This previous post highlighted the DOJ’s recent Foreign Corrupt Practices Act enforcement action against CDM Smith Inc. Pursuant to a so-called “declination” with disgorgement, CDM Smith agreed to disgorge approximately $4 million based on DOJ findings “that CDM Smith, through its employees and agents, and those of its wholly owned subsidiary in India paid approximately $1.18 million in bribes to government officials in India in exchange for highway construction supervision and design contracts and a water project contract…”.
This post highlights additional issues to consider.
A fair amount of FCPA commentary leaves me scratching my head.
For instance, this recent Law360 headline about the CDM Smith enforcement action proclaims “CDM Smith Gives Up $4M in India Profits to Avoid FCPA Case.”
Voluntarily disclosing conduct that the DOJ would unlikely find out about and paying approximately $4 million to the DOJ pursuant to a letter agreement is not “avoiding” an FCPA case. It’s inviting an FCPA case.
Pure. And. Simple.
And then there is this commentator who calls the enforcement action a “superior result” for the company.
Same response as above. In addition, often missing from such “superior result” commentary is that companies typically spend more (often 2 to 3 times more) in pre-enforcement action professional fees and expenses compared to settlement amount.
In short, corporate counsel and others making business decisions on behalf of an organization need to understand that thoroughly investigating an issue, promptly implementing remedial measures, and effectively revising and enhancing compliance policies and procedures – all internally and without disclosing to the enforcement agencies – is a perfectly acceptable, legitimate, and legal response to FCPA issues in but all the rarest of circumstances.
More Information Please
As highlighted in this post, a high-ranking DOJ representative recently stated that it is the DOJ’s “intent … for our FCPA investigations to be measured in months, not years.”
For those interested in holding FCPA enforcement officials accountable for their public statements, this requires a willingness by the DOJ to provide the public information that allows this occur.
The DOJ letter agreement, like the DOJ letter agreement in the recent Linde Gas enforcement action, mentions voluntary disclosure but without providing any additional specifics.
When did CDM Smith voluntarily disclose? When did Linde Gas voluntarily disclose?
Providing this factual information is not privileged information or disclosing a state secret.
In short, it is difficult to hold the DOJ accountable for its statement above about the length of FCPA investigations without this information. But then again, perhaps that is the objective.
More Information Please
The CDM Smith letter agreement is 1.5 pages and the substantive portion of the alleged conduct at issue is a mere paragraph. It states:
“From approximately 2011 until approximately 2015, employees of CDM Smith’s division responsible for India operations and CDM India illegally paid bribes to officials in the National Highways Authority of India (“NHAI”), India’s state-owned highway management agency and an “instrumentality” under the FCPA, in order to receive contracts from NHAI. The bribes generally were 2-4% of the contract price and paid through fraudulent subcontractors, who provided no actual services and understood that payments were meant to solely benefit the officials. In addition, CDM Smith’s division responsible for India and CDM India paid $25,000 to local officials in the Indian state of Goa in relation to a water project contract. All senior management at CDM India (who also acted as employees and agents of CDM Smith and signed contracts on behalf of CDM Smith, including CDM India’s country manager) were aware of the bribes for CDM Smith and CDM India contracts, and approved or participated in the misconduct.”
Given the Supreme Court’s recent Kokesh decision in which it unanimously held that disgorgement is a penalty and thus subject to a five year limitations period, and given that CDM Smith agreed to disgorge $4 million pursuant to the letter agreement, it sure would be nice to have further specifics about the date of the alleged conduct rather than simply “from approximately 2011 until approximately 2015.”
In the letter agreement, the DOJ indicates that certain “bribes” were paid to “receive contracts from NHAI.” Yet when describing the other alleged improper conduct, the DOJ says “in relation a water project contract.” What does “in relation” mean?
The letter agreement says that “all senior management at CDM India” were aware of the bribes. Who were the senior management? How were they “aware of the bribes.”
There is no allegation or finding regarding CDM Smith Inc. other than senior management at CDM India “acted as employees and agents of CDM Smith and signed contracts on behalf of CDM Smith.” It is black letter law that legal liability does not hop, skip and jump around a multinational business organization absent an alter ego analysis and some additional specific findings, other than the bare bones legal conclusion, would have been nice.
Indeed, as highlighted in this post, in a 2014 decision the Supreme Court slammed the attribution of subsidiary acts to a parent corporation absent any allegations to support an “alter ego” or “veil piercing” exception. As explained by the Court, the notion that because a subsidiary’s services are important to a parent corporation – and thus the subsidiary is an agent of the parent corporation for purposes of imputing liability – stacks the deck, for it will always yield a pro-agency answer.
The CDM Smith action is just the latest FCPA enforcement action against a U.S. government contractor.
As the company highlights on its webpage:
“CDM Smith delivers advanced solutions that enable the U.S. government – civilian and military – to protect lives, communities and the environment. We have served the federal government since our founding 70 years ago, helping to address some of the nation’s highest-priority needs: revitalization of aging facilities and infrastructure, restoration of contaminated lands and waterways, redeployment of our armed forces, and enhanced preparedness for natural and manmade hazards. We take pride in our record of achievement for U.S. government projects from coast to coast, Alaska to Puerto Rico, Germany to Afghanistan, and Djibouti to Guam.”
Elsewhere, the webpage states:
“With a heritage founded on serving the public sector, we have been proudly helping state and local governments innovatively and cost-effectively manage their environment and infrastructure needs for 70 years. Our professionals offer a full suite of engineering and construction services from more than 100 U.S. offices, giving us the local insights, presence and experience to confidently complete a wide variety of municipal challenges.”
FCPA Institute - Nashville (April 11-12, 2019)
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