Archive for the ‘Enforcement Agency Policy’ Category

The White House Omits Several Facts And Other Information From Its “Fact Sheet”

Tuesday, September 30th, 2014

The White House recently released this “Fact Sheet: The U.S. Global Anticorruption Agenda.”

It is an informative read as it sets forth in one document the policy views of the White House on bribery and corruption topics.

The fact sheet also highlights that FCPA enforcement is merely one prong of the U.S. government’s multi-dimensional approach to fighting bribery and corruption.  Other prongs mentioned include asset recovery, denial of visas, money laundering, curtailing the use of shell companies, increasing transparency in certain industries, and other open government initiatives.

As to the FCPA specifically, the White House Fact Sheet states:

“The United States has been a global leader on anticorruption efforts since enacting the first foreign bribery law, the Foreign Corrupt Practices Act (FCPA), in 1977.  [...]  The United States continues to apply the FCPA to prosecute those who pay bribes to foreign officials to obtain business benefits.  Since 2009, the United States has resolved criminal cases against more than 50 corporations worldwide with penalties of approximately $3 billion, and it has convicted more than 50 individuals, including CEOs, CFOs, and other high-level corporate executives, for FCPA and FCPA-related crimes.”

However, and consistent with prior examples of political actors or advocates describing FCPA enforcement – see here and here for instance), the White House “fact” sheet omits several salient facts or other relevant information concerning FCPA enforcement and/or the general fight against bribery and corruption.

Such as:

Since 2008 approximately 80% of DOJ/SEC corporate FCPA enforcement actions have not resulted in any related charges against company employees.  In other words, the U.S. government’s FCPA enforcement efforts are, to a large extent, corporate only and not achieving, as even the enforcement agencies recognize, maximum deterrence as only individual enforcement can achieve.

The U.S. government has an overall losing record – including during this so-called new era of FCPA enforcement – when put to its ultimate burden of proof in FCPA enforcement actions.  In other words, the White House is emphasizing the quantity of FCPA enforcement over the quality of FCPA enforcement.  However, in a legal system based on the rule of law, quality of enforcement should take priority over quantity.

The U.S. government largely enforces the FCPA through non-prosecution agreements, deferred prosecution agreements, and other vehicles (such as with increasing frequency SEC administrative settlements) not subjected to any meaningful judicial scrutiny.  These resolution vehicles – in the minds of many – are inconsistent with rule of law principles such as limited government authority, a system of checks and balances, and transparency in law enforcement.

The U.S. crusade against bribery suffers from several uncomfortable truths or double standards.  For instance, the U.S. government offers bags of cash to influence foreign leaders.  For instance, some of the most egregious FCPA violators, per the U.S. government’s own allegations, have involved U.S. government contractors or suppliers including of goods and services critical to national security, and because of this, those companies were not even charged with FCPA anti-bribery violations.  For instance, a notable example of FCPA enforcement (the Giffen case) ended with a whimper after the defendant asserted that the alleged bribery occurred with the knowledge and support of the highest levels of the U.S. government.  For instance, the general fight against bribery and corruption suffers from a double standard in that corporate interaction with “foreign officials” under the FCPA is judged by different standards than corporate interaction with U.S. officials under other U.S. laws.

In sum, the recent White House document is an informative read and to be sure the U.S. government does deserve credit for advancing certain of the policy objectives and initiatives described in the document.

However, the purpose of this post was to provide additional data points and information concerning the topics discussed in the recent White House document.

How The DOJ Can Better Achieve Its FCPA Policy Objectives

Wednesday, September 24th, 2014

Last week the DOJ’s Principal Deputy Assistant Attorney General for the Criminal Division, Marshall Miller, delivered this speech focused on how the DOJ is “addressing criminal conduct when it takes place at corporations and other institutions.”  While not specific to the Foreign Corrupt Practices Act, Miller did reference the FCPA several times during the speech.

The post is not about the DOJ’s empty rhetoric when it comes to individual FCPA prosecutions – that post was published last week the same day that Miller carried forward DOJ talking points on individual prosecutions.

Nor is this post about Miller carrying forward the DOJ’s talking points on Morgan Stanley’s so-called declination.  That post was published here in 2012.

Nor is this post about Miller’s suggestion that PetroTiger did not face any charges “of any kind [...] and no non-prosecution agreement was entered” because the company voluntarily disclosed and cooperated.  As highlighted in this post regarding the charges against the former PetroTiger executives, the core DOJ allegations concerned self-dealing by the executives and not disclosing conflicts of interest to their employer and other investors involved in a business deal.  To be sure, there have been several companies – ADM, Diebold, Ralph Lauren, Maxwell Technologies, and Tyson Foods to name just a few –  that have voluntarily disclosed and cooperated yet received NPAs or DPAs in the FCPA context.

Nor is this post about the “wow” factor of Miller’s speech – as termed by the FCPA Blog – because contrary to the suggestion by the FCPA Blog, the FCPA information in Miller’s speech was not new – all was previously mentioned in original source documents and/or previously highlighted in prior FCPA Professor posts or by others (see herehere, and here).

Rather, this post highlights for the DOJ (and others) how an FCPA reform proposal can help the DOJ better achieve its policy objectives, as sensibly articulated in Miller’s speech,. in the FCPA context.

For starters, I realize – based on reliable information – that I am a persona non grata within the DOJ’s FCPA Unit.  Nevertheless, I share an interest in advancing policies to make FCPA enforcement more effective so that the laudable objectives of the FCPA can best be achieved.

I’ve written about the below issue several times (see here for “Revisiting a Foreign Corrupt Practices Act Compliance Defense” and see here for the prior post “Seeing the Light From the Dark Ages”).

In his speech, Miller stated the following sensible policy objectives.

“[W]e would like corporations to cooperate.  We will ensure that there are appropriate incentives for corporations to do so.

[...]

I want to focus today on an aspect of [The Principles of Federal Prosecution of Business Organization and/or the DOJ's internal "Filip" factors]  that I believe, at times, receives insufficient attention – but that lies at the heart of our approach at the Criminal Division.   And that is what the factors have to say about the importance of individual prosecutions to the decision on how to approach a corporation.

[...]

[In analyzing cooperate cooperation], companies are always quick to tout voluntary disclosure of corporate misconduct and the breadth of an internal investigation.   What is sometimes given short shrift, however, is in many ways the heart of effective corporate cooperation: whether that cooperation exposed, and provided evidence against, the culpable individuals who engaged in criminal activity [...].

The importance of cooperating regarding individuals is set forth, in black and white, in the text of the [Principles of Prosecution] itself.   Factor Four expressly states that prosecutors should evaluate a corporation’s “willingness to cooperate in the investigation of [its] agents.”   This key point is fleshed out later in the guidance section, where prosecutors are directed to consider the corporation’s “willingness to provide relevant information and evidence and identify relevant actors within and outside the corporation, including senior executives.”

Voluntary disclosure of corporate misconduct does not constitute true cooperation, if the company avoids identifying the individuals who are criminally responsible.  Even the identification of culpable individuals is not true cooperation, if the company fails to locate and provide facts and evidence at their disposal that implicate those individuals.

This principle of cooperation is not new or unique to companies.   We have applied it to criminal cases of all kinds for decades.   Take, for example, organized crime cases.   Mob cooperators do not receive cooperation credit merely for halting or disclosing their own criminal conduct.   Attempted cooperators should not get reduced sentences if they refuse to provide testimony or fail to turn over evidence against other culpable parties.   A true cooperator – whether a mobster or a company – must forthrightly provide all the available facts and evidence so that the most culpable individuals can be prosecuted.

The importance of this principle is enhanced by a second Filip factor – Factor Eight – which states that, in deciding whether to charge a corporation, prosecutors must consider “the adequacy of the prosecution of individuals responsible for the corporation’s malfeasance.”   So, effective and complete corporate cooperation in the investigation and prosecution of culpable individuals is not only called for by Factor Four, but reinforced by Factor Eight.

[...]

Corporations do not act criminally, but for the actions of individuals.   The Criminal Division intends to prosecute those individuals, whether they’re sitting on a sales desk or in a corporate suite.

The prosecution of individuals – including corporate executives – for white-collar crimes is at the very top of the Criminal Division’s priority list under Assistant Attorney General Caldwell.”

The above are all sensible policy statements from the DOJ and are consistent with Attorney General Eric Holder’s similar sensible policy statements articulated on the same day in a different speech.  As Holder stated:

“[T]he department recognizes the inherent value of bringing enforcement actions against individuals, as opposed to simply the companies that employ them.  We believe that doing so is both important – and appropriate – for several reasons:

First, it enhances accountability.  Despite the growing jurisprudence that seeks to equate corporations with people, corporate misconduct must necessarily be committed by flesh-and-blood human beings.  So wherever misconduct occurs within a company, it is essential that we seek to identify the decision-makers at the company who ought to be held responsible.

Second, it promotes fairness – because, when misconduct is the work of a known bad actor, or a handful of known bad actors, it’s not right for punishment to be borne exclusively by the company, its employees, and its innocent shareholders.

And finally, it has a powerful deterrent effect.  All other things being equal, few things discourage criminal activity at a firm – or incentivize changes in corporate behavior – like the prospect of individual decision-makers being held accountable.  A corporation may enter a guilty plea and still see its stock price rise the next day.  But an individual who is found guilty of a serious fraud crime is most likely going to prison.”

Again, sensible policy statements.

The problem is – at least in the FCPA context – the DOJ is not achieving its policy objectives.  This is the unmistakable conclusion from the following statistics.

  • As highlighted in this previous post (with statistics calculated through the end of 2013) since 2008 approximately 75% of corporate FCPA enforcement have not (at least yet) resulted in any DOJ charges against company employees.
  • As highlighted in this previous post, in the 20 most recent DOJ corporate FCPA enforcement actions, only one has resulted (at least yet) in any DOJ charges against company employees.

An FCPA compliance defense can help the DOJ better achieve its above-stated policy objectives.

As stated in my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense.”

“An FCPA compliance defense will better facilitate the DOJ’s prosecution of culpable individuals and advance the objectives of its FCPA enforcement program. At present, business organizations that learn through internal reporting mechanisms of rogue employee conduct implicating the FCPA are often hesitant to report such conduct to the enforcement authorities. In such situations, business organizations are rightfully diffident to submit to the DOJ’s opaque, inconsistent, and unpredictable decision-making process and are rightfully concerned that its pre-existing FCPA compliance policies and procedures and its good faith compliance efforts will not be properly recognized. The end result is that the DOJ often does not become aware of individuals who make improper payments in violation of the FCPA and the individuals are thus not held legally accountable for their actions. An FCPA compliance defense surely will not cause every business organization that learns of rogue employee conduct to disclose such conduct to the enforcement agencies. However, it is reasonable to conclude that an FCPA compliance defense will cause more organizations with robust FCPA compliance policies and procedures to disclose rogue employee conduct to the enforcement agencies. Thus, an FCPA compliance defense can better facilitate DOJ prosecution of culpable individuals and increase the deterrent effect of FCPA enforcement actions.”

Is the DOJ capable of viewing an FCPA compliance defense, not as a race to the bottom, but a race to the top?  Is the DOJ capable of viewing an FCPA compliance defense as helping it better achieve its FCPA policy objectives?

Let’s hope so.

*****

In his speech, Marshall also provided specifics as to what type of cooperation the DOJ looks for.  He stated:

“[I]f a corporation wants credit for cooperation, it must engage in comprehensive and timely cooperation; lip service simply will not do.

Corporations are often too quick to claim that they cannot retrieve overseas documents, emails or other evidence regarding individuals due to foreign data privacy laws.   Just as we carefully test – and at times reject – corporate claims about collateral consequences of a corporate prosecution, the department will scrutinize a claimed inability to provide foreign documents or evidence.   We have forged deepening relationships with foreign governments and developed growing sophistication and experience in analyzing foreign laws.   A company that tries to hide culpable individuals or otherwise available evidence behind inaccurately expansive interpretations of foreign data protection laws places its cooperation credit at great risk.   We strongly encourage careful analysis of those laws with an eye toward cooperating with our investigations, not stalling them.

Understand too, that we will use our own parallel investigation to pressure test a company’s internal investigation: to determine whether the company actually sought to root out the wrongdoing and identify those responsible, as far up the corporate ladder as the misconduct goes, or instead merely checked a box on a cooperation punch list.

Companies that have not conducted comprehensive investigations will not secure significant cooperation benefits.   Worse, companies that hamper the government’s investigation while conducting an internal investigation – for example, by conducting interviews that serve to spread corporate talking points rather than secure facts relating to individual culpability – will pay a price when they ask for cooperation credit.

A few final words: when you come in to discuss the results of an internal investigation to the Criminal Division and make a Filip factor presentation – expect that a primary focus will be on what evidence you uncovered as to culpable individuals, what steps you took to see if individual culpability crept up the corporate ladder, how tireless your efforts were to find the people responsible.

At the risk of being a little too Brooklyn, I’m going to be blunt.

If you want full cooperation credit, make your extensive efforts to secure evidence of individual culpability the first thing you talk about when you walk in the door to make your presentation.

Make those efforts the last thing you talk about before you walk out.

And most importantly, make securing evidence of individual culpability the focus of your investigative efforts so that you have a strong record on which to rely.”

Attorney General Holder – “The Buck Needs to Stop Somewhere” – But Does It Stop With Him?

Tuesday, September 23rd, 2014

Buck Stops HereLast week U.S. Attorney General Eric Holder delivered this speech at New York University School of Law.  While focusing on financial fraud issues, the speech also touched upon several issues of general interest such as Holder’s statement that “the buck needs to stop somewhere where corporate misconduct is concerned.”  (emphasis in original).  Holder spoke of corporate structures that “blur lines of authority and prevent responsibility for individual business decisions from residing with a single person.”  Holder also highlighted that:

“[A]t some institutions that engaged in inappropriate conduct before, and may yet again, the buck still stops nowhere.  Responsibility remains so diffuse, and top executives so insulated, that any misconduct could again be considered more a symptom of the institution’s culture than a result of the willful actions of single individual.”

Recognizing that there are obvious differences between a government department and a business organization, the fact remains there are many similarities between the two when it comes to internal behavior, diffusion of responsibility and insulation of top leadership.

For instance and to borrow corporate analogies, Attorney General Holder is the CEO of DOJ Inc. and even the DOJ describes itself as the “world’s largest law office, employing more than 10,000 attorneys nationwide.”  That employee headcount (obviously the DOJ also employs non-attorneys as well) is rather small compared to a typical corporation doing business in the global marketplace through employees and hundreds, if not thousands, of third parties.

Returning to an issue previously highlighted here and here, if the DOJ was a business organization and subject to the same legal principles its uses to prosecute business organizations, the DOJ would constantly be under scrutiny and the subject of numerous enforcement actions.

Why?

Because as highlighted in this recent report by the Project on Government Oversight (“POGO”) titled “Hundreds of Justice Department Attorneys Violated Professional Rules, Laws, or Ethical Standards:”

“An internal affairs office at the Justice Department has found that, over the last decade, hundreds of federal prosecutors and other Justice employees violated rules, laws, or ethical standards governing their work.”

[...]

“From fiscal year 2002 through fiscal year 2013, the Justice Department’s Office of Professional Responsibility (OPR) documented more than 650 infractions … In the majority of the matters – more than 400 – OPR categorized the violations as being at the more severe end of the scale:  recklessness or intentional misconduct, as distinct from error or poor judgment.”

Although not specifically discussed in the POGO report, Foreign Corrupt Practices Act enforcement actions have seen instances of prosecutorial misconduct.  For instance, as highlighted in this post, in the DOJ’s enforcement action against Lindsey Manufacturing and two of its executives, the judge in dismissing the case, stated that the instances of misconduct were “so varied, and occurr[ed] over so lengthy a period … that they add up to an unusual and extreme picture of a prosecution gone badly awry.” In the failed Africa Sting case, the judge in dismissing the cases, stated that certain of the DOJ’s conduct had “no place in a federal courtroom.”  (See here).

The DOJ’s Principles of Prosecution of Business Organizations state, among the factors prosecutors should consider in deciding whether – and how – to charge a business organization as follows.

“Among the factors prosecutors should consider and weigh are whether the corporation appropriately disciplined wrongdoers, once those employees are identified by the corporation as culpable for the misconduct.”

Against this backdrop, the POGO report stated that several “examples of misconduct” within the DOJ often result in lenient sanctions such as a 10, 14 or 30 day suspensions.  Moreover, if I am not mistaken, certain of the DOJ prosecutors in the above FCPA enforcement actions – far from being disciplined – were promoted after their conduct was called into question by the federal judiciary.

The policy question needs to be asked: as a matter of principle should not the prosecutor / regulator and the prosecuted / regulated be held to the same general standards?

As a matter of principle and borrowing Holder’s policy pronouncements, should not the buck somewhere in the DOJ when improper conduct occurs within its ranks?  Is responsibility so diffuse in the DOJ that top leaders are insulated from accountability?

As noted in the POGO report, “high-level DOJ officials have said in the past that given the context – tens of thousands of its attorneys working on tens of thousands of cases each year – the amount of misconduct is small.”  (See here).

Could not the same be said of a typical business organization doing business in the global marketplace?  After all, dig into the details of many corporate FCPA enforcement actions and you will quickly learn that the conduct at issue was engaged in by a “small fraction” of the company’s global workforce to borrow the phrase the DOJ used in the HP enforcement action.

To be clear, the point of this post is not to call (as some actually have) for Holder’s resignation or to insist that Holder ought to be personally responsible, legally or ethically, for the improper conduct that has taken place in the DOJ under his leadership.

Rather, the point of this post is to highlight from a policy perspective the similarities between the DOJ and a business organization when it comes to compliance, internal behavior, diffusion of responsibility and insulation of top leadership.

These similarities ought to make top government enforcement officials less confident and less sweeping in their policy statements and simplistic views of legal and ethical culpability.  And if not, the similarities should at least cause top government enforcement officials to recognize that the same statements and views can be appropriately used to shine a light on the organizations they are tasked with running.

*****

For additional views of Holder’s recent speech, see here from Debevoise & Plimpton and here from Professor Peter Henning at his White Collar Crime Watch column in the New York Times.

Friday Roundup

Friday, September 5th, 2014

Knox to FCPA Inc., DOJ response brief filed, SFO speeches, and asset recovery.  It’s all here in the Friday roundup.

Knox to FCPA Inc.

As highlighted in this prior post, over the summer Jeffrey Knox (DOJ Fraud Section Chief) followed the same tired script on a number of FCPA issues.  It will be interesting to hear / read of Knox’s positions in the future as – following a well-traveled career path for DOJ FCPA enforcement attorneys – he is leaving government service for the private sector to provide FCPA investigative and compliance services to business organizations subject to the current era of FCPA enforcement.  (See here from the Washington Post, here from the Wall Street Journal, and here from the New York Times).

Knox is headed to Simpson Thatcher (also home to former SEC FCPA Unit Chief Cheryl Scarboro – see here for the prior post). This Simpson Thatcher release states in pertinent part:

“Mr. Knox will be a partner based in the Firm’s Washington, D.C. office and a member of the Firm’s Government and Internal Investigations Practice. During his tenure at the DOJ, Mr. Knox served as the Chief and, before then, the second-ranking official of the Criminal Division’s Fraud Section, which has responsibility for some of the nation’s most significant fraud cases, including … Foreign Corrupt Practices Act (FCPA) criminal investigations and prosecutions in the United States.”

[...]

“We are pleased to welcome Jeff back to the Firm,” said Bill Dougherty, Chairman of Simpson Thacher’s Executive Committee. “His deep experience in overseeing high-stakes government investigations and enforcement actions will be a significant asset to our clients as they navigate an increasingly complex enforcement landscape.” “We are very excited that Jeff is joining our Government and Internal Investigations team here at Simpson Thacher. As Chief of the Fraud Section, Jeff has presided over many of the most significant financial fraud, healthcare fraud, and FCPA investigations in recent years, and we know that he is greatly respected within both the DOJ and the white collar bar. His experience and insight will provide substantial value to our clients,” added Mark J. Stein, Head of the Firm’s Government and Internal Investigations Practice.”

The release further states: “[Knox] was a contributor to the DOJ and SEC’s A Resource Guide to the FCPA, published in 2012.”

As I have done in all previous instances of high-ranking DOJ or SEC FCPA enforcement attorneys leaving government services for lucrative FCPA related jobs in the private sector (see here for instance), I will restate my position.

As to DOJ and SEC FCPA enforcement attorneys who have supervisory and discretionary positions and articulate government FCPA policies, it is in the public interest that such individuals be prohibited, upon leaving government service, from providing FCPA defense or compliance services in the private sector for a five-year period.

DOJ Response Brief Filed

This previous post highlighted the motion to dismiss filed by former Alstom executive Lawrence Hoskins in the criminal FCPA action against him.  In short, the motion to dismiss stated that the DOJ’s indictment “charges stale and time-barred conduct that occurred more than a decade ago; it asserts violations of U.S. law by a British citizen who never stepped foot on U.S. soil during the relevant time period; and, it distorts the definition of the time-worn legal concept of agency beyond recognition.”  As noted in the prior post, much of Hoskins’s brief focuses on the issue of whether he withdrew from the alleged criminal conspiracy involving alleged improper payments at the Tarahan power plant project in Indonesia.

Earlier this week, the DOJ filed this response brief.  In pertinent part, the DOJ’s brief states:

“The defendant seeks to have the Court take the extraordinary step of dismissing the Indictment against him at this pretrial phase based on his interpretation of the legal import of  certain allegations contained in the Indictment, supplemented by his own selective version of events contained in an affidavit attached to his motion. The Indictment, however, sets forth more than sufficient facts to support the charged crimes. Moreover, at trial the Government expects to present substantial additional evidence supporting the charges, including facts that bear directly on the arguments raised by the defendant in his motion. The defendant’s motion thus represents a novel effort to – in effect – invent and obtain summary judgment in the criminal process based on the claim that he has established the factual basis for his defenses. For good reason, the law provides that only after the Government has presented its case should a judge and jury grapple with the legal and factual sufficiency of that evidence. Thus, the defendant’s motion should be denied. Even addressing the merits of his arguments at this premature stage, however, the defendant’s motion should fail.

In particular, the defendant’s motion fails because: (1) the issue of withdrawal is necessarily a factual one to be decided by a jury and, nonetheless, the defendant did not withdraw from the charged conspiracies; (2) the Indictment has adequately alleged, and the Government will prove at trial, that the defendant was an “agent” of a domestic concern under the Foreign Corrupt Practices Act (“FCPA”), the charged conduct is domestic (not extraterritorial), and Congress has not specially excepted the defendant from prosecution under the FCPA and, thus, he can be liable for causing, aiding and abetting, or conspiring to commit an FCPA violation even if he is not guilty as a principal; and (3) the Indictment alleges continuing transactions (the bribe payments) that were initiated from Connecticut and alleges that the defendant aided and abetted the transactions through acts in Connecticut, and thus the money laundering charges are properly venued in the District of Connecticut.”

SFO Speeches

David Green’s (Director of the U.K. Serious Fraud Office) recent speech regarding a “cross-section of SFO cases” included the following in the foreign bribery space:

  • Barclays/Qatar: is an investigation, begun in 2012, into the circumstances surrounding Barclays’ £8bn recapitalisation in 2008.
  • Rolls Royce: concerns allegations of bribery carried out by local agents in return for orders in various markets, touching several divisions of Rolls Royce business activity.
  • GlaxoSmithKline: this is an investigation into allegations that bribes were paid in order to increase business in several jurisdictions.
  • GPT: this investigation concerns a subsidiary’s business relationship with the Saudi National Guard.
  • Alstom: this is an ongoing investigation into the use of British subsidiaries of a major French multinational to dispense bribes in several jurisdictions in order to secure large infrastructure contracts. Charges have already been laid against a subsidiary.
  • The Sweett Group: this investigation concerns allegations of bribes paid in return for building contracts in North Africa.

For another recent speech by Alun Milford (General Counsel of the SFO) on cooperation and disclosure, see here.

Asset Recovery

In news related to the DOJ’s Kleptocracy Asset Recovery Initiative (under which prosecutors in the DOJ Asset Forfeiture and Money Laundering Section work in partnership with federal law enforcement agencies to forfeit the proceeds of foreign official corruption – see this 2009 post highlighting Attorney General Holder’s announcement of the program), the DOJ announced:

“The Department of Justice has seized approximately $500,000 in assets traceable to corruption proceeds accumulated by Chun Doo Hwan, the former president of the Republic of Korea.   This seizure brings the total value of seized corruption proceeds of President Chun to more than $1.2 million.  [...] Chun Doo Hwan orchestrated a vast campaign of corruption while serving as Korea’s president,” said Assistant Attorney General Caldwell.   “President Chun amassed more than $200 million in bribes while in office, and he and his relatives systematically laundered these funds through a complex web of transactions in the United States and Korea.   Today’s seizure underscores how the Criminal Division’s Kleptocracy Initiative – working in close collaboration with our law enforcement partners across the globe – will use every available means to deny corrupt foreign officials and their relatives safe haven for their assets in the United States.”

*****

A good weekend to all.

 

Judge Rakoff Offers A Few Final Zingers

Wednesday, August 6th, 2014

If you have not noticed by now, I admire Judge Jed Rakoff (S.D.N.Y.).

Although outside the Foreign Corrupt Practices Act context, FCPA Professor has covered from day one (see here and here) Judge Rakoff’s concerns about SEC settlement policy as expressed in SEC v. Citigroup.  As highlighted in this post, the Second Circuit recently rebuked Judge Rakoff for his refusal to sign off on the settlement and concluded that the SEC does not need to establish “the truth” of the allegations against a settling party as a condition for approving consent decrees because, in the words of the Court, “trials are primarily about truth” whereas “consent decrees are primarily about pragmatism.”

On remand and obligated to assess the SEC v. Citigroup settlement through the narrow prism the Second Circuit adopted, Judge Rakoff had little choice but to approve of the settlement.  However, in doing so in his opinion yesterday, Judge Rakoff offered a few final zingers as he wrote:

“Nonetheless, this Court fears that, as a result of the Court of Appeal’s decision, the settlements reached by governmental regulatory bodies and enforced by the judiciary’s contempt powers will in practice be subject to no meaningful oversight whatsoever. But it would be a dereliction of duty for this Court to seek to evade the dictates of the Court of Appeals. That Court has now fixed the menu, leaving this Court with nothing but sour grapes.”

In the prior post highlighting the Second Circuit’s decision, I noted that the most troubling aspect of the decision is the statement that if the “S.E.C. does not wish to engage with the courts, it is free to eschew the involvement of the courts and employ its own arsenal of remedies instead.”  As highlighted in my article “A Foreign Corrupt Practices Act Narrative,” in the FCPA context this is largely the path the SEC has chosen.  As noted,  in 2013 50% of SEC corporate FCPA enforcement actions were not subjected to one ounce of judicial scrutiny either because the actions were resolved via a non-prosecution agreement or administrative cease and desist orders.

On this issue, Judge Rakoff states in a footnote as follows.

“[T]he Court of Appeals invites the SEC to avoid even the extremely modest review it leaves to the district court by proceeding on a solely administrative basis. (“Finally, we note that to the extent that the S.E.C. does not wish to engage with the courts, it is free to eschew the involvement of the courts and employ its own arsenal of remedies instead.” ). One might wonder: from where does the constitutional warrant for such unchecked and unbalanced administrative power derive?”

As to this last point, see also this recent Wall Street Journal opinion piece by Russell Ryan ((King & Spalding and previously an Assistant Director of the SEC Enforcement Division).

“[A]  surge in administrative [SEC] prosecutions should alarm anyone who values jury trials, due process and the constitutional separation of powers. The SEC often prefers to avoid judicial oversight and exploit the convenience of punishing alleged lawbreakers by administrative means, but doing so is unconstitutional. And if courts allow the SEC to get away with it, other executive-branch agencies are sure to follow. [...]  On its website, the SEC accurately describes itself as “first and foremost” a law-enforcement agency. As such, the agency should play no role in deciding guilt and meting out punishment against the people it prosecutes. Those roles should be reserved for juries and life-tenured judges appointed under Article III of the Constitution. Today’s model of penal SEC law enforcement is categorically unsuited for rushed and truncated administrative hearings in which the agency and its own employees serve as prosecutor, judge and punisher. Such administrative prosecution has no place in a constitutional system based on checks and balances, separation of powers and due process.”

*****

I also tipped my hat to Judge Rakoff in this November 2013 post for his speech “Why Have No High Level Executives Been Prosecuted in Connection with the Financial Crisis?” As highlighted in the post, Judge Rakoff hit on many of the same general issues (outside the FCPA context) I discussed in my 2010 Senate FCPA testimony - namely the general lack of individual enforcement actions in connection with most corporate FCPA enforcement actions and how this dynamic (far from the “but nobody was charged” claim)  could best be explained by the quality and legitimacy of the corporate enforcement action in the first place given the prevalent use of non-prosecution and deferred prosecution agreements to resolve corporate FCPA enforcement actions.  As highlighted in the post, in answering his own question, Judge Rakoff offered that “one possibility … is that no fraud was committed.  This possibility should not be discounted.”