Ambush, arrest, imprisonment. These words do not commonly appear on job descriptions for executives, but recent high-profile enforcement actions have sent a chilling message that such eventualities need to be considered as a part of the personal liability risk management strategy of every corporate leader.
In March, the U.S. government filed criminal charges against Rochester Drug Co. Operative Inc., and three of its former senior executives, including the former chief executive officer and chief compliance officer. If convicted, these individuals face lengthy prison terms, underscoring an intent by prosecutors to assign liability beyond administrative fines and sanctions.
In Japan, the recent ouster of Carlos Ghosn, former chairman and chief executive of Nissan Motors, illustrates how crucial it is for senior executives to ensure that their personal liability risk management strategy considers plausible risk scenarios, however unusual or unlikely.
As background, Ghosn was arrested and dismissed from Nissan last November on suspicion of conspiring to understate his compensation by approximately half of the actual amount that was awarded to him over five years beginning in 2010. In December 2018, he was officially indicted for breaching financial laws by filing false statements — a crime that is punishable by up to 10 years in prison.
Nissan was also indicted by Japan’s Securities and Exchange Surveillance Commission for filing false financial statements in its annual securities reports. The offense is punishable by a fine of up to 700 million yen ($6.2 million).
Executives, particularly at the most senior levels, can no longer assume that their organization will automatically side with them in an enforcement action.
Ghosn’s arrest has personal liability risk management implications for senior executives around the world. Months-long detention of an executive of a multinational for a non-violent crime is unusual but not unique. Previously, executives working for multinationals have been abruptly detained on white-collar crime charges while working overseas; some ultimately ended up serving lengthy prison sentences.
Executives, particularly at the most senior levels, can no longer assume that their organization will automatically side with them in an enforcement action. In terms of liability insurance, senior executives may also need to consider their coverage should they cease to be employed by their organization. Some questions to think about: Is the coverage adequate to cover the risks that the individual is exposed to globally? Does coverage travel with the individual? Does the individual have ready access to legal counsel in foreign jurisdictions as well as his or her home country?
Senior executives also need to evaluate their liability risk management packages to establish whether the protections are adequate on a global scale. Secondment and unpredictable travel is a routine part of the job, and individuals should ensure that their liability insurance can provide the necessary legal and financial resources should they be detained while traveling abroad.
The enforcement action by the U.S. Department of Justice (DOJ) against Meng Wanzhou, the chief financial officer of Huawei Technologies, is a recent example of how complex these types of enforcement actions can become.
Meng was arrested by Canadian authorities in Vancouver while she was en route to Mexico from Hong Kong. The arrest was made under an extradition request from the United States, where an arrest warrant for Meng had been previously issued.
U.S. authorities have alleged that Huawei, under Meng’s oversight as chief financial officer, misled the U.S. government about its business dealings in Iran. The DOJ has also filed other financial criminal charges against Huawei and Meng, including bank and wire fraud. After being detained for 10 days, Meng was released on bail which was set at C$10 million ($7.5 million).
In addition to liability insurance, senior executives need to think about documentation as a part of their personal liability risk management strategy.
She remains in Canada under house arrest, pending the results of the extradition request. Meng’s legal team has initiated legal action against the Canadian government, alleging that its client’s constitutional rights were violated during her detention and arrest.
The detention of Meng — a Chinese national employed by an organization headquartered in China, by Canadian authorities acting on an extradition request from the U.S. government for sanctions violations in Iran — has proved to be a geopolitical quagmire. The complexity and sheer number of jurisdictions involved highlights the need for senior executives to have access to, and to be able to afford, competent legal representation in every jurisdiction that they oversee.
In addition to liability insurance, senior executives need to think about documentation as a part of their personal liability risk management strategy. This process should factor in termination scenarios, and as such, may require senior executives to invest in additional resources separate to what is provided by their employers.
The enforcement actions against Ghosn and Meng have emphasized the need for senior executives to include documentation management as a vital part of their overall personal liability risk management strategy.
As their respective cases progress, their ability to mount strong defenses will rest heavily on whether they can provide evidence to support their adamant and categorical denials.