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Deputy Assistant AG Miner On M&A Issues, The DOJ’s Opinion Procedure Program, And Other Issues (With Rebuttal)

miner

As highlighted in this prior post, while in private practice Matthew Miner criticized the “Yates Memo,” DOJ transparency, the deficiencies of DOJ guidance as a solution in the FCPA space, and the FCPA’s “foreign official” element.

Now that he is Deputy Assistant Attorney General and – in his words – “wear[ing] a different hat,” Miner largely read from the DOJ’s FCPA script in this speech yesterday.

This post excerpts Miner’s speech and provides various rebuttal points.

Miner began his speech:

“As I think we can all agree, corruption is a virus that saps scarce resources and undermines public trust. Corruption also harms law-abiding companies by tilting the playing field in favor of companies who are willing to break the rules to get ahead. As our Attorney General and Deputy Attorney General have both made abundantly clear, fighting corruption and ensuring a level playing field for law-abiding companies remains a significant priority for the Department. At the same time, we are striving to make sure that our robust approach to fighting corruption, and corporate enforcement generally, is done in a way that is also fair and just. We at the Department fully recognize that even within otherwise good companies, ones with robust compliance programs and strong cultures of compliance, there can exist one or a few bad apples.  Similarly, we understand that through acquisitions, otherwise law-abiding companies can sometimes inherit problems that are not of their own making. These are some of the reasons why we continue to hold individual wrongdoers responsible for corporate criminal conduct, demonstrating our continued focus on individual accountability.”

Let’s pause for a moment right here for some facts.

As highlighted in this recent post (statistics current as of date of publication), since the September 2015 Yates Memo and the DOJ’s supposed renewed commitment on individual accountability, the DOJ has brought 29 corporate enforcement actions. However, 24 of these actions (83%) have lacked any related DOJ FCPA charges against company employees.”

Miner next stated:

“[C]riminal prosecutions of corporations continue where misconduct was particularly serious or pervasive, but at the same time, we are working to avoid imposing excessive corporate penalties that harm innocent shareholders, employees, and other stakeholders. On the FCPA corporate front, we’ve resolved five corporate FCPA cases this year, resulting in $512 million in corporate U.S. criminal fines, penalties, and forfeiture.”

To those that keep and publish widely outrageous FCPA enforcement statistics, re-read the above sentence. The DOJ says it has resolved five corporate FCPA cases resulting in $512 million in settlement amounts. These figures are consistent with statistics published on FCPA Professor.

Back to Minter’s speech:

“[W]e have also been making great strides in the way we are approaching FCPA and other corporate enforcement matters. As you all know, last year we revised the Department’s guidelines with regard to FCPA enforcement by making what was previously the FCPA self-disclosure pilot program permanent.   This change enshrines our approach to FCPA enforcement in the U.S. Attorneys Manual as the FCPA Corporate Enforcement Policy. Since its roll out, Department leadership has spoken extensively on the Policy, so I’m not going to spend much time on it, except to point out how the Policy furthers our commitment to rewarding companies that try to do the right thing. This means companies that promptly report misconduct, fully cooperate with the Department, and enact effective remedial measures after misconduct is detected will be presumed eligible for a declination of prosecution, subject to disgorgement of ill-gotten gains. The Policy also includes incentives for companies that fail to promptly self-disclose, but otherwise meet the Policy’s cooperation and remediation terms. While it is still early to gauge the full effectiveness of the Policy, we were pleased to reach the first corporate declination under the FCPA Policy earlier this year in declining prosecution against Dunn & Bradstreet.”

As highlighted in this prior post, while in private practice Miner wrote that DOJ guidance is not the answer the business community deserves regarding various aspects of FCPA enforcement specifically since the “guidance will have no effect in court.

As to the so-called DOJ “declination” involving Dun & Bradstreet – see this prior post and podcast.

Regarding the DOJ’s non-binding policy against “piling on” (see here for the prior post), Miner stated:

“A perfect example of putting the anti-piling on policy into practice is the resolution … involving Societe Generale. In that case, the Department credited 50 percent of the fine to French authorities in connection with the FCPA portion of the resolution.”

As highlighted in this prior post, the Societe General enforcement action was actually a perfect example of piling. The jurisdictional basis for U.S. law enforcement bringing a net $293 million FCPA enforcement action against a French bank (a company obviously subject to jurisdiction by France – an OECD Convention peer country) for bribery of alleged Libyan foreign officials was a wire transfer approximately ten years prior to the enforcement action and alleged culpable actors setting foot in the U.S. in furtherance of the bribery scheme approximately ten years prior to the enforcement action. Sure, there was an offset in the DOJ enforcement action for approximately $293 million paid to French law enforcement “in connection with the resolution of a parallel case concerning the allegations.” But let’s call a spade a spade. The U.S. FCPA enforcement action was “piling on” (particularly since SoGen also paid approximately $1.1 billion to the Libyan Investment Authority to resolve a related civil dispute).

Miner continued:

“I know firsthand the difficult decisions that management must make when they uncover misconduct. Senior management and boards of directors have to weigh many factors when deciding how to respond to misconduct, and whether to self-report. In the past, many of these decisions were made in a relative vacuum in the sense that no one could predict in any concrete way how the Department would respond.  While the facts of every case will be different, and will be the primary drivers as to the outcome, we are doing what we can to give clarity in terms of how companies will be treated.”

Time out.

If the DOJ is doing what it can “to give clarity in terms of how companies will be treated” why has the DOJ refused to provide clarity as to certain basic terms and conditions in the Corporate Enforcement Policy. (See here and here for prior posts).

Miner continued:

“Because companies are rational actors, driven by market and financial factors, it was often an impediment to decision-making not to know what consequences a company might face if it chose to self-report and cooperate with the government. The Department’s new policies and revised approach to FCPA and corporate enforcement are purposely designed to speak to well-functioning, good corporate actors and inspire rationale decision-making in favor of greater reporting and cooperation.  We hope to incentivize companies to invest in effective compliance programs and robust control systems to prevent misconduct and, in the event of a detected violation, to take full advantage of our enforcement approach.”

Kudos to Miner for articulating – as prior DOJ officials have – the policy rationale for an FCPA compliance defense. (See here and here).

Miner next talked about “one area where we would like to do better is with regard to mergers and acquisitions, particularly when such activity relates to high-risk industries and market.” He stated:

“Currently, the DoJ/SEC Resource Guide to the FCPA, which was released in 2012, provides some guidance on this.  In particular, the Guide recognizes that in the past the Department and SEC have declined to take action where companies voluntarily disclosed and remediated, and cooperated with the government.  The Guide also notes that “a successor company’s voluntary disclosure, appropriate due diligence, and implementation of an effective compliance program may also decrease the likelihood of an enforcement action regarding an acquired company’s post-acquisition conduct when pre-acquisition due diligence is not possible.” Furthermore, after laying out several M&A best practices, the Guide states that the “DOJ . . . will give meaningful credit to companies who undertake these actions, and, in appropriate circumstances, DOJ . . . may consequently decline to bring enforcement actions.”

The Guide also says the following about M&A issues, probably the most important thing to keep in mind relevant to this topic, but not mentioned in Miner’s speech:

“Successor liability does not […] create liability where none existed before. For example, if an issuer were to acquire a foreign company that was not previously subject to the FCPA’s jurisdiction, the mere acquisition of that foreign company would not retroactively create FCPA liability for the acquiring issuer.”

Miner continued:

“While these policies are sound, I know from experience that “may” decline is a significant sticking point for corporate management when deciding whether and how to proceed with a potential merger or acquisition. There is a big difference between a theoretical outcome and one that is concrete and presumptively available. At the Department, we know that there are many benefits when law-abiding companies with robust compliance programs are the ones to enter high-risk markets or, in appropriate cases, take over otherwise problematic companies. Not only can the acquiring company help to uncover wrongdoing, but more importantly the acquiring company is in a position to right the ship by applying strong compliance practices to the acquired company.

We want to encourage this sort of activity.  We certainly don’t want the specter of enforcement to be a risk factor that impedes such activity by good actors, and instead cedes the field to non-compliant companies. At bottom, it makes good economic sense and helps stamp out corruption when the Department adopts policies that foster greater corporate compliance.

When an acquiring company conducts robust due diligence that unearths wrongdoing, reports that conduct to the Department, and engages in remedial measures, including extending already robust compliance to the acquired company, it frees up resources for the Department that may have otherwise been expended investigating the acquired company. These resources can then be directed to other cases, not only in the FCPA context, but also to other areas such as opioid enforcement, human trafficking, and crimes impacting vulnerable victims, like children and the elderly.

For these reasons, I want to make clear that we intend to apply the principles contained in the FCPA Corporate Enforcement Policy to successor companies that uncover wrongdoing in connection with mergers and acquisitions and thereafter disclose that wrongdoing and provide cooperation, consistent with the terms of the Policy. We believe this approach provides companies and their advisors greater certainty when deciding whether to go forward with a foreign acquisition or merger, as well as in determining how to approach wrongdoing discovered subsequent to a deal. We are fully cognizant that in some instances an acquiring company has limited access to a target company’s data and records, perhaps even more so when the target company is in a high risk jurisdiction. In those instances, if an acquiring company unearths wrongdoing subsequent to the acquisition, we want to encourage its leadership to take the steps outlined in the FCPA Policy, and when they do, we want to reward them, accordingly for stepping up, being transparent, and reporting and remediating the problems they inherited.

Similarly, when an acquiring company encounters corruption issues during the due diligence process, we would encourage it to come to the Department for guidance through our FCPA Opinion Procedures before moving forward with an acquisition. Although it may take a little more time – and we can, to a degree, expedite our analysis based on timing needs – it sometimes makes sense to slow down to assess risks.  In particular with high risk mergers and acquisitions, let me repeat the famous line from the English playwright, William Congreve:  “Married in haste, we can repent at leisure.”

On the Fraud Section’s FCPA website, we currently post Opinion Procedure Releases going back to 1993 [actually 1980].  But not enough companies are taking advantage of this process.  I’ve recently reviewed the list, and the most recent incident of use is from 2014.  That shouldn’t be the case.  But for purposes of today, that release is illustrative of the value of engaging in the opinion process.

In that case, a multinational company headquartered in the U.S. sought an opinion on whether the Department would bring an enforcement action against it if it acquired a foreign consumer products company.  The acquiring company conducted pre-acquisition due diligence on the target and uncovered evidence of apparent improper payments.  The acquirer took pre-closing steps to remediate the target’s anti-corruption issues, and anticipated fully integrating the target into its compliance and reporting structure within one year of closing.

While the opinion recognized that there was no U.S. nexus to the conduct, which would have precluded prosecution, in any event, the opinion also pointed to the fact that no contracts or assets acquired through bribery would remain in operation post-acquisition, and that no financial benefit would be derived from such contracts.  Based on these facts, the opinion concluded that the Department would not take any action against the acquiring company.

In our view, the opinion process is a tremendous resource and we want to encourage greater use of it going forward.

Moreover, when a company relies on this procedure on the front end, but later uncovers wrongdoing post-acquisition, we want management and the company’s advisors to feel comfortable disclosing it to the Department, knowing that they will be treated fairly under the principles of the FCPA Corporate Enforcement Policy.

This is not to say that wrongdoers will be getting a pass for corrupt behavior that occurred in the past in an acquired entity. Far from it. The Department continues to focus on individual accountability, and those responsible for past wrongdoing or the concealment of wrongdoing will continue to be investigated and prosecuted.”

Miner ended his speech as follows:

“As advisors and compliance professionals, you are on the front lines of detecting and preventing corruption and other misconduct.   You are at tasked with advising your companies and your clients to ensure that businesses operate in compliance with the law. As such, you are often put in the position of evaluating risk in time-sensitive transactions. In that role, one thing I hope you will take away from my comments and those of my colleagues is that the Department of Justice should be viewed as a partner, not just an adversary. When business and industry work with the Department, rather than against it, our public institutions and our country are stronger for it.”

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