Top Menu

… But Nobody Was Charged

James Stewart’s first Common Sense column for Business Day at the New York Times (here) profiles the February 2011 FCPA enforcement action against Tyson Foods involving Mexican veterinarians. (See here for the prior post).

The column is silent as to the relevant fact (as indicated in the DOJ’s charging document) that Mexican law permitted certain of the veterinarians at issue to charge the facility in which they work a fee for their services in addition to their official salary.

But that is besides the point, because Stewart’s column once again raises the valid issue that so many FCPA enforcement actions involve corporate resolutions only – with no related individual prosecutions.

Stewart writes as follows. “It would seem self-evident that if Tyson engaged in a conspiracy and violated the Foreign Corrupt Practices Act, then someone at Tyson did so as well.” Stewart further noted as follows. “But surely bribery, not to mention other forms of corporate wrongdoing, would be more effectively deterred if someone was actually held accountable for it.”

Spot on.

In my November 2010 prepared statement (here) to the Senate Judiciary Committee I stated as follows.

“Key to achieving deterrence in the FCPA context is prosecuting individuals, to the extent the individual’s conduct legitimately satisfies the elements of an FCPA anti-bribery violation. For a corporate employee with job duties that provide an opportunity to violate the FCPA, it is easy to dismiss corporate money being used to pay corporate FCPA fines and penalties. It is not easy to dismiss hearing of an individual with a similar background and job duties being criminally indicted and sent to federal prison for violating the FCPA.”

I further observed that during this era of the FCPA’s resurgence, the DOJ has consistently stated that prosecuting individuals is a “cornerstone” of its FCPA enforcement strategy. Yet, I asked, why is DOJ’s FCPA enforcement program largely a corporate fine-only program devoid of individual prosecutions?

As highlighted in this prior post, 70% of DOJ FCPA enforcement actions in 2010 have not involved (at least thus far) DOJ prosecutions of company employees.

What do the numbers look like thus far at the mid-point of 2011?

So far this year there have been six DOJ FCPA enforcement actions against companies (Maxwell Technlogies, Tyson Foods, Johnson & Johnson, Comverse Technologies, JGC of Japan, and Tenaris).

None of these FCPA enforcement actions have resulted (at least thus far) in DOJ prosecutions of company employees. Nor has the SEC brought civil charges against any employees of these companies. Nor has the SEC charged any employees (at least thus far) in the three SEC only FCPA enforcement actions this year (IBM, Ball Corporation, and Rockwell Automation).

As I noted in my Senate testimony, the high percentage of corporate FCPA enforcement actions that do not result in related enforcement actions against individuals legitimately causes one to wonder whether the conduct given rise to the corporate enforcement action was engaged in by ghosts.

Yet, I submit, there is an equally plausible reason why no individuals have been charged in some of the above-mentioned enforcement actions (and others) and that involves the quality of the corporate enforcement action.

Given the prevalence of NPAs and DPAs in the FCPA context and the ease in which DOJ offers these alternative resolution vehicles to companies subject to an FCPA inquiry, companies often agree to enter into such resolution vehicles regardless of the DOJ’s legal theories or the existence of valid and legitimate defenses. It is simply easier, more cost efficient, and more certain for a company to agree to a NPA or DPA than it is to be criminally indicted and mount a valid legal defense – even if the DOJ or SEC’s theory of prosecution is questionable. [See here for a prior post detailing a former DOJ prosecutor’s concern regarding NPAs and DPAs as to these issues].

Individuals, on the other hand, face a deprivation of personal liberty, and are more likely to force the DOJ or SEC to satisfy its high burden of proof as to all FCPA elements.

Regardless of what you think about the possible reasons, the fact remains FCPA enforcement is, despite enforcement agency rhetoric, largely corporate enforcement only.

While on the topic of individual prosecutions, it must be noted that the bulk of such recent prosecutions are in the manufactured Africa Sting case where 22 individuals were criminally charged. Last week (see here for the prior post) Judge Richard Leon declared a mistrial in the trial of the first 4 defendants. The FCPA Blog had a stellar post yesterday (here) titled “Feds Should Forget Shot Show Defendants” and stated that instead of future sting operations to dig up FCPA individual defendants, the DOJ should focus “instead on the real bad apples [companies that have admitted violating the FCPA and paid big fines] who paid real bribes to real foreign officials.”

Spot on.

Food For Thought

Given the enforcement agencies’ interpretations of the FCPA, a wide variety of seemingly routine interactions with “foreign officials” are subject to FCPA scrutiny.

For instance, in February, Tyson Foods, one of the world’s largest processors of chicken and other food items, agreed to resolve an FCPA enforcement action focused on payments to Mexican veterinarians responsible for certifying product for export. As noted in this prior post, the enforcement action involved both a DOJ and SEC component and the total settlement amount was approximately $5.2 million – a figure in addition to the pre-enforcement action and post-enforcement action fees and expenses.

The Tyson Foods enforcement action was an example of yet another recent Foreign Corrupt Practices Act enforcement action dealing with licenses, permits, certifications, and the like.

On January 4, 2011, President Obama signed the Food Safety Modernization Act (“FSMA”) (here for more information).

In a recent piece published by Law360 (“Growing Risk: FCPA Exposure For Foreign Food Food Cos. – March 16, 2011), Foley & Lardner attorneys Lisa Noller (here) and Carmen Couden (here) state that new provisions in the FSMA “unintentionally create foreign bribery risks for foreign importers of food.”

The FCPA risk, the authors note, is all about foreign certifications. The FSMA will require importers of food to have a certification issued by “an agency or a representative of the government of the country from which the article of food at issue originated” that the “article of food complies with applicable requirements” under the FSMA.

As further noted by the authors, “food is often a commodity that cannot wait for clearances – if it does not ship immediately, it spoils and the value is destroyed.”

This dynamic would seem to increase the motivation a low-ranking, poorly paid “foreign official” has to make an improper, extortionate payment related to food certification.

A facilitating payment exempted from the FCPA (at least per the FCPA’s terms – enforcement is separate question) or prosecutable bribe payment?

What type of journey did your banana, scallop – create your own dish – take on its way to the U.S.?

Interesting food for thought.

Tyson Foods Settles FCPA Enforcement Action Involving Mexican Veterinarians And Their No-Show Wives

Yet another FCPA enforcement action raises the issue of whether the FCPA’s “obtain or retain business” element means anything anymore or whether the FCPA, contrary to Congressional intent, has morphed into an all-purpose corporate ethics statute and – in a game of chicken – companies opt to settle rather than mount a legal defense.

Yesterday, Tyson Foods, one of the world’s largest processors of chicken and other food items, agreed to resolve an FCPA enforcement action focused on payments to Mexican veterinarians (and their no-show wives) responsible for certifying product for export.

The enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $5.2 million ($4 million criminal fine via a DOJ deferred prosecution agreement; $1.2 million in disgorgement and prejudgment interest via a SEC settled complaint).


The DOJ enforcement action involved a criminal information (here) against Tyson resolved through a deferred prosecution agreement (here).

Criminal Information

The information contains a background section which describes the following.

“The Government of Mexico administers an inspection program, Tipo Inspeccion Federal (“TIF”), for meat-processing facilities. Any company that exports meat products from Mexico must participate in the inspection program, which is supervised by an office in the Mexican Department of Agriculture (“SAGARPA”). The inspection program at each facility is supervised by an on-site veterinarian who is a government employee (“TIF veterinarian”), paid by the state, who ensures that all exports are in conformity with Mexican health and safety laws.” “There are two categories of TIF veterinarians: ‘approved’ and ‘official.’ Although all TIF veterinarians are foreign officials under the FCPA, Mexican law permits approved veteriarians to charge the facility in which they work a fee for their services in addition to their offcial salary. Official veterinarians receive all of their salary from the Mexican government and may not be paid by the facility they supervise.”

The conduct at issue focuses on Tyson de Mexico (“TdM”), a wholly-owned subsidiary of Tyson that produces protein-based and prepared food products for sale in Mexico and foreign countries other than the U.S. TdM is headquartered in Mexico and maintains three meat-processing factories in Mexico.

The information charges that from July 2004 through November 2006, Tyson, TdM, and others were engaged in a conspiracy to “assist Tyson and TdM in the export of meat products from Mexico through the payment and promise of payment of things of value to Mexican government-employed TIF veterinarians, in order to obtain or retain business for TdM by influencing the decisions of veterinarians responsible for certifying TdM products for export under the TIF Program.”

The information does not give any detail as to how the payments sought to influence the veterinarians nor does it suggest that the product at issue was not qualified for export. In fact, as detailed below, Tyson’s press release (a release the DOJ had to approve per the deferred prosecution agreement) states that there were no issues with the safety of the exported products.

Among other things, the information alleges that part of the conspiracy was “to place the wives of the TIF veterinarians on TdM’s payroll, providing them with a salary and benefits, knowing that the wives did not actually perform any services for TdM …”. According to the information, upon “termination of the salaries to the wives of the TIF veterinarians” in November 2006 Tyson “agreed to increase the amount paid to the veterinarians based on false invoices by the same amount as the salaries previously paid to their wives.”

The information alleges that the above payments were falsely recorded on company books and records as “professional fees” and salaries in order to conceal the true nature of the improper payments in the consolidated books and records of Tyson.

In addition to the above described payments, the information also alleges that from the time Tyson acquired TdM in 1994 through 2006, “Tyson made occassional additional improper payments to the TIF veterinarians on an ad-hoc basis.”

Under the heading “Total Improper Payments” the information alleges as follows:

“Tyson, its executives, and its subsidiaries authorized the payment, directly or indirectly, of approximately $90,000 to Mexican government-employed veterinarians, in order to obtain or retain business for TdM by influencing the decisions of veterinarians responsible for certifying TdM products for export under the TIF program, resulting in profits of approximately $880,000.”

In addition, the information alleges that from the time of Tyson’s acquisition of TdM until May 2004, “an additional $260,000 in improper payments were made to the TIF veterinarians, both indirectly and directly, including through payments to wives of TIF veterinarians.”

Based on the above allegations, the information charges Tyson with conspiracy to violate the FCPA and substantive FCPA anti-bribery violations.


The DOJ’s charges against Tyson were resolved via a deferred prosecution agreement.

Pursuant to the DPA, Tyson admitted, accepted and acknowledged that it was responsible for the acts of its officers, employees, agents, and wholly-owned subsidiaries as set forth above.

The term of the DPA is two years and it states that the DOJ entered into the agreement “based on the following factors”:

(a) Tyson voluntarily disclosed the misconduct;

(b) Tyson conducted a thorough internal investigation of the misconduct;

(c) Tyson reported all of its findings to the Department;

(d) Tyson cooperated in the Department’s investigation of the matter;

(e) Tyson has undertaken certain remedial measures;

(f-g) Tyson has agreed to continue to cooperate with the Department and the SEC in any investigation of the conduct of Tyson and its directors, offcers, employees, agents, consultants, subsidiaries, contractors, and subcontractors relating to violations of the FCPA; and

(h) with respect to the corporate compliance reporting obligations, the Department considered the following facts and circumstances: (i) Tyson has already engaged in signficant remediation related to the misconduct and implemented an enhanced compliance program; (ii) approximately 85-90% of Tyson’s sales are domestic; (iii) Tyson operates only six wholly-owned production facilities overseas, three in Mexico and three in Brazil, all of which have been subjected to rigorous FCPA reviews; (iv) Tyson’s only direct government customers are domestic; and (v) the problematic operations in TdM comprised less than one percent of Tyson’s global net sales.

As stated in the DPA, the fine range for the above described conduct under the U.S. Sentencing Guidelines was $5.04 to $10.08 million. Pursuant to the DPA, Tyson agreed to pay a monetary penalty of $4 million (approximately 20% below the minimum amount suggested by the guidelines).

Pursuant to the DPA, Tyson agreed to self-report to the DOJ “periodically, at no less than six-month intervals” during the term of the DPA “regarding remediation and implementation of the compliance activities” described in the DPA. Given the factors the DOJ set forth in (h) above, this reporting obligation is a bit of a surprise.

As is standard in FCPA DPAs, Tyson agreed not to make any public statement “contradicting the acceptance of responsibility” as set forth in the DPA and Tyson further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.

In the DOJ’s release (here) Assistant Attorney General Lanny Breuer stated as follows: “Tyson Foods used false books and sham jobs to hide bribe payments made to publicly-employed meat processing plant inspectors in Mexico – the penalty and resolution announced today reflect the company’s disclosure of this conduct, its cooperation with the government’s investigation and its commitment to implementing enhanced controls.”


The SEC’s civil complaint (here) is based on the same core conduct described above.

The complaint alleges that Tyson “authorized” TdM’s illicit activities and that “in connection with these improper payments, Tyson Foods failed to keep accurate books and records and failed to have effective internal controls, as the true nature of the payments were concealed through salary payments to phantom employees and through service invoices submitted by one of the veterinarians.”

According to the SEC, “Tyson Foods realized net profits of more than $880,000 from export sales from [TdM] facilities in fiscal years 2004, 2005 and 2006.

Based on the above conduct, the SEC charged Tyson with FCPA’s anti-bribery violations and FCPA books and records and internal control violations.

Without admitting or denying the SEC’s allegations, Tyson agreed to an injunction prohibiting future FCPA violations and agreed to pay $1.2 million in disgorgement and pre-judgement interest.

In the SEC release (here), Robert Khuzami (Director of the SEC’s Division of Enforcement) stated: “Tyson and its subsidiary committed core FCPA violations by bribing government officials through no-show jobs and phony invoices, and by having a lax system of internal controls that failed to detect or prevent the misconduct.”

Laurence Urgenson (here) of Kirkland & Ellis represented Tyson.

Tyson’s press release (here) notes, among other things, that its voluntary disclosure occured in early 2007 and that “none of the products exported from Tyson de México during the time period involved were shipped to the U.S., nor were there any issues with the safety of the products.”

David Van Bebber, the company’s Executive Vice President and General Counsel stated as follows: “We’re committed to abiding by the law as well as our company’s Core Values, which call on all of our people to operate with integrity. While we’re disappointed mistakes were made, corrective action has been taken and the improper payments were discontinued. As our international operations have expanded, we continue to strengthen the compliance efforts of our international businesses including improved training and compliance programs, extensive retraining, and anti-corruption focused audits.”

Powered by WordPress. Designed by WooThemes