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IN THIS ISSUE:

Letter from the Editor 1

Cross-Border M&A—A Checklist

of Key U.S. Issues 1

Foreign Investment 1

Merger Control 2

Tax 3

Politics 3

Securities Laws and DealStructures 3

Regulated Industries 4

Corrupt Practices 4

Litigation 5

HR Considerations 5

Intellectual Property 5

Local Market Practice 5

Updates 6

LETTER FROM THE EDITOR

Dear Subscribers,In this issue we are pleased to present CROSS-BORDER

M&A—A CHECKLIST OF KEY U.S. ISSUES by Benjamin K.Sibbett and G. David Brinton of Clifford Chance US LLP. Besure to also review this month's Updates section for news andupdates on international antitrust, intellectual property, civiland criminal enforcement, and finance.

Very truly yours,John Damico

Senior Attorney Editor

CROSS-BORDER M&A—A CHECKLIST OF

KEY U.S. ISSUES

By Benjamin K. Sibbett and G. David Brinton

The execution of cross-border M&A transactions can be farmore complex than purely domestic transactions. With suf-ficient advanced planning and careful consideration of rele-vant issues, however, it is almost always possible to navigatethis complexity successfully and achieve the parties' com-mercial objectives. Recognizing that cross-border M&A is acontinuing trend (representing approximately 41.5% of globalM&A activity in 2011 and approximately 44.3% of global M&Aactivity in the third quarter of 2012), we have set out below ahigh-level overview of some of the key issues that should beconsidered by non-U.S. acquirers that are contemplatingacquisitions or other strategic investments in the UnitedStates.

FOREIGN INVESTMENT

The Committee on Foreign Investment in the United States

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CORPORATE COUNSEL’SINTERNATIONALADVISER

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(CFIUS) is an inter-agency committee autho-rized to review transactions involving the ac-quisition of control of a U.S. business by a non-U.S. person to determine the effect of atransaction on the national security of theUnited States. Industries that have historicallydrawn the greatest scrutiny from CFIUS in-clude defense, aerospace, computers and elec-tronics, heavy machinery, software publishing,utilities and mining.

In contrast to the mandatory filing require-ment imposed by U.S. antitrust regulations,CFIUS filings are voluntary. The incentive toseek a clearance is to preclude CFIUS fromseeking to require the non-U.S. person to divestthe U.S. business after the acquisition hasclosed (as it did in response to an acquisition byHuawei of operating assets from 3Leaf comput-ing in 2011 and an acquisition by Ralls Corpora-tion of four wind-farm projects in Oregon in2012).

If the parties elect to make a filing andCFIUS concludes that the transaction does notpresent any national security risks, then it willissue a clearance on that basis. If CFIUS con-cludes that the transaction does present na-tional security risks, however, then CFIUS mayimpose conditions on the buyer's post-closing

operation of the acquired business or, in theworst case, refuse to clear the transaction.

In the course of its review, CFIUS may seekinformation from potential acquirers that is notdirectly related to the transaction, but thatCFIUS views as nonetheless related to nationalsecurity concerns, such as, for example, theextent of the non-U.S. person's business involv-ing Iran and Syria.

Careful advanced planning, which often in-cludes designing both a legal and a politicalstrategy (including by ‘‘pre-conditioning’’CFIUS) greatly enhances the likelihood of asuccessful outcome.

MERGER CONTROL

The Antitrust Division of the Department ofJustice (DOJ) and the Federal Trade Commis-sion (FTC) have the power to review the com-petitive aspects of proposed transactions—eventransactions that do not result in changes ofcontrol or involve U.S. companies.

In contrast to the voluntary nature of theCFIUS regime described above, transactionsthat exceed certain reporting thresholds aresubject to mandatory premerger notificationrequirements under the Hart-Scott-RodinoAntitrust Improvements Act of 1976 (the HSRAct). A notification filing must be submitted toregulators, and the transaction cannot be com-pleted until the applicable waiting period hasexpired.

If a notification filing is required, the partiesmust wait 30 days (15 days in the case of cashtender offers and certain bankruptcy situa-tions) after the filing to complete the transac-tion, unless early termination of the waitingperiod is requested and granted. Either theFTC or the DOJ may request additional infor-mation (a so-called ‘‘second request’’) from theparties and extend the waiting period an ad-ditional 30 days (10 days in the case of cash ten-der offers and certain bankruptcy situations).

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Requests for early termination of the waitingperiod are granted in a substantial majority oftransactions—typically two or three weeks af-ter the initial waiting period begins. Earlyterminations are publicly available.

Coordinating antitrust filings and substan-tive strategies across multiple jurisdictions canbe a substantial undertaking and the com-mercial and timing implications for the dealcan be significant.

TAX

Tax considerations often drive transactionstructure, and completing your tax planningprior to announcement will help to ensure anefficient tax operating model after the dealcloses. Accordingly, tax planning should takeinto account not only the tax consequences ofthe transaction itself, but also the implicationsof operating the newly-acquired business afterclosing (i.e., cross-border flow of goods, services,cash and other distributions, etc.).

Depending on structure, transactions can betaxable, tax-free or partially tax free to sellersfor U.S. federal and state income tax purposes.Transactions that involve the sale of assets andstock in exchange for cash and/or debt are clas-sic examples of taxable transactions. By com-parison, if shares of the acquirer represent asubstantial part of the total consideration be-ing offered to the sellers, then it often will bepossible to structure the transaction so that thesellers' receipt of the shares will be tax free.

A non-U.S. acquirer may be able to use sev-eral techniques to reduce the effective rate oftax imposed on the future profits of an acquiredU.S. business. In particular, in certain casesthe parties will be able to make an election to‘‘step up’’ the tax basis of an acquired U.S.company's assets, including goodwill. The taxbasis of goodwill can be written off over 15years.

In addition, provided certain conditions are

satisfied a non-U.S. acquirer may be able to‘‘push down’’ debt that is used to finance anacquisition of a U.S. business, so that interestexpense on the debt can be used to shelter thecompany's profits from U.S. income tax.

Finally, non-U.S. acquirers often benefit fromdevising a strategy to repatriate the profits ofan acquired U.S. business without significanttax leakage. For example, some U.S. treatieseliminate U.S. withholding tax on dividendspaid by an 80% U.S. subsidiary.

POLITICS

The role of politics in cross-border M&A var-ies greatly. In most cases, politics will havelittle, if any, effect on a deal. In some cases,however—particularly in the case of a high-profile transaction in a sensitive sector, or in asituation involving a state-owned enterprise(SOE)—politics (separate and apart fromCIFIUS) need to be carefully and thoroughlyconsidered before any public announcementsconcerning the deal. It is also critical to remem-ber that ‘‘politics’’ extends beyond federal andstate regulators and includes other constituen-cies like key customers, suppliers andemployees. The importance of identifying inadvance the key constituencies that could influ-ence the success of the transaction and figuringout how best to address their potential concernsshould not be underestimated.

SECURITIES LAWS AND DEALSTRUCTURES

Acquisitions of public companies are almostinvariably structured as either a merger or atender offer (which is followed by a second-stepmerger to squeeze out any remaining stockhold-ers of the target company who do not partici-pate in the tender offer).

E Mergers must be approved by the target'sstockholders, a process in an all-cashmerger that can take at least 75 days after

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announcement to complete (assuming theSEC reviews the proxy materials).

E Tender offers are taken directly to thetarget's stockholders (i.e., no formal stock-holder vote is required) and therefore typi-cally can be completed much faster—sometimes in as little as 35 days afterannouncement.

E If securities are issued as part of the con-sideration being offered to the target'sstockholders, then the process will takemuch longer because of the need to complywith the SEC's registration requirements.

Non-U.S. acquirers who intend to issue secu-rities into the United States as part of the dealconsideration may become subject to the SEC'sregistration requirements, an expensive andtime consuming process, and consequentlysome or all of the SEC's ongoing reportingrequirements, Sarbanes-Oxley and stock ex-change listing/governance rules.

Acquisitions of private companies generallyprovide far greater structuring flexibility be-cause they are not subject to federal securitieslaws that regulate takeovers of publiccompanies. In addition, acquirers seeking touse their stock as consideration in an acquisi-tion of a private company may be able to qualifyfor a ‘‘private placement’’ exemption from theSEC's registration requirements, which elimi-nates the time and expense associated with aregistered transaction.

Acquirers seeking to acquire stakes in publiccompanies must take into account the restric-tions on insider trading imposed pursuant toRule 10b-5 under the U.S. Securities ExchangeAct of 1934, the potential requirement to pub-licly report beneficial ownership of shares (andother information about the acquirer and itsintentions with respect to the target) in excessof 5% and the ‘‘short-swing profits’’ rules im-posed under Section 16(b) of the Exchange Act(which potentially can require disgorgement of

profits from trading after the acquirer's posi-tion in the target's shares exceeds 10%).There are no mandatory offer requirements inthe United States.

REGULATED INDUSTRIES

Various federal and state regulatory require-ments (including regulatory consent require-ments) may apply to acquisitions of companiesoperating in particular sectors, including, forexample, registered investment funds/advisers,banking/financial institutions, energy, powerand natural resources, maritime, utilities, com-munications, aviation and other forms of trans-portation, gaming, defense and insurance.

CORRUPT PRACTICES

Regulators around the world continue tofocus on corrupt business practices. First-timeinvestors in the United States should appreci-ate that their exposure to risk under the For-eign Corrupt Practices Act (the FCPA) couldincrease significantly if they acquire a U.S.business.

Among other things, the FCPA makes it un-lawful for a U.S. person (and certain non-U.S.issuers of securities) to make a payment orprovide anything else of value to a non-U.S.government official for the purpose of obtainingor retaining business for or with, or directingbusiness to, any other person. These provisionsalso apply to non-U.S. firms and persons whotake any action in furtherance of a corrupt pay-ment while in the United States or while en-gaged in interstate commerce in the UnitedStates. Importantly, government officials caninclude officials of state-owned enterprises(SOEs).

U.S. businesses also must comply with U.S.economic sanctions, another area of regulationwith which non-U.S. businesses may not havesubstantial experience.



LITIGATION

The United States is known to be one of themost litigious countries in the world. As aresult, companies that are investing or other-wise conducting business in the United Statesmust be familiar with the U.S. legal system andprepared to defend themselves within thatsystem against a wide range of potential com-plaints relating to their business operations.

In addition, shareholder litigation related totakeovers of public companies is to be expected.In fact, shareholder litigation has increasedsubstantially in recent years with the percent-age of deals over $500 million subject to law-suits coming in at or above 95% in 2010 and2011 according to a recent study. Fortunately,this type of litigation is seldom a cause foralarm.

HR CONSIDERATIONS

In contrast to most other countries in whichemployers may only terminate employees forcause, employment in the United States ispredominantly ‘‘at-will.’’ This means, as a gen-eral matter, that an employer can change theterms of the employment relationship at itsdiscretion. Although both common law andstatutory exceptions to the at-will rule exist,at-will employment is a bedrock principle in theUnited States.

Transactions often fail to succeed for people-related reasons—the failure to retain key em-ployees and blended management teams thatdisagree on strategy and cultural differences,among other things. Developing solid people-management plans that are put into effect atthe outset of the transaction and carriedthrough closing and into the post-closing inte-gration phase can be critically important. More-over, it is not uncommon for U.S. sellers toinsist that acquirers maintain some level of em-ployee compensation and other benefits (oftenincluding severance) for a transitional periodafter the closing (typically 12-24 months).

Trade unions, works councils and other em-ployee representative bodies are far more com-mon outside the United States than in theUnited States. Where trade unions are in-volved, however, there can be significant ad-ditional obligations and requirements underthe law and any collective agreements betweenthe employer and the unions.

INTELLECTUAL PROPERTY

Intellectual property is protected in theUnited States by a well-developed body ofstatutory and common law that is designed toprotect the owner's right to use intellectualproperty as well as to prevent the unauthorizedexploitation of intellectual property by others.The scope and strength of the protection, how-ever, cannot be assumed simply because prod-ucts and technology supported by the intel-lectual property are functioning in a particularsetting or appear to be possessed by the seller.Because the laws designed to protect intel-lectual property rights are not harmonizedacross jurisdictions, valid ownership of intel-lectual property in the United States does notnecessarily mean that the ownership will berespected outside of the United States. Simi-larly, valid ownership of intellectual propertyoutside of the United States does not necessar-ily mean that the ownership will be respectedin the United States. Consequently, if an ac-quirer's business plan depends on a particulartechnology, the acquirer should carefully con-sider whether that technology is, or can be,protected both in and outside of the UnitedStates.

LOCAL MARKET PRACTICE

Understanding and accepting local marketM&A practice can help to ensure a smooth pro-cess and, particularly in a competitive auctionsetting, help to put a non-U.S. acquirer onequal footing with its U.S. competition. Whilethere may be situations in which it is appropri-ate to depart from market custom and practice,



non-U.S. acquirers who blindly insist on doingit ‘‘the way we do it at home’’ often find it dif-ficult to succeed.

Patient and experienced advisors can be use-ful in this regard, and conforming to local mar-ket custom and practice rarely results in unac-ceptable levels of risk and may even result inbetter outcomes than can be expected in thehome market.

*Copyright 2012-2013 Clifford Chance USLLP. All rights reserved. Reprinted withpermission. The material in this article isprovided for general information purposes onlyand does not constitute legal or other profes-sional advice. Neither Clifford Chance US LLPnor any other Clifford Chance entity acceptsany responsibility for any loss which may arisefrom reliance on information published in thisarticle.

**Benjamin K. Sibbett and G. David Brintonare M&Apartners in the NewYork office of Clif-ford Chance. Mr. Sibbett can be reached at +1(212) 878-8491 or at [email protected]. Mr. Brinton can be reached at +1(212) 878-8276 or at [email protected].

UPDATES

MERGERS AND ACQUISITIONS

INDIA STATE OIL FIRMS PERSIST ON CANADAOIL SANDS BID CONSORTIUM SAYS STILL INRUNNING FOR OIL SANDS ASSETS

* Expects that new Canadian rules will notrule out deal

* No time frame for ConocoPhillips decision

By Prashant Mehra and Nidhi Verma

MUMBAI/NEW DELHI, Dec 11 (Reuters)—India's state oil companies intend to pressahead with plans to buy stakes in Canada's oilsands and believe they will not run afoul of

tougher Canadian rules on foreign ownershipof the sector.

A consortium of Oil and Natural Gas Corp,Oil India Ltd and refiner Indian Oil Corp isamong three bidders short listed to buy stakesin Canadian oil sands owned by ConocoPhillips.The assets could be worth up to $5 billion.

‘‘We are very much in race for Conoco's as-sets,’’ an official at one of the Indian consortiumpartners told Reuters, declining to be identified.The consortium submitted its bid in July.

‘‘Our deal will not be affected as our under-standing of the new rule is that JV (joint-venture) stake sale or non-controlling stakesale are welcomed by Canada. However com-plete takeover will be approved as an excep-tion,’’ he added.

On Friday, Canada approved a $15.1 billionbid by China's CNOOC for Nexen and a $5.3billion takeover of Progress Energy by Malay-sia's Petronas, but shut the door on similardeals in the future.

Prime Minister Stephen Harper said Canadawould not deliver control of the country's oilsands—the world's third-largest reserves ofcrude—to another government.

The tougher new approach restricts state-owned enterprises to minority stakes in Cana-dian enterprises except in ‘‘exceptionalcircumstances’’. However, when announcingthe changes last week, Harper said that stateoil companies would still be allowed to takeminority stakes in tar sands properties.

‘‘Our understanding is the restriction wouldapply only in the case of transactions at thecorporate level and not at the asset level,’’ saida resources banker with a leading U.S. bank inIndia, declining to be identified.

The ONGC-led consortium has not asked forany clarification yet on the new rule, the officialsaid.



T.K. Ananth Kumar, director of finance at OilIndia Ltd, one of the consortium partners, saidthe group would be discussing the developmentwith bankers.

‘‘Getting into unconventional energy is impor-tant for us. We want to get into this if thereturns are good, that is why we have agreed topartner,’’ he told Reuters.

In January, ConocoPhillips put stakes in sixAlberta properties on the auction block. Theyproduce 12,000 barrels of oil per day from aresource estimated to be as large as 30 billionbarrels of bitumen.

The one producing project in the package isSurmont, run in a joint venture with France'sTotal SA. Located south of the oil sands hub ofFort McMurray, Alberta, the steam-drivendevelopment pumps about 25,000 barrels perday. The partners are working to boost that to136,000 bpd, starting in 2015.

ConocoPhillips has not yet said when it willwrap up the sale process. Ken Lueers, the pres-ident of Conoco's Canadian unit, declined tospecify how many bids had been received forthe properties.

‘‘We had targeted to raise $8 (billion) to $10billion dollars in asset sales by the end of 2013,’’Lueers told Reuters following a speech to aToronto investment conference. ‘‘So we wentthrough the marketing, we received the bids, anumber of bids actually, and we're continuingto evaluate them.’’

SEARCH FOR ASSETS

Rising energy demand in India and stagnantdomestic output have made the country theworld's fourth-biggest crude importer.

Western sanctions squeezing Iran, once In-dia's second-biggest supplier, have added ur-gency to New Delhi's quest to secure additionalenergy sources.

India's state oil companies, tasked with

scouting for oil and gas assets abroad to meetrising demand in the nearly $2 trillion economy,have moved with uncharacteristic speed inrecent months to secure interests overseas.

Last month, ONGC Videsh, the overseas armof state-run ONGC, agreed to pay about $5 bil-lion for ConocoPhillips' 8.4 percent share of theKashagan field in Kazakhstan, the world's larg-est oilfield discovery in four decades—whichcould boost its output by about 16 percentwithin a year.

Earlier this year, it also agreed to pay $1 bil-lion for a small stake in the Azeri, Chirag andGuneshli (ACG) group of oil fields in Azerbaijanand a stake in an associated pipeline.

State-run GAIL India is also considering buy-ing liquefied natural gas (LNG) assets in Can-ada, Peru, and Trinidad put up for sale bySpain's Repsol.

The recent spate of expenditure could, how-ever, hinder ONGC's immediate efforts to makelarge-size deals such as the one for Conoco'sCanada assets, analysts said.

‘‘Because ONGC has just announced theKashagan deal, it (the Canada deal) may be toomuch for them to take on quickly. There maynot be such big deals for next 6-8 months,’’ saidDayanand Mittal, an oil and gas sector analystat Mumbai's Ambit Capital.

‘‘The IRR (internal rate of return) will belower versus conventional oil-and-gas assetssince capital expenditure is significantlyhigher,’’ he added.

ANTITRUST

USDOJ SPECIAL ADVISOR, INTERNATIONALFOR THE ANTITRUST DIVISION RACHELBRANDENBURGER SPEECH AT THE 29THANNUAL AMERICAN CHAMBER OF COMMERCEEU COMPETITION POLICY CONFERENCE

Brussels v Thursday, December 6, 2012



I. Introduction

It is an honor and a delight to be back here inBrussels to address the AmCham EU Competi-tion Policy Conference this afternoon. I shouldlike also to congratulate our hosts on this year'scommemoration of the 50th anniversary of theCommon Market Panel of AmCham Belgium,the forerunner of today's AmCham EU, whichhas done so much to foster understanding be-tween the United States and the EuropeanCommission in the economic sphere.

As many of you know, over the past threeyears, I have delivered a series of remarks andwritten articles on different aspects of interna-tional cooperation in competition lawenforcement.

That is my theme again today. This after-noon, though, I will not talk so much aboutwhat the Antitrust Division of the U.S. Depart-ment of Justice (Antitrust Division) thinks anddoes about international enforcement coopera-tion, though there will be some of that. Rather,as the title of my speech suggests, I want tofocus on a broader view of cooperation: experi-ences that I, and other Antitrust Division of-ficials, have been hearing about from othercompetition agencies and private practitionersaround the world, especially including in thecontext of the important new internationalcooperation projects at the Organization forEconomic Cooperation and Development(OECD) and the International CompetitionNetwork (ICN).

Before I embark on that discussion, however,I would like to provide you with a brief sum-mary of what the Antitrust Division has beendoing this fall in competition enforcement andcompetition policy, in order to provide somereal-life background for the international coop-eration conversation that will follow.

A. The Recent Work of the Antitrust Divi-sion

The work of most antitrust agencies—includ-

ing both the Antitrust Division and DG COMP,to take two examples—includes both enforce-ment work and competition policy work, whichmutually reinforce one another. An agency thatdoes no significant enforcement work may findthat its competition policy views are not givengreat weight in the wider community, as beingdivorced from practical experience. Similarly,an enforcement-focused agency that providesno competition policy guidance or leadershipmay find itself characterized as wedded tointerpretations of the law that ignore evolvinglegal or economic theories or the practical com-petition interests of consumers or businesses.Accordingly, we at the Antitrust Division takecare to mix vigorous and sound enforcement ofU.S. antitrust laws with substantive publicconversations about antitrust and competitionpolicy issues affecting the U.S. economy. Impor-tantly, this combination of actions also providestransparency concerning our enforcementactivities.

Over the past several months, we haveachieved many important successes in ourenforcement efforts. As you may know, theAntitrust Division is a law enforcement orprosecutorial agency, not an administrativeone, as is more common in the world. As aprosecutor, if we conclude that violations ofU.S. antitrust laws have occurred, we must filelawsuits in federal district court and convince ajudge or jury to agree with us, in order to obtainrelief. In such lawsuits, the division has theburden of proof, by a ‘‘preponderance of the evi-dence’’ in civil matters, and ‘‘beyond a reason-able doubt’’ in criminal ones, in the public hear-ings and trials that may be required to resolvethose matters. While we often resolve our casesshort of litigation, including through consentjudgments that our federal courts must ap-prove, we are prepared to litigate if necessaryto vindicate the public's interest in competitivemarkets. As our then-Acting Assistant AttorneyGeneral Joseph Wayland explained in Septem-ber, ‘‘it is our willingness and outstanding track



record in both criminal and civil litigation thathelps secure our other enforcement successes.’’

Turning to our recent successes on the mergerside, I will mention the 3M/Avery-Dennisonmatter as an example. In September, the 3MCompany abandoned its plan to acquire Avery-Dennison Corporation's Office and ConsumerProducts Group, 3M's closest competitor in thesale of adhesive-backed labels and stickynotes—obvious necessities in contemporary of-fice culture—after the Antitrust Division in-formed the parties that the deal raised seriouscompetitive concerns and that it would file acivil antitrust lawsuit to block the deal.

On the civil nonmerger front, the AntitrustDivision is the plaintiff in three significant,ongoing civil lawsuits: a challenge to BlueCross Blue Shield of Michigan's use of contrac-tual provisions called most favored nation(MFN) and MFN-Plus agreements that forcehospitals to charge higher prices to Blue Cross'scompetitors; litigation against American Ex-press over rules that limit merchants' abilitiesto promote competition among credit card net-works (MasterCard and Visa agreed to settleour similar cases against them); 5 and mostrecently, a challenge to anticompetitive conductby Apple Inc. and two major U.S. and Europeanbook publishers—Holtzbrinck Publishers LLC,which does business as Macmillan, and Pen-guin Group, a Division of Pearson PLC/PenguinGroup (USA) Inc.—with respect to sales ofeBooks (three other U.S. and European publish-ers—Hachette Book Group Inc., HarperCollinsPublishers L.L.C. and Simon & Schuster Inc.—have entered into consent decrees with thedepartment, which the federal district court ap-proved in September).

On the criminal side, we have long devotedsubstantial resources to identifying and prose-cuting criminal cartel agreements to fix prices,rig bids and/or allocate markets. In the past fewmonths, we have secured jury verdicts of‘‘guilty’’ in two hard-fought municipal bond bid-

rigging cases in New York; thus far, a total of20 individuals have been charged in this inves-tigation, of whom 19 have been convicted aftertrial or pleaded guilty; one still awaits trial.

In another criminal investigation, involvinga conspiracy to fix the prices of liquid crystaldisplay (LCD) panels—such as computer ortelevision screens—the division obtained juryverdicts of ‘‘guilty’’ last Spring against a Tai-wanese firm, AU Optronics Corporation (AUO),and two former senior AUO executives. InSeptember, these verdicts resulted in sentencesof a $500 million for AUO and three-year jailterms for each of the executives.

Finally, our ongoing major investigation intothe worldwide price-fixing/bid-rigging of autoparts has continued to yield substantial results.With the most recent guilty pleas in November,nine international companies and 12 executiveshave pleaded guilty or agreed to plead guilty inthe Antitrust Division's investigation; thosefirms have paid a total of nearly $800 millionin criminal fines, while executives thus far havebeen sentenced to pay criminal fines and toserve jail sentences of from one to two yearseach. The investigation continues.

Along with our recent enforcement successes,the Antitrust Division is also deeply committedto intellectual leadership on cutting-edge com-petition policy issues. For example, in Septem-ber, we and the Federal Trade Commission(FTC) co-hosted a workshop in Washington onMFN clauses. This workshop provided an op-portunity to bring together policy makers in theU.S. antitrust agencies, academic experts,industry experts and the private bar to considerthe competitive effects of MFN clauses.

In recent months, the Antitrust Division alsohas actively discussed some important issuesat the intersection of competition policy andintellectual property (IP) policy, particularlythe interface between standard-setting andcompetition policy. These, of course, are issues



also of interest to many other competition agen-cies, including the European Commission.

For example, in July, then-Acting AssistantAttorney General Joseph Wayland testifiedbefore the Senate Judiciary Committee on therelationship among patents, competition andcollaboratively set standards, and discussedpolicy options available to the U.S. Interna-tional Trade Commission with respect to pos-sible exclusion orders in administrative casesinvolving infringement of standard-essentialpatents (SEPs).

In September, then-Acting Assistant Attor-ney General Wayland again spoke about theintersection of antitrust and IP; in particular,he emphasized the Antitrust Division's viewthat ‘‘it is critical that antitrust agencies ensurethat standard setting and transfers of patentownership [as to which the division has hadsome recent merger investigations] stimulateinnovation and protect competition.

In the same way, our new Acting AssistantAttorney General, Renata Hesse, spoke publiclylast month on antitrust issues involvingstandard-setting organizations (SSOs), andsummarized recent Antitrust Division recom-mendations that SSOs consider procompetitivechanges to their IP policies, such as identifyingproposed technology that involves patentswhich the patent holder has not agreed tolicense on F/RAND terms in advance.

To conclude this summary of the AntitrustDivision's intellectual leadership oncompetition/IP issues, I note that the AntitrustDivision and the FTC are holding a joint work-shop in Washington next week on competitionand IP to discuss the impact of patent assertionentity activities on innovation and competition.

B. The U.S. Antitrust Agencies and theChinese and Indian Competition Agencies

The MOU provides that the U.S. and Chineseagencies will meet each year for a high-level

dialogue on competition issues of mutualinterest. The first of these meetings was held inWashington over two days this past September.Each Chinese agency was represented by aVice-Minister—Vice-Ministers Hu, Gao, andTeng, respectively—while the U.S. antitrust aagencies were represented by then-Acting As-sistant Attorney General for the Antitrust Divi-sion Joseph Wayland, and FTC Chairman JonLeibowitz.

The other recent Antitrust Division policyinitiatives that I will mention this afternoonare two formal but practical initiatives thathave strengthened our bilateral relationshipswith the competition agencies in China andIndia.

In July 2011, the Antitrust Division and FTCsigned a Memorandum of Understanding(MOU) on Antitrust and Antimonopoly Coop-eration with the three Chinese antimonopolyagencies: the National Development and Re-form Commission (NDRC), the Ministry ofCommerce (MOFCOM), and the State Adminis-tration for Industry and Commerce (SAIC),respectively.

At the meetings, we discussed promotingcompetition in a global economy, as well as vari-ous aspects of civil and criminal antitrustenforcement. This high-level dialogue was animportant step in cementing working relation-ships between the U.S. and Chinese agencies.

Later that same week in September, the U.S.antitrust agencies signed an MOU on antitrustcooperation with the Indian competition agen-cies, the Ministry of Corporate Affairs and theCompetition Commission of India. Indicative ofthe importance that the parties place on our re-lationship, the MOU was signed in the ceremo-nial Treaty Room of the U.S. Department ofState. The MOU contains provisions on com-munication and cooperation among the agen-cies, and the parties acknowledged at the sign-ing ceremony that the MOU will enhance the



relationships between the U.S. and Indianagencies, including in the area of competitioncase cooperation.

Taken together, these recent cooperativeevents involving the U.S. antitrust agenciesand the Chinese and Indian competition agen-cies, respectively, augur well for enhancing thequality of international cooperation amongagencies that are likely to work more closelytogether on case cooperation in the future, asChina and India play their very significant newroles in the world economy.

I now turn from these demonstrations of howimportant and diverse enforcement cooperationhas become in the competition world, to identi-fying successful techniques for internationalcooperation more broadly.

C. Cooperation Policy and Practice at theAntitrust Division

As you know, theAntitrust Division has madecooperation in competition matters, and par-ticularly in enforcement matters, a priority.Antitrust Division officials have spoken fre-quently about cooperation in many venues,including my remarks here last February.

This afternoon, I will briefly summarize ourcooperation ethos and experience at the Anti-trust Division, and provide a single recent caseexample that epitomizes successful, sustainedcooperation.

Many of you will be familiar, I believe, withour seven guiding principles for effective, long-term international cooperation: increasedtransparency and accountability of governmentactions; expanded and deeper cooperation be-tween U.S. and non-U.S. competition enforce-ment agencies; greater convergence of competi-tion regimes;mindfulness of other jurisdictions'interests; respect for other jurisdictions' legal,political and economic cultures; trust in eachother's actions; and ongoing dialogue on allaspects of international competition and

enforcement. We practice these guiding prin-ciples in all of our international case coopera-tion matters, both civil and criminal.

These principles do not exist in a theoreticalvacuum. Indeed, the Antitrust Division hasclear purposes in mind as we develop andimplement mechanisms of internationalcooperation. Based on our experience, we haveidentified three principal purposes of interna-tional cooperation: to increase our understand-ing of the competitive process, both in particu-lar cases and more generally; to increase theeffectiveness of all aspects of the AntitrustDivision's enforcement activities; and to in-crease the efficiency of the overall global en-forcement effort by competition agenciesaround the globe, in order to facilitate andpromote economic activity to the benefit ofconsumers.

In our international cooperation efforts, wehave seen that competition agencies generallyshare a strong interest in ensuring that investi-gations, and, where appropriate, remedies, inenforcement actions are consistent, predictableand efficient. The Antitrust Division has foundthat the best way to do that is through the con-sistent practice of cooperation and communica-tion between and among enforcement agencies.

Lest that sounds a little too idealistic, let mediscuss one recent example of valuable and ef-fective cooperation: the deep cooperative rela-tionship between theAntitrust Division and theEuropean Commission in the e-books case. InApril 2012, as noted above, the Antitrust Divi-sion filed a civil lawsuit against Apple and fiveof the largest book publishers in the UnitedStates, which are also based in Europe, alleg-ing that they had conspired to increase theprices that consumers pay for e-books. Three ofthe publishers agreed to settle with the Anti-trust Division, subject to court approval, whichwas subsequently granted in September. Weare continuing to litigate against Apple and thetwo remaining publishers.



Throughout the investigation, we worked col-laboratively with the European Commission.U.S. Attorney General Eric Holder recognizedthis valuable cooperative effort when hethanked ‘‘our partners at the European Com-mission . . . for their hard work and closecooperation.’’ Then-Acting Assistant AttorneyGeneral Sharis Pozen also emphasized thedepth of our cooperation with the EuropeanCommission on the investigation, noting thatthis was ‘‘a global enforcement’’ matter and that‘‘[n]ever before have we seen this kind of coop-eration on a civil antitrust enforcement matter.’’

While we have long cooperated with othercompetition agencies in merger and cartelenforcement matters, e-books demonstratesthat case cooperation can be effective across theentire range of competition enforcement, giventhe right tools and the right attitude.

D. The New Multilateral EnforcementCooperation Projects

This brief review of the Antitrust Division'sown international cooperation policy and prac-tice brings me next to two new, coordinatedprojects on international enforcement coopera-tion, one in the OECD, and the other in theICN. The Antitrust Division is devoting signifi-cant resources to both of these projects. I believethese projects will offer the ‘‘broader view’’ Ihave promised for today's remarks.

Last April, after nearly a year of preparationas part of the ICN's Second Decade Project, theICN annual conference approved a project oninternational enforcement cooperation, onbehalf of its 120-plus member agencies, andunder the aegis of the ICN Steering Group.Similarly, the OECD Competition Committee,composed of the 34 OECD member jurisdic-tions, the European Commission, and 15 ob-server jurisdictions, has agreed to adopt a workprogram to improve international competitionenforcement cooperation. While OECD andICN products and processes differ, there is sig-nificant overlap in membership between the

two organizations—the competition agencies ofall OECD members are also ICN members—soit made sense for OECD and ICN to agree—forthe first time—to collaborate closely on theirrespective projects, in order to ensure that theprojects are complementary.

The first step in each project was the draft-ing and dissemination of a comprehensive jointsurvey of OECD and ICNmembers' experiencesand views on international cooperation, andtheir views about what work OECD and ICN,respectively, should do in this area. Over thispast summer, the two organizations and someof their members, including the Antitrust Divi-sion, worked closely together on drafting thesurvey, and are currently collaborating onanalyzing the results received this fall, basedon the responses of scores of memberjurisdictions/agencies. It is anticipated that theOECD and ICN will, in the New Year, use thesurvey results to mold their respective plansfor complementary future work.

In taking a broader view of the internationalcooperation landscape, the OECD and ICNcooperation projects have been designed toascertain what a diverse range of competitionagencies, large and small, new and well-established, perceive about the value of coop-eration to the broader competition enforcementcommunity, and the need, if it exists, to enhancethe current cooperation framework. These proj-ects, when completed, will teach us a great dealabout the pattern and practice of enforcementcooperation on a broad—indeed, a global—scale. That takes me to the Antitrust Division'sown experience with international case coop-eration, and our frequent conversations withother competition agencies.

E. Perceptions of the Value of InternationalEnforcement Cooperation

As a starting point, our experience stronglysuggests that most agencies view cooperation,broadly defined, as a significant policy priority.This broad definition includes enforcement



cooperation, but it also includes many othertypes of cooperative work, from sharing viewson competition subjects at OECD CompetitionCommittee meetings or in teleseminars orga-nized by one of the ICN working groups, to stafftraining programs for newer agencies in whichattorneys or economists from more experiencedagencies participate, to talking informally withother agencies on the phone about particularmarkets or market developments—anythingfrom commodities to high-tech products.

As one might expect, and as the AntitrustDivision's experience suggests, many of theagencies that have engaged in case cooperationhave found, as the Antitrust Division has, thatcooperation is very useful to their enforcementefforts, including avoiding conflicting outcomes,coordinating timing and generally facilitatinginvestigations. Accordingly, many agenciesseem to believe that their enforcement pro-grams would benefit from more extensive coop-eration opportunities.

At the same time, however, while many agen-cies have cooperated with others in the broadersense of that term, our experience suggeststhat, outside the European Competition Net-work (ECN), only a relatively small core of onedozen or so agencies has much in the way ofactual case cooperation experience, in mergercases, cartel cases or otherwise.

Moreover, for various reasons, case coopera-tion is more common in merger cases than inunilateral conduct cases. And enforcementcooperation in cartel cases, while not uncom-mon for those agencies, such as the AntitrustDivision that consistently engage in it, has sofar been limited to a somewhat smaller groupof agencies than is the case for mergers.

We have found that most cooperating agen-cies can rely on bilateral, multilateral or re-gional agreements to provide legal foundationsfor case cooperation. As examples, these agree-ments include the 1995 OECD Council Recom-

mendation on cooperation, the many bilateralagreements and MOUs on cooperation and thecompetition policy chapters of many bilateraland regional trade agreements.

Indeed—and this is extremely important forthe future of international case cooperation—many agencies, including the Antitrust Divi-sion, find the exchange of statutorily-protected,case-specific information to be very beneficial.

Agencies also face constraints in casecooperation. Common constraints appear toinclude: legal limitations on their ability toshare confidential information and the absenceof waivers from parties or third parties to sharesuch information.

That said, many agencies can rely on confi-dentiality waivers by parties or third parties asa legal basis for exchanging statutorily-protected information. The use of such waivershas become commonplace in merger cases, atleast for some agencies, but it is less so in carteland unilateral conduct cases. Also, not all par-ties to investigations have supported a coopera-tive agency approach, and some parties havetried to leverage one agency's investigationagainst another's.

F. Looking to Developments in InternationalCooperation in the Near Term

In the context of our experience and ourconversations over time with other competitionagencies, I would like to suggest that, generallyspeaking, four factors are likely to shape inter-national cooperation in the near term:

E The work of the OECD Competition Com-mittee and the ICN strongly suggest thata collaborative approach to policy-makingand enforcement will continue and likelyintensify.

E Future competition and cooperation ap-proaches will necessarily reflect the im-pact of newer competition agencies, includ-



ing those of Brazil, China, India, Russiaand South Africa—the BRICS countries.

E Government austerity plans will likelymake cooperation and collaboration withother agencies more attractive to a widerrange of agencies.

E The increasing interconnection of econo-mies and markets will enhance the impor-tance of the first three factors and the rec-ognition of mutual advantage incollaboration.

This brings us to the question of whether cur-rent cooperation frameworks will suffice forfuture needs. The existence—outside theECN—of a core group of only a dozen or soagencies worldwide that regularly participatein case cooperation suggests that there is poten-tial for generating broader participation ininternational case cooperation efforts withinthe current framework. In addition, newer orsmaller agencies may, because of limited re-sources, the character of their national econo-mies, or their enforcement books of business,only periodically find it useful to cooperate incases. However, when those agencies do wish tocooperate, they will want to have access tocooperation mechanisms that accommodatetheir needs, as well as those of the larger andmore established agencies.

G. Conclusion

International cooperation in competitioncases is becoming more important and wide-spread, but is in some ways still at a formativestage. The varying agency experiences and at-titudes that I have discussed this afternoon willprovide crucial inputs into the ongoing OECDand ICN cooperation projects, which them-selves will provide important venues for com-petition agencies to discuss and improve theways in which they cooperate, with each otherand with the parties to their investigations.

Thank you.

INTELLECTUAL PROPERTY

COMMISSIONER BARNIER WELCOMESHISTORIC AGREEMENT ON THE EUROPEANUNITARY PATENT PACKAGE

European Commission MEMO/12/971

Brussels, 11 December 2012

‘‘I am pleased that the European Parliamentand the Member States have reached this long-awaited agreement. This is an historic agree-ment because it has taken us many decades toget here.

Since the 1960s, this project has been putforward, with successive failures. When I tookup office, I said that I would not be the firstCommissioner to work on the file but that Ihoped to be the last.

The figures speak for themselves. In theUnited States, in 2011, 224 000 patents weregranted, in China 172 000 while here in Europeonly 62 000 European patents were delivered.One of the reasons for this difference is withouta doubt the prohibitive cost and the complexityof obtaining patent protection throughout thesingle market. The new texts adopted open theway to simplified procedures and a reductionby one-seventh in the costs for our businessesof protecting their innovations in 25 EUcountries. I hope that Spain and Italy will jointhis new regime as soon as possible, so that thisprotection will be valid in all 27 Member States.

With this far-reaching agreement, the Euro-pean Parliament and the Council bring a deci-sive contribution to the implementation of theeconomic and growth agenda.

The unitary patent package should bringother results in the implementation of thisagenda. The economy, business and consumersneed them. And citizens are also waiting forproof, as today with the patent, of what we aredoing together for economic progress and em-ployment—that is for the benefit of allEuropeans.’’



BACKGROUND

Efforts to create a common patent applicableacross all European countries have been madesince the 1960s but for a number of reasonshave never been successful.

In 2000 the European Commission made aproposal to create a Community Patent througha Regulation [now ‘EU patent' under the LisbonTreaty]. The aim was to provide for a single pa-tent title applicable in all Member States. In2003 Member States agreed a common politicalapproach but failed to reach a final agreement,including over the details of the translationregime. Following a wide-scale consultation in2006, the Commission produced a Communica-tion in April 2007 which confirmed the commit-ment to the Community patent and re-launchednegotiations in Member States.

In April 2011, the Commission tabled propos-als on the creation of a European patent withunitary effect (or ‘‘unitary patent’’) in the frame-work of enhanced cooperation. The unitary pa-tent will allow patent protection to be obtainedfor 25 Member States (all Member States ex-cept Italy and Spain) on the basis of a singleapplication and without further administrativeformalities, like validation and translationrequirements, in the Member States. It willgive inventors and companies access to themarkets of 25 countries, i.e. 400 million custom-ers at a vastly lower cost, with far fewer admin-istrative hurdles to overcome.

The Unified Patent Court (UPC) will be cre-ated by an international agreement of theMember States and will be competent to handledisputes concerning both future unitary pat-ents and current ‘‘classical’’ European patents.The UPC will be a single specialised patentcourt, with local and regional presence aroundthe EU. Instead of parallel litigation in nationalcourts, the parties will be able to get a swift andhigh quality decision for all states where thepatent is valid.

The European Council in June decided on thelocation of the seat of the central division of theUPC, placing the seat of the UPC's CentralDivision in Paris. Specialised clusters of theUPC's central division will also be set up—onein London, the other in Munich.

The agreement by the Council and EuropeanParliament opens the way to the signature ofthe international agreement on the UPC. Thefirst unitary patents could be granted in April2014.

When in place, a one-stop shop for obtaininga patent having immediate effect in most partsof the EU's territory, combined with a singlespecialised patent court ensuring the highestreview standards will be created.

See also MEMO/12/970

More information:http://ec.europa.eu/internal_market/indprop/patent/index_en.htm

* © European Union, 1995-2012. Reproduc-tion is authorized. This article originally ap-peared at: http://europa.eu/rapid/press-release_MEMO-12-971_en.htm#PR_metaPressRelease_bottom.

HOW A UNIFIED EUROPEAN PATENT SYSTEMCHANGES GLOBAL IP LITIGATION

Alison Frankel

November 30, 2012

On the night of Nov. 19, the European Councilreached final agreement on the EuropeanUnion's plan to unify Europe's patent systemand patent courts. The centralized system isn'tquite a done deal.

The European Parliament is scheduled tovote on unification in December, and Spain andItaly are challenging the legality of the imple-mentation plan. But it's looking more and morelikely that in April 2014, the European Unionwill institute a centralized patent approvalsystem and a centralized patent court, with



judges trained to apply a uniform—but yet-to-be-developed—body of patent law.

The big question for patent litigators, ofcourse, is whether the unified European patentcourts will favor Germany's generally patent-friendly laws or the United Kingdom's moreskeptical view of the rights of patent holders.In recent years, patent owners and their IPcounsel have learned to take advantage of Ger-man courts' low bar for injunctions to gainleverage in global patent disputes. Will a uni-fied European patent system put an end to theGermany strategy?

According to patent lawyer Charles Larsen ofRopes & Gray, who is also a U.K. solicitor, theanswer to that question will lie in what proce-dures the unified courts adopt over the nextyear and a half. Larsen said that by institutinga unified patent system, the European Unionintended not only to show its ability to stream-line legal and political processes and increasethe EU's economic influence but also ‘‘to miti-gate forum-shopping as a tactic.’’

By centralizing standards, he said, the EUwants to eliminate the uncertainty (and cost) oflitigating patent validity and injunctions inseveral different countries whose courts mightyield inconsistent results.

But it's not clear what the centralized lawwill be, according to Larsen. And already, hesaid, patent holders are expressing fear that ifGermany's patent-friendly standards are ad-opted across the European Union, the EU couldbecome a haven for patent trolls wielding thepower of easy injunctions.

Just as the U.S. courts generally becamefriendlier to patent holders after Congress cre-ated the U.S. Court of Appeals for the FederalCircuit to apply patent laws uniformly, Larsensaid, there is concern that the EU's centraliza-tion will favor IP plaintiffs.

On the other hand, he said, companies with

weak patents will have to be concerned aboutthe impact of a single invalidity ruling acrossthe entire EU. ‘‘There's more at stake for pat-ents now,’’ Larsen said. ‘‘Companies will haveto make sure their European patents are goodand enforceable.’’

There will be a lot more to come on the cen-tralized EU patent system over the next year.If you're an IP lawyer, it's time to start payingattention.

Alison Frankel's blog, On the Case, is fea-tured on Thomson Reuters News & Insight(http://newsandinsight.thomsonreuters.com/Legal/). A founding editor of the LitigationDaily, Frankel has covered big-ticket litigationfor more than 20 years. Her work has appearedin The New York Times, Newsday, The Ameri-can Lawyer and several other nationalpublications. She is also the author of ‘‘DoubleEagle: The Epic Story of the World's Most Valu-able Coin.’’ In 2011, she was named ReutersJournalist of the Year for Commentary.

This article appeared in 30 No. 13 WestlawJournal Computer and Internet 11

COMMISSIONER SEMETA WELCOMESCOUNCIL ADOPTION OF ACTION PLAN ONINTELLECTUAL PROPERTY RIGHTS

European Commission MEMO/12/967

Brussels, 10 December 2012

‘‘In a knowledge-based economy, competitive-ness depends on our capacity to protect innova-tion and creativity. To do this, an active policyagainst counterfeit and pirated goods isessential. Last year, Customs seized 115 millionsuch articles, thereby protecting legitimate EUbusinesses. We must keep up this importantwork, and build on it. Member States and theEU will join efforts to tackle major trends intrade of IPR infringing goods.The Action Planon Intellectual Property Rights adopted todaywill help maintain and create jobs and promotegrowth in the EU.’’



Background

Today the Competitiveness Council adoptedthe Action Plan to combat IPR infringementsfor 2013-2017.

The competitiveness of economies today isincreasingly based on creativity andinnovation. Therefore, the massive violations ofIntellectual Property Rights in traded goods area serious global problem. Customs plays animportant role in checking for, and interceptingthese counterfeit and pirated products.

In 2011, Customs detained almost 115 mil-lion articles suspected of infringing IPRs. In areport presented to Ministers today, the Com-mission showed that positive results have beenachieved under the current Action Plan (2009-2012). But the challenges remain high, and thereport outlines the need to maintain an EU-wide approach in the work of Customs enforce-ment of IPR.

The new Action Plan contains innovativeideas to step up the fight against IPR infringe-ments at EU borders, taking into account of thecurrent economic climate.

Particular focus is put on the effective imple-mentation and monitoring of EU legislation oncustoms enforcement of IPR which should soonbe adopted by the European Parliament andCouncil (see IP/11/630 and MEMO/11/327).

The other strategic objectives of the actionplan are:

E Tackling major trends in the trade of IPRinfringing goods (e.g. the increased trendin small parcels related to internetpurchases).

E Tackling trade of IPR infringing goodsthroughout the international supply chain.

E Strengthening cooperation with the Euro-pean Observatory and law enforcementauthorities on IPR infringements

The Action Plan and Commission report onthe current action plan can be found on: http://ec.europa.eu/taxation_customs/customs/customs_controls/counterfeit_piracy/commission_initiatives/index_en.htm.

*© European Union, 1995-2012. Reproduc-tion is authorized. This article originally ap-peared at: http://europa.eu/rapid/press-release_MEMO-12-967_en.htm

ENFORCEMENT

HSBC TO PAY $1.9 BILLION U.S. FINE INMONEY-LAUNDERING CASE

By Carrick Mollenkamp and Brett Wolf

Tue Dec 11, 2012 12:35pm EST

(Reuters)—HSBC has agreed to pay a record$1.92 billion fine to settle a multi-year probe byU.S. prosecutors, who accused Europe's biggestbank of failing to enforce rules designed toprevent the laundering of criminal cash.

The U.S. Justice Department on Tuesdaycharged the bank with failing to maintain aneffective program against money launderingand conduct due diligence on certain accounts.

In documents filed in federal court in Brook-lyn, it also charged the bank with violatingsanctions laws by doing business with custom-ers in Iran, Libya, Sudan, Burma and Cuba.

HSBC Holdings Plc admitted to a breakdownof controls and apologized for its conduct.

‘‘We accept responsibility for our pastmistakes. We have said we are profoundly sorryfor them, and we do so again. The HSBC oftoday is a fundamentally different organizationfrom the one that made those mistakes,’’ saidChief Executive Stuart Gulliver.

In an agreement with the Justice Depart-ment, the bank will take steps to fix the prob-lems, pay a fine of $1.256 billion, and retain acompliance monitor to resolve the charges



through a deferred-prosecution agreement.Including penalties imposed by other agencies,the bank's fines total $1.92 billion. HSBC alsofaces civil penalties, to be announced laterTuesday.

The settlement offers new information aboutfailures at HSBC to police transactions linkedto Mexico, details of which were reported thissummer in a sweeping U.S. Senate probe.

Between 2006 and 2010, HSBC ignoredmoney-laundering risks associated with certainMexican customers and allowed at least $881million in drug trafficking proceeds, includingproceeds from the Sinaloa Cartel in Mexico andthe Norte del Valle Cartel in Colombia, to belaundered through the bank, according to theTuesday agreement.

Despite known risks of doing business inMexico, the bank put Mexico in its lowest riskcategory, which excluded $670 billion in trans-actions from the monitoring systems.

‘‘The HSBC settlement sends a powerfulwakeup call to multinational banks about theconsequences of disregarding their anti-moneylaundering obligations,’’ said Senator CarlLevin, who led the Senate inquiry.

HSBC said it expected to also reach a settle-ment with British watchdog the Financial Ser-vices Authority. The FSA declined to comment.

U.S. and European banks have now agreedto settlements with U.S. regulators total lingsome $5 billion in recent years on charges theyviolated U.S. sanctions and failed to policepotentially illicit transactions.

No bank or bank executives have beenindicted. Instead, prosecutors have used de-ferred prosecutions, under which criminalcharges against a firm are set aside if it agreesto conditions such as paying fines and chang-ing its behavior.

HSBC's settlement also includes agreements

or consent orders with the Manhattan districtattorney, the Federal Reserve and three U.S.Treasury Department units: the Office of For-eignAssets Control, the Comptroller of the Cur-rency and the Financial Crimes EnforcementNetwork.

Third time

The settlement is the third time in a decadethat HSBC has been penalized for lax controlsand ordered by U.S. authorities to improve itsmonitoring of suspicious transactions. Previousdirectives by regulators to improve oversightcame in 2003 and in 2010.

Last month, HSBC told investors it had setaside $1.5 billion to cover fines or penaltiesstemming from the inquiry and warned thatcosts could be significantly higher.

Analyst Jim Antos of Mizuho Securities saidthe settlement costs were ‘‘trivial’’ in terms ofthe company's book value.

‘‘But in terms of real cash terms, that's ahuge fine to pay,’’ said Antos, who rates HSBCa ‘‘buy.’’

‘‘It has been damaging for the brand, albeitnot as bad as it might have been,’’ said IanGordon, an analyst at Investec Securities inLondon.

‘‘Is it absorbable? Yes. Is it significant? Yes.But in the absence of a broader attack on thebusiness structure or individuals, that explainswhy the market reaction has been relativelymuted today and has been since the allegationscame out,’’ he added.

HSBC shares closed up 0.56 percent at 644.8pence in London.

Anti-money laundering controls

HSBC said it had increased spending on anti-money laundering systems by around ninetimes between 2009 and 2011, exited businessrelationships and clawed back bonuses for



senior executives. As evidence of its determina-tion to change, it cited the hiring last Januaryof Stuart Levey, a former top U.S. TreasuryDepartment official, as chief legal officer.

Under a five-year agreement with the JusticeDepartment, HSBC agreed to have an indepen-dent monitor evaluate its progress in improv-ing its compliance.

It also said that as part of the overhaul of itscontrols, it has launched a global review of its‘‘Know Your Customer’’ files, which will cost anestimated $700 million over five years. The filesare designed to ensure that banks do not unwit-tingly act as conduits for criminal funds.

HSBC's settlement comes a day after rivalBritish bank Standard Chartered Plc agreed toa $327 million settlement with U.S. law en-forcement agencies for sanctions violations, apact that follows a $340 million settlement thebank reached with the New York bank regula-tor in August.

Such settlements have become commonplace.In what had been the largest settlement untilthis week, ING Bank NV in June agreed to pay$619 million to settle U.S. government allega-tions that it violated sanctions against coun-tries including Cuba and Iran.

Other banks that have reached settlementsover sanctions violations are Switzerland'sCredit Suisse Group, Britain's Lloyds BankingGroup and Barclays, and ABN Amro HoldingNV, a Dutch bank acquired by Royal Bank ofScotland Group Plc and a bank consortium in2007.

In the United States, J.P. Morgan Chase &Co, Wachovia Corp and Citigroup Inc have beencited for anti-money laundering lapses or sanc-tions violations.

HSBC's failings date to 2003, when the Fed-eral Reserve Bank of New York and New Yorkstate regulators ordered it to better monitorsuspicious money flows. In 2010, a consent or-

der from the Comptroller of the Currency (OCC)ordered HSBC to review suspicioustransactions. At the time, the OCC called HS-BC's compliance program ‘‘ineffective.’’

In 2008, the federal prosecutor in Wheeling,West Virginia, began investigating allegationsthat a local doctor used the bank to laundermoney from Medicare fraud.

Ultimately, the prosecutor's office came tobelieve the case was ‘‘the tip of the iceberg’’ interms of suspicious transactions conductedthrough HSBC, according to documents re-viewed by Reuters and reported earlier thisyear.

(Additional reporting by Lawrence White andMichael Flaherty in Hong Kong, Steve Slaterin London and Aruna Viswanatha in Washing-ton; Editing by Peter Graff and John Wallace.)

This article originally appeared at Reuters.com

INTERNATIONAL CYBER-FRAUDRING RESPONSIBLE FOR MILLIONSOF DOLLARS IN FRAUDDISMANTLED

Wednesday, December 5, 2012

WASHINGTON—In a coordinated interna-tional takedown, law enforcement officials inRomania, the Czech Republic, the United King-dom and Canada, acting on provisional arrestrequests made by the United States, arrestedsix Romanian nationals today for their allegedinvolvement in a sophisticated multimilliondollar cyber fraud scheme that targeted con-sumers on U.S.-based Internet marketplacewebsites, announced Assistant Attorney Gen-eral Lanny A. Breuer of the Justice Depart-ment's Criminal Division, U.S. Attorney Lo-retta E. Lynch of the Eastern District of NewYork and FBI Assistant Director in ChargeGeorge Venizelos of the New York Field Office.

‘‘As a result of extensive cooperation between



U.S. and European law enforcement officials,the defendants have been charged with ascheme to defraud unsuspecting Americans ofmillions of dollars,’’ said Assistant AttorneyGeneral Breuer. ‘‘The Department of Justice iscommitted to finding and prosecuting Internetfraud aggressively, wherever it happens andhowever hard the perpetrators work to concealtheir crimes.’’

‘‘Thanks to our international law enforce-ment partnerships, even the most sophisticatedcriminal organizations are not beyond ourreach, and we will continue our efforts to pro-tect American consumers from these fraudschemes on Internet marketplace websites,’’said U.S. Attorney Lynch.

‘‘The FBI is committed to protecting theAmerican public from predatory conductwhether it originates here or abroad,’’ said FBIAssistant Director in Charge Venizelos. ‘‘Theinternational nature of many organized crimegroups makes it essential for us to work withour partners here and overseas—as we did inthis investigation—to rein in the allegedcriminals.’’

A criminal complaint unsealed today in U.S.District Court in the Eastern District of NewYork charges Romanian nationals Emil Butoi,34, Aurel Cojorcaru, 43, Nicolae Ghebosila, 43,Cristea Mircea, 30, Ion Pieptea, 36, and NicolaeSimion, 37, and Albanian national FabianMeme, 42, each with one count of wire fraudconspiracy and one count of money launderingconspiracy. Butoi, Cojocaru, Meme, Mircea,Pieptea and Simion are also each charged withone count of passport fraud conspiracy.

Butoi, Cojorcaru, Ghebosila, Mircea, Piepteaand Simion were arrested today. Meme is al-ready incarcerated in the Czech Republic.

The government will seek the defendants' ex-tradition to the United States pursuant to therelevant international treaties.

As alleged in the complaint, the defendants

were responsible for saturating Internet mar-ketplace websites including eBay, Cars.com,AutoTrader.com and CycleTrader.com withdetailed advertisements for cars, motorcycles,boats and other high-value items generallypriced in the $10,000 to $45,000 range. Unbe-knownst to the buyers, however, the merchan-dise did not exist. The defendants allegedlyemployed co-conspirators who correspondedwith victim buyers by email, sending fraudu-lent certificates of title and other informationdesigned to lure the victims into parting withtheir money. Sometimes, the defendants alleg-edly pretended to sell cars from nonexistentauto dealerships in the United States and evencreated phony websites for these fictitiousdealerships. In at least one transaction involv-ing Ghebosila, the ‘‘seller’’ allegedly pretendedto be the widow of an Iraq war veteran who wasselling her family's mobile home so that shecould care for her children. In other transac-tions, the defendants allegedly duped victimsinto sending tens of thousands of dollars fornon-existent vehicles, including Lexus, Audi,Ford, Chevrolet, Dodge, Toyota, Mercedes,Porsche and BMW cars; Big Dog Mastiff andNinja motorcycles; a Fleetwood Storm motorhome; and boats.

As part of the scheme, Cojocaru, Meme, Butoiand others produced high-quality fake pass-ports so that foreign national co-conspirators inthe United States, known as ‘‘arrows,’’ could usethe passports as identification to open Ameri-can bank accounts. The complaint alleges thatCojocaru was recorded on video during theinvestigation displaying new holograms thathe was using to create more authentic-lookingpassports.

According to the complaint, after the ‘‘sell-ers’’ reached an agreement with the victim buy-ers, they would often email them invoices pur-porting to be from Amazon Payments, PayPalor other online payment services, with wiretransfer instructions. However, the defendantsand their co-conspirators allegedly used coun-



terfeit service marks in designing the invoicesso that they would appear identical to com-munications from legitimate payment services.The fraudulent invoices directed the buyers tosend money to the American bank accountsthat had been opened by the ‘‘arrows.’’ Finally,the arrows would allegedly collect the illicitproceeds and send them to the defendants inEurope by wire transfer and other methods. Forexample, the arrows allegedly forwarded Piep-tea $18,000 cash in fraud proceeds hiddeninside hollowed-out audio speakers. Other ar-rows allegedly used the proceeds to purchaseexpensive Audemars Piguet watches, and thensent the watches to the defendants abroad.

According to the complaint, it is estimatedthat the defendants earned over $3 million fromthe fraudulent scheme.

If convicted, the defendants each face a maxi-mum sentence of 20 years in prison on the wirefraud conspiracy and money laundering con-spiracy counts, and 10 years in prison on thepassport fraud conspiracy count.

The charges in the complaint are merely al-legations, and the defendants are presumed in-nocent unless and until proven guilty.

The government's case is being prosecuted byAssistant U.S. Attorneys Cristina Posa, VamshiReddy and Claire Kedeshian of the U.S. At-torney's Office for the Eastern District of NewYork, and Trial Attorney Carol Sipperly of the

Criminal Division's Computer Crime and Intel-lectual Property Section.

The offices of the FBI Legal Attachs in Roma-nia, the Czech Republic, the United Kingdom,Canada and Hungary were instrumental incoordinating efforts with the United States'international partners, and the Justice Depart-ment Criminal Division's Office of Interna-tional Affairs worked with its counterparts inthese countries to effect the provisional arrestsand requests for mutual legal assistance, in-cluding the forfeiture of illegal proceeds of thesecrimes. The Department of Justice's Asset For-feiture and Money Laundering Section alsoprovided assistance in the forfeitures.

The U.S. government thanks the Romaniangovernment, in particular the Ministry of Jus-tice, the Directorate for Combating OrganizedCrime and the Romanian Intelligence Service,for their collaborative efforts throughout thislong-term investigation, as well as the CzechNational Police, Hungarian National Bureau ofInvestigation, Metropolitan Police Service inEngland, Montreal Police Service, Royal Cana-dian Mounted Police, International OrganizedCrime Intelligence and Operations Center,Internet Crime Complaint Center, Costa Mesa,Calif., Police Department, Orange County,Calif., District Attorney's Office and the NewYork City Police Department for theirassistance.



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