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It Doesn’t Fit

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Remember that game you may have played as a child in which you tried to assert different shape objects into a box and perhaps were left perplexed how the square would fit through the circle. Short answer: the square didn’t fit through the circle.

Likewise, the DOJ’s recent ABB Foreign Corrupt Practices Act enforcement action (the third time ABB has resolved an FCPA enforcement action) does not fit with the DOJ’s September 2022 policy document titled “Further Revisions to Corporate Criminal Enforcement Policies Following Discussions with Corporate Crime Advisory Group.” (See here for the prior post).

The DOJ Memo, released by Deputy Attorney General Lisa Monaco, provided “guidance on how prosecutors should ensure individual and corporate accountability, including through evaluation of: a corporation’s history of misconduct; self-disclosure and cooperation provided by a corporation; the strength of a corporation’ s existing compliance program; and the use of monitors, including their selection and the appropriate scope of a monitor’s work.”

As to individual accountability, the Memo stated:

“[P]rosecutors must strive to complete investigations into individuals and seek any warranted individual criminal charges prior to or simultaneously with the entry of a resolution against the corporation. If prosecutors seek to resolve a corporate case prior to completing an investigation into responsible individuals, the prosecution or corporate resolution authorization memorandum must be accompanied by a memorandum that includes a discussion of all potentially culpable individuals, a description of the current status of the investigation regarding their conduct and the investigative work that remains to be done, and an investigative plan to bring the matter to resolution prior to the end of any statute of limitations period. In such cases, prosecutors must obtain the approval of the supervising United States Attorney or Assistant Attorney General of both the corporate resolution and the memorandum addressing responsible individuals.”

In the recent ABB matter, there does not appear to be any DOJ prosecution of an individual “prior to or simultaneously” with the corporate resolution. Inquiring minds would love to know what the required (the guidance says “must”) corporate resolution authorization memorandum says about this issue.

The DOJ Memo does contains a section titled “Foreign Prosecutions of Individuals Responsible for Corporate Crime” which states:

“The prosecution by foreign counterparts of individuals responsible for cross-border corporate crime plays an increasingly important role in holding individuals accountable and deterring future criminal conduct. Cooperation with foreign law enforcement partners – both in terms of evidence-sharing and capacity-building – has become a significant part of the Department’s overall efforts to fight corporate crime. At the same time, the Department must continue to pursue forcefully its own individual prosecutions, as U.S. federal prosecution serves as a particularly significant instrument for accountability and deterrence.

At times, Department criminal investigations take place in parallel to criminal investigations by foreign jurisdictions into the same or related conduct. In such situations, the Department may learn that a foreign jurisdiction intends to bring criminal charges against an individual whom the Department is also investigating. The Principles of Federal Prosecution recognize that effective prosecution in another jurisdiction may be grounds to forego federal prosecution. JM § 9-27.220. Going forward, before declining to commence a prosecution in the United States on that basis, prosecutors must make a case-specific determination as to whether there is a significant likelihood that the individual will be subject to effective prosecution in the other jurisdiction. To determine whether an individual is subject to effective prosecution in another jurisdiction, prosecutors should consider, inter alia: (1) the strength of the other jurisdiction’s interest in the prosecution; (2) the other jurisdiction’s ability and willingness to prosecute effectively; and (3) the probable sentence and/or other consequences if the individual is convicted in the other jurisdiction. JM § 9-27.240.

When appropriate, Department prosecutors may wait to initiate a federal prosecution in order to better understand the scope and effectiveness of a prosecution in another jurisdiction. However, prosecutors should not delay commencing federal prosecution to the extent that delay could prevent the government from pursuing certain charges (e.g. , on statute of limitations grounds), reduce the chance of arresting the individual, or otherwise undermine the strength of the federal case.

Similarly, prosecutors should not be deterred from pursuing appropriate charges just because an individual liable for corporate crime is located outside the United States.”

The ABB DPA alleges that four “ABB Managers” – all German citizens – were involved in the alleged misconduct, however there does not appear to be any prosecution of these individuals by law enforcement. Inquiring minds would love to know what the required (the guidance says “must”) “case-specific determinations” were made as to these individuals in terms of prosecution in another jurisdiction.

The DOJ’s September 2022 Memo states under the heading “Evaluating a Corporation’s History of Misconduct” as follows:

“[I]n determining how best to resolve an investigation of corporate criminal activity, prosecutors should, among other factors, consider the corporation’s record of past misconduct, including prior criminal, civil, and regulatory resolutions, both domestically and internationally. Consideration of a company’s historical misconduct harmonizes the way the Department treats corporate and individual criminal histories, and ensures that prosecutors give due weight to an important factor in evaluating the proper form of resolution.

Not all instances of prior misconduct, however, are equally relevant or probative. To that end, prosecutors should consider the form of prior resolution and the associated sanctions or penalties, as well as the elapsed time between the instant misconduct, the prior resolution, and the conduct underlying the prior resolution. In general, prosecutors weighing these factors should assign the greatest significance to recent U.S. criminal resolutions, and to prior misconduct involving the same personnel or management. Dated conduct addressed by prior criminal resolutions entered into more than ten years before the conduct currently under investigation, and civil or regulatory resolutions that were finalized more than five years before the conduct currently under investigation, should generally be accorded less weight as such conduct may be generally less reflective of the corporation’s current compliance culture, program, and risk tolerance. However, depending on the facts of the particular case, even if it falls outside these time periods, repeated misconduct may be indicative of a corporation that operates without an appropriate compliance culture or institutional safeguards.

In addition to its form, Department prosecutors should consider the facts and circumstances underlying a corporation’s prior resolution, including any factual admissions by the corporation. Prosecutors should consider the seriousness and pervasiveness of the misconduct underlying each prior resolution and whether that conduct was similar in nature to the instant misconduct under investigation, even if it was prosecuted under different statutes. Prosecutors should also consider whether at the time of the misconduct under review, the corporation was serving a term of probation or was subject to supervision, monitorship, or other obligation imposed by the prior resolution.

[…]

Multiple non-prosecution or deferred prosecution agreements are generally disfavored, especially where the matters at issue involve similar types of misconduct; the same personnel, officers, or executives; or the same entities. Before making a corporate resolution offer that would result in multiple non-prosecution or deferred prosecution agreements for a corporation (including its affiliated entities), Department prosecutors must secure the written approval of the responsible U.S. Attorney or Assistant Attorney General and provide notice to the Office of the Deputy Attorney General (ODAG) in the manner set forth in JM § 1-14.000. Notice provided to ODAG pursuant to JM § 1-14.000 must be made at least 10 business days prior to the issuance of an offer to the corporation, except in extraordinary circumstances.”

The recent ABB DPA lists the following relevant considerations:

“[T]he Company’s criminal history, including (i) the Company’s 2010 DPA, accompanied by guilty pleas by U.S. and Jordan-based subsidiaries, for FCPA violations, involving bribes and kickbacks to officials in Mexico and Iraq; (ii) guilty pleas in 2004 by U.S. and U.K. based subsidiaries for FCPA violations involving bribery of Nigerian officials; and (iii) a guilty plea in 2001 by an Italy-based subsidiary to big-rigging conspiracy involving a construction contract in Egypt; as well as the Company’s resolution of administrative actions with European and Brazilian competition authorities in 2013 and 2014.”

Granted the above prior misconduct is generally beyond the five year window referenced in the DOJ Memo, but then again the prior misconduct concerns multiple prior instances of misconduct, not just one instance. Moreover, in the words of the DOJ Memo, ABB’s prior misconduct involved “similar types of misconduct.”

As to the “seriousness and pervasiveness of the misconduct,” while the second ABB FCPA enforcement action concerned conduct in Iraq and Mexico, the DOJ’s DPA in that matter stated that there was “other misconduct” as well and that “corrupt payments” were made by ABB sudsidiaries “in various countries around the world.”

The DOJ’s recent Memo states that “prosecutors should also consider whether at the time of the misconduct under review, the corporation was serving a term of probation or was subject to supervision, monitorship, or other obligation imposed by the prior resolution.”

As previously indicated in this post, when ABB resolved its first FCPA enforcement action in 2004 concerning conduct in Nigeria, Angola and Kazakhstan, ABB was “permanently” enjoined from violating the FCPA’s anti-bribery, books and records, and internal controls provisions. Likewise, when ABB resolved its second FCPA enforcement action in 2010 concerning conduct in Mexico and Iraq, ABB was “permanently” enjoined from violating the FCPA’s anti-bribery, books and records, and internal controls provisions.

Finally, the DOJ Memo states “multiple non-prosecution or deferred prosecution agreements are generally disfavored, especially where the matters at issue involve similar types of misconduct …”.

When ABB resolved its second FCPA enforcement action in 2010 (for “similar types of misconduct” involved in its third FCPA enforcement action), ABB resolved the matter through a DPA. The recent ABB enforcement action also involved a DPA.

The recent DOJ Memo, under the heading “Factors to Consider When Evaluating Whether a Monitor is Appropriate,” includes the following:

“Whether the corporation voluntarily self-disclosed the underlying misconduct in a manner that satisfies the particular DOJ component’s self-disclosure policy;” and

“Whether the underlying criminal conduct was long-lasting or pervasive across the business organization or was approved, facilitated, or ignored by senior management, executives, or directors (including by means of a corporate culture that tolerated risky behavior or misconduct, or did not encourage open discussion and reporting of possible risks and concerns);”

As discussed in this prior post, while the DOJ’s reasons may have been petty, the fact remains that in the recent ABB enforcement action the DOJ stated that ABB “did not receive voluntary disclosure credit … because it did not voluntarily and timely disclosed to the office the conduct …”

Moreover, the recent DPA references that the culpable third-party (Subcontractor 2) “failed multiple aspects of ABB’s routine due diligence raising questions among ABB personnel based in South Africa and the United States about Subcontractor 2’s qualifications and financial stability.” The DPA continues: “Despite concerns about Subcontractor 2’s qualifications, ABB subsequently granted the requested waiver with respect to Subcontractor 2 premised on Subcontractor 2 working through other subcontractors who were qualified for the job.”

In short, it is difficult to square the DOJ’s recent guidance on resolving corporate criminal matters with how the DOJ resolved ABB’s third FCPA enforcement action.

Some might say (and with good reason) that the recent ABB matter was “in the DOJ’s pipeline” long before the September 2022 DOJ Memo and that resolution negotiations has begun prior to the September 2022 DOJ Memo.

But then again, the DOJ Memo states that the memo “announces additional revisions to the Department’s existing corporate criminal enforcement policies and practices.” Likewise, in a related speech, Deputy Attorney General Lisa Monaco called the policies “new.”

If the DOJ intended for the “new” policies only to apply to instances of corporate misconduct the DOJ learned about post-September 2022, the DOJ could have easily said so (and few would have expressed any concern about this). But the DOJ didn’t do that.

One reason to take DOJ policy guidance with a grain of salt, is because it is so deserved.

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