Today's General Counsel, April 2022

APRIL 202 2 VOLUME 1 9 / NUMBER 2 TODAYSGENER ALCOUNSEL.COM

GLOBAL BRIBERY AND ANTI-CORRUPTION PUSH

• Proposed new insider trading rules • The China factor will complicate corporate compliance

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contents 4 EDITOR’S DESK COMPLIANCE

8 2022 ANTI-BRIBERY AND CORRUPTION ENFORCEMENT OUTLOOK Increased enforcement and prosecution worldwide.

By Stephanie Yonekura, and Rupinder Garcha

APRIL 2022 Volume 19 / Number 2

COLUMN/ANTITRUST LITIGATOR

12 ANTITRUST LESSONS FROM FOOTNOTES AND CITATIONS The hidden history of The Rule of Reason.

By Jeffery M. Cross

10 SEC'S PROPOSED AMENDMENTS TO INSIDER TRADING RULES Cooling off periods, certifications that material nonpublic information didn’t influence a trade.

By Vanessa Schoenthaler

FEATURE

14 “WHOLE-OF-GOVERNMENT” AND CORPORATE COMPLIANCE Coordinated federal approach to high priority problems.

By Kenji M. Price and Dean A. Pinkert

APRIL 202 2 TODAYSGENERALCOUNSEL.COM

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EDITOR’S DESK

T

here is a global movement afoot, on paper at least, to fight corruption. In this issue of Today’s General Counsel, Stephanie Yonekura and Rupinder Garcha outline corrup-

tion enforcement initiatives in the UK, the UN and China, and make some recommendations for compliance. Vanessa Schoenthaler discusses how the tougher insider trading rules that the SEC is proposing will affect compliance, and Kenji M. Price and Dean A. Pinkert write that normally quarrelsome federal departments and agencies have pledged to cooperate and collaborate with respect to certain high priority problems — climate change, economic espionage by China, and presumably corruption as well, because the Biden administration has announced ambitious goals in that area. They caution that this “whole of government” approach should be top of mind for corporate counsel. Additionally, in the world of antitrust, our senior columnist Jeffery Cross discusses the cites and footnotes that accompanied a key Supreme Court ruling.

Bob Nienhouse, Editor-In-Chief bnienhouse@TodaysGC.com

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COMPLIANCE

2022 Anti-Bribery and Corruption Enforcement Outlook

By STEPHANIE YONEKURA AND RUPINDER GARCHA

I

n 2021, the Biden administration laid the foundation for its anti-corruption strategy.

This coincided with similar initiatives announced by foreign governments and intergovernmental organizations. In 2022, we anticipate re-energized efforts to implement anti-corruption measures, and increased enforcement and prosecution activities around the world. This article discusses recent global enforcement developments and offers recommendations for mitigating risk.

In June 2021, the United Nations held a special session to reinvigorate political will to fight corruption. The G7 issued a statement of support, and identified concrete actions to detect and

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root out corruption. For example, the G7 highlighted their efforts to strengthen registries of company beneficial ownership information, and prevent real estate property transactions from being used to launder money or to finance criminal activity. Recently, in connection with the war in Ukraine, the G7 acted quickly to ban Russia from the SWIFT international banking system. Additionally, last June, President Biden established corruption as a threat to U.S. national security and called on an interagency body to review the government’s ability to combat corruption.

In the last quarter of 2021, the Biden administration released the U.S. Strategy on Countering

Corruption, and the Department of Justice issued the Monaco Memo, strengthening corporate criminal enforcement policies.

The memo conditioned the receipt of corporate cooperation credit on the disclosure of information about all potentially relevant individuals involved in wrongdoing; directed prosecutors to consider the complete criminal, civil and regulatory record of corporate defendants in resolving cases; and provided prosecutors with the freedom to impose independent monitors.

In December 2021, the United States, U.K. and E.U. launched the Inter-Parliamentary Alliance against Kleptocracy, which promotes enforcement of strong BACK TO CONTENTS

anti-corruption standards for public officials, and increased transparency and accountability in the global financial sector. E.U. efforts to implement the E.U. Whistleblower Directive, which established minimum standards to protect whistleblowers reporting breaches of E.U., came into force in 2019. It should also shape corporate policies this year.

Looking further, China amended its criminal laws and released new anti-bribery guidelines in 2021. In March 2021,

In the United States, the push for mandatory ESG disclosures has increased. The SEC is poised to propose new rules for disclosures over climate change, human capital management and board diversity.

Companies required to file disclosures with the SEC should consider their ESG-reporting strategy, and compliance teams should utilize existing procedures and frameworks to address ESG risks.

More broadly, companies should reassess their existing compliance framework and consider investing

Global shifts are likely to increase the compliance burden on corporations.

China amended its Criminal Law to increase penalties for private individuals convicted of corruption, including giving or taking bribes and stealing company funds or assets. This amendment addressed a gap in the existing sentencing framework, which provided harsher sentences for public corruption than private corruption. In September, Chinese authorities released anti-bribery guidelines, which, if adopted, could result in entities paying bribes in China being blacklisted and banned from conducting business. Furthermore, regulators and enforcement agencies across Southeast Asia have been recovering from pandemic setbacks.

We expect increased efforts to tackle bribery and corruption.

These global shifts are likely to increase the compliance burden on corporations, including heightened environmental, social and governance expectations. Corruption brings serious ethical and reputation concerns for companies, making effective corporate governance strategies as part of an anti-corruption program crucial.

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in compliance. Enforcement agencies — including the DOJ, the SEC and the U.K. Serious Fraud Office — consider the existence of a robust and effective compliance program as signs of how seriously a company takes its compliance obligations. Companies with ineffective compliance programs face the risk of severe and costly penalties. Specifically, companies can: • Review and update risk assessments. Risk assessments are an essential component of a robust compliance program. Most companies have experienced some form of COVID-19related changes to their business.

Changes in supply chains, operations, customers, distribution networks or other business prospects can alter risk profiles.

Companies should assess such changes to determine if updates to existing policies and procedures are required.

• Increase communications on corporate ethics. Regulators emphasize the importance of fostering a corporate culture founded in ethics and

integrity along with management commitment to that culture. Management should consider increasing communications to employees about the company’s legal and ethical obligation, and the consequences of departing from company policies.

• Tailor third-party due diligence processes. The current business environment has given rise to unique challenges.

Companies should keep track of third parties they engage, and tailor due diligence processes to identify red flags and prevent violations. Closely monitor third-party agents, particularly when they interact with government authorities on behalf of the company.

This includes renewing due diligence review, auditing third parties, requesting compliance certificates on an annual basis and offering anti-corruption training to third parties where appropriate.

Stephanie Yonekura is a partner at Hogan Lovells in the firm’s Los Angeles office.

She is the global head of the firm’s Investigations, White Collar and Fraud practice and a member of the Litigation, Arbitration and Employment group. stephanie.yonekura@hoganlovells.com Rupinder Garcha is an associate at Hogan Lovells in the firm’s Washington D.C. office. She is part of the firm’s Investigations, White Collar and Fraud practice advising clients facing complex litigation, enforcement actions and investigations involving the government. rupinder.garcha@hoganlovells.com

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COMPLIANCE

SEC’s Proposed Amendments to Insider Trading Rules

By VANESSA SCHOENTHALER

W

hether your company is public or private, if it issues securities, then Section 10(b) of the Securities Exchange Act applies to you.

Section 10(b) and the rules adopted thereunder are the primary antifraud provisions of the federal securities laws. Collectively, they prohibit fraud or manipulation in connection with purchases and sales of securities.

In December, following the recommendations of its Investor Advisory Committee, the SEC proposed a number of amendments to Rule 10b5-1, one of the

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most prominent rules adopted under Section 10(b). The amendments were published in the Federal Register on February 15, 2022, and the SEC is soliciting comments through April 1, 2022.

The insider trading rules, and the case law surrounding them, prohibit purchases or sales of securities on the basis of material nonpublic information about a company in breach of a duty owed directly, indirectly or derivatively to that company, its shareholders, or the person who is the source of the material nonpublic information. A purchase or sale is deemed

to be made on the basis of material nonpublic information if the trader is aware — that is, if they know, consciously avoid knowing or are reckless in not knowing — that the information is both material and nonpublic. Rule 10b5-1 establishes an affirmative defense to liability for insider trading when a trade is made pursuant to a binding contract or written plan, namely a 10b5-1 insider trading plan (a trading plan), that is put into place while the trader is unaware of material nonpublic information.

In recent years, there have been BACK TO CONTENTS

a number of concerns raised by courts, Congress, and commentators in the academic and private sectors regarding market practices that have developed around trading plans and the potential for their misuse, such as use of multiple overlapping plans to selectively cancel trades or plans that commence trading shortly after adoption or modification.

The SEC’s recent rule amendments are aimed at addressing these and other criticisms and were proposed in connection with a separate series of amendments to address similar concerns regarding misuse of material non-

they are not aware of material nonpublic information when adopting a trading plan.

• Require quarterly disclosure regarding the adoption and termination of trading plans.

Currently, there are no disclosure requirements with respect to the adoption, modification or termination of trading plans by directors, officers or even companies themselves.

• Exclude multiple overlapping trading plans for open market trades in the same class of securities from the affirmative defense available under Rule 10b5-1.

There have been a number of concerns raised regarding market practices that have developed around trading plans and the potential for their misuse. public information in connection with stock buy-backs.

Before reading on, you may want to pull out your current insider trading policies and procedures, so you can compare notes.

The proposed rule amendments are numerous and would, among other things: • Require a mandatory 120day cooling off period before trading can commence under trading plans adopted (or modified) by officers or directors.

Based on informal market survey data, current cooling off periods range from as little as 14 days to as many as 90 days.

• Require a mandatory 30-day cooling off period before trading can commence under trading plans adopted (or modified) by companies.

• Require officers and directors to personally certify that BACK TO CONTENTS

• Limit the availability of the affirmative defense under Rule 10b5-1 to one single-trade trading plan in any 12-month period.

• Require disclosure in a company’s annual report regarding whether it has adopted insider trading policies and procedures (and if not, why), and disclosure of the policies and procedures. The proposed disclosures would also be subject to the officer certifications with respect to disclosure controls and procedures required by Section 302 of the SarbanesOxley Act. • Require disclosure regarding equity compensation awards granted in close proximity to a company’s filing of periodic reports, or disclosure of certain material nonpublic information.

• Require disclosure of gifts by

insiders on Form 4 within two business days of the gift being made. Currently, such disclosures are required on Form 5 within 45 days after a company’s fiscal year end.

If the amendments are adopted as proposed and your company is publicly traded, at the very least your reporting obligations will increase, making now a good time to review your policies and practices with a view toward any adjustments that the amendments may require and readying them for public disclosure. Most companies already prohibit overlapping plans and require a cooling off period, but revisions may be necessary with respect to the timing of compensation awards and gifting policies.

You may also want to spend some time considering whether you have the necessary controls and processes in place to meet the revised deadlines and enhanced disclosure requirements. If your company is not publicly traded, or not yet publicly traded, but you issue securities to your officers and directors, I still encourage you to review your insider trading policies and practices in light of current best practices and the proposed changes to the affirmative defense available under Rule 10b5-1.

Vanessa Schoenthaler is a partner in the Corporate practice at Saul Ewing Arnstein & Lehr. She advises mid-market public companies, start-ups, venture capital and private equity firms, and other institutional investors on corporate, securities and regulatory matters. vanessa.schoenthaler@saul.com

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COLUMN / THE ANTITRUST LITIGATOR

Antitrust Lessons From Footnotes and Citations

By JEFFERY M. CROSS

I

n the summer of 2016, the Federal Judicial Center (FJC), which is the educational arm of the federal courts, approached me to write a monograph on Section 1 of the Sherman Act for new judges and judges who did not have much antitrust experience. In December 2021, the FJC published an online version of the book, which is entitled Antitrust Law: Section 1 of the Sherman

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Act. It can be found at: fjc.gov/ content/364998/antitrust-lawsection-1-sherman-act.

Although I have been litigating Section 1 cases for over 45 years, and have taught antitrust as an Adjunct Professor for 15 years, I found the preparation of a basic primer for federal judges to be both challenging and rewarding.

When I taught antitrust law, I always admonished my students

that it was important to read the footnotes and textual citations in Supreme Court decisions. They often turn out to be very important in understanding the case. I not only read these to prepare my monograph, but also the cases and treatises cited by the Court.

Taking this approach revealed key insights.

One of the areas that benefitted from this approach was the initial BACK TO CONTENTS

creation and ultimate adoption by the Court of the step-wise, burden-shifting approach to the Rule of Reason.

Beginning with the landmark Standard Oil v. United States case in 1911, the Court has held that the Rule of Reason is the presumptive standard to be used in analyzing a restraint of trade under Section 1.

However, a 1918 decision involving the Chicago Board of Trade v. United States articulated an extremely broad test for applying the Rule of

Many courts felt that a formulaic approach to applying the per se rule posed problems.

Reason. The test made many facts relevant, but none dispositive.

The Board of Trade case was criticized over the years as opening the floodgates to many facts that may be only tangentially related to the ultimate question in Section 1 cases — whether the anti-competitive effects of a restraint outweigh the pro-competitive benefits. The decision also was seen as making antitrust cases long and expensive.

Some courts began to consider the per se rule as a solution to these problems. For restraints that have historically been determined to have an anti-competitive effect, such as price fixing, the per se rule was considered the more efficient alternative. The per se rule presumes that an anti-competitive effect and pro-competitive justifications are not permitted.

However, many courts and commentators felt that a formulaic approach to applying the per se rule also posed problems. It erred in condemning restraints that actually may have increased BACK TO CONTENTS

competition. The Supreme Court began to consider a truncated Rule of Reason. One of the first cases in which it did so was NCAA v. Board of Regents of University of Oklahoma. It applied the Rule of Reason because it concluded that some restraints were necessary for the NCAA to offer the product of collegiate football, but concluded that even under the Rule of Reason, some plausible pro-competitive justifications were necessary. Finding none, the NCAA’s restrictions on member colleges televising games was deemed unlawful without any analysis of the relevant market and market power.

The key to understanding the NCAA decision was a footnote that cited the 1981 FJC monograph by the renowned antitrust professor Phillip Areeda, who raised the idea that even under the Rule of Reason, it was possible to find the restraint unlawful without a full Rule of Reason analysis.

Following the NCAA decision and others like it, appellate courts began to articulate a step-wise, burden-shifting approach to the Rule of Reason, even without an explicit endorsement of this approach by the Supreme Court. Under this approach, the plaintiff had the burden of establishing a prima facie case of anti-competitive effect. If the plaintiff succeeded, the burden shifted to the defendant to proffer a plausible procompetitive justification. If it did, the burden shifted back to the plaintiff to establish that the justification was not cognizable under the antitrust laws or that the justification did not fit the facts of the case. If the defendant did not offer a plausible pro-competitive justification, or it was not cognizable, the case was over. However, if the defendant’s justification survived,

the plaintiff had the ultimate burden of persuading the jury that the anti-competitive effects outweighed the pro-competitive benefits.

The first indication that the Supreme Court might approve of such a step-wise, burden-shifting approach came in the FTC v. Activis decision in 2013. The Court stated that the trial court has some flexibility between applying the per se rule or the full Rule of Reason. The idea that a court could use a stepwise burden-shifting approach was reflected in key textual citations and footnotes. These citations included a passage from the Areeda and Hovenkamp treatise noting that application of the Rule of Reason or the per se rule was a question of law for the trial court, but so were the presumptions and burden shifts that can be used in a modern application of the Rule of Reason.

Ultimately, the Supreme Court directly endorsed the step-wise, burden-shifting approach in its 2021 NCAA v. Alston decision.

But fully understanding how the Court reached this result is dependent on a careful reading of the textual citations and footnotes found in the Court’s decisions.

Reading them is time consuming, but doing so paid off in making the monograph more robust and meaningful.

Jeffery Cross is a columnist for Today’s General Counsel and a member of the Editorial Advisory Board. He is a partner in the Litigation Practice Group of Freeborn and Peters LLP and a member of the firm’s Antitrust and Trade Regulation Group. jcross@freeborn.com

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FEATURE

Whole-of-Government and Corporate Compliance

By KENJI M. PRICE AND DEAN A. PINKERT strategic competition with China and climate change, and offer compliance and corporate governance recommendations.

CHINA

T

ackling the nation’s problems with a wholeof-government (WoG) approach is a common refrain lately in statements by U.S. executive branch officials. Invoked in presidential memoranda, executive orders and regulatory actions, it certainly appears to be the public policy approach du jour.

The concept itself is simple: It involves federal departments and agencies addressing high priority problems through enhanced collaboration, information-sharing and coordinated effort that, where

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necessary and appropriate, crosses jurisdictional and operational boundaries.

When the U.S. government employs the WoG approach to address a problem, corporate counsel should pay very close attention, taking heed of both the concerns that gave rise to the WoG initiative and the means chosen to address those concerns.

In this article, we discuss why WoG initiatives should be top of mind for corporate counsel, using as examples the Biden administration’s approach to addressing

The dynamic and systemic concerns raised by U.S. authorities — including allegations that China is attempting to become the world’s only superpower by any means necessary and that it engages in state-sponsored trade secret theft, economic espionage, and “forced” technology transfer with respect to inbound foreign investments — are serious and call for a careful risk-mitigation strategy that balances security threats known to industry against broader concerns expressed by U.S. authorities.

Regarding those broader concerns, the imperatives of national security are likely to loom large in U.S. countermeasures, making decisions that affect a growing range of commercial activities more opaque and less predictable.

A recent example is enactment of the Foreign Investment Risk Review Modernization Act of 2018, which expands the scope of the Committee on Foreign Investment in the United States’ review of certain foreign investments in U.S. companies — a process that involves review of non-public information submitted to an inter-agency committee — and BACK TO CONTENTS

notably requires a biennial report on foreign direct investment transactions from China in U.S. companies. Non-public, multiagency review is also a key element of pending legislation motivated by the China challenge, as well as new Commerce Department regulations on information and communication technology transactions involving “foreign adversaries” such as China.

What is more, the sheer number of federal agencies involved in the U.S. government’s efforts to address challenges posed by China will likely complicate corporate

environment, because climate change is now deemed to be a national security issue, commercial activities that may be behind it are likely to draw more scrutiny from federal authorities — particularly those authorities, including the President, who are not always required to make the basis of their decisions publicly accessible. Such “known-unknowns” can only increase the complexity of the corporate decision-making calculus.

Also complicating corporate strategy is the staggering number of federal agencies taking action to address climate change. They

that is relevant to a company’s operations, corporate counsel should facilitate board-level oversight over the company’s operational risk assessment and plan of action.

• Corporate counsel should treat compliance with regulatory obligations as a “floor” in companies’ broader risk-mitigation efforts.

• Corporate counsel should employ an increasingly multidisciplinary approach to risk assessment that includes, among other things, consideration of the government’s

The Biden administration’s WoG approach to tackling climate change should be top of mind for corporate counsel. compliance efforts. The ability of these agencies, both individually and collectively, to promulgate rules, bring enforcement actions, and collect and disseminate information is substantial and likely to create uncertainty in the regulatory and enforcement environments going forward.

CLIMATE CHANGE The Biden administration’s WoG approach to tackling climate change should also be top of mind for corporate counsel, insofar as the challenges it presents largely mirror those confronting corporate counsel in connection with the U.S. government’s approach to China. The problem giving rise to the Biden administration’s WoG approach to climate change (the alarming rate of global warming) is dynamic and systemic, requiring companies to carefully craft risk-assessment programs informed both by vulnerabilities known to industry and broader public policy considerations.

Regarding the policy/regulatory BACK TO CONTENTS

will undoubtedly seek to utilize the full scope of their legal authorities to advance the administration’s objectives, which means that companies are likely to face enforcement action on multiple fronts as well as a rapidly evolving regulatory environment.

For the kinds of issues addressed by WoG initiatives, national security, foreign policy, economic objectives and other considerations will often run together seamlessly, and the ultimate principle that will guide federal agency activity will be the advancement of the public interest. As a result, corporate counsel will need to think several moves in advance and embrace a more complex decisional calculus in addressing corporate compliance and risk mitigation. In this spirit, we provide the following recommendations: • Given the stakes, when the executive branch of the federal government employs a WoG approach to tackle an issue

national security, foreign policy and economic objectives.

• Corporate counsel should carefully identify areas where increased communication and collaboration with the federal government may be a strategic necessity.

Kenji M. Price, a partner at McDermott Will & Emery and former U.S. Attorney of the District of Hawaii and Assistant U.S. Attorney in the U.S. Attorney’s Office for the Eastern District of New York, focuses his practice on white-collar government investigations, internal investigations, compliance counseling and complex civil litigation. kprice@mwe.com Dean A. Pinkert, Special Advisor to Corporate Accountability Lab, is a former Commissioner (and Vice Chairman) of the U.S. International Trade Commission.

He was Senior Counsel at McDermott Will & Emery at the time this article was written. dean@corpaccountabilitylab.org APRIL 202 2 TODAYSGENERALCOUNSEL.COM

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