There have been two known instances of recent Foreign Corrupt Practices Act enforcement actions in which the Department of Justice has given the corporate defendant resolving the action a pass on paying potential fine and penalty amounts based on the company’s claimed inability to pay.

The first occurred in 2010 in the Innospec enforcement action.  As detailed in this prior post, in March 2010 Innospec agreed to resolve a DOJ and SEC enforcement action by paying $25.3 million in combined fines and penalties after pleading guilty to FCPA and other offenses based largely on conduct in Iraq and Indonesia.  The total amount of fines and penalties could have been much higher as the minimum U.S. Sentencing Guidelines amount was $101.5 million and the SEC ordered the company to pay approximately $60 million.

However, Innospec received a pass on approximately $135 million in fines and penalties based on its claimed inability to pay.  The DOJ’s sentencing memorandum (here) stated as follows.  “Innospec has represented that it is unable to pay, and, even with the use of a reasonable installment schedule, is not likely to be able to pay, a $101.5 million fine. Over the course of nearly a year, Innospec has provided the Department, the SEC [and other U.S. and non-U.S. authorities] with detailed presentations regarding its current financial condition and available assets. Those representations have been analyzed in detail by qualified accounting professionals within the SEC […]. Innospec has represented that, were the company to pay more than the amount agreed, the continued viability of the company would be threatened, as follows: (1) Innospec would breach the limits of its credit facilities; (2) Innospec would be unable to make up a deficit in funding its pension plan, resulting in an $85 million shortfall; (3) Innospec would be unable to remediate certain environmental damage caused by its manufacturing facility in the United Kingdom; (4) Innospec would be unable to invest sufficiently in research and development; and (5) Innospec would be forced to close facilities around the world, resulting in dozens of employees losing their jobs.”  I then highlighted in a series of posts (here, here, and here) that Innospec, despite receiving a substantial pass based on inability to pay, thereafter consistently reported positive financial results.  In addition, Innospec settled a civil case connected to the FCPA enforcement action by agreeing to make an immediate $25 million cash payment to the plaintiff, as well as a committment to pay an additional $15 million in installments.

Based on the above facts and figures, it appears that the DOJ was duped.

The second known instance of a recent FCPA enforcement action in which the Department of Justice has given the corporate defendant resolving the action a pass on paying potential fine and penalty amounts based on the company’s claimed inability to pay occurred in the July 2012 NORDAM Group enforcement action.

As detailed in this prior post, the Tulsa, Oklahoma based privately held provider of aircraft maintenance, repair and overhaul services agreed to enter into a non-prosecution agreement and pay a $2 million penalty “to resolve violations of FCPA” concerning business conduct in China.

As noted in the prior post, the NPA “recognizes that a fine below the standard range under the U.S. Sentencing Guidelines is appropriate because NORDAM fully demonstrated to the department, and an independent accounting expert retained by the department verified, that a fine exceeding $2 million would substantially jeopardize the company’s continued viability.”  As to the fine reduction, the NPA further states as follows.  “This discount recognizes that, over a period of months, the Company fully cooperated with the Department and with an independent accounting expert that the Department retained to review the Company’s financial condition.  Following that review, the Department and its independent expert both concluded that this discount was appropriate under the Sentencing Guidelines.”

Unlike Innospec, NORDAM Group is not publicly held, so it is difficult to assess the true nature of its financial condition.  However, NORDAM Group’s federal government contracts are in the public domain and a simple internet search indicates that in the 90 days after resolving its FCPA enforcement action (in which the company received a pass on larger fine and penalty amounts because such larger amounts could jeopardize the company’s continued viability), NORDAM group has racked in approximately $24.4 million in federal government contracts.

On August 9th, the company was awarded a $187,500 contract by the U.S. Army Contracting Command, Huntsville, AL.

On September 18th, the company was awarded a $90,200 contract by the Defense Supply Center, Richmond, VA.

On September 27th, the company was awarded a $82,000 contract by the Defense Supply Center, Richmond, VA.

On September 28th, the company was awarded a $19,274,726 contract by a Department of Logistics Agency in Ogden, UT.

On September 28th, the company was awarded a $4,761,726 contract by a Department of Logistics Agency in Ogden, UT.

Was the DOJ duped again?