Category: DOJ

DOJ Guidance – Better Late Than Never, But Will It Matter?

The FCPA’s 1988 amendments required that the Attorney General, “after consultation with the [the SEC], the Secretary of Commerce, the United States Trade Representative, the Secretary of State, and the Secretary of the Treasury, and after obtaining the views of all interested persons through public notice and comment procedures, shall determine to what extent compliance with [the anti-bribery provisions] would be enhanced and the business community would be assisted by further clarification” of its various provisions.  Among other things, Congress requested that the Attorney General consider issuing guidelines as to “general precautionary procedures [companies] may use on a voluntary basis to conform their conduct to the Department of Justice’s present enforcement policy …”.

Following the 1988 Congressional mandate, the DOJ did issue a formal notice inviting all interested persons “to submit their views concerning the extent to which compliance with [the anti-bribery provisions] would be enhanced and the business community assisted by further clarification of the provisions of the anti-bribery provisions through the issuance of guidelines.”  However, the DOJ stated that “only 5 responses were received, and 3 of the responses were to the effect that guidelines were unnecessary” and based on this information it declined to issue FCPA compliance guidelines envisioned by Congress.  In July 1990, the DOJ stated as follows.  “After consideration of the comments received, and after consultation with the appropriate agencies, the Attorney General has determined that no guidelines are necessary…. [C]ompliance with the [anti-bribery provisions] would not be enhanced nor would the business community be assisted by further clarification of these provisions through the issuance of guidelines.”

With that historical background, Assistant Attorney General Lanny Breuer made a noteworthy statement Tuesday before an FCPA audience when he stated that in 2012 the DOJ hopes to “release detailed new guidance on the [FCPA’s] criminal and civil enforcement provisions.”  (See here for Breuer’s speech).

If nothing else, Breuer’s statement appears to represent a welcome attitudinal shift at the DOJ and hopefully adoption of an approach more like the United Kingdom Serious Fraud Office of active engagement on compliance as opposed to just enforcement.  Incidentally, in Lamb v. Phillip Morris Inc., 915 F.2d 1024 (6th Cir. 1990) the court noted that the above FCPA legislative history “clearly evinces a preference for compliance in lieu of prosecution” in ruling that a private right of action and the “introduction of private plaintiffs interested solely in post-violation enforcement, rather than pre-violation compliance, most assuredly would hinder congressional efforts to protect companies and their employees concerned about FCPA liability.”

While a welcome development, DOJ’s promise of FCPA guidance in 2012 will not cure many of the issues that are being debated in good faith during this new era of FCPA enforcement.  I expect DOJ’s guidance to be little more than a compilation in one document of information that is already in the public domain for those who know where to look.  For instance, does anyone think that DOJ’s guidance on “foreign official” will be substantively different from its briefs in the Carson “foreign official” challenge?  Does anyone think that DOJ’s guidance on compliance best practices will be substantively different from the information already contained in DOJ non-prosecution and deferred prosecution agreements?  And whatever DOJ’s guidance is on compliance does it even matter?  Perhaps in the opaque, inconsistent and unpredictable world of DOJ decision making under the Principles of Prosecution of Business Organizations and the U.S. Sentencing Guidelines, but not as a matter of law.

Whenever released and whatever it says, the DOJ’s guidance will be merely that – guidance.  What the FCPA needs is not guidance, but limited structural reforms (such as a compliance defense) as well as a change in DOJ policy (such as elimination of non-prosecution and deferred prosecution agreements).

See here and here for what others are saying about the DOJ’s pledge to issue guidance.

As to FCPA reform, Breuer stated as follows in his speech.  “I am aware that there have been a number of efforts made this year to amend the FCPA, by the Chamber of Commerce and others.  We in the Justice Department are always open – and I personally am – to working with Congress on ways to improve our criminal laws.  That said, I want to be clear about one thing with respect to these proposals:  we have no intention whatsoever of supporting reforms whose aim is to weaken the FCPA and make it a less effective tool for fighting foreign bribery.   Indeed, at this crucial moment in history, watering down the Act – by eliminating successor liability in the FCPA context, for example – would send exactly the wrong message.  Particularly since it has become increasingly clear over the past year that the trend across the globe is toward criminalization of foreign bribery.  The U.K. Bribery Act took effect in July.  Russia recently passed an anti-bribery law; has ratified the U.N. Convention against Corruption; and is expected soon to accede to the OECD Anti-Bribery Convention.  China, too, recently passed an anti-bribery law and is an observer at the OECD’s Working Group on Bribery.  […]  [The FCPA’s] passage in 1977 was a milestone.  But it took decades for the Act to become as strong an enforcement tool as it is today.  Having come this far, on what I believe is a noble journey, we cannot, and should not, start going backwards.  On the contrary, the United States must continue leading the charge against transnational bribery.  […]  In the United States, we have taken a strong stand against corruption, and the tide has been turning that same way in many countries across the globe – both as measured by the number of nations that have passed anti-bribery statutes in the past decade and by the recent popular uprisings that have been fueled, at least in part, by public outrage over corruption.   This is precisely the wrong moment in history to weaken the FCPA.  To the contrary, whether or not certain clarifications to the Act are appropriate, now is the time to ensure that the FCPA remains a strong tool for fighting the ill effects of transnational bribery.  There is no argument for becoming more permissive when it comes to corruption.  Indeed, for the reasons I have articulated, we may together have no greater mission than to work toward eradicating corruption across the globe.  The FCPA is an important mechanism for holding individuals and corporations accountable for fostering corruption abroad, and for motivating others to act responsibly.  We must ensure that it stays that way.”

While Breuer is indeed correct that there is a global trend towards criminalization of bribery and that the U.S. should continue the charge against transnational bribery, it does not follow that FCPA reform will defeat these objectives or be viewed by the world community as waving the white flag of surrender on bribery.  For instance, should the FCPA be amended to include a compliance defense, the FCPA would become similar to the FCPA-like laws of several other OECD Convention countries – see here for a prior post on the compliance defense around the world.  Should FCPA enforcement on successor liability by revisited, the U.S. approach would align with the U.K. approach – see here and here for prior posts containing comments from U.K. SFO Director Richard Alderman on M&A liability issues.

Finally, in his speech Breuer also discussed the DOJ’s Kleptocracy Asset Recovery Initiative.  He stated as follows. “I am firmly convinced that we cannot win our fight against global corruption unless we deprive corrupt foreign officials of the ability to use the United States as a safe haven for their ill-gotten gains.  That is the purpose of our now fully operational Kleptocracy Asset Recovery Initiative .  With this initiative, which I told you last year we were developing, we are working hard to identify, and recover, the proceeds of foreign official corruption through civil forfeiture.  Last month, we announced our most significant Kleptocracy actions to date:  two civil forfeiture complaints filed against $70 million in assets allegedly belonging to Teodoro Nguema Obiang Mangue, a government minister for Equatorial Guinea and the son of that country’s president.  According to the complaints, despite an official government salary of less than $100,000 per year, Minister Obiang corruptly amassed wealth of more than $100 million.  Among the items that we are seeking to forfeit are $1.8 million worth of Michael Jackson memorabilia, a $38.5 million Gulfstream G-V jet, a $30 million house in Malibu, California and a 2011 Ferrari valued at more than $530,000.”

DOJ Declines To Get Specific In Declination Responses

During the June 14th House FCPA hearing (see here for the prior post) Representative Sandy Adams (R-FL) asked Greg Andres (DOJ) about the DOJ’s FCPA declination decisions and requested that the DOJ provide more detail as to its declination decisions, including the DOJ’s reasons and rationale for why enforcement actions did not result. [A declination decision in the FCPA context is generally viewed to mean that the DOJ learns of conduct that likely violates the FCPA, typically through a corporate voluntary disclosure, but in the exercise of its prosecutorial discretion the DOJ declines to prosecute or bring an enforcement action.]

Soon after the hearing, Representative Adams and Representative James Sensenbrenner (R-WI) sent Andres a letter and requested as follows.  “Please provide to us information on cases that been brought to the attention of DOJ, but your agency decided, for one reason or another, not to investigate or pursue prosecution within in the last year along with the rationale for those decisions.”

In this August 3rd letter, Assistant Attorney General Ronald Welch begins with references to the DOJ’s Principles of Federal Prosecution of Business Organizations.  Welch then responds as follows.  “Pursuant to these guidelines, the Department has declined to prosecute corporate entities in several cases based on particular facts and circumstances presented in those matters, and taking into account the available evidence.  For example, during the previous two years, the Department of Justice declined matters in which some or all of the following circumstances existed:  a corporation voluntarily and fully self-disclosed potential misconduct; corporate principles voluntarily engaged in interviews with the Department and provided truthful and complete information about their conduct; a parent corporation voluntarily and fully self-disclosed information to the Department regarding alleged conduct by subsidiaries;a parent company conducted extensive pre-acquisition due diligence of potentially liable subsidiaries, and engaged in significant remediation efforts in acquiring the relevant subsidiaries; a company provided information to the Department about the parent’s extensive compliance policies, procedures, and internal controls, which the parent had implemented at the relevant subsidiaries; a company agreed to a civil resolution with the Securities and Exchange Commission, while also demonstrating that a declination was appropriate for additional reasons; a single employee, and no other employee, was involved in the provision of improper payments; and the improper payments involved minimal funds compared to the overall business revenues.”

Welch concluded the letter by stating that the DOJ “cannot comment more specifically about FCPA matters where prosecution was declined” to “protect the privacy rights and other interests of the uncharged and other potentially interested parties.”  Given that many declination decisions are assumed to be made after corporate voluntary disclosures, it is difficult to understand what privacy rights would be implicated by more specific answers.

I highlight above four of the circumstances DOJ identified because they undermine the DOJ’s staunch opposition to a potential FCPA compliance defense – a defense  Andres (testifying on behalf of the DOJ at the June hearing) called “novel” and “risky.”

How is an FCPA compliance defense “novel” and “risky” when it would include factors the DOJ already considers in declining to bring FCPA enforcement actions?   Would it not serve the public interest for such factors to be removed from the shadowy world of opaque DOJ decision making and codified in an open and transparent manner in an FCPA compliance defense?

Many have called for more transparency in DOJ declination decisions.  In this guest post, Homer Moyer, a dean of the FCPA bar, called for “internal DOJ guidance that voluntarily disclosed matters must normally be resolved by the Department within 90 days after completion of an internal investigation; that agencies should make public their calculations of credit for voluntary disclosure and coordination; and that the Department will publish sanitized summaries of its declinations.”  In this previous post, I proposed that the DOJ should publish its declination decisions in a manner similar to its FCPA Opinion Procedure releases.   In a 2010 Q&A with Corporate Counsel Billy Jacobson (a former high-ranking DOJ FCPA official) stated: “The Justice Department could publicize cases anonymously that it has not brought because of the company’s actions.”  Even William Stuckwisch (current DOJ-FCPA) wondered aloud in this video (at the six minute mark) whether DOJ declination decisions should be made public.

Given the opportunity to demonstrate to Congress, the business community, the FCPA bar, and others that it runs a consistent, principles-based, transparent FCPA enforcement program, the DOJ in its responses once again “circled the wagons.”

For additional analysis of DOJ declination decisions, see this prior post.

Innospec – Were The DOJ and SEC Duped?

Suppose A is ordered to pay B $160.  However, A claims an inability to pay that amount and based on this inability to pay B agrees to accept only $25.  The following year, a year during which A publicly discloses evidence of financial health, A pays C $45.  You might conclude that B was duped.

Convert the above numbers to millions, insert Innospec for A, insert the DOJ and SEC for B, and insert NewMarket (a competitor corporation) for C, and you now have a real scenario.

As highlighted in this prior post, in March 2010 Innospec agreed to resolve a DOJ and SEC enforcement action by paying $25.3 in combined fines and penalties after pleading guilty to FCPA and other offenses, based largely on conduct in Iraq and Indonesia.

The total amount of fines and penalties could have been much higher as the minimum U.S. Sentencing Guidelines amount was $101.5 million and the SEC ordered the company to pay approximately $60 million.  However, Innospec received a pass on approximately $135 million in fines and penalties based on its claimed inability to pay.

The DOJ’s sentencing memorandum (here) stated as follows.  “Innospec has represented that it is unable to pay, and, even with the use of a reasonable installment schedule, is not likely to be able to pay, a $101.5 million fine. Over the course of nearly a year, Innospec has provided the Department, the SEC [and other U.S. and non-U.S. authorities] with detailed presentations regarding its current financial condition and available assets. Those representations have been analyzed in detail by qualified accounting professionals within the SEC […]. Innospec has represented that, were the company to pay more than the amount agreed, the continued viability of the company would be threatened, as follows: (1) Innospec would breach the limits of its credit facilities; (2) Innospec would be unable to make up a deficit in funding its pension plan, resulting in an $85 million shortfall; (3) Innospec would be unable to remediate certain environmental damage caused by its manufacturing facility in the United Kingdom; (4) Innospec would be unable to invest sufficiently in research and development; and (5) Innospec would be forced to close facilities around the world, resulting in dozens of employees losing their jobs.”

The SEC’s release (here) stated, in pertinent part, as follows: “Innospec has consented to the entry of a court order […] ordering it to pay $60,071,613 in disgorgement, provided that the Commission waive all but $11,200,000 of disgorgement and permitting payment in four installments based upon Innospec’s sworn Statement of Financial Condition…”.

Since March 2010, I highlighted in a series of posts (here, here, and here) that despite receiving the above pass based on inability to pay Innospec has consistently reported positive financial results.

This previous post highlighted a civil case filed against Innospec by a competitor (NewMarket Corp.) alleging that Innospec’s conduct, as described in the DOJ and SEC enforcement actions, violated the Robinson-Patman Act and the Virginia Antitrust Act as well as the Virginia Business Conspiracy Act.  According to news reports,  NewMarket learned of Innospec’s actions after reading the documents released in connection with the March 2010 enforcement action in which, among other things, the DOJ and SEC alleged that Innospec’s bribe payments in Iraq ensured that a field test of a competitor’s fuel additive failed. NewMarket claimed that the competitor was a subsidiary company Ethyl Petroleum Additives Inc. which now goes by the name Afton Chemical Corp.

As reported earlier this week by Joe Palazzolo (Wall Street Journal Corruption Currents), Innospec recently announced a settlement of the civil action.  In This 8-K filing the company stated as follows.   “NewMarket and the Company have agreed to settle these actions pursuant to the terms of a settlement agreement between them signed on September 13, 2011 which provides for mutual releases of the parties and dismissal of the actions with prejudice. Under the settlement agreement, the Company will pay NewMarket an aggregate amount of approximately $45 million, payable in a combination of cash, a promissory note and stock, of which $25 million is payable in cash by September 20, 2011, $15 million is payable in three equal annual installments under the promissory note (carrying simple interest at 1% per annum) the first installment of which is due on September 10, 2012, and approximately $5 million is payable in the form of 195,313 shares of the Company’s common stock by September 20, 2011.”

Innospec’s immediate $25 million cash payment to NewMarket, as well as its committment to pay an additional $15 million in installments, raises the question of whether the DOJ and SEC were duped by Innospec last year when the agencies gave the Innospec a pass on $135 million in fines and penalties based on the company’s claimed inability to pay.

Will There Be Any Daimler-Related Prosecutions?

Bribery schemes are often facilitated, aided and abetted, and enabled by third parties and with increasing frequency the DOJ targets such enablers.  In November 2009, Assistant Attorney General Lanny Breuer stated as follows.  “The use of intermediaries to pay bribes will not escape prosecution under the FCPA.  The Department will continue to hold accountable all the players in an FCPA scheme – from the companies and their executives who hatch the scheme, to the consultant they retain to carry it out.“  Recent FCPA enforcement actions that have targeted such enablers include:  Jeffrey Tesler and Wojciech Chodan (in connection with the Bonny Island, Nigeria cases); the Aquilars (in connection with the Lindsey Manufacturing enforcement action); Ousama Naaman (in connection with the Innospec enforcement action); and Paul Novak (in connection with the Willsbro enforcement action).

The March 2010 FCPA enforcement action against Daimler and its related entities (see here for the prior post) contained unusually detailed allegations concerning the conduct of various enablers in Daimler’s bribery scheme.  Thus, back in March 2010, I observed as follows.  “The alleged improper payments involved dozens and dozens of third parties, including several located in the U.S., which were allegedly utilized by Daimler and its affiliates to bribe foreign officials. Given Daimler’s use of numerous U.S. based entities, it will be interesting to see if any of these U.S. entities and/or entity employees will be prosecuted for their role in the respective bribery schemes.”

A year and a half has passed, there have been no related prosecutions, and it is appropriate to again ask the question – will any U.S. enablers of Daimler’s bribery scheme be held accountable?

Based on the DOJ’s allegations in the Daimler enforcement action, the following entities would seem to be the most logical candidates.

M.F. Mechanical & Electrical, Inc. (Daimler payment to the entity for the benefit of Chinese “foreign officials” – para 50 of Daimler AG information);

Shores International, a Texas corporation (Daimler payment to the entity for the benefit of the wife of a Chinese government official – para 51 of Daimler AG information);

Lily Energy Services, Inc., a Texas corporation (Daimler payment to the entity for the benefit of Chinese “foreign officials” – para 52 of Daimler AG information);

King Jack Inc., a California corporation (Daimler payment to the entity for the benefit of Chinese “foreign officials” –  para 53 of Daimler AG information);

Oldenburgh Financial Corporation, incorporated in Delaware, and United Petrol Group LLP, incorporated in Oregon (Daimler payments to the entities for the benefit of Latvian government officials –  para 106 of Daimler AG information);

Biotop Group, Inc., a Delaware corporation, and Marketing Research and Consultants LLC, a Wyoming corporation (Daimler payments to the entities for the benefit of Croatian government officials – para 123-128 of Daimler AG information)

“FCPA Sanctions: Too Big To Debar?”

Debarment (or lack thereof) is a periodic topic on this site.

Previously, I covered “Siemens … The Year After” (here), a post that highlighted in the year after resolution of the Siemens record-setting December 2008 FCPA matter, the U.S. government continued to do substantial business with the company it charged with engaging in a pattern of bribery “unprecedented in scale and geographic scope.”

In September 2010, I highlighted (here) the FBI’s $40 million contract with BAE – months after the FBI participated in resolution of the $400 million FCPA related enforcement action against the company.

In my November 2010 testimony (here) before the U.S. Senate, I stated as follows. “In order for the DOJ’s deterrence message to be completely heard and understood egregious instances of corporate bribery that legitimately satisfy the elements of an FCPA anti-bribery violation involving high-level executives and/or board participation should be followed with debarment proceedings against the offender.”

This testimony prompted then Senator Arlen Specter (who chaired the hearing) to ask me several follow-up questions for the record relating to debarment. (See here for the Q&A’s). Senator Christopher Coons (who also participated in the November 2010 hearing) also asked debarment follow-up questions of the DOJ.

As highlighted last week (here), the DOJ is opposed to a “mandatory, conduct-based, debarment remedy for companies that engage in egregious bribery.” As noted in the prior post, the DOJ’s responses seemed anchored in self-interest in that such a remedy would lessen its FCPA caseload, would make its job more difficult, and would take away it flexibility and leverage and resolving FCPA enforcement actions.

Enter Dru Stevenson (Professor of Law, South Texas College of Law – here and a past contributor to the site) and Nick Wagoner (a law student at South Texas College of Law).

Stevenson and Wagoner recently released a yet to be published article titled “FCPA Sanctions: Too Big to Debar?” (See here).

The authors (who can be reached at dstevenson@stcl.edu and nicholas.wagoner@gmail.com) provide this article summary.

“Despite the dramatic escalation in corporate fines and imprisonment imposed under the FCPA in recent years, a particularly lethal sanction for combating foreign corruption remains unused—suspension or debarment of prosecuted entities from future contracts with the U.S. Many of the firms caught bribing foreign officials have extensive contracts with a number of domestic federal agencies; meaning debarment may be a particularly devastating penalty both for the government contractor and the agency it transacts business with.

This begs the question: are certain private contractors too big to debar? As this Article demonstrates, it appears so. Certain federal agencies have become highly dependent on a handful of private firms responsible for satisfying the vast majority of government contracts. Because of the potential “collateral consequences” that may result from the collapse of a debarred contractor, these firms have enjoyed bailouts from agency officials who refuse to sanction corrupt practices through suspension or debarment. If ridding foreign markets of corruption truly is a top priority of the U.S., it seems both unfair and imprudent for federal agencies to continue awarding lucrative, multibillion-dollar contracts to firms recently prosecuted for fraudulently obtaining such contracts overseas.

This situation leads to the jaded viewpoint that paying fines when caught bribing foreign officials has “simply become a cost of doing business.” To help illuminate these concerns and lend support to the thesis, this Article examines the third largest FCPA-related enforcement actions to date: the BAE Systems case. On March 1, 2010, BAE Systems paid approximately $400 million in fines for its corrupt practices abroad. In the 365 days that followed however, BAE was awarded U.S. contracts in excess of $58 billion dollars. The U.S.’s refusal to debar BAE because of the risk of “collateral consequences” provides a case study of the benefits and drawbacks to deterring foreign corruption through suspension and debarment. This Article concludes that the U.S. must begin to diversify its portfolio of federal contractors so that prosecutors may leverage the legitimate threat of suspension and debarment to more effectively deter foreign corruption.”