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The V enable Report

E N V I R O N M E N T A L C R I M E S B U L L E T I N

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Sarbanes-Oxley: Will A Law Governing Securities A ffect How Environmental Cases A re Prosecuted?

Sarbanes-Oxley: Will A Law Governing Securities Affect How Environmental Cases Are Presecuted? Venable Expands Its Corporate Governance Team Venable Publishes In-Depth Guidance

• n Corporate Governance and

Investigations 11th Annual ALI-ABA Conference on Criminal Enforcement of Environmental Laws Annual Conference on Wetlands Law and Regulation Venable Particiates in Other Key Events 3 he Sarbanes-Oxley A ct was passed in July of 2002 to bolster federal securities laws in the wake of Enron, WorldComm, and other recent corporate governance scandals. Nearly every significant provision of the A ct will have an impact on environmental compliance and how environmental crimes are pursued. The A ct will affect how companies certify reports required under environmental regulations, as a result of the increased standard of care imposed by the A ct for purposes of SEC reporting. The A ct also amends Title 18 (U.S.C.) provisions that often serve as the basis for charging environmental defendants by: ( 1) broadening obstruction provisions to cover document destruction before the onset

• f an investigation,

( 2) increasing jail time for mail and wire fraud several times over, and ( 3) establishing criminal penalties for those who retaliate against whistleblowers. In addition, the A ct directs the U.S. Sentencing Commission to revise the federal sentencing guidelines to reflect this new get- tougher approach. The resulting stiffer sentences will impact enforcement actions beyond the straight white collar arena, and well into regulatory arenas.

Increased Certification Obligations

One criminal offense created by the A ct received a lot of early publicity: Section 906 creates criminal penalties for certification of false financial reports by corporate officers. The CEO and the CFO of an issuing entity must now certify that financial statements comply with Sections 13(a) or 15(d) of the Securities Exchange A ct of 1934, and that the information “fairly presents” the financial condition and results of business

• perations. Knowing false certification is punishable by

a fine of up to $1 million and imprisonment of up to 10

• years. Willful false certification is punishable by a fine of

up to $5 million and imprisonment of up to 20 years. This provision, single-handedly , may reshape the structure of A merican corporations. Companies, both large and small, must now devise systems that will allow the officers who must sign the financial reports to rely absolutely on the process and people by which the information for the reports was generated. Case in point, at the request of three senators, the General A ccounting Office ( GA O) is investigating whether the Securities and Exchange Commission’s ( SEC) requirements for disclosure of environmental liabilities are ( 1) adequate and ( 2) being enforced properly . The SEC requires companies to disclose “material information” related to environmental

• liabilities. The GA

O has been asked to determine if this reporting standard (and its enforcement) are effectively providing appropriate environmental information to

• shareholders. There is substantial concern that the

vagueness of the reporting standard has resulted in considerable variation in the types and degree of information disclosed by companies.

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enable recently added some important credentials to its corporate

governance and investigations practice when the A ssistant Director in the Division of Enforcement at the Securities and Exchange Commission, Nancy Grunberg, and a well-known practitioner in securities regulation and corporate transactions, Frederic T. Spindel, joined the firm as partners in the Washington Office this fall.

• Ms. Grunberg spent nine years at the SEC over two separate stints, from

1988-92 and from 1996 until joining V

• enable. During the first period she was a

trial attorney in the Enforcement Division, handling numerous insider trading and other securities fraud cases, as well as working on the SEC’s historic actions against Drexel Burnham and Michael Milken. In the past two years, as A ssistant Director in the Division of Enforcement under Stephen M. Cutler, she supervised dozens of investigations that, so far, have resulted in the filing of 30 judicial or administrative enforcement actions involving accounting fraud and improper financial reporting, as well as Internet fraud, insider trading, violations of the Foreign Corrupt Practices A ct, and various fraudulent international financial

• schemes. In between her stints in the Division of Enforcement, Ms. Grunberg

served as Litigation Counsel for the SEC’s Office of International A ffairs.

• Mr. Spindel joins V

enable with a career that combines a longtime private practice in securities regulation and corporate transactions with postings at two federal enforcement agencies regulating financial markets. Mr. Spindel spent six years with the U.S. Securities and Exchange Commission in the 1970’s, where he served as an assistant general counsel and was involved in a number of major policy initiatives and enforcement cases. He subsequently served for over three years with the U.S. Commodity Futures Trading Commission in a number of senior staff positions, including deputy general counsel. For the past 20 years,

• Mr. Spindel has engaged in corporate and securities transaction and counseling

practice for two national law firms, most recently in the Washington ( DC) and McLean ( V A ) offices of Pillsbury Winthrop, LLP. V enable attorneys who represent clients in environmental crimes cases work closely with Ms. Grunberg and Mr. Spindel. They bring their securities experience to V enable’s corporate governance and investigations practice under the charge of Benjamin R. Civiletti, former U.S. A ttorney General, who has directed a number of internal investigations for large corporations. In recent months, Mr. Civiletti has marshaled resources across the nearly 440 member firm to respond to the needs of clients facing manifold challenges under the new Sarbanes-Oxley legislation. One certain outcome of Sarbanes-Oxley will be an increase in corporate investigations, whether company-initiated or government-

• rdered, to examine potential sources of financial impropriety

. V enable has led a number of large-scale investigations in the financial services, as well as industrial and commercial, sectors.

V enable Expands Its Corporate Governance Team

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Increased Penalties for “Retaliatory A ction”

The A ct expands the witness tampering provision (Section 1513 of Title 18), extending liability even to those who use tactics that fall short of the current standard of physical intimidation. Section 1513 now includes a provision that prohibits interference with the lawful employment or livelihood of a witness who provides information relating the commission of a federal offense. Thus, anyone who “retaliates” in the employment context now risks jail time of up to 10 years.

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V enable Publishes In-Depth Guidance

• n Corporate Governance and Investigations

enable has recently published a journal of articles on various aspects of corporate governance and the Sarbanes-Oxley A ct entitled, “The New Standards of Corporate Governance.” The firm also has authored handbooks for the chemical industry ( published by the A merican Chemistry Council) and the maritime industry ( published by the A merican Chamber of Shipping) that serve as bracing primers for any company facing possible government inquiry or subpoena. ( Updates for other industries are in the works.) For more information on how to obtain a copy of these materials, contact Janice Toepper at ( 202) 962-4055. Even more daunting is the likely prospect of this more stringent certification obligation stretching beyond the bounds of financial reports, setting a standard of care for other reporting mechanisms that relay information to federal agencies, such as the EPA .

Increased Risk of Obstruction Charges for Document Destruction

The A ct creates a more comprehensive and far- reaching ability to impose criminal liability for

• bstruction of justice by document destruction. The new

provisions are crafted in the broadest possible language, and companies of all sizes, whether private or public, should review document retention policies to avoid potential criminal liability . The A ct has closed two important loopholes previously faced by prosecutors. First, the A ct amends Section 1512 by adding a new provision allowing prosecutors to charge the “individual shredder” as well as the “corrupt persuader” for

• bstruction. 18 U.S.C. § 1512(c).

More importantly , the A ct includes a new provision, 18 U.S.C. § 1519, which broadens both the subject matter and the circumstances in which liability can attach for document destruction in advance of a federal proceeding. Section 1519 provides: “Whoever knowingly alters, destroys… or makes a false entry in any record, document or tangible object with the intent to impede, obstruct, or influence the investigation or

proper adm inistration of any m atter within the jurisdiction of any departm ent or agency of the United States… or in relation to or contem plation of any such m atter or case, shall be… imprisoned not

more than 20 years” (emphasis added). The phrase “any matter within the jurisdiction of any department or agency of the United States” tracks, in part, the language

• f the federal false statement statute, 18 U.S.C. § 1001.

The courts have consistently interpreted “any matter” under Section 1001 as including almost every conceivable area of interest for any federal agency . Looking forward, the new Section 1519, read with Section 1001, may also apply to matters only indirectly within the jurisdiction of the United States, such as where state and local governments, and even private contractors, receive substantial federal funding or carry out delegated federal

• duties. This provision sweeps aside prior disputes about

the timing of the destruction and codifies the broadest standard for determining when criminal liability attaches.

Increased Penalties for Fraudulent Behavior

Mail and wire fraud receive stronger treatment in the A ct as Section 900 drastically elevates the criminal penalties for these crimes. The maximum prison sentence has been increased to up to 20 years (except for fraud affecting a financial institution, which still earns the wrongdoer up to 30 years behind bars). In addition, Section 902 of the A ct states that attempts and conspiracies to commit the substantive fraud offenses – mail, wire, bank, health, and now securities – will have the same maximum punishment as the substantive

• crime. Mail and wire fraud statutes are commonly used

by prosecutors in environmental crimes cases.

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The Venable Report, Environmental Crimes Bulletin is published by the Environmental Practice Group of the law firm of Venable, Baetjer and Howard, LLP , Two Hopkins Plaza, Suite 1800, Baltimore, MD 21201;1201 New York Avenue, N.W., Suite 1000, Washington, DC 20005; One Church Street, Suite 500, Rockville, MD 20850; 210 Allegheny Avenue, P .O. Box 5517, Towson, MD 21204; and 8010 Towers Crescent Drive, Suite 300, Vienna, VA 22182. Internet address: http://www.venable.com. It is not intended to provide legal advice or opinion. Such advice may only be given when related to specific fact situations.

Questions and Comments concerning materials in the newsletter should be directed to Gregory S. Braker or David G. Dickman, Venable, 1201

New Y

• rk Avenue, N.W., Washington, DC 20005.

Telephone (202) 962-4800 or e-mail gsbraker@ venable.com.or dgdickman@ venable.com. Please direct address changes to Ruth Kaufman Telephone (202) 216-8096 or e-mail rgkaufman@ venable.com.

A nnual Conference on Wetlands Law and Regulation

On May 29

th and 30 th of 2003, V

enable partner

M argaret Strand once again will co-chair ( and

speak at) the “Wetlands Law and Regulation” Conference, held in Washington ( D.C.) and sponsored by A LI-A BA , the Environmental Law Institute, and the A BA Section on Environmental, Energy and Resources Law ( SONREEL) This year’s Conference will prove particularly interesting in light of the recent EPA and A rmy Corps of Engineers proposal to re-examine the scope of Clean Water A ct jurisdiction over wetlands.

V enable Participates in Other Key Events

Jud Starr will present at the 17

th A

nnual National Institute for White Collar Crime in San Francisco in March. Jud will participate on a panel entitled “Environmental Criminal Enforcement – Has the Playing Field Changed Post-9/ 11?”

M argaret Strand will present at the 33

rd A

nnual A dvanced A LI-A BA Course of Study on Environmental Law this month in Washington, D.C. Peggy will participate on a panel entitled, “The Clean Water A ct and Wetlands Development.”

David Dickm an recently presented at the 20

th A

nnual Maritime Law Seminar at Tulane Law School. Dave participated on a panel entitled, “ Legal Evidentiary Issues Involving Electronic Technology .”

11

th A

nnual A LI-A BA Conference on Criminal Enforcement

• f Environmental Laws

On May 8

th and 9 th of 2003, V

enable partners Jud Starr and Jerry Block will once again co-chair the preeminent conference devoted exclusively to the examination of environmental crimes issues from the perspectives of government, business, and the defense bar. The effects of Sarbanes-Oxley , as well as homeland security issues, will serve as the focal point of this year’s conference. For more information about the conference, held each year in Washington, D.C., contact Janice Toepper at ( 202) 962-4055.