Friday Roundup
From the campaign stump, Wal-Mart civil suits start to pour in – plus a comment regarding statute of limitations, where should the money go, don’t believe the hype, and for the weekend reading stack. It’s all here in the Friday roundup.
From The Stump
Zein Obagi (here – a fiscally conservative Democratic candidate for California’s new 33rd Congressional District) earlier this week posted a letter (here) he sent to U.S. Senator Dianne Feinstein (D-CA). Titled “Keeping California Companies Competing Abroad Competitive” the letter begins as follows. “I am writing to ask you to show our party’s understanding of international trade by updating and clarifying the Foreign Corrupt Practices Act. As you know Senator, both sides of the aisle have put forth efforts to clarify the FCPA, to assist in its enforcement and also keep America competitive with foreign nations’ trade practices.” In the letter, Obagi states that “California businesses expend enormous resources with insufficient assurances that they will not run afoul of the FCPA.”
Kudos to Obagi for the courage to tackle the politically sensitive issue of reforming the FCPA. His letter reminds us of an issue lost in the FCPA reform debate – that certain aspects of FCPA reform share bipartisan support. See here for the transcript of the Senate’s 2010 FCPA hearing (particularly statements from Democratic Senators Amy Klobuchar and Chris Coons) and here for the transcript of the House’s 2011 FCPA hearing (particularly statements from Democrat Representative John Conyers).
Wal-Mart Civil Suits Begin to Pour In
One of my earlier Wal-Mart posts (here) noted that not only will the DOJ and SEC likely be examining the conduct of Wal-Mart executives, but so too will plaintiff law firms representing shareholders who will likely scour Wal-Mart’s SEC filings and other statements to the market in bringing derivative claims alleging breach of fiduciary duty and potential Section 10(b) claims based on material omissions concerning Wal-Mart Mexico. On this score, shareholders are likely to allege, among other things, that Wal-Mart’s officers and directors demonstrated conscious disregard for fiduciary duties by failing to act diligently in the face of known facts suggesting a duty to act.
Approximately ten days later the civil suits are starting to pour in. See here (New York Times) and here (Los Angeles Times) for the derivative lawsuit brought by the California State Teachers’ Retirement System, the country’s second-largest public pension fund, the California State Teachers’ Retirement System, against current and former board members and executives of Wal-Mart Stores Inc., accusing them of using bribery and corruption to gain authorization from Mexican government officials to build new stores.
The complaint (here) generally tracks the New York Times article (see here for a prior summary), but also includes allegations suggesting potential insider trading. The complaint alleges as follows. “[T]he trading records of defendants [H. Lee Scott Jr.] and [Eduardo] Castro-Wright show that both of these defendants began selling millions of dollars worth of Wal- Mart shares in the months after The New York Times first contacted the Company regarding possible FCPA infractions by Wal-Mex in December 2011. Scott and Castro-Wright were divesting their shares in Wal-Mart in apparent anticipation of the publication of The New York Times exposé and the corresponding stock drop that would undoubtedly occur, and did occur. On the three trading days after The New York Times’ April 21, 2012 exposé, Wal-Mart stock dropped eight percent, wiping out all of its gains in 2012. Scott and Castro-Wright sold uncharacteristically large amounts of stock while in possession of the materially adverse nonpublic information that the Company was exposed to undisclosed liability for massive FCPA penalties and other contingences relating to the bribes and cover-up …”.
In addition, yesterday Gilman Law LLP announced here a derivative lawsuit filed in the United States District Court for the Western District of Arkansas against Wal-Mart. According to the release, the “complaint alleges the Directors of Wal-Mart breached their fiduciary duties by violating the Foreign Corrupt Practices Act and engaging in a six-year-long cover-up of a massive bribery scheme concerning Wal-Mart’s expansion in Mexico.”
Wal-Mart Statute of Limitations
In recent days, there has been much talk about the FCPA’s statute of limitations (5 years) and how the limitations period can generally be extended through conspiracy charges. All correct observations as to a fundamental black-letter law concept. Except in corporate FCPA inquiries, one can generally toss aside fundamental black-letter law concepts because they simply do not matter.
Sure, Wal-Mart (or any other company subject to FCPA scrutiny) can talk about statute of limitations around conference room tables behind closed doors in Washington D.C., but to truly challenge the DOJ on this issue (as all others) first requires that the company be criminally indicated, something few corporate leaders are willing to let happen. Cooperation is the name of the game in corporate FCPA inquiries and to assert statute of limitations issues is not cooperating. Given the “carrots” and “sticks” relevant to resolving FCPA enforcement actions (to learn more about these “carrots” and “sticks” please read ”The Facade of FCPA Enforcement” – here), one of first steps during a corporate disclosure of FCPA issues (one that Wal-Mart made in December 2011) is to enter into a tolling agreement or to waive any statute of limitations defenses.
As evidence, dig into the details of most FCPA enforcement actions and one quickly discovers that the conduct at issue is old – in some cases very old. The 2012 Biomet enforcement action (see here for the prior post) concerns conduct going back to 2000; the 2012 Smith & Nephew enforcement action (see here for the prior post) concerns conduct going back to 1998; and the 2012 Marubeni enforcement action (see here for the prior post) concerns conduct going back to 1995 (17 years ago) with the last act alleged occurring in 2004.
For a similar post on fundamental black letter law concepts in FCPA enforcement actions, see this prior post “Does DOJ Expect FCPA Counsel to Roll Over and Play Dead?”
Don’t Believe the Hype
Writing at the Huffington Post (here), Professor Brandon Garrett (here – University of Virginia School of Law) says “Don’t Believe the Hype on Corporate Bribery.” Professor Garrett notes that “at first, foreign bribery prosecutions may seem big and brash and the farthest thing from a wrist-slap” but he cautions that many FCPA enforcement actions “can be smaller than they appear.”
I frequently am put in the “the DOJ is too aggressive in enforcing the FCPA” camp and in many respects that is true. However, I have also frequently stated (see here for my Facade of FCPA Enforcement article, here for my Senate testimony and here and here for prior posts as to the same Siemens and BizJet enforcement actions Professor Garrett references) that in egregious instances of corporate bribery that legitimately satisfy the elements of an FCPA anti-bribery violation involving high-level executives and/or board participation the DOJ’s aggressive rhetoric does not match the reality of the enforcement action.
See this prior post for discussion of Professor Garrett’s article “Globalized Corporate Prosecutions.”
Where Should the Money Go
This prior post discussed the recent letter by Socio-Economic Rights and Accountability Project (“SERAP”) (a non-governmental civil society organization in Nigeria) to SEC Enforcement Division Director Robert Khuzami (with a copy to Assistant Attorney General Lanny Breuer and Deputy Chief, Fraud Section Charles Duross) regarding “FCPA civil penalty and disgorgement proceeds that companies agree to pay to resolve US Foreign Corrupt Practices Act investigations.”
The specific SERAP proposal is as follows. “…[A]fter, and ony after, public notice of an FCPA settlement agreement, the victim foreign government entity and any applicant NGO would have 60 days to file a request that the Enforcement Division pay some or all of the agreed payment proceeds to or for the benefit of the victim government entity or to a home country-based or US based NGO that would present a proposal [to] spend the proceeds for public purposes (e.g. on public health programs) in the country of the victim entity. Thereafter, the Enforcement Division would have 60 days to act upon the request, favorably or not in its discretion; in this context the Enforcement Division should provide a brief statement of its reasons for its decisions. In reaching its decisions the Enforcement Division would have the inherent authority to consult with Executive Branch agencies of the US government.
Recently the SEC responded to the letter (see here). The SEC thanked SERAP for its ‘thoughtful submission” and stated that it will “give appropriate consideration” to its suggestions while also noting as follows. “Although the macro effects of corruption can be ascribed generally, the framework of our securities laws requires a proximate connection to the harm caused by a particular violation. The question of identifying investors or other parties that suffer cognizable harm in connection with the securities law violation(s) at issue in a given enforcement matter is driven by the facts and circumstances of that particular case.”
For more, including my views, see here from Trustlaw.
Others are also thinking about the issue of where FCPA enforcement proceeds should go. In this draft paper titled “Reforming the Foreign Corrupt Practices Act to Reduce Rent Seeking and Better Deter Transnational Bribery,” Matthew Turk argues as follows: “(1) the SEC should cease retaining profits disgorged by corporate defendants; (2) disgorgements should be transferred to the Host country where the bribe took place, conditional on the Host government’s cooperation with the FCPA investigation; and (3) if cooperation is not forthcoming, disgorgement proceeds should be transferred to the OECD Working Group, an international organization designed to facilitate the enforcement of an important anti-bribery treaty.” According to Turk, “Reforming disgorgement practices in the manner suggested here would not constitute a legalistic attempt to ratchet the total level of anti-corruption enforcement up or down in a particular direction. Instead it would re-allocate the proceeds from FCPA enforcement on a global scale so as to properly align the incentives of the parties involved and provide greater access to the information required for effective enforcement.”
Weekend Reading Stack
I recommend this recent Q&A in Metropolitan Counsel with Homer Moyer (Miller & Chevalier) a “Dean” of the FCPA. Might as well make it a Homer Moyer weekend – see here for a prior Q&A post on this site with Moyer.
How Many Does It Take?
How many former high-ranking Department of Justice officials and/or former DOJ FCPA enforcement attorneys does it take before the current DOJ realizes that its FCPA enforcement policies and procedures are, in certain cases, broken?
The latest to join the growing chorus (see here at pages 31-33 for others in the chorus) is William Jacobson (the former assistant chief for DOJ FCPA enforcement and current co-general counsel and chief compliance officer at Weatherford International Ltd – a company currently under FCPA scrutiny). [One of the first Q&A’s on FCPA Professor profiled Jacobson (on the Siemens enforcement action – see here) and he is already in my notable and quotable hall of fame for his 2010 statement to American Lawyer on FCPA enforcement that “[t]he government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.”]
In a recent article published in Bloomberg’s Criminal Law Reporter (here) titled “No Legislation Necessary: A Five-Part Test to Negate Corporate Criminal Liability in FCPA Cases,” Jacobson states in summary as follows. “[T[here is no need to tinker with the [FCPA]. Instead, the Department of Justice could, and should, exercise its prosecutorial discretion and commit to not bringing FCPA-related criminal charges against companies that have done all they could to curb corruption within their midst and to cooperate with the government when corruption is discovered. Such a policy would serve both government and corporate interests by, among other things, bringing more cases to the attention of the government, facilitating more prosecutions of individuals, and deterring future violations while at the same time bringing predictability to the prosecutorial process and rewarding responsible companies.”
Jacobson’s five-part test is as follows. “(1) the company must voluntarily disclose the violation; (2) the potential breach did not include illegal conduct by senior leaders within the company; (3) the company must cooperate fully with the government, including providing evidence and information against employees, officers, directors, and agents of the company; (4) the company must agree to implement appropriate remedial measures to mitigate the chances for future violations; and (5) prior to discovering the misconduct, the company must have implemented a robust compliance program.” Jacobson states that “if a company meets each element of this test, DOJ policy should state that the company will not be charged (including by deferred or nonprosecution agreement).”
In conclusion, Jacobson states as follows. “Current FCPA enforcement policy punishes rather than rewards companies that do all they can reasonably be expected to do to deter corruption and to cooperate with the government. This had led to an FCPA legislative reform movement that has gained considerable momentum over the past 18 months. DOJ can blunt most of these efforts with a shift in its prosecution policy that rewards responsible companies while at the same time serves important government interests and continues DOJ’s fight against international corruption.”
Much of what Jacobson writes about (for instance that current FCPA enforcement policies and procedures may actually discourage voluntary disclosure, make it more difficult for the DOJ to learn about individual culpable conduct, and thus not result in deterrence achieving individual prosecutions), I agree with and have previously written about in “Revisiting a Foreign Corrupt Practices Act Compliance Defense” – here).
In addition, Jacobson has a nice discussion about the FCPA’s unique posture (for more on this topic, see pages 8-16 of my “Revisiting” article for specific reasons warranting an FCPA compliance defense). Both are good reads given that the DOJ’s current FCPA reform talking points seems to be that because certain FCPA proposals are general in nature and can be applied to other statutes, specific FCPA reform is not needed.
While agreeing with many of Jacobson’s points (points well informed from his prior DOJ FCPA position, as well as his current general counsel position), I disagree that the remedy is non-binding DOJ policies and procedures.
There are some FCPA reform issues I have advocated that can perhaps be best dealt with through DOJ policy and procedure such as abolishing NPAs and DPAs, publishing declination decisions when a company voluntarily discloses, and establishing meaningful post-employment restrictions on FCPA enforcement attorneys.
However, non-binding DOJ policy and procedure is not the best way to accomplish real and meaningful FCPA reform. As to many of the issues Jacobson discusses, the best solution is an FCPA compliance defense as I discuss here.
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Jacobson’s article was reproduced with permission from Criminal Law Reporter, 91 CrL 77 (Apr. 11, 2012). Copyright 2012 by The Bureau of National Affairs, Inc. (800-372-1033) www.bna.com
It’s An FCPA World
For the second time in the last several months (News Corp in July was the other example), the Foreign Corrupt Practices Act was the dominant news story around the world. As a friend stated mid-day, it really is an FCPA world.
Today’s post will be a short post, but will keep you informed on Wal-Mart related developments.
The company’s stock dropped approximately 4.7% in the first day of trading after the New York Times investigative piece from the weekend. See here for the prior post discussing the Times article and here for additional analysis.
Congress is demanding answers. In this letter to Wal-Mart CEO Michael Dukes, Elijah Cummings (D-MD), Ranking Member, House Committee on Oversight and Government Reform, and Henry Waxman (D-CA), Ranking Member, House Committee on Energy and Commerce state “we are initiating an investigation into [the matters discussed in the New York Times article] and request a meeting with company officials who can respond to these allegations no later than April 27.”
Plaintiff law firms are also already demanding answers. See here, here, and here.
Others – just like in the News Corp. situation from last summer – are using Wal-Mart’s FCPA scrutiny to further their anti-FCPA reform positions – see here (“while Wal-Mart’s largest subsidiary spent millions of dollars systematically bribing Mexican officials, the company back home has been working, through big business groups like the U.S. Chamber of Commerce, to weaken the Foreign Corrupt Practices Act”); while others predict, wrongly in my estimation, that Wal-Mart’s FCPA scrutiny “will sound the death knell for any efforts to amend the Foreign Corrupt Practices Act” (see here).
It’s an FCPA world.
Friday Roundup
A costly monitor, Daimler’s DPA debacle, meeting releases, and another addition to the list (in an unusual way), it’s all here in the Friday roundup.
Willbros Monitor Costs
Earlier this week, Willbros Group announced (here) “that in connection with the Company’s completion of the requirements of the DPA and expiration of the term of the monitorship, on March 30, 2012, the DOJ filed a motion to dismiss the criminal charges filed previously against the Company stemming from legacy issues in Nigeria and South America in 2005 and prior years, which led to the DPA.” In May 2008, Willbros resolved parallel DOJ (here) and SEC (here) FCPA enforcement actions and agreed to pay approximately $32 million in combined fines and penalties.
Pursuant to the May 2008 DOJ DPA, the monitor was supposed to be engaged by Willbros within 60 days. However the company disclosed that its monitor was not engaged until September 25, 2009 – an astounding year plus delay in engaging the monitor. Furthermore, although the monitor was supposed to serve a three year term per the DPA, the early termination provisions of the DPA apparently were triggered. Even though the monitor got a late start and its three year term was trimmed, the Willbros monitor had a nice assignment. Doing the math from figures disclosed in various SEC filings, the Willbros monitor cost has been approximately $10.2 million subject to increase for 1st quarter 2012 expenses ($3.6 million for the year ended Dec. 31, 2011; $4 million for the year ended Dec. 31, 2010; and $2.6 million for the year ended Dec. 31, 2009).
During a recent earnings conference call, Randy Harl (President and CEO of Willbros) stated as follows. “The DOJ monitorship brought great positive change to Willbros in the form of a stronger compliance culture. The cost of the monitor and the major spending to establish the required controls and processes are behind us. However, we will continue to invest in a compliance culture.”
Daimler DPA Debacle
While Willbros’s DPA expired, Daimler’s DPA was extended. As noted by Christopher Matthews in this Wall Street Journal Corruption Currents report, the two year DPA was set to expire, but was extended until December 31st. As noted in this prior post, in April 2010, Daimler agreed to pay approximately $185 million to resolve parallel DOJ and SEC FCPA enforcement actions. The prior post, along with this post, noted that the prosecution was a joke from the start, among other things, U.S. District Court Judge Richard Leon approved settlement on April Fool’s Day. The DOJ’s release noted that Daimler (and three of its subsidiaries) “brazenly offered bribes in exchange for business around the world” and that Daimler “saw foreign bribery as a way of doing business.” The DOJ alleged improper conduct all the way up to senior levels of the company, yet Daimler was not required to plead guilty to anything.
Instead Daimler was offered a two-year DPA. The term of the DPA could be extended if Daimler “knowingly violated any provision of the Agreement.” This recently filed amendment to the DPA is silent as to the reason for the extension.
I intended, but forgot, to include the above Daimler development in yesterday’s post (here) regarding NPAs and DPAs. Needless to say, the Daimler DPA debacle furthers the rationale for abolishing such resolution vehicles.
Chamber Sponsored FCPA Roundtable
Earlier this week, the U.S. Chamber of Commerce Institute for Legal Reform hosted a roundtable discussion regarding the FCPA and upcoming FCPA guidance with Assistant Attorney General Lanny Breuer, SEC Enforcement Division chief Robert Kuzami and Commerce Department General Counsel Kameron Kerry.
In this release, Lisa Rickard (President of the U.S. Chamber Institute for Legal Reform) stated as follows. “The business community is pleased with today’s frank and productive discussion on the significant uncertainty that many U.S. businesses face when attempting to comply in good faith with the FCPA. We are encouraged by the thoughtful dialogue that helped us reach a mutual understanding on many of these important issues. We look forward to working with the administration as it prepares the forthcoming guidance.” As noted in the release, the roundtable was attended by the following business groups or trade associations: the Advanced Medical Technology Association, the American Insurance Association, the International Association of Drilling Contractors, the International Stability Operations Association, the National Association of Criminal Defense Lawyers, the National Association of Manufacturers, the National Foreign Trade Council, PhRMA, the Professional Services Council, the Retail Industry Leaders Association, and The Financial Services Roundtable.
In this release, Rosario Palmieri (Vice President for Infrastructure, Legal and Regulatory Policy of the National Association of Manufacturers) stated as follows. “Manufacturers are facing a great deal of uncertainty when it comes to complying with the Foreign Corrupt Practices Act. Today we had a very productive discussion and were able to share manufacturers’ concerns. We are hopeful that a continuing dialogue with the Administration will help us meet our mutual goals of increasing exports, stamping out corruption and providing clear rules of the road for international business.”
Another Addition to the List
In this recent release, Transparency International urges the DOJ to investigate the conduct of Walters Power International (an Oklahoma based company that supplies, develops, services and manages electrical generation power plants around the world see here) in connection with power plant projects in Pakistan. It is certainly not the traditional way in which companies become the subject of FCPA scrutiny, but even so it makes the list, and according to my tally, in the last seven weeks, eight companies have newly become the focus of FCPA scrutiny.
Also, last week’s post (here) discussed recent Libya related disclosures by Total S.A. and Eni S.p.A. It turns out that Marathon Oil Corp. can be added to that list. In its recent annual report, the company stated as follows. “On May 25, 2011, we received a subpoena issued by the SEC requiring production of documents related to payments made to the government of Libya, or to officials and persons affiliated with officials of the government of Libya. We have been and intend to continue cooperating with the SEC in its investigation.”
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A good weekend to all.
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.