Freshfields Bruckhaus Deringer LLP

Resolution of external investigations: strategies and limitations

Paul LomasHelen BuchananTim ColemanLaurent Garzaniti

10 July 2012

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Today’s agenda and speakers

IntroductionDo you have to make admissions?What about publicity?

Paul LomasPartner, LondonT +44 20 7832 7059M +44 7802 972 376E paul.lomas@

freshfields.com

Process for reaching a settlement Helen BuchananPartner, LondonT +44 20 7716 4884M +44 7834 889 875 E helen.buchanan@

freshfields.com

Reasons for settlement– pros and cons

Tim ColemanPartner, WashingtonT +1 202 777 4560M +1 347 446 3854E tim.coleman@

freshfields.com

Multi-jurisdictional settlementsFollow on litigation risks

Laurent GarzanitiPartner, BrusselsT +32 2 504 7115M +32 478 42 11 15 E laurent.garzaniti@ freshfields.com

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Introduction

Companies should aim to coordinate a global resolution with all regulators that have an interest in the investigation

Issues to consider include:

• What form of resolution is available in each jurisdiction

• How to coordinate resolutions with multiple jurisdictions

• What disclosures and admissions are required to reach resolution in each jurisdiction

• The impact of settlements on related investigations and related civil litigation

• How to minimise the PR and capital market impact of any resolution

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Process for reaching a settlement

Process for reaching a settlement will vary across jurisdictions

Also depends on the regulator that you are dealing with

Examples:

• US – can reach deferred prosecution agreements/non-prosecution agreements with DoJ/SEC/settlements with other regulators

• Brazil – settlements possible with federal and state prosecutors; leniency programme offered by Brazilian anti-trust authorities

• UK – negotiated settlements possible with the FSA and HMRC; leniency programme/early resolution offered by OFT, proposals for deferred prosecution agreements with the SFO

• Hong Kong – settlements available with SFC, HKMA and stock exchange

• France – AMF can settle cases involving administrative breaches using composition administrative; settlement also available with Autorité de la Concurrence; Law of 13 December 2011 now enables public prosecutor to accept guilty pleas for all offences

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Process for reaching a settlement

NB Not all regulators are able to enter into settlements

• Japan – unable to agree formal settlements

• Italy – regulators unable to enter into formal settlements but possible to reach an understanding with the regulator(s) that no further action will be taken. Plea bargaining is available for criminal actions

• Germany – no official settlement mechanism but regulators will often enter into discussions and reach informal agreements

• China – no official settlement procedures to resolve enforcement action by CSRC, SAIC, NDRC for market manipulation, bribery and securities law related offences; no plea bargaining or amnesty arrangements under criminal-procedural law BUT settlement mechanism is available with SAIC and NDRC for anti-monopoly law offences. Leniency programme has been introduced in anti-trust context

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Do you have to make admissions?

Again practices vary between jurisdictions and between regulators

• UK – anti-trust regime requires admission to infringement to benefit from leniency regime; but FSA/UKLA only requires that facts and matters in enforcement notice won’t be disputed; certain admissions likely under proposals for DPA

• US – SEC, DOJ and other civil settlement agreements can include no admissions or even denials; criminal plea agreements and DPAs require binding admissions

• Spain – admissions are not necessary in proceedings with CNMV or competition authorities; enables a corporate to undertake to change conduct without admitting a prior infringement

• Italy – making an admission likely to be viewed as cooperative behaviour by the regulator and could lead to a reduction in sanction

• Hong Kong – admission not required for settlements with SFC or stock exchange but SFC will only do so in appropriate cases, eg Lehman ‘minibonds’ settlement

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What about publicity?

Can you negotiate terms of the settlement announcement with the regulator?

Settlement will usually trigger disclosure obligations to the capital markets

• Timing of disclosure?

• What information should the announcement contain?

Information about the termination of the investigation

Report on the findings/conclusions

Any remediation steps that are being taken

Details of any redress

• Include details in normal reporting requirements eg auditing reports/periodic returns (eg US SEC 10K filings)

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What about publicity?

Dealing with other interested parties:

• other regulators (potentially in other jurisdictions)

• briefings to analysts

• inquiries from shareholders to the investor relations department

• employees

• customers

• the press

• trade bodies – when industry-wide issues are involved

• consumer bodies

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Reasons for settlement – pros and cons

Pros

• Enables the company to demonstrate good corporate governance – being ‘a responsible corporate citizen’

• Implementation of remediation and redress plans

• Reduced penalty may be possible eg DPA/NPA/leniency programmes

• Avoids further civil or criminal litigation by regulator

• Generally minimises damage to the company’s reputation

one PR hit vs continued PR coverage

• Can minimise impact on shareholder value

• Brings finality to the investigation

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Reasons for settlement – pros and cons

Cons

• Impact of disclosures/admissions made during the settlement process

• Can lose control over the outcome

• The penalty (can be significant in some jurisdictions)

• Other consequences – eg debarment risk

• Impact on the business model – significant changes may be required as part of the settlement deal (eg exiting certain lines on business)

• Ongoing conditions of settlement – eg use of monitors

• Risk of follow-on civil litigation from other interested third parties

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Follow-on litigation risks

Risk of follow-on litigation from a number of parties

• Other regulators in same jurisdiction

• Regulators in other jurisdictions

• Civil litigation by third parties

• Examples:

cartel damages claims

securities litigation

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Can you do multi-jurisdictional settlements?

Trend towards coordinated multi-jurisdictional settlements

• Recent examples:

European Commission settlement with DRAM producers

DOJ/SEC/Munich prosecutors with Siemens

DOJ/SEC/OFAC/SFO with Innospec

DOJ/SFO with BAE

World Bank/SFO with Macmillan

CFTC/DOJ/FSA settlement with Barclays

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Can you do multi-jurisdictional settlements?

Need a coherent strategy that considers actual/potential interests of all relevant regulators and prosecutors

Issues to consider:

• Different objectives in different jurisdictions

• Substance of resolution in each jurisdiction

• Disclosures and admissions in each jurisdiction

• Cross-impact of resolutions

• Impact on related investigations/civil litigation

• PR and capital markets impacts

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Conclusion

A coordinated approach to resolution across jurisdictions is vital to the success of any cross-border investigation.

Regulators are increasingly cooperating with each other’s efforts and sharing information, so consistency of approach between jurisdictions is essential.

Questions?

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