Archive for the ‘DOJ’ Category

Assessing DOJ Transparency

Wednesday, April 29th, 2015

FoggyRecently Assistant Attorney General Leslie Caldwell gave this speech at an event hosted by New York University Law School’s Program on Corporate Compliance and Enforcement.

The focus of the speech, as stated by Caldwell, was “the Criminal Division’s efforts to increase transparency in its corporate prosecutions.”  It is an important topic as transparency is a fundamental tenet of the rule of law.

Caldwell’s speech was mostly forward-looking so time will tell how transparent the DOJ will be in the future including in the FCPA context.

This post assesses DOJ transparency as it relates to Foreign Corrupt Practices Act enforcement over the past several years and highlights that DOJ transparency is as foggy as the road in the picture.

When reading the below excerpts from Caldwell’s speech, you may want to keep the following points in mind.

Since 2010, the DOJ has used NPAs or DPAs to resolve approximately 85% of corporate FCPA enforcement actions. These resolution vehicles are negotiated behind closed doors in Washington, D.C. and thus are anything but transparent.

Caldwell states in her speech that “the factual statements filed with resolution documents typically include a detailed recitation of the misconduct, as publicly admitted by the company.”  However, you can judge for yourself whether the following FCPA NPAs contain “a detailed recitation of the misconduct”.

Ralph Lauren NPA (3 page statement of facts most of which identifies relevant parties);

NORDAM Group NPA (2.5 page statement of facts most of which identifies the relevant parties);

Lufthansa Technik NPA (no statement of facts relevant to the entity).

In any event, kudos to Caldwell for recognizing that “opaque” enforcement “carries little deterrent effect.”

The article “The Facade of FCPA Enforcement” highlights four pillars which contribute to the “facade” of FCPA enforcement.  One pillar highlighted was “same facts, different result.”  The article used what were substantively carbon-copy enforcement actions against Lucent Technologies and UTStarcom, which nevertheless led to materially different charges and penalties, to make the point that FCPA charging decisions are not based solely on the facts and law, but less transparent factors as well.

In any event, kudos to Caldwell for recognizing that “unreasoned” enforcement “carries little deterrent effect.”

Further to the point that FCPA charging decisions seem not to be based solely on the facts and law, but less transparent factors as well, consider the BAE enforcement action. Despite the DOJ alleging conduct that clearly implicated the FCPA’s anti-bribery provisions, BAE (a large U.S. defense contractor) was not charged with violating the FCPA.

Consider also the mysterious conclusion to James Giffen enforcement action. Giffen was criminally charged with making more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with certain oil transactions in which various American oil companies acquired valuable rights in Kazakhstan.” However, Giffen’s defense was that his actions were made with the knowledge and support of the CIA, the National Security Council, the Department of State and the White House. In 2010, the enforcement action took a sudden and mysterious turn when Giffen agreed to plead guilty to a one-paragraph superseding indictment charging a misdemeanor tax violation.  Perhaps one day the reasoning behind the sudden turn of events will become transparent.

Consider also certain subtle statements in the FCPA Guidance relevant to transparency.

Footnote 379 of the Guidance states as follows.  “Historically, DOJ had, on occasion, agreed to DPAs with companies that were not filed with the court.  That is no longer the practice of DOJ.”

Page 75 of the Guidance suggests that the DOJ has used NPAs in individual FCPA-related cases (e.g., “If an individual complies with the terms of his or her NPA, namely, truthful and complete cooperation and continued law-abiding conduct, DOJ will not pursue criminal charges.” The Guidance also states that “in circumstances where an NPA is with a company for FCPA-related offenses, it is made available to the public through DOJ’s website.” (emphasis added).  This statement suggests that when an NPA is with an individual for FCPA-related offenses, the agreement is not made public.

Indeed, as highlighted in the prior post “Secret FCPA Enforcement” there have been whispers in the FCPA bar for years about secret FCPA enforcement.  As noted in the prior post, not once, not twice, but three times I sought clarification from the DOJ of the above Guidance statements.

In each instance there was no response. So much for that transparency thing.

Indeed, a key qualifier in Caldwell’s recent speech about transparency was the following statement:  ”we [the DOJ] usually publicly announce corporate resolutions and pleas, and make the documents available on our website”) (emphasis added).

Last, but not least before turning to actual excerpts from Caldwell’s speech, is the topic of so-called DOJ declinations.  As evidence of the DOJ’s purported transparency, Caldwell states that the FCPA Guidance “has a section on declinations and provides anonymized examples of real FCPA cases in which we declined to bring a prosecution.”

However, as highlighted in the article “Grading the FCPA Guidance“ the Guidance declination examples raise more questions than answers. For instance, in three of the examples, it is not even clear based on the information provided that the FCPA was violated.  Moreover, in all the declination examples in the Guidance, the factors motivating the declination decision—such as voluntary disclosure and cooperation, effective remedial measures, small improper payments—can often be found in many instances in which FCPA enforcement actions were brought.

At last to the excerpts in Caldwell’s speech.

“One of my priorities in the Criminal Division is to increase transparency regarding charging decisions in corporate prosecutions.  I know that many corporate counsel have concerns about what they perceive as a lack of transparency in how the department decides when to bring charges, or to seek some lesser resolution.

Greater transparency benefits everyone.  The Criminal Division stands to benefit from being more transparent in part because if companies know the benefits they are likely to receive from self-reporting or cooperating in the government’s investigation, we believe they will be more likely to come in and disclose wrongdoing and cooperate.  And on the flip side, companies can better evaluate the consequences they might face if they do not receive cooperation credit.  Transparency also helps to reduce any perceived disparity, in that companies can compare themselves, as best as possible, to other similarly-situated companies engaged in similar misconduct.

There are often limits to how much we can disclose about our investigations and prosecutions—particularly for investigations in which no charges were brought—but we are trying to be more clear about our expectations for corporate cooperation and the bases for our corporate pleas and resolutions.

One of the themes of today’s program is the shaping of corporate culture.  Shaping corporate culture through deterrence is an area where the Criminal Division plays an important role.  One important purpose of criminal prosecution of corporations is the deterrence of future would-be wrongdoers.  But to achieve deterrence, the Criminal Division must transparently communicate its expectations and the consequences of corporate misconduct.  An opaque or unreasoned enforcement action carries little deterrent effect.

We recognize the productive role we can play in influencing corporate conduct, and we take seriously the effects of our enforcement actions.  Wherever possible, we try to communicate clear guidance to the corporate community through our criminal resolutions, our interactions with companies and their counsel during an investigation or prosecution and other channels such as conferences like this one.

During my first year in leading the Criminal Division, we have tried to make as clear as possible what we expect from those companies that choose to cooperate.  Put simply, if a company wants cooperation credit, we expect that company to conduct a thorough internal investigation and to turn over evidence of wrongdoing to our prosecutors in a timely and complete way.  Perhaps most critically, we expect cooperating companies to identify culpable individuals—including senior executives if they were involved—and provide the facts about their wrongdoing.

As this sophisticated audience knows, there is no “off the rack” internal investigation that can be applied to every situation at every company.  Effective investigations must be tailored to the unique misconduct at issue and the circumstances of each company.  But, there are hallmarks of all good internal investigations.  Chief among them is the identification of wrongdoers.  Prosecuting individuals, including corporate executives, for their criminal wrongdoing is a top priority for the Criminal Division.  Corporations seeking cooperation credit should conduct their internal investigations with those principles in mind.

The mere voluntary disclosure of corporate misconduct—by itself—is not enough.  All too often, corporations expect cooperation credit for voluntarily disclosing and describing the corporate entities’ misconduct, and issuing a corporate mea culpa.  True cooperation, however, requires identifying the individuals actually responsible for the misconduct—be they executives or others—and the provision of all available facts relating to that misconduct.

Investigations must also be independent and designed to uncover the facts, not to spread company talking points or whitewash the truth.  We expect that the complete facts about the wrongdoing will be provided, and in a timely way.  As we work to be transparent, we expect transparency in return.  Transparency is a two-way street, and we expect companies that are claiming to cooperate to walk the walk.

The Criminal Division, meanwhile, will conduct its own investigation.  We will pressure test a company’s internal investigation with the facts we gather on our own, and we will consider the adequacy of an internal investigation when we evaluate a company’s claim of cooperation.

Let me be clear, however, the Criminal Division does not dictate how a company should conduct an investigation.  If a company decides to conduct an internal investigation and seek cooperation credit, that company must determine how best to conduct its own internal investigation.  Although we can provide guideposts, the manner in which an internal investigation is conducted is an internal corporate decision.

[...]

We recognize that information about the bases for our corporate guilty pleas and resolutions is an important reference point for companies that are evaluating whether to self-disclose a violation or cooperate.  Corporations may wish for a formula or definitive matrix that could be applied in this context.  But, while a rote formula might bring certainty and consistency, it would do so at the expense of the individualized justice that comes with thoughtful and nuanced prosecutorial decision-making.

For decades, the department has disclosed the factors that prosecutors must evaluate when considering corporate criminal charges and resolutions.  The corporate prosecution principles were originally adopted two decades ago—in the Holder Memo, issued when now Attorney General Holder was the Deputy Attorney General—and have been refined through the years into the current Filip Memo, otherwise known as the Principles of Prosecution of Business Organizations.

This audience is no doubt versed in the comprehensive considerations laid out in the nine Filip factors, which are publicly available on the Internet.  When applied to a particular case against a business organization, the factors could lead to charges, a deferred prosecution agreement or a non-prosecution agreement—known as DPAs and NPAs—or a declination.

Arriving at a corporate resolution requires a unique balancing of the Filip factors in each case.  But this balancing does not take place in a prosecutorial vacuum.  In virtually every instance, we invite company counsel to make a presentation regarding the application of the Filip factors in the case at hand before we make a charging decision.  Again, wherever possible, we encourage an open and transparent dialogue between the company and our prosecutors at every stage.

In each of our corporate resolutions—be it a guilty plea, NPA or DPA—we provide an explanation of the key factors that led to our decision.  The factual statements filed with resolution documents typically include a detailed recitation of the misconduct, as publicly admitted by the company.  The actual agreements outline the factors that were significant in determining the type of resolution, such as the corporation’s cooperation—if any—and remedial measures.  We usually publicly announce corporate resolutions and pleas, and make the documents available on our website.

In the future, you should expect that our resolutions will include even more detailed explanations of our considerations.  This is a priority of mine.  While these documents already provide significant insight into our thought processes, they will soon provide an even greater explanation of our analysis and conclusions.

In addition to their use as enforcement tools, our plea agreements, DPAs and NPAs provide a transparent explanation of the department’s expectations when it comes to compliance programs.  Companies seeking to measure their own compliance programs need look no further than many of the resolutions we have made publicly available.

DPAs and NPAs provide explicit roadmaps for companies to get back on track, sometimes under the watchful eye of a monitor or court.  There is perhaps no more transparent guidance to a specific corporation than the terms in a DPA or NPA, especially when we set forth remedial or compliance measures we expect.

These agreements have real teeth.  When companies subject to a NPA or DPA are required to cooperate and fail to do so, or where they engage in other criminal conduct during the term of the agreement, the Criminal Division will not hesitate to tear up a DPA or NPA and file criminal charges, where such action is appropriate and proportional to the breach.  The Criminal Division’s role is not just to set guideposts for companies that have engaged in significant misconduct, but to prosecute those corporations when they ignore those guideposts.  Just as with individuals, companies are expected to learn from their mistakes.  A company that is already subject to a DPA or NPA for violating the law should not expect the same leniency when it crosses the line again.

Over the course of my career, I have found that when it comes to affecting corporate conduct, nothing has a more powerful impact than concrete examples.  Such examples have traditionally stemmed from publicized corporate prosecutions, as it is more challenging to publicize investigations in which we decline to file charges.  The department has maintained a long-standing practice not to discuss non-public information on matters it has declined to prosecute, based in large part on concerns about the privacy rights and interests of uncharged parties.  There are serious privacy concerns inherent in publicly identifying an individual who was implicated in our criminal investigation if we eventually decide not to bring charges.  Indeed, internal department policy prohibits us from publicly identifying those individuals who have been investigated, but not charged.

Likewise, companies often strongly oppose publicity that they were under Justice Department scrutiny, even if we ultimately declined to prosecute.

The challenge we are currently working to address is how to publicize these cases while taking into consideration the legitimate concerns of the companies and individuals who were under investigation.  We are looking for ways to better inform the community about cases in which we decline to prosecute, as there is often as much to learn from a decision not to bring charges as a decision to prosecute.  We seek not just to prosecute, but to encourage and reward good corporate citizenship, and increasing transparency can play an important role in achieving that goal.

A significant example of our efforts in this regard is the Foreign Corrupt Practices Act Resource Guide published by the Criminal Division and the Securities and Exchange Commission.  The Guide has a section on declinations and provides anonymized examples of real FCPA cases in which we declined to bring a prosecution.  Although each potential case is based on its own unique circumstances and facts, the examples in the Guide provide useful insight into the circumstances of real-world declination decisions.

The Criminal Division’s FCPA website continues this effort at transparency by posting relevant enforcement actions and opinion letters.  The department responds to opinion requests concerning enforcement intent about prospective actions that might violate the anti-bribery provisions of the FCPA.  This procedure enables companies and individuals to request a determination in advance as to whether proposed conduct would constitute a violation of the FCPA.  These opinion letters are publicly available on our website.  While they are binding only on the party that makes the request, they provide significant guidance on the department’s approach to enforcing the FCPA.

Through these and other steps, the Criminal Division has prioritized increased transparency in our corporate investigations and prosecutions.  We strive to disclose more information, to the extent we can, while protecting ongoing investigations and privacy rights.  And we encourage companies to do the same—to self-disclose criminal violations and to cooperate with our investigations—or risk the consequences.”

Friday Roundup

Friday, April 17th, 2015

Roundup2In-depth, scrutiny alert, further Alstom-developments, quotable, and for the reading stack.  It’s all here in the Friday roundup.

In-Depth

In November 2014, Dutch-based SBM Offshore resolved an enforcement action in the Netherlands.  With a settlement amount of $240 million, the SBM Offshore enforcement action was one of the largest bribery-related enforcement actions of 2014 – regardless of country.

This recent article titled “The Cover-Up at Dutch Multinational SBM” in Vrij Nederland (a Dutch magazine) goes in-depth as to SBM’s scrutiny.  The article has largely escaped the attention of Western media and the FCPA-related blogosphere, but is worth the time to read.  The article begins as follows.

“The corruption scandal at Dutch multinational SBM Offshore, which in November reached a $240 million out-of-court settlement with the Dutch Public Prosecutor (OM), is much larger than thought, as testimony of a former employee now shows. The company has actively pursued a strategy of “containment” and has consistently misled the market. So why did the OM settle?”

Among other things, the article highlights the role of U.S. lawyers and law firms involved in the SBM representation.

Scrutiny Alert

In this recent article, the L.A. Times details, based on obtained documents, the expenditures involved in filming the movie Sahara. Among the expenditures, according to the article - ”local bribes” within the Kingdom of Morocco.  The article states:

“Courtesy payments,” “gratuities” and “local bribes” totaling $237,386 were passed out on locations in Morocco to expedite filming. A $40,688 payment to stop a river improvement project and $23,250 for “Political/Mayoral support” may have run afoul of U.S. law, experts say.

[...]

According to Account No. 3,600 of the “Sahara” budget, 16 “gratuity” or “courtesy” payments were made throughout Morocco. Six of the expenditures were “local bribes” in the amount of 65,000 dirham, or $7,559.

Experts in Hollywood accounting could not recall ever seeing a line item in a movie budget described as a bribe.

[...]

The final budget shows that “local bribes” were handed out in remote locations such as Ouirgane in the Atlas Mountains, Merzouga and Rissani. One payment was made to expedite the removal of palm trees from an old French fort called Ouled Zahra, said a person close to the production who requested anonymity.

Other items include $23,250 for “Political/Mayoral support” in Erfoud and $40,688 “to halt river improvement project” in Azemmour. The latter payment was made to delay construction of a government sewage system that would have interrupted filming.”

Further Alstom Developments

Yesterday, the U.K. Serious Fraud Office announced:

“Charges have been brought by the SFO against Alstom Network UK Ltd and an Alstom employee in phase three of its ongoing investigation.

Alstom Network UK Ltd, formerly called Alstom International Ltd, a UK subsidiary of Alstom, has been charged with a further two offences of corruption contrary to section 1 of the Prevention of Corruption Act 1906, as well as two offences of conspiracy to corrupt contrary to section 1 of the Criminal Law Act 1977.

Michael John Anderson, 54, of Kenilworth in Warwickshire, who was working as a business development director for Alstom Transport SA in France, has been charged with the same offences.

The alleged offences are said to have taken place between 1 January 2006 and 18 October 2007 and concern the supply of trains to the Budapest Metro.

The first hearing in this case will take place at Westminster Magistrates’ Court on 12 May 2015.”

Quotable

In this recent speech, DOJ Assistant Attorney General Leslie Caldwell stated:

“Through deferred prosecution agreements and non-prosecution agreements – or DPAs and NPAs – in cases against companies, we are frequently able to accomplish as much as, and sometimes even more than, we could from even a criminal conviction.  We can require remedial measures and improved compliance policies and practices.  We also can require companies to cooperate in ongoing investigations, including investigations of responsible individuals.  To ensure compliance with the terms of the agreements and to help facilitate companies getting back on the right track, we can impose monitors and require periodic reporting to courts that oversee the agreements for their terms.

Some of these outcomes may resemble remedies that can be imposed by regulators. But these agreements have several features that cannot be achieved by regulatory or civil resolutions.

Criminal Division resolutions require that an entity admit to its misconduct.  Commerzbank, for example, admitted responsibility and agreed to a detailed statement of facts that was filed with the court.  Whereas some regulators permit “no admit, no deny” resolutions – for legitimate reasons of their own – we require that individuals and entities acknowledge their criminal culpability if they are entering into a NPA, DPA or pleading guilty.

Where we enter into DPAs, a criminal information is filed with the court and prosecution of the information is deferred for the time of the agreement.  Where a company fails to live up to the terms of its agreement, an information is already filed, and we can tear up the agreement and prosecute based on the admitted statement of facts.  That’s a powerful incentive to live up to the terms of the agreements.

When we suspect or find non-compliance with the terms of DPAs and NPAs, we have other tools at our disposal, too.  We can extend the term of the agreements and the term of any monitors, while we investigate allegations of a breach, including allegations of new criminal conduct.  Where a breach has occurred, we can impose an additional monetary penalty or additional compliance or remedial measures.  And let me be clear: the Criminal Division will not hesitate to tear up a DPA or NPA and file criminal charges, where such action is appropriate and proportional to the breach.

Obviously, not every breach of a DPA warrants the same penalty.  We are committed to pursuing an appropriate remedy in each case, and we will calibrate the penalty we pursue to fit the nature of the violation and the corporation’s history and culture.  And we will do so transparently, with an explanation of what factors led to the resolution in each case.

[...]

[C]riminal prosecution is the best manner in which to punish culpable individuals.  And the seriousness of potential or actual punishment for felony criminal convictions, including incarceration for individuals, and the stigma and reputational harm associated with criminal charges or convictions, serve as powerful deterrents.”

For the Reading Stack

This Wall Street Journal Risk & Compliance post suggests that the ongoing corruption investigations in Brazil are becoming full-employment events for FCPA Inc.  According to the article:

“Multinationals with operations in Brazil are making frightened calls to their lawyers, as the country’s spreading corruption scandal reaches more companies.

[...]

Attorneys say companies with operations in Brazil are scrambling to assess whether they could get swept up in the probe. “They are very worried,” said Ruti Smithline, an anti-bribery specialist at Morrison & Foerster LLP. “The investigation is so widespread. If you have business in Brazil, the likelihood that this is going to touch you in some way is very high.”

Companies are racing to discover questionable activities before authorities in Brazil do. “They are asking: ‘Is our house clean? If authorities look at these relationships what are they going to find?’” Ms. Smithline said.”

The WSJ post asserts:

“[Brazil's  new anti-corruption law, the Clean Companies Act] holds companies to even higher standards and stricter liability than the U.S. Foreign Corrupt Practices Act. For example, unlike the FCPA, under the Brazilian law a company can be prosecuted for corruption even if didn’t realize it was paying a bribe and had a great compliance program in place.”

This is a most off-target statement as Brazil law does not even provide for corporate criminal liability like the FCPA.  Moreover, business organizations are often the subject of FCPA enforcement actions even though the company had in place pre-existing compliance policies and procedures.

*****

Miller & Chevalier’s FCPA Spring Review 2015 is here.

*****

A good weekend to all.

DOJ Prosecution Of Individuals – Are Other Factors At Play?

Wednesday, January 21st, 2015

What woudl you doYesterday’s post (here) focused on DOJ FCPA individual prosecutions and highlighted the following facts and figures.

  • Since 2008, the DOJ has charged 99 individuals with FCPA criminal offenses.
  • 58% of the individuals charged by the DOJ with FCPA criminal offenses since 2008 have been in just five cases and 78% of the individuals charged by the DOJ since 2008 have been in just eleven cases.
  • There have been 67 corporate DOJ FCPA enforcement actions since 2008 and of these actions, 50 (or 75%) have not (at least yet) resulted in any DOJ charges against company employees.

These statistics should cause alarm, including at the DOJ as it has long recognized that a corporate-fine only enforcement program is not effective and does not adequately deter future FCPA violations.   For instance, in 1986 John Keeney (Deputy Assistant Attorney General, Criminal Division, DOJ) submitted written responses in the context of Senate hearings concerning a bill to amend the FCPA. He stated as follows:

“If the risk of conduct in violation of the statute becomes merely monetary, the fine will simply become a cost of doing business, payable only upon being caught and in many instances, it will be only a fraction of the profit acquired from the corrupt activity. Absent the threat of incarceration, there may no longer be any compelling need to resist the urge to acquire business in any way possible.”

In 2010 Hank Walther (Deputy Chief Fraud Section) stated that a corporate fine-only FCPA enforcement program allows companies to calculate FCPA settlements as the cost of doing business.

In 2013 Daniel Suleiman (DOJ Deputy Chief of Staff, Criminal division) stated that “there is no greater deterrent to corporate crime that the prospect of prison time … if people don’t go to prison, then enforcement can come to be seen as merely the cost of doing business.”

More recently, Patrick Stokes (DOJ FCPA Unit Chief) stated that DOJ is “very focused” on prosecuting individuals as well as companies and that “going after one or the other is not sufficient for deterrence purposes.”

Earlier this week, Deputy Assistant Attorney General Sung-Hee Suh rightly acknowledged that “corporations do not act criminally, but for the actions of individuals.”

In my 2010 Senate FCPA testimony (here), I noted that the absence of individual FCPA charges in most corporate FCPA enforcement actions causes one to legitimately wonder whether the conduct giving rise to the corporate enforcement action was engaged in by ghosts.

Others have rightly asked the “but nobody was charged” question, including James Stewart in a New York Times column highlighted in this previous post.

However, as I stated in my Senate testimony, there is an equally plausible reason why no individuals have been charged in connection with many corporate FCPA enforcement actions.  The reason has to do with the quality and legitimacy of the corporate enforcement action in the first place.

Readers know well of the prevalence of non-prosecution and deferred prosecution agreements (NPAs / DPAs)  in the FCPA context. As highlighted in this recent post, since 2010, 86% of corporate DOJ enforcement actions have involved either an NPA or DPA.

Informed observers also understand how NPAs and DPAs, not subject to any meaningful judicial scrutiny, are often agreed to by companies for reasons of ease and efficiency, and not necessarily because the conduct at issue violates the FCPA.

Indeed, prior to becoming SEC Chair, Mary Jo White stated a “fear [that] the deferred prosecution [agreement] is becoming a vehicle to show results” (here) and former Attorney General Alberto Gonzales has stated as follows.

“It is “easy, much easier quite frankly” for the DOJ to resolve FCPA inquiries with NPAs and DPAs; such resolution vehicles have “less of a toll” on the DOJ’s budget and such agreements “provide revenue” to the DOJ.  It is all “unfortunate”

“In an ironic twist, the more that American companies elect to settle and not force the DOJ to defend its aggressive interpretation of the [FCPA], the more aggressive DOJ has become in its interpretation of the law and its prosecution decisions.”

Moreover, Mark Mendelsohn (former chief of the DOJ’s FCPA Unit), has talked about the “danger” of NPAs and DPAs and how “it is tempting for the [Justice Department] or the SEC…to seek to resolve cases through DPAs or NPAs that don’t actually constitute violations of the law.” (See “Mark Mendelsohn on the Rise of FCPA Enforcement,” 24 Corporate Crime Reporter 35, September 10, 2010).

For more on the above dynamics, see my article “The Facade of FCPA Enforcement.”

Individuals, on the other hand, face a deprivation of personal liberty, and are more likely to force the DOJ to satisfy its high burden of proof as to all FCPA elements.

In other words, perhaps the more appropriate question is not “but nobody was charged,” but rather do corporate NPAs and DPAs always represent provable FCPA violations?  For a recent excellent article asking the same general question, see here.

I set out to test this with the following working hypothesis.

  • Instances in which the DOJ brings actual criminal charges against a company or otherwise insists in the resolution that the corporate entity pleads guilty to FCPA violations, represent a higher quality FCPA enforcement action (in the eyes of the DOJ) and is thus more likely to result in related FCPA criminal charges against company employees.
  • Instances in which the DOJ resolves an FCPA enforcement action solely with an NPA or DPA, represent a lower quality FCPA enforcement action and is thus less likely to result in related FCPA criminal charges against company employees given that an individual is more likely to put the DOJ to its high burden of proof.

The below statistics provide a compelling datapoint concerning the quality and legitimacy of many corporate DOJ FCPA enforcement actions.

Since NPAs and DPAs were first introduced to the FCPA context in December 2004 (see here), there have been 83 corporate DOJ FCPA enforcement actions.

  • 14 of these corporate enforcement actions were the result of a criminal indictment or resulted in a guilty plea by the corporate entity to FCPA violations.  10 of these corporate enforcement actions – 71% – resulted in related criminal charges of company employees.
  • 53 of these corporate enforcement actions were resolved solely with an NPA or DPA.  In only 5 instances – 9% – was there related criminal charges of company employees.
  • A third type of corporate FCPA enforcement action is what I will call a hybrid action in which the resolution includes a guilty plea by some entity in the corporate family – usually a foreign subsidiary – and an NPA or DPA against the parent company.  Since the introduction of NPAs and DPAs in the FCPA context, there have been 16 such corporate enforcement actions.  In 5 of these actions – 31% -  there was related criminal charges of company employees. This percentage is what one might expect compared to the two types of corporate FCPA enforcement actions discussed above, although it is interesting to note the following regarding 3 of these 5 instances.  The DOJ ended up dismissing the charges against Si Chan Wooh (Schnitzer Steel), John O’Shea (ABB) was not found not guilty, and Bobby Elkin (Alliance One) received a probation sentence after the sentencing judge questioned many aspects of the enforcement action (see here for the prior post).

Although NPAs and DPAs were first introduced to the FCPA context in 2004, their use by the DOJ was sporadic at first and such alternative resolution vehicles did not become a fixture of FCPA enforcement until approximately 2007.

Thus, in testing the above hypothesis, 2007 is perhaps the best starting point.  Since 2007, there have been 77 corporate DOJ FCPA enforcement actions.

  • 12 of these corporate enforcement actions were the result of a criminal indictment or resulted in a guilty plea by the corporate entity to FCPA violations.  9 of these corporate enforcement actions – 75% – resulted in related criminal charges of company employees.
  • 50 of these corporate enforcement actions were resolved solely with an NPA or DPA.  In only 5 instances – 10% – was there related criminal charges of company employees.
  • A third type of corporate FCPA enforcement action is what I will call a hybrid action in which the resolution includes a guilty plea by some entity in the corporate family – usually a foreign subsidiary – and an NPA or DPA against the parent company.  Since 2007, there have been 15 such corporate enforcement actions.  In 4 of these actions – 26% -  there was related criminal charges of company employees. This percentage is what one might expect compared to the two types of corporate FCPA enforcement actions discussed above.

If the above statistics do not cause one to question the quality and legitimacy of many corporate FCPA enforcement actions, no empirical data ever will.  For those who believe NPAs and DPAs always represent provable FCPA violations, the ball is now in your court to offer credible explanations for following datapoints.

Since NPAs and DPAs were introduced to the FCPA context in 2004, if a corporate DOJ FCPA enforcement action is the result of a criminal indictment or resulted in a guilty plea by the corporate entity to FCPA violations, there is a 71% chance that related criminal charges will be brought against a company employee.  If a corporate DOJ FCPA enforcement action is resolved solely with an NPA or DPA, there is a 9% chance that criminal charges will be brought against a company employee.

Since 2007, when NPAs and DPAs become a fixture of DOJ FCPA enforcement, if a corporate DOJ FCPA enforcement action is the result of a criminal indictment or resulted in a guilty plea by the corporate entity to FCPA violations, there is a 75% chance that related criminal charges will be brought against a company employee.  If a corporate DOJ FCPA enforcement action is resolved solely with an NPA or DPA, there is a 10% chance that criminal charges will be brought against a company employee.

[Note – the above data was assembled using the “core” approach as well as the definition of an FCPA enforcement action described in this prior post]

A Focus On DOJ FCPA Individual Prosecutions

Tuesday, January 20th, 2015

Criminal LawThis post highlights certain facts and figures concerning the DOJ’s prosecution of individuals for FCPA offenses in 2014 and historically.

As highlighted in recent posts herehere, and here, the DOJ frequently talks about the importance of individual FCPA prosecutions. Assistant Attorney General Leslie Caldwell has stated that “certainly…there has been an increased emphasis on, let’s get some individuals” and that it is “very important for [the DOJ] to hold accountable individuals who engage in criminal misconduct in white-collar (cases), as we do in every other kind of crime.” DOJ FCPA Unit Chief Patrick Stokes has said that the DOJ is “very focused” on prosecuting individuals as well as companies and that “going after one or the other is not sufficient for deterrence purposes.”

Against this backdrop, what do the facts actually show?

Since 2000, the DOJ has charged 133 individuals with FCPA criminal offenses.  The breakdown is as follows.

  • 2000 – 0 individuals
  • 2001 – 8 individuals
  • 2002 – 4 individuals
  • 2003 – 4 individuals
  • 2004 – 2 individuals
  • 2005 – 3 individuals
  • 2006 – 6 individuals
  • 2007 – 7 individuals
  • 2008 – 14 individuals
  • 2009 – 18 individuals
  • 2010 – 33 individuals (including 22 in the Africa Sting case)
  • 2011 – 10 individuals
  • 2012 – 2 individuals
  • 2013 – 12 individuals
  • 2014 – 10 individuals

An analysis of the numbers reveals some interesting points.

Most of the individuals – 99 (or 74%) were charged since 2008.  Thus, on one level the DOJ is correct when it states that there has been an “increased emphasis” on individual prosecutions – at least as measured against the historical average given that between 1978 and 1999, the DOJ charged 38 individuals with FCPA criminal offenses.

Yet on another level, a more meaningful level given that there was much less overall enforcement of the FCPA between 1978 and 1999, the DOJ’s statements about its focus on individuals represents hollow rhetoric as demonstrated by the below figures.

Of the 99 individuals criminally charged with FCPA offenses by the DOJ since 2008:

  • 22 individuals were in the Africa Sting case;
  • 9 individuals (minus the “foreign officials” charged) were in the Haiti Teleco case;
  • 8 individuals were in connection with the Control Components case;
  • 8 individuals were in connection with the Siemens case;
  • 5 individuals were associated with DF Group in the Indian mining licenses case;
  • 5 individuals were associated with Direct Access Partners;
  • 4 individuals were in connection with the Lindsey Manufacturing case;
  • 4 individuals were  in connection with the LatinNode / Hondutel case;
  • 4 individuals were in connection with the Nexus Technologies case;
  • 4 individuals were in connection with the BizJet case; and
  • 4 individuals were in connection with the Alstom case.

In other words, 58% of the individuals charged by the DOJ with FCPA criminal offenses since 2008 have been in just five cases and 78% of the individuals charged by the DOJ since 2008 have been in just eleven cases.

Considering that there has been 67 corporate DOJ FCPA enforcement actions since 2008, this is a rather remarkable statistic.  Of the 67 corporate DOJ FCPA enforcement actions, 50 (or 75%) have not (at least yet) resulted in any DOJ charges against company employees.  (See here for the chart with details – current when published in October 2014).

In short, and as demonstrated by the statistics, DOJ FCPA individual enforcement actions are significantly skewed by a small handful of enforcement actions and the reality is that 75% of DOJ corporate enforcement actions since 2008 have not (at least yet) resulted in any DOJ charges against company employees.

Another very interesting and significant picture emerges when analyzing DOJ individual prosecution data based on whether the corporate entity employing or otherwise involved with the individual charged was a public or private entity.

Of the 99 individuals charged by the DOJ with FCPA criminal offenses since 2008, 71 of the individuals (72%) were employees or otherwise affiliated with private business entities.  This is a striking statistic given that 53 of the 67 corporate DOJ FCPA enforcement actions since 2008 (79%) were against publicly traded corporations.

In the 14 private entity DOJ FCPA enforcement actions since 2008, individuals were charged in connection with 7 of those actions (50%).  In contrast, in the 53 public entity DOJ FCPA enforcement actions since 2008, individuals were charged in connection with 10 of those cases (19%).  In short, and based on the data, a private entity DOJ FCPA enforcement is approximately three times more likely to have a related DOJ FCPA criminal prosecution of an individual than a public entity DOJ FCPA enforcement action.

Are other factors at play when it comes to the fact that 75% of DOJ corporate enforcement actions since 2008 have not (at least yet) resulted in any DOJ charges against company employees?  A future post will highlight a relevant datapoint.

[Notes – the above data was assembled using the “core” approach – see this prior post for an explanation.  The term “public entity”  is not limited to “issuers” under the FCPA, but rather a public entity regardless of which market it shares trade on.  Thus, for instance, JGC Corp. of Japan and Bridgestone are both public entities even though its shares are not traded on a U.S. exchange.]

FCPA Enforcement Critic And Reform Advocate Selected As New DOJ Fraud Section Chief

Monday, January 12th, 2015

WeissmannLast week, the DOJ announced Andrew Weissmann has been selected as the Chief of the Criminal Division’s Fraud Section.

In recent years, Weissmann has been a vocal advocate of Foreign Corrupt Practices Act reform and more broadly, reforming corporate criminal liability principles.

In October 2010, Weissmann was the lead author of “Restoring Balance:  Proposed Amendments to the FCPA.”  Written on behalf of the U.S. Chamber Institute for Legal Reform, “Restoring Balance,” lead to a Senate FCPA reform hearing in November 2010, and thereafter, a House FCPA reform hearing in June 2011.

Here is what Weissmann wrote in “Restoring Balance”.

“In spite of this rise in enforcement and investigatory action, judicial oversight and rulings on the meaning of the provisions of the FCPA is still minimal. Commercial organizations are rarely positioned to litigate an FCPA enforcement action to its conclusion, and the risk of serious jail time for individual defendants has led most to seek favorable terms from the government rather than face the expense and uncertainty of a trial. Thus, the primary statutory interpretive function is still being performed almost exclusively by the DOJ Fraud Section and the SEC. Notably, these enforcement agencies have been increasingly aggressive in their reading of the law. The DOJ has expressed its approach primarily through its opinion releases, but also in its decisions as to what FCPA enforcement actions to pursue. Many commentators have expressed concern that the DOJ effectively serves as both prosecutor and judge in the FCPA context, because it both brings FCPA charges and effectively controls the disposition of the FCPA cases it initiates.”

Using phrases such as “how far the DOJ has pressed the limits of enforcement,” “DOJ’s aggressive pursuit” of companies as “indication of how far the DOJ is willing to expand the scope of FCPA enforcement,” and “the highly aggressive stance the DOJ is taking to expand the FCPA net beyond its borders,” Weissmann stated:

“The current FCPA enforcement environment has been costly to business. Businesses enmeshed in a fullblown FCPA investigation conducted by the U.S. government have and will continue to spend enormous sums on legal fees, forensic accounting, and other investigative costs before they are even confronted with a fine or penalty, which, as noted, can range into the tens or hundreds of millions. In fact, one noteworthy innovation in FCPA enforcement policy has been the effective outsourcing of investigations by the government to the private sector, by having companies suspected of FCPA violations shoulder the cost of uncovering such violations themselves through extensive internal investigations.

From the government’s standpoint, it is the best of both worlds. The costs of investigating FCPA violations are borne by the company and any resulting fines or penalties accrue entirely to the government. For businesses, this arrangement means having to expend significant sums on an investigation based solely on allegations of wrongdoing and, if violations are found, without any guarantee that the business will receive cooperation credit for conducting an investigation.”

Elsewhere in “Restoring Balance,” Weissmann wrote:

“[T]he FCPA should be modified to make clear what is and what is not a violation. The statute should take into account the realities that confront businesses that operate in countries with endemic corruption (e.g., Russia, which is consistently ranked by Transparency International as among the most corrupt in the world) or in countries where many companies are state-owned (e.g., China) and it therefore may not be immediately apparent whether an individual is considered a “foreign official” within the meaning of the act. As the U.S. government has not prohibited U.S. companies from engaging in business in such countries, a company that chooses to engage in such business faces unique hurdles. The FCPA should incentivize the company to establish compliance systems that will actively discourage and detect bribery, but should also permit companies that maintain such effective systems to avail themselves of an affirmative defense to charges of FCPA violations. This is so because in such countries even if companies have strong compliance systems in place, a third-party vendor or errant employee may be tempted to engage in acts that violate the business’s explicit anti-bribery policies. It is unfair to hold a business criminally liable for behavior that was neither sanctioned by or known to the business.

The imposition of criminal liability in such a situation does nothing to further the goals of the FCPA; it merely creates the illusion that the problem of bribery is being addressed, while the parties that actually engaged in bribery often continue on, undeterred and unpunished. The FCPA should instead encourage businesses to be vigilant and compliant. For this reason, and given the current state of enforcement, the FCPA is ripe for much needed clarification and reform through improvements to the existing statute. Such improvements, which are best suited for Congressional action, are aimed at providing more certainty to the business community when trying to comply with the FCPA, while promoting efficiency and enhancing public confidence in the integrity of the free market system as well as the underlying principles of our criminal justice system.”

Weissmann also testified, on behalf of the U.S. Chamber, at the November 2010 Senate hearing.  In his written testimony, Weissmann stated:

“The FCPA had been tailored to balance various competing interests, but that balance has been altered, at times, by aggressive application and interpretations of the statute by the government. Instead of serving the original intent of the statute, which was to punish companies that participate in foreign bribery, actions taken under more expansive interpretations of the statute may ultimately punish corporations whose connection to improper acts is attenuated at best and nonexistent at worst.

The result is that the FCPA, as it currently written and implemented, leaves corporations vulnerable to civil and criminal penalties for a wide variety of conduct that is in many cases beyond their control and sometimes even their knowledge. It also exposes businesses to predatory follow-on civil suits that often get filed in the wake of a FCPA enforcement action. In fact, there is reason to believe that the FCPA has made U.S. businesses less competitive than their foreign counterparts who do not have significant FCPA exposure.”

In concluding his written testimony, Weissmann stated:

“The recent dramatic increase in FCPA enforcement, coupled with the lack of judicial oversight, has created significant uncertainty among the American business community about the scope of the statute. In addition, some of the enforcement actions brought by the SEC and DOJ are not commensurate with the original goals of the FCPA, in that they fail to reach the true bad actors and instead assign criminal liability to corporate entities with attenuated or non-existent connections to potential FCPA violations.”

As reflected in this transcript, during the hearing Weissmann stated:

“One of the reasons it is important to have a clearer statute, particularly in the FCPA arena, is that corporations cannot typically take the risk of going to trial and, thus, there is a dearth of legal rulings on the provisions of the FCPA as it applies to organizations. Thus, the government’s interpretation can be the first and the last word on the scope of the statute as it applies to a company. The lack of judicial oversight, expansive government interpretation of the FCPA, and the increased enforcement that you heard about from [the DOJ witness] have led to considerable concern and uncertainty about how and when the FCPA applies to overseas business activities.”

During the hearing, Senator Arlen Specter asked: “overall, do you think that the act is fairly well balanced and fairly well enforced or too tough?”

Weissmann responded:

“I think there is no question that many of the cases that were brought up today, such as Siemens, fall far, far, far into the—that it is amply warranted for the application of the statute. The problem is that every company in America and many companies overseas worry about the statute daily. And so regardless of what the Department of Justice is doing, people think about the statute and could their conduct fall on one side of it versus the other and will they be subject to an investigation. So it is a difficult question to answer, because I have seen many prosecutions where you say, of course, that seems like a just result and should have been warranted, but there are many companies that are hurt by the ambiguities in the statute and what I think is the over-breadth of some of its provisions on a daily basis.”

Beyond the FCPA, Weissmann has also been a vocal advocate of reforming corporate criminal liability principles.

In “Rethinking Corporate Criminal Liability,” 82 IND. L.J. 411, 414 (2007), Weissmann challenged traditional notions of corporate criminal liability and argued that when the DOJ “seeks to charge a corporation as a defendant, the government should bear the burden of establishing as an additional element that the corporation failed to have reasonably effective policies and procedures to prevent the conduct.”