As highlighted in this prior post, in July 2015 Louis Berger International agreed to pay $17.1 million pursuant to a DOJ deferred prosecution agreement based on allegations that it violated the FCPA’s anti-bribery provisions in connection with projects in Indonesia, Vietnam, India and Kuwait.
At the same time, the DOJ announced a Foreign Corrupt Practices Act enforcement action against Richard Hirsch (a former executive at the company located in the Philippines, who at times oversaw the Company’s overseas operations in Indonesia and Vietnam) as well as a co-defendant – James McClung.
This “issues to consider” post noted that it was fair to pose the question of whether the conduct at issue was engaged in by rogue employees including Hirsch.
As noted in the post, the DPA made several references to Hirsch and his co-defendant concealing conduct and otherwise creating false documents. Moreover, the DPA twice mentions the “nature and scope of the conduct” as a presumed mitigating factor, something not often found in FCPA resolution documents. Moreover, compared to most corporate FCPA enforcement actions, there is little mention in the corporate enforcement action regarding the company’s control environment or compliance policies and procedures (presumably because such allegations would have been favorable to the company).
Consistent with the above observations, recently Louis Berger Group (LBG) and Berger Group Holdings (BGH) became plaintiffs and sued Hirsch. The civil complaint filed in state court in New Jersey asserts a variety of breach of fiduciary duty claims and alleges in summary fashion as follows.
“This is an action brought by Berger against an admittedly corrupt former senior officer to recover the damages caused by his illegal conduct. Defendant is awaiting sentencing after pleading guilty to criminal violations of the FCPA predicated on conduct which is materially the same as the conduct alleged herein. LBG is an internationally recognized consulting firm that provides engineering, architectural and construction management, environmental planning and science, and economic development services.
Defendant [Hirsch] was LBG’s senior in-country official in Indonesia and, for a portion of the relevant period, Vietnam. During the course of his employment with LBG, and while he was a shareholder of BGH and the senior LBG employee responsible for company operations in Indonesia, Vietnam, and the Phillippines, Hirsch, unbeknownst to LBG at the time, knowingly directed, facilitated and approved payments from LBG to foreign government officials in Indonesia and Vietnam in connection with LBG’s government contracting activity in those countries, in violation of both the FCPA and of LBG’s known company policies and/or procedures, thereby violating his fiduciary duties to Berger.
As a result, following a voluntary disclosure by the Company, the DOJ launched an investigation into potential violations of the FCPA by Louis Berger International Inc. (LBI) and its employees. LBI is the successor in interest to LBG for, among other things, its Asian operations. As of December 31, 2014, LBG sold all of its Asian businesses, including its business in India, to LBI and it subsidiaries. Hirsch has acknowledged under oath that certain of the payments at issue violated the FCPA. Berger ultimately resolved its FCPA case with the DOJ by agreeing to pay a $17.1 million financial penalty and to assume a Monitor for its compliance program. Berger’s case with the World Bank was resolved on January 29, 2015, with BGH and its controlled affiliates (other than LBG) subject to a one-year conditional non-debarment and LBG and its controlled affiliates subject to debarment with conditional release for a term of one year. Berger has now been reinstated to pursue World Bank projects. The Company’s damages include, but are not limited to, not only the financial penalty imposed by the DOJ, but also the millions of dollars spent in professional fees to investigate the improper payments relating to Hirsch’s conduct and resolve them with the DOJ. In addition, the Company has suffered damage to its reputation and its business with its ongoing and prospective government customers, as well as vendors and suppliers.
After learning of Hirsch’s misconduct related to questionable payments in Indonesia, Hirsch was separated from the Company. Berger now brings this action to recover damages for Hirsch’s admittedly criminal misconduct that took place in connection with his management and oversight of LBG projects in Indonesia and Vietnam. Each of Hirsch’s criminal acts was taken in direct violation of company policies and procedures, and of his fiduciary duty to Berger.”
An initial reaction to the above action might be: why don’t more business organizations exposed to FCPA liability because of real individual’s conduct bring such civil claims?
Possible reasons include the following.
As highlighted in this post, approximately 75% of corporate DOJ FCPA enforcement actions do not result in any related charges against individuals. Thus, unlike in the Louis Berger action, there are not admitted criminal allegations to use in a related civil action against an individual.
Even in the approximate 25% of corporate DOJ FCPA enforcement actions that result in related charges against individuals, not many of those actions involve credible allegations concerning rogue employees.
Even if there were credible allegations concerning rogue employees, few of the rogue employees presumably have sufficient assets to satisfy a civil judgment.