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What Viable Criminal Charges Against D&B Did The DOJ Actually “Decline”?

shrug

This prior post highlighted the SEC’s $9.2 million Foreign Corrupt Practices Act enforcement action against Dun & Bradstreet based on the conduct of two indirect Chinese subsidiaries from 6 to 12 years ago.

In connection with the SEC’s enforcement action, the DOJ quietly released this letter stating that it has “declined prosecution consistent with the FCPA Corporate Enforcement Policy.”

However, the question is posed: based on information in the public domain what viable criminal charges against D&B did the DOJ actually “decline”? The answer, as discussed in this post, appears to be none.

For starters, and as highlighted in this prior post, in connection with the Corporate Enforcement Policy the DOJ “declination” to mean:

“A declination pursuant to the FCPA Corporate Enforcement Policy is a case that would have been prosecuted or criminally resolved except for the company’s voluntary disclosure, full cooperation, remediation, and payment of disgorgement, forfeiture, and/or restitution.  If a case would have been declined in the absence of such circumstances, it is not a declination pursuant to this Policy.  Declinations awarded under the FCPA Corporate Enforcement Policy will be made public.”

However, based on the only information in the public domain (the DOJ’s brief letter set forth below and the SEC’s administrative order) there is nothing to suggest that D&B could have even been prosecuted for a viable criminal offense.

The letter from the DOJ to D&B’s lawyer (Peter Spivak, Hogan Lovells) states in full:

“We write regarding the investigation by the Department of Justice, Criminal Division, Fraud Section and the United States Attorney’s Office for the District of New Jersey  into your client The Dun & Bradstreet Corporation concerning violations of the FCPA. Based upon the information known to the Department at this time, we have declined prosecution consistent with the FCPA Corporate Enforcement Policy. We have reached this conclusion despite the bribery committed by employees of the Company’s subsidiaries in China. We based this decision on a number of factors, including but not limited to: the fact that the Company identified the misconduct; the Company’s prompt voluntary self-disclosure; the thorough investigation undertaken by the Company; its full cooperation in this matter, including identifying all individuals involved in or responsible for the misconduct, providing the Department all facts relating to that misconduct, making current and former employees available for interviews, and translating foreign language documents to English; the steps that the Company has taken to enhance its compliance program and its internal accounting controls; the Company’s full remediation, including terminating the employment of 11 individuals involved in the China misconduct, including an officer of the China subsidiary and other senior employees of one subsidiary, and disciplining other employees by reducing bonuses, reducing salaries, lowering performance reviews, and formally reprimanding them; and the fact that the Company will be disgorging to the SEC the full amount of disgorgement as determined by the SEC.

If additional information or evidence should be made available to us in the future, we may reopen our inquiry.”

As to the question of what viable criminal charges against D&B did the DOJ actually “decline,” let’s review a couple of things..

As to issuers such as D&B, the SEC enforces the FCPA civilly and the DOJ’s Criminal Division enforces the FCPA criminally.

The FCPA’s contain two sets of provisions: the anti-bribery provisions and the books and records and internal controls provisions.

It is a matter of black-letter law that legal liability (whether FCPA anti-bribery violations or otherwise) does not hop, skip and jump around a business organization. In other words, just because an employee or employees of – in D&B’s case an indirect subsidiary – engages in improper conduct, does not mean that the issuer is legally liable for that conduct absent veil piercing / alter ego circumstances. Even the FCPA Guidance recognizes this legal fact.

The books and records and internal controls provisions can result in criminal charges only to the extent the issuer engaged in knowing and willful conduct. Such criminal charges are typically reserved for factually egregious conduct (i.e. Siemens and VimpelCom).

The SEC’s administrative order in the D&B matter is, from a substantive standpoint, the only information in the public domain concerning the conduct that the DOJ “declined” to prosecute (minus of course the following short blurb in the DOJ’s letter: “despite the bribery committed by employees of the Company’s subsidiaries in China:).

However, the SEC’s order does not contain any finding, suggestion, or inference that anyone at D&B (the issuer) participated in, authorized, or had knowledge of the improper conduct of the indirect subsidiary employees. Moreover, the Order does not contain any finding, suggestion, or inference to support a veil piecing / alter ego finding (and here it should be noted that the SEC has asserted such theories in several recent FCPA enforcement).

No doubt based on the above, the SEC did not even find that D&B civilly violated the FCPA’s anti-bribery provisions. The SEC’s Order only finds that D&B violated the FCPA’s books and records and internal controls provisions.

If the SEC was unable to civilly find that D&B violated the FCPA’s anti-bribery provisions, what information in the public domain is there to suggest that the DOJ could have criminally charged D&B with FCPA anti-bribery violations? The answer appears to be none.

Turning next to the books and records and internal controls provisions, viable criminal charges exist only to the extent the issuer engaged in knowing and willful conduct. Here again, there is no articulated finding or other evidence in the SEC’s order (or the DOJ’s brief letter) to support criminal books and records and internal controls charges against D&B.

Just like other instances of the DOJ’s marketing its “declination” decisions (see here, here and here), there are many who are likely to drink the Kool-Aid and advance the DOJ’s policy statement to advance their own interest. (See here and here).

More sophisticated (and less interested) observers however should take a step back and ask the salient question: just what viable criminal charges against D&B did the DOJ actually “decline.”

Based on the only information in the public domain, the answer appears to be none.

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