What Percentange of DOJ FCPA Losses Is Acceptable?
To be sure, the DOJ – when put to its burden of proof in FCPA enforcement actions – has had success. Although an appeal is pending, the jury convictions of Joel Esquenazi and Carlos Rodriguez in 2011 come to mind (see here for the prior post).
Yet recent events (July 2011 – Judge Richard Leon declared a mistrial in the first Africa Sting case as to four defendants (after earlier tossing several substantive counts against certain defendants; October 2011, a federal court in Seattle dismisses, at the urging of the DOJ, an FCPA enforcement action against Si Chan Wooh “in the interest of justice and the efficient use of government resources” (those are the DOJ’s words) after he previously pleaded guilty; November 2011, Judge Howard Matz vacated the FCPA convictions of Lindsey Manufacturing and its executives Keith Lindsey and Steve Lee and dismissed the indictment after finding numerous instance of prosecutorial misconduct; December 2011, in the second Africa Sting case, Judge Richard Leon, at the close of the DOJ’s case, dismissed a conspiracy charge against all defendants – because this was the only charge Stephen Giordanella faced, he was exonerated; January 2012, Judge Lynn Hughes, at the close of DOJ’s case, dismissed FCPA charges against John Joseph O’Shea; January 30, 2012 in the Africa Sting case, Patrick Caldwll and John Godsey were found not guilty by the jury and on January 31, 2012 Judge Leon declared mistrial as to the remaining three defendants) raise the following question: what percentage of DOJ FCPA losses is acceptable?
After all, criminal charges damage lives, ruin careers and ostracize individuals from their community. While it is unrealistic (and probably not desirable from a policy perspective) to expect the DOJ to win 100% of its FCPA cases when put to its burden of proof, given the referenced dynamics, I think it is realistic (and desirable from a policy perspective) to expect the DOJ to win a very high percentage of its FCPA cases when put to its burden of proof.
I posed the question – what percentage of DOJ FCPA losses is acceptable – to two individuals whose opinion and analysis on white-collar crime issues I highly respect. Set forth below are their answers.
Scott Fredericksen (here) is the managing partner of the Washington, D.C. office of Foley & Lardner LLP. He is a member of the firm’s Government Enforcement, Compliance & White Collar Defense and Securities, Enforcement & Litigation Practices. Previously, Fredericksen had several stints at the DOJ including special counsel to the U.S. Attorney and Associate Independent Counsel in the Office of Independent Counsel. Below is Fredericksen’s response to the question: what percentage of DOJ FCPA losses is acceptable?
“By any measure the recent record of the DOJ in trying FCPA cases, well below the approximate 90% plus overall conviction rate the DOJ usually attains, is not acceptable. The recent performance in FCPA trials of individuals and small companies seems to represent a wrong turn by the DOJ, and it may stem from some fundamental misconceptions by the DOJ about the best approach to charging individuals with FCPA violations.
First, the undeniable success the DOJ has had with companies self-reporting and settling their FCPA cases with the DOJ is the result of an entirely different analysis by company counsel compared to counsel for individuals who face the loss of liberty and the prospect of real prison time. No public company in approximately twenty years has challenged the DOJ at a trial for a FCPA violation and that probably will not change. Companies usually face a more difficult task in defending themselves at trial that is not the case with individuals. Even private companies face the burden that it only takes one of their employees who violate the FCPA to convict the company.
But when the DOJ insists on significant prison sentences in its FCPA charging decisions for individual defendants then experienced white collar lawyers will try those cases if there is a realistic opportunity for acquittal-exactly what has happened recently. The reason is that FCPA cases are vulnerable for a few reasons, including ambiguous definitions that invite challenge, and the fact that often times the FCPA is not perceived by juries or the average person as an “intuitive” crime. It is regulatory in nature and, rightly or wrongly, juries and the ordinary person do not necessarily perceive it as as a crime “worthy” of conviction and prison unless the evidence of a violation is strong and clear.
And the enforcement strategy must be fair. Using aggressive enforcement tactics such as the “Africa Sting” carries significant risk for the DOJ and for good reason. It often runs counter to our sense of justice and juries are the first to see that. Yet, the DOJ has had considerable success prosecuting other sting cases in international prosecutions where there was strong evidence of an intent by the defendant to violate the criminal statute at issue. The record of 0-10 in the Africa Sting case here is more likely the result of a poorly designed “sting.”
The recent acquittals and hung verdicts was also remarkable for the earlier Rule 29 dismissal of the conspiracy count against the defendants by Judge Leon. That is an unusual occurrence and speaks volumes about the lack of good evidence in the case. A conspiracy count is usually the one count that survives and represents the framework for the government’s case. The lesson to be learned is that it takes experienced prosecutors to make the right decisions in charging FCPA cases, and the DOJ must always stand firm in its review of sting cases to insure that there is no uncertainty or unfairness in its design.
Finally, Judge Matz’ decision to vacate the FCPA convictions in the Lindsey Manufacturing case for prosecutorial misconduct is an unfortunate reflection on the DOJ standards and training more than it is a comment on the DOJ enforcement of the FCPA. Prosecutorial misconduct has to be dealt with at the DOJ level with real sanctions for prosecutors who intentionally violate fundamental rules, including losing the privilege of representing the Department of Justice.” [For a prior post on this issue, see here].
Peter Henning (here) is a Professor of Law at Wayne State University School of Law. Previously he was an enforcement attorney in the DOJ’s Fraud Section (as well as at the SEC) and, among other things, Professor Henning writes the always informative White Collar Crime Watch (here) at the New York Times. Below is Professor Henning’s response to the question: what percentage of DOJ FCPA losses is acceptable?
“The recent acquittals in the Gabon FCPA sting case, coupled with a hung jury for other defendants, and dismissal of charges for prosecutorial misconduct in another foreign bribery prosecution in Southern California, raise an interesting question about the Justice Department’s focus on individuals as defendants. While it is usually easy to get a company to agree to a guilty plea, or to enter a deferred prosecution agreement, individuals are more likely to take a case to trial. So how many losses are too many?
The recent post (here) on the FCPA Professor Blog by the jury foreman in the Gabon sting case highlights how difficult it is to pursue these cases with a very complex law that requires proof of different intents – like knowingly and corruptly – based on circumstantial evidence against people who often have an unblemished record. Multi-defendant cases are not uncommon in the drug area, but those are not nearly as difficult because the underlying conduct is clearly illegal, while the FCPA involves business transactions that are often quite ordinary.
I do not think there is a number that can be summoned to say when there are too many acquittals, especially because the result cannot be known in advance. Some defendants have entered guilty pleas in cases that have resulted in acquittals of others, and the evidence in the Gabon sting case shows that there was a basis to pursue the charges. But perhaps the Justice Department will now recognize that FCPA cases present distinct challenges, especially when multiple defendants are involved who will often have different levels of culpability. It is not like the drug gang in which everyone is involved in illegal conduct, so ignoring the shades of gray in an FCPA case has been shown to be quite problematic. Treating everyone as if they are the same does not work because, as the foreman’s report makes clear, juries are careful in assessing the evidence, and will not take a “birds of a feather flock together” approach, as can happen in other types of prosecutions.”
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Speaking of the guest post (here) earlier this week from the Africa Sting jury foreman, readers may also be interested in published comments to the post. Also, as has been reported elsewhere (see here for instance), since the post ran, the DOJ, during a status conference with Judge Leon, requested a two week continuance for the next trial so that it can evaluate the remaining cases in light of recent events.
Aon – Was It “Close To The Line”?
“The [DOJ] focuses its enforcement actions where the allegations of criminal conduct are clear, egregious and fall squarely within the FCPA.”
“… No one has raised a single example of a prosecution or enforcement action which was remotely close to the line.”
“The DOJ is not prosecuting companies where the entity engaged in something less than willful criminal conduct.”
The above statements were made by Greg Andres (DOJ) at the June 2011 House FCPA hearing. See here for the prior post on the hearing. As discussed in this prior post, in certain respects Andres has been the DOJ’s voice on FCPA enforcement and reform issues (he also testified on behalf of the DOJ at the November 2010 Senate FCPA Hearing). Yesterday, Peter Lattman of the New York Times reported here that Andres is set to join Davis Polk & Wardwell.
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In December 2011, Aon Corporation resolved an FCPA enforcement action (see here for the prior post). The DOJ component of the enforcement action involved a $1.8 million fine via a non-prosecution agreement. The NPA (here) stated that the DOJ would not criminally prosecute Aon Corporation or its subsidiaries for any crimes “related to Aon’s knowing violation of the anti-bribery, books and records, and internal control provisions of the FCPA … arising from and related to the making of improper payments to government officials in Costa Rica in order to assist Aon in obtaining and retaining business …”.
The conduct at issue involved Aon Limited (a subsidiary of Aon Corporation based in and organized under the laws of the U.K.) and focused on Costa Rica. There is no fact, suggestion or implication in the NPA that Aon knew of, participated in, or authorized the conduct at issue. The only factual mention of Aon in the NPA is that Aon Limited “reported financially through a series of intermediary entities into its U.S.-based issuer parent, Aon Corporation” and elsewhere that “the books and records of Aon Limited were consolidated into those of Aon Corporation.”
Aon Limited’s conduct focused on its relationship with Costa Rica’s state-owned insurance company (INS) and a training and education fund (established by a company Aon Limited acquired in 1997 from its brokerage commissions) to sponsor training and education trips for INS officials. Aon Limited also contributed to the fund by allocating a portion of its brokerage commissions to the fund. According to the NPA, Aon Limited also managed a second training account that was funded by premiums paid by INS.
The NPA states that Aon Limited used these funds to pay for third-party services during education and training trips and that “these services often included travel related expenses, such as airfare and hotel accommodations, as well as conference fees, meals, and other related expenses for INS officials and their relatives.”
The NPA states that many of these trips included a business-related component, but that “a significant portion of the funds expended on the trips were used for the personal benefit of the officials and their wives.” The NPA further states that a “substantial number of the trips” were in connection with conferences and seminars, but in tourist destinations.
That, in terms of a general summary, is what the DOJ’s FCPA enforcement action against Aon Corporation was all about.
Was it close to the line?
During the June 2011 House FCPA Hearing, Representative John Conyers (D-MI) asked for examples of overcriminalization of the FCPA.” A summer reading list for Representative Conyers was discussed here and the Aon Corporation enforcement action ought to be included as well.
DOJ Enforcement Of The FCPA – Year In Review
Yesterday, I highlighted various aspects of the SEC’s enforcement of the FCPA in 2011.
In this post, I highlight certain facts and figures from the DOJ’s FCPA enforcement program in 2011.
In 2011, the DOJ brought 11 corporate FCPA enforcement actions (this includes the enforcement action against Cinergy Telecommunications that remains pending).
[In 2010, the DOJ brought 16 corporate FCPA enforcement actions (in addition to the BAE enforcement action that was related to the FCPA, but did not involve FCPA charges and the Lindsey Manufacturing enforcement action that began in 2010 and resulted in the convictions being vacated and the indictment dismissed in 2011 due to prosecutorial misconduct – see here)]
In the 11 corporate DOJ FCPA enforcement actions from 2011, the DOJ collected approximately $355 million in criminal fines. Including the $149 million forfeiture in the Jeffrey Tesler individual enforcement action which resulted in a plea agreement in 2011 (see here), the DOJ’s FCPA enforcement program in 2011 took in approximately $504 million. Approximately $432 million (86%) of the $504 million was in three enforcement actions (JGC Corp., Magyar Telekom / Deutsche Telekom, and Tesler). Approximately $458 million of the $504 million (91%) collected by the DOJ was in enforcement actions against foreign companies (JGC Corp., Magyar Telekom / Deutsche Telekom, Tenaris, and Bridgestone) or foreign nationals (Tesler).
[In 2010, the DOJ collected approximately $870 million in criminal fines in the 16 corporate FCPA enforcement actions ($1.27 billion by including the $400 million BAE enforcement action)].
Tack on the SEC’s collections in 2011 corporate FCPA enforcement actions of approximately $148 million and the overall corporate FCPA fine, penalty and disgorgement amount from 2011 is approximately $503 million – approximately $652 million including Tesler.
[In 2010, corporate fines, penalties and disgorgement in DOJ/SEC enforcement actions was approximately $1.8 billion (including the BAE enforcement action)]
DOJ FCPA enforcement in 2011 was both large (JGC Corp. – $219 million) and small (Comverse Technologies – $1.2 million; Aon – $1.8 million). Three FCPA enforcement actions in 2011 were DOJ only (JGC Corp., Bridgestone, and Cinergy Telecommunications).
In all six corporate FCPA enforcement actions where an analysis was possible, the DOJ agreed to a criminal fine below the minimum range suggested by the sentencing guidelines. In these six actions, the average was approximately 28% below the minimum guidelines range and the distribution range was 55% below the minimum guidelines range (Bridgestone) and 18% below the minimum guidelines range (Magyar Telekom). There were no corporate FCPA enforcement action in 2011 in which the company paid a criminal fine within the guidelines range.
[Note – why are only 6 of the 11 enforcement actions included in the above analysis? 4 corporate enforcement actions involved an NPA and the DOJ does not set forth a guidelines range in the agreement or related documents and 1 enforcement action (Cinergy Telecommunications) remains pending].
[In 2010, the average was approximately 25% below the minimum guidelines range and the distribution range was 55% below the minimum guidelines range (Pride International) and 5% below the minimum guidelines range (Panalpina). The only two corporate FCPA enforcement actions from 2010 where the company paid a criminal fine within the guidelines range were Alliance One (the company voluntarily disclosed and receive a non-prosecution agreement) and Alcatel-Lucent.]
How many corporate FCPA enforcement actions involved related individual prosecutions of company employees by the DOJ (recognizing that such prosecutions may be forthcoming in the future)? Of the 11 corporate DOJ enforcement actions or indictments, 8 of the 11 enforcement actions (73%) have not involved thus far any DOJ prosecutions of company employees. 2011 corporate FCPA enforcement actions that have resulted in criminal charges against company employees are Armor Holdings (Richard Bistrong), Bridgestone (Misao Hioki) and Cinergy Telecommunications (Washington Cruz and Amadeus Richers).
[In 2010, 12 of the 17 corporate FCPA enforcement actions (70%) did not involve, and have not yet involved, DOJ prosecutions of company employees.]
Including Washington Cruz and Amadeus Richers (a German citizen) mentioned above, the DOJ brought 10 individual FCPA enforcement actions in 2011. In December, in connection with the 2008 Siemens enforcement action, the DOJ brought criminal charges against: Uriel Sharef, Herbert Steffen, Andres Truppel, Ulrich Bock, Stephan Signer, Eberhard Reichert, Carlos Sergi and Miguel Czysch. All of these individuals are foreign nationals. Thus, 90% of the DOJ’s individual enforcement actions in 2011 were against foreign nationals. As noted in yesterday’s SEC year in review post, all 12 of the individuals the SEC charged with FCPA violations in 2011 were foreign nationals (in a few cases, dual citizens of a foreign country and the U.S.).
What about non-prosecution and deferred prosecutions vs. old fashioned law enforcement (i.e., if a company committed a crime the DOJ charged it and if the company did not commit a crime the DOJ did not charge it)? In 2011, 9 of the 11 corporate FCPA enforcement actions (82%) were resolved via non-prosecution agreements (Comverse Technologies, Tenaris, Armor Holdings, and Aon) or deferred prosecution agreements (Maxwell Technologies, Tyson Foods, JGC Corp., and Johnson & Johnson). The Magyar Telekom / Deutsche Telekom enforcement action involved both a non-prosecution agreement (Deutsche Telekom) and a deferred prosecution agreement (Magyar Telekom). The two corporate FCPA enforcement from 2011 that involved an indictment or plea to criminal charges were Bridgestone and Cinergy Telecommunications.
[In 2010, 15 of the 16 (94%) corporate FCPA enforcement actions involved NPAs (4) or DPAs (11)].
As Gibson Dunn highlighted in this recent report, FCPA enforcement actions comprised approximately 40% of the DOJ’s 26 NPAs or DPAs in 2011. [In 2010, FCPA enforcement actions comprised approximately 50% of all DOJ NPA or DPA agreements]. Among the criticisms noted in the Gibson Dunn report of NPAs / DPAs is 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.”
In yesterday’s SEC year in review post, I noted that 90% of the $148 million the SEC collected in 2011 corporate FCPA enforcement actions was the result of volunatary disclosures or other instances of public disclosure – not original investigations by the SEC.
What does this number look like for DOJ FCPA enforcement actions in 2011? Of the $504 million in criminal fines collected by the DOJ in FCPA enforcement actions, $502 million (99%) appear to be result of voluntary disclosures or other instances of public disclosure such as previous foreign law enforcement investigations. The only exception would appear to be Aon ($1.8 million).
[In 2010, 97% of DOJ criminal fines would appear to fit this description].
This remainder of this post provides an overview of corporate DOJ FCPA enforcement in 2011.
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Maxwell Technologies (Jan. 31st)
See here for the prior post.
Charges: FCPA anti-bribery violations and knowingly violating the FCPA’s books and records provisions.
Resolution Vehicle: Criminal information resolved through a DPA (three year term).
Guidelines Range: $10.5 million to $21 million.
Penalty: $8 million (25% below the minimum amount suggested by the guidelines).
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
Tyson Foods (Feb. 10th)
See here for the prior post.
Charges: Conspiracy to violate the FCPA’s anti-bribery and books and records provisions; FCPA anti-bribery and books and records violations.
Resolution Vehicle: Criminal information resolved through a DPA (two year term).
Guidelines Range: $5.04 to $10.08 million.
Penalty: $4 million (approximately 20% below the minimum amount suggested by the guidelines)
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
JGC of Japan (April 6th)
See here for the prior post.
Charges: Conspiracy to violate the FCPA’s anti-bribery provisions and aiding and abetting FCPA anti-bribery violations.
Resolution Vehicle: Criminal charges resolved through a deferred-prosecution agreement – term two years.
Guidelines Range: $312.6 million to $625.2 million
Penalty: $218.8 million (30% below the minimum amount suggested by the guidelines).
Disclosure: Yes, based on a previous foreign law enforcement investigation.
Monitor: Yes.
Individuals Charged: No.
Comverse Technology (April 7th)
See here for the prior post.
Charges: None – although the non-prosecution agreement refers to a “knowing violation of the books and records provisions of the FCPA.”
Resolution Vehicle: non-prosecution agreement – term two years.
Guidelines Range: Not set forth in the NPA.
Penalty: $1.2 million.
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
Johnson & Johnson (April 8th)
See here for the prior post.
Charges: FCPA anti-bribery violations and conspiracy to violate the FCPA’s anti-bribery and books and record provisions.
Resolution Vehicle: Criminal information resolved through a deferred prosecution agreement (three year term).
Guidelines Range: $28.5 million to $57 million.
Penalty: $21.4 million (25% below the minimum amount suggested by the guidelines).
Disclosure: Yes, voluntary disclosure (however Iraq Oil for Food conduct was not voluntarily disclosed).
Monitor: No.
Individuals Charged: None by U.S. authorities (Robert Dougall (a former DePuy executive) previously plead guilty to a U.K. SFO enforcement action – see here).
Tenaris (May 17th)
See here for the prior post.
Charges: None, although the non-prosecution agreement refers to “knowing violations of the FCPA’s anti-bribery and books and records provisions.”
Resolution Vehicle: NPA – term two years.
Guidelines Range: Not set forth in the NPA.
Penalty: $3.5 million.
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
Cinergy Telecommunications (July 12th)
See here for the prior post.
Charges: conspiracy to violate the FCPA and to commit wire fraud; FCPA anti-bribery violations; conspiracy to commit money laundering; and money laundering.
Resolution Vehicle: N/A
Guidelines Range: N/A
Disclosure: No.
Monitor: N/A
Individuals Charged: Yes.
Armor Holdings (July 13th)
See here for the prior post.
Charges: None
Resolution Vehicle: Non-Prosecution Agreement – term two years.
Guidelines Range: Not set forth in the NPA.
Penalty: $10.3 million
Disclosure: Yes, voluntary disclosure.
Monitor: No (although Armor Holdings is now part of BAE and falls under the monitorship in the BAE FCPA-related enforcement action).
Individuals Charged: Yes.
Bridgestone (Sept. 15th)
See here for the prior post.
Charges: Conspiracy to violate the FCPA’s anti-bribery provisions (and conspiracy to violate the Sherman Act).
Resolution Vehicle: Criminal information resolved via a plea agreement.
Guidelines Range: For the FCPA conduct, the guidelines range (see here) was approximately $40 million – $80 million.
Penalty: $28 million (it would appear that approximately 80% of this figure – approximately $22 million was based on the FCPA conduct)
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: Yes.
Aon Corp. (Dec. 20th)
See here for the prior post.
Charges: N/A although the NPA refers to Aon’s knowing violation of the anti-bribery, books and records, and internal controls provisions.
Resolution Vehicle: NPA – term two years.
Guidelines Range: Not set forth in the NPA.
Penalty: $1.8 million.
Disclosure: Aon’s SEC filings stated that ”following inquiries from regulators, the Company commenced an internal review of its compliance with certain U.S. and non-U.S. anti-corruption laws, including the U.S. Foreign Corrupt Practices Act.”
Monitor: No.
Individuals Charged: No.
Magyar Telekom / Deutsche Telekom (Dec. 29th)
See here for the prior post.
Charges: Magyar Telekom – FCPA anti-bribery and books and records charges; Deutsche Telekom – N/A
Resolution Vehicle: Magyar Telekom – DPA – term two years; Deutsche Telekom – NPA – term two years.
Guidelines Range: Magyar Telekom – $72.5 million – $145 million; Deutsche Telekom – not set forth in the NPA.
Penalty: Magyar Telekom – $59.6 million (18% below the minimum Guidelines range); Deutsche Telekom – $4.4 million
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
Should There Be A Difference?
Organization A has employees spread across a wide geography. Its employees are trained on the legal rules and requirements relevant to their jobs. Yet despite the organization’s best training efforts and its committment to compliance and ethics, certain employees fail to conduct themselves according to the training and thus violate the law. Organization A, as an entity will not be held accountable, the organization will not be forced – based on the isolated employee’s conduct – to conduct a thorough review of its entire operations, and will not have a compliance monitor imposed on it.
Organization B has employees spread across a wide geography. Its employees are trained on the legal rules and requirements relevant to their jobs. Yet despite the organization’s best training efforts and its committment to compliance and ethics, certain employees fail to conduct themselves according to the training and thus violate the law. Organization B, as an entity will be held accountable, the organization will be forced – based on the isolated employee’s conduct – to conduct a thorough review of its entire operations, and will likely have a compliance monitor imposed on it.
Organization A is the Department of Justice in the Lindsey FCPA enforcement action. (See here for the prior post on Judge Matz’s order vacating the verdicts and dismissing the indictment based on prosecutorial misconduct)
Organization B is a typical multinational company involved in an FCPA enforcement action.
Should there be a difference?
Milestone Erased: Judge Matz Dismisses Lindsey Convictions, Says That “Dr. Lindsey And Mr. Lee Were Put Through A Severe Ordeal” And That Lindsey Manufacturing, A “Small, Once Highly Respected Enterprise … Placed In Jeopardy”
As detailed in this prior post, last May, Lindsey Manufacturing Company (a privately held manufacturer of electrical transmission and related products that employs approximately 100 individuals) and Keith Lindsey (President) and Steven Lee (Chief Financial Officer) were convicted after a five week trial by a federal jury in the Central District of California of one count of conspiracy to violate the FCPA and five counts of FCPA violations.
Reacting to the guilty verdicts last May, Assistant Attorney General Lanny Breuer stated in this release as follows. “Today’s guilty verdicts are an important milestone in our Foreign Corrupt Practices Act (FCPA) enforcement efforts. Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last.”
The DOJ’s “important milestone” has been erased as Judge Howard Matz, after months of legal wrangling, vacated the convictions and dismissed the indictment. See here for Judge Matz’s ruling.
Jan Handzlik (Venable – here) represented Lindsey Manufacturing and Lindsey and Janet Levine (Crowell & Moring – here) represented Lee.
Judge Matz’s ruling begins as follows. “In this Court’s experience, almost all of the prosecutors in the Office of the United States Attorney for this district consistently display admirable professionalism, integrity and fairness. [A footnote states – Two of the three members of the prosecution team in this case were from the Washington, D.C., main office of the Department of Justice, including the lawyer who initiated the investigation. Only one “local” AUSA was involved]. So it is with deep regret that this Court is compelled to find that the Government team allowed a key FBI agent to testify untruthfully before the grand jury, inserted material falsehoods into affidavits submitted to magistrate judges in support of applications for search warrants and seizure warrants, improperly reviewed e-mail communications between one Defendant and her lawyer, recklessly failed to comply with its discovery obligations, posed questions to certain witnesses in violation of the Court’s rulings, engaged in questionable behavior during closing argument and even made misrepresentations to the Court. Consequently, the Court throws out the convictions of Defendants Lindsey Manufacturing Company, Keith E. Lindsey and Steve K. Lee and dismisses the First Superseding Indictment.”
In reaching his conclusion, Judge Matz acknowledges that even he was overwhelmed by the pace of the case and thus unable to see sooner the gravity of the DOJ’s misconduct. The following paragraph from his order is telling. “… [When a trial judge managing a large docket is required to devote a great deal of time and effort to a fast-moving case that requires numerous rulings, often the judge will miss the proverbial forest for the trees. That is what occurred here. This Court was confronted with so many motions challenging the Government’s conduct that it was difficult to step back and look into whether what was going on reflected not isolated acts but a pattern of invidious conduct. Although the Court did issue orders granting various of Defendants’ motions to suppress, motions to exclude evidence, motions to compel further discovery, motions for curative instructions, etc., it did not fully comprehend how the various pieces fit together. And fit together they do. The Government has acknowledged making many “mistakes,” as it characterizes them. “Many” indeed. So many in fact, and so varied, and occurring over so lengthy a period (between 2008 and 2011) that they add up to an unusual and extreme picture of a prosecution gone badly awry. To paraphrase what former Senator Everett Dirksen supposedly said, “a few mistakes here and a few mistakes there and pretty soon you’re talking misconduct.””
Upon first hearing of Judge Matz’s tentative ruling earlier this week, my initial reaction was that his decision would have little impact on FCPA enforcement (other than perhaps the O’Shea case pending in the S.D. of Texas given that it focuses in part on the same evidence and involves the same prosecutor). After all, prosecutorial misconduct motions focus on specific actions by specific actors.
Upon reading Judge Matz’s order however, it seems clear that his decision was based in part on the quality of the DOJ’s case in the first instance. Post-trial motions as to sufficiency of the evidence and based on various FCPA elements were pending, but are now moot. In any event, it is reasonable to conclude that Judge Matz might have vacated the jury verdict based on substantive grounds.
For instance, in addition to criticizing the DOJ’s willful blindness instruction, Judge Matz stated that it was improper and misleading for the DOJ to take inconsistent positions as to certain alleged school payments to the son of the Mexican “foreign official.” Because of the DOJ’s misconduct, Judge Matz stated as follows concerning Defendants’ opening statement. “In their opening statements defense counsel were not in a position to cite grand jury transcripts as support for what eventually became part of their defense. Lacking the factual support they needed, they could not and did not assert, in effect, “The evidence will show that the Government team failed to conduct a complete and fair investigation. In fact, the Government obtained the very charges in the indictment through false and misleading grand jury testimony of an FBI agent. The prosecution has been scrambling to find out what happened ever since. Had they done their homework properly, they would have learned long before now that there was no crime.””
More on point, Judge Matz stated as follows. “A clearly established additional basis for finding prejudice is the weakness of the Government’s case. The case against the Lindsey Defendants was far from compelling. That the jury returned its verdicts after some seven hours of deliberation is not a reliable indication of just how close the evidence was, contrary to the Government’s contention. For example, the key issue as to the Lindsey Defendants was whether they knew that the monies that LMC would and did pay to Grupo would be used by Enrique Aguilar to bribe CFE officials, and whether they intended that to happen. There was no direct evidence of such intent. There were no oral admissions (secretly recorded or otherwise); no writings acknowledging the payments were corrupt; no evidence of furtive conduct, except perhaps for the disputed bookkeeping reclassification of one contract, described above. The circumstantial evidence, at best, was murky.”
In conclusion, Judge Matz stated as follows. “The unavoidably dry recital of the background and prosecution of this case set forth above does not fully account for the real impact of the Government’s conduct. Dr. Lindsey and Mr. Lee were put through a severe ordeal. Charges were filed against them as a result of a sloppy, incomplete and notably over-zealous investigation, an investigation that was so flawed that the Government’s lawyers tried to prevent inquiry into it. In some instances motives, statements and conduct were attributed to them that were wholly unfounded or were obtained unlawfully, such as the statements attributed to Dr. Lindsey that were suppressed because of Miranda violations and Agent’s Guernsey’s grand jury testimony that Lee “didn’t want to know” what Aguilar would do with the commission payments. The financial costs of the investigation and trial were immense, but the emotional drubbing these individuals absorbed undoubtedly was even worse. As for LMC, the very survival of that small, once highly-respected enterprise has been placed in jeopardy. That is not to say that the Lindsey Defendants are entitled to a finding of factual innocence; they are not. Moreover, the hardships described in the preceding paragraph are the plight of many defendants who go to trial. But as the Kohring dissent phrased it, “In this case, dismissal of the Superseding Indictment is justified not only as a deterrent but to release [defendant] from further anguish and uncertainty.””
Whatever impact Judge Matz’s decision will have on FCPA enforcement, this much is clear: the DOJ is now 0-2 in corporate criminal prosecutions. As detailed in this prior post, in 1991, in an FCPA case involving Harris Corporation, John Iacobucci, and Ronald Schultz, U.S. District Judge Charles Legge (N.D. of California) granted a verdict of acquittal after the DOJ’s case. Citing insufficient evidence, Legge said the government had failed to show any intent by the defendants to enter into a criminal conspiracy.