Previous posts here and here highlighted the recent Foreign Corrupt Practices Act enforcement action against Cognizant Technology Solutions and two of its former executives.
This post continues the analysis by highlighting several issues to consider.
Timeline
As highlighted in this prior post, Cognizant disclosed its FCPA scrutiny in a September 2016 SEC filing. Thus from start to finish, Cognizant’s FCPA scrutiny lasted approximately 2.5 years. While 2.5 years is shorter than recent medians of over 4 years (see here), 2.5 years is still too long for FCPA scrutiny to last.
This is particularly true given what the DOJ and SEC said about Cognizant’s cooperation.
The DOJ cited:
“(1) Cognizant’s voluntary self-disclosure of the matters described above within two weeks of the Board learning of the criminal conduct; (2) Cognizant’s thorough and comprehensive investigation; (3) Cognizant’s full and proactive cooperation in this matter (including its provision of all known relevant facts about the misconduct) and its agreement to continue to cooperate in the Department’s ongoing investigations and any prosecutions that might result;”
According to the SEC:
“Cognizant voluntarily disclosed this misconduct to the Commission staff and timely shared the facts developed during the course of an internal investigation by the audit committee of its board. Cognizant also cooperated by voluntarily producing and translating documents, and making current or former employees, including those who needed to travel internationally, available for interviews by the Commission staff.”
Pre-Enforcement Action Professional Fees and Expenses
During Cognizant’s FCPA scrutiny, this post posed the question of whether Cognizant was “boiling the ocean” given its disclosed pre-enforcement action professional fees and expenses.
According to the company’s SEC filings, through Q3 2018, the company has incurred $74 million “in costs related to the FCPA investigation and related lawsuits.” In other words, proving once again that settlement amounts tend to be a rather minor component of the overall financial consequences of FCPA scrutiny – see the article FCPA Ripples to learn more – Cognizant will have spent greater than 3 times more in pre-enforcement action professional fees and expenses compared to the settlement amount.
Any discussion of whether Cognizant “benefited” from its voluntary disclosure is incomplete without considering these expenses which resulted from its voluntary disclosure. (See this article for more).
Another Ripple Effect
Another ripple effect of FCPA scrutiny and enforcement is that companies because excessively risk averse. For instance, as noted in this article “Cognizant … is treading cautiously on capacity expansion in India, especially with regard to setting up its physical infrastructure …”
Did Cognizant Even Violate The FCPA’s Anti-Bribery Provisions?
The SEC’s enforcement action focused on alleged improper payments in connection with various licenses and permits in India. Call this a non-procurement type of enforcement action (and there are many in the FCPA’s modern era).
Yet, pardon me for posing the above question, but when put to its burden of proof in non-procurement type of cases, the government has an overall losing record. (See this article for details on the four matters).
Moreover, missing from the SEC’s findings is any suggestion or inference that Cognizant was not entitled to the licenses or permits. Rather, what happened in connection with a planning permit (the main focus of the enforcement action), according to the SEC is that Cognizant learned that an Indian government official “had made a $2 million bribe demand … as a condition for issuing the planning permit.”
Construction Firm Denies
According to this report, the construction firm that Cognizant used to facilitate the alleged bribes at issue in the FCPA enforcement action was Larsen & Toubro.
According to this report:
“Infrastructure major Larsen & Toubro (L&T) Monday said it is not aware of any evidence that supports its involvement in making the alleged improper payments to power officials in India for securing various clearances on behalf of its client Cognizant Technology Solutions Corp (CTS).
“While we cannot comment on Cognizant’s decision to enter into these settlements, we are not aware of any evidence that supports our involvement in making the alleged improper payments. We confirm that neither we nor any of our employees are a party to the proceedings brought in the United States. We have no further comments to make on this issue,” L&T said in a clarification to the BSE.”
No Consistency And Little Sense
One would hope that DOJ and SEC resolution documents would be at least someone consistent and thus make sense.
On the one hand, the DOJ’s so-called declination letter cites “the existence and effectiveness of the Company’s pre-existing compliance program” (even though high level executives were involved in the misconduct).
On the other hand, the SEC found as follows:
“During the relevant period Cognizant also failed to devise and maintain a sufficient system of internal accounting controls at its corporate headquarters and at Cognizant India. This conduct took place in an environment in which Cognizant failed to adequately enforce its corporate antibribery and anticorruption policies.”
There is little consistency between these statements and they make little sense taken together.
Lack of Transparency
The DOJ frequently likes to say how its FCPA enforcement program is transparent. But it then puts settlement documents into the public domain that are not transparent.
For instance, the DOJ’s so-called declination letter with Cognizant refers to an approximately $2 million bribe in connection with the development of an office park in Tamil Nadu, India, known as the CKC/KITS facility in Chennai.
That’s reasonably transparent, but the next clause in the letter states “as well as other improper payments in connection with other projects in India.” To state the obvious, this clause is not transparent.
Apparent Lack of Aggravating Circumstances
The DOJ’s so-called declination letter references its Corporate Enforcement Policy (CEP).
As stated in the CEP:
“When a company has voluntarily self-disclosed misconduct in an FCPA matter, fully cooperated, and timely and appropriately remediated, all in accordance with the standards set forth below, there will be a presumption that the company will receive a declination absent aggravating circumstances involving the seriousness of the offense or the nature of the offender. Aggravating circumstances that may warrant a criminal resolution include, but are not limited to, involvement by executive management of the company in the misconduct; a significant profit to the company from the misconduct; pervasiveness of the misconduct within the company; and criminal recidivism.” (emphasis added).
Apparently there were no aggravating circumstances in the Cognizant matter even though “high-level employees” (Gordon Coburn – President and Steven Schwartz – Executive Vice President, Chief Legal and Corporate Affairs Officer) were involved in the improper conduct.
Further relevant to the aggravating circumstances, as highlighted above, the improper payments were not just in connection with one project, but “other improper payments in connection with other projects in India.”
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