This previous post concerned the FCPA enforcement action against Lifecore Biomedical, Inc. (f/k/a Landec Corporation) in connection with alleged Foreign Corrupt Practices Act violations involving wastewater issues in Mexico.
This post highlights additional issues to consider.
Timeline
As highlighted in this prior post, in January 2020 Landec disclosed:
“As previously disclosed, on December 1, 2018, the Company acquired all of the voting interests and substantially all of the assets of Yucatan Foods (the “Yucatan Acquisition”), which owns a guacamole manufacturing plant in Mexico called Procesadora Tanok, S de RL de C.V. (“Tanok”).
On October 21, 2019, the Company retained Latham & Watkins, LLP to conduct an internal investigation relating to potential environmental and Foreign Corrupt Practices Act (“FCPA”) compliance matters associated with regulatory permitting at the Tanok facility in Mexico. The Company subsequently disclosed to the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) the conduct under investigation, and these agencies have commenced an investigation. The Company is cooperating in the government investigations.”
From to start to finish, Lifecore’s / Landec’s FCPA scrutiny lasted approximately 3.75 years.
I’ve said it many times, and will continue saying it until the cows come home: if the DOJ/SEC want their FCPA enforcement programs to be viewed as more credible and more effective, the enforcement agencies must resolve instances of FCPA scrutiny much quicker.
This is particularly true in the Lifecore matter given that the company, in the words of the DOJ, provided “full and proactive cooperation in this matter (including its provision of all known relevant facts about the misconduct) …”.
Disgorgement
Generally, disgorgement is measured by the defendant’s wrongful gain and requires a defendant to relinquish gains properly attributable to the defendant’s conduct.
In the FCPA Guidance, the DOJ/SEC state:
“In addition to criminal and civil penalties, companies may also be required to forfeit the proceeds of their crimes, or disgorge the profits generated from the crimes. While the purpose of a penalty or fine is to punish and deter misconduct, the purpose of forfeiture and disgorgement is primarily to return the perpetrator to the same position as before the crime, ensuring that the perpetrator does not profit from the misconduct.”
In the Lifecore enforcement action, the DOJ advanced an interesting spin on disgorgement as it stated:
“Lifecore further agrees that the financial benefit fairly attributable to the bribery conduct, i.e., the costs Lifecore avoided paying that were associated with needed on-site wastewater treatment as well as duties that otherwise would have been due and payable to Mexican regulatory authorities, was $1,286,060 USD. Because Lifecore has already incurred $879,555 USD in expenses by constructing a wastewater treatment plant and paying Mexican regulators the duties it owed, Lifecore agrees to disgorge the remaining amount of costs avoided, i.e., $406,505 USD.”
Obtain or Retain Business
The Lifecore enforcement action – like so many in the FCPA’s modern era – involved conduct in connection with obtaining a license or permit. In the words of the DOJ:
“[T]hese individuals engaged in a scheme to pay approximately $14,000 in bribes to a government official through a third-party intermediary to secure a wastewater discharge permit. Tanok employees and agents also paid a third-party service provider approximately $310,000 to prepare fraudulent manifests purporting to show the provider had delivered wastewater to a municipal water company for disposal while knowing that a portion of the fee was used to pay bribes to one or more local Mexican government officials to sign the manifests to help make them appear legitimate.”
The FCPA of course is not an all purpose corporate ethics statute, but a limited statute with specific elements including the obtain or retain business element.
Query how the obtain or retain business element was satisfied in the Lifecore enforcement action?
Short answer … it wasn’t but this legal point doesn’t matter when an enforcement action is resolved in the absence of judicial scrutiny.
In fact, when the government has been put to its burden of proof in so-called non-procurement type of cases (i.e. those involving licenses, permits or other instances of not actually obtaining or retaining business), the government has an overall losing record. (See this article for details on the four matters).
