Investigations Initiated by Law Enforcement

Investigations Initiated by Law Enforcement Law enforcement agencies may initiate investigations against a financial organization or contact financial organizations in the context of an investigation involving a customer. Steps that law enforcement agencies can take when conducting a money laundering investigation include: • Follow the money: When a law enforcement agency is aware of where laundered money originated or where it ended, it is appropriate for the agency to attempt to bring the two ends together and compile a complete understanding of the flow of the funds. • Leverage the financial knowledge and due diligence information contained in financial organizations: Through information sharing and transactional reviews, a financial organization can assist law enforcement in identifying the originating and ultimate destination of a subject’s funds. Furthermore, the supporting documentation that was used to create a SAR or CDD file may be used as evidence, whereas actual SARs may not be in many jurisdictions. • Identify the unlawful activity: Most countries define money laundering in terms of predicate offenses or specified unlawful activities. These activities are usually very extensive and include many felony crimes, such as bribery, extortion, racketeering, narcotics trafficking, and human trafficking. For a money laundering case to result in a conviction, prosecutors need to establish the flow of money and the existence of a predicate offense. • Review databases: FIU databases and commercial databases can provide very useful and extensive financial information and provide leads regarding which financial organizations to ask for assistance. Also, records, such as Social Security information in the United States (i.e., tax-related information), can be used to further identify subjects. • Review public records: Court records, corporate filings, and credit reports can provide useful background information. • Review licensing and registration files: Files, such as records held by motor vehicle departments and other registration databases, can provide background information and useful leads. • Analyze the financial transactions and account activity of the target: Look for the typical and expected transactions of the individual or entity based on self-disclosures, income, and typical flows of funds by similarly situated people. Financial organizations might be able to assist in identifying these items. If the transactions are outside of the norm or stated level of activity, analyze where the additional funds originated and the composition of the unusual activity. • Review SARs that might involve any potential individual linked to the target, transactions, or activity. • In cross-border cases, seek international assistance. Decision to Prosecute a Financial Organization for Money Laundering Violations • When considering whether—or to what extent—to bring a case against an organization involving money laundering-related charges, prosecutors consider many factors, such as: The organization has a criminal history. • The organization has cooperated with the investigation. • The organization discovered and self-reported the money launderingrelated issues. • The organization has a comprehensive and effective AML/CFT program. • The organization has taken timely and effective remedial action. • There are civil remedies available that can serve as punishment. • Deterring wrongdoing by others is needed and will be served by a prosecution. • Advice and recommendations from regulatory agencies and/or the FIU for the jurisdiction is available. Assuming the case is not simple or egregious, the decision to prosecute is frequently determined by what the prosecutors believe was the intent of the organization when it undertook the action in question. Responding to a Law Enforcement Investigation against a Financial Organization When a financial organization is confronted with a law enforcement investigation or a regulatory agency, it should respond quickly and completely to all requests. Failure to do so could cause unnecessary risk or damage to the organization. If a request is overly broad or unduly intrusive, the organization can attempt to narrow the request or even seek to contest the request, or portions of the request, in court. However, under no circumstances should an organization ignore or delay responding to a law enforcement inquiry or request for documents. Upon receipt of a law enforcement inquiry, the financial organization needs to inform the appropriate senior management and designate an individual to respond to all law enforcement requests, monitor the progress of the investigation, and keep senior management, including the board of directors, informed of the nature and progress of the investigation. Reports and other information about an investigation should not be provided to any employees, officers, or directors of the organization who might be implicated in the investigation. The financial organization should consider retaining qualified, experienced legal counsel. Such counsel can guide the organization through the inquiry, contest requests that are perceived as improper, and assist in negotiating settlements, when necessary. As described below, when an organization receives a subpoena, search warrant, or similar law enforcement demand, or becomes aware of a government-related investigation involving the organization, it should conduct an inquiry of its own to determine the underlying facts, the organization’s exposure, and what steps, if any, the organization should take. Monitoring a Law Enforcement Investigation against a Financial Organization Financial organizations should ensure that all grand jury subpoenas and other information requests from government agencies are reviewed by senior management and an investigations group or legal counsel to determine how best to respond to the inquiry and whether the inquiry or the underlying activity might pose a risk to the organization. In addition, the organization should maintain centralized control over all requests and responses to ensure that it responds to requests on a complete and timely basis and maintains a complete record of information provided. This centralized record will also assist in the organization’s internal investigation. Vital information can be found in a wide variety of document types, including internal memos, transactional documents, calendars, emails, financial records, travel records, phone logs, signature cards, deposit tickets, checks, withdrawal items, credit and debit memoranda, and loan records. Thus, the organization must ensure that relevant documents are not altered, lost, or destroyed and that all employees are advised of this fact. This can be done by a memo sent to all relevant employees. However, if there is concern that such a memo might prompt a particular employee to alter or destroy documents, that situation must be managed separately. The organization should also address its document destruction policy to ensure that no documents are destroyed pursuant to that policy during the investigation. It would not be a serious concern if documents relevant to a government investigation were destroyed pursuant to a legitimate policy and prior to obtaining knowledge of the investigation or receiving a subpoena. It could, however, be a serious concern if such documents were destroyed for any reason (even pursuant to a legitimate policy) once the organization was notified about an investigation—even if no subpoena had yet been received. The organization should ensure the integrity of original documents, while at the same time minimizing disruption to the organization’s business. It must ensure that an appropriate system is in place to organize, maintain, number, secure, copy, and prepare the documents for production to the government (or to the opposing party in civil litigation). The documents should be listed in an index so that they can be found when needed. A detailed privilege log should also be created as the documents are gathered, and privileged documents should be separated from other documents to help avoid inadvertent disclosure. Cooperating with Law Enforcement During an Investigation against a Financial Organization Providing investigators with the information they need to reach an investigative conclusion might be the most effective way to terminate an investigation before it has a devastating effect on the resources and reputation of an organization. Cooperation could include making employees, including corporate officers, available for interviews, and producing documents without the requirement of a subpoena. It could also include a voluntary disclosure by providing investigators with any report written by counsel regarding the subject under investigation. The organization should make every effort to maintain a positive relationship with the investigators and prosecutors. At a minimum, a positive working relationship will help the organization conduct an effective parallel internal investigation and thereby position the organization to respond more effectively to investigative and prosecutorial inquiries. It is also important for the organization to try to learn how the investigators and prosecutors view the facts. If they are incorrect about some of the facts, the organization will have an opportunity to correct them. At a minimum, if the organization is aware of the investigators’ and prosecutors’ concerns, it will be in a better position to respond to them. Obtaining Counsel for an Investigation against a Financial Organization Retaining counsel In particularly large, important, or serious investigations, it might be appropriate for the organization to retain legal counsel to assist in responding to the investigation or advising the organization during the course of the investigation. Many financial organizations, such as large banks and securities dealers, have legal counsel on their staff. But many other organizations, such as small MSBs, do not ordinarily have legal counsel on their payroll. In either case, it is recommended that organizations hire or consult with experienced external legal counsel when confronted with a government investigation of the organization itself. If the organization is actually facing imminent criminal prosecution or indictment, it needs an experienced attorney who specializes in defending financial organizations in these matters. Using in-house counsel will, of course, cost less, and in-house counsel will start out with a better knowledge of the organization and its personnel, policies, and procedures. However, if the conduct under investigation could involve or lead to a criminal investigation or indictment, outside counsel could be more appropriate. If the organization determines that it is appropriate to involve counsel, inhouse or external, it should take appropriate measures to ensure that the counsel is sufficiently experienced and knowledgeable regarding the factual and legal issues involved. In addition, the organization should determine the nature and scope of the role of counsel and ensure that senior management is aware of and supports the involvement of counsel. Attorney-client privilege applied to entities and individuals In an internal investigation, all parties should be aware that attorneys for the organization represent the entity and not its employees. Counsel should understand these issues and conduct the internal investigation accordingly. Work product and communications might be protected under attorney-client privilege. There can be serious consequences when the interests of an entity and its employees diverge or conflict, and when an employee implicates the employer, or vice versa. In such cases, separate counsel could be required. Dissemination of a written report by counsel If counsel for the organization prepares a written report of an investigation, the organization should take steps to not inadvertently waive the attorneyclient privilege by distributing the report to people who should not receive it. Every page of the report should contain a statement that it is confidential and subject to the attorney-client privilege and work-product privilege. Copies of the report should be numbered, and a list of people who are given copies to read it should be maintained. After a specific period of time, all copies should be returned. Individuals who receive the report should be instructed not to make notes on their copies. All copies should be maintained in a file separate from regular organization files to maintain the highest level of protection. Notices to Employees as a Result of an Investigation against a Financial Organization In investigations conducted by the government, employees should be informed of the investigation and instructed not to directly produce corporate documents. Rather, they should inform senior management or counsel of all requests for documentation and provide the documents to them for production. In that way, the organization knows what is being requested and what has been produced. In addition, the organization can determine what, if any, requests should be contested. The same procedure should be followed with requests for employee interviews. Interviewing Employees as a Result of a Law Enforcement Investigation against a Financial Organization In addition to securing and reviewing all relevant documentation, it is important to interview all knowledgeable employees. These employees should be interviewed as soon as possible so that their memories are fresh, and they can direct management or counsel to relevant documents and people on a timely basis. In addition, the organization, usually counsel, should prepare employees who expect to be interviewed by law enforcement investigators and debrief them after their interviews. The former will help the employee understand how to handle the process, and the latter will assist the organization in better understanding the scope and direction of the government investigation. All requests for employee interviews by law enforcement investigators should go through a single person or centralized location. Most employees are not accustomed to or comfortable with being interviewed—either by law enforcement investigators or counsel for the organization. Therefore, care should be taken to put them at ease to the extent possible. It is also helpful for interviews to be as noncontentious as possible. Background and open-ended questions should be used at the beginning of the interview, together with a nonconfrontational review of documents. When necessary, more contentious questions should be delayed to the end of the interview. Media Relations The importance of public and media relations in defending an organization should not be overlooked. Public perception is vital to an organization’s success in maintaining public trust. If the facts are not on the institution’s side, “no comment” might be the best response it can offer. Misleading or false statements that attempt to indicate that the organization has no problems and has done nothing wrong can worsen the situation. When such statements are made by a publicly traded company, they can invite additional scrutiny by regulatory and law enforcement agencies. Media relations (Case example: Cooperation with regulatory authorities to reduce fine) In October 2021, the UK’s Financial Conduct Authority (FCA) fined Credit Suisse bank over £147 million for serious anti-financial crime (AFC) due diligence failures related to loans that it provided to the Republic of Mozambique. As part of its agreement, the bank also agreed to forgive US$200 million of the corrupt debt, which created economic harm and a debt crisis for Mozambique. In its formal statement, the FCA emphasized that, although Credit Suisse was aware that the corruption risk of government officials was high, the bank failed to properly manage the associated financial crime risks within its emerging markets business. Between late 2012 and early 2016, Credit Suisse was given information that should have revealed the unacceptably high risk of bribery associated with the loans and bond exchange the bank provided to a Mozambique governmentsponsored project. To secure more favorable terms for the loans, kickbacks estimated to be over US$50 million were paid to members of a Credit Suisse unit who took steps to conceal these from the bank’s senior management. The FCA concluded that there was insufficient challenge, scrutiny, and investigation into significant red flags concerning the transactions, which included bribery and corruption concerns over the contractor. Credit Suisse agreed to pay US$475 million in fines and penalties as part of a coordinated international resolution with criminal and civil authorities in the United States, Switzerland, and the United Kingdom. The resolution included a deferred prosecution agreement with the US Department of Justice. The FCA stated that the debt relief provided to the Republic of Mozambique was taken into account when determining the fine. In addition, the bank was awarded a 30% discount in the overall penalty due to their cooperation. Without this cooperation, a significantly larger penalty would have been imposed. Credit Suisse would also be subject to enhanced compliance and selfreporting, and the Swiss Financial Market Supervisory Authority (FINMA) would appoint an independent third party to review compliance measures and existing transactions involving weak and corruption-prone countries and companies. Key takeaways • Organizations need to have robust AFC policies and procedures in place and ensure their proper execution • When systemic issues are discovered, cooperation with regulators can lead to a reduction in fines and penalties • Regulators are cooperating globally to address AFC failures and associated impacts