Archive for the ‘Non-Prosecution Agreement’ Category

Friday Roundup

Friday, April 24th, 2015

Roundup2Really no big deal, scrutiny alerts, across the pond, quotable, and for your viewing pleasure.  It’s all here in the Friday roundup.

Really No Big Deal

Lockheed’s request (which the SEC does not oppose) to be relieved of an SEC permanent injunction stemming from a 1976 (pre-FCPA) enforcement action has been receiving some recent ink (see here and here ”Lockheed Wants Out of 40-Year Old Disclosure Demand”).

I don’t really see this as a big deal given that Lockheed’s reporting obligation is not disappearing, it’s just now subject to a more specific law.

As stated in the unopposed motion:

“On April 13, 1976, the Commission filed a Complaint against Lockheed Martin for violations of Sections 10(b), 13(a), and 14(a) of the Securities Exchange Act of 1934 (and the Commission’s Rules promulgated thereunder) arising out of alleged payments to foreign government officials in the early 1970s. Simultaneous with the filing of the Commission’s Complaint, Lockheed Martin consented to the entry of a final judgment of permanent injunction (the “Final Judgment”) without admitting or denying the Commission’s non jurisdictional allegations.

The Final Judgment was entered by the Court that same day. The Final Judgment incorporated by reference a “Consent and Undertaking” entered into and filed by Lockheed Martin (the “Consent”), pursuant to which Lockheed Martin agreed to undertake several remedial actions. [...] Those actions included (a) the creation of an independent Special Committee to conduct an investigation into the matters alleged in the Commission’s Complaint; (b) the preparation and submission of a full report of the Special Committee’s investigation to the Court, the Commission, and Lockheed Martin’s Board of Directors; and (c) the adoption of a “Statement of Policies and Procedures” regarding “unlawful payments to government officials” (hereinafter “Anti-Corruption Policies and Procedures”).  In addition, Lockheed Martin agreed that it would file a Form 8-K with the Commission at least 10 days in advance of any future changes to its Anti-Corruption Policies and Procedures.  This prospective requirement—which Lockheed Martin has now complied with for nearly four decades—is the only aspect of the Final Judgment at issue in this motion.

In 2003, the Commission issued a final rule implementing Section 406 of the SarbanesOxley Act of 2002 (the “Sarbanes-Oxley Act”), which directed the Commission to devise and promulgate requirements for the disclosure of “codes of ethics” by public companies. The final rule defines a “code of ethics” as “written standards that are reasonably designed to deter wrongdoing and to promote,” among other things, “[c]ompliance with applicable governmental laws, rules and regulations.”  The Commission’s final rule requires public companies to disclose their codes of ethics to the public by either (i) filing them as an exhibit to an annual report (on Form 10-K), or (ii) posting them on the company’s website. The final rule also requires that certain types of changes to a company’s code of ethics must be disclosed within four business days of the change where the company elects to disclose its code of ethics on its website.

In light of the Commission’s final rule, Lockheed Martin—like many other public companies—has elected to make its code of ethics (as well as certain other corporate policies) available to the public by posting them on its corporate website. Among other things, Lockheed Martin’s “Code of Ethics and Business Conduct”—which applies to anyone “conducting business on behalf of Lockheed Martin” (including, but not limited to, its employees), and is made available in 16 different languages—requires strict compliance with all applicable anticorruption laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”). Lockheed Martin also makes its more detailed policy on “Compliance with the Anti-Corruption Laws” available on its website. By virtue of the Final Judgment, however, Lockheed Martin must continue to file a Form 8-K before making any change to its Anti-Corruption Policies and Procedures, notwithstanding its compliance with the Commission’s final rule.”

Scrutiny Alerts

Interpublic Group

The bribery and corruption news from Brazil continues to flow.  First it was Petrobras-related bribery, then it was various corporate interactions with tax authorities, and now it is advertising industry.

Advertising Age reports

“A former executive at Lowe & Partners’ Brazilian agency, Borghi/Lowe, was detained by police last Friday and a federal judge authorized the agency’s financial and other records to be searched … Ricardo Hoffman, Borghi/Lowe’s former VP and head of the agency’s office in the nation’s capital Brasilia, is said by Federal judge Sergio Moro [...] to have instructed third parties to make payments to then-Congressman Andre Vargas in connection with two government accounts handled by Borghi/Lowe.”

Lowe & Partners is a unit of The Interpublic Group of Companies, Inc., a New York based company.

See here for a 1989 FCPA enforcement action against an advertising agency and various executives.

SOCO International

Voice of America highlights allegations of bribery and corruption in the Democratic Republic of Congo (DRC) by London-based SOCO (a company with ADRs registered with the SEC).

According to the article:

“A member of DRC’s Parliament allegedly admitted to taking monthly payments from SOCO to lobby for the oil company and a high-level SOCO official and a company contractor allegedly admitted that the company paid rebels.

[...]

SOCO has “categorically denied” corruption allegations.

“The company operates in accordance with the [British] Bribery Act of 2010, and any allegation to the contrary is categorically denied,” SOCO said in a statement [...]. “Payments to rebel groups have never been, or will ever be, sanctioned by SOCO.”

Across the Pond

thebriberyact.com highlights the 5th birthday of the U.K. Bribery Act (from the date passed, not the date the law went live – July 1, 2011) and asks – “the Bribery Act has moved from crawling to walking.  Anyone for cake?”  The post notes:

“The Bribery Act was born amid a huge public fanfare, plenty of hype and lots press coverage. Prosecutions would be imminent and UK PLC would be seriously disadvantaged on the global stage as a result of the ‘red tape’ of the Bribery Act. In 2015 it is hard to square the reality of what happened with what the naysayers forecast.  A handful of individual prosecutions under the Act but none of them are ‘Bribery Act’ cases in the true sense of the word. Put another way, the hype around the Bribery Act focussed on the potential enforcement of new UK anti-corruption laws against corporates UK and foreign who fell under the long arm jurisdiction of the Act. To date, there has been no corporate prosecution launched and no Deferred Prosecution Agreement disposing of a Bribery Act case. Five years on the UK economy is the strongest in Europe and predictions of the the demise of UK PLC turn out to have been premature. So.  What was all the fuss about?”

Precisely.  Here was my two cents on the date the Bribery Act went live in 2011.

“As with any new law, there is likely to be a learning phase for both the enforcement agencies and those subject to the law. That was certainly the case in the U.S. in the years following passage of the FCPA in 1977. Thus, it very well may be the case that there are no enforcement actions for some time (recognizing that it often takes a few years from beginning of an inquiry to resolution of an action). Thus the greatest immediate impact of the Bribery Act is sure to be the compliance ethic it inspires. I expect that the enforcement actions that may develop over time to focus on egregious instances of corporate conduct on which no reasonable minds would disagree. I do not get the sense, based on public comments of the Ministry of Justice and the Serious Fraud Office, that the envelope will be pushed too far in the early years of the Bribery Act.”

Quotable

In this recent Q&A on the FCPA Compliance and Ethics Blog, James Koukios, a lawyer who recently left the DOJ’s FCPA Unit for private practice, states:

“Because the Fraud Section has the exclusive mandate for FCPA prosecutions, we were able to formulate—and execute—policy decisions in a manner that, I believe, had a significant impact on corporate compliance programs and the global anti-corruption movement.”

As I have long argued, special enforcement policies require special rules.  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.

For Your Viewing Pleasure

Calling all Judge Jed Rakoff fans.  In this video of a recent speech, Judge Rakoff talks about corporate criminal liability and judicial review of NPAs and DPAs.

*****

A good weekend to all.

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.

“Without Law or Limits: The Continued Growth Of The Shadow Regulatory State”

Thursday, April 16th, 2015

ShadowJames Copeland and others at the Manhattan Institute have written some good pieces about the DOJ’s use of non-prosecution and deferred prosecution agreements.

See here for the 2012 post discussing “The Shadow Regulatory State:  The Rise of Deferred Prosecution Agreements.”

See here for the 2014 post discussing “The Shadow Lengthens:  The Continuing Threat of Regulation by Prosecution.”

If you are interested in NPAs and DPAs (and you should be if you follow the FCPA given that since 2010 approximately 85% of corporate DOJ enforcement actions have involved either an NPA or DPA), you should check out Copeland’s latest titled “Without Law or Limits: The Continued Growth of the Shadow Regulatory State.

The introduction states:

This report focuses on DPAs and NPAs reached between the U.S. government and businesses or individuals in 2014. [...]

Through specific case studies, this report explores three key issues that arise under the shadow regulatory state:

  1. Enforcement efforts can undermine compliance. As shown through a plea agreement, a DPA, an NPA, and a cease-and-desist settlement entered into between the U.S. government and Hewlett-Packard [see prior posts here and here] and its foreign subsidiaries, federal prosecutors often punish companies notwithstanding extensive compliance programs, even when the companies self-report offenses and even when “rogue” employees go to extraordinary lengths to hide misconduct from their employers. Such a “strict liability” enforcement strategy may deter companies from developing effective compliance regimes.
  2. The DPA-NPA process lacks definite terms and judicial oversight. As shown through the federal government’s decision to extend a two-year DPA with Standard Chartered Bank for an additional three-year term, without any proffered evidence of additional wrongdoing, federal prosecutors’ authority in the DPA-NPA process is supreme. These agreements typically grant prosecutors the sole authority to determine whether an agreement has been breached. Indeed, the Department of Justice argues that federal judges have no authority over DPAs, beyond ensuring that such agreements comply with the terms of the Speedy Trial Act. [For prior posts examining this issue, see here and here].
  3. The DPA-NPA process is ill-suited for application to individuals. One concern about the increased use of DPAs and NPAs by the federal government is that they give prosecutors broad powers over businesses, notwithstanding that, more often than not, no individual is ever prosecuted for any underlying offense alleged in the agreement. [For prior post containing FCPA-specifics on this issue, see here and here]. The recent decision of the Securities and Exchange Commission to apply DPAs and NPAs to individuals—acquiring significant authority over people’s lives and retaining the ability to prosecute, essentially at prosecutors’ discretion—is a troubling new application of this power. The NPA reached with an unnamed individual in a 2014 insider-trading investigation exemplifies these concerns, as the alleged misconduct itself most likely does not constitute insider trading under current law.

Notwithstanding the lack of judicial oversight in the shadow regulatory state, two judges asserted new authority over this process in 2014—continuing a trend observed in 2013. Ultimately, however, reforming the shadow regulatory state requires legislative action. Part IV of this report discusses one proposed solution, the Accountability in Deferred Prosecution Act, sponsored by U.S. Representative Bill Pascrell, Jr. (D-N.J.). Although this proposed legislation does not go far enough to address some of the serious problems with DPAs and NPAs, the legislation would add substantial clarity, transparency, and oversight, as compared with current practice, and is a great starting point for much-needed reform.”

Numerous posts have highlighted the problems of NPAs and DPAs in the FCPA context. (See here for example.  For a more comprehensive analysis see “The Facade of FCPA Enforcement“).

My long-standing, two-fold FCPA reform proposal is to amend the FCPA to include compliance defense and couple this with abolishing NPA and DPAs.  (Among other prior posts, see here).

Should this occur, the resulting enforcement landscape would look as follows.

If a payment is made in violation of the FCPA’s anti-bribery provisions within a business organization, two issues will be relevant.

First, if the payment was made, authorized or condoned by a director or executive officer, the business organization will not be able to avail itself of an FCPA compliance defense.  Second, if the payment was made by any employee or agent in the absence of pre-existing FCPA compliance policies consistent with the best practices, the business organization will not be able to avail itself of an FCPA compliance defense.  In these scenarios involving corrupt directors or executive officers or business organizations without a commitment to FCPA compliance, the enforcement agencies will have two choices:  do not prosecute or prosecute the business organization for violating the FCPA.  This is a just and reasonable result and the third option of an NPA or DPA is not needed in such a scenario. As even the DOJ has acknowledged and empirical research has demonstrated, it is extremely unlikely that actual criminal prosecution of such a business organization will result in its demise.

Conversely, if the payment at issue is made by a non-executive employee or agent contrary to the business organization’s pre-existing FCPA compliance policies, the organization will be able to avail itself of an FCPA compliance defense.  Thus, as a matter of law, no FCPA prosecution of the organization will be able to proceed.  This too is a just and reasonable result and aligns FCPA enforcement with enforcement regimes in several other peer countries.

The above FCPA reforms will take courage, both by Congress in amending the FCPA and by the enforcement agencies in abolishing the resolution vehicles they created.  The reform proposals may indeed result in less hard FCPA enforcement actions as certain business organizations will be able to avail itself of the compliance defense and as enforcement agencies are once again mindful of their burdens of proof in prosecuting alleged FCPA violations.

However, more FCPA enforcement is not necessarily an inherent good and ought not be the singular goal of the FCPA.  The goal ought to be constructing an enforcement regime that best promotes compliance, reduces improper conduct, best advances the FCPA’s objective of reducing bribery, increases transparency and better aligns FCPA enforcement with rule of law principles.

The above two-fold FCPA reform proposal will accomplish these goals as well as increase public confidence in FCPA enforcement.  The proposals will also allow the enforcement agencies to better allocate limited prosecutorial resources to cases involving corrupt business organizations and the individuals who actually engage in the improper conduct. (See here for the prior post).

In Rejecting A DPA, Judge Leon Refuses To Be A Rubber Stamp

Tuesday, February 10th, 2015

Rubber StampNon-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs) are the predominate way in which the DOJ resolves Foreign Corrupt Practices Act enforcement actions against business organizations.  Indeed, as highlighted in this prior post, since 2010 86% of corporate DOJ enforcement actions have involved either an NPA or DPA.

NPAs and DPAs of course are used in other areas as well – which makes this recent opinion by U.S. District Court Judge Richard Leon (D.D.C.) of interest.  The action, U.S. v. Fokker Services, involved criminal charges against Fokker to unlawfully export U.S. origin goods and Services to Iran, Sudan, and Burma.  In resolving the case, the DOJ and Fokker agreed to an 18 month DPA in which the company agreed to forfeit $10.5 million and to pay an additional $10.5 million in a parallel civil settlement.

No so fast, Judge Leon said in rejecting the DPA. The analysis section of Judge Leon’s opinion states, in pertinent part, as follows (internal citations omitted).

“Both of the parties argue, not surprisingly, that the Court’s role is extremely limited in these circumstances.  They essentially request the Court to serve as a rubber stamp [...].  Unfortunately for the parties, the Court’s role is not quite so restricted.

[...]

“One of the purposes of the Court’s supervisory powers, of course, is to protect the integrity of the judicial process.”

[...]

[T]he government has charged Fokker Services with criminal activity.  And it does not propose to dismiss the case at this point; rather, under the proposed resolution, this criminal case would remain on this Court’s docket for the duration of the agreement’s term.

The parties are, in essence, requesting the Court to lend its judicial imprimatur to their DPA.  In effect, the Court itself would ‘become an instrument of law enforcement.  The parties also seek to retain the possibility of using the full range of the Court’s power in the future should Fokker Services fail to comply with the agreed upon terms.  To put it bluntly, the Court is thus being asked to serve as the leverage over the head of the company.

When, as here, the mechanism chosen by the parties to resolve charged criminal activity requires Court approval, it is the Court’s duty to consider carefully whether that approval should be given.

[...]

I do not undertake this review lightly.  I am well aware, and agree completely, that our supervisory powers are to exercised ‘sparingly, and I fully recognize that this is not a typical case for the use of such powers.  The defendant has signed onto the DPA and is not seeking redress for an impropriety it has identified.  But the Court must consider the public as well as the defendant.  After all, the integrity of judicial proceedings would be compromised by giving the Court’s stamp of approval to either overly-lenient prosecutorial action, or overly-zealous prosecutorial conduct.”

After reviewing various specifics of the Fokker action and resolution (including by noting that “under the DPA no individuals are being prosecuted for their conduct at issue here”), Judge Leon stated:

“While I do not discount Fokker Services’ cooperation and voluntary disclosure or, for that matter, its precarious financial situation, after looking at the DPA in its totality, I cannot help but conclude that the DPA presented here is grossly disproportionate to the gravity of Fokker Services’ conduct …  In my judgment, it would undermine the public’s confidence in the administration of justice and promote disrespect for the law for it to see a defendant prosecuted so anemically for engaging in such egregious conduct for such a sustained period of time and for the benefit of one of our country’s worst enemies.  [...]  As such, the Court concludes that this agreement does not constitute an appropriate exercise of prosecutorial discretion and I cannot approve it in its current form.”

As referenced in Judge Leon’s opinion, his analysis was very similar to that of Judge John Gleeson (E.D.N.Y) who faced as similar issue in U.S. v. HSBC Bank (see here for the July 2013 post in which Judge Gleeson ultimately approved the DPA in that case).

However, Judge Leon’s opinion contains the following concerning statement similar to Judge Gleeson’s prior ruling.

“The Government, of course, has the clear authority not to prosecute a case.  Indeed, this Court would have no role here if the Government has chosen not to charge Fokker Services with any criminal conduct – even if such a decision was the result of a non-prosecution agreement.”

Such an observation elevates form over substance and gives the DOJ a green light – indeed a further incentive – to use NPAs to resolve alleged instances of corporate criminal liability and thereby bypass the judicial system altogether and insulate its enforcement theories from judicial scrutiny.

At the very least, Judge Leon’s recent order, along with Judge Gleeson’s 2013 order, has started an important legal and policy conversation as to the judiciary’s role in the alternate reality that the DOJ has created and championed through its use of alternative resolution vehicles.

Use of alternative resolution vehicles to resolve alleged corporate criminal liability in the FCPA context presents two distinct, yet equally problematic, legal and public policy issues.

The first is that such vehicles, because they do not result in any actual charges filed against a company – and thus do not require the company to plead guilty to any charges – allow egregious instances of corporate conduct to be resolved too lightly without adequate sanctions and without achieving maximum deterrence.

The second is that such vehicles, because of the same factors discussed above, nudge companies to agree to the vehicles for reasons of risk-aversion and efficiency and not necessarily because the conduct at issue actually violates the FCPA.

While the two instances of judicial scrutiny of DPAs have focused on the first dynamic rather than the second, Judge Leon did nevertheless state:

“[I]he integrity of judicial proceedings would be compromised by giving the Court’s stamp of approval to either overly-lenient prosecutorial action, or overly-zealous prosecutorial conduct.”

Three Cheers For Judge Rakoff

Monday, February 9th, 2015

RakoffIf you have not noticed by now, I admire Judge Jed Rakoff (S.D.N.Y.) (and not just because he looks like my Dad in a black robe).

Judge Rakoff recently wrote a review of Professor Brandon Garrett’s book “To Big To Fail” and the below posts provides some excerpts and commentary.

Judge Rakoff writes:

“Under federal law, corporations can be held criminally liable if even a low-level employee, in the course of his or her employment, commits a criminal act that benefits the corporation. One might think, therefore, that federal corporate prosecutions, whether deferred or otherwise, would typically be accompanied by prosecution of the responsible individuals. But more often than not, this has not been the case, especially when large companies are involved. Rather, as Garrett and many others (including this writer) have pointed out, in recent years the federal government has brought many corporate prosecutions in which no employee has been prosecuted or even identified as criminally responsible.

This is especially true in the case of deferred prosecutions. According to Garrett, “in about two thirds of the cases involving deferred prosecution or non-prosecution agreements and public corporations, the company was punished but no employees were prosecuted.” This suggests that the Department of Justice has been persuaded by its own rhetoric that the main point of these agreements is to change corporate culture, so that company employees of all levels will be dissuaded in the future from committing company-related crimes.”

For years I have exposing the DOJ’s empty rhetoric concerning individual prosecutions in the FCPA context.  Indeed, last October I extended an open invitation to the DOJ to refute statistics published in this post: since 2008,  75% of corporate FCPA enforcement actions have not resulted in any related enforcement action against a company employee.

More specific to the DOJ’s frequent use of NPAs and DPAs in the FCPA context, as highlighted in this recent post, since NPAs and DPAs were introduced to the FCPA context in 2004, if a corporate FCPA enforcement action is resolved soley with an NPA or DPA there is less than a 10% chance that the DOJ will bring related criminal charges against company employees.

Both of these statistics are notable because as Judge Rakoff notes – and recently noted by the DOJ’s Deputy Attorney General (see here) - “corporations do not act criminally, but for the actions of individuals.”

Judge Rakoff further states:

“Given such patent ineffectiveness when it comes to deferred prosecutions, it is somewhat surprising that Garrett argues that tighter enforcement of deferred prosecution agreements can still make them effective. Perhaps. But one also wonders whether the impact of sending a few guilty executives to prison for orchestrating corporate crimes might have a far greater effect than any compliance program in discouraging misconduct, at far less expense and without the unwanted collateral consequences of punishing innocent employees and shareholders.”

In the FCPA context, I have not called for NPAs and DPAs to be revised, but rather have consistently stated for at least three years that NPAs and DPAs should be abolished.  In calling for abolition of NPAs and DPAs it is important to recognize that such a proposal does not seek to abolish a long-standing feature of the U.S. criminal justice system, but rather a failed experiment brought to the FCPA context approximately ten years ago.  As previously highlighted, my proposal to abolish NPAs and DPAs is coupled with a corporate compliance defense (see here and here).

In conclusion, Judge Rakoff further states:

“The preference for deferred prosecutions also reflects some less laudable motives, such as the political advantages of a settlement that makes for a good press release, the avoidance of unpredictable courtroom battles with skilled, highly paid adversaries, and even the dubious benefit to the Department of Justice and the defendant of crafting a settlement that limits, or eliminates entirely, judicial oversight of implementation of the agreement.”

Spot-on Judge Rakoff.