325 million penalty, the DPA requires the bank to admit and accept responsibility for its misconduct as described in an extensive statement of facts.  Rabobank has agreed to continue cooperating with the Justice Department in its ongoing investigation of the manipulation of benchmark interest rates by other financial institutions and individuals.

“For years, employees at Rabobank, often working with traders at other banks around the globe, illegally manipulated four different interest rates – Euribor and LIBOR for the U.S. dollar, the yen, and the pound sterling – in the hopes of fraudulently moving the market to generate profits for their traders at the expense of the bank’s counterparties,” said Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division.  “Today’s criminal resolution – which represents the second-largest penalty in the Criminal Division’s active, ongoing investigation of the manipulation of global benchmark interest rates by some of the largest banks in the world – comes fast on the heels of charges brought against three former ICAP brokers just last month.  Rabobank is the fourth major financial institution that has admitted its misconduct in this wide-ranging criminal investigation, and other banks should pay attention: our investigation is far from over.”

“Rabobank rigged multiple benchmark rates, allowing its traders to reap higher profits at the expense of their unsuspecting counterparties,” said Deputy Assistant Attorney General Leslie C. Overton of the Justice Department’s Antitrust Division.  “Not only was this conduct fraudulent, it compromised the integrity of globally-used interest rate benchmarks – undermining financial markets worldwide.”

“Rabobank admitted to manipulating LIBOR and Euribor submissions which directly affected the rates referenced by financial products held by and on behalf of companies and investors around the world,” said Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office.  “Rabobank’s actions resulted in the deliberate harm to counterparties holding products referencing the manipulated rates.  Today’s announcement is yet another example of the tireless efforts of the FBI special agents and forensic accountants who are dedicated to investigating complex fraud schemes and, together with prosecutors, bringing to justice those who participate in such schemes.”

Together with approximately $740 million in criminal and regulatory penalties imposed by other agencies in actions arising out of the same conduct – $475 million by the Commodity Futures Trading Commission (CFTC) action, $170 million by the U.K. Financial Conduct Authority (FCA) action and approximately $96 million by the Openbaar Ministerie (the Dutch Public Prosecution Service) – the Justice Department’s $325 million criminal penalty brings the total amount to be paid by Rabobank to more than $1 billion.

According to signed documents, LIBOR is an average interest rate, calculated based upon submissions from leading banks around the world and reflecting the rates those banks believe they would be charged if borrowing from other banks.  LIBOR serves as the primary benchmark for short-term interest rates globally and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products.  The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were valued at approximately $450 trillion.

LIBOR is published by the British Bankers’ Association (BBA), a trade association based in London.  At the time relevant to the conduct in the criminal information, LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year.  The LIBOR for a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks for that currency (the Contributor Panel) selected by the BBA.  From at least 2005 through 2011, Rabobank was a member of the Contributor Panel for a number of currencies, including United States dollar (dollar) LIBOR, pound sterling LIBOR, and yen LIBOR.

The Euro Interbank Offered Rate (Euribor) is published by the European Banking Federation (EBF), which is based in Brussels, Belgium, and is calculated at 15 maturities, ranging from overnight to one year.  Euribor is the rate at which Euro interbank term deposits within the Euro zone are expected to be offered by one prime bank to another at 11:00 a.m. Brussels time.  The Euribor at a given maturity is the result of a calculation based upon submissions from Euribor Contributor Panel banks.  From at least 2005 through 2011, Rabobank was also a member of the Contributor Panel for Euribor.

According to the statement of facts accompanying the agreement, from as early as 2005 through at least November 2010, certain Rabobank derivatives traders requested that certain Rabobank dollar LIBOR, yen LIBOR, pound sterling LIBOR, and Euribor submitters submit LIBOR and Euribor contributions that would benefit the traders’ trading positions, rather than rates that complied with the definitions of LIBOR and Euribor.

In addition, according to the statement of facts accompanying the agreement, from as early as January 2006 through October 2008, a Rabobank yen LIBOR submitter and a Rabobank Euribor submitter had two separate agreements with traders at other banks to make yen LIBOR and Euribor submissions that benefitted trading positions, rather than submissions that complied with the definitions of LIBOR and Euribor.

The Rabobank LIBOR and Euribor submitters accommodated traders’ requests on numerous occasions, and on various occasions, Rabobank’s submissions affected the fixed rates.

According to the statement of facts, Rabobank employees engaged in this conduct through electronic communications, which included both emails and electronic chats.  For example, on Sept. 21, 2007, a Rabobank Yen derivatives trader emailed the Rabobank Yen LIBOR submitter at the time with the subject line “libors,” writing: “Wehre do you think today’s libors are?  If you can, I would like 1mth libors higher today.”  The submitter replied: “Bookies reckon 1m sets at .85.”  The trader wrote back: “I have some fixings in 1 mth so would appreciate if you can put it higher mate.”  The submitter replied: “No prob mate let me know your level.”  The trader responded: “Wud be nice if you could put 0.90% for 1mth cheers.”  The submitter wrote back: “Sure no prob. I’ll probably get a few phone calls but no worries mate!”  The trader replied: “If you may get a few phone calls then put 0.88% then.”  The submitter responded: “Don’t worry mate – there’s bigger crooks in the market than us guys!”  That day, as requested, Rabobank’s 1-month Yen LIBOR submission was 0.90, an increase of seven basis points from its previous submission, whereas the other panel banks’ submissions decreased by approximately a half of a basis point on average.  Rabobank’s submission went from being tied as the tenth highest submission on the Contributor Panel on the previous day to being the highest submission on the Contributor Panel.

On Nov. 29, 2006, a Rabobank dollar derivatives trader wrote to Rabobank’s Global Head of Liquidity and Finance and the head of Rabobank’s money markets desk in London, who supervised rate submitters: “Hi mate, low 1s high 3s LIBOR pls !!! Dont tell [another Rabobank U.S. Dollar derivatives trader] haa haaaaaaa.  Sold the market today doooooohhhh!”  The money markets desk head replied: “ok mate , will do my best …speak later.”  After the LIBOR submissions that day, Rabobank’s ranking compared to other panel banks dropped as to 1-month dollar LIBOR and rose as to 3-month dollar LIBOR. Two days later, on Dec. 1, 2006, the trader again wrote to the money markets desk head: “Appreciate 3s go down, but a high 3s today would be nice… cheers chief.”  The money markets desk head wrote back: “I am fast turning into your LIBOR bitch!!!!”  The trader replied: “Just friendly encouragement that’s all , appreciate the help.”  The money markets desk head wrote back: “No worries mate , glad to help ….We just stuffed ourselves with good ol pie , mash n licker !!”

In an example of an agreement with traders at other banks, on July 28, 2006, a Rabobank rate submitter and Rabobank trader discussed their mutual desires for a high fixing.  The submitter stated to the trader: “setting a high 1m again today - I need it!” to which the trader responded: “yes pls mate…I need a higher 1m libor too.”  Within approximately 20 minutes, the submitter contacted a trader at another Contributor Panel bank and wrote: “morning skipper.....will be setting an obscenely high 1m again today...poss 38 just fyi.”  The other bank’s trader responded, “(K)...oh dear..my poor customers....hehehe!! manual input libors again today then!!!!”  Both banks’ submissions on July 28 moved up one basis point, from 0.37 to 0.38, a move which placed their submissions as the second highest submissions on the Contributor Panel that day.

As another example, on July 7, 2009, a Rabobank trader wrote to a former Rabobank yen LIBOR submitter: “looks like some ppl are talking with each other when they put libors down. . . quite surprised that 3m libors came down a lot.”  The former submitter replied: “yes deffinite manipulation – always is tho to be honest mate. . . i always used to ask if anyone needed a favour and vise versa. . . . a little unethical but always helps to have friends in mrkt.”

By entering into a DPA with Rabobank, the Justice Department took several factors into consideration, including that Rabobank has no history of similar misconduct and has not been the subject of any criminal enforcement actions or any significant regulatory enforcement actions by any authority in the United States, the Netherlands, or elsewhere.  In addition, Rabobank has significantly expanded and enhanced its legal and regulatory compliance program and has taken extensive steps to remediate the misconduct.  Significant remedies and sanctions are also being imposed on Rabobank by several regulators and an additional criminal law enforcement agency (the Dutch Public Prosecution Service).

This ongoing investigation is being conducted by special agents, forensic accountants, and intelligence analysts of the FBI’s Washington Field Office.  The prosecution of Rabobank is being handled by Assistant Chief Glenn S. Leon and Trial Attorney Alexander H. Berlin of the Criminal Division’s Fraud Section and Trial Attorneys Ludovic C. Ghesquiere, Michael T. Koenig and Eric L. Schleef of the Antitrust Division.  Deputy Chiefs Daniel Braun and William Stellmach of the Criminal Division’s Fraud Section, Criminal Division Senior Counsel Rebecca Rohr, Assistant Chief Elizabeth B. Prewitt and Trial Attorney Richard A. Powers of the Antitrust Division’s New York Office, and Assistant U.S. Attorneys Eric Glover and Liam Brennan of the U.S. Attorney’s Office for the District of Connecticut, along with Criminal Division’s Office of International Affairs, have provided valuable assistance in this matter.

The investigation leading to these cases has required, and has greatly benefited from, a diligent and wide-ranging cooperative effort among various enforcement agencies both in the United States and abroad.  The Justice Department acknowledges and expresses its deep appreciation for this assistance.  In particular, the CFTC’s Division of Enforcement referred this matter to the department and, along with the FCA, has played a major role in the investigation.  The department has also worked closely with the Dutch Public Prosecution Service and De Nederlandsche Bank (the Dutch Central Bank) in the investigation of Rabobank.  Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the department is grateful for their cooperation and assistance.  In particular, the Securities and Exchange Commission has played a significant role in the LIBOR investigation, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation.

HSBC BANK TO FORFEIT $1.256 BILLION

FROM: U.S. DEPARTMENT OF JUSTICE

Tuesday, December 11, 2012
HSBC Holdings Plc. and HSBC Bank USA N.A. Admit to Anti-Money Laundering and Sanctions Violations, Forfeit $1.256 Billion in Deferred Prosecution Agreement

Bank Agrees to Enhanced Compliance Obligations, Oversight by Monitor in Connection with Five-year Agreement

WASHINGTON – HSBC Holdings plc (HSBC Group) – a United Kingdom corporation headquartered in London – and HSBC Bank USA N.A. (HSBC Bank USA) (together, HSBC) – a federally chartered banking corporation headquartered in McLean, Va. – have agreed to forfeit $1.256 billion and enter into a deferred prosecution agreement with the Justice Department for HSBC’s violations of the Bank Secrecy Act (BSA), the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA). According to court documents, HSBC Bank USA violated the BSA by failing to maintain an effective anti-money laundering program and to conduct appropriate due diligence on its foreign correspondent account holders. The HSBC Group violated IEEPA and TWEA by illegally conducting transactions on behalf of customers in Cuba, Iran, Libya, Sudan and Burma – all countries that were subject to sanctions enforced by the Office of Foreign Assets Control (OFAC) at the time of the transactions.

The announcement was made by Lanny A. Breuer, Assistant Attorney General of the Justice Department’s Criminal Division; Loretta Lynch, U.S. Attorney for the Eastern District of New York; and John Morton, Director of U.S. Immigration and Customs Enforcement (ICE); along with numerous law enforcement and regulatory partners. The New York County District Attorney’s Office worked with the Justice Department on the sanctions portion of the investigation. Treasury Under Secretary David S. Cohen and Comptroller of the Currency Thomas J. Curry also joined in today’s announcement.

A four-count felony criminal information was filed today in federal court in the Eastern District of New York charging HSBC with willfully failing to maintain an effective anti-money laundering (AML) program, willfully failing to conduct due diligence on its foreign correspondent affiliates, violating IEEPA and violating TWEA. HSBC has waived federal indictment, agreed to the filing of the information, and has accepted responsibility for its criminal conduct and that of its employees.

"HSBC is being held accountable for stunning failures of oversight – and worse – that led the bank to permit narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries, and to facilitate hundreds of millions more in transactions with sanctioned countries," said Assistant Attorney General Breuer. "The record of dysfunction that prevailed at HSBC for many years was astonishing. Today, HSBC is paying a heavy price for its conduct, and, under the terms of today’s agreement, if the bank fails to comply with the agreement in any way, we reserve the right to fully prosecute it."

"Today we announce the filing of criminal charges against HSBC, one of the largest financial institutions in the world," said U.S. Attorney Lynch. "HSBC’s blatant failure to implement proper anti-money laundering controls facilitated the laundering of at least $881 million in drug proceeds through the U.S. financial system. HSBC’s willful flouting of U.S. sanctions laws and regulations resulted in the processing of hundreds of millions of dollars in OFAC-prohibited transactions. Today’s historic agreement, which imposes the largest penalty in any BSA prosecution to date, makes it clear that all corporate citizens, no matter how large, must be held accountable for their actions."

"Cartels and criminal organization are fueled by money and profits," said ICE Director Morton. "Without their illicit proceeds used to fund criminal activities, the lifeblood of their operations is disrupted. Thanks to the work of Homeland Security Investigations and our El Dorado Task Force, this financial institution is being held accountable for turning a blind eye to money laundering that was occurring right before their very eyes. HSI will continue to aggressively target financial institutions whose inactions are contributing in no small way to the devastation wrought by the international drug trade. There will be also a high price to pay for enabling dangerous criminal enterprises."

In addition to forfeiting $1.256 billion as part of its deferred prosecution agreement (DPA) with the Department of Justice, HSBC has also agreed to pay $665 million in civil penalties – $500 million to the Office of the Comptroller of the Currency (OCC) and $165 million to the Federal Reserve – for its AML program violations. The OCC penalty also satisfies a $500 million civil penalty of the Financial Crimes Enforcement Network (FinCEN). The bank’s $375 million settlement agreement with OFAC is satisfied by the forfeiture to the Department of Justice. The United Kingdom’s Financial Services Authority (FSA) is pursuing a separate action.

As required by the DPA, HSBC also has committed to undertake enhanced AML and other compliance obligations and structural changes within its entire global operations to prevent a repeat of the conduct that led to this prosecution. HSBC has replaced almost all of its senior management, "clawed back" deferred compensation bonuses given to its most senior AML and compliance officers, and has agreed to partially defer bonus compensation for its most senior executives – its group general managers and group managing directors – during the period of the five-year DPA. In addition to these measures, HSBC has made significant changes in its management structure and AML compliance functions that increase the accountability of its most senior executives for AML compliance failures.

The AML Investigation

According to court documents, from 2006 to 2010, HSBC Bank USA severely understaffed its AML compliance function and failed to implement an anti-money laundering program capable of adequately monitoring suspicious transactions and activities from HSBC Group Affilliates, particularly HSBC Mexico, one of HSBC Bank USA’s largest Mexican customers. This included a failure to monitor billions of dollars in purchases of physical U.S. dollars, or "banknotes," from these affiliates. Despite evidence of serious money laundering risks associated with doing business in Mexico, from at least 2006 to 2009, HSBC Bank USA rated Mexico as "standard" risk, its lowest AML risk category. As a result, HSBC Bank USA failed to monitor over $670 billion in wire transfers and over $9.4 billion in purchases of physical U.S. dollars from HSBC Mexico during this period, when HSBC Mexico’s own lax AML controls caused it to be the preferred financial institution for drug cartels and money launderers.

A significant portion of the laundered drug trafficking proceeds were involved in the Black Market Peso Exchange (BMPE), a complex money laundering system that is designed to move the proceeds from the sale of illegal drugs in the United States to drug cartels outside of the United States, often in Colombia. According to court documents, beginning in 2008, an investigation conducted by ICE Homeland Security Investigation’s (HSI’s) El Dorado Task Force, in conjunction with the U.S. Attorney’s Office for the Eastern District of New York, identified multiple HSBC Mexico accounts associated with BMPE activity and revealed that drug traffickers were depositing hundreds of thousands of dollars in bulk U.S. currency each day into HSBC Mexico accounts. Since 2009, the investigation has resulted in the arrest, extradition, and conviction of numerous individuals illegally using HSBC Mexico accounts in furtherance of BMPE activity.

As a result of HSBC Bank USA’s AML failures, at least $881 million in drug trafficking proceeds – including proceeds of drug trafficking by the Sinaloa Cartel in Mexico and the Norte del Valle Cartel in Colombia – were laundered through HSBC Bank USA. HSBC Group admitted it did not inform HSBC Bank USA of significant AML deficiencies at HSBC Mexico, despite knowing of these problems and their effect on the potential flow of illicit funds through HSBC Bank USA.

The Sanctions Investigation

According to court documents, from the mid-1990s through September 2006, HSBC Group allowed approximately $660 million in OFAC-prohibited transactions to be processed through U.S. financial institutions, including HSBC Bank USA. HSBC Group followed instructions from sanctioned entities such as Iran, Cuba, Sudan, Libya and Burma, to omit their names from U.S. dollar payment messages sent to HSBC Bank USA and other financial institutions located in the United States. The bank also removed information identifying the countries from U.S. dollar payment messages; deliberately used less-transparent payment messages, known as cover payments; and worked with at least one sanctioned entity to format payment messages, which prevented the bank’s filters from blocking prohibited payments.

Specifically, beginning in the 1990s, HSBC Group affiliates worked with sanctioned entities to insert cautionary notes in payment messages including "care sanctioned country," "do not mention our name in NY," or "do not mention Iran." HSBC Group became aware of this improper practice in 2000. In 2003, HSBC Group’s head of compliance acknowledged that amending payment messages "could provide the basis for an action against [HSBC] Group for breach of sanctions." Notwithstanding instructions from HSBC Group Compliance to terminate this practice, HSBC Group affiliates were permitted to engage in the practice for an additional three years through the granting of dispensations to HSBC Group policy.

Court documents show that as early as July 2001, HSBC Bank USA’s chief compliance officer confronted HSBC Group’s Head of Compliance on the issue of amending payments and was assured that "Group Compliance would not support blatant attempts to avoid sanctions, or actions which would place [HSBC Bank USA] in a potentially compromising position." As early as July 2001, HSBC Bank USA told HSBC Group’s head of compliance that it was concerned that the use of cover payments prevented HSBC Bank USA from confirming whether the underlying transactions met OFAC requirements. From 2001 through 2006, HSBC Bank USA repeatedly told senior compliance officers at HSBC Group that it would not be able to properly screen sanctioned entity payments if payments were being sent using the cover method. These protests were ignored.

"Today HSBC is being held accountable for illegal transactions made through the U.S. financial system on behalf of entities subject to U.S. economic sanctions," said Debra Smith, Acting Assistant Director in Charge of the FBI’s Washington Field Office. "The FBI works closely with partner law enforcement agencies and federal regulators to ensure compliance with federal banking laws to promote integrity across financial institutions worldwide."

"Banks are the first layer of defense against money launderers and other criminal enterprises who choose to utilize our nation’s financial institutions to further their criminal activity," said Richard Weber, Chief, Internal Revenue Service-Criminal Investigation (IRS-CI). "When a bank disregards the Bank Secrecy Act’s reporting requirements, it compromises that layer of defense, making it more difficult to identify, detect and deter criminal activity. In this case, HSBC became a conduit to money laundering. The IRS is proud to partner with the other law enforcement agencies and share its world-renowned financial investigative expertise in this and other complex financial investigations."

Manhattan District Attorney Cyrus R. Vance Jr., said, "New York is a center of international finance, and those who use our banks as a vehicle for international crime will not be tolerated. My office has entered into Deferred Prosecution Agreements with two different banks in just the past two days, and with six banks over the past four years. Sanctions enforcement is of vital importance to our national security and the integrity of our financial system. The fight against money laundering and terror financing requires global cooperation, and our joint investigations in this and other related cases highlight the importance of coordination in the enforcement of U.S. sanctions. I thank our federal counterparts for their ongoing partnership."

Queens County District Attorney Richard A. Brown said, "No corporate entity should ever think itself too large to escape the consequences of assisting international drug cartels. In particular, banks have a special responsibility to use appropriate due diligence in monitoring the cash transactions flowing through their financial system and identifying the sources of that money in order not to assist in criminal activity. By allowing such illicit transactions to occur, HSBC failed in its global responsibility to us all. Hopefully, as a result of this historical settlement, we have gained the attention of not only HSBC but that of every other major financial institution so that they cannot turn a blind eye to the crime of money laundering."

DEPARTMENT OF JUSTICE CLEANS-UP IN $100 MILLION MONEY LAUNDERING CASE

FROM: U.S. DEPARTMENT OF JUSTICE

Friday, November 9, 2012
Moneygram International Inc. Admits Anti-Money Laundering and Wire Fraud Violations, Forfeits $100 Million in Deferred Prosecution

Also Agrees to Enhanced Compliance Obligations and Structural Changes in Connection with Five-Year Agreement
WASHINGTON – MoneyGram International Inc. – a global money services business headquartered in Dallas – has agreed to forfeit $100 million and enter into a deferred prosecution agreement (DPA) with the Justice Department in which it admits to criminally aiding and abetting wire fraud and failing to maintain an effective anti-money laundering program, as charged in an information filed today in the Middle District of Pennsylvania.

The announcement was made by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney Peter Smith for the Middle District of Pennsylvania; and Karen V. Higgins, Inspector in Charge, Philadelphia Division, U.S. Postal Inspection Service (USPIS).

According to court documents, MoneyGram was involved in mass marketing and consumer fraud phishing schemes, perpetrated by corrupt MoneyGram agents and others, that defrauded tens of thousands of victims in the United States. MoneyGram also failed to maintain an effective anti-money laundering program in violation of the Bank Secrecy Act. The Justice Department will return the forfeited funds to the victims of the fraud scheme through its Victim Asset Recovery Program.

"MoneyGram’s broken corporate culture led the company to privilege profits over everything else," said Assistant Attorney General Breuer. "MoneyGram knowingly turned a blind eye to scam artists and money launderers who used the company to perpetrate fraudulent schemes targeting the elderly and other vulnerable victims. In addition to forfeiting $100 million, which will be used to compensate victims, MoneyGram must for the next five years retain a corporate monitor who will report regularly to the Justice Department."

U.S. Attorney Smith said, "Thousands of citizens in Pennsylvania and other states suffered heartbreaking financial losses for years because of these international telemarketing schemes which depended on MoneyGram’s facilities to give them an electronic highway to move their illegal profits quickly out of the country. The determined work of U.S. Postal Inspectors and federal prosecutors disrupted and closed that electronic highway, hopefully for good. This case provides a way to get restitution for victims and ensure that MoneyGram does its part to deter similar scams in the future."

"This agreement demonstrates the ongoing and important work of the U.S. Postal Inspection Service in protecting consumers all across America," said Karen V. Higgins, Inspector in Charge, Philadelphia Division. "Businesses are supposed to provide their customers with fair and honest services. Today’s agreement reflects the commitment of the U.S. Postal Inspection Service in seeking justice and, to every extent possible, restitution for the most vulnerable in our society."

As part of the DPA, MoneyGram has agreed to enhanced compliance obligations and structural changes to prevent a repeat of the charged conduct, including:

Creation of an independent compliance and ethics committee of the board of directors with direct oversight of the chief compliance officer and the compliance program;
Adoption of a worldwide anti-fraud and anti-money laundering standard to ensure all MoneyGram agents throughout the world will, at a minimum, be required to adhere to U.S. anti-fraud and anti-money laundering standards;
Adoption of a bonus system which rates all executives on success in meeting compliance obligations, with failure making the executive ineligible for any bonus for that year; and
Adoption of enhanced due diligence for agents deemed to be high risk or operating in a high-risk area.

To oversee implementation and maintenance of these enhanced compliance obligations and evaluate the overall effectiveness of its anti-fraud and anti-money laundering programs, MoneyGram has agreed to retain an independent corporate monitor who will report regularly to the Justice Department. Under the DPA, the department will recommend the dismissal of the criminal information in five years, provided MoneyGram fully abides by the DPA’s terms.

The Fraud Scheme

According to court documents, starting in 2004 and continuing until 2009, MoneyGram violated U.S. law by processing thousands of transactions for MoneyGram agents known to be involved in an international scheme to defraud members of the U.S. public. MoneyGram profited from the scheme by collecting fees and other revenues on the fraudulent transactions.

The scams – which generally targeted the elderly and other vulnerable groups – included posing as victims’ relatives in urgent need of money and falsely promising victims large cash prizes, various high-ticket items for sale over the Internet at deeply discounted prices or employment opportunities as "secret shoppers." In each case, the perpetrators required the victims to send them funds through MoneyGram’s money transfer system.

Despite thousands of complaints by customers who were victims of fraud, MoneyGram failed to terminate agents that it knew were involved in scams. As early as 2003, MoneyGram’s fraud department would identify specific MoneyGram agents believed to be involved in fraud schemes and recommended termination of those agents to senior management. These termination recommendations were rarely accepted because they were not approved by executives in the sales department and, as a result, fraudulent activity grew from 1,575 reported instances of fraud by customers in the United States and Canada in 2004 to 19,614 reported instances in 2008. Cumulatively, from 2004 through 2009, MoneyGram customers reported instances of fraud totaling at least $100 million.

The USPIS and U.S. Attorney’s Office for the Middle District of Pennsylvania have been investigating and prosecuting telemarketing scams that used MoneyGram’s money transfer system and corrupt MoneyGram agents since 2007. To date, the U.S. Attorney’s Office for the Middle District of Pennsylvania has brought conspiracy, fraud and money laundering charges against 28 former MoneyGram agents.

Ineffective Anti-Money Laundering Program

MoneyGram’s involvement in this international fraud scheme resulted from a systematic, pervasive, and willful failure to meet its anti-money laundering (AML) obligations under the Bank Secrecy Act (BSA), a set of laws and regulations enacted by Congress to strengthen the U.S. financial system’s protections against criminal money laundering activity through financial institutions, including money services businesses like MoneyGram. Court documents show that MoneyGram failed to meet its AML obligations by, among other things, failing to:

Implement policies or procedures governing the termination of agents involved in fraud and/or money laundering;
Implement policies or procedures to file the required Suspicious Activity Reports (SARs) when victims reported fraud to MoneyGram on transactions over $2,000;
File SARs on agents MoneyGram knew were involved in the fraud;
Conduct effective AML audits of its agents and outlets;
Conduct adequate due diligence on prospective and existing MoneyGram Agents by verifying that a legitimate business existed; and
Sufficiently resource and staff its AML program.

MoneyGram’s BSA failures spanned five years, and resulted, among other things, from the failure of its fraud and AML compliance functions to share information and from its regularly resolving disagreements between its sales and fraud departments in the sales department’s favor. One notable such disagreement occurred in April 2007, when, at a meeting attended by senior MoneyGram executives, the fraud department recommended that 32 specific Canadian agents that were characterized as "the worst of the worst" in terms of fraud be immediately closed. The sales department disagreed with the fraud department’s recommendation, and these outlets were not closed; instead, MoneyGram continued to process transactions from the 32 outlets despite continued complaints of fraud.

This case was prosecuted by Money Laundering and Bank Integrity Unit Trial Attorney Craig Timm of the Criminal Division’s Asset Forfeiture and Money Laundering Section (AFMLS) and Assistant U.S. Attorney Kim Douglas Daniel of the U.S. Attorney’s Office for the Middle District of Pennsylvania. The forfeiture was handled by Acting Assistant Deputy Chief Jeannette Gunderson of AFMLS’ Forfeiture Unit. The case was investigated by the Harrisburg, Pa., office of the USPIS, Philadelphia Division.

The Money Laundering and Bank Integrity Unit is a corps of prosecutors with a boutique practice aimed at hardening the financial system against criminal money laundering vulnerabilities by investigating and prosecuting financial institutions and professional money launderers for violations of the money laundering statutes, the Bank Secrecy Act and other related statutes.