A year ago this week, the DOJ moved to dismiss its long-standing criminal indictment charging former Cognizant executives Gordon Coburn and Steven Schwartz with FCPA and related offenses. Shortly thereafter, U.S. District Court Judge Michael Farbiarz (D.N.J.) granted the motion.
Many assumed that the dismissal was solely based on the Executive Order issued by President Trump approximately 45 days prior to the dismissal which, among other things, directed the Attorney General to “review in detail all existing FCPA investigations or enforcement actions and take appropriate action with respect to such matters to restore proper bounds on FCPA enforcement …”.
Indeed, the DOJ’s short letter motion to dismiss the action stated the motion was “based on the recent assessment of the Executive Order’s application to this matter.”
However, linking the dismissal solely to the Executive Order was not warranted – as these pages mentioned at the time. In fact, in the weeks and months after the Coburn/Schwartz matter was dismissed, several other FCPA defendants tried unsuccessfully to dismiss actions based on the Executive Order.
A year later, it seems as if mention of the Executive Order in the DOJ’s motion to dismiss was just a convenient off-ramp for a case that should never have been brought in the first place.
First some background.
This is a long post. But then again this is a long multi-year story.
Like other legal actions, DOJ FCPA enforcement actions don’t just fall from the sky. The actions are sometimes brought in the context of other events, objectives, and policy goals.
For many years leading up to 2015, the DOJ faced various criticisms (from politicians, commentators, and others) over its lack of individual enforcement actions in connection with most corporate DOJ enforcement actions. In September 2015, DOJ Deputy Attorney General Sally Yates released a memo titled “Individual Accountability for Corporate Wrongdoing” (the so-called “Yates Memo”) restating the DOJ’s long-standing rhetoric about the importance of individual accountability. The Yates Memo began:
“One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing. Such accountability is important for several reasons: it deters future illegal activity, it incentivizes changes in corporate behavior, it ensures that the proper parties are held responsible for their actions, and it promotes the public’s confidence in our justice system.”
In the FCPA context, a short time later in April 2016 the DOJ released an FCPA specific policy document that “buil[t] on” the Yates Memo. Titled the “FCPA Pilot Program,” the DOJ stated that it was “designed to motivate companies to voluntarily self-disclose FCPA-related misconduct, fully cooperate with the Fraud Section, and, where appropriate, remediate flaws in their controls and compliance programs.” According to the DOJ, “increased transparency in our FCPA charging decisions should encourage voluntary corporate self-disclosure of overseas bribery, and thus more prosecutions of the individuals responsible for those crimes.”
A few months later, in September 2016 Cognizant made the following disclosure:
“The Company is conducting an internal investigation into whether certain payments relating to facilities in India were made improperly and in possible violation of the U.S. Foreign Corrupt Practices Act and other applicable laws. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel, and is currently focused on a small number of Company-owned facilities. The Company has voluntarily notified the United States Department of Justice (the “DOJ”) and United States Securities and Exchange Commission (the “SEC”) and is cooperating fully with both agencies. The internal investigation is in its early stages, and the Company is not able to predict what, if any, action may be taken by the DOJ, SEC or any governmental authority in connection with the investigation or the effect of the matter on the Company’s results of operations, cash flows or financial position.”
Cognizant’s disclosure, approximately five months after the April 2016 Pilot Program, occurred during the one-year period of the Pilot Program and thus, per the DOJ, the Pilot Program factors would be applied to Cognizant – even if the Pilot Program thereafter expired.
The timing of Cognizant’s disclosure presented the DOJ with a convenient test case.
In November 2017, at FCPA Inc.’s annual FCPA conference, Deputy Attorney General Rod Rosenstein stated:
“We analyzed the Pilot Program and concluded that it proved to be a step forward in fighting corporate crime. We also determined that there were opportunities for improvement. So today, I am announcing a revised FCPA Corporate Enforcement Policy.”
[…]
We expect the new policy to reassure corporations that want to do the right thing. It will increase the volume of voluntary disclosures, and enhance our ability to identify and punish culpable individuals.”
Rosenstein highlighted a few of the “policy’s enhancements” and stated:
“First, the FCPA Corporate Enforcement Policy states that when a company satisfies the standards of voluntary self-disclosure, full cooperation, and timely and appropriate remediation, there will be a presumption that the Department will resolve the company’s case through a declination. That presumption may be overcome only if there are aggravating circumstances related to the nature and seriousness of the offense, or if the offender is a criminal recidivist.
It makes sense to treat corporations differently than individuals, because corporate liability is vicarious; it is only derivative of individual liability.”
A key difference between the April 2016 Pilot Program and the November 2017 CEP is that the Pilot Program stated that if its provisions were satisfied the DOJ “will consider a declination of prosecutor” whereas the CEP stated that if its provisions were satisfied “there will be a presumption that the company will receive a declination absent aggravating factors.”
Despite years of talking about individual accountability in the FCPA context and years of encouraging companies to make voluntary disclosures of FCPA issues, the DOJ was still missing a “signature” case demonstrating its policy objectives and promises.
That changed on February 15, 2019 when the DOJ announced enforcement actions against Cognizant as well as Coburn and Schwartz.
In the DOJ release announcing the indictments of Coburn and Schwartz, Assistant Attorney General Brian Benczkowski stated:
“The allegations in the indictment filed yesterday describe a sophisticated international bribery scheme authorized and concealed by C-suite executives of a publicly-traded multinational company. The indictment of Gordon Coburn and Steven Schwartz demonstrates the Department’s commitment to relentlessly pursuing corporate fraud and corruption wherever it is found.”
As to Cognizant, the DOJ release stated:
“The Department of Justice and the U.S. Attorney’s Office for the District of New Jersey also announced today that they have declined prosecution of Cognizant after considering the factors set forth in the Department of Justice’s Principles of Prosecution of Business Organizations and the Corporate Enforcement Policy, including Cognizant’s prompt voluntary self-disclosure, cooperation and remediation, as well as Cognizant’s disgorgement to the Department and the U.S. Securities and Exchange Commission (SEC) of the cost savings that resulted from the bribery scheme.”
Even though the DOJ’s Cognizant “declination” letter was one of several since 2016 pursuant to the Pilot Program or the CEP, the letter made the most explicit mention of high-level executive involvement in the alleged misconduct compared to prior DOJ “declination” letters. Specifically, the Cognizant declination occurred “despite” in the words of the DOJ “the fact that certain members of senior management participated in and directed the criminal conduct at issue …”.
In the weeks and months that followed, the DOJ’s Cognizant declination was marketed in DOJ speeches and received a substantial amount of FCPA Inc. coverage.
In a speech approximately three weeks after DOJ declination of Cognizant, Assistant Attorney General Benczkowski stated:
“To further promote transparency, we have made publicly available all of our case declinations to date under the FCPA Corporate Enforcement Policy. There currently are 12 declination letters published on the Department’s website. Each sheds additional light on how we apply the Corporate Enforcement Policy to different facts and circumstances and the determinative factors in our resolution.
The most recent of those 12 letters involves our decision just last month to not prosecute Cognizant Technology Solutions Corporation, a publicly traded Fortune 200 company, for FCPA violations. Certain high-level employees and agents of Cognizant allegedly participated in a scheme through which they authorized a third-party construction company to pay approximately $2 million in bribes to Indian officials for help in securing a planning permit relating to an office park project. Notwithstanding the fact that the misconduct reached the highest levels of the company, we declined prosecution. And we have made it clear why: The company voluntarily self-disclosed the conduct within two weeks of when the company’s board learned of it. As a result, the Department was able to identify the culpable individuals – and indeed, we have announced charges against the former president and the former chief legal officer of the company for their alleged involvement in the scheme.”
Thereafter, in an October 2019 speech at the SEC’s “Criminal Coordination Conference,” Attorney General William Barr stated:
“The Justice Department, of course, recently announced revisions to its FCPA Corporate Enforcement Policy. The new iteration of the Policy incentivizes good corporate behavior, expands transparency for companies seeking corporate resolutions, and increases the effectiveness of related individual prosecutions.
The Policy achieves these goals by encouraging companies to voluntarily bring misconduct to our attention at an earlier stage and to fully cooperate with investigations. This way, the Justice Department can take more investigative steps and gather more evidence without having to go through as many formal processes, including Mutual Legal Assistance Treaty requests.
Critically, this Policy also makes it clear that, if a company meets the benchmarks of good corporate behavior, the DOJ can use its discretion to act in deference to an SEC parallel resolution. For example, Cognizant, a technology-solutions company, authorized a third-party construction firm to pay approximately 2 million dollars in bribes to government officials in India. Yet in light of the company’s voluntary self-disclosure, internal reforms, full cooperation, active remediation, and a simultaneous SEC resolution – the DOJ declined prosecution. We disgorged approximately 19 million dollars in profits and credited the company for the amount already paid to the Commission.”
Cognizant’s counsel also marketed its representation of the company. As stated in the Latham & Watkins marketing piece, the firm “persuaded” the DOJ that the facts and circumstances relevant to the Cognizant declination “would send a powerful signal to the business community that DOJ was serious about rewarding cooperation.” The law firm even won certain “awards” for its representation of Cognizant.
Everything was going well for the DOJ and others involved: the DOJ got a declination, the DOJ charged individuals (high-level executive at that), Cognizant’s law firm touted its representation and mounds of FCPA client alerts, marketing materials, etc. were published.
Everyone that is except Coburn and Schwartz.
Their life was turned upside down by high-profile criminal charges and they fought back.
In fighting back, slowly and steadily it became apparent how weak the DOJ’s case actually was.
As highlighted on these pages in February 2019 (see here and here), it was an open question whether Cognizant, Coburn or Schwartz even violated the FCPA based on the allegations in the resolution documents. This prior post noted: “If the defendants choose to put the DOJ/SEC to its burden of proof, disputed issues will likely focus on corrupt intent, obtain or retain business and the facilitating payments exception.”
Let’s start with the basics.
There are generally two types of enforcement actions in which the DOJ has alleged violations of the FCPA’s anti-bribery provisions.
- (1) Those in which the DOJ alleges that improper conduct was to obtain or retain a contract (a Procurement Case for lack of a better term); and
- (2) Those in which the DOJ alleges that improper conduct occurred outside the context of procurement (a Non-Procurement Case for lack of a better term) such as in connection with a foreign license or permit.
The Coburn / Schwartz prosecution was a Non-Procurement Case in that the DOJ alleged that the individuals authorized a third party to make payment to an Indian official to obtain a permit in connection with an office campus project in India.
In enacting the FCPA, Congress learned of a wide range of foreign corporate payments to a variety of recipients for a variety of reasons. Congress could have – and still could today – legislate as to this wide range of foreign corporate payments.
However, Congress accepted in passing the FCPA to capture only a narrow category of such payments. As stated by a key Senator during passage of the FCPA:
“[W]e define [a bribe] as a payment to an official of a foreign government for the purpose of inducing him to use his influence to secure business for the issuer or influence legislation or regulations of his government.”
Senate and House Reports evidence the limited nature of the FCPA and that it would not capture all foreign corporate payments Congress learned of during its multi-year investigation.
A Senate Report stated:
“In drafting the bill . . . the Committee deliberately cast the language narrowly, in order to differentiate between such payments [to a foreign official corruptly intended to induce the recipient to use his influence to secure business, influence legislation or regulations] and low-level facilitating payments sometimes called ‘grease payments.’ Thus, [the bill] would not reach a small gratuity paid to expedite shipment through Customs or the placement of a trans-Atlantic telephone call, to secure required permits, or to ensure that a corporation’s warehouses were not put to the torch. In other words, payments made to expedite the proper performance of duties may be reprehensible, but it does not appear feasible for the United States to attempt unilaterally to eradicate all such payments. However, where the payment is made to influence the placement of government contracts or to influence the formulation of legislation or regulations, such payment is prohibited. …. The Committee fully recognizes that the proposed law will not reach all corrupt payments overseas.”
A House Report likewise stated:
“The scope . . . is limited by the requirement that the offer, promise, authorization, payment, or gift must have as a purpose inducing the recipient to use influence with the foreign government or instrumentality, or to refrain from performing any official responsibilities, so as to direct business to any person, maintain an established business opportunity with any person, divert any business opportunity from any person or influence the enactment or promulgation of legislation or regulations of that government or instrumentality. . . . The bill’s coverage does not extend to so-called grease or facilitating payments. . . . The language of the bill is deliberately cast in terms which differentiate between such payments and facilitating payments, sometimes called ‘grease payments’. In using the word ‘corruptly’, the committee intends to distinguish between payments which cause an official to exercise other than his free will in acting or deciding or influencing an act or decision and those payments which merely move a particular matter toward an eventual act or decision or which do not involve any discretionary action. […] Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must of necessity by performed in any event. While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments. As a result, the committee has not attempted to reach such payments. However, where the payment is made to influence the passage of law, regulations, the placement of government contracts, the formulation of policy or other discretionary governmental functions, such payments would be prohibited. The committee fully recognizes that the proposed law will not reach all corrupt payments overseas.”
Consistent with this clearly articulated Congressional intent, the FCPA’s anti-bribery provisions have various elements including “obtain or retain business” and corrupt intent as well as an express facilitating payment exception which specifically mentions licenses and permits.
Generally speaking, the “obtain or retain business” element captures:
an offer, payment, promise to pay, or authorization of the payment of any money; directly or indirectly; to a foreign official; for purposes of:
“influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or
inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality,
in order to assist … in obtaining or retaining business for or with, or directing business to, any person.”
However, as previously noted, the Coburn / Schwartz enforcement action was a Non-Procurement Case in which the DOJ was seemingly ignoring the “obtain or retain business” element and advancing a theory of liability explicitly rejected by Congress in enacting the FCPA.
As stated in the Conference Report prior to the passage of the FCPA:
“The scope of the prohibition [in the Senate bill] was limited by the requirement that the offer, promise, authorization, payment, or gift must have as a purpose inducing the recipient to use his influence with the foreign government or instrumentality, influencing the enactment or promulgation of legislation or regulations of that government or instrumentality or refraining from performing any official responsibilities, so as to direct business to any person, maintain an established business opportunity with any person or divert a business opportunity from any person.
The House amendment was similar to the Senate bill; however, the scope of the House amendment was not limited by the “business purpose” test […] The conferees clarified the scope of the prohibition by requiring that the purpose of the payment must be to influence any act or decision of a foreign official (including a decision not to act) or to induce such official to use his influence to affect a government act or decision so as to assist an issuer in obtaining, retaining or directing business to any person.””
That Cognizant (and several other companies prior) agreed to resolve Non-Procurement Cases through resolution vehicles not subjected to judicial scrutiny does establish much of anything other than business organizations subject to FCPA scrutiny are risk averse.
Indeed, Cognizant’s counsel (Latham & Watkins) stated in an August 24, 2018 letter to the DOJ (a document included as an Exhibit to a filing in the Coburn / Schwartz matter) the following:
- “The payments did not result in increased revenue …”
- “Cognizant’s improper payments did not cause a revenue stream. Cognizant’s revenue, generated from moving human capital, would have accrued regardless of these payments;”
- “Here there is no evidence that the payments at issue resulted in any additional business for Cognizant. To the contrary, the record is clear that Cognizant could have provided all the services to its clients absent the payments at issue”
- “The alleged improper payments in the Cognizant matter were not made to secure a contract, build a customer relationship, or gain a competitive advantage with respect to potential contracts, customers, or sales. There is no evidence that the payments at issue resulted in any additional revenue to the Company.”
- “Cognizant was already actively operating across the Indian market at the time the payments were made, and the payments at issue were not made to enter the country or to operate in a specialized market.”
- “The payments did not result in the Company getting any business or receiving additional revenue. We are aware of no record evidence indicating that any new contracts, sales, work, business relationships, or customer-advantages came to Cognizant as a result of these payments.”
The Government’s expansive theory of liability that the FCPA’s anti-bribery provisions are violated by payments to foreign officials outside the context of foreign government procurement (such as to secure a license or permit) has been subjected to judicial scrutiny four times in the FCPA’s nearly 50 year history. The government has an overall losing record.
Because of this limited judicial scrutiny, each case is discussed below.
In 1989, the DOJ criminally charged various individuals associated with AEA Aircraft Recovery (a company in the business of recovery of seized aircraft) including Alfredo Duran. According to the indictment, the defendants conspired to make payments to officials of the Dominican Republic in order to obtain the release of two aircraft seized by the government in violation of the FCPA’s anti-bribery provisions. After the DOJ presented its evidence at trial, Duran filed a motion for judgment of acquittal and argued that “no reasonable jury could find that the purpose of any of the alleged intended payments was to assist […] in obtaining or retaining business” and that the government “has failed to adduce sufficient evidence to prove any intended payments were not facilitating or expediting payments for the purpose of expediting or securing routine governmental action (i.e. grease payments).” The court granted a judgment of acquittal.
In 2002, the DOJ criminally charged David Kay and Douglas Murphy (the president and vice president of American Rice Inc. (ARI), with FCPA anti-bribery violations based on allegations that the defendants made improper payments to Haitian foreign officials for the purpose of reducing customs duties and sales taxes owed by ARI to the Haitian government. The indictment, while specific as to other items, merely tracked the FCPA’s ‘‘obtain or retain business’’ language and did not specifically allege how the alleged payments assisted ARI in obtaining or retaining business in Haiti or what business was obtained or retained. The court granted the defendants’ motion to dismiss the indictment and held, as a matter of law, that the alleged payments were not payments made to ‘‘obtain or retain business’’ and thus did not fall within the scope of the FCPA’s anti-bribery provisions.
The third judicial decision to consider whether payments to foreign officials outside the context of foreign government procurement violate the FCPA’s anti-bribery provisions was SEC v. Mattson in which the Government alleged that Baker Hughes Inc. employees Eric Mattson and James Harris violated the FCPA in making goodwill payments to an Indonesian tax official for a reduction in a tax assessment. However, in granting the defendants’ motion to dismiss the court held that the payments to the Indonesian tax official did not violate the FCPA because they did not help Mattson’s and Harris’s employer ‘‘obtain or retain business.’’
The fourth judicial decision to consider whether payments to foreign officials outside the context of foreign government procurement violate the FCPA’s anti-bribery provisions was the DOJ’s appeal of the trial court dismissal of the criminal indictment in Kay. One issue on appeal to the Fifth Circuit was whether payments to foreign officials to obtain favorable tax and customs treatment can come within the scope of the FCPA’s anti-bribery provisions. The appellate court found the FCPA’s “obtain or retain business” ambiguous and stated:
“Perhaps our most significant statutory construction problem results from the failure of the language of the FCPA to give a clear indication of the exact scope of the business nexus element; that is, the proximity of the required nexus between, on the one hand, the anticipated results of the foreign official’s bargained-for action or inaction, and, on the other hand, the assistance provided by or expected from those results in helping the briber to obtain or retain business. Stated differently, how attenuated can the linkage be between the effects of that which is sought from the foreign official in consideration of a bribe (here, tax minimization) and the briber’s goal of finding assistance or obtaining or retaining foreign business with or for some person, and still satisfy the business nexus element of the FCPA?”
The appellate court concluded “that bribes paid to foreign officials in consideration for unlawful evasion of customs duties and sales taxes could fall within the purview of the FCPA’s proscription.” However, the court cautioned:
“We hasten to add, however, that this conduct does not automatically constitute a violation of the FCPA: It still must be shown that the bribery was intended to produce an effect—here, through tax savings—that would ‘assist in obtaining or retaining business.’”
Indeed, the appellate court emphatically stated that not all such payments to a foreign official outside the context of foreign government procurement violate the FCPA; it merely held that such payments ‘‘could’’ violate the FCPA. According to the court, the key question of whether the defendants’ alleged payments constituted an FCPA violation depended on whether the payments were intended to lower ARI’s costs of doing business in Haiti enough to assist ARI in obtaining or retaining business in Haiti and the court stated:
“There are bound to be circumstances in which such a cost reduction does nothing other than increase the profitability of an already-profitable venture or ensure profitability of some start-up venture. Indeed, if the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in getting or keeping business, the FCPA’s language that expresses the necessary element of assisting is obtaining or retaining business would be unnecessary, and thus surplusage—a conclusion that we are forbidden to reach.”
For a long time, the Government has argued that FCPA’s 1998 amendments expanded the FCPA’s anti-bribery provisions to include payments made to independently “secure any improper advantage” regardless of whether a payment also satisfies the “obtain or retain business” element.
However, this position is clearly contradicted by placement of the term “secure any improper advantage” in the FCPA’s statutory text.
Moreover, this precise issue was litigated in the Kay case and the Government’s position was rejected by both the trial court and appellate court. The trial court stated:
“The OECD Convention had asked Congress to criminalize payments made to foreign officials ‘‘ ‘in order to obtain or retain business or other improper advantage in the conduct of international business.’’ . . . Congress again declined to amend the ‘‘obtain or retain business’’ language in the FCPA . . . . Congress did not insert the ‘‘improper advantage’’ language into the ‘‘obtain or retain business’’ provision of the FCPA.”
The appellate likewise court stated:
“When Congress amended the language of the FCPA, however, rather than inserting ‘any improper advantage’ immediately following ‘obtaining or retaining business’ within the business nexus requirement (as does the Convention), it chose to add the ‘improper advantage’ provision to the original list of abuses of discretion in consideration for bribes that the statute proscribes.’’
Even if the FCPA’s required “obtain or retain business” element is satisfied in a Non-Procurement Case involving a foreign license or permit, the FCPA still has an express facilitating payment exception.
In enacting the FCPA, Congress stated that the anti-bribery provisions would not reach “payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature …”.
Consistent with this legislative intent, the FCPA specifically states that the anti-bribery provisions “shall not apply to any facilitating or expediting payment to a foreign official … the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official” and defined “routine governmental action” to include “obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country.”
The FCPA’s express exception for facilitating or expediting payments in connection with obtaining permits in a foreign country is consistent with Congressional intent in excluding such payments from the reach of the FCPA’s anti-bribery provisions.
As stated by a key Senator during passage of the FCPA, the anti-bribery provisions are not intended to capture payments “to speed needed documents on their way through the bureaucratic labyrinth.”
Other Congressional leaders likewise stated during hearings that the anti-bribery provisions are “not concerned with so-called grease or facilitating payments … to speed documents through a bureaucracy.”
A Senate Report specifically stated that the anti-bribery provisions “would not reach” payments “to secure required permits.” A House Report likewise specifically stated:
“The bill’s coverage does not extend to so-called grease or facilitating payments. . . . The language of the bill is deliberately cast in terms which differentiate between such payments and facilitating payments, sometimes called ‘grease payments’. In using the word ‘corruptly’, the committee intends to distinguish between payments which cause an official to exercise other than his free will in acting or deciding or influencing an act or decision and those payments which merely move a particular matter toward an eventual act or decision …”
“[The anti-bribery provisions would not reach] payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must of necessity by performed in any event. While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments. As a result, the committee has not attempted to reach such payments.”
The only judicial decision to substantively construe the facilitating payments exception is SEC v. Jackson in which the Government alleged that Mark Jackson and James Ruehlen (individuals associated with Nobel Corporation) violated the FCPA by approving payments to Nigerian officials to influence or induce them to grant temporary import permits and extensions for oil and gas equipment.
In a motion to dismiss, the defendants argued that the SEC had the burden of pleading the inapplicability of the facilitating payments exception, whereas the SEC argued that the defendants had the burden of pleading the inapplicability of the exception.
In an issue of first impression, the Court held that the SEC “must bear the burden of negating the facilitating payments exception” and that the “exception is best understood as a threshold requirement to pleading that a defendant acted ‘corruptly.’”
Later in the pre-trial proceedings, even the SEC acknowledged that the facilitating payments exception is “a difficult area to understand, largely because of the wording of the exception and the statute overall.” In denying competing motions for summary judgment, the judge stated: “I have such trouble understanding the facilitating payment exception. […] I mean, it almost swallows the rest of the statute. And I know it’s in the legislative history that these, I think reference is made to grease payments, somehow to grease the skids. How do I separate those payments, which do seem to be contemplated, from the payments that [the SEC] alleges were made in this case, which you think are squarely within the FCPA’s prohibition? […] And I don’t understand it. Whether we make the distinction based on size of payments, regularity of payments, purpose of payments, nature of the — of the favorable conduct elicited. I just really struggle with it.”
On the eve of trial and facing the prospect of having to negate the facilitating payments exception and otherwise prove its case, the SEC agreed to settle the matter on very favorable terms for the defendants.
In addition to the above legal deficiencies in the DOJ’s prosecution of Coburn and Schwartz there were various factual issues evident from documents in the public domain which further made the prosecution unusual.
Again, the DOJ’s theory of prosecution is that Coburn / Schwartz authorized a third party to make a bribe payment to an Indian official to obtain a permit in connection with an office campus project in India.
However, in the immediate aftermath of the February 2019 enforcement action, the third party (Larsen & Toubro (L&T) – one of the largest construction companies in India) released a statement to the National Stock Exchange of India stating that it was “not aware of any evidence that supported the Company’s involvement in making the alleged improper payments.”
Several months later, L&T released another statement to the National Stock Exchange of India after its Audit Committee appointed external experts to review the matter stating: “The Audit Committee has concluded that there was no sufficient evidence to support the allegations of the Company’s involvement in making alleged improper payments at the direction of Cognizant Technology Solutions.”
In addition, during pre-trial proceedings the government seemingly acknowledged that it:
- did not know if the alleged bribe was even paid;
- did not know who paid the alleged bribe;
- did not know which Indian official received the alleged bribe; and
- did not know which Indian government agency the alleged bribe recipient worked for.
It is against this legal and factual background that one year ago the DOJ dismissed criminal charges against Coburn and Schwartz.
The question remains: why were the individuals even charged?
Perhaps the answer(s) were addressed above.