Welcome to Compliance Hot Spots, our briefing on compliance, enforcement and government affairs. On the heels of Petrobas' $853 million settlement resolving bribery allegations, we catch up with Gibson Dunn's Joe Warin, who guided the Brazilian state oil company to a resolution with U.S. enforcers. Plus: A team from Murphy & McGonigle offers tips on avoiding an enforcement action from the Commodity Futures Trading Commission (spoiler: beef up internal whistleblower programs). Scroll down for the latest on who's getting work on the SEC enforcement front.

Thanks for reading—and please do send feedback. I appreciate hearing from you about what's on your plate—observations, trends, new clients. I'm at [email protected] and 202-828-0315, or follow me on Twitter @cryanbarber.

 

Why the Petrobas Deal Didn't Come With a Compliance Monitor

A non-prosecution agreement. A discount off the fine for cooperation in the investigation. A fine that appeared to reflect the recent U.S. policy of not piling duplicative penalties on corporate offenders.

For Petrobas, there was a lot to like about the recent $853 million settlement resolving a long-running bribery investigation into the Brazilian state oil company. But among the most favorable elements of the settlement was what didn't appear in the terms: a compliance monitor.

Petrobas escaped a large corruption scandal without the government demanding that an outside compliance monitor look over the company's shoulder for the next few years. For that, Petrobas has a former compliance monitor partially to thank.

Joe Warin

Gibson, Dunn & Crutcher partner F. Joseph Warin, who represented Petrobas through the investigation, said the company succeeded in showing that it was changing its ways and taking compliance seriously as it moved past Operation Car Wash, a corruption probe that ensnared top executives and politicians in Latin America's largest economy. Reflecting on how Petrobas engaged with U.S. authorities, Warin said the company benefited from the creation of an independent special committee—and from the passage of time.

“A path toward remediation was being charted early on. I think that oftentimes companies are in fits and starts about how to handle a matter,” Warin tells me. “I think the company here, Petrobas, was prescient to empower the special committee to have as much gravitas within the organization, both with the board and with the company.”

Warin adds: “If you look back on four years that we had been handling the matter, the special committee was frankly a brilliant move. It acted as a foundational element and set up the argument to say there's no need for extra supervision. There is a whole vibrant compliance structure.”

No company relishes a long-running investigation. But in the complicated case of Petrobas, the length of the investigation helped show that the company had not merely instituted a paper program but rather made meaningful compliance reforms, Warin says.

More from my interview with Warin: “Because it went on for four years, you had a much better opportunity to see if compliance activities are working or not. In some ways—no prosecutor ever said this to me—but Petrobras was so vigorous in the vetting of its contractors, I'm confident the DOJ and SEC heard about that. It's very hard to get back in the saddle at Petrobras as a contractor. That proved the compliance program was not just for show but rather it was vigorous and people were cut out of doing business unless they could demonstrate they were a highly compliant company and any of their misconduct had been eradicated by terminations.”

One advantage of long investigations, Warin says, is that a company has more interactions with enforcers. The disadvantage, of course, is that the investigation lasts for years. “After four years, you're able to take the measure of an organization by how they react to matters and how they approach matters.”

➤➤ Some of the most helpful interactions, Warin says, were in-person meetings between Petrobas executives and enforcers in the United States. With foreign clients, Warin says, “I think it's even more important to humanize it to the U.S. enforcers.” The meetings gave U.S. enforcers “a measure of the man,” he says.

“The executives were available to answer and take on any subject, and frankly hard subjects. That's something we repeatedly do on matters we handle,” Warin tells me. “I'm a repeat player. So it's important for them to get behind Joe Warin at Gibson Dunn and get to the core of the leadership.”

 

Compliance & Enforcement Reading: Goldman Sachs Warned Firms About Khuzami

Robert Khuzami, the deputy U.S. attorney in SDNY supervising the Michael Cohen case, was a hard-charger at the Obama-era Securities and Enforcement Exchange. So much so, according to new Bloomberg reporting, that Goldman Sachs warned its outside firms they might lose business if they hired him when he was leaving the agency.

“He's schooled in the view that the job is to do justice,” former Khuzami colleague George Canellos, now at Milbank, Tweed, Hadley & McCloy, told Bloomberg. Khuzami landed at Kirkland & Ellis, where he reported on a U.S. ethics office financial disclosure—we had the scoop here—$11 million in partner share.

Some other headlines that caught my eye…

>> Want to avoid CFTC enforcement actions? Here's how. Murphy & McGoniglepartners Elizabeth Davis, Joseph Facciponti and Brian Walsh write at the NLJ: “Given the CFTC's intense focus on whistleblower complaints and the increased incentives in award amounts and frequency, now is a good time for businesses to get ahead of any potential enforcement actions by maintaining robust internal whistleblower programs.”

>> Lessons from Elon Musk – Tesla settlement with the SEC: “[Jay] Clayton is focused on holding individuals liable and not just corporate entities,” Mary Hansen, co-chair of the white-collar team at Drinker Biddle & Reath, told Reuters. My colleague Caroline Spiezio has more here at Corporate Counsel.

>> An increasing number of public companies in the past several years have voluntarily opted to disclose corporate donations above and beyond what is required by law, but doing so often exposes the businesses to backlash from shareholders. Corporate Counsel's Kristen Rasmussen has more here.

>> “A group of financial technology companies is banding together to lobby lawmakers and regulators on cryptocurrencies—and they plan to pay their Washington advocates partly in digital coins,” according to a Bloomberg report.

> “Sanctions violations accounted for 56% of all fines handed out by regulators around the world in the past 10 years, a new study shows,” the Wall Street Journal reports. Read the Fenergo report here.

 

Who Got the Work

>> Walgreens turned to Sidley Austin's Neal Sullivan to resolve claims that the company misled investors about projected earnings in connection with the company's 2012 merger with Alliance Boots. The Securities and Exchange Commission alleged that Walgreens executives stood by projections that the combined company would bring in more than $9 billion in fiscal year 2016, even after internal forecasts suggested a higher risk of missing that mark. In 2014, Walgreens stock fell 14.3 percent the day the company announced a revised projection of $7.2 billion in net operating income for fiscal year 2016. Walgreens paid a $34.5 million penalty, with two former executives—represented by Paul Hastings partner Mark Pollack and Caz Hashemi at Wilson Sonsini Goodrich & Rosati—each paying a $160,000 fine.

>> Cahill Gordon & Reindel's Brad Bondi, the brother of Florida Attorney General Pam Bondi, helped Salix Pharmaceuticals Ltd. put to rest allegations that it understated the amount of its drugs that wholesaler customers held in inventory, misleading investors and analysts about the company's future sales. Salix was credited for self-reporting the misconduct to the SEC and launching an internal investigation that led the company's former chief financial officer, Adam Derbyshire, to resign. Derbyshire, represented by BuckleySandler partner Thomas Sporkin, paid more than $1 million to resolve charges related to his role.

>> Renaud Laplanche, the founder and former CEO of Lending Club, hired Milbank, Tweed, Hadley & McCloy partner Scott Edelman amid allegations concerning fraudulently inflated company returns. The settlement, in which Laplanche agreed to pay a $200,000 fine and a suspension of at least three years from the securities industry, came two years after the Lending Club board forced him to resign. Lending Club, represented by Quinn Emanuel Urquhart & Sullivan partner John Potter, agreed to pay a $4 million penalty.  

Thanks for reading! Feedback and tips are always appreciated. I'm at [email protected] and 202-828-0315, or follow me on Twitter @cryanbarber.