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And The Apple Goes To …

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Debevoise & Plimpton’s FCPA Update is consistently one of the best periodic Foreign Corrupt Practices Act publications around.

The most recent issue contains a dandy article by Andrew Levine, Bruce Yannett, Philip Rohlik which focuses on the DOJ’s recent so-called declinations.

For not believing the hype regarding the DOJ’s so-called declinations – as several FCPA commentators have – but rather analyzing the salient question posed by the so-called “declinations,” the Debevoise authors are awarded the FCPA Apple Award which recognizes informed, candid, and fresh thought-leadership on the Foreign Corrupt Practices Act or related topics.

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And The Apple Award Goes To …

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For the first time, the FCPA Apple Award is given to a legal person (MetLife Inc.) and by extension its CEO Steven Kandarian.

In terms of background, in January 2015 MetLife filed a complaint in U.S. District Court in Washington, D.C., challenging the decision of the Financial Stability Oversight Council (FSOC) to designate MetLife as a “systemically important” non-bank financial institution under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

As has been widely reported (see here from the Wall Street Journal) U.S. District Court Judge Rosemary Collyer recently struck down the order of the FSOC designating MetLife as a systemically important nonbank financial institution under the Dodd-Frank Act.

While the circumstances prompting this Apple Award have nothing to do specifically with the Foreign Corrupt Practices Act, the circumstances present parallels to FCPA enforcement.

In short, it is so refreshing in this seemingly “cooperate with the government and roll over and play dead era” that a company stood up to the government, exercised its due process rights, and forced the government to prove it case.

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And The Apple Goes To …

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The FCPA Apple Award recognizes informed, candid, and fresh thought-leadership on the Foreign Corrupt Practices Act or related topics.

Recently Sara Kropf published on her Grand Jury Target blog this post titled “Why Are We Falling for the Department of Justice’s Sales Pitch?” Relevant portions of the post are republished below with permission (with certain commentary) and for her post Kropf is awarded the FCPA Apple Award.

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“I just spent $1200 to listen to the Department of Justice’s sales pitch that I should bring in my clients to confess their crimes.”

[For starters, let me just add that it is truly a disgraceful practice (see here, here, here, and here for prior posts) that Ms. Kropf and other members of the public must pay to hear public officials speak on matters of public importance.

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And The Apple Goes To …

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A top DOJ official recently stated that “greater transparency benefits everyone.”

Hard to disagree with that.

Yet given the opportunity to be transparent in the HSBC prosecution by releasing the corporate monitor reports (a requirement of the DPA) the DOJ (as well as HSBC) strongly objected.

Enter U.S. District Court Judge John Gleeson (E.D.N.Y.) who in this recent opinion ordered the monitor report to be released.

For championing transparency and not acquiescing in secret criminal law enforcement, Judge Gleeson earns the FCPA Professor apple award.

In pertinent part, Judge Gleeson stated (internal citations omitted):

“HSBC and DOJ do not want the public to have access to the Report. I find that the Report is a judicial record, and that the public has a First Amendment right to see the Report.

[…]

The inquiry in this case—whether to allow the public to see the Monitor’s Report—explores the bounds of a court’s duty to “ensure that ours is indeed a government of the people, by the people, and for the people.” One of the ways this seemingly abstract principle of governance directly affects the job responsibilities of a federal judge is the duty it creates to uphold the public’s right of access to judicial documents. Both the common law and the First Amendment give the public this right.

[…]

Before I can analyze whether the public’s right of access under the common law or the First Amendment compel me to unseal the Monitor’s Report, I must determine whether the Report is a judicial document.  I may consider the Monitor’s Report a “judicial document” if it is “relevant to the performance of the judicial function and useful in the judicial process.” I conclude that it is.

[…]

There is an open criminal case before me. As the government puts it, my authority here “is to ensure that the DPA remains within the bounds of lawfulness and respects the integrity of this Court.” I cannot perform that task without receiving at least some updates from the parties about HSBC’s compliance with the DPA.

[…]

I care a great deal about the results of the Monitor’s investigation; my review of those results is necessary to do my job properly.

The government argues that I am “charged neither with enforcing or granting relief from the Monitor’s efforts nor with playing any role in the Monitor’s work,” but that argument misses the point. My job is to oversee the unfolding of the criminal case that the government chose to file in my court. The parties, in the DPA, made the Monitor’s work a component of the case, and thus made the instant Report critical to the execution of my duties. If, for example, the Monitor’s Report disclosed that HSBC were systematically and extensively laundering money for drug traffickers, it would demean this institution for me to sit by quietly while the government took no action. Indeed, my oversight of the DPA and the open criminal case goes to the heart of the public’s right of access: federal courts must “have a measure of accountability,” and the public must have “confidence in the administration of justice.” Most tellingly, even a “[d]istrict [c]ourt’s inaction is subject to public accountability.” These are important interests that the government itself chose to implicate by resolving its investigation of HSBC in a manner that involved the filing of a pending criminal case.

[…]

The Monitor’s Report here is thus directly relevant to my judicial function, and as a result falls squarely within the definition of a judicial document. Having so concluded, I would ordinarily analyze the public’s common law right of access. However, because I find “that the [Monitor’s Report] [is] subject to a First Amendment right of access, which is stronger and can only be overcome under more stringent circumstances than the common law presumption,” I turn directly to the protections given to the public by the First Amendment.

A First Amendment right attaches to judicial documents for which “experience and logic” support public access.

[…]

The government argues that its decision “whether a defendant is abiding by the terms of a DPA” is akin to a charging decision, and that documents supporting that decision are typically non-public.  But this argument skates over the fact that the government has already brought charges against HSBC. A DPA is not analogous to documents related to building a case; it provides for the undoing of an already-filed case. The government did not begin to employ DPAs with companies until the early 1990s, so there is scant historical evidence of public access to documents in the precise posture of the Monitor’s Report at issue here.

[…]

When all goes well for the defendant, a DPA is, at its core, a substitute for a plea agreement or a trial—to both of which the public has historically had a First Amendment right of access. And the Monitor’s Report is integral to the fulfilment of my continuing obligation to monitor the execution and implementation of the DPA. I conclude that the public’s right of access extends to such documents. Accordingly, I find that “experience” supports unsealing the Monitor’s Report.

I also find that “logic bears out this experience, since ‘public access plays a significant positive role in the functioning of the particular process in question.’” This case implicates matters of great public concern, and is “therefore one[] which the public has an interest in overseeing.” DOJ and the Court are public institutions.

[…]

[B]ecause of the historical practice of allowing public access to documents filed in connection with important criminal proceedings, and because the interests of transparency, accountability, and credibility remind me “of the logic of democratic monitoring of judicial processes,” I find that the First Amendment right of access attaches to the Monitor’s Report.”

[The FCPA Apple Award recognizes informed, candid, and fresh thought-leadership on the Foreign Corrupt Practices Act or related topics. There is no prize, medal or plaque awarded to the FCPA Professor Apple Award recipient. Just recognition by a leading FCPA website visited by a diverse group of readers around the world. There is no nomination procedure for the Apple Award. If you are writing something informed, candid and fresh about the FCPA or related topics, chances are high that I will find your work during my daily searches for FCPA content.]

And The Apple Goes To …

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Fall.  The colors are changing and the apples are crisp.

Fitting of the season, the FCPA Professor apple award goes to Matthew Fishbein (Debevoise & Plimpton).

Since the release of the Yates Memo, I’ve commented more than once that those who think the Yates Memo represented something new are misinformed.

Fishbein (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) surely is not among this category.

Indeed, three weeks prior to release of the Yates Memo, Fishbein wrote this article and picks an orchard.

“[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. This article discusses the context in which corporations cooperate with the government and suggests that the DOJ’s increased emphasis on cooperation against individuals may undermine corporate defense counsel’s ability to obtain or recommend their client’s cooperation in the many marginal cases where evidence of criminal conduct is lacking.

A number of recent statements by top DOJ officials suggest that their explanation for the lack of individual prosecutions is that companies are largely to blame. The DOJ has suggested that by dragging their feet instead of actively cooperating – for example, by hiding behind over-expansive interpretations of foreign data privacy laws or allowing culpable employees to leave the country – companies effectively have put up roadblocks to the prosecution of individuals.

While there may be some examples of companies holding back in their cooperation, a corporation’s conduct during the course of a government investigation is rarely the reason that individuals are not prosecuted. Rather, individuals are not prosecuted for the conduct companies admit because, in many marginal cases, there is insufficient evidence that a crime actually occurred. Why would a company enter into a criminal settlement where the underlying conduct does not give rise to a crime? The answer is simple: companies frequently determine that a “bad” settlement may be a better resolution than a drawn out, litigated victory. And as prosecutors have grown to appreciate the great leverage they hold over corporate entities, they have exercised this leverage in the pursuit of increasingly marginal cases. They do so, in part, because the risk is minimal (the prosecutor’s case is unlikely to be challenged in court) and the reward is great (the corporations pay enormous penalties).

Prosecutors have considerably less leverage over individuals, who, facing the possibility of incarceration and financial devastation in the event of a criminal conviction, are more likely to test the government’s case and put the government at risk of a high-profile loss. Given the extreme public pressure to bring charges against individuals in connection with the financial crisis, it stands to reason that if prosecutors could prove cases against corporate executives, they would bring those cases in a heartbeat. Indeed, Attorney General Holder recently acknowledged that the lack of individual prosecutions in the wake of the financial crisis was “not for lack of trying.”

Faced with a largely unsuccessful record in the pursuit of individual prosecutions after the financial crisis, it appears that, going forward, the DOJ is going to try even harder. According to a senior DOJ official, “[t]he prosecution of individuals – including corporate executives – for white-collar crimes is at the very top of the Criminal Division’s priority list.” Consistent with this goal, a number of DOJ officials have explained that “true cooperation” with a government investigation requires that the corporation identify culpable individuals and provide the government with evidence that implicates them. Without such evidence of individual culpability, corporations will not receive full cooperation credit, even if they do all of the things that traditionally have been viewed as the hallmarks of robust cooperation such as volunteering information not otherwise known to the government, providing documents and witnesses outside the government’s subpoena power, and making productions and disclosures in a timely manner.

[…]

The DOJ’s corporate cooperation policy is in some ways a double-edged sword. In cases where there is clear-cut evidence of wrongdoing, the DOJ’s policy on cooperation makes good sense and should be relatively straightforward in its application: in order to obtain full cooperation credit, it makes sense that companies should have to identify and disclose the information relevant to individual misconduct. This requirement is consistent with the government’s policy on providing cooperation credit for individuals who substantially assist in the prosecution of others. However, the policy presents a real dilemma for companies responding to the marginal, gray-area cases described above, where the company may for business reasons want to reach a settlement even where it has strong defenses, but the absence of evidence of individual culpability may preclude it from receiving the benefits of “full cooperation.”

In these kinds of cases, defense counsel is left facing a host of difficult questions. If a company should make “securing evidence of individual culpability the focus of [its] investigative efforts,” what is it to do when that evidence does not exist? If a company targets its internal investigation toward developing cases against individuals, should individuals be provided with counsel at the outset? If true cooperation “requires identifying the individuals actually responsible for the misconduct,” can a company “truly cooperate” when there are no such responsible individuals? If, in order to receive “full cooperation credit,” a company should emphasize its efforts to obtain evidence of individual culpability, can it still receive “full credit” when those efforts are fruitless? And if securing evidence of individual culpability is a “primary focus” when the government weighs the Filip Factors, will a company be subject to harsher charging decisions or settlement terms simply because no such evidence exists?

Taken together, these questions suggest that a policy designed to incentivize cooperation may have the perverse effect of deterring it: if a company knows that it cannot receive full cooperation credit, it may decide that it is not worth the effort to try; and if individuals know that companies are incentivized to obtain evidence against them, they may be far less willing to cooperate during internal investigations.

Moreover, under the DOJ’s cooperation policy, companies seeking to resolve criminal investigations in marginal cases may actually be penalized when their individual employees did not engage in criminal conduct. In such cases, defense counsel may consider challenging prosecutors to identify what aspect of their investigation was lacking or what evidence of individual culpability should have been uncovered. DOJ officials have said that the government will conduct its own investigations to “pressure test” a company’s internal investigation. If the government’s test reveals no flaws in the company’s investigation, will the government still not provide full cooperation credit?

The DOJ’s policy on cooperation is unlikely to solve the problem that it was likely designed to address, i.e., the lack of individual prosecutions. Although there may be an increase in individual prosecutions in cases of clear wrongdoing, the DOJ’s policy is unlikely to have an impact on the marginal cases, where companies often settle in spite of the evidence – not because of it.

While the needs and interests of companies in reaching settlements have allowed the government to obtain larger and larger settlements in cases where the facts and law likely would not permit them to succeed with a jury, the government must live with the fact that no amount of company cooperation will turn facts that do not provide a basis for individual prosecutions into facts that do. The government either has to accept this – and continue along the path of corporate settlements without individual prosecutions – or stop pursuing investigations and accepting settlements where there are no individuals who have actually committed crimes.”

[The FCPA Apple Award recognizes informed, candid, and fresh thought-leadership on the Foreign Corrupt Practices Act or related topics. There is no prize, medal or plaque awarded to the FCPA Professor Apple Award recipient. Just recognition by a leading FCPA website visited by a diverse group of readers around the world. There is no nomination procedure for the Apple Award. If you are writing something informed, candid and fresh about the FCPA or related topics, chances are high that I will find your work during my daily searches for FCPA content.]

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