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Let’s Analyze This For A Minute

This recent [1] Wall Street Journal Risk & Compliance Journal post by an individual new to the Foreign Corrupt Practices Act space reads in full:

“A U.S. Justice Department program that incentivizes companies to self-report foreign corruption is making headway as prosecutors look for ways to hold individuals accountable for wrongdoing, according to an official in the department’s Foreign Corrupt Practices Act unit.”

“Individual prosecutions remain our chief goal,” Ephraim Wernick, assistant chief of the Justice Department’s FCPA unit, said Tuesday at a New York event hosted by The Wall Street Journal and Dow Jones Risk & Compliance. “We do recognize that is the primary deterrent of misconduct, and we want to ensure that those who are actually committing the crimes are going be held accountable.”

The Justice Department in 2016 launched a pilot program offering lenient penalties and limited prosecution to companies that reported wrongdoing under the FCPA, cooperated with government investigators, strengthened compliance practices and disgorged profits.

The program, which became policy in 2017, was an effort to unearth bribery violations prosecutors said were going unreported. The Justice Department has publicized at least 12 FCPA-related cases that have resulted in prosecutors declining to charge companies that self-reported. Prosecutors charged 31 individuals for FCPA-related offenses in 2018, up from the previous record of 24 in 2017.

“Cognizant is a fantastic example of this,” Mr. Wernick said. Last month, two former Cognizant Technology Solutions Corp. executives were charged for allegedly approving illicit payments to help build a corporate campus in India. Lawyers for the executives have said they would fight the charges.

The company itself avoided criminal charges because it voluntarily disclosed the matter within two weeks of learning about it. The Teaneck, N.J., company agreed to pay $25 million in disgorgement and civil penalties to settle its role in the case with the Justice Department and the U.S. Securities and Exchange Commission. The company’s internal investigation, its cooperation with investigators and remediation, and the presence and effectiveness of Cognizant’s pre-existing compliance program also played a role, prosecutors said in a letter to Cognizant’s lawyers.

Cognizant didn’t immediately respond to a request for comment Tuesday. The company’s vice chairman and chief executive, Francisco D’Souza, said in a Feb. 15 statement that the company was grateful that the Justice Department recognized the company’s effort in self-reporting and its cooperation with investigators. “That’s a real message that we’re trying to send to the business community,” Mr. Wernick said of the Cognizant case, “which is certainly cooperate, mediate, self-report and you’ll be rewarded if you’re trying to clean up your business yourself.”

[2]

Let’s analyze this for a minute.

First, rare is a government official who says that a government program is not working. Thus, one should take with a grain of salt (but obviously not completely discount) when an FCPA enforcement official says that a DOJ policy is working as intended.

Second, as highlighted in this prior post [3], government officials have been preaching the virtues of voluntary disclosure in the FCPA context since at least 2005 and many business organizations have taken the bait. Stated differently, business organizations were voluntarily disclosing long before the April 2016 FCPA Pilot Program and long before the November 2017 Corporate Enforcement Policy. Thus it is difficult, if not impossible, to accurately access whether more business organizations are disclosing because of the CEP given that many business organizations were disclosing prior to the CEP. In other words, don’t fall for the fallacy post hoc ergo propter hoc (since event Y followed event X, event Y must have been caused by event X).

Third, what we do know is how many corporate enforcement actions have resulted, at least thus far, in related FCPA enforcement actions against company employees. And the answer is not many. In other words, approximately 80% of DOJ corporate actions in the last approximate decade and approximately 80% of SEC corporate actions in the approximate last decade have lacked individual FCPA charges against company employees. (See here [4] and here [5]).

Fourth, don’t necessarily drink the Kool-Aid that at “least 12 FCPA-related cases … have resulted in prosecutors declining to charge companies that self-reported.” Sure, a few of the actions self-identified on the DOJ’s so-called declinations page [6] – such as the Cognizant example cited above – seem like examples, based on information in the public domain, of what the DOJ has defined as a declination [7]. However, as highlighted in prior posts here [8], here [9], here [10], here [11] and here [12] most of the 12 so-called declinations raise serious questions – based on information in the public domain – as to what viable criminal charges the DOJ actually declined? Again, based on the information in the public domain, the answer appears to be none.

Fifth, in the 12 examples the DOJ has self-identified as so-called declinations, in just one instance (8% – the above mentioned Cognizant example) have company employees been criminally prosecuted for FCPA violations. Stated differently, over 90% of the so-called declinations have not resulted in related criminal charges against company employees for FCPA offenses.

Sixth, over the past two years the DOJ has brought or announced FCPA criminal charges against 31 individuals (18 in 2017 and 13 in 2018). The higher figures cited in the above article include money laundering charges against alleged “foreign officials” and if one thing is certain these alleged “foreign officials” were not voluntarily disclosing their criminal offenses. Even as to the 31 individuals criminally charged with FCPA offenses over the past two years, a high percentage of these individuals were in connection with the PDVSA matter and there is no information or suggestion in the public domain that these enforcement actions originated with voluntary disclosures. Moreover, there is no information or suggestion in the public domain that individual FCPA enforcement actions against Mark Lambert, Lawrence Parker, Frank Chatburn, Roger Boncy, Joseph Baptiste, Patrick Ho, Cheikh Gadio, Raul Gorrin, the three individuals associated with Goldman Sachs, and the three individuals associated with the Vietnam office tower project originated with voluntary disclosures.

In short, the recent Wall Street Journal Risk and Compliance post offers several data points in an effort to establish that the CEP is working, leading to more voluntary disclosures, and thus leading to more individual prosecutions. However, the data points are inconclusive and indeed most contract the truth of the matter asserted.

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