Recently 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.”