Looking for further proof that settlement amounts in an actual Foreign Corrupt Practices Act enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement in this new era? (See here for the article Foreign Corrupt Practices Act Ripples ).
Check out this recent opinion  from the U.S. Court of Federal Claims involving a successful post-award bid protest based on Louis Berger Aircraft Services Inc.’s failure to inform the Navy of its parent company’s involvement in corruption and fraud (see here  for the prior post highlighting the July 2015 FCPA enforcement action against Louis Berger Int’l Inc.).
FCPA practitioners with clients involved in federal government contracting and subject to FCPA scrutiny would be wise to read the decision.
Not only is the opinion instructive on the FCPA’s many ripples, it also contains some candid admissions by U.S. government attorneys that FCPA enforcement actions are carefully crafted in the hopes of avoiding negative collateral consequences as well as evidence that the”right hand” of the government does not always know what the “left hand” of the government is doing,
The bid protest involved a March 2015 U.S. Navy solicitation for air terminal and ground handling services at Naval Station Rota, Spain. Among other evaluation factors, to be eligible for the award a company needed to be responsible, including a “satisfactory record of integrity and business ethics.”
After determining that Louis Berger Aircraft Services (part of a family of companies controlled by Berger Group Holdings) was “responsible,” the Contracting Officer recommended to award the contract to the company.
However, another company, Algese 2 s.c.a.r.l. (“Algese”) challenged this determination in a bid protest based on the failure of Louis Berger Aircraft Services to disclose public integrity issues that the Louis Berger family of companies faced, including the July 2015 FCPA enforcement action against Louis Berger International Inc., in which Berger Group Holdings was included within the definition of “Company” in the deferred prosecution agreement.
As articulated by the court in summary fashion:
“This post-award bid protest presents the question of whether the Navy may award a contract to an offeror that has materially misrepresented and concealed its corporate parent’s long history of public corruption and fraud in government procurement. For the reasons explained below, the Court finds that the awardee, Louis Berger Aircraft Services, in coordination with its corporate family, willfully and intentionally concealed criminal proceedings involving its parent and other Louis Berger entities. The failure to report the corruption and fraud in Louis Berger’s proposal to the Navy constituted a material misrepresentation and a false certification to the United States. The Navy’s affirmative determination of responsibility for Louis Berger Aircraft Services initially was based on a lack of knowledge, because the parent corporation’s corruption and fraud had been concealed. Upon a later review when the corruption and fraud came to light in a bid protest, the Navy should have found Louis Berger Aircraft Services ineligible for award, but it did not. The Navy’s actions in proceeding with an award to Louis Berger Aircraft Services were arbitrary, capricious, and without a rational basis. Accordingly, the Court permanently enjoins the Navy by requiring the termination of the contract award to Louis Berger Aircraft Services, and the cessation of any further performance under that contract.”
Specifically, as to the 2015 FCPA enforcement action, the court stated (certain internal citations omitted):
“Under FAR 52.209-5, Louis Berger Aircraft Services certified that neither it nor its principals were “presently indicted for, or otherwise criminally or civilly charged by a governmental entity with commission of” fraud or other specified bribery and public integrity offenses. However, Louis Berger Aircraft Services’ parent corporation Berger Group Holdings was, and is currently, a party to a deferred prosecution agreement. Berger Group Holdings entered into the deferred prosecution agreement in July 2015, in the midst of the procurement at issue here. Berger Group Holdings was not a named defendant, and therefore, not “indicted” under FAR 52.209-5. However, Berger Group Holdings was explicitly accused of engaging in a conspiracy to bribe foreign officials. See, e.g., (“Company [defined to include Berger Group Holdings, subsidiaries and affiliates] engaged in a scheme to pay bribes to various foreign officials. . . .”).
The Court must determine if Berger Group Holdings was “otherwise criminally . . . charged,” triggering disclosure requirements on Louis Berger Aircraft Services’ part. FAR 52.209-5. The FAR does not define “charge”. The Government and Algese offer different definitions: one grounded in a dictionary definition and the other in the regulatory scheme governing suspension and debarment. Under either definition, Berger Group Holdings was “charged” for the purposes of FAR 52.209-5 requiring disclosure.
For its part, the Government relies on Black’s Law Dictionary’s definition, a “formal accusation of a crime as a preliminary step in prosecution,” to argue that Berger Group Holdings was not charged. However, under this definition Berger Group Holdings was in fact charged. The Department of Justice formally accused Berger Group Holdings of engaging in a long-term scheme to bribe foreign officials to win public contracts. Berger Group Holdings agreed to the accuracy of the allegations and agreed not to contest them. The corporation acknowledged that it may be subject to criminal prosecution based on the allegations in the deferred prosecution agreement. Turning to Algese’s definition, as the “regulations concerning responsibility determinations are cryptic,” this Court “may look to the more extensive debarment regulations for guidance, at least on questions related to the ‘integrity and business ethics’ requirement.” Indeed, the regulators who drafted FAR 52.209-5 noted that the certification requirement was “consistent with guidelines recently promulgated by [the U.S. Office of Management & Budget] for agency use in nonprocurement actions [for suspension and debarment]. . . .” The Office of Management & Budget guidelines instruct that suspension may be appropriately based “on an indictment, conviction, or other adequate evidence that the respondent has committed irregularities seriously reflecting on the propriety of further Federal Government dealings with the respondent.” As FAR 52.209- 5(a)(1)(B) already requires disclosure of an indictment and thus a conviction, the Court adopts the latter definition. See FAR 52.209-5(a)(1)(B) (requiring disclosure if the offeror or its principal has “been convicted of or had a civil judgment rendered against them” in the past three years). The Court is satisfied that the irregularities-seriously-reflecting-on-propriety standard is not unduly burdensome and is properly applied to disclosure requirements.
Berger Group Holdings’ conduct presented adequate evidence of irregularities seriously reflecting on the propriety of further Federal Government dealings. Louis Berger Aircraft Services’ parent corporation was accused of, and admitted to, engaging in a twelve-year conspiracy to “pay bribes to various foreign officials in Indonesia, Vietnam, India and Kuwait to secure contracts with government agencies and instrumentalities. . . .”. Although not named in the criminal case, Berger Group Holdings was very much a part of the activities upon which the criminal conviction was based. When assessing a prospective contractor’s record for integrity and business ethics under FAR Part 9, the contracting officer is considering the reputational and performance risks the offeror may pose. Here, the offeror’s principal participated in a decade-long international bribery scheme to obtain public contracts. This is precisely the type of information that an offeror should put before the contracting officer so he can assess reputational risk posed to the government. Under both definitions, Berger Group Holdings was otherwise criminally charged. Having determined that Louis Berger Aircraft Services’ certification to the contrary was a false statement, the Court now considers whether Berger Group Holdings was Louis Berger Aircraft Services’ principal.
Quoting Louis Berger Aircraft Services, the Contracting Officer found that Berger Group Holdings does not “exert operational or managerial” control over Louis Berger Aircraft Services or its direct parent, Louis Berger Services. He observed that Berger Group Holdings was not a “principal” and thus Louis Berger Aircraft Services did not have to disclose the deferred prosecution agreement. This conclusion both disregards the full definition of “principal” and ignores contradictory information in the administrative record.
As with Berger Group Holdings, a “principal” can be an owner, not only a person having “primary management or supervisory responsibilities” as the Contracting Officer suggested. FAR 52.209-5(a)(2). Despite discussing the Louis Berger family of companies’ corporate structure, the Contracting Officer failed to realize that Berger Group Holdings owns 100 percent of Louis Berger Aircraft Services. He noted that Louis Berger Services is Louis Berger Aircraft Services’ direct parent corporation. Berger Group Holdings is Louis Berger Services’ direct parent corporation. Louis Berger Services owns 83 percent of Louis Berger Aircraft Services and Berger Group Holdings owns the remaining 17 percent. In fact, Berger Group Holdings owns 100 percent of Louis Berger Services. Thus, Berger Group Holdings wholly owns Louis Berger Aircraft Services. This makes Berger Group Holdings a “principal” of Louis Berger Aircraft Services prompting the certification requirements. The Contracting Officer bypassed this fact adopting wholesale, and without explanation, Louis Berger Aircraft Services’ false statement. This fact alone made the Contracting Officer’s determination arbitrary and capricious.
Louis Berger Aircraft Services’ false statement that it does not control its subsidiaries was both self-serving and obvious. At a minimum, the Contracting Officer ignored evidence of the misrepresentation. To be sure, there was clear evidence in the record that Berger Group Holdings held “supervisory responsibilities” over its subsidiaries, including Louis Berger Aircraft Services. FAR 52.209-5(a)(2). For example, despite not being indicted in either investigation, Berger Group Holdings “fully cooperated with Government investigations and took substantial remedial measures to address both the violations [in the 2010 and 2015 deferred prosecution agreements] as well as the misconduct related to over-allocating overhead charges to USAID.” As part of these efforts, Berger Group Holdings set up an independent compliance monitor for all Berger Group companies, and “terminated employees responsible for the misconduct.” Berger Group Holdings terminated its subsidiary’s chief executive officer, chief financial officer, and two senior vice presidents. By establishing and monitoring company-wide compliance efforts and controlling the staffing of its subsidiaries, Berger Group Holdings assumed supervisory responsibilities for its subsidiaries. In the corporate law context, courts have found the very conduct at issue here sufficient to determine the parent corporation exercised control over its subsidiary.”
Not only is the above decision instructive on the FCPA’s many ripples, it also contains some candid admissions by U.S. government attorneys that FCPA enforcement actions are carefully crafted in the hopes of avoiding negative collateral consequences as well as evidence that the”right hand” of the government does not always know what the “left hand” of the government is doing.
Regarding the latter, the court stated that the “Navy was unaware of any of the public corruption investigations involving Louis Berger companies, until Algese filed” a bid protest. This despite the fact that the July 2015 FCPA enforcement action against Louis Berger International received substantial media coverage.
Regarding how FCPA enforcement actions are carefully crafted in the hopes of avoiding negative collateral consequences, the opinion contains the following language:
“The Navy attorney handling the Rota procurement agreed that Berger Group Holdings “would likely be considered a principal [of Louis Berger International],” but questioned whether Berger Group Holdings’ role would rise to the level of requiring disclosure in the certification. Then, he suggested Mr. Natter [a Navy Acquisitions Integrity Office Attorney] follow up with the Assistant U.S. Attorney responsible for the 2015 deferred prosecution agreement to discuss Berger Group Holdings’ role. On September 1, 2015, Mr. Natter reported his conversation with the Assistant U.S. Attorney: [The Assistant U.S. Attorney] confirmed [Berger Group Holdings] was not criminally charged; he also told me that [Berger Group Holdings] was very careful to carve out that [Louis Berger International] was the defendant in the criminal (FCPA) complaint, and he [the Assistant U.S. Attorney] believed that it was to avoid any requirement that its numerous subsidiaries have to disclose the FCPA matter.”