Fines, Disgorgement, Injunctions, Debarment: The US Perspective

26.1 Introduction

This chapter provides an overview of the potential fines, penalties and other collateral consequences that corporates and individuals may face in the United States under federal law when defending against, or settling an enforcement action with, US authorities. The chapter then provides examples of the fines, penalties and other remedies associated with particular federal criminal statutes of potential interest, including the Foreign Corrupt Practices Act and anti-money laundering statutes.

US enforcement authorities have a variety of means to seek redress from corporates and individuals, including financial penalties and equitable remedies. The general purpose and policy objectives behind these remedies are (1) to deter the defendant and others from committing such offences in the future, (2) to protect the public, (3) to punish the defendant and (4) to promote rehabili­tation of the defendant.² In considering fines and penalties, the US enforcement authorities and courts will consider the facts and circumstances of the matter, including whether the defendant accepts responsibility for the conduct, any remediation that has been effected and co-operation by the defendant with the relevant enforcement authorities.³

In recent years, both the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have been successful in extracting significant financial penalties as part of their enforcement actions and settlements. These penalties depend on the facts and circumstances and range from penalties in the five- to six-figure range⁴ to settlements in the billions.⁵ These include cases brought by the DOJ, individual US attorney offices and the SEC. For example, in the fiscal year ending in September 2020, the DOJ obtained more than US$2.2 billion in total settlements and judgments from civil cases brought pursuant to the False Claims Act alone.⁶ Likewise, in 2020, the US Attorney’s Office for the Eastern District of Virginia, which includes some of the area surrounding Washington, DC, collected more than US$242 million in criminal and civil actions.⁷ The Southern District of New York announced two settlements in 2020, totalling nearly US$90 million between them alone.⁸ In fiscal year 2020, the SEC brought 715 enforcement actions and obtained judgments and orders totalling approximately US$4.68 billion in disgorgement and penalties – an SEC record.⁹

In 2018, the DOJ issued a policy emphasising the importance of prosecuting individuals and discouraging ‘disproportionate enforcement of laws by multiple authorities’. The policy provided that prosecutors should ‘avoid the unnecessary imposition of duplicative fines, penalties, and/or forfeiture’ against a corporate being investigated by multiple enforcement authorities.¹⁰ The policy requires DOJ lawyers from all departments to coordinate internally and, when possible, with ‘other federal, state, local, or foreign enforcement authorities’ to curb the practice of ‘piling on’ fines and penalties, ‘with the goal of achieving an equitable result’.¹¹ Although it is difficult to measure the impact of these policies in practice, US authorities have continued to bring actions with multiple regulators and serious financial ramifications. Accordingly, corporates and individuals facing enforcement action should be mindful of the potential consequences and the opportunities to manage and reduce the ultimate fines and penalties.

26.2 Standard criminal fines and penalties available under federal law

26.2.1 Financial penalties

Many federal statutes contain their own fining provisions, which typically include a maximum fine amount. Additionally, for some crimes, the Alternative Fines Act provides for an alternative maximum fine of double the gross gain (or gross loss caused to another) from the unlawful activity.¹² Where a fine is imposed against an officer, director, employee, agent or shareholder of a corporate issuer, the fine may not be paid, directly or indirectly, by the corporate issuer.¹³

For certain offences, the DOJ may also seek criminal or civil forfeiture, or both, of property that constitutes, or is derived from proceeds traceable to, the offence.¹⁴ Recent examples of forfeiture include (1) nearly US$1.1 billion in assets recovered in connection with various forfeiture cases related to the international money laundering and bribery scheme involving the Malaysian sovereign wealth fund 1MDB,¹⁵ and (2) more than US$54 million forfeited in 2020 related to the DC Solar Ponzi scheme where at least half of the solar generators claimed to have been manufactured by the defendant did not actually exist.¹⁶

Defendants may also be required to pay restitution, taking into consideration the amount of loss sustained by each victim, the financial resources of the defendant and any other factors the court deems appropriate.¹⁷

Although corporates may attempt to reduce the amount of financial fines or penalties by claiming an inability to pay, the DOJ closely scrutinises any such arguments. In October 2019, the DOJ issued a non-binding policy memorandum to Criminal Division attorneys that provides ‘guidance and an analytical framework’ on evaluating a company’s ability to pay a criminal fine or criminal monetary penalty when inability to pay is claimed.¹⁸ The memo sets forth various legal considerations and relevant factors to take into account into account if legitimate questions remain after an analysis of an inability-to-pay questionnaire. These factors include background on current financial position, alternative sources of capital, collateral consequences and victim restitution considerations.

26.2.2 United States Sentencing Guidelines

Federal courts in the United States use the United States Sentencing Guidelines (the Sentencing Guidelines) as guidance in considering the aggravating and mitigating circumstances of a crime and imposing a sentence. These apply to both corporates and individuals. Although district courts must consult the Sentencing Guidelines, judges are not required to impose sentences – either prison terms or fines – within Guidelines ranges.¹⁹ A recent study, in fact, suggests that federal trial judges ‘now follow the advisory fraud guideline range in less than half of all cases’, providing for sentences ‘well below the fraud guideline’.²⁰

For corporates, the calculation of the applicable fine under the Sentencing Guidelines is made by (1) identifying a ‘base fine’,²¹ (2) identifying the minimum and maximum multipliers that combined with the base fine create a ‘fine range’²² and (3) considering whether any factors warrant any adjustments, upwards or downwards, to the fine range.²³

In calculating the base fine under the Sentencing Guidelines, the first step is to identify the ‘offence level’, which depends on the characteristics of the crime. The ‘base offence level’ is set according to the nature of the conduct or the statute violated, and then the overall offence level will increase or decrease depending on certain factors.²⁴ For example, factors that may affect the overall offence level for a violation under the Foreign Corrupt Practices Act (FCPA) include the number of bribes, the amount involved and the position of the foreign official receiving the payment or benefit.²⁵ The total offence level helps to determine the base fine, which is the greatest of the amount specified in a table that translates the offence level into a base fine, the pecuniary gain to the organisation from the offence, or the pecuniary loss from the offence caused by the organisation, ‘to the extent the loss was caused intentionally, knowingly, or recklessly’.²⁶

The second step is to calculate the ‘culpability score’, which yields the minimum and maximum multipliers to be applied to the base fine. The culpability score is based on the characteristics of the defendant. Relevant factors may include the size of the organisation and the degree of participation in, or tolerance of, the wrongdoing; the defendant’s prior criminal history; whether the defendant has violated an order or injunction, or violated a condition of probation by committing similar misconduct to that for which probation was ordered; obstruction of justice; the existence of an effective compliance programme; and self-reporting, co-operation and acceptance of responsibility.²⁷ The potential multipliers can range from 0.05 (a reduction of 20 times the base fine) to 4.0 (four times the base fine), depending on the culpability score. The fine range reflects the minimum and maximum multipliers as applied to the base fine. In addition to the fine, any gain to the corporate from an offence that is not otherwise part of the corporate’s restitution or remediation is subject to disgorgement.²⁸

Finally, the Sentencing Guidelines allow for adjustments from the fine range. This may include a reduction for substantial assistance to the government in its investigation of others²⁹ or remedial costs that exceed the gain to the corporate.³⁰ Unlike the factors that are considered for calculating the offence level and culpability score, the detriments or benefits that result from adjustments are not quantified. The court in its discretion imposes a fine within the fine range, or above or below the range. For negotiated resolutions, a corporate, through its counsel, will often negotiate the fine range with the government.

26.3 Civil penalties

Civil monetary remedies can include penalties, disgorgement and prejudgment interest. Each of these has a different purpose and method of calculation.

The SEC may impose civil monetary penalties on any person who violates or causes a violation of the securities laws. For example, the Securities Act of 1933 and the Securities Exchange Act of 1934 authorise three tiers of civil penalties, and the civil penalties imposed under these statutes can range from under US$10,000 to over US$1 million, per violation, after adjusting for inflation. Less serious civil violations fall into the first tier, where the penalty is no more than US$9,753 for an individual or US$97,523 for a corporate for ‘each act or omission’ violating the federal securities laws. The second tier applies to violations involving fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement, for which the maximum penalty is US$97,523 for individuals and US$487,616 for corporates, again for each act or omission. Finally, the third tier applies to violations involving fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement that also directly or indirectly resulted in ‘substantial losses . . . to other persons’ or ‘substantial pecuniary gain to the person who committed the act or omission’.³¹ Third-tier penalties have a limit of US$195,047 for individuals and US$975,230 for corporates, for each act or omission.³² The SEC sometimes asserts that the defendant’s conduct involved multiple violations and seeks a penalty for each violation. Therefore, in addition to determining the relevant tier, courts generally consider whether the conduct alleged constituted multiple violations. Civil penalties for insider trading depend on the amount of the profits generated by the illicit trading. A district court can order civil penalties up to three times the profit gained or loss avoided by the violative trade.³³

The amount of penalties sought in resolved actions against corporates depends, in part, on how the SEC’s leadership uses its discretion. A 2006 policy issued under the G W Bush administration, for example, emphasised the importance of avoiding further harm to shareholders by issuing penalties. Under its current leadership, though, the SEC is expected to aggressively seek penalties and emphasise deterrence. For example, Caroline Crenshaw, one of the current commissioners, delivered a speech in March where she criticised the SEC’s historical approach to penalties as ‘fundamentally flawed’ and called for a reconsideration of the 2006 statement on penalties.³⁴ She argued that ‘corporate penalties should be tied to the egregiousness of the actual misconduct – not just the benefit for impact on the shareholders’ and claimed that her focus would be on ‘vigorous enforcement of [the] existing laws and regulations’ and ‘ensuring that the violator pays the price’.³⁵ Crenshaw outlined other factors to be considered, including, self-reporting, co-operation, remediation, the extent of harm to the victim, pervasiveness or complicity within the organisation and the difficulty of detecting the violations.³⁶ It is likely that a majority of commissioners echo Crenshaw’s views and will follow these considerations when imposing penalties. ³⁷

The DOJ likewise may seek civil penalties in certain types of matters, such as violations of federal financial, health, safety, civil rights and environmental laws.³⁸ For example, in January 2021, Insitu Inc agreed to pay US$25 million to resolve allegations it violated the False Claims Act by knowingly submitting materially false cost and pricing data in relation to the supply of unmanned aerial vehicles to the military.³⁹

26.4 Disgorgement and prejudgment interest

The SEC and the DOJ may also seek disgorgement to prevent an entity or individual from profiting from illegal conduct and to deter subsequent misconduct.⁴⁰ Disgorgement has often accounted for a significant portion of the overall enforcement sanction. For example, in July 2020, pharmaceutical company Alexion Pharmaceuticals Inc agreed to pay more than US$21 million to settle allegations that it had violated the FCPA, of which over US$14 million was disgorgement, as compared with approximately US$3.7 million in prejudgment interest and a US$3.5 million penalty.⁴¹ Disgorgement can also be sought in certain circumstances even when the DOJ declines to prosecute the corporate under its Corporate Enforcement Policy. For example, in 2019, it declined to prosecute Cognizant Technology Solutions for violations of the FCPA, yet the company agreed to pay nearly US$20 million in disgorgement, which represented ‘all profits fairly attributable to the bribery conduct’.⁴²

In 2021, Congress made several important changes to the US securities laws that will impact the SEC’s ability to recover funds though disgorgement. Specifically, Congress passed a provision titled ‘Investigations and Prosecution of Offenses for Violations of the Securities Laws’.⁴³ This provision amended certain disgorgement-related provisions of the Securities Exchange Act of 1934 to (1) expressly grant the SEC statutory authority to pursue disgorgement as a remedy for civil enforcement actions in federal court, (2) extend the statute of limitations for all disgorgement actions involving fraud and scienter from five years to 10 years, and (3) direct courts to apply a 10-year statute of limitations for all other claims seeking equitable remedies, such as injunctions, bars, suspensions, and cease and desist orders. Therefore, with this legislation, Congress has greatly expanded the time frame in which the SEC can seek disgorgement, also increasing the total disgorgement the SEC can collect.

This legislation was perceived by many to be a reaction to the US Supreme Court’s recent decisions in Kokesh and Liu. In Kokesh v. SEC, the US Supreme Court had held in 2017 that the SEC’s disgorgement remedy was subject to a strict five-year statute of limitations, explaining that ‘[d]isgorgement in the securities-enforcement context is a “penalty” . . . and so disgorgement actions must be commenced within five years of the date the claim accrues’.⁴⁴ Following the US Supreme Court’s ruling in Kokesh, this statute of limitations had significantly impacted the SEC’s ability to obtain disgorgement. Indeed, in its 2019 annual report, the SEC estimated that the Kokesh ruling had ‘caused the [SEC] to forgo approximately $1.1 billion in disgorgement in filed cases’.⁴⁵

The new legislation also addressed, at least in part, potential limitations to the SEC’s disgorgement powers from a June 2020 Supreme Court case, Liu v. SEC. There, the Court held that the SEC could continue to seek disgorgement pursuant to its power to award ‘equitable relief’ under Section 21(d)(5) of the Securities Exchange Act but also held that the SEC could only do so where the disgorgement sought does not exceed the defendant’s net profits and is awarded for victims. In doing so, the majority, without reaching any conclusions, also raised the possibility that disgorgement awards may not be an equitable remedy – and therefore not allowed under the relevant statute – in situations where courts decline to deduct expenses from the award, impose joint-and-several liability or fail to return money to investors. With its legislation, though, Congress confirmed the SEC’s ability to obtain disgorgement even where money is not distributed to investors. However, notwithstanding the 2021 legislation, some of the residual questions in Liu remain unresolved, meaning open questions related to the SEC’s enforcement abilities will continue to be addressed by courts.

Beyond disgorgement, the SEC also generally obtains prejudgment interest on any disgorgement amount. The rules that apply to administrative proceedings brought by the SEC require that such amounts be included in any disgorgement.⁴⁶ District courts presiding over actions generally may determine whether prejudgment interest is appropriate.⁴⁷ The interest rate applied is typically the ‘underpayment’ rate set by the IRS.⁴⁸ There is no single approach for measuring when the clock begins to run on interest calculations. In some cases, it has been measured from the date the ill-gotten funds were received, up to the date of judgment.⁴⁹ In others, it may run from multiple dates where the matter involves multiple transactions,⁵⁰ or, where the applicable dates are difficult to identify, from the date of the complaint.⁵¹

26.5 Injunctions

The DOJ may also seek affirmative relief through an injunction where it is deemed necessary to advance public interests or enforce government functions. Such injunction actions may be specifically provided for by statute, may be used to enforce statutes that do not specifically provide for injunctive relief or may be sought from an appellate court pursuant to the All Writs Act.⁵²

Likewise, the SEC may seek either a preliminary or permanent injunction when it appears that a person is engaged in, or is about to engage in, acts or practices constituting a violation of the securities laws.⁵³ For example, in March 2020, the SEC obtained a preliminary injunction barring the company Telegram from delivering digital tokens called Grams, after the court held that the SEC had shown there was a sufficient likelihood that Telegram’s sales were part of a larger scheme to unlawfully distribute the Grams.⁵⁴

26.6 Other consequences

In addition to the criminal and civil penalties noted above, defendants may face other consequences as a result of a US criminal or civil action. For one, defendants may also face civil and criminal forfeiture of assets, including real and personal property constituting, or derived from proceeds traceable to, a violation, or to a conspiracy to commit a violation.⁵⁵ For certain offences, courts are required to order that property traceable to an offence be forfeited.⁵⁶

Further, investigation or prosecution by authorities in one jurisdiction may also lead to investigations, prosecutions or resolution short of prosecution by authorities in other jurisdictions. For example, in January 2020, the largest foreign bribery settlement to date was entered into between airplane manufacturer Airbus and authorities in France, the United Kingdom and the United States. Airbus agreed to pay combined penalties of over US$3.9 billion to resolve anti-corruption and export control violations.⁵⁷ It is expected that this trend of multinational investigations and co-operation across jurisdictions will continue in the coming years.

Defendants may also face a variety of actions from other US government agencies, international organisations, other corporates or even shareholders and employees, actions which may involve additional litigation and other monetary penalties or debarment. These ‘tag along’ actions can even arise from investigations of unrelated conduct that are assisted by co-operation clauses required by prior settlements.⁵⁸

In addition, in connection with certain types of enforcement actions, such as FCPA enforcement, money laundering and sanctions violations, corporates may also be required to retain corporate compliance monitors. For example, in May 2021, State Street Corporation entered into a two-year deferred-prosecution agreement pursuant to which it agreed not only to pay a US$115 million criminal penalty but also to retain an independent corporate compliance monitor for two years.⁵⁹

Finally, in some circumstances, individuals or entities may be barred or suspended from doing business with the executive branch of the United States government.⁶⁰ Debarment may be triggered by a criminal conviction or, in some circumstances, even an adverse civil judgment, and applies to all subdivisions of a corporation unless the decision is limited by its terms to specific divisions or organisational units.⁶¹ Suspension may occur upon adequate evidence that certain wrongdoing was committed and when it is in the public’s interest.⁶² Like debarment, suspension affects all organisational divisions of a corporation, unless otherwise specified.⁶³

26.7 Remedies under specific statutes

By way of example, the fines, penalties and other remedies associated with particular federal criminal statutes of potential interest are outlined below.

26.7.1 Foreign Corrupt Practices Act

The FCPA criminalises bribery of foreign officials, either directly or through an intermediary, to obtain business or some other benefit. Its anti-bribery provisions apply not only to all US corporates and persons, but also can apply to foreign corporates that issue securities within the United States or file certain reports with the SEC (issuers) and to these issuers’ officers and employees, among others. The FCPA also criminalises actions taken in the United States by foreign corporates or their agents that are in furtherance of an improper payment or offer. Further, the FCPA’s books and records and internal controls provisions also require corporates whose securities are listed in the United States or who file reports with the SEC to keep accounting records that accurately reflect the corporate’s transactions and to maintain a system of internal controls.⁶⁴

Violations of the FCPA can result in heavy penalties. For one, corporate entities may be subject to financial penalties of up to US$2 million per violation of the FCPA’s anti-bribery provisions,⁶⁵ US$25 million per violation of the FCPA’s accounting provisions,⁶⁶ or up to twice the gross pecuniary gain or loss from the violation pursuant to the Alternative Fines Act.⁶⁷ In addition, civil penalties for FCPA anti-bribery and accounting provisions violations may apply.⁶⁸

Further, certain individuals may be either fined up to US$100,000 (US$250,000 under the Alternative Fines Act or twice the gain or loss from the violation) or imprisoned for up to five years, or both, for a criminal violation of the FCPA’s anti-bribery provisions.⁶⁹ For criminal violations of the FCPA’s accounting provisions, certain individuals can be subject to a fine of up to US$5 million or imprisonment for up to 20 years, or both.⁷⁰ Individuals may also face civil penalties for FCPA anti-bribery and accounting provisions violations.⁷¹ Issuers, as defined under the FCPA, are prohibited from paying these individuals’ criminal and civil fines.⁷²

Moreover, the DOJ may also bring a civil action to seek an injunction against domestic concerns and persons other than issuers to prevent a current or imminent FCPA violation.⁷³ Likewise, the SEC may seek injunctions to prevent FCPA violations from occurring.⁷⁴

In addition, disgorgement is often a key component of a civil FCPA esolution. For example, in October 2020, Goldman Sachs agreed to pay the DOJ and SEC more than US$2.9 million to resolve FCPA charges related to the 1MDB bribery scheme. Of the total amount paid by Goldman Sachs to settle the SEC charges (more than US$1 billion), US$606.3 million was disgorgement.⁷⁵ However, as discussed above in detail, the SEC’s use of disgorgement in civil actions has been limited by the Supreme Court’s decision in Liu v. SEC.⁷⁶

For corporates seeking to avoid the heaviest penalties, however, the FCPA Corporate Enforcement Policy establishes a presumption that, ‘absent aggravating circumstances’ such as involvement by executive management in the misconduct or significant profit to the corporate from the misconduct, a corporate will receive a declination if it ‘has voluntarily self-disclosed misconduct in an FCPA matter, fully cooperated, and timely and appropriately remediated’. Moreover, even if aggravating circumstances are present, for a corporate that voluntarily self-discloses, fully co-operates and timely and appropriately remediates, the DOJ will still recommend a 50 per cent reduction off the low end of the US Sentencing Guidelines fine range, except in the case of a recidivist.⁷⁷

On 20 November 2019, the FCPA Corporate Enforcement Policy was amended to clarify that a corporate that voluntarily discloses misconduct need not disclose ‘all relevant facts known to it’, but simply ‘all relevant facts known to it at the time of the disclosure’. In addition, the new policy explains that, for a corporate to fully co-operate, it must identify ‘relevant evidence not in the company’s possession’ that the corporate is aware of.⁷⁸ However, the corporate is no longer required to identify opportunities ‘to obtain relevant evidence not in the company’s possession and not otherwise known to the Department’ that the corporate ‘is or should be aware of’.⁷⁹

26.7.2 Federal criminal money laundering

The principal federal criminal money laundering statutes are 18 USC Sections 1956 and 1957. Section 1956 generally prohibits a person from knowingly engaging in financial transactions with the proceeds of certain unlawful activities to promote further unlawful activity, concealing the proceeds, evading taxes or avoiding reporting requirements. Section 1957 also prohibits a person from knowingly engaging in a monetary transaction involving property valued at more than US$10,000 that derives from specified unlawful activities. In regard to both sections, the specified unlawful activities include proceeds resulting from offences involving bribery of a foreign official, fraud by or against a foreign bank, and certain smuggling and export control violations, to name a few.⁸⁰

Any violation of Section 1956 is punishable by imprisonment for not more than 20 years, a fine of up to US$500,000 or twice the value of the property involved, or both. In addition, such violations can incur a civil penalty up to the greater of US$10,000 or the value of the property involved in the offence, plus asset forfeiture. For Section 1957, the maximum penalty is 10 years’ imprisonment or a fine of up to twice the value of the property involved, or both.⁸¹

26.7.3 Export controls and trade sanctions

The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) administers and enforces most US economic sanctions. However, the US Commerce Department’s Bureau of Industry and Security and DOJ National Security Division also enforce some aspects of US sanctions. Generally, these sanctions, such as the blocking of assets and trade restrictions, are used to accomplish national security and foreign policy objectives.

The sanctions can be either comprehensive for a jurisdiction, such as Cuba,⁸² or targeted to particular individuals and entities, such as the sanctions imposed on one Chinese government entity and specific officials pursuant to the global Magnitsky Human Rights Accountability Act.⁸³ Typically, US sanctions either restrict activities that take place in the US or restrict activities that involve a ‘US person’, generally defined widely to include US citizens, permanent residents, persons present in the United States, and corporates organised under the laws of the United States or any jurisdiction therein, as well as those corporates’ foreign branches.⁸⁴ However, non-US persons and corporates can face penalties under US sanctions as well, including for ‘causing’ a violation by a US person.⁸⁵ For example, in 2019, OFAC entered into a settlement with British Arab Commercial Bank plc, a UK-based commercial bank, in part for causing US financial institutions to engage in prohibited conduct involving Sudan.⁸⁶

Fines for violations of the sanctions regulations can be significant. As of 18 August 2021, OFAC had settled 11 enforcement actions, with civil penalties totalling more than US$15 million in 2021.⁸⁷ And in 2020, it settled 16 enforcement actions for just over US$23.5 million.⁸⁸ Criminal penalties for wilful violations of OFAC sanctions can include fines ranging up to US$1 million per violation or imprisonment of up to 20 years, or both.⁸⁹ Under Title 18, Section 3571, the government can also pursue fines and penalties against an organisation of up to US$500,000 or twice the pecuniary gain or loss derived from the offence, as well as forfeiture under 18 USC Section 981. Further, penalties for violations of the Trading with the Enemy Act, which provides the statutory authority for the Cuba sanctions, can be up to US$90,743 per violation (which may be adjusted for inflation), and criminal penalties can reach US$1 million.⁹⁰ Financial penalties for violations of the International Emergency Economic Powers Act, which underlies other sanctions programmes, are also possible; associated civil penalties can be up to US$250,000 or twice the amount of the unlawful transaction, and criminal penalties permit a fine of up to US$1 million and imprisonment of up to 20 years.⁹¹

26.7.4 Racketeer Influenced and Corrupt Organizations Act

The Racketeer Influenced and Corrupt Organizations Act (RICO) provides criminal penalties as well as a civil, private cause of action for acts performed as part of a criminal organisation or enterprise.⁹² The statute contains variations on the proscribed conduct but generally criminalises participation in an ‘enterprise’ in interstate or foreign commerce through a ‘pattern of racketeering activity’.⁹³ Such racketeering activity includes mail and wire fraud and money laundering violations under Sections 1956 and 1957, as outlined above.⁹⁴

RICO violations are punishable by fines and imprisonment for up to 20 years, plus forfeiture of any interest acquired or maintained through the violation, any interest in any enterprise that was established, operated, controlled, conducted or participated in as part of the RICO violation (or the property of such an enterprise) and any property constituting or derived from any proceeds that the person obtained, directly or indirectly, from racketeering activity.⁹⁵

Additionally, the government may seek pre-indictment restraining orders for the purpose of preventing defendants from transferring assets the government may potentially seek to have forfeited. To obtain such an order, the government must establish that (1) there is a substantial probability that it will prevail on the forfeiture issue, (2) property will be destroyed or placed beyond the court’s reach without the order and (3) the need to maintain the property’s availability outweighs the hardship of a restraining order. Pre-indictment restraining orders are effective for 90 days, but can be extended for good cause or as a result of the filing of an information or indictment.⁹⁶

There are also civil remedies under RICO available to any person injured by a RICO defendant, which include treble damages sustained by the injured party and the cost of the lawsuit, including reasonable attorneys’ fees.⁹⁷

26.8 Conclusion

Corporates and individuals may face a variety of fines, penalties and other collateral consequences when defending against or settling an enforcement action with US authorities. As has been explained, these risks can be substantial. That said, these risks can be managed, mitigated or avoided by engaging knowledgeable external counsel, who can evaluate the situation, provide advice and thereby enable the corporate or individual to make an informed decision about how to proceed.

Footnotes

¹ Anthony S Barkow and Charles D Riely are partners, and Amanda L Azarian and Grace C Signorelli-Cassady are associates, at Jenner & Block LLP. The authors wish to acknowledge the contribution of Rita D Mitchell of Willkie Farr & Gallagher, the original author of the chapter in previous editions on which this chapter is partly based.

² See, e.g., Department of Justice (DOJ), Justice Manual (Justice Manual) § 9-27.110.

³ See, e.g., Justice Manual § 9-27.420.

⁴ See, e.g., DOJ press release, ‘Kansas Hospital Agrees to Pay $250,000 To Settle False Claims Act Allegations’ (31 May 2019), available at https://www.justice.gov/usao-ks/pr/kansas-hospital-agrees-pay-250000-settle-false-claims-act-allegations; Department of Justice press release, ‘Department Of Justice Reaches $5.5 Million Settlement With Van Andel Research Institute To Resolve Allegations Of Undisclosed Chinese Grants To Two Researchers’ (19 Dec. 2019), available at https://www.justice.gov/usao-wdmi/pr/.

⁵ For example, in October 2020, the DOJ and SEC entered into the largest FCPA settlement to date with Goldman Sachs Group and its Malaysian subsidiary. The agencies imposed financial penalties totalling approximately US$3.3 billion to resolve charges in connection with a large-scale bribery scheme. (DOJ press release, ‘Goldman Sachs Charged in Foreign Bribery Case and Agrees to Pay Over $2.9 Billion’ (22 Oct. 2020), available at https://www.justice.gov/opa/pr/goldman-sachs-charged-foreign-bribery-case-and-agrees-pay-over-29-billion). Also in 2020, the SEC obtained a US$500 million penalty against Wells Fargo for misleading investors by opening ‘authorized or fraudulent accounts for unknowing customers’ (Securities and Exchange Commission, Division of Enforcement 2020 Annual Report, available at https://www.sec.gov/files/enforcement-annual-report-2020.pdf.).

⁶ DOJ press release, ‘Justice Department Recovers Over $2.2 Billion from False Claims Act Cases in Fiscal Year 2020’ (14 Jan. 2021), available at https://www.justice.gov/opa/pr/justice-department-recovers-over-22-billion-false-claims-act-cases-fiscal-year-2020.

⁷ DOJ press release, ‘U.S. Attorney’s Office in EDVA Recovers $242 Million in 2020 for Victims and in Criminal and Civil Matters’ (8 Feb. 2021), available at https://www.justice.gov/usao-edva/pr/us-attorney-s-office-edva-recovers-242-million-2020-victims-and-criminal-and-civil.

⁸ DOJ press release, ‘Acting Manhattan U.S. Attorney Announces $49 Million Settlement With Biotech Testing Company For Fraudulent Billing And Kickack Practices’, (23 Jul. 2020), available at https://media.defense.gov/2020/Jul/28/2002465759/-1/-1/1/200723_ACTING%20MANHATTAN%20U.S.%20ATTORNEY%20ANNOUNCE._.PDF; DOJ press release, ‘Acting Manhattan U.S. Attorney Announces $40.5 Million Settlement With Durable Medical Equipment Provider Apria Healthcare For Fraudulent Billing Practices’, (21 Dec. 2020), available at https://www.justice.gov/usao-sdny/pr/acting-manhattan-us-attorney-announces-405-million-settlement-durable-medical-equipment.

⁹ Securities and Exchange Commission (SEC), Division of Enforcement 2020 Annual Report, available at https://www.sec.gov/files/enforcement-annual-report-2020.pdf.

¹⁰ Justice Manual § 1-12.100 – Coordination of Corporate Resolution Penalties in parallel and/or Joint Investigations and Proceedings Arising from the Same Misconduct (May 2018).

¹¹ The policy sets out various factors that should be considered when coordinating between multiple DOJ units or enforcement authorities, including ‘the egregiousness of a company’s misconduct; statutory mandates regarding penalties, fines, and/or forfeitures; the risk of unwarranted delay in achieving a final resolution; and the adequacy and timeliness of a company’s disclosures and its cooperation with the Department, separate from any such disclosures and cooperation with other relevant enforcement authorities’. (Justice Manual § 1-12.100 – Coordination of Corporate Resolution Penalties in parallel and/or Joint Investigations and Proceedings Arising from the Same Misconduct (May 2018).) An example of this policy in action can be found in the Department’s March 2019 US$850 million settlement with MTS and related SEC settlement carrying a civil penalty of US$100 million. According to a press release: ‘Consistent with Coordination of Corporate Resolution Penalties in Parallel and/or Joint Investigations and Proceedings Arising from the Same Misconduct (Justice Manual 1-12.100), the Department of Justice agreed to credit the civil penalty paid to the SEC as part of its agreement with MTS. Thus, the combined total amount of criminal and regulatory penalties paid by MTS and [its subsidiary] to U.S. authorities will be $850 million.’ (DOJ press release, ‘Mobile Telesystems Pjsc and Its Uzbek Subsidiary Enter Into Resolutions of $850 Million with the Department of Justice for Paying Bribes In Uzbekistan’ (7 Mar. 2019), available at https://www.justice.gov/opa/pr/mobile-telesystems-pjsc-and-its-uzbek-subsidiary-enter-resolutions-850-million-department.)

¹² See 18 U.S.C. § 3571; Southern Union Co. v. United States, 132 S.Ct. 2344, 2350-52 (2012).

¹³ 15 U.S.C. § 78ff(c)(3).

¹⁴ See, e.g., 18 U.S.C. § 982(a) (in connection with sentencing persons convicted of certain federal offences, including money laundering and other financial crimes, courts shall order criminal forfeiture of property ‘involved in such offense, or any property traceable to such property’); 18 U.S.C. § 981(a) (property involved in certain federal offences, including money laundering and other financial crimes, ‘or any property traceable to such property’, is subject to civil forfeiture). Under civil forfeiture statute 18 U.S.C. § 981(a)(1)(C), property relating to a ‘specified unlawful activity’ as defined in 18 U.S.C. § 1956(c)(7) is subject to civil forfeiture. Among the ‘specified unlawful activities’ listed in 18 U.S.C. § 1956(c)(7) are racketeering, bribery of a public official, fraud by or against a foreign bank, export control violations and violations of the FCPA. Further, 28 U.S.C. § 2461(c) ‘permits the government to seek criminal forfeiture whenever civil forfeiture is available and the defendant is found guilty of the offense’. United States v. Newman, 659 F.3d 1235, 1239 (9th Cir. 2011) (original emphasis).

¹⁵ DOJ press release, ‘United States Reaches Settlement to Recover More Than $49 Million Involving Malaysian Sovereign Wealth Fund’ (6 May 2020), available at https://www.justice.gov/opa/pr/united-states-reaches-settlement-recover-more-49-million-involving-malaysian-sovereign-wealth.

¹⁶ DOJ press release, ‘Court-Orders Final Forfeiture of Over $54 Million in Connection with Billion Dollar Ponzi Scheme’ (15 April 2020), available at https://www.justice.gov/usao-edca/pr/court-orders-final-forfeiture-over-54-million-connection-billion-dollar-ponzi-scheme.

¹⁷ 18 U.S.C. § 3663(a)(1)(B)(i).

¹⁸ DOJ, Criminal Division, Memorandum on Evaluating a Business Organization’s Inability to Pay a Criminal Fine or Criminal Monetary Penalty (8 October 2019), https://www.justice.gov/opa/speech/file/1207576/download.

¹⁹ The Sentencing Guidelines were mandatory until the Supreme Court’s decision in United States v. Booker, 543 U.S. 220 (2005).

²⁰ Mark Bennett, Justin Levinson and Koichi Hioki, ‘Judging Federal White-Collar Fraud Sentencing: An Empirical Study Revealing the Need for Further Reform’, Iowa Law Review, 989, Vol. 102:939 (2017); George Pierpoint, ‘Is white-collar crime treated more leniently In the US?’, BBC News (11 Mar. 2019), available at https://www.bbc.co.uk/news/world-us-canada-47477754.

²¹ United States Sentencing Commission, Guidelines Manual (Guidelines Manual), § 8C2.4.

²² Id., §§ 8C2.6, 8C2.7.

²³ Id., §§ 8C4.1-8C4.11.

²⁴ Base offence levels are set out in Chapter Two of the Guidelines Manual.

²⁵ Guidelines Manual, §§ 2C1.1(b)(1)-(3).

²⁶ Id., § 8C2.4.

²⁷ Id., § 8C2.5.

²⁸ Id., § 8C2.9.

²⁹ Id., § 8C4.1.

³⁰ Id., § 8C4.9.

³¹ 15 U.S.C. § 78u-2(b); 17 C.F.R. § 201.1001 and SEC, ‘Inflation Adjustments to the Civil Monetary Penalties Administered by the Securities and Exchange Commission (as of 15 January 2021)’, available at https://www.sec.gov/enforce/civil-penalties-inflation-adjustments.htm (effective 15 January 2021). The maximum civil penalty amounts noted above are for violations after 2 November 2015. Maximum civil penalty amounts will be adjusted annually for inflation, as described in 17 C.F.R. § 201.1001.

³² Id.

³³ 15 U.S.C. § 78u-1(a).

³⁴ SEC speech, Caroline Crenshaw, ‘Moving Forward Together – Enforcement for Everyone’ (9 Mar. 2021), available at https://www.sec.gov/news/speech/crenshaw-moving-forward-together.

³⁵ Id. (emphasis removed).

³⁶ Id.

³⁷ Soyoung Ho, ‘Swift Change in SEC Enforcement Under Biden Administration’, Thomson Reuters (11 Aug. 2021), available at https://tax.thomsonreuters.com/news/swift-change-in-sec-enforcement-under-biden-administration/.

³⁸ See, e.g., 12 U.S.C. § 1833a (providing a civil money penalty provision to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 which allows the DOJ to seek civil penalties against persons who violate one of 14 enumerated statutes); 42 U.S.C. § 3614(d)(1)(C) (allowing it to seek civil penalties for violations of the Fair Housing Act 1968).

³⁹ DOJ press release, ‘Insitu Inc. to Pay $25 Million to Settle False Claims Act Case Alleging Knowing Overcharges on Unmanned Aerial Vehicle Contracts’ (12 Jan. 2021), available at https://www.justice.gov/opa/pr/insitu-inc-pay-25-million-settle-false-claims-act-case-alleging-knowing-overcharges-unmanned.

⁴⁰ See SEC v. Huffman, 996 F.2d 800, 802 (5th Cir. 1993); SEC v. Cavanaugh, 445 F.3d 105, 117 (2d Cir. 2006) (noting that disgorgement ‘has the effect of deterring subsequent fraud’); DOJ press release, ‘Deutsche Bank Agrees to Pay over $130 Million to Resolve Foreign Corrupt Practices Act and Fraud Case’ (8 Jan. 2021), available at https://www.justice.gov/opa/pr/deutsche-bank-agrees-pay-over-130-million-resolve-foreign-corrupt-practices-act-and-fraud (including US$681,480 in criminal disgorgement).

⁴¹ DOJ press release, ‘Fresenius Medical Care Agrees to Pay $231 Million in Criminal Penalties and Disgorgement to Resolve Foreign Corrupt Practices Act Charges’ (29 Mar. 2019), available at https://www.justice.gov/opa/pr/fresenius-medical-care-agrees-pay-231-million-criminal-penalties-and-disgorgement-resolve; SEC press release, ‘SEC Charges Medical Device Company With FCPA Violations’ (29 Mar. 2019), available at https://www.sec.gov/news/press-release/2019-48.

⁴² DOJ Declination Letter, ‘Re: Cognizant Technology Solutions Corporation’ (13 Feb. 2019), available at https://www.justice.gov/criminal-fraud/file/1132666/download.

⁴³ William M (Mac) Thornberry, National Defense Authorization Act for Fiscal Year 2021, available at https://www.congress.gov/bill/116th-congress/house-bill/6395/text?r=8&s=1.

⁴⁴ Kokesh v. SEC, 137 S.Ct. 1635, 1639 (2017).

⁴⁵ SEC, Division of Enforcement Annual Report (2019), available at https://www.sec.gov/files/enforcement-annual-report-2019.pdf.

⁴⁶ 17 C.F.R. § 201.600(a).

⁴⁷ SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1476 (2d Cir. 1996).

⁴⁸ Id., 101 F.3d at 1476 (citing SEC Rules and Regulations, 60 Fed. Reg. 32738, 32788 (23 Jun. 1995)). See also 17 C.F.R. § 201.600(b). The underpayment rate charged by the IRS is three percentage points above the federal short-term rate and for purposes of calculating interest on sums disgorged is compounded quarterly. 26 U.S.C. § 6621(a)(2); 17 C.F.R. § 201.600(b).

⁴⁹ SEC v. DiBella, 2008 WL 6965807 at *3 (D. Conn. 18 July 2008); SEC v. GMC Holding Corp., 2009 WL 506872 at *6 (M.D. Fla. 27 Feb. 2009) (‘The time frame for the imposition of prejudgment interest usually begins with the date of the unlawful gain and ends at the entry of judgment.’) (quoting SEC v. Yun, 148 F. Supp. 2d 1287, 1293 (M.D. Fla. 2001).

⁵⁰ SEC v. Savino, 2006 WL 375074 at *18 & n.10 (S.D.N.Y. 16 Feb. 2006) (calculating interest from the first day of the month following each improper trade).

⁵¹ SEC v. United Energy Partners, Inc., 2003 WL 223392 at *2 n.12 (N.D. Tex. 28 Jan. 2003), aff’d, 88 F. App’x 744 (5th Cir. 2004) (using date of complaint for accrual of prejudgment interest award where dates on which defendant acquired disgorged funds were not clear); SEC v. GMC Holding Corp., 2009 WL 506872 at *6 (M.D. Fla. 27 Feb. 2009) (same).

⁵² 28 U.S.C. § 1651(a). See US Department of Justice Civil Resource Manual, ‘Injunctions’, available at https://www.justice.gov/jm/civil-resource-manual-214-injunctions.

⁵³ 15 U.S.C. § 77t(b); 15 U.S.C. § 78u(d).

⁵⁴ SEC press release, ‘Telegram to Return $1.2 Billion to Investors and Pay $18.5 Million Penalty to Settle SEC Charges’ (26 Jun. 2020), available at https://www.sec.gov/news/press-release/2020-146.

⁵⁵ See 18 U.S.C. §§ 981, 982; 28 U.S.C. § 2461.

⁵⁶ See 18 U.S.C. § 982. Examples of offences where forfeiture is required include, but are not limited to, laundering of monetary instruments under 18 U.S.C. § 1956, engaging in monetary transactions derived from specified unlawful activity under 18 U.S.C. § 1957, receipt of commissions or gifts for procuring loans under 18 U.S.C. § 215 and fraud by wire, radio, or television under 18 U.S.C. § 1343.

⁵⁷ See DOJ press release, ‘Airbus Agrees to Pay over $3.9 Billion in Global Penalties to Resolve Foreign Bribery and ITAR Case’ (31 Jan. 2020), available at https://www.justice.gov/opa/pr/airbus-agrees-pay-over-39-billion-global-penalties-resolve-foreign-bribery-and-itar-case.

⁵⁸ For example, in 2016, Odebrecht entered into a plea agreement with the DOJ for FCPA violations requiring it to co-operate fully with investigations conducted by multilateral development banks. On 29 January 2019, the World Bank debarred Odebrecht SA’s Brazilian construction and engineering subsidiary for three years, crediting ‘[d]isclosures from prior settlements’ as contributing to the World Bank’s investigation. Plea Agreement, United States District Court E. Dist. of NY against Odebrecht S.A., Cr. No. 16-643 (RJD) (21 Dec. 2016), at 11, available at https://www.justice.gov/opa/press-release/file/919916/download; World Bank Group Sanctions System Annual Report FY19, at 20, available at http://documents1.worldbank.org/curated/en/980641572096094561/pdf/World-Bank-Group-Sanctions-System-Annual-Report-FY19.pdf.

⁵⁹ See DOJ press release, ‘State Street Corporation to Pay $115 Million Criminal Penalty and Enter Into Deferred Prosecution Agreement in Connection With Scheme to Overcharge Custody Customers’ (13 May 2021), available at https://www.justice.gov/usao-ma/pr/state-street-corporation-pay-115-million-criminal-penalty-and-enter-deferred-prosecution.

⁶⁰ 48 C.F.R. §§ 9.406-1(c), 9.407-1(d).

⁶¹ 48 C.F.R. §§ 9.406-1(b), 9.406-2(a).

⁶² 48 C.F.R. §§ 9.407-1(a), 9.407-2(a).

⁶³ 48 C.F.R. § 9.407-1(c).

⁶⁴ 15 U.S.C. §§ 78dd-1(a), 78dd-2(a), 78dd-3(a), 78(m).

⁶⁵ 15 U.S.C. §§ 78dd-2(g)(1)(A), 78 dd-3(e)(1)(A), 78ff(c)(1)(A).

⁶⁶ 15 U.S.C. § 78ff(a).

⁶⁷ 18 U.S.C. § 3571 (c)(2), (d).

⁶⁸ 15 U.S.C. §§ 78ff(c)(1)(B), 78u(d)(3); 17 C.F.R. § 201.1001; SEC, ‘Inflation Adjustments to the Civil Monetary Penalties Administered by the Securities and Exchange Commission (as of January 15, 2019)’, available at https://www.sec.gov/enforce/civil-penalties-inflation-adjustments.htm.

⁶⁹ 15 U.S.C. §§ 78dd-2(g)(2), 78dd-3(e)(2); 18 U.S.C. § 3571 (b)(2), (b)(3), (d).

⁷⁰ 15 U.S.C. § 78ff(a).

⁷¹ 15 U.S.C. §§ 78ff(c)(2)(B), 78u(d)(3); 17 C.F.R. § 201.1001; SEC, ‘Inflation Adjustments to the Civil Monetary Penalties Administered by the Securities and Exchange Commission (as of January 15, 2019)’, available at https://www.sec.gov/enforce/civil-penalties-inflation-adjustments.htm.

⁷² 15 U.S.C. § 78ff(c)(3).

⁷³ 15 U.S.C. §§ 78dd-2(d), 78dd-3(d).

⁷⁴ 15 U.S.C. § 78u(d)(1).

⁷⁵ SEC press release, ‘SEC Charges Goldman Sachs With FCPA Violations’ (22 Oct. 2020), available at https://www.sec.gov/news/press-release/2020-265.

⁷⁶ Liu v. SEC, No. 18-1501, 2020 WL 3405845, (U.S. 22 Jun. 2020).

⁷⁷ DOJ, FCPA Corporate Enforcement Policy, available at https://www.justice.gov/jm/jm-9-47000-foreign-corrupt-practices-act-1977#9-47.120.

⁷⁸ Id. On 3 July 2020, the DOJ and the SEC issued the first comprehensive update to the FCPA Resource Guide since it was first published in 2012, which now includes a section on the FCPA Corporate Enforcement Policy. A Resource Guide to the U.S. Foreign Corrupt Practices Act, Second Edition, at 51 (Jul. 2020), available at https://www.justice.gov/criminal-fraud/file/1292051/download.

⁷⁹ DOJ, FCPA Corporate Enforcement Policy (updated March 2019), available at https://www.justice.gov/criminal-fraud/file/838416/download.

⁸⁰ 18 U.S.C. §§ 1956, 1957.

⁸¹ Id.

⁸² Continuation of the Exercise of Certain Authorities Under the Trading With the Enemy Act, 83 Fed. Reg. 46347 (10 Sep. 2018).

⁸³ Department of the Treasury, ‘Treasury Targets Iranian-Backed Hizballah Officials for Exploiting Lebanon’s Political and Financial System’ (9 Jul. 2019), available at https://home.treasury.gov/news/press-releases/sm724.

⁸⁴ See, e.g., 31 C.F.R. §§ 560.312, 560.314.

⁸⁵ See, e.g., 50 U.S.C. § 1705(a).

⁸⁶ Department of the Treasury, ‘Settlement Agreement’ (Jul. 2017), available at https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/transtel_settlement.pdf.

⁸⁷ Department of the Treasury, ‘2021 Enforcement Information’, available at https://home.treasury.gov/policy-issues/financial-sanctions/civil-penalties-and-enforcement-information.

⁸⁸ Department of the Treasury, ‘2020 Enforcement Information’, available at https://home.treasury.gov/policy-issues/financial-sanctions/civil-penalties-and-enforcement-information/2020-enforcement-information.

⁸⁹ See, e.g., 50 U.S.C. § 1705(c).

⁹⁰ 31 C.F.R. § 501.701; Continuation of the Exercise of Certain Authorities Under the Trading With the Enemy Act, 83 Fed. Reg. 46347 (10 Sep. 2018) (extending the expiration of Cuba sanctions pursuant to the Trading with the Enemy Act until September 2019).

⁹¹ 50 U.S.C. § 1705; 31 C.F.R. § 501; Congressional Research Service, ‘The International Emergency Economic Powers Act: Origins, Evolution, and Use’ (20 Mar. 2019), available at https://fas.org/sgp/crs/natsec/R45618.pdf.

⁹² 18 U.S.C. §§ 1961, et seq.

⁹³ 18 U.S.C. § 1962. The first variation makes it unlawful for any person who has received any income derived from a pattern of racketeering activity to use any part of such income or its proceeds to acquire, establish or operate any enterprise involved in interstate or foreign commerce. 18 U.S.C. § 1962(a). The second variation makes it unlawful for any person to engage in a pattern of racketeering activity to acquire or maintain any interest in any enterprise involved in interstate or foreign commerce. 18 U.S.C. § 1962(b). The third variation makes it unlawful for any person employed by or associated with any enterprise involved in interstate or foreign commerce to conduct the enterprise’s affairs through a pattern of racketeering activity. 18 U.S.C. § 1962(c). The statute also makes it unlawful for a person to conspire to participate in the conduct outlined in (a), (b) or (c). 18 U.S.C. § 1962(d).

⁹⁴ 18 U.S.C. § 1961(1).

⁹⁵ 18 U.S.C. § 1963(a).

⁹⁶ 18 U.S.C. § 1963(d).

⁹⁷ 18 U.S.C. § 1964(c).