Top Menu

Hit And Misses

Recently on his Forbes column (here), Howard Sklar paused to rethink some of his FCPA positions based on my recent post (here) and this recent article by former Attorney General Michael Mukasey.  On the theory (perhaps presumed) that others derive value from FCPA Commentariat (that’s Howard’s term, not mine) debates, this post discusses Howard’s hits and misses and encourages him to keep rethinking.

I agree with Howard (in fact, I know from my prior FCPA practice experience) that DPAs and NPAs seldom tell the complete story.  This truism seems to give Howard comfort that perhaps all DPA and NPAs represent actual, provable FCPA violations notwithstanding the conduct actually set forth in the resolution documents.  However, this truism causes me discomfort because, based on my experience, for every aggravating fact left out of the resolution documents there are also frequently two mitigating facts left out of the resolution documents.

Howard is spot on though when he says that “the DOJ must realize that the information they disclose forms the enforcement record they have to defend.”  Criticism as to the actual facts and conduct the DOJ sets forth in an NPA or DPA – and the resulting analysis as to the ultimate issue of whether the conduct actually violates the FCPA – are problems entirely of the DOJ’s own making.


Because the DOJ encourages those subject to the FCPA to look to these documents as evidence of conduct violating the FCPA and for guidance as to enforcement theories.  In “The Facade of FCPA Enforcement” (here at pgs. 998-1000) I called this the “absurdity of FCPA caselaw.”  For instance in this GAO report (Appendix III), the DOJ explained, in its view, why NPAs/DPAs “are beneficial” including that “DPAs and NPAs benefit the public and industries by providing guidance on what constitutes improper conduct.”  Furthermore, in the aftermath of the November 2010 Senate FCPA hearing, the DOJ was asked various ways about FCPA uncertainty and lack of guidance. The DOJ responded (see here) that it “provides clear guidance to companies with respect to FCPA enforcement through a variety of means” including “charging documents, plea agreements, deferred prosecution agreements and non-prosecution agreements, press releases, and relevant pleadings and orders.”  The DOJ stated that “these documents are lengthy and detailed.”  You might want to re-read the Lufthansa Technik NPA (here) at this point – the last words that should enter your brain are lengthy and detailed.

Howard next admits to his “true bias” (as a former SEC attorney) and is confident in his ability to size up people and is confident that prosecutors would never bring bad cases even if the “asynchronous information can make it seem that way.”  I’ll let Judge Richard Leon and Judge Alex Kozinski respond to that issue.  When granting the DOJ’s motion to dismiss the Africa Sting cases, Judge Leon spoke of how prosecutors can become “so convinced of the righteousness of their position.” (See here for the prior post).  As noted in this recent post, the Ninth Circuit recently addressed the DOJ’s “trust us” position and stated as follows.  “The government assures us that, whatever the scope of the CFAA, it won’t prosecute minor violations.  But we shouldn’t have to live at the mercy of our local prosecutor. […] And it’s not clear we can trust the government when a tempting target comes along.”

Howard next asserts that despite the temptation DOJ prosecutors may have to resolve cases via an NPA vs. doing nothing, he “suspects that is less of a problem that you’d think.”  Credible evidence suggests otherwise.  See e.g., Peter Spivak & Sujit Raman, Regulating the ‘New Regulators’:   Current Trends in Deferred Prosecution Agreements, 45 Am. Crim. L. Rev. 159, 176 (2008) (“we heard from colleagues in the defense bar of prosecutors who, in their haste to compel the company’s cooperation in pursuit of individuals, have pressed the entity to enter into a diversion agreement before any particular’s guilty could definitely be established).  Even Mark Mendelsohn (former DOJ FCPA unit chief) has indicated that a “danger” with NPAs and DPAs “is that it is tempting” for the DOJ “to seek to resolve cases through DPAs or NPAs that don‟t actually constitute violations of the law.”  See Corporate Crime Reporter, Sept. 13, 2010.

The clincher, in Howard’s mind, that NPAs and DPAs have never been used to resolve cases that do not actually represent FCPA violations seems to be this – he has not heard any complaint “from any practitioners, on or off the record, in public or in private” of this being the case.

There is a very simple explanation for this.  These resolution vehicles muzzle the companies and their defense counsel.  The following template clause (from the recent BizJet International DPA – here) is common.

Public Statements by BizJet

BizJet expressly agrees that it shall not, through present or future attorneys, officers, directors, employees, agents or any other person authorized to speak for BizJet make any public statement, in litigation or otherwise, contradicting the acceptance of responsibility by BizJet set forth above or the facts described in the attached Statement of Facts.  Any such contradictory statement shall, subject to cure rights of BizJet described below, constitute a breach of this Agreement and BizJet thereafter shall be subject to prosecution as set forth in [this] Agreement.  The decision whether any public statement by any such person contradicting a fact contained in the Statement of Facts will be imputed to BizJet for the purpose of determining whether they have breached this Agreement shall be the sole discretion of the Department.

No FCPA lawyer representing a company party to an FCPA NPA or DPA is going to risk breaching the agreement just to make a splash on the FCPA conference circuit.

Another template clause in such resolution vehicles (as in the recent BizJet DPA) is the requirement that the company “shall first consult” with the DOJ to see if it has any objection before the company issues a press release or holds a press conference in connection with the resolution.

As noted in this prior post, when the U.K. Serious Fraud Office inserted such language into its Innospec settlement, it received a lashing from Lord Justice Thomas who stated as follows.  “It would be inconceivable for a prosecutor to approve a press statement to be made by a person convicted of burglary or rape; companies who are guilty of corruption should be treated no differently to others who commit serious crimes.”

Finally, the least persuasive of Howard’s points in favor of NPAs and DPAs is that without such agreements “our lowered enforcement would reflect in international efforts as well” and that Russia “would certainly not take its responsibilities seriously – if it saw reduced enforcement in the U.S.”

I take Howard’s point and on this issue I largely blame civil society and monitoring organizations (who do good work in other areas) but put out misleading report cards when it comes to enforcement statistics.  For instance, as noted in this prior post concerning the OECD’s Phase 3 Review of the U.S., one of the many ironies of the review was that while loudly praising the U.S. for its “high level” of enforcement, the Report quietly criticized and questioned many of the policies and enforcement theories which yield the “high level” of enforcement.  More to the point, the OECD noted “one of the reasons for the impressive FCPA enforcement record in the U.S.” is the use of NPAs and DPAs,  yet the report noted that these agreements are subject to little or no judicial scrutiny.

It is plainly obvious (as noted in this prior post) that a reason (there are other reasons as well noted in the post) for the divergent level of enforcement in OECD countries is due to the fact that, to the best of my knowledge, only the U.S. has three options in “prosecuting” such cases:  charge, don’t charge, or use an NPAs or DPA.  Given the, what at times seems like a new “global arms race” to see which country can move up the enforcement score cards, other countries – most notably the U.K. – want these agreement as well.  However, this is all the more reason to get things right in this country least our “facade of FCPA enforcement” be further exported.  Quality should matter more than quantity when it comes to criminal law enforcement.

Keep rethinking Howard.

The Problem With FCPA Enforcement? Look No Further Than BizJet / Lufthansa Technik

Certain FCPA reform proposals I support (such as a compliance defense – see here) involve amending the statute.  Other reform proposals I support involve a change in DOJ enforcement policy (or lacking that, perhaps Congressional action) such as publishing declination decisions when a company voluntarily discloses (see here) and abolishing non-prosecution and deferred prosecution agreements.

When listing the problems with FCPA enforcement, the use of NPAs and DPAs is at the top of the list.

Point taken that such alternative resolution vehicles are used in other substantive areas of law (such as antitrust, money laundering etc.), but the predominate use of such vehicles is to resolve FCPA inquiries.  (See here from Gibson Dunn – FCPA enforcement actions comprised approximately 40% of DOJ NPAs or DPAs in 2011; here from Gibson Dunn – FCPA enforcement actions comprised approximately 50% of DOJ NPAs or DPAs in 2010).  Moreover, resolving an antitrust, money laundering, etc. case via an NPA or DPA is at least informed by mounds of precedential caselaw, a circumstance absent when resolving FCPA enforcement actions.

The DOJ first used an alternative resolution vehicle in an FCPA enforcement action in 2004 (see here) and since then an NPA or DPA has been used to resolve approximately 80% of core corporate DOJ FCPA enforcement actions.

It is clear that the DOJ’s use of such vehicles in the FCPA context is one of the reasons for the increase in FCPA enforcement actions.  Whereas the DOJ previously had two options (prosecute or don’t prosecute), the DOJ now has three options (prosecute, don’t prosecute, or offer the corporate defendant a non-prosecution agreement or deferred prosecution agreement).  Mark Mendelsohn, the former chief of the DOJ’s FCPA unit, stated that if the DOJ did not have the option of resolving FCPA enforcement actions with NPAs or DPAs the DOJ “would certainly bring fewer cases.”  (See “Mark Mendelsohn on the Rise of FCPA Enforcement,” 24 Corporate Crime Reporter 35, September 10, 2010).   Likewise, the OECD Phase 3 Report of the U.S. (Oct. 2010 – see here) stated as follows.  “It seems quite clear that the use of these agreements is one of the reasons for the impressive FCPA enforcement record in the U.S.”

Because NPAs and DPAs are subject to little or no judicial scrutiny,  DOJ’s extensive use of these agreements has shielded its FCPA enforcement theories from judicial scrutiny in all but the rarest of instances.  As demonstrated by recent events, when the DOJ is actually put to its burden of proof in FCPA enforcement actions, the results are often mixed.

Others have criticized use of NPAs and DPAs as well.

As noted in this prior post, during a 2010 Senate Judiciary hearing, Senator Jeff Sessions (R-AL) stated as follows.  “I was taught if [a company] violated a law, you charge them. If [a company] didn’t violate the law, you don’t charge them.”  Indeed, those used to be the choices.

In this Corporate Crime Reporter interview, W. Neil Eggleston (a former DOJ enforcement attorney currently at Kirkland & Ellis – here) stated as follows.  ““I worry that [NPAs and DPAs] will become a substitute for a prosecutor deciding – this is not an appropriate case to bring – there is no reason to subject this corporation to corporate criminal liability. In the old days, they would have dropped the case. Now, they have the back up of seeking a deferred or non prosecution agreement, when in fact the case should not have been pursued at all. That’s what I’m worried about – an easy out.”  Well said.

In this report, Gibson & Dunn noted, among other criticisms of NPAs and DPAs that“from a company’s perspective, the threat of indictment can force a company to agree to a DPA or NPA based on the government’s perception of alleged misconduct even under novel, expansive, or unlitigated theories of liability.”  Spot on.

See also “Facade of FCPA Enforcement – here at pages 933-939 summarizing criticisms of NPAs and DPAs.

Use of NPAs and DPAs to resolve alleged corporate criminal liability in the FCPA context present two distinct, yet equally problematic public policy issues.

The first is that such vehicles, because they do not result in any actual charges filed against a company – and thus do not require the company to plead to any charges – allow egregious instances of corporate conduct to be resolved too lightly without adequate sanctions and without achieving maximum deterrence.   Indeed, it is notable to observe that seven of the top ten enforcement actions (in terms of fine and penalty amount) in the FCPA’s history have been resolved with an NPA or DPA.

The second is that such vehicles, because of the “carrots” and “sticks’ relevant to resolving a DOJ enforcement action, often nudge companies to agree to these vehicles for reasons of risk-aversion and efficiency and not necessarily because the conduct at issue actually violates the FCPA.  Indeed, in the same Corporate Crime Reporter interview referenced above, Mark Mendelsohn stated that a “danger” with NPAs and DPAs “is that it is tempting” for the DOJ “to seek to resolve cases through DPAs or NPAs that don’t actually constitute violations of the law.”  As noted in this prior post, when the DOJ resolves an FCPA enforcement action via a NPA or DPA, there is only a 15% likelihood that individual criminal charges will be filed against any company employee or those affiliated with the company.  On the other hand, when the DOJ files actual, prosecuted criminal charges against a company, there is a 71% chance that a company employee will also be prosecuted.  This statistic speaks volumes to the quality of many FCPA enforcement actions resolved via NPAs or DPAs.

Thus, use of NPAs or DPAs in the FCPA context allow “under-prosecution” of egregious instance of corporate bribery while at the same time facilitate the “over-prosecution” of business conduct.

Usually one has to reference two distinct FCPA enforcement actions to demonstrate these issues.  However, both issues are present in the recent BizJet / Lufthansa FCPA enforcement action (see here for the prior post).

As to “under-prosecution,” as noted in the prior post, the BizJet criminal information alleges misconduct by several executives including Executive A (a senior executive at BizJet from 2004 to 2010 who “was responsible for the  operations and finances of BizJet”); Executive B (a senior executive at BizJet from 2005 to 2010 whose duties included “oversight of BizJet’s efforts to obtain business from new customers and to maintain and increase business with existing customers”); and Executive C (a senior finance executive at BizJet from 2004 to 2010 who “was responsible for overseeing BizJet’s accounts and finances and the approval of payment of invoices and of wire and check requests”).   The information further alleges that in November 2005, “at a Board of Directors meeting of the BizJet Board, Executive A and Executive B discussed with the Board that the decision of where an aircraft is sent for maintenance work is generally made by the potential customer’s director of maintenance or chief pilot, that these individuals are demanding $30,000 to $40,000 in commissions, and that BizJet would pay referral fees in order to gain market share.”

Sure, BizJet did voluntarily disclose, cooperate in the DOJ’s investigation, and engage in extensive remediation.  However, such factors could have also been rewarded in the context of a plea agreement.

When conduct giving rise to corporate liability involves senior executive misconduct and apparent knowing acquiesence by the Board, the entity, simply put, should not be offered an alternative resolution vehicle.  Yet, BizJet was allowed to resolve the enforcement action via a DPA meaning that (should the entity abide by the terms and conditions of the agreement) it will never be required to plead guilty to anything.  [Note – should the FCPA be amended to include a compliance defense consistent with my proposal, such a compliance defense would not have been applicable to BizJet given the allegations of misconduct by senior executives]. 

As to “under-prosecution,” as noted in the prior post, the DOJ release states that BizJet’s “indirect parent company, Lufthansa Technik AG” also “entered into a [non-prosecution] agreement with the DOJ in connection with the unlawful payments by BizJet and its directors, officers, employees and agents.”  The release stated as follows.  “The DOJ has agreed not to prosecute Lufthansa Technik provided that Lufthansa Technik satisfies its obligations under the agreement for a period of three years.”  However, as I mentioned in the prior post, there is no mention of Lufthansa Technik in the BizJet criminal information.

More shocking, there is absolutely no articulated factual basis in the Lufthansa Technik NPA (see here) for the agreement.  The Lufthansa Technik NPA could be the most opaque, bare-bones NPA in the history of FCPA NPAs.  It states that the DOJ will “not criminally prosecute” the entity “for any crimes” related to violations of the FCPA’s anti-bribery provisions arising from or related to the conduct described in the BizJet criminal information and DPA.  Again, that information and DPA does not even mention Lufthansa Technik whatsoever.  The only thing we know from the DOJ’s resolution documents is that BizJet is an indirect subsidiary of Lufthansa Technik.  If that is the sole basis for the DOJ’s prosecution (via a non-prosecution agreement) of Lufthansa Technik, that is troubling as it establishes strict criminal liability for parent company entities.  If that is not the sole basis for the enforcement action, the DOJ ought to publicly state what it is, because the resolution documents do not.

Much of the FCPA reform debate at present has focused on actual amendments to the statute.  To be sure, certain limited amendments are warranted such as a compliance defense.  But just as importantly, there needs to be reform of certain DOJ FCPA enforcement policies and procedures.

It is in the public interest to abolish non-prosecution and deferred prosecution agreements in the FCPA context.  For more, see here (a recent interview I did with Corporate Crime Reporter).  However, abolishing NPAs and DPAs in isolation is not what I propose.  Rather, abolishing NPAs and DPAs should be part of an FCPA reform package that also includes a compliance defense amendment to the statute.

BizJet FCPA Enforcement Action Involves Executive Conduct

Yesterday the DOJ announced (see here) that BizJet International Sales and Support Inc. (see here – a Tulsa, OK based provider of aircraft maintenance, repair and overhaul services (MRO)) agreed to pay an $11.8 million criminal penalty “for bribing government officials in Latin America to secure contracts to perform aircraft MRO services for government agencies.”

The enforcement action involved a criminal information (here) against BizJet resolved through a deferred prosecution agreement (here).  The DOJ release states that BizJet’s “indirect parent company, Lufthansa Technik AG” (see here – a German provider of aircraft-related services) also “entered into an agreement with the DOJ in connection with the unlawful payments by BizJet and its directors, officers, employees and agents.”  The release states as follows.  “The DOJ has agreed not to prosecute Lufthansa Technik provides that Lufthansa Technik satisfies its obligations under the agreement for a period of three years.  Those obligations include ongoing cooperation and the continued implementation of rigorous internal controls.”  There is no mention of Lufthansa Technik in the below described BizJet information.

Criminal Information

The information alleges that between 2004 – 2010 BizJet and others conspired “to obtain and retain MRO service contracts and other business for BizJet from foreign government customers, including the Mexican Federal Police, the Mexican President’s Fleet [the air fleet for the President of Mexico], Sinaola [the air fleet for the Governor of the Mexican State of Sinaloa], the Panama Aviation Authority, and other customers, by paying bribes to foreign officials employed by such customers.

The foreign officials included:  Official 1 – “a Captain in the Mexican Federal Police,”  Official 2 – “a Colonel in the Mexican President’s Fleet,” Official 3 – “a Captain in the Mexican President’s Fleet,” Official 4 – “employed by the Mexican President’s Fleet,” Official 5 – “a Director of Air Services at Sinaloa,” and Official 6 – “a chief mechanic at the Panama Aviation Authority.”  According to the information, all of the above officials “had broad decision-making authority and influence over the award of contracts to MRO service providers.”

The information alleges conduct by several executives including:  Executive A (a senior executive at BizJet from 2004 to 2010 who “was responsible for the operations and finances of BizJet”); Executive B (a senior executive at BizJet from 2005 to 2010 whose duties included “oversight of BizJet’s efforts to obtain business from new customers and to maintain and increase business with existing customers”); Executive C (a senior finance executive at BizJet from 2004 to 2010 who “was responsible for overseeing BizJet’s accounts and finances and the approval of payment of invoices and of wire and check requests”); and Sales Manager A (a regional sales manager at BizJet from 2004 to 2010 who “interacted with potential and existing customers and was responsible for obtaining business from new customers and maintaining and increasing business with existing customers”).

The information alleges that the purpose of the conspiracy – which BizJet accomplished through its employees including Executive A, Executive B, Executive C, and Sales Manager A – was to make bribe payments “which they called ‘commissions,’ ‘incentives’ or ‘referral fees’ to employees of customers, including foreign government customers, in order to obtain and retain for BizJet contracts to perform MRO services.”  The information further alleges that these individuals attempted to conceal the payments to foreign officials by using Shell Company A (owned by Sales Manager A and run out of this personal residence) to funnel the payments from BizJet to the foreign officials and by making payments in cash delivered by hand to the foreign officials.

The overt acts section of the information begins as follows.  In November 2005, “at a Board of Directors meeting of the BizJet Board, Executive A and Executive B discussed with the Board that the decision of where an aircraft is sent for maintenance work is generally made by the potential customer’s director of maintenance or chief pilot, that these individuals are demanding $30,000 to $40,000 in commissions, and that BizJet would pay referral fees in order to gain market share.”

The information then alleges various payments made to the above officials in return for the official’s help in securing contracts.

Based on the above conduct, the information charges one count of conspiracy to violate the FCPA.


The DOJ’s charges against BizJet were resolved via a deferred prosecution agreement.  Pursuant to the DPA, BizJet admitted, accepted, and acknowledged that it was responsible for the acts of its officers, directors, employees and agents as charged in the Information.

The term of the DPA is three years and its states that the DOJ entered into the agreement based on the following facts:  “(a) following discovery of the FCPA violations during the course of an internal audit of the implementation of enhanced compliance related to third-party consultants, BizJet initiated an internal investigation and voluntarily disclosed to the DOJ the misconduct …; (b) BizJet’s cooperation has been extraordinary, including conducting an extensive internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, and organizing voluminous evidence and information for the DOJ; (c) BizJet has engaged in extensive remediation, including terminating the officers and employees responsible for the corrupt payments, enhancing its due diligence protocol for third-party agents and consultants, and instituting heightened review of proposals and other transactional documents for all BizJet contracts; (d) BizJet has committed to continue to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth in the” corporate compliance program set forth in an attachment to the DPA; and (e) “BizJet has agreed to continue to cooperate with the DOJ in any ongoing investigation of the conduct of BizJet and its officers, directors, employees, agents, and consultants relating to violations of the FCPA.”  With so many executives generically identified in the information as being involved in the improper conduct, it will be interesting to see whether individual FCPA prosecutions are forthcoming.

As detailed in the DPA, the advisory Sentencing Guidelines range for the criminal charge was $17.1 million – $34.2 million.  Pursuant to the DPA, BizJet agreed to pay $11.8 million (30% below the minimum amount suggested by the Guidelines).  The DPA states as follows.  “BizJet and the DOJ agree that this fine is appropriate given the facts and circumstances of this case, including the nature and extent of BizJet’s voluntary disclosure, extraordinary cooperation, and extensive remediation in this matter.”

Interestingly, the DPA was signed by the DOJ, BizJet and BizJet’s counsel – Jay Holtmeier (here – Wilmer Cutler Pickering Hale and Dorr) in late December 2011, but only made public yesterday.

Powered by WordPress. Designed by WooThemes