Headlines that Matter for Companies and Executives in Regulated Industries

Elizabeth Holmes Sentenced to 11 Years in Prison 

On November 18, 2022, former Theranos CEO, Elizabeth Holmes, was sentenced to 11 years and three months in prison for defrauding investors regarding Theranos’ blood testing technology, which she falsely claimed could perform a variety of tests based on just a few drops of blood. Prior to her sentencing, Holmes lost her post-trial acquittal bid and three motions, which sought a new trial or, at a minimum, an evidentiary hearing due to a key government witness showing up unannounced at her home allegedly expressing remorse. US District Judge Edward Davila denied Holmes’ motions and found that the witness’ trial testimony was credible.

At sentencing, prosecutors urged Judge Davila to sentence Holmes to 15 years imprisonment and three years of supervised release. In support of the requested sentence, the Government argued that Holmes lied to journalists and put patient health care at risk, committing one of the most “extraordinarily serious” investor frauds in the history of Silicon Valley. The Government also argued that Holmes refused to take responsibility for her actions and should serve this amount of time behind bars in order to deter future misconduct. In addition, the Government asked the Court to order Holmes to pay around $804 million in restitution for monies owed to Theranos investors including Walgreens, Safeway, and former Secretary of State George Schultz.

Holmes requested a sentence of 18 months home confinement and emphasized that she “poses no danger to anyone.” She also claimed she lacks assets to pay the prosecutors’ suggested fine and that her ability to pay hundreds of millions of dollars through her family’s wealth is “speculation.” While Judge Davila handed down a lesser sentence than prosecutors argued for, Judge Davila questioned whether Holmes’ conduct was due to her “intoxication with fame” and found that Theranos stock would have been 31.5% cheaper had it not been for Holmes’ fraud.

The case is US v. Elizabeth Holmes et al., case number 5:18-cr-00258, in the US District Court for the Northern District of California.

Annual Review of the UK’s Strictest Financial Sanctions in History on Russia

The UK Office of Financial Sanctions Implementation (OFSI) published its annual review of UK financial sanctions. This annual review, covering April 2021 to August 2022, focused on the effect of the sanctions imposed against Russia following its invasion of Ukraine, which are the most stringent financial sanctions in history. The OFSI helps to ensure that UK financial sanctions are properly understood, implemented, and enforced. The HM Treasury, through OFSI, uses the Sanctions and Anti-Money Laundering Act of 2018 (the Sanctions Act) and the Policing and Crime Act of 2017 to implement financial sanctions provisions of UK autonomous sanctions regimes in support of foreign policy and national security objectives.

Since the beginning of Russia’s invasion of Ukraine, £18.39 billion worth of Russian assets had been reported as frozen to OFSI, representing a significant increase since £44.5 million in September 2021. OFSI has also increased its enforcement powers through the Transparency and Enforcement Act of 2022, which imposes a strict liability test for breaches of financial sanctions. OFSI reported that 236 breach reports were received and the issuance of 33 general licenses to UK businesses between February and April 2022. General licenses allow multiple parties to undertake specific activities without applicants needing to submit a specific license request to the OFSI. As a result of the issued general licenses, entities were able to wind down accounts and transactions, file insolvency payments for Russian bank subsidiaries, secure energy supplies to Europe, and continue to access internet and news services in Russia. The OFSI also added 1,271 new Russia regime designated persons to the consolidated list of asset freeze targets, which provides information to help individuals and businesses decide whether they are dealing with someone who is subject to financial sanctions.

Over the coming year, OFSI plans to take on “more, and more complex, enforcement cases to match its increased resourcing and capabilities,” as promoting financial sanctions compliance and robust enforcement is at the forefront of OFSI’s security goals.

Read the OFSI Annual Review here.

New FinCEN Final Rule Requires Businesses to Report True Ownership 

The Financial Crimes Enforcement Network (FinCEN) of the US Department of the Treasury recently promulgated its final rule (the Reporting Rule) implementing the federal Corporate Transparency Act (CTA), which aims to stop criminal actors and those who use anonymous shell companies to hide their illicit proceeds and address deficiencies in the US anti-money laundering regime. The Reporting Rule of the CTA, which is already law, will require around 39 million businesses in the US to enter information about their corporate ownership and control into a FinCEN database called the Beneficial Ownership Secure System (BOSS), which is still under construction. The Reporting Rule of the CTA takes effect on January 1, 2024, and will assist law enforcement and national security agencies in determining who controls certain legal entities—including LLCs, corporations, and trusts —that limit owners’ personal liability and lack of transparency regarding shell companies. FinCEN plans to enforce the CTA and create the database in order to assist national intelligence, law enforcement agencies, and federal functional regulators in bolstering the US’ corporate transparency framework.

Under the CTA, those who willfully fail to report or willfully provide false information can face penalties in the amount of $500 per day while a violation continues, a civil fine up to $10,000, and up to two years in prison. “Unauthorized disclosure or use” of beneficial ownership data carries a potential fine of up to $250,000 or five years in prison or both, or a fine of up to $500,000 and ten years in prison if the conduct occurred as part of other financial wrongdoing.

Read more about the Reporting Rule here.