Archive for the ‘BizJet International’ Category

Where Was The BizJet Board?

Thursday, April 11th, 2013

Many assume that my article “The Facade of FCPA Enforcement“ is all about over-enforcement of the FCPA based on untested and dubious legal theories not subjected to judicial scrutiny.  To be sure, these topics are discussed in great detail in the article.

However, also discussed in great detail in the article is the opposite end of the spectrum.  That being, despite seemingly clear-cut instances of corporate bribery per the government’s own allegations, a corporate enforcement action is resolved without FCPA anti-bribery charges.  The 2010 article discussed the most pertinent cases at the time – Siemens and BAE.

In this April 2012 post, I first commented on the egregious nature of the BizJet corporate enforcement action and noted that when conduct giving rise to corporate liability involves senior executive misconduct and apparent knowing acquiescence by the Board, the entity - simply put – should not be offered an alternative resolution vehicle.  Yet, BizJet was allowed to resolve the enforcement action via a deferred prosecution agreement, meaning that should it abide by the terms and conditions of the agreement, BizJet will never be required to plead guilty to anything.

The following was known in 2012 about the BizJet enforcement action.

  • The conduct giving rise to the enforcement action was engaged in by various executives at the highest levels of the company.
  • The Board of Directors was specifically informed by certain of the executives that the company “would pay referral fees in order to gain market share.”

Information revealed in connection with the recent unsealing of the former BizJet executives enforcement action (see here and here for prior posts) adds the following relevant information.

  • The scope of the improper conduct engaged in by the various executives was not just limited to Mexico and Panama as suggested by the 2012 corporate enforcement action.  Rather, according to the DOJ, improper conduct also related to BizJet business in Brazil and Chile.
  • According to the DOJ, the scope of the improper conduct was not just limited to foreign business conduct, but domestic business conduct as well.  The recently unsealed information states that customers or potential customers BizJet bribed “included customers both in the United States and abroad.
  • Regarding the above referenced Board of Directors meeting, the DOJ asserts that in response to a question by a director about how BizJet would survive the next six months without ‘burning cash,’ a senior executive stated that BizJet expected to gain market share by paying ‘referral fees’ just as the competition was doing.

In short, and per the DOJ allegations, BizJet was an egregious instance of corporate bribery, broad in scope. conceived of and executed by senior executives, with board knowledge and acquiescence.

The question ought to be asked – where was the BizJet board and what, if anything, did it do in November 2005 upon learning that senior executives were engaged in bribery?

Per the DOJ’s allegations, this was not a situation in which the Board of Directors needed to engage in any detailed inspection of the company’s books and records or have sophisticated knowledge to discover the bribery scheme.  Rather, the Board was specifically told by senior executives that the company was engaged in bribery.

In a notable case in the corporate director context (Francis v. United Jersey Bank) the court stated that “the sentinel asleep at his post contributes nothing to the enterprise he is charged to protect [...] Shareholders have a right to expect that directors will exercise reasonable supervision and control over the policies and practices of a corporation.  The institutional integrity of a corporation depends upon the proper discharge by directors of those duties.”

The egregious BizJet enforcement action also raises the question of whether corporate criminal liability means anything?

Many, including myself, believe that corporate criminal liability principles need revisiting.

For purposes of this post however, the important perspective is that of the DOJ which has long maintained that corporate criminal liability is a fundamentally sound legal doctrine not in need of revision.

If that is the DOJ position, then it must be asked – does corporate criminal liability actually mean anything if a company like BizJet – given the DOJ’s allegations – is not actually criminally prosecuted or required to plead guilty?

In short, the resolution vehicles the DOJ has created and championed has again lead to a “facade of enforcement” - albeit an instance on the opposite end of the spectrum that I normally highlight.

Unsealed Documents In Enforcement Acton Against Former BizJet Executives Reveal A Trove Of Information

Tuesday, April 9th, 2013

Yesterday’s post (here) summarized the criminal indictments against former BizJet executives Bernd Kowalewski and Jald Jensen.  Today’s post discusses the related criminal informations, based on the same core set of conduct, against former BizJet executives Peter DuBois (former Vice President of Sales & Marketing) and Neal Uhl (former Controller, Vice President of Finance).  As noted in the prior post, DuBois and Uhl agreed to plead guilty and were sentenced last week.

Today’s post also highlights documents recently unsealed in the DuBois and Uhl action which reveal a trove of information of interest to anyone curious about the inner workings of an FCPA enforcement action and connecting the dots to other FCPA enforcement actions.

DuBois was charged via a criminal information (here) with one count of conspiracy to violate the FCPA’s anti-bribery provisions and one substantive FCPA anti-bribery violation.  The conduct at issue is the same core set of conduct at issue in 2012 BizJet corporation action, as well as the criminal indictments against Kowalewski and Jensen.  That is a scheme to “obtain aircraft maintenance, repair and overhaul (“MRO”) service contracts and other business [for BizJet] from foreign government customers, including the Mexican Federal Police, the Mexican President’s Fleet, Sinaloa and the Panama Aviation Authority, by paying bribes to government officials employed by the foreign government customers.”

The DuBois information was filed on December 27, 2011 and the related motion by the DOJ to seal the docket (since unsealed) reveals the following.

As part of his plea agreement, DuBois worked in an undercover capacity for the government.  The motion specifically states as follows.  “As part of his work in an undercover capacity, Mr. DuBois has recorded conversations with former BizJet executives and other subjects of the government’s ongoing investigation.”  Later, the motion to seal states that “public identification of Mr. DuBois as a defendant who likely is cooperating with the government may jeopardize the undercover aspect of the government’s investigation.”

In the plea agreement, DuBois agreed to pay a forfeiture amount of $98,950 “representing proceeds derived by defendant in connection with the conspiracy” and to pay an additional $61,000 as the amount DuBois “received … as a result of his participation in the conspiracy.”

The DOJ’s memo in support of a downward departure for sentencing states as follows.

DuBois “assisted in the investigation from the outset and cooperated fully with the government throughout its investigation.  DuBois submitted to multiple interviews by the government and has assisted in every way that the government has asked.  DuBois told the truth to the government from the outset and continued to do so up until this very day.  DuBois’ cooperation not only assisted the government in connection with its investigation into BizJet, but also led to the investigation of another maintenance, repair, and overhaul company engaged in a similar scheme to pay bribes to government officials overseas.”

This last portion of the DOJ’s memo makes clear that the 2012 FCPA enforcement action against NORDAM Group (see here for the prior post) had its origins in the BizJet enforcement action.  Both BizJet and NORDAM Group are Tulsa, OK based aircraft maintenance companies.  The link and information about DuBois’ undercover role also raises the issue of whether individual prosecutions related to the NORDAM Group corporate enforcement action are also forthcoming.

As noted in the DOJ release, DuBois was sentenced to 60 months probation and eight months home detention.

Uhl was charged via a criminal information (here - filed on December 28, 2011) with one count of conspiracy to violate the FCPA’s anti-bribery provisions.  The conduct at issue is the same core set of conduct as indicated above, that is a scheme to “obtain aircraft maintenance, repair and overhaul (“MRO”) service contracts and other business [for BizJet] from foreign government customers, including the Mexican Federal Police, the Mexican President’s Fleet, Sinaloa and the Panama Aviation Authority, by paying bribes to government officials employed by the foreign government customers.”  See here for the Uhl plea agreement.

In the Uhl matter, the DOJ’s motion for a downward departure states as follows.

 Uhl ”agreed to a voluntary proffer session and, when confronted by the government, admitted to the illegal conduct.  Throughout the course of the investigation, Uhl was cooperative and provided truthful information that substantially assisted the government in confronting other co-conspirators and witnesses.  Uhl offered to assist in any way that he could.”

As noted in the DOJ release, Uhl was sentenced to 60 months probation, eight months home detention, and was ordered to pay a $10,000 fine.

The motions to seal in both the DuBois and Uhl actions further state as follows. ”BizJet’s corrupt payments were not limited to Mexico.  BizJet employees bribed key decision makers in a number of countries, including Panama, Brazil, and Chile.”  This is notable in that the 2012 BizJet corporate enforcement action made no mention of conduct in Brazil or Chile.  This demonstrates that resolution documents in a corporate FCPA enforcement action are the result of negotiations and that final documents rarely offer the complete picture of the conduct that allegedly occurred.

Both the DuBois and Uhl plea agreements further indicate that BizJet’s bribery scheme was not just in foreign countries.  Both plea agreements state that the customers or potential customers BizJet bribed “included customers both in the United States and abroad.

Former BizJet Executives Charged / Sentenced

Monday, April 8th, 2013

This prior post from 2012 discussed the BizJet corporate enforcement action and was titled “BizJet FCPA Enforcement Action Involves Executive Conduct.”  In summarizing that action, the post highlighted DOJ allegations as to Executive A, Executive B, Executive C, and Sales Manager A.

If the DOJ’s rhetoric of holding individuals accountable in the context of corporate resolutions is to mean anything (as noted in this prior post, since 2008 approximately 75% of DOJ corporate enforcement have not resulted in any related individual charges against company employees) the BizJet corporate action was one where related individual enforcement actions were to be expected given the DOJ’s prior specific allegations concerning the above individuals.

It turns out that the above individuals were criminally charged some time ago, but last Friday, in this release, the DOJ unsealed the actions and revealed the names of the above individuals.

Executive A is Bernd Kowalewski; Executive B is Peter DuBois; Executive C is Neal Uhl; and Sales Manager A is Jald Jensen.

In the release, the DOJ announced as follows.

“Kowalewski and Jensen were charged by indictment filed in U.S. District Court for the Northern District of Oklahoma on Jan. 5, 2012, with conspiring to violate the Foreign Corrupt Practices Act (FCPA) and to launder money, as well as substantive charges of violating the FCPA and money laundering.  The two defendants are believed to remain abroad.”

The DOJ further announced as follows.

“DuBois and Uhl pleaded guilty on Jan. 5, 2012, to criminal informations, and their pleas were unsealed [last Friday].  DuBois pleaded guilty to one count of conspiracy to violate the FCPA and one count of violating the FCPA.  Uhl pleaded guilty to one count of conspiracy to violate the FCPA.  Both defendants were sentenced [last Friday] by U.S. District Judge Gregory K. Frizzell in the Northern District of Oklahoma.  DuBois’s sentence was reduced from a sentencing guidelines range of 108 to 120 months in prison to probation and eight months home detention based on his cooperation in the government’s investigation.  Uhl’s sentence was similarly reduced for cooperation from a guidelines range of 60 months in prison to probation and eight months home detention.”

The conduct at issue in the indictments and informations is the same core set of conduct at issue in the 2012 BizJet corporate enforcement action.  That is, DOJ allegations that the individuals ”paid bribes to officials employed by the Mexican Policia Federal Preventiva, the Mexican Coordinacion General de Transportes Aereos Presidenciales, the air fleet for the Gobierno del Estado de Sinaloa in Mexico, the air fleet for the Estado De Roraima in Brazil, and the Republica de Panama Autoridad Aeronautica Civil in exchange for those officials’ assistance in securing contracts for BizJet to perform MRO [aircraft maintenance, repair and overhaul] services.”

This post summarizes the indictments (here and here) against Kowalewski (the President and CEO of BizJet between 2004 through March 2010) and Jensen (a regional sales manager at BizJet between 2004 and 2010).  A future post will summarize the enforcement actions against DuBois and Uhl.  The informations in those cases (here and here) have been released, but the plea agreements and sentencing documents are not yet in the public domain.

Kowalewski Indictment

At its core, the indictment alleges a scheme “to obtain and retain MRO service contracts and other business for BizJet and others from foreign government customers, including the Mexican Federal Police, the Mexican President’s Fleet, Sinaloa, the Panama Aviation Authority, the State of Roraima, and other customers, by paying bribes to foreign officials employed by such customers.”  According to the indictment, the bribe payments were called ‘commission,’ ‘incentives’ or ‘referral fees.”  The indictment also alleges that Kowalewski and others “would and did attempt to conceal the payments to foreign officials by using Avionica [a California company owned by Jensen and located at his personal residence that operated "under the pretense of providing aircraft maintenance brokerage services"] to funnel the payments to the foreign officials by making payments in cash delivered by hand to the foreign officials.”

The six counts of FCPA anti-bribery violations are based on the following:

  • “check mailed in the amount of $20,000 by BizJet in Tulsa, OK to [Panamanian Official] in return for [the official's] assistance in securing business for BizJet with the Panama Aviation Authority”
  • “wire transfer in the amount of $30,000 from BizJet’s bank account in New York to Avionica’s bank account in California for use to bribe [Mexican Official] in return for [the official's] assistance in securing business for BizJet with the Mexican President’s Fleet”
  • “wire transfer in the amount of $18,000 from BizJet’s bank account in New York to Avionica’s bank account in California for use to bribe [Mexican Official] in return for [the official's] assistance in securing business for BizJet with Sinaola”
  • “wire transfer in the amount of $176,000 from BizJet’s bank account in New York to Avionica’s bank account in California for use to bribe foreign officials employed by the Mexican Federal Police in return for their assistance in securing business for BizJet with the Mexican Federal Police”
  • “wire transfer in the amount of $210,000 from BizJet’s bank account in New York to Avionica’s bank account in California for use to bribe foreign officials employed by the Mexican Federal Police in return for their assistance in securing business for BizJet with the Mexican Federal Police”
  • “two checks mailed in the amount of $22,912.38 and $6,417.44 by BizJet in Tulsa, OK to [Mexican Official] in return for [the official's] assistance in securing business for BizJet with Sinaloa.”

Like the BizJet corporate enforcement action, the Kowalewski indictment also contains allegations which suggest a complicit board of directors at the company.  The indictment states as follows concerning a November 2005 board meeting:

  • Kowalewski explained at the meeting that “directors of maintenance and chief pilots in the past received ‘commission’ of $3,000 to $5,000 but were now demanding $30,000 to $40,000 in ‘commission.”
  • In response to a question by a director about how BizJet would survive the next six months without ‘burning cash,’ Kowalewski stated that BizJet expected to gain market share by paying ‘referral fees’ just as the competition was doing.

The indictment also alleges as follows.

“[In January 2010], after receiving an e-mail stating that the internal auditors of BizJet’s parent company would be conducting a detailed audit of BizJet’s incentive payments and requesting that Kowalewski prepare and make available all relevant documents, Kowalewski caused deletion software to be installed and run on his computer that erased content from his computer.”

Based on the above allegations, the DOJ charged Kowalewski with one count of conspiracy to violate the FCPA’s anti-bribery provisions, six counts of FCPA anti-bribery violations.  In addition, the indictment charges one count of money laundering conspiracy and three counts of substantive money laundering.

Jensen Indictment

At its core, the indictment alleges the same scheme as in the Kowalewski indictment, including the same six substantive FCPA anti-bribery violations, as well as money laundering conspiracy and three counts of substantive money laundering.  The Jensen indictment further alleges FCPA and money laundering forfeiture allegations which state that “upon conviction” of the offenses, Jensen “shall forfeit” to the U.S. “any property, real or personal, which constitutes, or is derived from, proceeds traceable to the offenses.”

Acting Assistant Attorney General Mythili Raman stated in the DOJ release as follows.

“The charges announced today allege a conspiracy by senior executives at BizJet to win contracts in Latin American countries through bribery and illegal tactics.  Former BizJet executives, including the former president and chief executive officer, allegedly authorized and caused hundreds of thousands of dollars to be paid directly and indirectly to ranking military officials in various foreign countries, and two former executives have pleaded guilty for their roles in the conspiracy.  These charges reflect our continued commitment to holding individuals accountable for violations of the FCPA, including, as in this instance, after entering into a deferred prosecution agreement with their employer.”

Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office stated in the DOJ release as follows.

“Business executives have a responsibility to act appropriately in order to maintain a fair and competitive international market.  The unsealing of these bribery charges, and today’s sentencing, demonstrate that the FBI is committed to curbing corruption and will pursue all those who try to advance their businesses through bribery.”

The former BizJet executive enforcement action announced last Friday is the first FCPA enforcement action of 2013.  The last DOJ FCPA enforcement action (of any kind – corporate or individual) was in September 2012 and the last time the DOJ brought an FCPA enforcement action against an individual was in April 2012. (See here for the prior post).

For additional coverage, see here from Tulsa World.

Hit And Misses

Tuesday, May 15th, 2012

Recently on his Forbes column (here), Howard Sklar paused to rethink some of his FCPA positions based on my recent post (here) and this recent article by former Attorney General Michael Mukasey.  On the theory (perhaps presumed) that others derive value from FCPA Commentariat (that’s Howard’s term, not mine) debates, this post discusses Howard’s hits and misses and encourages him to keep rethinking.

I agree with Howard (in fact, I know from my prior FCPA practice experience) that DPAs and NPAs seldom tell the complete story.  This truism seems to give Howard comfort that perhaps all DPA and NPAs represent actual, provable FCPA violations notwithstanding the conduct actually set forth in the resolution documents.  However, this truism causes me discomfort because, based on my experience, for every aggravating fact left out of the resolution documents there are also frequently two mitigating facts left out of the resolution documents.

Howard is spot on though when he says that “the DOJ must realize that the information they disclose forms the enforcement record they have to defend.”  Criticism as to the actual facts and conduct the DOJ sets forth in an NPA or DPA - and the resulting analysis as to the ultimate issue of whether the conduct actually violates the FCPA – are problems entirely of the DOJ’s own making.

Why?

Because the DOJ encourages those subject to the FCPA to look to these documents as evidence of conduct violating the FCPA and for guidance as to enforcement theories.  In “The Facade of FCPA Enforcement” (here at pgs. 998-1000) I called this the “absurdity of FCPA caselaw.”  For instance in this GAO report (Appendix III), the DOJ explained, in its view, why NPAs/DPAs ”are beneficial” including that “DPAs and NPAs benefit the public and industries by providing guidance on what constitutes improper conduct.”  Furthermore, in the aftermath of the November 2010 Senate FCPA hearing, the DOJ was asked various ways about FCPA uncertainty and lack of guidance. The DOJ responded (see here) that it “provides clear guidance to companies with respect to FCPA enforcement through a variety of means” including “charging documents, plea agreements, deferred prosecution agreements and non-prosecution agreements, press releases, and relevant pleadings and orders.”  The DOJ stated that “these documents are lengthy and detailed.”  You might want to re-read the Lufthansa Technik NPA (here) at this point – the last words that should enter your brain are lengthy and detailed.

Howard next admits to his “true bias” (as a former SEC attorney) and is confident in his ability to size up people and is confident that prosecutors would never bring bad cases even if the “asynchronous information can make it seem that way.”  I’ll let Judge Richard Leon and Judge Alex Kozinski respond to that issue.  When granting the DOJ’s motion to dismiss the Africa Sting cases, Judge Leon spoke of how prosecutors can become ”so convinced of the righteousness of their position.” (See here for the prior post).  As noted in this recent post, the Ninth Circuit recently addressed the DOJ’s “trust us” position and stated as follows.  “The government assures us that, whatever the scope of the CFAA, it won’t prosecute minor violations.  But we shouldn’t have to live at the mercy of our local prosecutor. [...] And it’s not clear we can trust the government when a tempting target comes along.”

Howard next asserts that despite the temptation DOJ prosecutors may have to resolve cases via an NPA vs. doing nothing, he “suspects that is less of a problem that you’d think.”  Credible evidence suggests otherwise.  See e.g., Peter Spivak & Sujit Raman, Regulating the ‘New Regulators’:   Current Trends in Deferred Prosecution Agreements, 45 Am. Crim. L. Rev. 159, 176 (2008) (“we heard from colleagues in the defense bar of prosecutors who, in their haste to compel the company’s cooperation in pursuit of individuals, have pressed the entity to enter into a diversion agreement before any particular’s guilty could definitely be established).  Even Mark Mendelsohn (former DOJ FCPA unit chief) has indicated that a ”danger” with NPAs and DPAs ”is that it is tempting” for the DOJ “to seek to resolve cases through DPAs or NPAs that don‟t actually constitute violations of the law.”  See Corporate Crime Reporter, Sept. 13, 2010.

The clincher, in Howard’s mind, that NPAs and DPAs have never been used to resolve cases that do not actually represent FCPA violations seems to be this – he has not heard any complaint “from any practitioners, on or off the record, in public or in private” of this being the case.

There is a very simple explanation for this.  These resolution vehicles muzzle the companies and their defense counsel.  The following template clause (from the recent BizJet International DPA – here) is common.

Public Statements by BizJet

BizJet expressly agrees that it shall not, through present or future attorneys, officers, directors, employees, agents or any other person authorized to speak for BizJet make any public statement, in litigation or otherwise, contradicting the acceptance of responsibility by BizJet set forth above or the facts described in the attached Statement of Facts.  Any such contradictory statement shall, subject to cure rights of BizJet described below, constitute a breach of this Agreement and BizJet thereafter shall be subject to prosecution as set forth in [this] Agreement.  The decision whether any public statement by any such person contradicting a fact contained in the Statement of Facts will be imputed to BizJet for the purpose of determining whether they have breached this Agreement shall be the sole discretion of the Department.

No FCPA lawyer representing a company party to an FCPA NPA or DPA is going to risk breaching the agreement just to make a splash on the FCPA conference circuit.

Another template clause in such resolution vehicles (as in the recent BizJet DPA) is the requirement that the company “shall first consult” with the DOJ to see if it has any objection before the company issues a press release or holds a press conference in connection with the resolution.

As noted in this prior post, when the U.K. Serious Fraud Office inserted such language into its Innospec settlement, it received a lashing from Lord Justice Thomas who stated as follows.  “It would be inconceivable for a prosecutor to approve a press statement to be made by a person convicted of burglary or rape; companies who are guilty of corruption should be treated no differently to others who commit serious crimes.”

Finally, the least persuasive of Howard’s points in favor of NPAs and DPAs is that without such agreements “our lowered enforcement would reflect in international efforts as well” and that Russia ”would certainly not take its responsibilities seriously – if it saw reduced enforcement in the U.S.”

I take Howard’s point and on this issue I largely blame civil society and monitoring organizations (who do good work in other areas) but put out misleading report cards when it comes to enforcement statistics.  For instance, as noted in this prior post concerning the OECD’s Phase 3 Review of the U.S., one of the many ironies of the review was that while loudly praising the U.S. for its “high level” of enforcement, the Report quietly criticized and questioned many of the policies and enforcement theories which yield the “high level” of enforcement.  More to the point, the OECD noted ”one of the reasons for the impressive FCPA enforcement record in the U.S.” is the use of NPAs and DPAs,  yet the report noted that these agreements are subject to little or no judicial scrutiny.

It is plainly obvious (as noted in this prior post) that a reason (there are other reasons as well noted in the post) for the divergent level of enforcement in OECD countries is due to the fact that, to the best of my knowledge, only the U.S. has three options in “prosecuting” such cases:  charge, don’t charge, or use an NPAs or DPA.  Given the, what at times seems like a new “global arms race” to see which country can move up the enforcement score cards, other countries – most notably the U.K. – want these agreement as well.  However, this is all the more reason to get things right in this country least our “facade of FCPA enforcement” be further exported.  Quality should matter more than quantity when it comes to criminal law enforcement.

Keep rethinking Howard.

The Problem With FCPA Enforcement? Look No Further Than BizJet / Lufthansa Technik

Thursday, April 12th, 2012

Certain FCPA reform proposals I support (such as a compliance defense – see here) involve amending the statute.  Other reform proposals I support involve a change in DOJ enforcement policy (or lacking that, perhaps Congressional action) such as publishing declination decisions when a company voluntarily discloses (see here) and abolishing non-prosecution and deferred prosecution agreements.

When listing the problems with FCPA enforcement, the use of NPAs and DPAs is at the top of the list.

Point taken that such alternative resolution vehicles are used in other substantive areas of law (such as antitrust, money laundering etc.), but the predominate use of such vehicles is to resolve FCPA inquiries.  (See here from Gibson Dunn – FCPA enforcement actions comprised approximately 40% of DOJ NPAs or DPAs in 2011; here from Gibson Dunn – FCPA enforcement actions comprised approximately 50% of DOJ NPAs or DPAs in 2010).  Moreover, resolving an antitrust, money laundering, etc. case via an NPA or DPA is at least informed by mounds of precedential caselaw, a circumstance absent when resolving FCPA enforcement actions.

The DOJ first used an alternative resolution vehicle in an FCPA enforcement action in 2004 (see here) and since then an NPA or DPA has been used to resolve approximately 80% of core corporate DOJ FCPA enforcement actions.

It is clear that the DOJ’s use of such vehicles in the FCPA context is one of the reasons for the increase in FCPA enforcement actions.  Whereas the DOJ previously had two options (prosecute or don’t prosecute), the DOJ now has three options (prosecute, don’t prosecute, or offer the corporate defendant a non-prosecution agreement or deferred prosecution agreement).  Mark Mendelsohn, the former chief of the DOJ’s FCPA unit, stated that if the DOJ did not have the option of resolving FCPA enforcement actions with NPAs or DPAs the DOJ “would certainly bring fewer cases.”  (See “Mark Mendelsohn on the Rise of FCPA Enforcement,” 24 Corporate Crime Reporter 35, September 10, 2010).   Likewise, the OECD Phase 3 Report of the U.S. (Oct. 2010 – see here) stated as follows.  “It seems quite clear that the use of these agreements is one of the reasons for the impressive FCPA enforcement record in the U.S.”

Because NPAs and DPAs are subject to little or no judicial scrutiny,  DOJ’s extensive use of these agreements has shielded its FCPA enforcement theories from judicial scrutiny in all but the rarest of instances.  As demonstrated by recent events, when the DOJ is actually put to its burden of proof in FCPA enforcement actions, the results are often mixed.

Others have criticized use of NPAs and DPAs as well.

As noted in this prior post, during a 2010 Senate Judiciary hearing, Senator Jeff Sessions (R-AL) stated as follows.  “I was taught if [a company] violated a law, you charge them. If [a company] didn’t violate the law, you don’t charge them.”  Indeed, those used to be the choices.

In this Corporate Crime Reporter interview, W. Neil Eggleston (a former DOJ enforcement attorney currently at Kirkland & Ellis - here) stated as follows.  ““I worry that [NPAs and DPAs] will become a substitute for a prosecutor deciding – this is not an appropriate case to bring – there is no reason to subject this corporation to corporate criminal liability. In the old days, they would have dropped the case. Now, they have the back up of seeking a deferred or non prosecution agreement, when in fact the case should not have been pursued at all. That’s what I’m worried about – an easy out.”  Well said.

In this report, Gibson & Dunn noted, among other criticisms of NPAs and DPAs that“from a company’s perspective, the threat of indictment can force a company to agree to a DPA or NPA based on the government’s perception of alleged misconduct even under novel, expansive, or unlitigated theories of liability.”  Spot on.

See also ”Facade of FCPA Enforcement – here at pages 933-939 summarizing criticisms of NPAs and DPAs.

Use of NPAs and DPAs to resolve alleged corporate criminal liability in the FCPA context present two distinct, yet equally problematic public policy issues.

The first is that such vehicles, because they do not result in any actual charges filed against a company – and thus do not require the company to plead to any charges – allow egregious instances of corporate conduct to be resolved too lightly without adequate sanctions and without achieving maximum deterrence.   Indeed, it is notable to observe that seven of the top ten enforcement actions (in terms of fine and penalty amount) in the FCPA’s history have been resolved with an NPA or DPA.

The second is that such vehicles, because of the “carrots” and “sticks’ relevant to resolving a DOJ enforcement action, often nudge companies to agree to these vehicles for reasons of risk-aversion and efficiency and not necessarily because the conduct at issue actually violates the FCPA.  Indeed, in the same Corporate Crime Reporter interview referenced above, Mark Mendelsohn stated that a “danger” with NPAs and DPAs ”is that it is tempting” for the DOJ “to seek to resolve cases through DPAs or NPAs that don’t actually constitute violations of the law.”  As noted in this prior post, when the DOJ resolves an FCPA enforcement action via a NPA or DPA, there is only a 15% likelihood that individual criminal charges will be filed against any company employee or those affiliated with the company.  On the other hand, when the DOJ files actual, prosecuted criminal charges against a company, there is a 71% chance that a company employee will also be prosecuted.  This statistic speaks volumes to the quality of many FCPA enforcement actions resolved via NPAs or DPAs.

Thus, use of NPAs or DPAs in the FCPA context allow “under-prosecution” of egregious instance of corporate bribery while at the same time facilitate the “over-prosecution” of business conduct.

Usually one has to reference two distinct FCPA enforcement actions to demonstrate these issues.  However, both issues are present in the recent BizJet / Lufthansa FCPA enforcement action (see here for the prior post).

As to “under-prosecution,” as noted in the prior post, the BizJet criminal information alleges misconduct by several executives including Executive A (a senior executive at BizJet from 2004 to 2010 who “was responsible for the  operations and finances of BizJet”); Executive B (a senior executive at BizJet from 2005 to 2010 whose duties included “oversight of BizJet’s efforts to obtain business from new customers and to maintain and increase business with existing customers”); and Executive C (a senior finance executive at BizJet from 2004 to 2010 who “was responsible for overseeing BizJet’s accounts and finances and the approval of payment of invoices and of wire and check requests”).   The information further alleges that in November 2005, “at a Board of Directors meeting of the BizJet Board, Executive A and Executive B discussed with the Board that the decision of where an aircraft is sent for maintenance work is generally made by the potential customer’s director of maintenance or chief pilot, that these individuals are demanding $30,000 to $40,000 in commissions, and that BizJet would pay referral fees in order to gain market share.”

Sure, BizJet did voluntarily disclose, cooperate in the DOJ’s investigation, and engage in extensive remediation.  However, such factors could have also been rewarded in the context of a plea agreement.

When conduct giving rise to corporate liability involves senior executive misconduct and apparent knowing acquiesence by the Board, the entity, simply put, should not be offered an alternative resolution vehicle.  Yet, BizJet was allowed to resolve the enforcement action via a DPA meaning that (should the entity abide by the terms and conditions of the agreement) it will never be required to plead guilty to anything.  [Note - should the FCPA be amended to include a compliance defense consistent with my proposal, such a compliance defense would not have been applicable to BizJet given the allegations of misconduct by senior executives]. 

As to “under-prosecution,” as noted in the prior post, the DOJ release states that BizJet’s “indirect parent company, Lufthansa Technik AG” also “entered into a [non-prosecution] agreement with the DOJ in connection with the unlawful payments by BizJet and its directors, officers, employees and agents.”  The release stated as follows.  “The DOJ has agreed not to prosecute Lufthansa Technik provided that Lufthansa Technik satisfies its obligations under the agreement for a period of three years.”  However, as I mentioned in the prior post, there is no mention of Lufthansa Technik in the BizJet criminal information.

More shocking, there is absolutely no articulated factual basis in the Lufthansa Technik NPA (see here) for the agreement.  The Lufthansa Technik NPA could be the most opaque, bare-bones NPA in the history of FCPA NPAs.  It states that the DOJ will “not criminally prosecute” the entity “for any crimes” related to violations of the FCPA’s anti-bribery provisions arising from or related to the conduct described in the BizJet criminal information and DPA.  Again, that information and DPA does not even mention Lufthansa Technik whatsoever.  The only thing we know from the DOJ’s resolution documents is that BizJet is an indirect subsidiary of Lufthansa Technik.  If that is the sole basis for the DOJ’s prosecution (via a non-prosecution agreement) of Lufthansa Technik, that is troubling as it establishes strict criminal liability for parent company entities.  If that is not the sole basis for the enforcement action, the DOJ ought to publicly state what it is, because the resolution documents do not.

Much of the FCPA reform debate at present has focused on actual amendments to the statute.  To be sure, certain limited amendments are warranted such as a compliance defense.  But just as importantly, there needs to be reform of certain DOJ FCPA enforcement policies and procedures.

It is in the public interest to abolish non-prosecution and deferred prosecution agreements in the FCPA context.  For more, see here (a recent interview I did with Corporate Crime Reporter).  However, abolishing NPAs and DPAs in isolation is not what I propose.  Rather, abolishing NPAs and DPAs should be part of an FCPA reform package that also includes a compliance defense amendment to the statute.