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Suspension And Debarment In The Aftermath Of An FCPA Enforcement Action

debarment

Previous posts here and here highlighted the recent net $155 million FCPA enforcement action against J&F Investimentos S.A. (a private investment holding company based in Brazil that owns approximately 250 companies primarily involved in the meat and agriculture business) and a related entity for allegedly bribing Brazilian officials.

In the aftermath of the enforcement action, Representative Rosa DeLauro (D-Conn and Vice Chair of the House Agriculture Appropriations Subcommittee responsible for funding the U.S. Department of Agriculture) recently sent this letter to the USDA Secretary requesting that it “initiate suspension and debarment proceedings against JBS USA, the U.S. subsidiary of the Brazilian-owned and controlled meatpacker JBS SA, and each of its companies, including but not limited to Pilgrim’s Pride.”

In pertinent part, the letter states:

“For several years, I have grown concerned about the continued and substantial payments to U.S. subsidiaries of the corrupt Brazilian-owned and controlled meatpacker, JBS. As part of USDA’s so-called ‘trade aid package,’ JBS has received more than $100 million dollars in payments – assistance that was supposed to have been for struggling farmers and ranchers who have been hurt by the Administration’s failed trade policies. But, many fail to realize the full extent of the USDA subsidies JBS has received. Unlike farmers and ranchers, JBS also receives payments, as procurement contracts, on an annual basis through the USDA’s Agricultural Marketing Service. In fact, U.S. taxpayers have subsidized JBS with hundreds of millions of dollars over the past several years.”

[…]

The Secretary and USDA’s Inspector General must see that suitable suspension and debarment proceedings begin immediately in order to restore the public trust that USDA only conducts business with responsible entities and persons. Without such action, farmers, ranchers, and the taxpayers of this country will be left with the impression that USDA is willing to continue distributing federal funds to a corrupt, foreign-owned meatpacker even after learning of extensive corruption and, in the words of an SEC official, “brazen misconduct.”

[…]

Federal agencies are granted the discretion to suspend and/or debar persons or entities to ensure that the Government only does business with responsible persons. USDA issued Departmental Regulation (DR) 2280-001 in January 2013, to describe the USDA’s standards for suspension and debarment and to identify causes of suspension and debarment. DR 2280-001 identifies as a source for causes of suspension and debarment, investigations conducted by the Office of Inspector General (OIG) or the Justice Department, as well as civil or criminal court actions, and hotline complaints. Per USDA’s DR 2280-001, an indictment (let alone conviction) meets the standard of proof of adequate evidence for a suspension, and a conviction meets the preponderance of the evidence standard for a debarment.

[…]

The actions detailed by the Justice Department and the SEC warrant USDA initiating suspension and debarment proceedings. I urge you to take all necessary steps to ensure that such action is authorized. USDA’s continued and sustained failure to act is unacceptable, and inaction has become unsustainable under rule of law.”

Numerous other FCPA (or related) enforcement actions have involved U.S. government contractors (see herehere, herehere, here, here, and here for examples).

I stated in my November 2010 FCPA testimony to the Senate that one of the more concerning aspects of FCPA enforcement is the extent to which the U.S. government continues to do business with companies under FCPA scrutiny and/or companies that have resolved FCPA enforcement action where the underlying conduct is egregious. Senator Specter (Chair of the hearing) then asked certain follow-up questions regarding the topic.

Set forth below is what the Second Edition of the FCPA Guidance says about debarment and suspension:

“Under federal guidelines governing procurement, an individual or company that violates the FCPA or other criminal statutes may be barred from doing business with the federal government. The Federal Acquisition Regulations (FAR) provide for the potential suspension or debarment of companies that contract with the government upon conviction of or civil judgment for bribery, falsification or destruction of records, the making of false statements, or “[c]ommission of any other offense indicating a lack of business integrity or business honesty that seriously and directly affects the present responsibility of a Government contractor or subcontractor.” These measures are not intended to be punitive and may be imposed only if “in the public’s interest for the Government’s protection.”

Under the FAR, a decision to debar or suspend is discretionary. The decision is not made by DOJ prosecutors or SEC staff, but instead by independent debarment authorities within each agency, such as the Department of Defense or the General Services Administration, which analyze a number of factors to determine whether a company should be suspended, debarred, or otherwise determined to be ineligible for government contracting. Such factors include whether the contractor has effective internal control systems in place, self-reported the misconduct in a timely manner, and has taken remedial measures. If a cause for debarment exists, the contractor has the burden of demonstrating to the satisfaction of the debarring official that it is presently responsible and that debarment is not necessary. Each federal department and agency determines the eligibility of contractors with whom it deals. However, if one department or agency debars or suspends a contractor, the debarment or suspension applies to the entire executive branch of the federal government, unless a department or agency shows compelling reasons not to debar or suspend the contractor.

Although guilty pleas, DPAs, and NPAs do not result in automatic debarment from U.S. government contracting, committing a federal crime and the factual admissions underlying a resolution are factors that the independent debarment authorities may consider. Moreover, indictment alone can lead to suspension of the right to do business with the government. The Justice Manual also provides that when a company engages in fraud against the government, a prosecutor may not negotiate away an agency’s right to debar or delist the company as part of the plea bargaining process. In making debarment determinations, contracting agencies, including at the state and local level, may consult with DOJ in advance of awarding a contract. Depending on the circumstances, DOJ may provide information to contracting authorities in the context of the corporate settlement about the facts and circumstances underlying the criminal conduct and remediation measures undertaken by the company, if any. This information sharing is not advocacy, and the ultimate debarment decisions are squarely within the purview of the independent debarment authorities. In some situations, the contracting agency may impose its own oversight requirements in order for a company that has admitted to violations of federal law to be awarded federal contracts, such as the Corporate Integrity Agreements often required by the Department of Health and Human Services.”

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