Author: Jonathan J. Rusch

On April 26, the Companies Registration Office Ireland (CRO) announced that it had launched its new website for the Registry of Beneficial Ownership (RBO).  The CRO, which servs as  the central repository of public statutory information on Irish companies and business names, stated that the new RBO is “the central repository of statutory information required to be held by relevant entities in respect of the natural persons who are their beneficial owners/controllers, including details of the beneficial interests held by them.”

“Relevant entities,” for purposes of the RBO, fall into two categories: (1) companies that formed and registered under the Irish Companies Act 2014, or an existing company within the meaning of that Act; and (2) industrial and provident societies (I&Ps) registered under the Irish Industrial and Provident Societies Acts 1893 to 2018.  Those entities will be required to file their beneficial-ownership data with the RBO through an on-line portal that will open on the new RBO website on June 22.  After that date, according to the CRO, companies and I&Ps will have five months to file their RBO data “without being in breach of their statutory duty to file.”

Breach of that duty, however, can result in significant sanctions.  The Times reported that a company that fails to properly keep a beneficial-ownership register or to comply with requests from authorities can be fined up to €500,000, while an individual who knowingly or recklessly provides information that is “false in a material particular” can receive a custodial sentence of up to 12 months’ confinement.

Note: The new RBO is one of the measures that the Irish Government has been pursuing – with some prodding from the European Commission — to combat white-collar crime, including anti-money laundering (AML) related measures.  Like other European Union (EU) Member States, Ireland is obligated to comply with the EU’s Fourth AML Directive. That Directive requires, among other things, that financial institutions identify beneficial owners as part of their customer due diligence, that corporate and other legal entities incorporated within their territory obtain and hold adequate, accurate, and current information on their beneficial ownership, and that each Member State hold such beneficial-ownership information in a central register.

The CRO stresses that the RBO website itself is not open to the public.  The Times, however, reported that certain information will be made available to the public, such as the names of beneficial owners, what percentage of each company they hold, their places of birth, and their countries of residence.  Irish authorities with a legitimate interest, including Revenue Commissioners, the Irish police Garda Síochána, and the Irish Central Bank, may receive more substantial information.

On May 6, an unprecedented criminal trial began in the Paris Criminal Court.  The French telecommunications company France Télécom (now known as Orange), its former Chairman, Didier Lombard, and two other former France Télécom executives are charged with “moral harassment,” a crime under French law that is defined as “frequently repeated acts whose aim or effect is the degradation of working conditions.”  Four other former and current France Télécom executives are charged with “complicity” in the conduct.

This prosecution stems from the 2004 privatization of France Télécom, which had been a state-owned monopoly.  Beginning in 2006, France Télécom executives “carried out a restructuring of the company” in which 22,000 jobs were to be eliminated over a three-year period and 14,000 workers changed jobs – some multiple times.  At the time, however, most employees reportedly “were still considered civil servants and so were protected from layoffs.”

The prosecutors’ theory of the case is that the company and Lombard, who served as Chairman and Chief Executive from 2005 to 2010, “introduced a policy of unsettling employees in order to induce them to quit.”  In particular, as reflected in the investigating magistrates’ summary of charges, executives allegedly “deliberately create[ed] a culture of anxiety among staff and attempting to push some out by isolating, intimidating and demoting them or transferring them away from their families.”  The statement of charges also referred to “multiple haphazard restructures, forcing people to move around geographically and repeatedly pushing incentives for them to resign.”

One widely reported example of senior executives’ attitudes at the time occurred at a 2006 company directors’ meeting.  In that meeting, Lombard himself stated (according to an internal company document from which Le Parisien quoted), “En 2007, les départs, je les ferai d’une façon ou d’une autre, par la porte ou par la fenêtre” (“In 2007, I will do the departures one way or the other – by the door or by the window”).

Subsequently, a tragic spate of employee suicides began at the company.  The reported number of employee suicides in 2008 and 2009 has ranged from 19 to 35.  Lombard responded by referring dismissively to a “suicide fad.”  Although he later acknowledged that he had committed “an enormous gaffe” in making that comment, Lombard stepped down as France Télécom Chairman in 2010.  Shortly thereafter, the Paris prosecutor’s office reportedly began its inquiry into the company’s human resource policies.

The trial – which the Guardian termed “the largest case in which a major company and its former directors have been brought to court to justify their treatment of staff” —  is expected to last at least two months.  If convicted, France Télécom/Orange could receive a €75,000  sanction, and the former executives could receive one year’s imprisonment and a €15,000 fine.

Note: Workplace suicide is a horrendous trend in many industries and countries around the world.  In the United States, the Centers for Disease Control (CDC) has reported that the workplace suicide rate among workers 16 to 64 years old increased 34 percent between 2000 and 2016 (i.e., from 12.9 to 17.3 per 100,000 workers), and indicated that suicide prevention strategies for workers “are needed to help mitigate rising workplace suicide rates.”

In France, Agence France Presse reported that notwithstanding France’s strong labor laws, “depression, long-term illness, professional burnout and even suicide have become increasingly common.”  One French psychologist, Marie Peze, recently asked: “In 2019, with suicides among farmers, police and nurses . . .  what is the human cost of work?”

Although the trial has just begun, it is not too soon for other companies, in France and other countries, to take account of prior reporting about the events at France Télécom and use them to review the soundness of their own employee-assistance and suicide-prevention programs.  A 2018 CDC report, for example, recommends that U.S. employers provide employees with “access to online mental health screenings and web-based tools,” “[h]elp reduce the stigma surrounding seeking assistance for mental illness,” and increase awareness of the National Suicide Prevention Lifeline.  In addition, at the conclusion of the trial, corporate-compliance teams and academicians should review the trial evidence and prepare case studies, to understand better how a major company could have initiated and implemented a process that apparently led to such tragic results.

On May 5, the Japan Times reported that the Japanese banking industry “will strengthen efforts to prevent money laundering,” in anticipation of the upcoming Financial Action Task Force (FATF) evaluation of Japan that is scheduled for October and November.  (The FATF is an intergovernmental body that establishes standards and promotes effective implementation of legal, regulatory, and operational measures to combat money laundering, terrorist financing and other related threats, in part through the periodic monitoring of its member nations’ progress in implementing appropriate anti-money laundering (ATF) and counter-terrorist financing (CTF) measures.)

Among other industry actions, MUFG Bank, Japan’s largest bank and a group company under Mitsubishi UFJ Financial Group Inc., reportedly “plans to terminate overseas remittances made at the counter of branch offices that bypass bank accounts,” and other Japanese banks “are likely to follow suit.”  In addition, the article stated that a number of regional banks have discontinued some forms of overseas fund transfers, and Shimane Bank, which provides commercial banking and leasing services, has discontinued “all types of overseas remittances, including services that use bank accounts.”

As for regulatory agency activity, after a number of foreign students who had bank accounts in Japan sold those accounts to make extra money and the accounts were then used “in money laundering and remittance fraud cases, the Japanese Financial Services Agency (FSA) decided to “keep all financial institutions and other businesses informed of the need to urge foreign students and workers in Japan to close their bank accounts in the nation when they return home.”

Note: The coming months will be a significant period for the Japanese financial sector in demonstrating its commitment to AML/CTF compliance, at a time when money laundering appears to be increasing in Japan.   In February, the Japanese National Police Agency reported that in 2018, police received reports of 417,465 cases of suspected money laundering or other abuse (an increase of 7,422 since 2017), and most of those reports pertained to banks and other financial institutions.  In addition, after it analyzed those reports, the NPA “provided information on 8,259 cases to investigating authorities (an increase of 1,096, or more than 15 percent, since 2017).  Furthermore, in 2018 the NPA received 7,096 reports of suspicious transactions connected with cryptocurrencies (a more than tenfold increase since the 669 cryptocurrency-related reports received in 2017).

While Japan is a FATF member and a signatory to the G7 Action Plan on Combatting the Financing of Terrorism, the government is quite conscious that in FATF’s last evaluation of Japan in 2008, FATF deemed Japan’s AML/CTF implementation insufficient.  As the Nikkei Asian Review observed, the government has been interested in repairing “its tarnished image,” particularly because Japan will soon be hosting the Group of 20 Summit and Ministerial Meetings on June 28-29.

The FSA’s recent actions regarding foreign-student accounts are not the only actions that it has taken since the start of 2018 to improve AML/CTF regulation and oversight.  For example, according to the Nikkei Asian Review,

the FSA issued anti-money laundering guidelines and directed smaller financial institutions such as regional banks and shinkin banks [cooperative regional financial institutions] to conduct emergency inspections. To close the loopholes on overseas remittances, the policy requires institutions to come up with plans to train staff.

Those guidelines made clear that the FSA expected all financial institutions to adopt a risk-based approach to AML, including verifying ”that financial institutions are following the guidelines through questioning and on-site inspections” and “order[ing] operational improvements to be made if it catches lax compliance that could invite money laundering.

In addition, last fall the FSA stated in its annual report that it had made AML measures “a top priority,“ and urged financial institutions

to take steps to halt money laundering, requiring them to identify and analyze the risks associated with certain types of transactions, such as the stated purpose of cross-border cash transfers, customer attributes and countries of origin or destination.

Even so, Japan should be prepared – not least because of the reported increases in money laundering activity – for close scrutiny by the FATF this fall.

On May 2, the United States Attorney’s Office for the District of Massachusetts announced that a federal jury in Boston convicted John Kapoor, the founder and former Executive Chairman of Insys Therapeutics, and four other former Insys executives on racketeering charges, “in connection with bribing medical practitioners to prescribe Subsys, a highly-addictive sublingual fentanyl spray intended for cancer patients experiencing breakthrough pain, and for defrauding Medicare and private insurance carriers.”

According to the United States Attorney’s Office, from May 2012 to December 2015, the five defendants conspired to bribe health-care practitioners in order to induce them to prescribe Subsys to patients,  often when that spray was medically unnecessary:

The defendants used pharmacy data to identify practitioners who either prescribed unusually high volumes of rapid-onset opioids, or had demonstrated a capacity to do so, and bribed and provided kickbacks to the practitioners to increase the number of new Subsys prescriptions, and to increase the dosage and number of units of Subsys. The defendants also measured the success of their criminal enterprise by comparing the net revenue earned from targeted practitioners with the total value of bribes and kickbacks paid. The defendants used this information to reduce or eliminate bribes paid to practitioners who failed to meet satisfactory prescribing requirements, which they determined to be the net revenue equal to at least twice the amount of bribes paid to the practitioner.

The United States Attorney’s Office also stated that Insys’s use of bribes and kickbacks included the use of so-called “speaker programs” that purportedly were “intended to increase brand awareness of Subsys through peer-to-peer educational lunches and dinners.”  Those programs, however, “were used as a vehicle to pay bribes and kickbacks to targeted practitioners in exchange for increased Subsys prescriptions and increased dosage,” and in most instances, those programs were shams.  In addition, the defendants “conspired to mislead and defraud health insurance providers who were reluctant to approve payment for the drug when it was prescribed for non-cancer patients.”

The charge of Racketeering Influenced and Corrupt Organizations (RICO) conspiracy, of which all five defendants were convicted, has a maximum sentence of 20 years’ imprisonment, three years of supervised release, and a fine of $250,000 or twice the amount of pecuniary gain or loss.  As of yesterday, no date had been set for sentencing of any of the defendants.

Note:  Even in the welter of ongoing opioid-related civil and criminal litigation across the country, this prosecution stands out as a significant victory for the Department of Justice and the U.S. Attorney’s Office in Boston.  While much more attention had been focused in recent weeks on last month’s Justice Department’s indictment of pharma company Indivior for alleged fraudulent marketing of its Suboxone film, the trial of the Insys executives was a major test of the Department’s credibility in aggressively pursuing individuals and companies as part of the Trump Administration’s commitment to combating the opioid crisis.  In fact, in its press release about the convictions, the U.S. Attorney’s Office touted the result as the “[f]irst successful prosecution of top pharmaceutical executives for crimes related to the prescribing of opioids.”

The trial, which lasted ten weeks, was notable in two other respects.  First, the prosecution’s case in chief included trial testimony by two other high-level Insys executives — Michael Babich, Insys’s former Chief Executive Officer and President, and Alec Burlakoff, Insys’s former Vice President of Sales – who had previously pleaded guilty in the case.  Burlakoff became a focal point in Kapoor’s defense, as his attorney, Beth Wilkinson, “sought to shift the blame onto” Burlakoff and “said Burlakoff was cutting side deals with doctors on his own and lied when he testified against Kapoor because he’s trying to save himself.”

Second, the jury deliberations lasted 15 days.  Although some defense attorneys may become more confident in the prospects of acquittal, or at least a hung jury, as deliberations lengthen, lengthy deliberations in a criminal case do not automatically translate to either conviction or acquittal.  As former United States Attorney Harry Litman remarked about the deliberations in the 2018 federal prosecution of Paul Manafort, “You could speculate that there’s some dynamic involving a holdout, but the better fit with the facts is that they’re just moving through methodically and this is how long it would take.”  Nonetheless, both the prosecution and the defense could be forgiven for having many anxious moments during the deliberations, including second-guessing themselves about particular testimony or documents in evidence.

Although it is too early to make firm predictions, these convictions are likely to have a substantial influence in the coming weeks on the thinking of other pharma companies that are currently under federal criminal investigation or indictment in opioid-related cases.  One news organization speculated that Kapoor and his co-defendants, as first-time offenders, would be sentenced to only a fraction of the 20 year maximum.  On the other hand, the duration and pervasiveness of the defendants’ scheme, as well as their senior positions at Insys and respective roles on carrying out the scheme, could militate against low sentences across the board.

On April 29, the Australian Competition & Consumer Commission (ACCC) issued its report for 2018 on scams activity, Targeting Scams.  Key points in the report included the following:

• In 2018, the ACCC’s Scamwatch service —  which provides information to consumers and small businesses about how to recognize, avoid, and report scams — received a record 177,516 scam reports reflecting more than AU $107 million in losses. That total represents an 18 percent increase in reporting since 2017.   Among all categories of scams reported to Scamwatch, investment scams (AU $38,846,635 in losses) and dating and romance scams (AU $24,648,024 in losses) remained the most financially harmful.
• When the Scamwatch reports are combined with reports made to the Australian Cybercrime Online Reporting Network (ACORN) and other state and territory government agencies, a total of more than 378,000 reports received reflected losses of AU $489 million. That total represents a 44 percent increase over the aggregate AU $340 million in losses reported in 2017.
• Among all victims reporting scam losses, the age cohorts with the largest losses were 55-64 (26 percent), 65+ (22 percent), 45-54 (20 percent), 35-44 (15 percent), and 25-34 (13 percent). Men filed fewer reports than women (79,600 versus 94,200), but reported more cumulative losses (AU $56.9 million versus AU $48.8 million).
• Significant trends in types of scams included:
  • Australian Tax Office (ATO) Scams: A total of more than 137,000 reports to the ATO and Scamwatch involved these scams, which are similar to online scams in which criminals claims to be with the U.S. Internal Revenue Service.
  • “Threats to Life, Arrest or Other” Scams: In 2018, reports and losses attributed to scammers threatening arrest, loss of benefits, and deportation increased to more than 19,000 reports, with AU $3.3 million in reported losses. This total represents a 45 percent increase over 2017.  The ACCC noted that “[t]he significant increase in ATO impersonation scams in late 2018 is a major contributor to this increase.”
  • False Billing Scams: Losses to false-billing scams increased by 97 per cent to AU $5.5 million. The ACCC noted that a large portion of these losses can be attributed to business email compromise (BEC) scams.
  • Remote Access Scams: These scams – which the ACCC described as {“[a] more elaborate version of the classic tech support scam in which scammers impersonate the police and ask for access to a victim’s computer to catch scammers” — resulted in filing of more than 11,300 reports to Scamwatch, with AU $4.7 million in reported losses (a 97 percent increase over 2017).
  • Cryptocurrencies in Scams: The ACCC stated there were 674 reports in which cryptocurrency was used to pay the scammers, with reported losses of AU $6.1 million. Those losses reflect a 190 percent increase over the AU $2.1 million losses reported in 2017.
  • iTunes and Google Play Cards in Scams: The ACCC reported an increase in losses from scams in which scammers requested payment through iTunes cards, with AU $3.1 million in reported losses. Scammers requesting payment through Google Play cards increased dramatically during 2018, as losses rose from AU $1,250 reported in July to AU $179,000 in December.
  • Scams Reported by Businesses: Businesses reported 5,846 scams, with AU $7.2 million in losses. BEC losses reported to Scamwatch totaled more than AU $3.8 million. When combined with reports to ACORN, losses to BEC scams exceeded AU $60 million. That total represents a 170 percent increase over the 2017 combined losses of $22.1 million in reported losses.  The ACCC specifically made reference to a number of reports indicating that BEC scammers were specifically targeting real estate deals, noting that “[t]he real estate sector is particularly attractive for scammers because of these large lump sum transfers between parties without a history of previous interaction.”

Note: Financial-crimes risk and compliance teams at companies with operations in Australia should take note of the ACCC’s findings and consider sharing information from the report with executives and employees based in Australia.  In addition, risk and compliance teams may find it useful to compare the trend information in the ACCC’s 2018 report and the FBI’s Internet Crime Complaint Center’s 2018 report.