In December 2012, the DOJ announced here as follows.
“Standard Chartered Bank, a financial institution headquartered in London, has agreed to forfeit $227 million to the Justice Department for conspiring to violate the International Emergency Economic Powers Act (IEEPA). The bank has agreed to the forfeiture as part of a deferred prosecution agreement with the Justice Department and a deferred prosecution agreement with the New York County District Attorney’s Office for violating New York state laws by illegally moving millions of dollars through the U.S. financial system on behalf of sanctioned Iranian, Sudanese, Libyan and Burmese entities. The bank has also entered into settlement agreements with the Treasury Department’s Office of Foreign Assets Control (OFAC) and the Board of Governors of the Federal Reserve System.”
As indicated in the above release, Standard Chartered agreed to resolve its potential exposure via a deferred prosecution agreement.
Like DPAs in the Foreign Corrupt Practices Act context, the Standard Chartered DPA required the company to accept responsiblity for the conduct set forth in the agreement.
Like DPAs in the FCPA context, the Standard Chartered DPA contained a “public statements” clause under which the company was prohibited, directly or indirectly through others (such as attorneys, consultants, etc.), from making “any public statements contradicting the acceptance of responsibility.” If the company, directly or indirectly, made such public statements, it would constitute, subject to cure rights, “a willful and material breach” of the DPA thereby subjecting the company to criminal prosecution. A further provision in the ”public statements” clause was that the determination of whether a public statement contradicts acceptance of responsibility “shall be in the sole discretion” of the DOJ. A further provision in the clause was that the company shall not issue a press release or hold a press conference concerning the facts at issue in the DPA without first consulting with the DOJ “to determine (a) whether the text of the release or proposed statements at the press conference are true and accurate with respect to matters between the United States and [the company]; and (b) whether the United States has no objection to the release.”
Portions of the Standard Chartered “public statements” clause were recently triggered. (See here from the Wall Street Journal and here from the U.K. Guardian).
In short, during a recent earnings conference call with investors, Standard Chartered Chairman John Peace was asked a question ”concerning individual employee conduct and compensation” following the DPA. Peace responded, when asked about bonuses for executives, as follows. ”We had no wilful act to avoid sanctions; you know, mistakes are made – clerical errors – and we talked about last year a number of transactions which clearly were clerical errors or mistakes that were made.”
According to the Wall Street Journal article, prosecutors “pounced when they heard Mr. Peace’s comments” and demanded a copy of the conference call transcript. According to the article, “Mr. Peace and other top executives were [soon] in Washington to [apologize] before a room full of top prosecutors at the U.S. Justice Department, which has threatened to bring criminal charges if Mr. Peace didn’t recant.” According to the article, “Standard Chartered officials and the U.S. prosecutors spent more than a week negotiating possible wording of the bank’s retraction.”
On March 21st, Mr. Peace, through the company, issued this statement which read as follows.
“I, together with Chief Executive Officer Peter Sands and Group Finance Director Richard Meddings, representing Standard Chartered Bank (the “Group”), held a press conference where certain questions were asked concerning individual employee conduct and compensation in light of the deferred prosecution agreements made with the US Department of Justice and the New York County District Attorney’s Office in December 2012. During that press conference, which took place via phone, I made certain statements that I very much regret and that were at best inaccurate.
In particular, I made the following statements in reference to a question regarding the reduction of bonuses for [company] executives: We had no willful act to avoid sanctions; you know, mistakes are made – clerical errors – and we talked about last year a number of transactions which clearly were clerical errors or mistakes that were made…
My statement that [the company] ”had no willful act to avoid sanctions” was wrong, and directly contradicts [the company's] acceptance of responsibility in the deferred prosecution agreement and accompanying factual statement.
Standard Chartered Bank, together with me, Mr. Peter Sands and Mr. Richard Meddings, who jointly hosted the press conference, retract the comment I made as both legally and factually incorrect. To be clear, Standard Chartered Bank unequivocally acknowledges and accepts responsibility, on behalf of the Bank and its employees, for past knowing and willful criminal conduct in violating US economic sanctions laws and regulations, and related New York criminal laws, as set out in the deferred prosecution agreement. I, Mr. Sands, Mr. Meddings, and Standard Chartered Bank apologize for the statements I made to the contrary.”
I’ve written before about what I will call the “muzzle” clause in FCPA DPAs.
In response to an FCPA commentator who believed that NPAs and DPAs have never been used to resolve cases that do not actually represent provable FCPA violations - because the commentator had never heard any complaint “from any practitioners, on or off the record, in public or in private” of this being the case – I noted that there was a simple explanation for this. I then proceeded to analyze a “muzzle” clause in an FCPA DPA. See here for the prior post.
Greater scrutiny is needed of “muzzle” clauses.
First, the DOJ can use its leverage and its ability to bring criminal charges against a company. Second, the DOJ will can then use an NPA or DPA to insulate its version of the facts and enforcement theories from judicial scrutiny which the risk averse company will more often that not accept. Third, in the resolution agreement, the DOJ can include a “muzzle” clause prohibiting anyone associated with the company from making any statement inconsistent with the DOJ’s version of the facts or its enforcement theories. Fourth, if the DOJ believes, in its sole discretion, that a public statement has been made contradicting its version of the facts or its enforcement theories, the DOJ can “pounce” and threaten to bring criminal charges.
Is this an effective system of justice?
Is this consistent with the rule of law (recognizing that one accepted factor in analyzing the rule of law is distribution of authority in a manner that ensures that no single organ of government has the practical ability to exercise unchecked power)?
Professor Ellen Podgor has rightfully asked on the her White Collar Crime Prof Blog (see here) whether the government can include such clauses in resolution agreements without infringing on First Amendment rights.
Reacting to the August 2012 DOJ enfocement action against Gibson Guitar resolved with a DPA (with a “muzzle” clause), Harvey Silverglate(author of “Three Felonies a Day: How the Feds Target the Innocent”) wrote in this Wall Street Journal opinion piece as follows.
“Put another way, Gibson is now forbidden to tell the world the whole truth about its conduct and its reasons for settling a case it previously claimed publicly, including in an opinion piece in [the Wall Street Journal], involved no criminal conduct on its part. In exchange for agreeing to read the government’s script, Gibson regained its ability to conduct business without a federal sword of Damocles dangling over its corporate head. This naked effort by federal prosecutors to control both news and outcomes, not to mention their own reputations, does not surprise those familiar with the modern federal criminal justice system.”
As noted in this previous post, when the U.K. Serious Fraud office attempted to insert a “muzzle” clause in its Innospec resolution documents, 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.”
Whether in the FCPA context or otherwise, ”muzzle” clauses are in need of greater scrutiny.