“Our Stellar FCPA Unit Continues To Go Gangbusters, Bringing Case After Case”
Last Friday, Acting Assistant Attorney General Mythili Raman delivered prepared remarks (here) at a Corporate Crime Reporter sponsored conference in Washington, D.C. The conference focused on DOJ and SEC resolution policies and procedures. While Raman’s remarks were broad in scope, a portion of her remarks focused on the FCPA, and in her first publicly released statements on the FCPA, Raman continued to employ much of the same FCPA rhetoric that defined Lanny Breuer’s tenure as Assistant Attorney General. (See here for an article summarizing Breuer’s many FCPA speeches).
Raman began her FCPA remarks by stating as follows. “Our stellar FCPA Unit continues to go gangbusters, bringing case after case.” [Note, Raman’s delivered remarks deviated from her prepared remarks as to this sentence].
Stellar?
The last three times the DOJ has been put to its ultimate burden of proof in FCPA cases, the end results were either acquittals or dismissals, including for prosecutorial misconduct.
In the Africa Sting cases, Judge Richard Leon stated as follows. “This appears to be the end of a long and sad chapter in the annals of white collar criminal enforcement. . . . I for one hope this very long, and I’m sure very expensive, ordeal will be a true learning experience for both the [DOJ] and the FBI as they regroup to investigate and prosecute FCPA cases against individuals in the future.”
In the John O’Shea case, Judge Lynn Hughes stated as follows: ‘‘The problem here is that the principal witness against Mr. O’Shea . . . knows almost nothing … [ ] The government should have been prepared before they brought the charges to the Grand Jury. . . . You shouldn’t indict people on stuff you can’t prove.’’
In the Lindsey Manufacturing case, Judge Howard Matz stated as follows. “The instances of misconduct were so varied and occurred over such a long time that they add up to an unusual and extreme picture of a prosecution gone badly awry.”
[For more on the above cases, see my article “What Percentage of DOJ FCPA Losses Is Acceptable?”]
As to the FCPA, Raman further stated as follows [the remainder of the post is from the DOJ’s release].
“Just in the last month, we announced charges against several key defendants in ongoing, active FCPA investigations, one case – with the U.S. Attorney’s Office in Manhattan – involving an alleged bribery scheme to secure mining rights in the Republic of Guinea, and another – with the U.S. Attorney’s Office in Connecticut – involving an alleged bribery scheme to secure power contracts in Indonesia.”
[…]
“In our FCPA prosecutions, too, we aggressively use all the tools available to us. As is evident in our many recent foreign bribery cases, individual targets all over the globe are being charged and arrested, and many companies across a variety of industries have entered into guilty pleas and exacting deferred prosecution agreements with the government. In reaching these dispositions, we can and do require companies to remediate their criminal practices – sometimes with the oversight of a corporate monitor. By demanding remediation as part of such a resolution, we can clean up the misdeeds at a corporation in a lasting way. Corporate leadership is often replaced. We frequently require businesses to implement and sustain rigorous internal controls and compliance programs. And the implementation of these sorts of internal controls by one company in a particular industry can often have a cascading, beneficial effect at other companies that follow suit. You need only look to the effects of our FCPA enforcement program on corporate compliance culture to see that this is true.”
“Additionally, it is important to note that no matter how we proceed in any particular case, we always put a premium on securing cooperation from corporate entities, because meaningful cooperation enables us to hold criminally accountable to the fullest extent possible the widest possible range of bad actors, from individuals responsible for the criminal conduct to other business entities. Simply put, a company’s cooperation – which can lead us to critical information about wrongdoing by executives and employees – can absolutely make the difference as we assess whether there is proof beyond a reasonable doubt sufficient to charge an individual. Moreover, the value of this cooperation is only enhanced when our investigations cross international borders, as they frequently do. We routinely face the reality that in many foreign jurisdictions there are legal roadblocks, including data privacy limits, to what U.S. law enforcement can obtain if it seeks to build a case; in those circumstances, the company’s cooperation can be the critical factor in our ability to hold individual wrongdoers to account.”
“Let me give you a recent example from the FCPA context. In March 2012, we announced that we had entered into a DPA with BizJet International Sales and Support Inc., an aircraft services company, and an NPA with its parent company, Lufthansa Technik AG. As part of the resolution, BizJet admitted to bribing Latin American officials in order to secure various services contracts. And, critically for our prosecutors, BizJet also agreed, together with Lufthansa, to cooperate in our ongoing investigation, continue implementing an enhanced compliance program and internal controls, and pay $11.8 million in criminal penalties. Our agreements with BizJet and Lufthansa laid the groundwork for us to bring felony charges against high-ranking corporate executives. Just last month, we announced charges against four former BizJet executives, including the former president and CEO, and the former sales manager. This example, among many others, proves that, no matter what form of criminal resolution we reach with a company, it decidedly does not mean immunity for its culpable employees – indeed, the opposite is true.”
*****
Despite several individual enforcement actions in April, the fact remains that since 2008 approximately 75% of DOJ FCPA enforcement actions, have not (at least yet) resulted in any DOJ charges against company employees. (See here for the prior post with statistics through 2012).
Moreover, as indicated in this prior post, contrary to Raman’s remarks regarding the “form of criminal resolution,” since NPAs and DPAs were first introduced to the FCPA context in 2004, only 6.5% of corporate DOJ FCPA enforcement actions resolved solely with an NPA or DPA have resulted in related criminal charges of company employees. This compares to 83% of corporate DOJ enforcement actions that were the result of a criminal indictment or resulted in a guilty plea by the corporate entity resulting in related criminal charges of company employees.
I presented these numbers at the conference during a panel on NPAs and DPAs. Denis McInerney (DOJ, Deputy Assistant Attorney General) was on the panel and I stated that the ball was now in his court to explain this wide gap. He described two enforcement actions resolved via an NPA or DPA in which there were indeed related individual prosecutions, but otherwise said that he did not know where these numbers are coming from.
The numbers are described in this prior post. It was really quite easy calculating the numbers. One simply takes all DOJ corporate enforcement actions since 2004 and then looks to see if there have been related individual actions against company employees.
During the panel, McInerney made an important acknowledgment. After I discussed Gabrial Markoff’s excellent article “Arthur Anderson and the Myth of the Corporate Death Penalty” (see here for the prior post), McInerney agreed that there is a very small chance that a company would be put out of business as a result of actual DOJ criminal charges. This was a notable acknowledgment in that the so-called “Arthur Anderson” effect has always been a central justification for the DOJ’s frequent use of NPAs and DPAs. For instance, see this prior post regarding Lanny Breuer’s September 2012 NPA / DPA speech. As fellow panelist Professor David Uhlmann (a frequent critic as well on DOJ’s use of NPAs and DPAs – see here) stated, the DOJ’s policy on NPAs and DPAs is a “policy is search of a rationale.”
*****
In other DOJ news, last Friday the DOJ announced (here) that Paul Novak (a former consultant for Willbros International who previously pleaded guilty – see here for the prior post) was sentenced by U.S. District Court Judge Simeon Lake (S.D.Tex.) to 15 months in prison and two years of supervised release.
Of perhaps greater note, Novak was ordered to pay a $1 million fine. This is among the top individual FCPA criminal fines in history.
The DOJ’s release states that in sentencing Novak, “the court took into consideration the assistance Novak provided the government in ongoing investigations.” Novak’s sentencing documents are under seal and not publicly available.
In May 2008, Willbros resolved parallel DOJ (here) and SEC (here) FCPA enforcement actions and agreed to pay approximately $32 million in combined fines and penalties.
An Informed And Forceful Critique Of NPAs And DPAs By … Guess Who?
Non-prosecution and deferred prosecution agreements (NPAs, DPAs) are the most troubling and toxic feature of our criminal justice system relevant to business organizations.
In numerous prior posts (see here for instance), I have discussed how use of NPAs and DPAs to resolve alleged corporate criminal liability presents problematic policy issues across a broad spectrum. The use of such alternative resolution vehicles in the FCPA context contributes to the “facade of FCPA enforcement” (again across a broad spectrum) that I wrote about here and I further discussed the distortive features of NPAs and DPAs in the FCPA context in my 2010 Senate testimony – see here.
I have long called for NPAs and DPAs to be abolished in the FCPA context and will do so again next week at the National Press Club in Washington, D.C. in this event sponsored by Corporate Crime Reporter.
One does not really have to search far to find critics of NPAs and DPAs.
Most recently, as highlighted in this prior post, former Attorney General Alberto Gonzales stated at the Dow Jones Global Compliance Symposium that FCPA enforcement actions resolved via NPA and DPAs do not necessarily reflect instances of companies violating the FCPA, but rather companies feel compelled to agree to the agreements. Equally problematic, Gonzales said, is that enforcement actions resolved via these vehicles mean that “legitimate wrongdoing is not being prosecuted as it should.” Gonzales continued by saying that it is “easy, much easier quite frankly” for the DOJ to resolve FCPA inquiries with NPAs and DPAs, that such resolution vehicles have “less of a toll” on the DOJ’s budget, and that such agreements “provide revenue” to the DOJ. It is all “unfortunate” Gonzales stated.
Yet NPAs and DPAs continue to flourish – perhaps because they make the DOJ’s (and now SEC as well) job easier, they pad enforcement statistics, and, let’s face it, they expand the market for legal services.
Indeed, as I noted at the Dow Jones event, the fact that regulators and the regulated seem to approve of these agreements should itself be a red flag. I’ve long argued that abolishing NPAs and DPAs – coupled with an FCPA compliance defense – could accomplish much including negating many of the troubling and toxic features of our criminal justice system relevant to business organizations.
This post discusses the views of a notable person concerning NPAs and DPAs. And those views are spot on! When articulated, this person was already a high-profile individual, and this person has since assumed an even higher-profile.
The year was 2005 and this person, a former U.S. Attorney in a high-profile district, appeared at an industry event. This person’s views were reduced to paper in a published article (but because I don’t have copyright permission, I do not link to the full article, but provide a cite at the end of the post).
This person stated as follows.
“On the federal level especially, the sweep of corporate criminal liability could hardly be broader. All of you in this audience probably know the law well, but its breathtaking scope always bears repeating: If a single employee, however low down in the corporate hierarchy, commits a crime in the course of his or her employment, even in part to benefit the corporation, the corporate employer is criminally liable for that employee’s crime. It is essentially absolute liability.”
This person next criticized the DOJ’s then guiding principles of prosecution – the so-called Thompson Memo – which have not really undergone much substantive change since then, but have largely been incorporated into the U.S. Attorneys Manual.
“The factors are being used by some prosecutors not so much as factors in making their charging decisions, but as means to force companies to behave and reform themselves as the prosecutors, fashioning themselves as the new corporate governance experts, think they should.”
[…]
“Deferred prosecution agreements by which the government allows a company to avoid a criminal indictment but by which the government forces a company to pay lots of money, admit its wrongdoing, often agree to the government’s detailed version of the facts under investigation and prosecution of a company’s employees, install a corporate monitor for some period of time and adopt a variety of enhancements to its compliance and governance mechanisms. Who made federal prosecutors into such super-regulators? Is their pro-activity a good thing?”
This person recognized her own fault for the current system because she “conceived of the first deferred prosecution agreement for a company – in 1994, in the case of Prudential Securities.” This person stated as follows.
“So, I must bear my share of responsibility for how government prosecutors are today using the easy prospect of corporate criminal liability and the Thompson Memorandum to inject themselves to deeply into the business of corporate America and to dictate how companies must respond to government investigation. But, having now been on the receiving end of these measures in my representations of companies in criminal investigations, I have seen the light and urge that some prosecutors should change or at least moderate how they are treating companies in criminal investigations.”
Turning to the root causes of misconduct and how things should proceed, this person stated as follows.
“All prosecutors recognize – or should – that no matter how good a company’s corporate culture and compliance program are, there will always be crimes committed by employees. When that invariably occurs, prosecutors shouldn’t be automatically jumping into a Thompson factor analysis to decide whether to charge the company. Only if the crime in question was serious, pervasive in the organization and senior management had at least some culpability, either active or by virtue of willful blindness, did federal prosecutors generally consider a corporate indictment under the Holder Memo [DOJ policy before the Thompson Memo]. Now, it seems that every case of corporate crime is a candidate for Thompson Memo analysis and potentially a corporate charge. Ths difference in process matters a lot in practice. What happens as a result is that some prosecutors automatically invoke the Thompson Memo criteria at the outset of every investigation and immediately start ‘grading’ a company on its performance in the government’s investigation. […] No longer are the threshold issues of the seriousness and pervasiveness of the crime and management involvement always considered as thresholds to cross before considering the criminal liability of the company.”
“You get the picture – the process has, in some sense, gone backwards and is sometimes skipping a big and important threshold question – is the particular case an appropriate case to even consider for a possible corporate charge. If the answer is no, that formerly ended the inquiry. Today, nearly every company is put through the Thompson factor analysis. Today, before making their decisions about charging companies, some prosecutors are exerting considerable – some say, extreme -pressure on corporate behavior under the not so subtle threat that if the company doesn’t do as the government wishes, the company risks, at the end of the day, being indicted.”
[…]
“To ensure that a company does not become that ‘rare’ case resulting in a corporate indictment with all of its attendant negative consequences, a company must not poke the government in the eye by declining any of its requests or suggestion of how a cooperative, good corporate citizen is to behave in the government’s criminal investigation. This template, in my view, can give prosecutors too much power.”
This person next talked about the “problem” of “who the wrongdoers are, who is culpable in the eye of the beholder and the government isn’t always right” and stated as follows.
“To figure out who is a wrongdoer, a lot of it turns on, for example, the very hard-to-get-at issues of knowledge and intent. Especially, in this age of 20/20 hindsight and rule changing mid-stream and e-mails assumed to be read and digested by all to whom they are sent, it is not as easy as the government often thinks it is to figure out who is culpable.”
“If a company, after a thorough investigation, does not agree with the government on who is guilty of wrongdoing, what does the company do when the government is rattling its sabers about insufficient remediation? Throw overboard those the government believes have done wrong to save the company, or fight for them and try to convince the government that it is wrong? A horrible Hobson’s choice if a prosecutor is insistent.”
This person next directed her attention to DPAs.
“In the last year or two, we have seen a virtual epidemic of these – federal prosecutors are agreeing not to indict a company if the company will agree to a deferred prosecution agreement or its equivalent. […] They are becoming a rather routine way of resolving investigations of corporate crime as to companies.”
“… I feel that the deferred prosecution trend may be sweeping too broadly. At times, a deferred prosecution agreement with a corporation can be justified and do some, or even significant good. Some crazy U.S. Attorney in 1994 though so. But it should not be, as it may be becoming, a semi-automatic response by the government in responding to corporate crime. Most cases of corporate crime should result in no action by the government against corporations that have responded appropriately to the wrongdoing and any remaining problems of controls, compliance and corporate culture. There is no need for continued government presence; such presence can indeed retard further progress and act as a drag on the company’s business and stock price. Deferred prosecution agreements, especially if they include the filing of detailed criminal charges against the company, can also unfairly stigmatize the reputation of a good company or firm. And they can have other negative collateral consequences. Prosecutors should pause and take a breath before seeking deferred prosecution agreements and decide whether they are truly needed and in the company’s and public’s best interest.”
You will likely not find a more informed and forceful critique of the most troubling and toxic feature of our criminal justice system relevant to business organizations than as set forth above. But there is more from this person besides just the one article excerpted above.
In this 2005 interview with Corporate Crime Reporter, this person struck similar themes.
Q: Some people believe that deferred and non prosecution agreements are replacing straight out declinations. Others say – no, they are replacing criminal charges. What’s your take?
A: For the most part, not exclusively, for the most part, I think there would not have been, or at least should not have been, any kind of criminal charge in most of the cases. In some of them, there might well have been. Certainly, to the extent that you are substituting a deferred prosecution agreement for a case where you have decided to otherwise indict, then the prosecutors are appropriately limiting the use of deferred prosecution agreements. But it is almost becoming an automatic reaction in many cases beyond those where it should be used. Prosecutors are thinking – before we close out this case that involves any kind of corporate crime, we should get something from the companies.
And the something these days is a deferred prosecution agreement. In most of the cases, the resolution should have been nothing on the criminal side, or perhaps a cooperation agreement. Obviously, the government has an interest in making sure that companies continue to cooperate in the investigation and prosecution of individuals. The prosecutors tend to think that there is no cost to the companies of deferred prosecution agreements. It clearly doesn’t carry the same stigma of an indictment. But it has a tremendous reputational as well as monetary cost. The focus needs to be narrowed somewhat to cases where you think it really is appropriate to do something as to that company. The law allows you to proceed against the company in virtually every case where you have a single employee who has committed a crime. But clearly your exercise of discretion in the vast majority of cases should involve nothing criminal vis-à-vis the company – assuming the company has responded appropriately to the government investigation and addressed the problem.
A settlement on the civil side should be a sufficient government response in the vast majority of cases. And the Thompson memo, which governs federal prosecutors in deciding what to do about a company, says – it will be the rare case where a company should be indicted.
And it should also be the rare case where the government seeks a deferred prosecution agreement from the company – you need to have a reason for doing that.
Is it an alternative to what you have already decided for sure would be an indictment so you need some sanction? That’s a situation that could lead to a deferred prosecution agreement appropriately. Do you feel that this particular company needs to have bells and whistles and enhanced`compliance programs supervised by the criminal side of the government?
That situation could arise, but if you already have an SEC settlement that already has all of those bells and whistles and safeguards, then what are the criminal authorities really adding, other than to have something to show for their investigation as to the company?
Elsewhere during the Q&A, the person stated as follows.
“My point is that the government should be more sparing in its use of deferred prosecution agreements and limit those to situations where they certainly would have indicted otherwise for all the right reasons on their part. Or limit use to where the SEC or other civil regulators failed to act against the corporate culture that the government feels needs to be fixed.
Prosecutors are at their best when they decide to charge or not and not get into managing corporate America.”
[…]
“Prosecutors are at their best when it comes to corporate criminal prosecutions when they decide either to indict or not indict and not get into the management of a company.”
The following Q&A is also instructive.
Q: When you cut the Prudential Securities deal, did you see that as a groundbreaking case?
A: No. I thought it was the right result for that case. It may have been the first deferred prosecution. It was certainly not something I thought I was likely to do again. It was a very special situation. And in fact, other prosecutors didn’t jump on the bandwagon. And nor did I when I was U.S. Attorney. We decided to indict or not. You may have a non-prosecution agreement, but not a deferred. I did not think it would catch on.
Q: But it did.
A: Ten years later. It is a tool that prosecutors have. They clearly reassessed themselves after Arthur Andersen. You saw the collateral consequences coming to roost in Andersen. The Justice Department realized in very concrete stark terms – do I really want these kinds of consequences. Are we really serving the public interest? And so, the tool is available to them to go down several notches. You combine that with the number of cases they are involved in – and you get the results we have been seeing. And prosecutors are like anybody else – when they devote a lot of time and effort to a case, they want something to show for it.
And so I fear the deferred prosecution is becoming a vehicle to show results.
*****
Perhaps you have guessed by now. The above person is Mary Jo White, the new Chairman of the SEC.
While not a top official at the DOJ, the SEC has many of the same policies and procedures in place that White criticized above, including alternative resolution vehicles such as NPAs and DPAs. Indeed, earlier this week in the Ralph Lauren enforcement action (see here for the prior post), the SEC used an NPA in the FCPA context for the first time.
Perhaps White should spend her first few months at the SEC answering some of the questions she previously posed and otherwise addressing the pressing issues she previously discussed.
But that is unlikely to happen as White has promised “aggressive” and “unrelenting” SEC enforcement.
[The article authored by White at the beginning of this post is – Mary Jo White, Corporate Criminal Liability: What Has Gone Wrong? 37th Annual Institute on Securities Regulation 815, 820 (PLI Corp. Law & Practice, Course Handbook Series No. B-1517, 2005)]
Parker Drilling Resolves FCPA Enforcement Action Involving Conduct In Nigeria
It’s been quite a week on the FCPA enforcement front.
On Monday, the DOJ announced (here) criminal obstruction of justice charges against “Frederic Cilins a French citizen [for] attempting to obstruct an ongoing investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea.”
Yesterday, it was reported (here) that former Siemens executive Uriel Sharef had, as expected, settled the SEC enforcement action against him by agreeing, without admitting or denying the SEC’s allegations, to pay a $275,000 penalty. (See here for the prior post discussing the DOJ’s and SEC’s December 2011 charges against Sharef and others).
Yesterday, the DOJ announced (here) that criminal charges “have been unsealed against one current and one former executive of the U.S. subsidiary of a French power and transportation company for their alleged participation in a scheme to pay bribes to foreign government officials.” The individuals are:
Frederic Pierucci (“a current company executive who previously held the position of vice president of global sales for the Connecticut-based U.S. subsidiary) “who was charged in an indictment unsealed in the District of Connecticut with conspiring to violate the Foreign Corrupt Practices Act (FCPA) and to launder money, as well as substantive charges of violating the FCPA and money laundering.” According to the DOJ, Pierucci, a French national, was arrested Sunday night at John F. Kennedy International Airport.
David Rothschild (“a former vice president of sales for the Connecticut-based U.S. subsidiary”) who pleaded guilty on Nov. 2, 2012, to a criminal information charging one count of conspiracy to violate the FCPA. The charges against Rothschild and his guilty plea were recently unsealed.
Future posts will explore in more detail each of the above developments.
Today’s post is about yesterday’s other FCPA development – the announcement of the long-expected enforcement action against Parker Drilling (a Houston-based oil drilling services company) for conduct in Nigeria.
As indicated in this DOJ release, the Parker Drilling action “stemmed from the DOJ’s Panalpina-related investigations.”
As detailed in this prior post, in November 2010, the DOJ and SEC announced coordinated FCPA enforcement actions against Swiss-based freight forwarder Panalpina and six oil and gas companies that utilized its services in connection with business in Nigeria. The November 2010 enforcement action resulted in approximately $237 million in combined DOJ/SEC settlement amounts. (For additional reading on these actions, please visit the CustomsGate tab under the search feature of this site or see here where all the prior actions are linked). As noted in this prior statistical post, Panalpina-related enforcement actions are one, of just a few unique events, that have given rise to the majority of FCPA enforcements since 2007, and Panalpina-related enforcement actions significantly contributed to the “spike” in FCPA enforcement actions in 2010.
Total fines and penalties in the Parker Drilling enforcement action were approximately $15.9 million (approximately $11.8 million in the DOJ enforcement action and approximately $4.1 million in the SEC enforcement action).
This post summarizes the DOJ’s and SEC’s allegations and resolution documents.
DOJ
The DOJ enforcement action involved a criminal information (here) against Parker Drilling resolved through a deferred prosecution agreement (here)
Criminal Information
Parker Drilling operated oil-drilling rigs in Nigeria owned by Parker Drilling (Nigeria Limited), a Nigerian entity and wholly-owned subsidiary of Parker Drilling Offshore International, Inc., (a Cayman Islands corporation wholly-owned by Parker Drilling). According to the information, “Parker Drilling ceased drilling operations in Nigeria in 2006” and the conduct at issues focused on two issues or events that occurred between 8 to 12 years ago.
First, the information, like the prior Panalpina-related enforcement actions, alleged conduct in connection with obtaining temporary importation permits (TIPs) in Nigeria for oil-drilling rigs. The information alleges that in 2001, Parker Drilling retained Panalpina to “obtain TIPs and TIP extensions on Parker Drilling’s behalf. According to the information, between 2001 and 2002:
“Panalpina obtained new TIPs for Parker Drilling’s rigs by submitting false paperwork on Parker Drilling’s behalf to avoid the time, cost, and risk associated with exporting the rigs and re-importing them into Nigerian waters (a process that Panalpina referred to as the ‘paper process’ or ‘recycling.’). Panalpina created and caused to be presented to Nigerian officials documents that reflected that the rigs had been physically exported and re-imported. In reality, the drilling rigs never left Nigerian waters.”
Second, and more significant in terms of the conduct alleged in the information, the DOJ alleges conduct in relation to the Nigerian “Panel of Inquiry for the Investigation of All Cases of Temporary Import Permits Issued Between 1984 to Year 2000” (the “TI Panel”). According to the information, the TI Panel was “presidentially appointed, operated under the auspices of the Nigerian President’s Office, and possessed the power to issue subpoenas and levy fines” in connection with certain duties and tariffs that the Nigerian Customs Service (“NCS”) collected or failed to collect between 1984 and 2000.
As to the TI Panel, the information alleges that beginning in 2002 the TI Panel began reviewing Parker Drilling. According to the information, thereafter Parker Drilling engaged Nigeria Outside Counsel (a Nigerian citizen based in Nigeria who advised Parker Drilling on customs and other matters in Nigeria) and a Nigeria Agent (a Nigerian and British citizen based in the U.K. to assist Parker Drilling in connection with customs matters in Nigeria) who represented Parker Drilling before the TI Panel.
The information alleges that in 2004 “the TI Panel concluded that Parker Drilling had violated [Nigerian law] with respect to several of its TIPS” and that the “TI Panel assessed a fine of $3.8 million against Parker Drilling.” The information then outlines a “bribery scheme,” that resulted in the TI Panel reducing Parking Drilling’s fine “to just $750,000.”
In connection with this “bribery scheme,” the information alleges conduct as to Employee A (a U.S. citizen based in Nigeria who, during the relevant time period, was the General Manager of Parker Drilling’s operations in Nigeria); Employee B (a U.S. citizen based in Nigeria who also was a General Manager of Parker Drilling’s Operations in Nigeria); Executive A (a U.S. citizen based in Houston who performed financial and compliance functions for Parker Drilling between 2002 through 2005); Executive B (a U.S. citizen based in Houston who performed a legal function for Parker Drilling); U.S. Outside Counsel (a U.S. citizen and partner in a U.S. law firm who served as Parker Drilling’s outside counsel who provided legal and business advice to Parker Drilling on customs and other issues in Nigeria).
Specifically, the information alleges that U.S Outside Counsel suggested that Parker Drilling retain the Nigeria Agent to resolve its Nigerian customs issues even though Nigeria Agent’s “resume, which U.S. Outside Counsel provided to Parker Drilling, did not reflect any past experience in Nigeria or handling customs issues.” According to the information, Parker Drilling “conducted no additional due diligence into Nigeria Agent’s qualifications.”
The information alleges that “with one exception, Parking Drilling paid Nigeria agent indirectly through the U.S.-based law firm” and that “Executives A and B paid and caused to be paid all of Nigeria Agent’s expenses without receiving any invoices particularly describing the expenditures’ purposes.” According to the information, many of expenses related to food, entertainment, social events and the like and the information alleges various meetings the Nigeria Agent had with various Nigerian foreign officials.
The information further alleges that Parker Drilling’s treasurer informed Executive B “that the lack of invoices could raise an issue in Parker Drilling’s ongoing Sarbanes Oxley audit.” Thereafter, the information alleges, the Nigeria Agent sent an invoice and that Executive B “accepted the invoice and retained it in Parker Drilling’s files, knowing that the invoice did not accurately reflect the true purpose of Parker’s Drillings” prior payments to the Nigeria Agent.
The information then states as follows. “All told, Parker Drilling transferred and caused to be transferred to Nigeria Agent approximately $1.25 million to address Parker Drilling’s TI Panel issues” and that “Nigeria Agent succeeded in reducing Parker Drilling’s TI Panel Fines.”
Based on the above conduct, the information charges one count of violating the FCPA’s anti-bribery provisions. Although the above Panalpina-related allegations are incorporated by reference into the paragraphs charging the FCPA violation, the information specifically identifies only the TI Panel conduct and states as follows. “Parker Drilling made and cause to be made from the United States … a series of payments totaling approximately $1.25 million to Nigeria Agent, knowing that all or a portion of those payments would be given or used to procure goods and services that were to be given to a foreign government official in return for the diminution of a lawfully assessed fine.”
Deferred Prosecution Agreement
The above charge against Parker Drilling was resolved via a DPA in which Parker Drilling admitted, accepted, and acknowledged that it was responsible for the acts of its officers, directors, employees and agents as charged in the information.
The DPA has a term of three years and under the heading “relevant considerations” it states as follows.
“The Department enters into this Agreement based on the individual facts and circumstances presented by this case and the Company. Among the facts considered were the following: (a) the Company’s cooperation, including conducting an extensive internal investigation and collecting, analyzing, and organizing voluminous evidence and information for the Department; (b) the Company has engaged in extensive remediation, including ending its business relationships with officers, employees or agents primarily responsible for the corrupt payments, enhancing its due diligence protocol for third-party agents and consultants, increasing training and testing requirements, and instituting heightened review of proposals and other transactional documents for all the Company’s contracts; (c) the Company has retained a full-time Chief Compliance Officer and Counsel who reports to the Chief Executive Officer and Audit Committee, as well as staff to assist the Chief Compliance Officer and Counsel; (d) the Company has already significantly enhanced and is committed to continue to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth [elsewhere in the DPA]; (e) the Company has implemented a compliance-awareness improvement initiative and program that includes issuance of periodic anti-bribery compliance alerts; (f) the Company has already implemented many of the elements described [elsewhere in the DPA]; and (g) the Company has agreed to continue to cooperate with the Department in any ongoing investigation …”.
Pursuant to the DPA, the advisory Sentencing Guidelines range for the conduct at issue was $14.7 million to $29.4 million. The DPA then states as follows.
“The Company agrees to pay a monetary penalty in the amount of $11,760,000, an approximately 20% reduction off the bottom of the fine range […]. The Company and the Department agree that this fine is appropriate given the facts and circumstances of this case, including the Company’s cooperation, extensive remediation, committment to continue to enhance its compliance program, and culpability relative to other companies examined in this investigation.”
During the period of the DPA, Parker Drilling will have annual reporting obligations to the DOJ concerning its remediation and implementation of various compliance measures. As is typical in FCPA DPAs, Parker Drilling also agreed to a “muzzle clause” (see this prior post for more information).
SEC
In a related enforcement action based on the same core conduct, the SEC brought a civil complaint (here) against Parking Drilling.
The introductory paragraph of the complaint states as follows.
“This matter involves violations of the Foreign Corrupt Practices Act (“FCPA”) by Defendant Parker Drilling Company. In 2004, through its outside counsel, Parker Drilling retained a Nigerian agent to assist the company with customs disputes related to the importation of its drilling rigs into Nigeria. During the course of the agent’s work, two Parker Drilling executives knowingly paid the agent large sums of money through its outside counsel for, among other things, the “entertainment” of Nigerian foreign officials in an effort to obtain their influence in resolving the customs disputes.”
The SEC complaint also contains a paragraph with the same general Panalpina-related allegations as alleged in the DOJ’s criminal information.
Under the heading “Remedial Efforts” the complaint states as follows.
“Parker Drilling demonstrated significant cooperation and conducted an extensive internal investigation. Since the time of the conduct noted in this Complaint, Parker Drilling has made significant enhancements to its global anti-corruption compliance program, including: retaining a full-time Chief Compliance Officer and Counsel who reports to the Chief Executive Officer and Audit Committee and full-time staff to assist him; enhancing anti-corruption due diligence requirements for relationships with third parties; increasing compliance monitoring and corporate auditing specifically tailored to anti-corruption; implementing a compliance awareness initiative that includes issuance of periodic anti-bribery compliance alerts; enhancing financial controls and governance; and expanding anti-corruption training throughout the organization.”
Based on the above conduct, the SEC charged an FCPA anti-bribery violation and an FCPA books and records and internal controls violation. Other than restating the language of the books and records and internal controls provisions, the SEC complaint does not contain any specific allegations concerning these charges.
As noted in this SEC release, Parker Drilling agreed to pay disgorgement of 3,050,00 plus pre-judgment interest of $1,040,818, and consented to the entry of a final judgment permanently enjoining it from future FCPA violations.
Mitchell Ettinger, Saul Pilchen and Stephanie Cherny (Skadden, Arps) represented Parker Drilling.
Parker Drilling in this release stated as follows.
“After an extensive investigation, with which we fully cooperated, we are pleased to have reached agreement with the DOJ and the SEC, and we will continue to maintain a vigorous FCPA compliance program, to emphasize the importance of compliance and ethical business conduct, and to enhance our compliance efforts.”
Parker Drilling had previously disclosed that the DOJ and SEC’s investigations concerned “certain of our operations relating to countries in which we currently operate or formerly operated, including Kazakhstan and Nigeria.”
Former Attorney General Alberto Gonzales Criticizes Various Aspects Of DOJ FCPA Enforcement
Yesterday at the Dow Jones / Wall Street Journal Global Compliance Symposium, former Attorney General Alberto Gonzales openly criticized various aspects of DOJ Foreign Corrupt Practices Act enforcement.
During a featured interview at the event with David Wessel of the Wall Street Journal, Gonzales said that the DOJ could “give more guidance and transparency” concerning issues relevant to an FCPA enforcement action. Gonzales mentioned the FCPA Guidance, but stated that it represents no change in policy and again reiterated that “more transparency” is important because he does not see actual reform of the FCPA statute coming from this Congress or this administration.
Gonzales “salute[d] the efforts of business groups” post-FCPA Guidance who have asked for additional clarification and guidance concerning the FCPA and FCPA enforcement (see here for the prior post) and said that the FCPA Guidance “does not end the need for additional discussion” regarding these topics and the enforcement approach of the agencies.
Gonzales also had pointed criticisms for DOJ non-prosecution and deferred prosecution agreements. Asked by Wessel whether the original motivations Congress had in passing the FCPA are being served by the current enforcement environment or whether the current enforcement environment has “lost sight of the [FCPA’s] end point” Gonzales said that it is “hard to tell quite frankly” because many FCPA enforcement actions are resolved via NPA and DPAs and that these resolution vehicles do not necessarily reflect instances of companies violating the FCPA, but rather companies feels compelled to agree to the agreements.
Equally problematic, Gonzales said as to NPAs and DPAs, is that enforcement actions resolved via these vehicles mean that “legitimate wrongdoing is not being prosecuted as it should.” Gonzales said it is “easy, much easier quite frankly” for the DOJ to resolve FCPA inquiries with NPAs and DPAs, that such resolution vehicles have “less of a toll” on the DOJ’s budget and that such agreements “provide revenue” to the DOJ. It is all “unfortunate” Gonzales stated. [For additional reading on this issue, see my article “The Facade of FCPA Enforcement” and numerous prior posts – including here and here – concerning NPAs and DPAs].
Gonzales further observed that the DOJ appears more focused on FCPA enforcement numbers, how successful it is being, and the dollars it receives from FCPA enforcement actions, rather than achieving the “true objective [of the FCPA] which is to discourage bribery of foreign officials.”
Gonzales also joined the growing chorus of those who have called for the DOJ to release more specific information concerning its so-called declination decisions, and also spoke out in favor, as he has in the past (see here for the prior post) for “common-sense reform” such as compliance defense
So I ask the question yet again (see here for the prior post), – how many former high-ranking DOJ officials and/or former DOJ FCPA enforcement attorneys does it take before the current DOJ realizes that its FCPA enforcement policies and procedures are, in certain cases, broken?
The “Muzzle” Clause
In December 2012, the DOJ announced here as follows.
“Standard Chartered Bank, a financial institution headquartered in London, has agreed to forfeit $227 million to the Justice Department for conspiring to violate the International Emergency Economic Powers Act (IEEPA). The bank has agreed to the forfeiture as part of a deferred prosecution agreement with the Justice Department and a deferred prosecution agreement with the New York County District Attorney’s Office for violating New York state laws by illegally moving millions of dollars through the U.S. financial system on behalf of sanctioned Iranian, Sudanese, Libyan and Burmese entities. The bank has also entered into settlement agreements with the Treasury Department’s Office of Foreign Assets Control (OFAC) and the Board of Governors of the Federal Reserve System.”
As indicated in the above release, Standard Chartered agreed to resolve its potential exposure via a deferred prosecution agreement.
Like DPAs in the Foreign Corrupt Practices Act context, the Standard Chartered DPA required the company to accept responsiblity for the conduct set forth in the agreement.
Like DPAs in the FCPA context, the Standard Chartered DPA contained a “public statements” clause under which the company was prohibited, directly or indirectly through others (such as attorneys, consultants, etc.), from making “any public statements contradicting the acceptance of responsibility.” If the company, directly or indirectly, made such public statements, it would constitute, subject to cure rights, “a willful and material breach” of the DPA thereby subjecting the company to criminal prosecution. A further provision in the “public statements” clause was that the determination of whether a public statement contradicts acceptance of responsibility “shall be in the sole discretion” of the DOJ. A further provision in the clause was that the company shall not issue a press release or hold a press conference concerning the facts at issue in the DPA without first consulting with the DOJ “to determine (a) whether the text of the release or proposed statements at the press conference are true and accurate with respect to matters between the United States and [the company]; and (b) whether the United States has no objection to the release.”
Portions of the Standard Chartered “public statements” clause were recently triggered. (See here from the Wall Street Journal and here from the U.K. Guardian).
In short, during a recent earnings conference call with investors, Standard Chartered Chairman John Peace was asked a question “concerning individual employee conduct and compensation” following the DPA. Peace responded, when asked about bonuses for executives, as follows. “We had no wilful act to avoid sanctions; you know, mistakes are made – clerical errors – and we talked about last year a number of transactions which clearly were clerical errors or mistakes that were made.”
According to the Wall Street Journal article, prosecutors “pounced when they heard Mr. Peace’s comments” and demanded a copy of the conference call transcript. According to the article, “Mr. Peace and other top executives were [soon] in Washington to [apologize] before a room full of top prosecutors at the U.S. Justice Department, which has threatened to bring criminal charges if Mr. Peace didn’t recant.” According to the article, “Standard Chartered officials and the U.S. prosecutors spent more than a week negotiating possible wording of the bank’s retraction.”
On March 21st, Mr. Peace, through the company, issued this statement which read as follows.
“I, together with Chief Executive Officer Peter Sands and Group Finance Director Richard Meddings, representing Standard Chartered Bank (the “Group”), held a press conference where certain questions were asked concerning individual employee conduct and compensation in light of the deferred prosecution agreements made with the US Department of Justice and the New York County District Attorney’s Office in December 2012. During that press conference, which took place via phone, I made certain statements that I very much regret and that were at best inaccurate.
In particular, I made the following statements in reference to a question regarding the reduction of bonuses for [company] executives: We had no willful act to avoid sanctions; you know, mistakes are made – clerical errors – and we talked about last year a number of transactions which clearly were clerical errors or mistakes that were made…
My statement that [the company] “had no willful act to avoid sanctions” was wrong, and directly contradicts [the company’s] acceptance of responsibility in the deferred prosecution agreement and accompanying factual statement.
Standard Chartered Bank, together with me, Mr. Peter Sands and Mr. Richard Meddings, who jointly hosted the press conference, retract the comment I made as both legally and factually incorrect. To be clear, Standard Chartered Bank unequivocally acknowledges and accepts responsibility, on behalf of the Bank and its employees, for past knowing and willful criminal conduct in violating US economic sanctions laws and regulations, and related New York criminal laws, as set out in the deferred prosecution agreement. I, Mr. Sands, Mr. Meddings, and Standard Chartered Bank apologize for the statements I made to the contrary.”
I’ve written before about what I will call the “muzzle” clause in FCPA DPAs.
In response to an FCPA commentator who believed that NPAs and DPAs have never been used to resolve cases that do not actually represent provable FCPA violations – because the commentator had never heard any complaint “from any practitioners, on or off the record, in public or in private” of this being the case – I noted that there was a simple explanation for this. I then proceeded to analyze a “muzzle” clause in an FCPA DPA. See here for the prior post.
Greater scrutiny is needed of “muzzle” clauses.
First, the DOJ can use its leverage and its ability to bring criminal charges against a company. Second, the DOJ will can then use an NPA or DPA to insulate its version of the facts and enforcement theories from judicial scrutiny which the risk averse company will more often that not accept. Third, in the resolution agreement, the DOJ can include a “muzzle” clause prohibiting anyone associated with the company from making any statement inconsistent with the DOJ’s version of the facts or its enforcement theories. Fourth, if the DOJ believes, in its sole discretion, that a public statement has been made contradicting its version of the facts or its enforcement theories, the DOJ can “pounce” and threaten to bring criminal charges.
Is this an effective system of justice?
Is this consistent with the rule of law (recognizing that one accepted factor in analyzing the rule of law is distribution of authority in a manner that ensures that no single organ of government has the practical ability to exercise unchecked power)?
Professor Ellen Podgor has rightfully asked on the her White Collar Crime Prof Blog (see here) whether the government can include such clauses in resolution agreements without infringing on First Amendment rights.
Reacting to the August 2012 DOJ enfocement action against Gibson Guitar resolved with a DPA (with a “muzzle” clause), Harvey Silverglate(author of “Three Felonies a Day: How the Feds Target the Innocent”) wrote in this Wall Street Journal opinion piece as follows.
“Put another way, Gibson is now forbidden to tell the world the whole truth about its conduct and its reasons for settling a case it previously claimed publicly, including in an opinion piece in [the Wall Street Journal], involved no criminal conduct on its part. In exchange for agreeing to read the government’s script, Gibson regained its ability to conduct business without a federal sword of Damocles dangling over its corporate head. This naked effort by federal prosecutors to control both news and outcomes, not to mention their own reputations, does not surprise those familiar with the modern federal criminal justice system.”
As noted in this previous post, when the U.K. Serious Fraud office attempted to insert a “muzzle” clause in its Innospec resolution documents, 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.”
Whether in the FCPA context or otherwise, “muzzle” clauses are in need of greater scrutiny.