NEW YORK(Thomson Reuters Regulatory Intelligence) - Societe Generale’s recent billion-dollar settlement with multiple U.S. agencies is prompting some to question the credibility of a policy shift announced by the Department of Justice earlier this year against so-called “piling on” in enforcement cases. While the case involving five agencies each extracting millions for SocGen’s violation of U.S. sanctions and money-laundering laws appears to be just the sort of piling on the department was pledging to avoid, others argue the DOJ’s policy is more nuanced and leaves room for interpretation, particularly over conduct.
The French banking giant last month agreed to pay U.S. federal and state authorities $1.34 billion to settle investigations into its handling dollar transactions in violation of U.S. sanctions against Cuba and other countries. The bank agreed to pay a further $95 million to settle another dispute over violations of anti-money laundering regulations.
From 2003 to 2013, SocGen executed billions of dollars in illegal transactions to parties in countries subject to embargoes or otherwise sanctioned by the United States, including Iran, Sudan, Cuba and Libya, the authorities said.
The fines were issued by the Federal Reserve, U.S. Department of Justice, the U.S. Treasury’s Office of Foreign Assets Control, the New York County District Attorney’s Office and the New York Department of Financial Services. The settlements represent the second largest penalty ever imposed on a financial institution for violations of U.S. economic sanctions.
SocGen said when the settlements were announced that it acknowledged and regretted the shortcomings identified in the case, and that it had cooperated with U.S. authorities.
In a note to clients analyzing the agreement, lawyers at Davis Polk noted that DOJ earlier this year revised the U.S. Attorneys’ Manual to address the practice of “piling on” by multiple enforcement authorities in the context of corporate resolutions.
“Among other things, the revised manual directs DOJ attorneys to consider ‘crediting and apportionment of financial penalties, fines, and forfeitures, and other means of avoiding disproportionate punishment’ and, when possible, ‘to coordinate with other federal, state, local, and foreign enforcement authorities’ in the assessment of penalties,” the law firm wrote.
“It is notable, then, that each prosecutor and regulator involved in the settlements will receive payment from SocGen, with no crediting of payments made to other agencies and no suggestion by DOJ or any other agency that the penalty it imposed had been reduced in light of the penalties assessed by other agencies,” the firm added.
DOJ POLICY HAS ‘CARVE OUTS’ THAT ALLOW FLEXIBILITY
In announcing the DOJ’s policy last May, Deputy Attorney General Rod Rosenstein outlined four key features to guide the agency in future cases:
-First, the policy affirms that DOJ should not wield its criminal law enforcement authority for purposes unrelated to dealing with a potential crime, meaning that it should not “employ the threat of criminal prosecution solely to persuade a company to pay a larger settlement in a civil case.” Mr. Rosenstein noted that this was not a policy change, but a reminder of DOJ’s commitment to fairness.
-Second, the policy directs DOJ components to “coordinate with one another [to] achieve an overall equitable result,” including “crediting and apportionment of financial penalties, fines, and forfeitures, and other means of avoiding disproportionate punishment.”
-Third, the policy encourages DOJ attorneys “when possible, to coordinate with other federal, state, local, and foreign enforcement authorities seeking to resolve a case with a company” based on the same conduct giving rise to civil or criminal liability.
-Fourth, the policy puts forth a list of factors that DOJ attorneys may use to evaluate whether multiple penalties against a company will “serve the interests of justice in a particular case.” These factors include: (1) “the egregiousness of the wrongdoing”; (2) “statutory mandates regarding penalties”; (3) “the risk of delay in finalizing a resolution”; and (4) “the adequacy and timeliness of a company’s disclosures and cooperation with the department.”
According to some legal experts, the last category — specifically the conduct exhibited by SocGen in the course of its violations — may have been a determining factor to allow multiple agencies to penalize the French lender.
“The policy itself has carve outs, if you will, to reach a just outcome,” said Pablo Quiñones, founder of Quiñones Law PLLC and former federal prosecutor and strategy and policy chief at the U.S. Department of Justice.
“It could be that due to the nature of the conduct, the DoJ may have felt that the equitable result would be to permit (SocGen) to pay certain additional amounts to obtain a coordinated overall resolution,” said Quiñones.
It appears that conduct was indeed a factor in the SocGen settlement. In response to a request for comment on the settlement and the DOJ’s policy on “piling on,” DOJ spokesman Mark Pettit told Regulatory Intelligence in a written statement:
“In reaching the criminal resolution, the Department of Justice was careful to adhere to the policy recently announced by the Deputy Attorney General. The policy requires coordination with other federal and state enforcement authorities and consideration of the amount of penalties paid by the company to those authorities in order to avoid unnecessary or duplicative penalties. This policy is intended to ensure that the department only pursues sanctions that are proportionate to the defendants’ conduct and the legitimate goals of law enforcement.”
As Davis Polk notes in its own analysis, SocGen’s conduct “perhaps bears less resemblance to the conduct at issue in more recent U.S. economic sanctions enforcement actions against financial institutions. . .and instead is more evocative of earlier settlements,” the firm said.
“In particular, SocGen’s concealment activities and the non-transparent use of payment messages are reminiscent of the conduct at issue in the DOJ’s 2014 settlement with a different non-U.S. financial institution, still by far the largest of its kind,” the firm added, referring to BNP Paribas’s guilty plea and fine of $8.9 billion for U.S. sanctions violations.
The lesson from the SocGen case, say experts, is that egregious conduct may well supersede any policy initiatives that seek to avoid the appearance of “piling on,” and that firms need to factor this into their internal deliberations and engagement with U.S. agencies when faced with violations.
(Henry Engler, Regulatory Intelligence, New York)
This article was produced by Thomson Reuters Regulatory Intelligence and initially posted on Dec. 5. Regulatory Intelligence provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Regulatory Intelligence compliance news on Twitter: @thomsonreuters