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SEC Commissioner Crenshaw Uncomfortable With Limiting Civil Penalties To Corporate Benefits

Crenshaw

As highlighted in this prior post, earlier this year SEC Commissioner Caroline Crenshaw (appointed by President Trump and sworn into office in August 2020) stated that the SEC’s historical practice of placing emphasis on factors beyond the actual misconduct when imposing corporate penalties is “fundamentally flawed.”

In pertinent part, Crenshaw stated: “Over the years, Commissioners on both sides of the political aisle have agreed that a strong enforcement program incentivizes compliance with the securities laws, and that enforcement helps to promote a market that inspires investor confidence, creating a level playing field for market participants.  But Commissioners have had different views about when corporate penalties further those goals. It is clear to me that the Commission has historically placed too much emphasis on factors beyond the actual misconduct when imposing corporate penalties – including whether the corporation’s shareholders benefited from the misconduct, or whether they will be harmed by the assessment of a penalty.  This approach is fundamentally flawed.  This approach, more concerningly, could allow companies to profit from fraud as it unnecessarily limits the Commission’s ability to craft appropriately tailored penalties that more effectively deter misconduct.  If we are going to confront the novel issues today’s markets present and deter ever more complicated and hard to detect frauds, we must revisit our approach.”

In this recent public statement, Commissioner Crenshaw returned to the topic in connection with the recent Kraft Heinz Company enforcement action (see here for the prior post).

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Discouraging “Piling On” Sounds Great, But It All Depends What “Piling On” Means

piling

As highlighted in yesterday’s post, DOJ Deputy Attorney General Rod Rosenstein announced a non-binding policy discouraging “piling on” by instructing DOJ “components to appropriately coordinate with one another and with other enforcement agencies in imposing multiple penalties on a company in relation to investigations of the same misconduct.”

The DOJ’s new policy is general in nature, not FCPA specific, but portions of it are FCPA relevant and this post analyzes the new policy in the context of FCPA enforcement. In short, discouraging “piling on” sounds great, but it all depends what “piling on” means.

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DOJ Announces Non-Binding Policy Discouraging “Piling On” Regarding Corporate Resolution Penalties

piling

Yesterday, DOJ Deputy Attorney General Rod Rosenstein announced a non-binding policy discouraging “piling on” by instructing DOJ “components to appropriately coordinate with one another and with other enforcement agencies in imposing multiple penalties on a company in relation to investigations of the same misconduct.”

While this represents a new DOJ non-binding policy, the concept of “piling on” has been talked about for quite some time including by Obama administration enforcement officials. (See prior FCPA Professor coverage herehere and here). This includes in the FCPA context going back to the FCPA reform hearings in 2011 (see here for the prior post) – a concept that has long been termed “double-dipping” on these pages (see here). (See here for an FCPA Flash Podcast on the subject with David Bitkower (former Principal Deputy Assistant Attorney General).

The DOJ’s new policy is general in nature, not FCPA specific, but portions of it are FCPA relevant and a future post will analyze the new policy in the context of FCPA enforcement. For now, this post excerpts Rosenstein’s speech and sets forth the policy.

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Court In FCPA-Related Civil Claim – Causation Matters

Judicial Decision

Several prior posts (herehere, here and here) have focused on basic causation issues in connection with many Foreign Corrupt Practices Act enforcement actions.

The lack of causation between an alleged bribe payment and any alleged business obtained or retained may not be a legal defense because the FCPA’s anti-bribery provisions prohibit the offer, payment, promise to pay or authorization of the payment of money or anything of value.  Indeed, several FCPA enforcement actions have alleged unsuccessful bribery attempts in which no business was actually obtained or retained.

Nevertheless, causation ought to be relevant when calculating FCPA settlement amounts, specifically disgorgement. However, the prevailing enforcement theory often seems to be that because Company A made improper payments to allegedly obtain or retain Contract A then all of Company A’s net profits associated with Contract A are subject to disgorgement.

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Inability To Pay

inabilitypay

As highlighted in this post, the $2 million settlement amount in the recent Transport Logistics International enforcement action could have been much higher as the DOJ and the company agreed “based on the application of the Sentencing Guidelines, that the appropriate criminal penalty [was] $21,375,000.” However, as stated in the resolution documents, the DOJ “with the assistance of a forensic accounting expert, conducted an independent inability to pay analysis, [and] it was determined that a penalty greater than $2 million would substantially jeopardize the continued viability of the Company.”

According to some, this “appears to be a recent trend,” and “in prior years, the DOJ rarely cited a company’s inability to pay as a factor for a particular fine.” However, like much FCPA commentary these comments lack an appreciation for history (including not too distant history) because as highlighted below the “inability to pay” dynamic in the TLI matter is not a recent trend and “inability to pay” determinations, as previously highlighted in FCPA Professor posts, have been made in several FCPA enforcement actions going back several years (in addition to more recent examples involving SBM Offshore and Odebrecht).

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