Whistleblowing and Internal Monitoring/Investigations

Many thanks again to the Faculty of Law at the University of Hong Kong for hosting my presentation on “Whistleblowing & Internal Monitoring/Investigations” yesterday. It was a really interactive and responsive class. The scheduled three hours was barely enough to cover what I estimated to be an hour plus presentation thanks to all the interesting questions and my sincere apologies to the class for rushing through the latter parts of the slides.

One question at the end of the session, what’s the take-away on the topic.

With and without a poison-pen letter from a whistleblower, a pre-transaction reputation/investigative due diligence should always be conducted ahead of all other types of due diligence. This is not a biased opinion but one proven by real life experience from many past cases whereby some serious and damaging red flags on reputation issues/risks could potentially kill a transaction no matter how good the counterparties emerged in the legal, financial and other due diligence – although in some situations clients took advantage of the negative findings to re-negotiate terms for the pending transaction. Information is power!

In a post-transaction external/internal investigation especially one potentially heading to the courts, with and without a poison-pen letter, it is critical to conduct public records research first as the findings could be documented evidence legally admissible in courts that can help the lawyers and clients win the case. If the public records search turns out futile (a likely scenario in non-transparent and opaque jurisdictions), the findings from intelligence becomes pivotal.

I shared with the class an example of a typical court case whereby the client wins if we can prove two people A & B collaborated on a fraud scheme. No surprise they denied even knowing each other. A barrister once told me how he often receives surveillance photos of A & B say having coffee together as evidence – and how he can easily lose the case with such weak evidence. The best evidence is to prove the two have a long history of relationship – they attended the same school (public records), they were past business partners (public records), their companies were sued (public records), they commented on each other’s FaceBook (could be public records), etc. In the absence of any/sufficient public records evidence, findings from intelligence gathering can potentially turn into public records and important evidence. Consider:

– They not only attended the same school but same class, same computer club and even went on a school camping trip to Nepal when they were 10. The latter are findings from intelligence gathering
as they may be difficult to find in public records but the sources could provide photos as proof.

– They were in the same WhatsApp & WeChat groups? A source from the group could provide a screenshot of group members as proof.

– They were neighbors when they were young? This could be difficult to prove in public records because they don’t own the properties then but if there’s a lead they were neighbors, a search on their parents names could lead to documented proof.

Hence the importance of intelligence gathering. And thinking out of the box.

Shhh… DOJ Uses 18th Century Law to Make Apple Unlock Encrypted iPhones

It’s time to raise the antenna again on smartphone encryption matters.

Law enforcement agencies, particularly the FBI, have been desperately pressurizing the Congress to force Apple and Google to do away with their new default smartphone encryption. And authorities are apparently giving in.

According to an exclusive report by Ars Technica (below) earlier this week, court documents from 2 federal criminal cases in New York and California show the US Department of Justice on October 31 this year went as far as exercising a 18th century law – the All Writs Act – to compel Apple and at least one other company to cooperate with law enforcement officials in investigations dealing with locked and encrypted smartphones.

The 225-year-old law gives the courts the right to issue whatever writs or orders in order to compel someone to do something.

To the extent that Apple has recently beefed up encryption in its latest iOS 8, the fact that the DOJ would go to such absurd lengths might set worrying precedence – recall a recent ludicrous DOJ assertion that the new encryption standards would kill a child.

A more disturbing question: What would you do if you were FBI director James Comey making his rounds to denounce smartphone encryption?

Make the DOJ use the All Writs Act to force manufacturers to install convenient backdoors. Why not?

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Feds want Apple’s help to defeat encrypted phones, new legal case shows

Prosecutors invoke 18th-century All Writs Act to get around thorny problem.
by Cyrus Farivar – Dec 1 2014, 10:00pm CST

OAKLAND, CA—Newly discovered court documents from two federal criminal cases in New York and California that remain otherwise sealed suggest that the Department of Justice (DOJ) is pursuing an unusual legal strategy to compel cellphone makers to assist investigations.

In both cases, the seized phones—one of which is an iPhone 5S—are encrypted and cannot be cracked by federal authorities. Prosecutors have now invoked the All Writs Act, an 18th-century federal law that simply allows courts to issue a writ, or order, which compels a person or company to do something.

Some legal experts are concerned that these rarely made public examples of the lengths the government is willing to go in defeating encrypted phones raise new questions as to how far the government can compel a private company to aid a criminal investigation.

Two federal judges agree that the phone manufacturer in each case—one of which remains sealed, one of which is definitively Apple—should provide aid to the government.

Ars is publishing the documents in the California case for the first time in which a federal judge in Oakland specifically notes that “Apple is not required to attempt to decrypt, or otherwise enable law enforcement’s attempts to access any encrypted data.”

The two orders were both handed down on October 31, 2014, about six weeks after Apple announced that it would be expanding encryption under iOS 8, which aims to render such a data handover to law enforcement useless. Last month, The Wall Street Journal reported that DOJ officials told Apple that it was “marketing to criminals” and that “a child will die” because of Apple’s security design choices.

Apple did not immediately respond to Ars’ request for comment.

Meet the “All Writs Act”

Alex Abdo, an attorney with the American Civil Liberties Union, wondered if the government could invoke the All Writs Act to “compel Master Lock to come to your house and break [a physical lock] open.”

“That’s kind of like the question of could the government compel your laptop maker to unlock your disk encryption?” he said. “And I think those are very complicated questions, and if so, then that’s complicated constitutional questions whether the government can conscript them to be their agents. Then there’s one further question: can the government use the All Writs Act to compel the installation of backdoors?”

But, if Apple really can’t decrypt the phone as it claims, the point is moot.

“Then that’s pretty much the end of it,” Hanni Fakhoury, a staff attorney at the Electronic Frontier Foundation, told Ars. “The writ doesn’t require Apple to do something that is impossible for it to do.”

Andrew Crocker, a legal fellow also at the Electronic Frontier Foundation, pointed out on Twitter on Tuesday that back in 2005, a different New York magistrate refused to accept the government’s invocation of the All Writs Act to obtain real-time cell site data.

As Magistrate Judge James Orenstein wrote at the time:

Thus, as far as I can tell, the government proposes that I use the All Writs Act in an entirely unprecedented way. To appreciate just how unprecedented the argument is, it is necessary to recognize that the government need only run this Hail Mary play if its arguments under the electronic surveillance and disclosure statutes fail.

The government thus asks me to read into the All Writs Act an empowerment of the judiciary to grant the executive branch authority to use investigative techniques either explicitly denied it by the legislative branch, or at a minimum omitted from a far-reaching and detailed statutory scheme that has received the legislature’s intensive and repeated consideration. Such a broad reading of the statute invites an exercise of judicial activism that is breathtaking in its scope and fundamentally inconsistent with my understanding of the extent of my authority.

“Any capabilities [Apple] may have to unlock the iPhone”

One of the new phone search cases was filed in federal court in Oakland, just across the bay from San Francisco, while another was filed in federal court in Manhattan.

In the Oakland case, prosecutors asked a federal judge in to “assist in the execution of a federal search warrant by facilitating the un-locking of an iPhone.”

Ars went in person to the Oakland courthouse on Wednesday to obtain the documents and is publishing both the government’s application and the judge’s order for the first time here. The All Writs Act application and order are not available via PACER, the online database for federal court records.

“This Court has the authority to order Apple, Inc., to use any capabilities it may have to unlock the iPhone,” Garth Hire, an assistant US attorney, wrote to the court and cited the All Writs Act.

“The government is aware, and can represent, that in other cases, courts have ordered the unlocking of an iPhone under this authority,” he wrote. “Additionally, Apple has routinely complied with such orders.”

“This court should issue the order because doing so would enable agents to comply with this Court’s warrant commanding that the iPhone be examined for evidence identified by the warrant,” he continued. “Examination of the iPhone without Apple’s assistance, if it is possible at all, would require significant resources and may harm the iPhone. Moreover, the order is not likely to place any unreasonable burden on Apple.”

In response, Magistrate Judge Kandis Westmore ordered that Apple “provide reasonable technical assistance to enable law enforcement agents to obtain access to unencrypted data.” She did not specifically mention the All Writs Act.

But she added:


It is further ordered that, to the extent that data on the iOS device is encrypted, Apple may provide a copy of the encrypted data to law enforcement but Apple is not required to attempt to decrypt, or otherwise enable law enforcement’s attempts to access any encrypted data.

Westmore’s language is a near-duplicate of a June 6, 2014 order issued by a different judge from the Northern California district, San Jose division, which is about 40 miles south of Oakland. There, Magistrate Judge Howard Lloyd ordered Apple to assist in the search of an iPad Mini, months before the release of iOS 8.

New spying tools afoot

On Tuesday, The Wall Street Journal reported on an order issued by a federal magistrate in New York in a case involving alleged credit card fraud.

In that Manhattan case, Magistrate Judge Gabriel Gorenstein granted the government’s proposed order on the same day as Westmore (October 31, 2014), also citing the All Writs Act, which compels the unnamed phone manufacturer to provide “reasonable technical assistance” in unlocking the device.

The mystery company could challenge the judge’s order, according to Brian Owsley, a former federal magistrate judge who now is a law professor at Indiana Tech.

“Unfortunately, we will probably not know because the issue will likely be sealed even though there should be more transparency in these issues,” he told Ars by e-mail, noting that during his tenure on the bench he could not remember a time when the government invoked the All Writs Act.

“It is only through greater transparency will we start to get the answers. If the provider simply complies we will know nothing. Here, Judge Gorenstein’s approach strikes me as very even-handed, but the inherent problem is that those who are concerned about privacy issues in general simply have to hope that the provider will speak up for us.”

But Orin Kerr, a law professor at George Washington University and a former federal prosecutor, does not believe that the seized phone in the New York case was an iOS 8 device.

“The government obtained a warrant on October 10 for a phone already in its possession,” he told Ars by e-mail. “Apple’s announcement was something like September 18. If it was an iPhone, it was probably an iPhone running [on] an earlier operating system.”

Still, Alex Abdo, the ACLU attorney, after reading a copy of the Oakland documents, concluded that the “government’s application raises troubling questions about the extent to which it can force companies to break the products they sell.”

“We are heartened, however, that the court recognized that possibility and stopped short of ordering Apple to come up with a way to decrypt its customers’ data,” he added.

“More broadly, it is disconcerting that the government is relying on a catch-all law to seek surveillance powers that it should be seeking from Congress and the public,” said Abdo. “If the government wants new spying tools, it should allow our democratic process to debate them openly first.”

UPDATE 1:50pm CT: Jonathan Mayer, a lecturer at Stanford Law, said that use of the All Writs Act is not as novel as it may seem. (He recommended his recent lecture on the subject!)

“The TL;DR is that there is nothing new about using the All Writs Act to compel assistance,” Mayer told Ars by e-mail. “And there is also nothing new about using it to compel assistance with unlocking a phone. That repeated language you saw? It’s provided by Apple itself!”

“As for the opinion discounting the All Writs Act, that had to do with surveillance under the Electronic Communications Privacy Act. Where ECPA applies, the All Writs Act doesn’t. (It’s just a default, as the court rightly noted.) Phone unlocking isn’t covered by ECPA, so the All Writs Act remains in play.”

The Genesis of Hong Kong´s Company Law Fuss

The Companies Ordinance review has been years in the making

A recent hotly debated topic in Hong Kong relates to the government’s attempt to rewrite the Companies Ordinance, spurred largely by the sudden public realization that the resulting new Companies Bill was already passed in the local legislature without much media attention and the rude awakening to the subsequent impacts.

Much of the current media focus and public debates have been placed on only one aspect of the many proposed changes: to withhold from the public parts of the identification numbers and details of the residential addresses of company directors found in the Hong Kong company registration records.

The lightning rod for public concern has struck many a wrong cord, including outcries about the suppression of transparency and apprehension over possible government submission to China’s will.

This column looks at the roots of the situation and puts the fuss in perspective.

Please read full article here.

Hong Kong Considers Freedom of Information Act

While Attempting to Suppress Transparency

Paradoxically, even as the Hong Kong government is proposing far-reaching changes to the Companies Ordinance that would bring due diligence and investigations to a stop, officials are also quietly studying the possibility of introducing a Freedom of Information Act.

If that seems a contradiction, that’s because it is.

The Companies Ordinance amendments, either missed or ignored by the mainstream media when it was passed through the legislature earlier last year, will result in withholding from the public parts of the identification numbers and details of the residential addresses of company directors found in the Hong Kong company registration records – the very thing a freedom of information act is designed to facilitate.

Please read the full column here.