In a recent speech, Deputy Attorney General Rod Rosenstein stated:
“One concern is about multiple law enforcement and regulatory agencies pursuing a single entity for the same or substantially similar conduct. Some refer to this as the “piling on” problem. When a company engages in wrongdoing, we should enforce the law and punish the wrongdoer. That is fair and just. But repeated punishment for the same conduct has the potential to undermine the spirit of fair play and the rule of law. Multiple punishments can also deprive a company, as well as its employees, customers, and investors, of the benefits of certainty and finality ordinarily available through a full and final settlement. This is why the Department is committed to making a concerted effort to apportion penalties among both international and domestic agencies, where appropriate.”
As highlighted in this post, Rosenstein’s concern is relevant to Foreign Corrupt Practices Act enforcement.
For starters, Rosenstein is not the first government enforcement official to raise the concern about multiple law enforcement and regulatory agencies pursuing a single entity for the same or substantially similar conduct.
As highlighted in this prior post, while SEC Chair Mary Jo White spoke about “the pressure of multiple regulators in the same or overlapping investigations” and expressed concerns regarding “overcrowding,” “duplicative outcomes” and “double dipping.”
In most FCPA enforcement actions involving a DOJ and SEC component in which the SEC seeks disgorgement (the vast majority of FCPA enforcement actions against issuers), the DOJ and SEC seek recovery of the same money for the same conduct in what can only be called double-dipping.
This aspect of SEC FCPA enforcement has caught the attention of Congress. In a 2011 letter from Senator Mike Crapo to the SEC Chairman, Senator Crapo asked, among other FCPA questions, “under what circumstances, if any, is it appropriate for both the SEC and the DOJ to seek the recovery of penalties from the same entity for the same conduct.” The SEC Chairman stated:
“The Commission and DOJ do not obtain duplicative penalties in FCPA cases. Typically, the Commission will obtain monetary sanctions in the form of disgorgement (ill-gotten gains) while the DOJ obtains monetary sanctions in the form of penalties. In those rare cases where both the Commission and the DOJ obtain penalties, the total penalty assessed against the company is no greater than it would be if either the Commission or DOJ alone obtained the penalty.”
Despite the SEC Chairman’s answer, the fact remains that DOJ criminal fines are calculated pursuant to the Sentencing Guidelines in which a key factor determining the ultimate penalty amount is the value of the benefit received by the company from the conduct at issue.
To highlight just a few examples (of numerous examples that could also be cited).
The Total enforcement action involved parallel DOJ and SEC enforcement actions and the company agreed to pay approximately $398 million to resolve its FCPA scrutiny. The DOJ component included a $245 million fine and the SEC component included approximately $153 in disgorgement and prejudgment interest. It is clear from the enforcement agency documents that approximately $150 million represented a double-dip. The DOJ DPA set forth the Sentencing Guidelines calculation and noted that the base fine was $147 million “which corresponds to the value of the benefit received in return for the unlawful payments.” The SEC’s order stated that the company’s improper payments “netted Total approximately $150 million in profits.” Based on this figure, the SEC ordered Total to pay $153 million in disgorgement and prejudgment interest. In other words, Total repaid the approximate $150 million benefit it received from the alleged improper payments twice – first to the DOJ and then to the SEC. This can only be called double-dipping and it is not unique to the Total enforcement action.
Likewise the LAN Airlines enforcement action involved parallel DOJ and SEC enforcement actions and the company agreed to pay approximately $22 million. Both the SEC and DOJ stated that LAN obtained a benefit of $6.7 million as a result of the improper payments. The SEC enforcement action consisted of disgorgement of $6.7 million (plus prejudgment interest of $2.6 million) for a total payment of $9.5 million. The DOJ DPA set forth the Sentencing Guidelines calculation which had a major factor the value of the benefit received. In other words, LAN repaid the approximate $6.7 million benefit it received twice – first to the DOJ and then to the SEC.
As highlighted in this previous post, the JPMorgan enforcement action was not merely a double dip, but included a triple dip.
- $72 million to the DOJ
- $130.6 million to the SEC
- $61.9 million to the Federal Reserve Board
all based on the same alleged core conduct.
Phillip Urofsky, a former DOJ Assistant Chief of the Fraud Section, has stated:
“The SEC’s enforcement of the anti-bribery provisions raises a fundamental matter of fairness. Take two companies, one public and one private, and assume that both violate the FCPA and realize the same illicit gain from the violation. The private company will be subject only to DOJ’s jurisdiction and will therefore be exposed to a criminal fine of up to twice its gain. The public company, on the other hand, will be subject both to that criminal fine and to a civil fine and disgorgement of the illicit proceeds, thus potentially paying a third more in fines than the private company for the same conduct.”
So true and Deputy AG Rosenstein’s recent comments once again highlight a troubling aspect of FCPA enforcement.
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