Certain FCPA reform proposals I support (such as a compliance defense – see here) involve amending the statute. Other reform proposals I support involve a change in DOJ enforcement policy (or lacking that, perhaps Congressional action) such as publishing declination decisions when a company voluntarily discloses (see here) and abolishing non-prosecution and deferred prosecution agreements.
When listing the problems with FCPA enforcement, the use of NPAs and DPAs is at the top of the list.
Point taken that such alternative resolution vehicles are used in other substantive areas of law (such as antitrust, money laundering etc.), but the predominate use of such vehicles is to resolve FCPA inquiries. (See here from Gibson Dunn – FCPA enforcement actions comprised approximately 40% of DOJ NPAs or DPAs in 2011; here from Gibson Dunn – FCPA enforcement actions comprised approximately 50% of DOJ NPAs or DPAs in 2010). Moreover, resolving an antitrust, money laundering, etc. case via an NPA or DPA is at least informed by mounds of precedential caselaw, a circumstance absent when resolving FCPA enforcement actions.
The DOJ first used an alternative resolution vehicle in an FCPA enforcement action in 2004 (see here) and since then an NPA or DPA has been used to resolve approximately 80% of core corporate DOJ FCPA enforcement actions.
It is clear that the DOJ’s use of such vehicles in the FCPA context is one of the reasons for the increase in FCPA enforcement actions. Whereas the DOJ previously had two options (prosecute or don’t prosecute), the DOJ now has three options (prosecute, don’t prosecute, or offer the corporate defendant a non-prosecution agreement or deferred prosecution agreement). Mark Mendelsohn, the former chief of the DOJ’s FCPA unit, stated that if the DOJ did not have the option of resolving FCPA enforcement actions with NPAs or DPAs the DOJ “would certainly bring fewer cases.” (See “Mark Mendelsohn on the Rise of FCPA Enforcement,” 24 Corporate Crime Reporter 35, September 10, 2010). Likewise, the OECD Phase 3 Report of the U.S. (Oct. 2010 – see here) stated as follows. “It seems quite clear that the use of these agreements is one of the reasons for the impressive FCPA enforcement record in the U.S.”
Because NPAs and DPAs are subject to little or no judicial scrutiny, DOJ’s extensive use of these agreements has shielded its FCPA enforcement theories from judicial scrutiny in all but the rarest of instances. As demonstrated by recent events, when the DOJ is actually put to its burden of proof in FCPA enforcement actions, the results are often mixed.
Others have criticized use of NPAs and DPAs as well.
As noted in this prior post, during a 2010 Senate Judiciary hearing, Senator Jeff Sessions (R-AL) stated as follows. “I was taught if [a company] violated a law, you charge them. If [a company] didn’t violate the law, you don’t charge them.” Indeed, those used to be the choices.
In this Corporate Crime Reporter interview, W. Neil Eggleston (a former DOJ enforcement attorney currently at Kirkland & Ellis - here) stated as follows. ““I worry that [NPAs and DPAs] will become a substitute for a prosecutor deciding – this is not an appropriate case to bring – there is no reason to subject this corporation to corporate criminal liability. In the old days, they would have dropped the case. Now, they have the back up of seeking a deferred or non prosecution agreement, when in fact the case should not have been pursued at all. That’s what I’m worried about – an easy out.” Well said.
In this report, Gibson & Dunn noted, among other criticisms of NPAs and DPAs that“from a company’s perspective, the threat of indictment can force a company to agree to a DPA or NPA based on the government’s perception of alleged misconduct even under novel, expansive, or unlitigated theories of liability.” Spot on.
See also ”Facade of FCPA Enforcement – here at pages 933-939 summarizing criticisms of NPAs and DPAs.
Use of NPAs and DPAs to resolve alleged corporate criminal liability in the FCPA context present two distinct, yet equally problematic public policy issues.
The first is that such vehicles, because they do not result in any actual charges filed against a company – and thus do not require the company to plead to any charges – allow egregious instances of corporate conduct to be resolved too lightly without adequate sanctions and without achieving maximum deterrence. Indeed, it is notable to observe that seven of the top ten enforcement actions (in terms of fine and penalty amount) in the FCPA’s history have been resolved with an NPA or DPA.
The second is that such vehicles, because of the “carrots” and “sticks’ relevant to resolving a DOJ enforcement action, often nudge companies to agree to these vehicles for reasons of risk-aversion and efficiency and not necessarily because the conduct at issue actually violates the FCPA. Indeed, in the same Corporate Crime Reporter interview referenced above, Mark Mendelsohn stated that a “danger” with NPAs and DPAs ”is that it is tempting” for the DOJ “to seek to resolve cases through DPAs or NPAs that don’t actually constitute violations of the law.” As noted in this prior post, when the DOJ resolves an FCPA enforcement action via a NPA or DPA, there is only a 15% likelihood that individual criminal charges will be filed against any company employee or those affiliated with the company. On the other hand, when the DOJ files actual, prosecuted criminal charges against a company, there is a 71% chance that a company employee will also be prosecuted. This statistic speaks volumes to the quality of many FCPA enforcement actions resolved via NPAs or DPAs.
Thus, use of NPAs or DPAs in the FCPA context allow “under-prosecution” of egregious instance of corporate bribery while at the same time facilitate the “over-prosecution” of business conduct.
Usually one has to reference two distinct FCPA enforcement actions to demonstrate these issues. However, both issues are present in the recent BizJet / Lufthansa FCPA enforcement action (see here for the prior post).
As to “under-prosecution,” as noted in the prior post, the BizJet criminal information alleges misconduct by several executives including Executive A (a senior executive at BizJet from 2004 to 2010 who “was responsible for the operations and finances of BizJet”); Executive B (a senior executive at BizJet from 2005 to 2010 whose duties included “oversight of BizJet’s efforts to obtain business from new customers and to maintain and increase business with existing customers”); and Executive C (a senior finance executive at BizJet from 2004 to 2010 who “was responsible for overseeing BizJet’s accounts and finances and the approval of payment of invoices and of wire and check requests”). The information further alleges that in November 2005, “at a Board of Directors meeting of the BizJet Board, Executive A and Executive B discussed with the Board that the decision of where an aircraft is sent for maintenance work is generally made by the potential customer’s director of maintenance or chief pilot, that these individuals are demanding $30,000 to $40,000 in commissions, and that BizJet would pay referral fees in order to gain market share.”
Sure, BizJet did voluntarily disclose, cooperate in the DOJ’s investigation, and engage in extensive remediation. However, such factors could have also been rewarded in the context of a plea agreement.
When conduct giving rise to corporate liability involves senior executive misconduct and apparent knowing acquiesence by the Board, the entity, simply put, should not be offered an alternative resolution vehicle. Yet, BizJet was allowed to resolve the enforcement action via a DPA meaning that (should the entity abide by the terms and conditions of the agreement) it will never be required to plead guilty to anything. [Note - should the FCPA be amended to include a compliance defense consistent with my proposal, such a compliance defense would not have been applicable to BizJet given the allegations of misconduct by senior executives].
As to “under-prosecution,” as noted in the prior post, the DOJ release states that BizJet’s “indirect parent company, Lufthansa Technik AG” also “entered into a [non-prosecution] agreement with the DOJ in connection with the unlawful payments by BizJet and its directors, officers, employees and agents.” The release stated as follows. “The DOJ has agreed not to prosecute Lufthansa Technik provided that Lufthansa Technik satisfies its obligations under the agreement for a period of three years.” However, as I mentioned in the prior post, there is no mention of Lufthansa Technik in the BizJet criminal information.
More shocking, there is absolutely no articulated factual basis in the Lufthansa Technik NPA (see here) for the agreement. The Lufthansa Technik NPA could be the most opaque, bare-bones NPA in the history of FCPA NPAs. It states that the DOJ will “not criminally prosecute” the entity “for any crimes” related to violations of the FCPA’s anti-bribery provisions arising from or related to the conduct described in the BizJet criminal information and DPA. Again, that information and DPA does not even mention Lufthansa Technik whatsoever. The only thing we know from the DOJ’s resolution documents is that BizJet is an indirect subsidiary of Lufthansa Technik. If that is the sole basis for the DOJ’s prosecution (via a non-prosecution agreement) of Lufthansa Technik, that is troubling as it establishes strict criminal liability for parent company entities. If that is not the sole basis for the enforcement action, the DOJ ought to publicly state what it is, because the resolution documents do not.
Much of the FCPA reform debate at present has focused on actual amendments to the statute. To be sure, certain limited amendments are warranted such as a compliance defense. But just as importantly, there needs to be reform of certain DOJ FCPA enforcement policies and procedures.
It is in the public interest to abolish non-prosecution and deferred prosecution agreements in the FCPA context. For more, see here (a recent interview I did with Corporate Crime Reporter). However, abolishing NPAs and DPAs in isolation is not what I propose. Rather, abolishing NPAs and DPAs should be part of an FCPA reform package that also includes a compliance defense amendment to the statute.