As highlighted in yesterday’s post, DOJ Deputy Attorney General Rod Rosenstein announced a non-binding policy discouraging “piling on” by instructing DOJ “components to appropriately coordinate with one another and with other enforcement agencies in imposing multiple penalties on a company in relation to investigations of the same misconduct.”
The DOJ’s new policy is general in nature, not FCPA specific, but portions of it are FCPA relevant and this post analyzes the new policy in the context of FCPA enforcement. In short, discouraging “piling on” sounds great, but it all depends what “piling on” means.
For starters and as highlighted in the prior post, the concept of “piling on” has been talked about for quite some time including by Obama administration enforcement officials. (See prior FCPA Professor coverage here, here and here). This includes in the FCPA context going back to the FCPA reform hearings in 2011 (see here for the prior post) – a concept that has long been termed “double-dipping” on these pages (see here).
The portion of the DOJ’s policy that is FCPA relevant states:
“The Department should also endeavor, as appropriate, to coordinate with and consider the amount of fines, penalties, and/or forfeiture paid to other federal, state, local, or foreign enforcement authorities that are seeking to resolve a case with a company for the same misconduct.”
This is FCPA relevant for two reasons.
First, issuers under the FCPA are subject to enforcement by both the DOJ and SEC and it is a relatively frequent occurrence that the DOJ and SEC announce on the same day coordinated FCPA enforcement actions based on the same core conduct.
Second, given the transnational nature of alleged FCPA violations foreign companies (and theoretically U.S. companies although less frequently) can be subject to U.S. law enforcement and foreign law enforcement as well.
Regarding the first, concerns have long been voiced that the DOJ and SEC “double-dip” in FCPA enforcement actions.
Specifically, in most FCPA enforcement actions involving a DOJ and SEC component in which the SEC seeks disgorgement (the vast majority of FCPA enforcement actions against issuers), the DOJ and SEC seek recovery of the same money for the same conduct in what can only be called double-dipping.
This aspect of FCPA enforcement has even caught the attention of Congress. As highlighted in this prior post, in a 2011 letter from Senator Mike Crapo to the SEC Chairman, Senator Crapo asked, among other FCPA questions, “under what circumstances, if any, is it appropriate for both the SEC and the DOJ to seek the recovery of penalties from the same entity for the same conduct.” The SEC Chairman stated:
“The Commission and DOJ do not obtain duplicative penalties in FCPA cases. Typically, the Commission will obtain monetary sanctions in the form of disgorgement (ill-gotten gains) while the DOJ obtains monetary sanctions in the form of penalties. In those rare cases where both the Commission and the DOJ obtain penalties, the total penalty assessed against the company is no greater than it would be if either the Commission or DOJ alone obtained the penalty.”
With the Supreme Court unanimously concluding in 2017 in Kokesh that disgorgement in the securities-enforcement context (the FCPA is part of the ’34 Act) is a penalty, the above response is no longer credible (if it ever was).
To highlight just a few examples (of numerous examples that could also be cited) that demonstrate this “double-dip” or in some cases “triple-dip” consider the following.
The Total enforcement action involved parallel DOJ and SEC enforcement actions and the company agreed to pay approximately $398 million to resolve its FCPA scrutiny. The DOJ component included a $245 million fine and the SEC component included approximately $153 in disgorgement and prejudgment interest. It is clear from the enforcement agency documents that approximately $150 million represented a double-dip. The DOJ DPA set forth the Sentencing Guidelines calculation and noted that the base fine was $147 million “which corresponds to the value of the benefit received in return for the unlawful payments.” The SEC’s order stated that the company’s improper payments “netted Total approximately $150 million in profits.” Based on this figure, the SEC ordered Total to pay $153 million in disgorgement and prejudgment interest. In other words, Total repaid the approximate $150 million benefit it received from the alleged improper payments twice – first to the DOJ and then to the SEC.
Likewise the LAN Airlines enforcement action involved parallel DOJ and SEC enforcement actions and the company agreed to pay approximately $22 million. Both the SEC and DOJ stated that LAN obtained a benefit of $6.7 million as a result of the improper payments. The SEC enforcement action consisted of disgorgement of $6.7 million (plus prejudgment interest of $2.6 million) for a total payment of $9.5 million. The DOJ DPA set forth the Sentencing Guidelines calculation which had a major factor the value of the benefit received. In other words, LAN repaid the approximate $6.7 million benefit it received twice – first to the DOJ and then to the SEC.
As highlighted in this previous post, the JPMorgan enforcement action was not merely a double dip, but included a triple dip.
- $72 million to the DOJ
- $130.6 million to the SEC
- $61.9 million to the Federal Reserve Board
all based on the same alleged core conduct.
Phillip Urofsky (a former DOJ Assistant Chief of the Fraud Section) has rightly stated:
“The SEC’s enforcement of the anti-bribery provisions raises a fundamental matter of fairness. Take two companies, one public and one private, and assume that both violate the FCPA and realize the same illicit gain from the violation. The private company will be subject only to DOJ’s jurisdiction and will therefore be exposed to a criminal fine of up to twice its gain. The public company, on the other hand, will be subject both to that criminal fine and to a civil fine and disgorgement of the illicit proceeds, thus potentially paying a third more in fines than the private company for the same conduct.”
So again, discouraging “piling on” sounds great, but does it mean instances involving issuer enforcement in which the company essentially pays the same amount of money twice (to the DOJ and SEC) based on the same core conduct? I would think so, but I am guessing this is not what the DOJ has in mind. Even if it is, like other non-binding DOJ policies, the new policy is merely discretionary and pursuant to it the DOJ retains a tremendous amount of discretion.
Specifically, the policy states:
“The Department should consider all relevant factors in determining whether coordination and apportionment between Department components and with other enforcement authorities allows the interest of justice to be fully vindicated. Relevant factors may include, for instance, the egregiousness of a company’s misconduct; statutory mandates regarding penalties, fines, and/or forfeitures; the risk of unwarranted delay in achieving a final resolution; and the adequacy and timeliness of a company’s disclosures and its cooperation with the Department, separate from any such disclosures and cooperation with other relevant enforcement authorities.”
The second area in which the DOJ’s new policy is FCPA relevant is due to the transnational nature of alleged FCPA violations against foreign companies (and theoretically U.S. companies) which be subject to U.S. law enforcement and foreign law enforcement as well.
As highlighted in prior posts here and here, much of the largeness of modern FCPA enforcement has resulted from corporate enforcement actions against foreign companies (based in many instances on mere listing of securities on U.S. markets and in a few instances on sparse allegations of a U.S. nexus in furtherance of an alleged bribery scheme).
A substantial majority of these enforcement actions have been against companies headquartered in countries that, like the U.S., are parties to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention). In other words, “peer” countries with mature FCPA-like laws governing the conduct of their companies coupled with reputable legal systems to prosecute such offenses.
Given this reality, as well as the specific provision in Article 4 of OECD Convention that “when more than one Party has jurisdiction over an alleged offence described in this Convention, the Parties involved shall, at the request of one of them, consult with a view to determining the most appropriate jurisdiction for prosecution,” is it “piling on” when the U.S. brings FCPA enforcement actions against such foreign companies for their interactions with non-U.S. officials?
After all, as highlighted in this prior post, in 2017 DOJ officials stated that they “are working harder than ever to coordinate with global partners and avoid what some have termed “piling on” in attendant global resolutions.” As stated by Sandra Moser (Principal Deputy Chief, Fraud Section, DOJ):
“Coordination with foreign countries will continue, and that number of coordinated resolutions will grow, including with new countries. This is important for several reasons. First and foremost, it is fair to companies. It encourages companies to cooperate across the board, because we understand that, at the end of a case, money paid out is derived from one pie. A resolving company should not have piled upon it duplicative fines via separate resolutions that do not credit one another. Although the “piling on” problem is not entirely solved by doing this (other countries may certainly try to reach additional resolutions), our efforts do mitigate this problem, and we are trying to do better in this regard.”
Granted, in most of these type of enforcement actions there were credits or offsets in terms of U.S. FCPA settlement amounts for related foreign law enforcement actions. However, the bigger question is whether these examples should have been instances in which the U.S. simply backed away because of the related foreign law enforcement action?
For a prior post posing the same general question see here ” “non-U.S. efforts to prosecute overseas bribery are hampered by the absence of clear, credible statements from U.S. prosecutors that they will desist from prosecuting if a local prosecutor does so in good faith” as well as FCPA Flash podcasts here (Bruce Yannet – Debevoise & Plimpton), here Robert Luskin (Paul Hastings) and here David Bitkower (Jenner and Block and former DOJ Principal Deputy Assistant Attorney General for the Criminal Division).
In short, discouraging “piling on” sounds great, but it all depends on what “piling on” means.
As Rosenstein stated in his speech: “the Department’s rhetoric gets a lot of attention – the policy memos and speeches. But performance matters most.”
I’ll “pile on” that concept.
FCPA Institute - Denver (May 4-5)
A unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills through active learning. Learn more, spend less. CLE credit is available.