European Union Court Upholds €116 Million in Fines Against Seven Electronics Companies for Participating in Cartel in Optical Disk Drive Market

On July 12, the General Court of the European Union announced that it had upheld a 2015 decision by the European Commission finding that a total of seven leading electronics companies had participated in a cartel  in the optical disk drives (ODD) market, and imposing a total of €116 million in fines against those companies.  Those companies — Sony Corporation and Sony Electronics Inc., Sony Optiarc Inc., Quanta Storage Inc., Hitachi-LG Data Storage Inc., Hitachi-LG Data Storage Korea Inc., Toshiba Samsung Storage Technology Corp., and Toshiba Samsung Storage Technology Korea Corp. – had brought actions before the General Court seeking annulment of the Commission’s decision or a reduction of the fines imposed on them.

In a total of five separate judgments covering the seven companies, the General Court made four principal findings.  First, it determined that “some of the ODDs covered by the cartel were sold in EU Member States to entities owned by Dell and HP or shipped to those states for operators acting on behalf of Dell and HP.”  As a result, the Court stated, “the Commission was correct to find that the geographic scope of the cartel at issue covered the entire EU and therefore that the EU competition law rules were applicable in the present case.” (Emphasis in original)

Second, the Court found that

the prohibition on economic operators exchanging with their competitors information on their market conduct is all the more relevant in a situation, such as that at issue, which was characterised by the presence of a limited number of competitors.” In that context, after examining a series of contacts between the cartel participants by reference to the sales that they made to Dell and HP, the Court observes that most of those contacts reveal practices which, by their object, were capable of distorting competition on the relevant market.  (Emphasis in original)

Third, the Court stated that it considers that the Commission was entitled to find, in this respect (i) that the anticompetitive practices at issue constituted a single and continuous infringement, and (ii) that they consisted of a series of instances of individual anticompetitive conduct.” (Emphasis in original) In that regard, the Court stated that it

recalls that the very concept of a single and continuous infringement presupposes a complex of practices adopted by the different parties in pursuit of a single economic anticompetitive aim. Moreover, the Court finds that the cartel participants intentionally took part in an overall network of parallel contacts pursuing a common objective of undermining the mechanisms for selecting suppliers set up by Dell and HP in order to intensify competition on the relevant market.

Finally, the Court rejected the companies’ arguments that the amounts of the fines that the Commission imposed on them were calculated incorrectly. In particular, the Court stated that it

considers that the Commission did not err in not derogating from the general method set out in the 2006 Guidelines on the method of setting fines in order to reduce the amount of the fine imposed on Hitachi-LG Data Storage and Hitachi-LG Data Storage Korea in the light of the particular circumstances on which those companies relied.  (Footnote omitted)

“In those circumstances,” the Court concluded, it “dismisses the appeals in their entirety.”

Note:  This decision by the General Court constitutes both a strong affirmation of the Commission’s 2015 decision and a strong reproof – as the Court’s deliberate highlighting of certain findings in bold indicated – of the companies’ arguments.  The companies now have two months and ten days after notification of the decision to file an appeal of the General Court’s decision with the European Court of Justice.  Such an appeal, however, must be limited to points of law only, and the General Court’s findings do not appear to give the companies much of an opportunity to prevail on legal issues.

Reckitt Benckiser Enters into $1.4 Billion Criminal and Civil Settlement with U.S. Department of Justice and Other Agencies in Opioid Marketing Investigation

On July 11, the United States Department of Justice announced that the United Kingdom-based consumer goods company Reckitt Benckiser Group plc (RB Group) had entered into multiple agreements, involving total payments of $1.4 billion, “to resolve its potential criminal and civil liability related to a federal investigation of the marketing of the opioid addiction treatment drug Suboxone.” This resolution – which the Department described as “the largest recovery by the United States in a case concerning an opioid drug” – includes the following components:

  • A non-prosecution agreement that requires RB Group (1) to forfeit $647 million of proceeds that it received from its former subsidiary Indivior and not to manufacture, market, or sell Schedule I, II, or III controlled substances in the United States for three years; and (2) to cooperate fully with all investigations and prosecutions by the Justice Department related, in any way, to Suboxone.
  • A civil settlement agreement with the Justice Department in which RB Group agreed “to pay a total of $700 million to resolve claims that the marketing of Suboxone caused false claims to be submitted to government health care programs.”  That $700 million settlement amount “includes $500 million to the federal government and up to $200 million to states that opt to participate in the agreement. This settlement “resolves the claims against RB Group in six lawsuits pending in federal court in the Western District of Virginia and the District of New Jersey under the qui tam, or whistleblower provisions of the False Claims Act.”
  • A separate agreement with the Federal Trade Commission (FTC) in which RB Group “agreed to pay $50 million to resolve claims that it engaged in unfair methods of competition in violation of the Federal Trade Commission Act.” This agreement resolves FTC charges that RB Group illegally maintained a monopoly over Suboxone.  As part of this resolution with the FTC, RB Group, though it no longer manufactures or markets drug products, agreed, as part of a consent decree, “that it would notify the FTC if it began marketing drug products in the United States.”
  • A provision in the settlement agreement that requires RB Group to pay $3 million to the Program Income Fund of the Virginia Medicaid Fraud Control Unit (“MFCU”), to be paid on or before August 10, 2019, as directed by the MFCU.

Even though RB Group admitted no liability in the civil settlement, the Department stated that the settlement

addresses allegations by the United States that, from 2010 through 2014, RB Group directly or through its subsidiaries knowingly: (a) promoted the sale and use of Suboxone to physicians who were writing prescriptions without any counseling or psychosocial support and for uses that were unsafe, ineffective, and medically unnecessary and that were often diverted for uses that lacked a legitimate medical purpose; (b) promoted the sale or use of Suboxone Film to physicians and state Medicaid agencies using false and misleading claims that Suboxone Film was less susceptible to diversion and abuse than other buprenorphine products and that Suboxone Film was less susceptible to accidental pediatric exposure than tablets; and (c) submitted a petition to the Food and Drug Administration on Sept. 25, 2012, claiming that Suboxone Tablet had been discontinued “due to safety concerns” about the tablet formulation of the drug and took other steps to delay the entry of generic competition for Suboxone in order to improperly control pricing of Suboxone, including pricing to federal healthcare programs.

The Justice Department announcement also extensively summarized the pending indictment against Indivior, which RB Group had spun off in 2014.  That indictment charges Indivior with conspiracy to commit wire fraud, mail fraud, and health care fraud, one count of health care fraud, four counts of mail fraud, and 22 counts of wire fraud, based on Indivior’s allegedly engaging in an illicit nationwide scheme to increase prescriptions of Suboxone Film.

Note: This resolution is notable for three reasons: (1) the total amount of forfeiture and payments in a single opioid-related case; (2) the general encouragement that it provides to the state attorneys general and other plaintiffs in their own civil opioid-related litigation against other pharma companies; and (3) the increased pressure that it places on Indivior to enter into a plea agreement with the Department.

The forfeiture allegations in the Indivior indictment already establish an expectation that, if Indivior is convicted on one or more counts, the Department will seek a financial penalty of at least $3 billion, among other assets.  Moreover, the Justice Department has now strongly signaled to Indivior that it is prepared to seek financial penalties from Indivior greater than the $1.4 billion resolution with Reckitt.  Paragraph 7 of the Settlement Agreement states that nothing in the Agreement “is an admission by the United States that the amounts paid by the Company are the maximum amounts that could be recovered from entities other than the Company,” and that “the United States is not precluded from arguing or presenting evidence that the total amount to be paid by others should be higher.”

United Kingdom Fraud Advisory Panel Issues Report on Domestic Corruption

On July 2, the Fraud Advisory Panel, an independent anti-fraud charity in the United Kingdom, announced its issuance of a report that calls attention to the problem of domestic corruption.  The report, entitled “Hidden in plain sight: domestic corruption, fraud and the integrity deficit,” raises concerns that while foreign corruption attracts substantial media and public attention, “data on domestic corruption are not collected systematically, let alone analysed” and “[t]here is no dedicated infrastructure or single agency in the UK responsible for taking the lead in policing domestic corruption.”

The report acknowledges that the United Kingdom Government has an Anti-Corruption Strategy that will operate until 2022.  At the same time, it notes that the Strategy “contains a number of worrying signs that the government still doesn’t fully ‘get’ the reality of domestic corruption risks.“  Those signs include (1) failure to address the question of resources and the deleterious effects of the Government’s years-long commitment to “austerity” on law enforcement: (2) the inadequacy of empirical data on domestic corruption; (3) the lack of “lead responsibility for policing domestic corruption,” and of a dedicated infrastructure or resource base; and (4) the absence of a system for the public to report corruption (although the Home Office reportedly indicated that one is “is in the pipeline”); and (5) conflicts of interest and the “revolving door” are “the fundamental flaw at the heart of our national preference for so-called ‘self-regulation’.”

The report makes five key recommendations for action:

  • In view of the ongoing £1 billion reform of the United Kingdom’s courts, the United Kingdom Government should concentrate on greater transparency and openness of its courts and proceedings (including vastly easier access to court information and documents).”
  • There should be “a strong and structured approach to policing domestic corruption risks, starting with an easy-to-use central public reporting mechanism feeding a systematic approach to recording and analysing the data.”
  • To improve the use of the Bribery Act 2010 in domestic and small-scale cases, agencies should “improve police training and reduce the bureaucracy surrounding bribery case authorisations.”
  • The Government “should bring forward firm plans to create a new offence of ‘failure to prevent economic crime’,” so that corporate executives can be held “to the same criminal standards as the rest of us.”
  • There should be a public consultation on a statutory framework for conflict-of-interest concerns.

Note: As a general matter, the Fraud Advisory Panel’s report is a useful reminder to government agencies and companies (and not just in the United Kingdom) that corruption risk extends well beyond foreign-official bribery.  In many countries, most individuals and companies face a far greater day-to-day risk of corruption from a local business owner or local official than from a senior official of a foreign government.  For that reason alone, financial-crime compliance teams should review their companies’ anti-bribery and corruption compliance programs, including their anti-corruption risk assessments, to see that they appropriately address domestic corruption risks.

Most of the report’s recommendations also identify key deficiencies in the United Kingdom’s anti-corruption program that are being remedied or can be remedied without extraordinary cost to the Government – provided that the Government is prepared to concede that continuing rigid adherence to austerity makes no sense for fundamental law enforcement functions.  On the other hand, the recommendation to extend the “failure to prevent” concept to economic crime lacks substantial justification, and in any event is of far less importance than the other recommendations for an effective response to domestic corruption.  Whether the Government, under a new Prime Minister, is prepared to modify its anti-corruption strategy to address any of these issues, remains to be seen.

Hong Kong Securities and Futures Commission Increases Enforcement in 2018-2019

Last month, the Hong Kong Securities and Futures Commission (SFC) issued its annual report for 2018-2019.  Enforcement-related highlights of the report include:

  • Record Requests: Making 9,074 requests for trading and account records from intermediaries as a result of SFO surveillance “of untoward price and turnover movements”;
  • Investigations and Prosecutions: Commencement of 238 investigations; execution of search warrants in 30 cases; and laying of 42 criminal charges against four individuals and one corporation, and securing convictions of four persons and one corporation;
  • Civil Proceedings: Causing 101 individuals and corporations to be subject to ongoing civil proceedings; and
  • Disciplinary Actions: Disciplining of seven firms and three individuals, and imposition of fines totaling HK$867.7 million “for failures as sponsors of initial public offerings” and $HK940 million in fines on licensees; reprimanding of three firms for deficient selling practices and imposition of fines totaling HK$24.6 million; and disciplining of three individuals and one corporation for mishandling client money (two of which were banned for life from reentering the industry).

Note: The SFC’s actions over the past year demonstrated its commitment to “a more proactive front-loaded approach to get ahead of threats, punish wrongdoers, and ensure markets and fair and clean,” in part by reportedly doubling the amount of fines it imposed since 2017-2018.  Consistent with its emphasis on Initial Public Offering (IPO) sponsor misconduct as “a top enforcement priority,” the SFC imposed substantial fines on a number of leading financial firms, including:

  • Reprimanding and fining UBS AG and UBS Securities Hong Kong Limited a total of HK$375 million for failing to discharge their obligations as a joint sponsor, and partially suspending UBS Securities’ licence to advise on corporate finance for one year;
  • Reprimanding and fining Standard Chartered Securities (Hong Kong) Limited HK$59.7 million for failing to discharge its obligations as a joint sponsor of one company’s listing application, stating that it “failed to conduct reasonable due diligence of core aspects of [that company’s] business”;
  • Reprimanding and fining Morgan Stanley Asia Limited HK$224 million and Merrill Lynch Far East Limited HK$128 million “for failing to discharge their obligations as joint sponsors of [another company’s] listing,” stating that they “failed to follow the guidelines for due diligence interviews, allowed [the company] to control the due diligence process and failed to take appropriate steps to address red flags”; and
  • Reprimanding and fining Citigroup Global Markets Asia Limited HK$57 million “for failing to conduct adequate and reasonable due diligence on still another company’s] customers and properly supervise its listing application.”

As a point of contrast, it should be noted that the SFC reported reprimanding and fining only one brokerage firm for failing to comply with anti-money laundering and counter-terrorist financing (AML/CTF) regulatory requirements.  In light of the increasing attention that regulators and law enforcement agencies in other regions have been giving to AML/CTF enforcement in the past 12—18 months, it would be surprising if the SFC did not expand its scrutiny of AML/CTF compliance in the coming year.

Because the report contains far more detail about the SFC’s enforcement activity, regulatory compliance teams at firms subject to SFC jurisdiction should read the report’s enforcement section in its entirety and include pertinent excerpts in internal briefings and training materials.

Orange CEO Stéphane Richard, Businessman Bernard Tapie Acquitted in Protracted French Fraud Prosecution

On July 9, the Paris Criminal Court acquitted Stéphane Richard, the Chairman and Chief Executive Officer of mobile telecommunications company Orange, French businessman Bernard Tapie, and four other defendants on charges of fraud and misuse of public funds by Tapie.  Although French prosecutors had sought a three-year prison term (half that time to be suspended) and a €100,000 fine for Richard and a five-year prison term for Tapie, Presiding Judge Christine Mee stated, in reading the verdict, that “[t]here was no proof that Richard took part in any fraud.”

The case traces back to 2008, when Richard was serving as chief of staff to then-French Minister of Finance Christine Lagarde.  At that time, Tapie asserted that he had been defrauded by Crédit Lyonnais, the former French state-owned bank, “when it encouraged him to sell his stake in sports equipment group Adidas for less than it was worth in 1993.”  The French government then agreed to arbitration in the case, resulting in a €403 million award to Tapie.

That award, however, became the subject of intense political controversy, as some alleged that the award was a “covert reward” to Tapie for his support of then-French President Nicolas Sarkozy’s election campaign.  Subsequently, another Paris court invalidated the arbitration award and ordered Tapie to repay the money.

In 2016, the Cour de Justice de la Republique, which specializes in ministerial misconduct, convicted Lagarde – by then head of the International Monetary Fund – of negligence, on the ground that she “should have done more” to overturn the arbitration award to Tapie.  Because that court did not impose a fine or prison term, Lagarde was able to remain as head of the IMF.

Despite the prior conviction of Lagarde, Presiding Judge Mee supported the decision by the Finance Ministry, stating that that Tapie’s claims weren’t “non-existent” and that “[c]hoosing to resolve the dispute via arbitration ‘wasn’t, in principle, contrary to the state’s interests’.”  The court also “found ‘nothing in the case that confirmed’ the allegation that the arbitration payout was tainted by ‘fraud’.”

Note: The verdict is a considerable relief not only to Richard and the other acquitted defendants, but to Orange employees, who valued Richard’s sustained leadership at the company.  It is also a rebuff to French prosecutors, who had pursued Richard and Tapie despite an apparent lack of proof that either man had corrupt motives or received a corrupt benefit from the arbitration award; and, indirectly, to the Paris court that invalidated that award.