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2 Enforcement Theories, 17 DOJ Corporate Enforcement Actions, 0 Individual Prosecutions

The subject matter of this post is certainly nothing new.

For over five years, I have been highlighting the low percentage of DOJ corporate Foreign Corrupt Practices Act enforcement actions that result in related individual prosecutions.

In 2010, I was asked to testify at the Senate FCPA hearing – specifically about the above issue – and offered the following explanation in my testimony [1].

“[A] reason no individuals have been charged in [many FCPA] enforcement actions may have more to do with the quality of the corporate enforcement action than any other factor. As previously described, given the prevalence of NPAs and DPAs in the FCPA context and the ease in which DOJ offers these alternative resolution vehicles to companies subject to an FCPA inquiry, companies agree to enter into such resolution vehicles regardless of the DOJ’s legal theories or the existence of valid and legitimate defenses.”

Yesterday’s post [2] awarded an FCPA Professor apple award to Matthew Fishbein [3] (Debevoise & Plimpton – who previously served in the U.S. Attorney’s Office for the Southern District of New York as Chief Assistant U.S. Attorney and Chief of the Criminal Division, among other DOJ positions) for his recent excellent article which touches upon the same subject. In pertinent part, Fishbein observed:

“[T]he lack of individual prosecutions [in most DOJ corporate enforcement actions] is the inevitable consequence of making a potential criminal case out of every news story where something bad occurs. While the needs and interests of companies often lead them to enter into settlements even where there is little evidence that a crime actually was committed, individuals are more likely to test the government’s case – especially if that case rests on questionable footing.”

In light of yesterday’s post, and more broadly the general discussion of individual accountability in the aftermath of the recent “Yates Memo,” it is useful to analyze some specific examples in the hopes of making the abstract more concrete.

The remainder of this post highlights 2 DOJ FCPA enforcement theories that have resulted in 17 DOJ corporate FCPA enforcement actions yielding approximately $350 million in settlements but have resulted in 0 individual prosecutions.

The first enforcement theory that has resulted in 7 DOJ FCPA enforcement actions (Panalpina, Noble, Shell, Pride International, Tidewater Marine, Transocean, and Parker Drilling) was based on the core theory that payments allegedly made to notoriously corrupt Nigerian Customs Services (“NCS”) employees in connection with securing or renewing temporary importation permits (“TIPS”) so that oil rigs could remain in Nigerian waters, as well as other allegations that payments were made to NCS officials to expedite the delivery of goods and equipment into Nigeria, consisted FCPA violations.

The enforcement theory was aggressive because the FCPA’s anti-bribery provisions specifically exempt so-called facilitation payments.  Perhaps in a sign of how obvious the facilitating payments exception was to the conduct at issue, the DOJ twice stated in resolution documents [4] that “the payments [at issue] … would not constitute facilitation payments for routine governmental actions within the meaning of the FCPA.”

All of the so-called CustomsGate enforcement actions involved either an NPA or a DPA in which the DOJ extracted approximately $175 million in corporate settlements. However, none of the CustomsGate enforcement actions involved any related criminal prosecution of individuals associated with the companies resolving the enforcement actions.

With is perhaps most notable about the CustomsGate enforcement actions is that the SEC (which also brought 8 FCPA enforcement actions against business organizations based on the same core theory and extracted approximately $85 million in corporate settlements) brought only one related prosecution of individuals associated with the companies resolving the enforcement action.  However, Mark Jackson and James Ruehlen (both associated with Noble Corp.) put the SEC to its burden of proof as to whether the payments violated the FCPA. In an ironic twist, two years after the enforcement agencies collected approximately $260 million in the corporate CustomsGate enforcement actions, a federal trial court judge ruled that the SEC has the burden of proof to negate the facilitating payments exception. Despite the SEC merely have a civil burden of proof of preponderance of the evidence (as opposed to the DOJ’s higher burden of proof in criminal actions of beyond a reasonable doubt), the SEC was unable to carry its burden and on the eve of trial the SEC offered to settle the Jackson & Ruehlen matter on terms very favorable to the defendants.

The second enforcement theory that has yielded 10 DOJ FCPA enforcement actions (Syncor Taiwan, DPC (Tianjin Co), Micrus, AGA Medical, Johnson & Johnson, Pfizer, Orthofix International, Biomet, Smith & Nephew, and Bio-Rad ) was based on the core theory that various employees of alleged foreign health care systems such as physicians, nurses, mid-wives and lab personnel are “foreign officials” under the FCPA. This enforcement theory was first used by the DOJ in 2002 (before NPAs and DPAs became the dominate way for the DOJ to resolve FCPA enforcement actions against business organizations) and since 2005 has yielded 8 DOJ enforcement actions.

The enforcement theory was aggressive because the FCPA’s legislative history [5] is clear that the main reason motivating Congress to enact the FCPA was the foreign policy implications of discovered corporate payments to foreign government officials such as the Prime Minister of Japan, the President of Korea, the President of Gabon, and Italian political parties. In other words, in passing the FCPA Congress was concerned with corporate payments to bona fide foreign government officials.

All of the “healthcare workers as foreign officials” enforcement actions since 2005 were resolved through an NPA or DPA in which the DOJ extracted approximately $90 million in corporate settlements. However, none of the enforcement actions against business organizations involved any related criminal prosecution of individuals associated with the companies resolving the enforcement actions.

In short, 2 DOJ FCPA enforcement theories that have yielded 17 corporate DOJ enforcement actions in which the DOJ extracted approximately $350 million in corporate settlements have not resulted in any related criminal prosecution of individuals.

Zero. Zilch. Nada.