What Did the Willbros Monitor Find?
In May 2008, Willbros Group Inc. settled joint DOJ and SEC enforcement actions. See here and here.
The DOJ criminal information (see here) charges “Willbros with one count of conspiring to make bribe payments to Nigerian and Ecuadoran officials, two counts of violating the FCPA in connection with the authorization of specific corrupt payments to officials in those countries and three counts of violating the FCPA by falsifying books and records relating to corrupt payments and a tax fraud scheme.” See here for the DOJ release.
As is frequently the case, these criminal charges were not actually prosecuted, but were deferred pursuant to a deferred prosecution agreement (DPA) (see here).
The DPA lasts for approximately three years.
If the company fully complies with all of its obligations during the term of the DPA, the DOJ will dismiss the criminal charges against Willbros.
On the other hand, if the company fails to comply with all of its obligations during the term of the DPA, such as by violating the FCPA again, Willbros will “be subject to prosecution for any federal criminal violation of which the [DOJ] has knowledge.”
In addition, the DPA “does not provide any protection against prosecution
for any corrupt payments or false accounting, if any, made in the future” by Willbros “or any of their directors, officers, employees, agents or consultants, irrespective of whether disclosed by [Willsbros] pursuant to the terms” of the DPA. Nor does the DPA “provide any protection against prosecution for any corrupt payments made in the past which are not described in the [deferred charges] or were not disclosed to the [DOJ] prior to the date on which [the DPA] was signed.”
Enter the Willbros compliance monitor – a condition often imposed on a company pursuant to an FCPA DPA (or NPA).
In the FCPA context, a monitor does many things.
Most of these things are forward-looking – such as ensuring that the company “gets it” – that it is adhering to the terms of the DPA, and making the changes it said it was going to make so that it will never again be subject to FCPA scrutiny.
Like most monitors, the Willbros monitor was authorized to disclose to the DOJ should the monitor “discover credible evidence that questionable or corrupt” may have been offered, promised, paid, or authorized by Willsbros.
Fast forward to May 20th.
Willbros Group filed an 8-K (see here).
The filing includes an update on the company’s DPA obligations and the work of the monitor. Much of the discussion is fairly routine.
Except this paragraph.
“The [monitor’s report recently delivered to the DOJ] also sets out for the DOJ’s review the monitor’s findings relating to incidents that came to the monitor’s attention during the course of his review which he found to be significant, as well as recommendations to address these incidents. We and the monitor have met separately with the DOJ concerning certain of these incidents. The monitor, in his report, did not conclude whether any of these incidents or any other matters constituted a violation of the FCPA. We do not believe that any of these incidents or matters constituted a violation of the FCPA based on our own investigations of the incidents and matters raised in the report. Notwithstanding our assessment, the DOJ could perform further investigation at its discretion of any incident or matter raised by the report.”
It is unusual, so soon after an FCPA enforcement action, for a monitor to find additional facts that require investigation.
Why?
Because during settlement of an FCPA enforcement action, it is common for the enforcement agencies to ask the “where else” question. Thus, if the Willbros enforcement action followed the usual course, once DOJ/SEC got comfortable with the Nigeria and Ecuador facts, it is likely the enforcement agencies said something to the effect “well, if you did it in Nigeria and Ecuador, convince us you didn’t do it as well in countries x,y, and z.” To answer that question, the company is then often forced to conduct a general, high-level world-wide review of its entire operations. If problematic facts are found, it is in the company’s best interest (and the best interest of the enforcement agencies as well) to wrap-up these “tag-a-long” facts into the same enforcement action.
Against this backdrop, it is a bit surprising that problematic facts have arisen so soon after the Willbros FCPA enforcement action.
Was the assumed high-level world-wide review insufficient? Did Willbros perhaps commit another FCPA violation post-enforcement action, yet while still subject to the DPA.?
As indicated by Willbros’ filing, the company states its opinion that none of this new conduct constitutes a violation of the FCPA.
However, it is unusual to have a monitor find additional problematic facts, and for the DOJ to investigate those facts, so soon after an FCPA enforcement action.
If the “new” facts do indeed give rise to an independent FCPA violation, Willbros could be subject to prosecution on the “new” facts and the current criminal charges deferred against Willbros could again become active.
FCPA Debarment Bill Introduced
Last week, Representative Peter Welch (D-VT) introduced H.R. 5366 (see here).
Titled the “Overseas Contractor Reform Act,” the bill states that “it is the policy of the United States Government that no Government contracts or grants should be awarded to individuals or companies who violate the Foreign Corrupt Practices Act of 1977.”
The bill states, “any person found to be in violation of the Foreign Corrupt Practices Act of 1977 shall be proposed for debarment from any contract or grant awarded by the Federal Government within 30 days after a final judgment of such violation.”
However, there is a big “unless” qualifier.
The qualifier is “unless waived by the head of a Federal Agency.” The bill states: “The head of a Federal agency may waive this section for a Federal contract or grant. Any such waiver shall be reported to Congress by the head of the agency concerned within 30 days from the date of the waiver, along with an accompanying justification.”
Because most FCPA enforcement actions are settled through a non-prosecution agreement (NPA) or deferred prosecution agreements (DPA) (see here), the bill may need some tweaking if it is to be effective.
Among other issues will be: is a company that agrees to an NPA or DPA to resolve an FCPA case “found to be in violation of the FCPA.” Likely not.
Also, the bill defines “final judgment” as when “all appeals of the judgment have been finally determined, or all time for filing such appeals has expired.” Again, this assumes that all FCPA enforcement actions are resolved through actual judicial proceedings – which is not how FCPA enforcement works in many cases.
Other issues with the bill is that “persons” merely includes: an individual, a partnership and a corporation. Other business entities are equally capable of violating the FCPA and the bill, to be most effective, should adopt the definition of “domestic concern” in the FCPA. (see 78dd-2(h)(1) here).
Other potential shortcomings with the bill is that it only applies to violations of the FCPA’s antibribery provisions. Thus, the bill would not be triggered by the recent “bribery, yet no bribery” cases (Daimler, BAE, and Siemens) – see here, here and here. In these cases, despite DOJ allegations that would seem to establish that the company violated the FCPA’s antibribery provisions, none of these companies were charged with violating the FCPA’s antibribery provisions. Instead, non-FCPA charges or FCPA books and records and internal controls violations were charged in an attempt to avoid application of the European Union debarment provisions. (This fact is apparent from the DOJ’s sentencing memos in the cases – see here).
The big picture flaw with H.R. 5366 (as currently drafted) is it assumes all FCPA enforcement actions are resolved through judicial proceedings and it assumes all FCPA enforcement actions are resolved with charges that actually fit the facts.
Neither of these assumptions are accurate – that why I call FCPA enforcement, in many cases, a facade.
Nevertheless, despite the shortcomings of H.R. 5366 as drafted, the bill is a step in the right direction.
The bill has been referred to the House Oversight and Government Reform Committee. Yesterday’s post (see here) profiled a letter from the Chairman of that committee, Edolphus Towns (D-NY), to Attorney General Holder regarding debarment issues.
The Bribery Racket
Those are the words on the cover of the current issue of Forbes Magazine.
The feature article (here) by Nathan Vardi is “How Federal Crackdown on Bribery Hurts Business And Enriches Insiders.”
Given my soon to be published piece, “The Facade of FCPA Enforcement” and my other comments on FCPA Inc., the FCPA’s revolving door, voluntary disclosure and the role of FCPA counsel, etc. (see here, here, here and here), Vardi’s article resonates with me, and perhaps with you as well.
Below are a few snippets from Vardi’s article:
“[FCPA is” nice work if you can get it–and to the tune of billions of dollars, lawyers, accountants and consultants, many with past ties to the Justice Department, are getting it. In the last few years, as the feds cranked up enforcement of the 33-year-old Foreign Corrupt Practices Act, a thriving and lucrative anti-bribery complex has emerged. Whether it’s having any impact on reducing bribery is another matter. Instead, companies can find themselves getting extorted in foreign lands, only to get extorted again by Washington. It works generally like this: A company that suspects bribery overseas hires a battery of lawyers, accountants and investigators who may then report any findings to Justice in hopes of some undefined leniency. More likely, the company pays out huge fines and then hires more lawyers as government-mandated compliance monitors, a job that can stretch into years of legal billing.”
“This is good business for law firms,” says Joseph Covington, who headed the Justice Department’s FCPA efforts in the 1980s and is now codirector of white-collar defense at Jenner & Block. “This is good business for accounting firms, it’s good business for consulting firms, the media–and Justice Department lawyers who create the marketplace and then get yourself a job.”
“[Mark] Mendelsohn declines to comment on his new job other than to note that it is routine for lawyers who leave the Justice Department to do white-collar defense work for corporations.” (For more on Mendelsohn see here and here)
“What are these prosecutors accomplishing? Maybe they are fighting for truth and justice. Maybe, that is, it makes sense for the U.S. to hold its corporations to a higher standard of integrity than the French or Chinese outfits they compete against when trying to win business abroad. The prosecutors, though, are doing something else at the same time. They are creating a lucrative industry–FCPA defense work–in which they will someday be prime candidates for the cushy assignments. A former prosecutor, to be sure, does not work on the defense of the same case he had as a government lawyer. But there is nothing to stop prosecutors from ginning up cases that will feed the lawyers who used to have their jobs or from looking forward to a payday in the private sector that will be made possible by their busy successors at Justice.”
“Many of the 150 pending cases will probably end with so-called deferred prosecution agreements. These involve the government threatening to bring an indictment against a company–which could effectively put the firm out of business–unless it agrees to adhere to certain practices. This hammer gives the feds immense power–for one thing, they don’t have to prove their legal theories of bribery in court.” (For more on non-prosecution and deferred prosecution agreements and the FCPA see here).
“The scope of things companies have to worry about is enlarging all the time as the government asserts violations in circumstances where it’s unclear if they would prevail in court,” says Lucinda Low, who has helped companies deal with the FCPA for years. “You don’t have the checks and balances you would normally have if you had more litigation.”
“The FCPA provides moneymaking opportunities even after a case is resolved. Following settlements the Justice Department often requires companies to hire a compliance monitor, whose job is to review a company’s continuing anti-bribery efforts. It seems that an important qualification for these gigs is having previously worked at the Justice Department–as 7 of the 13 FCPA monitors have done. When it came time for Daimler to pick a government-mandated compliance monitor for three years, the company hired former fbi director Louis Freeh.” (For more see here and here).
Vardi also discusses the recent NATCO matter (see here) – a case that resulted in a $65,000 SEC civil monetary penalty. Vardi states, “Natco reported the issue to the government and paid outside lawyers and accountants $11 million to investigate, causing Natco cash-flow problems.” (For additional voluntary disclosure cases that have seemingly gotten out-of-hand see here).
There’s alot in Vardi’s article.
So, what do you think?
As always, comments (even if anonymous) are welcome.
It Can Be Done
This post is about a non-FCPA case.
Yet, the attributes of this case apply to many FCPA cases.
A large corporate entity allegedly engages in criminal conduct.
The corporate entity agrees to a plea agreement, one that does not adequately reflect the seriousness of the conduct at issue.
Nevertheless, pursuant to the plea agreement, the corporate entity agrees to pay an eye-popping fine.
The DOJ issues a press release peppered with get-tough, accountability, wake-up call type of language.
The plea agreement gets filed with the court and the court rubber stamps the plea agreement.
Case closed.
This is what happened is the BAE bribery, yet no bribery case. That is what happened in the Siemens bribery, yet no bribery case. (Daimler was offered a deferred prosecution agreement, thus, it didn’t even have to plead to anything).
But that is not what happened in this case.
Rather, a federal court judge rolled up his sleeves, used the tools at his disposal, and rejected a plea agreement hashed out between the DOJ and the corporate entity because it was not “in the best interests of justice” and did “not serve the public’s interest” because it did not adequately address the “criminal conduct at issue.”
Kudos to Judge Donovan Frank (D. Minn.).
Judges assigned to future FCPA cases would be wise to follow his example.
*****
On February 25, 2010, medical device manufacturer Guidant LLC, a wholly-owned subsidiary of Boston Scientific Corporation, was charged with criminal violations of the Federal Food, Drug, and Cosmetic Act (see here). According to the information, “Guidant concealed information from the U.S. Food and Drug Administration regarding catastrophic failures in some of its lifesaving devices.”
The DOJ release states, in part, “our message is clear: we will vigorously prosecute individuals and organizations who put profit over public health and safety by violating the law.”
On April 5, 2010, Guidant LLC (an entity that was formed two weeks before the DOJ filed the information) entered pleas of guilty to criminal violations of the Food, Drug, and Cosmetic Act (see here). Pursuant to the plea agreement, Guidant agreed to pay $296 million in criminal penalties.
The DOJ’s release states, in part, “Guidant’s guilty plea […] is about accountability,” “This successful prosecution serves as an important wake up call…,” and “The guilty plea […] should serve as a reminder and deterrent to those who would break the laws …”.
Enter Judge Frank.
The “type” of plea agreement at issue in the Guidant case was a Rule 11(c)(1)(C) agreement – the same “type” of plea agreements at issue in Siemens and BAE cases. In a Rule 11(c)(1)(C) plea agreement, the DOJ agrees that a specific sentence or sentencing range is the appropriate disposition of the case and such a recommendation is binding on the court once the court accepts the plea agreement.
Judge Frank noted that “normally, a court accepts or rejects a plea agreement at a plea hearing” (see here for his Memorandum Opinion and Order).
However, as reflected in Frank’s order, “whether to approve or reject a plea agreement is a matter confided to the sound discretion of the trial court” and a plea agreement can be rejected if the agreed upon sentence is inappropriate or if the resulting agreement is not in the best interest of justice.
Among other things, Judge Frank noted that the victims of Guidant’s conduct contend “that Guidant, as a company, does not respect the criminal justice system and should be required to do more than simply pay fines as a consequences for its criminal behavior.”
Judge Frank was also troubled by the lack of a presentence investigation report – he noted that the plea agreement “specifically states that a presentence investigation report is not necessary because the plea and sentencing hearings, together with the record and the Plea Agreement, ‘will provide the Court with sufficient information concerning Guidant, the crime charged in this case, and Guidant’s role in the crime to enable the meaningful exercise of sentencing authority by the Court…” However, Judge Frank noted that a presentence investigation report would have be useful in determining the appropriate sentence.
[A presentence report was waived in both the Siemens (here) and BAE (here) agreements]
Judge Frank is not the only federal court judge to recently reject a plea agreement or SEC settlement.
Judge Jed Rakoff (S.D.N.Y.) did it last September in the SEC v. Bank of America case. Among other things, Judge Rakoff noted that the SEC – BofA settlement left the distinct impression that it was a “contrivance designed to provide the SEC with the façade of enforcement and the management of [BofA] with a quick resolution of an embarrassing inquiry…” He further noted that the settlement “suggests a rather cynical relationship between the parties” in that “the SEC gets to claim that it is exposing wrongdoing on the part of [BofA] in a high-profile merger” and “[BofA’s] management gets to claim that they have been coerced into an onerous settlement by overzealous regulators.” According to Judge Rakoff, “all this is done at the expense, not only of shareholders, but also of the truth.” [In February 2010, Judge Rakoff did “reluctantly” approve a revised SEC – BofA settlement yet stated that the settlement, “[w]hile better than nothing,” was still “half-baked justice at best.”
Judge Cormac Carney (C.D.Cal.) did it last September in the case of Dr. Henry Samueli, the co-founder and former chief technical officer of Broadcom, who pleaded guilty to criminal charges for making false statements in testimony before the SEC relating to its investigation of the alleged stock-options backdating at Broadcom. Under a grant of immunity, Samueli testified as a government witness at the trial of another Broadcom executive and after hearing Samueli testify Judge Carney vacated Samueli’s prior guilty plea and dismissed the criminal charges against him. Judge Carney noted that there was “no evidence … to suggest that Dr. Samueli did anything wrong, let alone criminal.” “Yet,” Judge Carney noted, “the government embarked on a campaign of intimidation and other misconduct to embarrass him and bring him down” including crafting “an unconscionable plea agreement pursuant to which Dr. Samueli would plead guilty to a crime he did not commit and pay a ridiculous sum of $12 million to the United States Treasury.”
As the above (and other) examples demonstrate, plea agreements can be rejected by trial court judges either because they are “too soft” or “too hard.”
Yet, to my knowledge, no FCPA plea agreement has ever been rejected by a trial court judge.
Some probably should not.
Some probably should.
Judges assigned to future FCPA cases would be wise to follow the above examples, roll up their sleeves, use the tools at their disposal, and critically analyze whether the plea agreement, given the allegations in the charging documents, serve the “public’s interest” and adequately address the “criminal conduct at issue.”
Some FCPA plea agreements (not to mention, non and deferred prosecution agreements) are “too hard” in that it is debatable whether the conduct at issue even violates the FCPA. Some FCPA plea agreement – most notably the BAE and Siemens plea agreements – are “too soft.”
Both contribute to the facade of FCPA enforcement and, in many cases, federal court judges have tools at their disposal to expose the facade of FCPA enforcement.
It can be done.
Quiz Time Answer
In a prior post (here), I noted that in 2009 there were three FCPA trials – Frederic Bourke, William Jefferson, and Gerald and Patricia Green.
I then posted the question – what is the common thread in these three FCPA enforcement actions – a fact which speaks to the great difficulty individual FCPA defendants generally have in mounting a legal defense?
Before the answer, the background.
Individual FCPA defendants tend to work for companies. Under respondeat superior theories of liability, the company is going to have a very difficult time “distancing” itself from its employees conduct.
Thus, all corporate FCPA enforcement actions tend to be resolved through a non-prosecution agreement, a deferred prosecution agreement, or a plea. Entering into one of these resolution vehicles is often easier, more cost efficient, and more certain than actually mounting a legal defense based on the FCPA’s statutory elements. Further, because these resolution vehicles are subject to little or no judicial scrutiny and are entered into the context of the DOJ possessing certain “carrots” and “sticks” they do not necessarily reflect the triumph of one party’s legal position over the other.
While these resolution vehicles may indeed avert “another Arthur Anderson” here is the problem.
A key feature of each resolution vehicle is a statement along the following lines:
“[company] admits, accepts, and acknowledges responsibility for the conduct set forth in [the statement of facts] and agrees not to make any public statement contradicting [the statement of facts]” (see UTStarcom NPA here);
“[company] admits, accepts and acknowledges that it is responsible for the acts of its officers, employees and agents as set forth in the Statement of Facts […] and that the facts described […] are true and accurate […] and that should the DOJ initiate prosecution that is deferred by this agreement [company] agrees that it will neither contest the admissibility of, nor contradict, in any such proceeding, the Statement of Facts” (see AGA Medical DPA here); or
“Defendant admits,agrees and stipulates that the factual allegations set forth in the Statement of Facts […] are true and correct, that it is responsible for the acts of its former officers and employees described in the Statement of Facts, and that the Statement of Facts accurately reflects CCI’s criminal conduct” (see Control Components Inc. Plea Agreement here).
So what can you do if you are the targeted employee of such a company?
More likely than not, your employee has already terminated you (even before all the facts may be known) to demonstrate to the DOJ that it is implementing “prompt remedial actions” – a factor DOJ will consider when making its charging decision (see here).
Then, because of the resolution vehicle your employer entered into to make the DOJ go away, you are stuck with your employer admitting and accepting responsibility for your misconduct, even though there has been no finding that your conduct was even misconduct.
Against this backdrop, it is no surprise that nearly all FCPA individual defendants plead. What choice do they really have?
So that brings us back to the quiz answer.
Perhaps it was pure coincidence, perhaps not, but the three individual FCPA trials all occurred in the context of there being no parallel NPA, DPA or plea with a corporate entity.