Welcome to Compliance Review, our new weekly briefing that spotlights news and trends on the compliance and government affairs fronts. I'm C. Ryan Barber, reporting from Washington. Each week, we'll look at who's getting the work, what regulators are up to and how compliance officials are handling it all.

Your feedback on this briefing is valued. Anything you want to see more of? What are you hearing from clients, and what's on your plate? Thanks for reading and please stay in touch. I'm at [email protected] and on Twitter @cryanbarber. Or you can reach me at 202-828-0315. With that, let's get started.

 

 

In Defense of the DPA and NPA

 

Deferred and non-prosecution agreements had a big fan in former Attorney General Eric Holder Jr., who in a prior stint at the Justice Department scribed the infamous “collateral consequences” memo urging attorneys to account for the economic consequences that might result from a corporation's conviction. Since that memo's release in 1999, the DOJ's use of deferred and non-prosecution agreements has skyrocketed—and left a trail of criticism that corporations are getting off too easy.

DPA detractors, according to a Gibson, Dunn & Crutcher team, are missing the “nuance.” In a new treatise, Gibson Dunn partner F. Joseph Warin—joined by partner Michael Diamant and associate Melissa Farrar—defend NPAs and DPAs as “essential resolution tools that have evolved to meet the challenges and nuances of modern corporate criminal enforcement.”

“Some critics have railed against NPAs and DPAs as soft alternatives to filed criminal charges that do not sufficiently punish bad corporate actors, but this short-sighted view discounts the rigorous process that prosecutors engage in to arrive at charging decisions,” the Gibson Dunn trio wrote.

The Gibson Dunn lawyers credit the Justice Department for having “deftly employed the carrot of NPAs” to incentivize cooperation that might not otherwise be possible, pointing to a program that paved the way for Swiss banks to play ball with an investigation. Indeed, the authors argue, those agreements can grease the skids for corporate cooperation that can help the Justice Department more quickly—and, thus, less expensively—locate evidence and identify relevant actors.

“The alternative—bare-knuckled litigation involving lengthy and expensive discovery with no fact synthesis, as well as no self-disclosure—would be costly, time-consuming, and wearing for all involved,” they wrote.

The “Institutional Culture” Conversation

 

As the seemingly never-ending fallout from Wells Fargo's unauthorized accounts scandal has shown, regulators are paying more attention than ever to risks for widespread employee misconduct. Wells Fargo's problems, after all, were created by compensation incentives and sales goals that drove employees to open new accounts without customers' knowledge or consent.

On NYU School of Law's “Compliance and Enforcement” blog, a team from Paul, Weiss, Rifkind, Wharton & Garrison summarizes guidance from a top regulator—the Federal Reserve, which reached a settlement with Wells Fargo that limits the bank's growth.

The Paul Weiss crew—including chairman Brad Karp—points to a December 2017 white paper from the New York Fed that cautioned that at organizations with a weak culture, “formal policies do no reflect 'the way things are done.'”

But it's not just misconduct affecting consumers that companies need to keep in mind. “In addition to misconduct that may take place against customers, counterparties, and markets, the recent attention on sexual harassment and employee treatment has also raised questions about the capacity of companies across sectors to address misconduct that takes place within the walls of the company itself,” the Paul Weiss lawyers wrote.

 

Who Got The Work

 

➤➤ Eric Mogilnicki, a partner at Covington & Burling, represented PayPal Inc. in its settlement negotiations with the Federal Trade Commission over allegations the company failed to adequately disclose that financial transactions were still subject to review after money was transferred to an external bank account. The FTC also accused PayPal of, up until at least March 2015, misrepresenting the extent of the security it provided to consumer accounts. Under the settlement, PayPal agreed to stop making misrepresentations and to undergo third-party audits of its compliance with privacy rules for the next 10 years.

➤➤ Heartland Campus Solutions, represented by Venable partner Allyson Baker, lost its challenge to a Consumer Financial Protection Bureau administrative subpoena. U.S. District Judge Cathy Bissoon of the Western District of Pennsylvania ordered Heartland Campus Solutions to respond to a June 2017 subpoena that the student loan servicing company had challenged as overly vague and broad. The challenge leaned heavily on one of Baker's past wins on this front. Advocating for the Accrediting Council of Independent Colleges and Schools, an accreditor of for-profit colleges, Baker successfully argued the CFPB's subpoena fell outside the agency's jurisdiction.

➤➤ A team at Orrick, Herrington & Sutcliffe, including partner Harry Clark, has signed on to lobby for the Chinese solar panel manufacturer JinkoSolar Inc. as the company pushes to open a U.S. factory and lower tariffs on imported solar cells. Clark, who leads the firm's international trade and compliance group, will advocate alongside senior counsel W. Clark McFadden II and firm in-house economist Gregory Hume for “duty free access for solar cells and aluminum panels for import into the United States,” according to a recent lobbying disclosure.

And a bonus… who wants the work?

➤➤ As the Dallas Mavericks reel from a sexual harassment scandal, the question for the pro basketball team is, well, “Who wants the work?” Mark Cuban's organization is looking for a chief ethics compliance officer, according to the National Basketball Association's job postings website. Sports Illustrated has the full backstory here, and Compliance Week has more here. Read the job posting here.

➤➤ Fresh off her former company emerging from of a CFPB investigation unscathed, former World Acceptance Corp. CEO Janet Matricciani has a new job in mind: director of the CFPB. The former payday lending executive pitched herself for the job via email, with her resume attached, to none other than the CFPB's Trump-appointed acting director, Mick Mulvaney. “I would love to apply for the position of director of the CFPB. Who better than me understand the need to treat consumers respectfully and honestly, and the equal need to offer credit to lower income consumers in order to help them manage their daily lives?,” Matricciani wrote.

7 Steps After a Compliance Breach, and More: Around the Web

 

You've had a compliance breach—now what? Jerry Cummins and Carl Rizzo, directors at Alaric Compliance Services, walk through seven steps companies should consider after a compliance breach. [NLJ]

When to report a cyber attack? Nobody knows still. That's in spite of new guidance from the Securities and Exchange Commission urging public companies to make “timely” disclosures of breaches deemed material. The SEC's words of advice have done little to clarify tricky terrain for companies torn between cooperating with law enforcement—oftentimes by agreeing to keep silent—and pressure from consumers and investors to disclose as soon as possible.
[New York Times]

Meanwhile, Pennsylvania is suing Uber over the company's delayed data-breach disclosure. The state is among others—including Illinois and Washington—suing the ride-hailing company for failing to promptly disclose a data breach that occured in 2016. The complaint was filed in Philadelphia Court of Common Pleas.

Here's a portrait of the compliance officer as a whistleblower. It's not a pretty picture for corporate America, which leans on compliance staff to investigate and address matters so employees don't have to head to the government. Compliance officers are technically ineligible for awards, but as recent bounties have shown, there are exemptions. But fear not: There are steps companies can take to prevent compliance professionals from becoming whistleblowers. [Corporate Counsel]

Speaking of corporate tipsters: Management-side labor lawyers are surely thrilled … in-house compliance professionals maybe less so by the Supreme Court's recent decision that employees must report misconduct to the SEC—not just internally—to receive Dodd-Frank's broad whistleblower protections. Whistleblower lawyers believe that the decision could backfire against companies and send to the SEC employees who might otherwise report internally. After years of promoting internal reporting, the SEC must now reevaluate its messaging.
[National Law Journal]

Compared to the Trump administration's proverbial chainsaw, the SEC under Chairman Jay Clayton has used trimmers to relieve regulatory burden—apparently preferring small, targeted moves with an eye toward easing access to capital markets. “Modernizing the rules without in any way taking away investor protection is the best thing that we can do,” Clayton recently told the Wall Street Journal's CFO Journal blog. Still, as the WSJ put it, the SEC is looking at what can be “pruned back.” [WSJ]

 

Names in the News…

 

Deputy Attorney General Rod Rosenstein was apparently pleased to escape Washington to talk white-collar enforcement in San Diego, where he praised embattled Attorney General Jeff Sessions. “You will not always agree with our policy decisions, and you definitely won't hear this on cable TV, but the department leadership team appointed by President Trump is very strong on ethics and professionalism,” he said. “History will reflect that the Department of Justice operated with integrity on our watch.” [National Law Journal]

Herbalife, facing several more years with a compliance monitor after its $200 million settlement with the Federal Trade Commission, is promoting some of its top in-house lawyers. On May 1, acting general counsel Richard Werber will rise to the role of chief legal officer and Henry Wang, currently the deputy general counsel and chief compliance officer, will assume the general counsel job. Once in their new jobs, the two Herbalife lawyers will be free of at least one concern: the activist investor Bill Ackman has largely pulled out of his yearslong bet against the supplement maker. [Corporate Counsel]

White House budget director Mick Mulvaney, the Trump-appointed acting director of the Consumer Financial Protection Bureau, doesn't seem to be appreciating the correspondence he's struck up with the agency's architect, Sen. Elizabeth Warren. At a recent speaking engagement, Mulvaney said Warren had gotten in the “habit” of writing him. In response, he's gotten … well, he would say more “direct.” Mulvaney has also recently said the CFPB, under new leadership, will not interfere with the efforts of state attorneys general to enforce Dodd-Frank. [NLJ]

It took two words at Sunday night's Academy Awards—”inclusion rider”—to put Cohen Milstein Sellers & Toll partner Kalpana Kotagal in the spotlight. While it was Best Actress winner Frances McDormand who spoke those words, it is Kotagal who has been developing language for contract provisions that Hollywood's elite can use to require studios and other partners to employ diverse staffs on set. [NLJ]

Thanks for reading—that's all for now. Love to hear any feedback—I'm at [email protected]. –Ryan