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DOJ Releases Memo Titled “Evaluating A Business Organization’s Inability To Pay A Criminal Fine Or Criminal Monetary Penalty”


Prior posts here and here highlighted several Foreign Corrupt Practices Act enforcement actions in which a company received a reduction in the settlement amount based on a claimed inability to pay. In certain instances, it appears as if the DOJ / SEC were duped (see here for example).

Thus, yesterday’s release of this non-binding DOJ policy memo titled “Evaluating a Business Organization’s Inability to Pay a Criminal Fine or Criminal Monetary Penalty,” while not FCPA specific, is FCPA relevant.

As an overview, the memo states:

“In seeking to resolve a criminal case, a business organization may assert that it is unable to pay the criminal fine or monetary penalty sought by the Criminal Division, despite agreeing that the proposed amount is otherwise appropriate based on the law and the facts. This memorandum and the accompanying Inability-to-Pay Questionnaire (Attachment A) are intended to provide guidance and an analytical framework for Criminal Division attorneys to assess assertions by a business organization that it is unable to pay an otherwise appropriate criminal fine or monetary penalty.

As a threshold matter, before Criminal Division attorneys are able to consider an inability to pay argument, the parties must first reach an agreement as to both the form of a corporate criminal resolution (e.g., non-prosecution agreement, deferred prosecution agreement, or corporate guilty plea) and the monetary penalty that is appropriate based on the law and facts, irrespective of inability to pay considerations. As reflected herein, when evaluating a company’s assertion that it is unable to pay an agreed upon penalty, Criminal Division attorneys should carefully consider the statutory sentencing factors set forth at 18 U.S.C. § 3572(a) & (b), the guidance set forth in U.S.S.G. §§ 8C2.2 & 8C3.3, and the Justice Manual’s principles regarding the consideration of collateral consequences in resolving a corporate criminal case. In most cases, prosecutors also will need to consult an accounting expert to examine the financial condition of the business.

The burden of establishing an inability to pay rests with the business organization making such a claim, and the organization must cooperate fully in providing information and access to appropriate company personnel to respond to prosecutors’ inquiries. In every case where an inability to pay is asserted, the business organization will be expected to provide a complete and timely response to the Inability-to-Pay Questionnaire, as well as to any follow up inquiries.”

After setting forth several legal considerations relevant to the evaluation of inability to pay claims, the memo next contains a section titled “Relevant Factors for Assessing Whether a Business Organization has Demonstrated an Inability to Pay the Otherwise Appropriate Criminal Fine or Monetary Penalty.” It states:

“A business organization’s ability to pay an agreed upon criminal fine or monetary penalty will often be determined by an analysis of its responses to the Inability-to-Pay Questionnaire to determine the company’s current assets and liabilities, as well as to compare current and anticipated cash flows against working capital needs. Where legitimate questions exist regarding an organization’s inability to pay, the analysis can be more complex, requiring the consideration of a range of factors, including the following:

Background on Current Financial Condition. Criminal Division attorneys should assess what gave rise to the organization’s current financial condition. For example, did ownership or management take capital out of the organization in the form of dividends, distributions, loans, or other compensation? Has the organization recently made investments in the form of facilities expansion, capital improvements, or an acquisition? Has the organization engaged in related-party transactions?

Alternative Sources of Capital. Criminal Division attorneys should consider the organization’s ability to raise capital through existing or new credit facilities or via a sale of assets or equity. Criminal Division attorneys should also examine the availability of insurance or indemnification agreements, the existence of booked reserves, any plans for the acquisition or divestment of assets, and the details from any company forecasts.

Collateral Consequences. Criminal Division attorneys also should be mindful of any significant adverse collateral consequences that are likely to result from the imposition of a criminal fine or monetary penalty exceeding an organization’s ability to pay. Relevant collateral consequences include impacts on an organization’s ability to fund pension obligations or provide the amount of capital, maintenance, or equipment required by law or regulation. Criminal Division attorneys also may consider whether the proposed monetary penalty is likely to cause layoffs, product shortages, or significantly disrupt competition in a market. Certain collateral consequences are generally not relevant in assessing an organization’s inability to pay. These include adverse impacts on growth, future opportunities, planned or future product lines, future dividends, unvested or future executive compensation or bonuses, and planned or future hiring or retention.

Victim Restitution Considerations. Criminal Division prosecutors also must consider whether the proposed criminal fine or monetary penalty will impair an organization’s ability to make restitution to any victims.

Where Criminal Division attorneys fmd that an organization is unable to pay the otherwise appropriate criminal fine or monetary penalty, they should recommend an adjustment to the monetary penalty amount, but only to the extent necessary to avoid (1) threatening the continued viability of the organization and/or (2) impairing the organization’s ability to make restitution to victims. An adjustment may consist of an appropriate reduction in the proposed criminal fine or monetary penalty, or the use of an installment schedule to facilitate the payment of the proposed fine or penalty amount over a reasonable period of time.”

In announcing the new policy, Assistant Attorney General Brian Benczkowski stated in this speech that it is part of the DOJ’s efforts to promote greater transparency in DOJ decision-making.

In the same speech, Benczkowski also talked about the DOJ’s October 2018 policy on corporate monitorships (see here for the prior post) and stated:

“That basic principle was the premise of our new policy, which supplemented prior guidance: that monitors should be approved only in cases where there is a demonstrable need for one, with clear benefits to be derived.  Monitorships should never be punitive.

And those benefits must always be weighed against the projected costs and burdens that a monitor will impose on a business’s operations.

The new policy clarifies that, in deciding whether to impose monitors, Criminal Division attorneys should consider pragmatic factors, including the type of misconduct, the pervasiveness of the conduct, and whether it involved senior management.

They are also to look at any investments and improvements a company has made to its corporate compliance program and internal control systems, and whether the misconduct took place in an inadequate compliance environment that no longer exists.

And the new policy further clarifies that demonstrable changes to a compliance program and culture can suffice to protect against future misconduct, and eliminate the need for a monitor.”

As highlighted in this prior post, it is very difficult to reconcile this DOJ rhetoric with the fact that Walmart was required to retain a monitor in connection with its June 2019 enforcement action.

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