Assistant Attorney General Breuer’s Unconvincing Defense Of DPAs / NPAs
Last week in this speech before the New York City Bar Association, Assistant Attorney General Lanny Breuer defended the DOJ’s frequent use of NPAs and DPAs. See here for video of the speech.
This post first contains excerpts of Breuer’s speech and then comments on it and the issues raised.
Breuer began his speech as follows. “Over the past three-and-a-half years, the Department of Justice has entered into dozens of DPAs, and non-prosecution agreements, or NPAs. I’ve heard people criticize them and I’ve heard people praise them. What I’m here to tell you, is that, along with the other tools we have, DPAs have had a truly transformative effect on particular companies and, more generally, on corporate culture across the globe. Though the U.S. Supreme Court blessed the concept of corporate criminal liability over 100 years ago – in New York Central Railroad Company v. United States – until roughly 20 years ago, we had only the blunt instrument of criminal indictment with which to attack corporate crime. Prosecutors faced a stark choice when they encountered a corporation that had engaged in misconduct – either indict, or walk away. In the 1990s, however, the government began doing something new: agreeing to defer prosecution against the corporation in exchange for an admission of wrongdoing, cooperation with the government’s investigation, including against individual employees, payment of monetary penalties, and concrete steps to improve the company’s behavior. And, over the last decade, DPAs have become a mainstay of white collar criminal law enforcement. The result has been, unequivocally, far greater accountability for corporate wrongdoing – and a sea change in corporate compliance efforts. Companies now know that avoiding the disaster scenario of an indictment does not mean an escape from accountability. They know that they will be answerable even for conduct that in years past would have resulted in a declination. Companies also realize that if they want to avoid pleading guilty, or to convince us to forego bringing a case altogether, they must prove to us that they are serious about compliance. Our prosecutors are sophisticated. They know the difference between a real compliance program and a make-believe one. They know the difference between actual cooperation with a government investigation and make-believe cooperation. And they know the difference between a rogue employee and a rotten corporation.”
Breuer further stated as follows. “One of the reasons why deferred prosecution agreements are such a powerful tool is that, in many ways, a DPA has the same punitive, deterrent, and rehabilitative effect as a guilty plea: when a company enters into a DPA with the government, or an NPA for that matter, it almost always must acknowledge wrongdoing, agree to cooperate with the government’s investigation, pay a fine, agree to improve its compliance program, and agree to face prosecution if it fails to satisfy the terms of the agreement. All of these components of DPAs are critical for accountability. Perhaps most important, whether or not a corporation pleads guilty … or enters into a DPA with the government, the company must virtually always publicly acknowledge its wrongdoing. And it must do so in detail. This often has significant consequences for the corporation, and it prevents companies from explaining away their resolutions by continuing to deny that they did anything wrong.”
Breuer concluded as follows.
“To be clear, the decision of whether to indict a corporation, defer prosecution, or decline altogether is not one that I, or anyone in the Criminal Division, take lightly. We are frequently on the receiving end of presentations from defense counsel, CEOs, and economists who argue that the collateral consequences of an indictment would be devastating for their client. In my conference room, over the years, I have heard sober predictions that a company or bank might fail if we indict, that innocent employees could lose their jobs, that entire industries may be affected, and even that global markets will feel the effects. Sometimes – though, let me stress, not always – these presentations are compelling. In reaching every charging decision, we must take into account the effect of an indictment on innocent employees and shareholders, just as we must take into account the nature of the crimes committed and the pervasiveness of the misconduct. I personally feel that it’s my duty to consider whether individual employees with no responsibility for, or knowledge of, misconduct committed by others in the same company are going to lose their livelihood if we indict the corporation. In large multi-national companies, the jobs of tens of thousands of employees can be at stake. And, in some cases, the health of an industry or the markets are a real factor. Those are the kinds of considerations in white collar crime cases that literally keep me up at night, and which must play a role in responsible enforcement.”
“When the only tool we had to use in cases of corporate misconduct was a criminal indictment, prosecutors sometimes had to use a sledgehammer to crack a nut. More often, they just walked away. In the world we live in now, though, prosecutors have much greater ability to hold companies accountable for misconduct than we used to – and the result has been a transformation in the culture of corporate compliance. In appropriate circumstances, large corporations, such as Siemens AG, must plead guilty for their crimes. In other cases, because the company has gone to extraordinary lengths to turn itself around, for example, or provided the government with extensive cooperation, a deferred prosecution agreement or non-prosecution agreement may be the best resolution. No matter what, individual executives and employees must answer for their conduct. And, perhaps most important of all, companies know that they are now much more likely to face punishment than they were when our choice was limited to indicting or walking away. Overall, this state of affairs is better for companies, better for the government, and better for the American people.”
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Let’s probe the two reasons why the “old” system, in which the DOJ either brought criminal charges or didn’t, seems to trouble Breuer.
First, he stated as follows. “Prosecutors faced a stark choice when they encountered a corporation that had engaged in misconduct – either indict, or walk away.” There is absolutely, positively nothing wrong with this choice. Bringing criminal charges against person (natural or legal) should not be easy. It should be difficult. Our founding fathers recognized this as a necessary bulwark against an all powerful government. There is no legal or policy reason warranting a change from such a fundamental and long-lasting principle.
Second, Breuer, without specifically mentioning the prosecution, carries forward the Arthur Anderson effect that has guided DOJ policy for over a decade ((i.e. the notion that indicting a company will result in a corporate death sentence). Breuer stated as follows. “I personally feel that it’s my duty to consider whether individual employees with no responsibility for, or knowledge of, misconduct committed by others in the same company are going to lose their livelihood if we indict the corporation. In large multi-national companies, the jobs of tens of thousands of employees can be at stake.” However, as highlighted in this recent guest post, Gabriel Markoff recently debunked the Arthur Anderson effect as factually false.
Breuer is clearly troubled, with good reason, by traditional notions of corporate criminal liability. However, rather than seek substantive solutions to this issue, either on a statute by statute basis (such as a compliance defense to the FCPA – see here for “Revisiting a Foreign Corrupt Practices Act Compliance Defense”) or more comprehensively, Breuer instead defends an alternate reality that is equally problematic.
Use of NPAs and DPAs to resolve alleged corporate criminal liability presents 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. On this issue, Breuer states in his speech that “when a company enters into a DPA with the government, or an NPA for that matter, it almost always must acknowledge wrongdoing.” This is a false statement. While the standard NPA and DPA templates do contain a section concerning acceptance of responsibility, the acceptance is as to conduct and alleged facts, not actual legal charges.
The second is that such vehicles, because of the “carrots” and “sticks’ relevant to resolving a DOJ enforcement action (for more on this issue, see “The Facade of FCPA Enforcement – here), 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 law. Breuer essentially admitted as such in his speech when he stated as follows. “[Companies] know that they will be answerable even for conduct that in years past would have resulted in a declination.”
Thus, use of NPAs or DPAs allow “under-prosecution” of egregious instance of corporate conduct while at the same time facilitate the “over-prosecution” of business conduct.
The alternate reality that Breuer defends is defined by the absence or practical absence of judicial scrutiny of many DOJ enforcement theories. Thus, by supporting use of DPAs and NPAs, Breuer is advocating an enforcement climate that insulates DOJ’s enforcement theories from judicial scrutiny in all but the rarest of circumstances. It is not hard to see why the DOJ favors such a system. Such a system makes its job easier and places the DOJ in the role of prosecutor, judge and jury all at the same time. Former Attorney General Alberto Gonzales rightly observed as follows. “In an ironic twist, the more that American companies elect to settle [through DPAs and NPAs] and not force the DOJ to defend its aggressive interpretation of the [FCPA], the more aggressive DOJ has become in its interpretation of the law and its prosecution decisions.” (See here for the prior post).
In short, Breuer’s defense of DPAs and NPAs was unconvincing. The Assistant Attorney General is clearly troubled by traditional notions of corporate criminal liability. However, rather than seek substantive solutions to this issue, Breuer instead defended an alternate reality that is equally problematic. This alternative reality benefits the DOJ, benefits the private bar, but harms other stakeholders and undermines the rule of the law and justice.
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In his speech, Breuer also supported the premise underlying an FCPA compliance defense when he stated as follows. “Companies also realize that if they want … to convince us to forego bringing a case altogether, they must prove to us that they are serious about compliance.” In my “Revisiting a Foreign Corrupt Practices Act” article (here), I demonstrate that despite the DOJ’s institutional opposition to an FCPA compliance defense, the DOJ already recognizes a de facto FCPA compliance defense albeit in opaque, inconsistent, and unpredictable ways. Breuer’s statement once again demonstrates the truth of this position. However, unpredictable de facto defenses have no place in a justice system based on the rule of law. Thus, an FCPA compliance defense accomplishes, among other things, the policy goal of removing factors the DOJ already considers in assessing corporate criminal liability from the opaque, inconsistent, and unpredictable world of DOJ decision making towards a more transparent, consistent and predictable model.
Arthur Anderson And The Myth Of The Corporate Death Penalty
I have long wondered (see here for a prior post) about the “shelf life” of the Arthur Anderson prosecution. In other words, how long will the 2002 prosecution and related consequences (soon after it was convicted of a criminal charge, Arthur Anderson ceased being a viable business even though the Supreme Court overturned the verdict) guide DOJ corporate charging decisions?
Against this backdrop, I was happy to be contacted recently by Gabriel Markoff, a recent graduate of the University of Texas School of Law and current law clerk at the Southern District of Texas. Today’s post is from Markoff in which he describes his research findings and discusses a working draft of his article “Arthur Anderson and the Myth of the Corporate Death Penalty: Corporate Criminal Convictions in the Twenty-First Century” see here to download.
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Arthur Andersen and the Myth of the Corporate Death Penalty
The conventional wisdom states that prosecuting even the largest and most established of corporations can subject them to terrible collateral consequences that risk putting them out of business, thereby causing massive social and economic harm. Under this viewpoint, which has come to dominate the literature following the demise of Arthur Andersen after that firm’s conviction in the wake of the Enron scandal, even a criminal indictment can be a “corporate death penalty.” In fact, no less of a legal luminary than Professor and former SEC Commissioner Joseph Grundfest has stated his belief that “prosecutors can bring down or cripple many of America’s leading corporations simply by indicting them on sufficiently serious charges. No trial is necessary.” Additionally, the Department of Justice (“DOJ”) has implicitly accepted this view by declining to prosecute many large companies in favor of using deferred and non-prosecution agreements (collectively, “DPAs”). Yet there has never been any empirical evidence to support the existence of the “Andersen Effect” and the much-hyped corporate death penalty, for no one has empirically studied what happens to companies after conviction. In my Article, I do just that, and I find that—much in opposition to the warnings of extreme collateral consequences that are continually repeated in both the popular and academic literature—no publicly traded company went out of business as the result of a federal criminal conviction in the years 2001 to 2010.
I began my study by deriving a list of publicly traded companies convicted in the years 2001 to 2010 from the organizational conviction database compiled by Professor Brandon Garrett and generously made available online at the University of Virginia Law School’s library website. Public companies were defined as those that had made SEC filings and were listed on a major domestic or foreign stock exchange at the time of conviction. Companies were counted as convicted if they had been found guilty of a federal felony or misdemeanor at trial or by guilty plea. Companies that entered into DPAs were not counted as convicted. Once I derived my list, I used Google searches of business news articles, supplemented by examinations of SEC filings where necessary, to determine what had happened to the companies after they were convicted. Next, for each company that was not still in existence under the same name on the same exchange, I determined whether it had merged with or been acquired by another company under favorable conditions, or if instead it had failed. I counted a company as having failed if it went defunct, entered insolvency proceedings, or was forced into a merger or acquisition under unfavorable conditions. For each company that failed, I performed additional searches to determine whether the conviction was causally related to the failure. Finally, when the relevant plea information was available, I noted each instance where a company agreed to implement a compliance program, corporate monitor, or cooperation regime as part of its plea agreement.
To briefly summarize my most important results, I found 51 convictions of public companies between 2001 and 2010, a number that roughly tracks the U.S. Sentencing Commission’s report that 63 “openly traded” companies were convicted between 2000 to 2009. All the convictions were obtained by plea agreement, and indictments were only filed in two cases. For 36 of the 51 convictions, the convicted companies are still active on their respective stock exchanges under the same tickers. An additional 11 companies merged with another company after their conviction under favorable conditions that indicated that their health was not notably harmed by the conviction. Finally, four companies suffered business failures at some point in time following their convictions. However, not a single one of the companies failed under circumstances that could reasonable be linked to their convictions, and, in fact, only one company—Japan Airlines International—failed within three years of the date of conviction. Finally, compliance programs were put in place by plea agreement in 13 of the convictions, corporate monitors in four, and cooperation agreements in 16.
Reasonable caveats such as the possibility of selective prosecution aside, the fact remains that, if the threat of collateral consequences is as terribly dire as it is made out to be, at least some of the public companies convicted in the years 2001 to 2010 should have gone out of business as a result of their convictions. But they did not. When that fact is combined with the corresponding reality that plea agreements can be used to obtain the implementation of compliance programs and monitors just as DPAs can, the two main justifications usually cited for preferring DPAs over convictions appear groundless. That is not to say that DPAs should never be used. It is certainly possible to imagine some unique situation where a DPA would be socially and economically preferable to a prosecution and resulting conviction. But the nearly indiscriminate use of DPAs with large corporations—in contrast to the DOJ’s continued tendency to prosecute and convict small companies—that predominates today is not supportable. The stronger deterrent value of conviction should make prosecution with the goal of obtaining guilty verdicts or plea agreements the DOJ’s default method of enforcing the federal criminal law against large corporations.
It may be that the debate over the proper extent of corporate criminal liability and the use of DPAs is bound to be politically and ideologically charged. But the least that can be done is for policymakers to make decisions based on the empirical evidence, rather than on the untested dogma that has dominated the debate over the past decade. It is my hope that the results I present in my Article can make a small contribution to moving the literature in that more pragmatic—and, ultimately, more sustainable—direction.
I am happy to answer any questions that any readers may have, and I may be reached here. Thank you to Professor Koehler for allowing me this opportunity to discuss my Article.
Noteworthy Supreme Court Case, But Will It Even Matter?
In Southern Union Co. v. U.S., the Supreme Court, in a decision authored by Justice Sotomayor, recently held that the rule of Apprendi (that the Sixth Amendment reserves to juries the determination of any fact, other than the fact of a prior conviction, that increases a criminal defendant’s maximum potential sentence) applies to the imposition of criminal fines.
In so holding, the court saw no principled basis under Apprendi for treating criminal fines differently because Apprendi’s “core concern” is to reserve to the jury “the determination of facts that warrant punishment for a specific statutory offense.” The court observed that criminal fines are frequently imposed “especially upon organizational defendants who cannot be imprisoned” and “the amount of a fine, like the maximum term of imprisonment or eligibility for the death penalty, is often calculated by reference to particular facts.” Thus, the Court reasoned, “requiring juries to find beyond a reasonable doubt facts that determine the fine’s maximum amount is necessary to implement Apprendi’s ‘animating principle’ – the ‘preservation of the jury’s historic role as a bulwark between the State and the accused at the trial for an alleged offense.”
The government objected to Apprendi being extended to criminal fines because fines are “less onerous than incarceration and the death sentence.” However, Justice Sotomayor noted that “the federal twice-the-gain-or-loss statute, in particular, see 18 U. S. C. §3571(d), has been used to obtain substantial judgments against organizational defendants” and she specifically cited, among other cases, the approximate $450 million fine against Siemens for violations of the FCPA.
What does the Southern Union decision mean in terms of FCPA criminal fine amounts?
For starters dig deep into most FCPA fine calculations and you will see reference to “facts” which increase the fine amount under the Sentencing Guidelines. For instance, in the recent Data Systems & Solutions DPA (here) the offense level was increased because of “multiple bribes” and because the “value of the benefit received was more than $2.5 million.” In addition, the company’s culpability score was increased because “an individual within high-level personnel of the organization participated in, condoned, or was willfully ignorant of the offense.”
Under the ruling in Southern Union any fact (such as those mentioned above in connection with Data Systems & Solutions) that substantially increases a criminal defendant’s fine amount must be provable to a jury beyond a reasonable doubt.
This is all great in theory, but will it even matter? It is rare for anything connected to a corporate FCPA enforcement action to be provable to a jury beyond a reasonable doubt. Indeed, in the FCPA’s 35 year history, only two corporate defendants are believed to have put the DOJ to its high burden of proof at trial. (The DOJ’s ultimate record in those cases is 0-2).
Professor Ellen Podgor over at the White Collar Crime Prof Blog asked here as follows. “The real question here is whether this decision will matter. As noted by the dissent, 97% of federal convictions result from guilty plea. But what went unnoticed is that very few companies – the object of many fines – go to trial. Often these cases are resolved with non-prosecution and deferred prosecution agreements. So will it really make any difference that juries can determine these fines, when the corporation in a post Arthur Andersen LLP world will seldom be going to trial.”
Yet, Southern Union may indeed have an impact in the negotiation stage of resolving corporate criminal enforcement actions, including in the FCPA context.
This Vinson & Elkins publication states as follows. “It is frequently the case that the government — with significant bargaining power over corporate entities seeking to avoid criminal convictions — takes overly aggressive positions concerning the amount of gain or loss that supposedly resulted from activity under investigation. Since gain or loss can be difficult to prove specifically, the new decision could alter the nature of negotiations with the U.S. Department of Justice in both contested matters and negotiated resolutions.”
This Perkins Coie update states as follows. “Southern Union has the potential to become a significant authority for any defendant facing government enforcement actions. Although Southern Union arose in the context of a criminal prosecution for violation of [the Resource Conservation and Recovery Act], its holding will apply to all criminal actions arising in a variety of contexts with heavy governmental regulation, including other environmental statutes, antitrust, healthcare, food and drug, labor, securities, and other white collar offenses.”
Foley & Lardner noted in this piece as follows. “The Southern Union case will no doubt add another level to the plea negotiation process by forcing the government, when seeking stiff criminal monetary penalties against corporate defendants, to establish the full amount of loss or financial wrongdoing by a defendant in the early part of a prosecution. This is typically a difficult and time-consuming undertaking, and the Court’s decision will likely restrict or hinder the leverage of prosecutors to obtain higher criminal penalties, at least in the plea bargain process.”
Whatever its ultimate impact, Southern Union’s holding should be included in the talking points memo of company counsel when resolving corporate enforcement actions with the DOJ, including in the FCPA context.
Richard Shine’s 1982 Lecture – “Enforcement Of The FCPA By The Department Of Justice”
Before Charles Duross, Mark Mendelsohn and others headed the DOJ’s FCPA unit, there was Richard Shine. The year was 1982 and Shine was Chief, Multinational Fraud Branch, Criminal Division, U.S. Department of Justice (the name given to the DOJ’s then de facto FCPA Unit). Shine gave a lecture titled “Enforcement of the FCPA by the Department of Justice” at Syracuse University that was published by the Syracuse Journal of International Law & Commerce – see 9 Syr. J. Int’l L. & Com. 283 (1982).
Three things stand out from Shine’s lecture.
First, the lecture is populated with references to the FCPA’s legislative history. On one level, this is not surprising given that in 1982 the DOJ was likely still finding its way as to the FCPA and its enforcement and it is logical that the legislative history which evidences Congressional intent would be a guide.
Yet the passage of time should make the FCPA’s legislative history and the Congressional intent it represents no less relevant today.
Second, under the heading “Enforcement Policies of the Justice Department,” Shine’s lecture evidences DOJ’s recognition and understanding of the primary foreign policy motivation Congress had in enacting the FCPA and how FCPA inquiries focused on the conduct of foreign governments and thus presented national security issues. Shine stated as follows. “Because of the obvious sensitivity both from a national security point of view and a foreign policy point of view, the Department has administered the enforcement of this statute quite differently than the enforcement of most of the provisions of Title 18 of the United States Code. Administration of the enforcement effort has been highly centralized. Generally, FCPA cases, by the terms of the United States Attorney’s Manual, are not investigated and prosecuted by the ninety-four United States Attorney’s Offices around the country. They are primarily investigated and prosecuted by the Multinational Fraud Branch in the Criminal Division at the Justice Department. Among other reasons, that is being done to make sure that there is a nationally uniform enforcement policy. Moreover, virtually any step that is taken in the investigative process, even more than in the post-indictment process, has potentially significant foreign policy and national security implications.” In speaking of “Investigative Procedures,” Shine stated as follows. “When an informant or an insider tells us that there is a bribe in process or that a bribe of a foreign government official has already occurred, we do not immediately notify the foreign government. As you can well imagine, if we started to communicate to a foreign government every unsupported and uncorroborated allegation of bribery of its officials, there would be worldwide foreign relations turmoil …”. Only after we have concluded, as a result of our initial investigation, that indeed there is a significant reason to believe a bribe was paid or offered to a foreign government official, do we notify the foreign government.”
With numerous FCPA enforcement actions in this new era based on alleged payments to alleged state-owned or state-controlled enterprises with many attributes of private commercial enterprises and with numerous FCPA enforcement actions also based on foreign licenses, customs, and certification issues, can it truly be said that in this new era most FCPA enforcement actions present “significant foreign policy and national security implications.” If the answer is no, what does it say about these numerous enforcement actions?
Third, Shine discusses the identity of the foreign official allegedly bribed. Shine stated as follows. “In our public pleadings, whether we are bringing an indictment or filing a civil complaint, generally we will not agree to withhold the identity of the foreign country or of the foreign official.”
As highlighted in this recent post concerning the SEC’s response to the Jackson and Ruehlen motion to dismiss, the SEC argues that “the name, title or exact position of the official need not be pleaded or proved” and the DOJ has likewise argued the same in other actions.
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I first learned of Shine’s lecture and published article this past March when Duross participated in “The FCPA at Thirty-Five and Its Impact on Global Business” symposium at The Ohio State University Moritz College of Law (see here for the prior post). Duross referenced the article in stating that the DOJ’s FCPA enforcement practices and policies have been consistent over time and that even though the FCPA is approaching its 35th year, not much has changed in terms of DOJ practices and policies. To be sure, Duross is correct in part. Yet, as the above excerpts from Shine’s 1982 lecture demonstrate, when viewed in the context of the FCPA’s new era, there are some things that have changed.
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.