"FCPA Sanctions: Too Big To Debar?"

Debarment (or lack thereof) is a periodic topic on this site.

Previously, I covered "Siemens ... The Year After" (here), a post that highlighted in the year after resolution of the Siemens record-setting December 2008 FCPA matter, the U.S. government continued to do substantial business with the company it charged with engaging in a pattern of bribery “unprecedented in scale and geographic scope.”

In September 2010, I highlighted (here) the FBI's $40 million contract with BAE - months after the FBI participated in resolution of the $400 million FCPA related enforcement action against the company.

In my November 2010 testimony (here) before the U.S. Senate, I stated as follows. "In order for the DOJ’s deterrence message to be completely heard and understood egregious instances of corporate bribery that legitimately satisfy the elements of an FCPA anti-bribery violation involving high-level executives and/or board participation should be followed with debarment proceedings against the offender."

This testimony prompted then Senator Arlen Specter (who chaired the hearing) to ask me several follow-up questions for the record relating to debarment. (See here for the Q&A's). Senator Christopher Coons (who also participated in the November 2010 hearing) also asked debarment follow-up questions of the DOJ.

As highlighted last week (here), the DOJ is opposed to a "mandatory, conduct-based, debarment remedy for companies that engage in egregious bribery." As noted in the prior post, the DOJ's responses seemed anchored in self-interest in that such a remedy would lessen its FCPA caseload, would make its job more difficult, and would take away it flexibility and leverage and resolving FCPA enforcement actions.

Enter Dru Stevenson (Professor of Law, South Texas College of Law - here and a past contributor to the site) and Nick Wagoner (a law student at South Texas College of Law).

Stevenson and Wagoner recently released a yet to be published article titled "FCPA Sanctions: Too Big to Debar?" (See here).

The authors (who can be reached at dstevenson@stcl.edu and nicholas.wagoner@gmail.com) provide this article summary.

"Despite the dramatic escalation in corporate fines and imprisonment imposed under the FCPA in recent years, a particularly lethal sanction for combating foreign corruption remains unused—suspension or debarment of prosecuted entities from future contracts with the U.S. Many of the firms caught bribing foreign officials have extensive contracts with a number of domestic federal agencies; meaning debarment may be a particularly devastating penalty both for the government contractor and the agency it transacts business with.

This begs the question: are certain private contractors too big to debar? As this Article demonstrates, it appears so. Certain federal agencies have become highly dependent on a handful of private firms responsible for satisfying the vast majority of government contracts. Because of the potential “collateral consequences” that may result from the collapse of a debarred contractor, these firms have enjoyed bailouts from agency officials who refuse to sanction corrupt practices through suspension or debarment. If ridding foreign markets of corruption truly is a top priority of the U.S., it seems both unfair and imprudent for federal agencies to continue awarding lucrative, multibillion-dollar contracts to firms recently prosecuted for fraudulently obtaining such contracts overseas.

This situation leads to the jaded viewpoint that paying fines when caught bribing foreign officials has “simply become a cost of doing business.” To help illuminate these concerns and lend support to the thesis, this Article examines the third largest FCPA-related enforcement actions to date: the BAE Systems case. On March 1, 2010, BAE Systems paid approximately $400 million in fines for its corrupt practices abroad. In the 365 days that followed however, BAE was awarded U.S. contracts in excess of $58 billion dollars. The U.S.’s refusal to debar BAE because of the risk of “collateral consequences” provides a case study of the benefits and drawbacks to deterring foreign corruption through suspension and debarment. This Article concludes that the U.S. must begin to diversify its portfolio of federal contractors so that prosecutors may leverage the legitimate threat of suspension and debarment to more effectively deter foreign corruption."

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No - The Consistent Answer In DOJ Responses to Senator Questions Regarding FCPA Reform

On November 30, 2010, the Senate Subcommittee on Crime and Drugs (chaired by then Senator Arlen Specter) held a hearing titled "Examining Enforcement of the Foreign Corrupt Practices Act." (See here for the prior post).

Following the hearing, Senator Christopher Coons and Senator Amy Klobuchar submitted written questions to Greg Andres (DOJ) - one of the witnesses who testified at the hearing.

The DOJ responses are here.

As evident from the DOJ responses, certain of which are highlighted below, the consistent DOJ response to FCPA-related reform proposals is no.

Profiled below are DOJ's substantive responses to Senator questions regarding mandatory debarment for egregious FCPA violators; a potential FCPA compliance defense; a potential FCPA amnesty program; whether businesses face FCPA uncertainty; whether clarification of the "foreign official" element is needed; and whether the statute's corporate intent element needs revising.

Mandatory Debarment

Does the DOJ favor a "mandatory, conduct-based, debarment remedy for companies that engage in egregious bribery"?

No.

The DOJ says that such "mandatory debarment would likely be counterproductive, as it would reduce the number of voluntary disclosures and concomitantly limit corporate remediation and the implementation of enhanced compliance programs."

In a related question, the DOJ adds that "a mandatory conduct-based debarment for companies could well have a negative impact on the Government's ability to investigate and prosecute transnational corruption effectively." "Linking mandatory debarment to a criminal resolution would fundamentally alter the incentives of a contractor-company to reach an FCPA resolution because such a resolution would likely lead to the cessation of revenues for a government contractor - a virtual death knell for the contractor-company. Similarly, mandatory debarment would impinge negatively on prosecutorial discretion. If every criminal FCPA resolution were to carry with it mandatory debarment consequences, then prosecutors would lose the necessary flexibility to tailor an appropriate resolution given the facts and circumstances of each individual case."

Boiled down to one sentence, the DOJ's opposition to mandatory debarment for egregious FCPA violators seems to be this - it would lessen our FCPA caseload, it would make our jobs more difficult, and it would take away our flexibility and leverage.

This is hardly a convincing argument to the position I articulated at the Senate hearing (see here) that "egregious instances of corporate bribery that legitimately satisfy the elements of an FCPA anti-bribery violation involving high-level executives and/or board participation should be followed with debarment proceedings against the offender."

As I noted in this previous post, H.R. 5366 (which passed the House in September 2010) is not the answer. However, the issue of mandatory debarment, in certain instances, remains a valid and legitimate issue notwithstanding the DOJ's responses.

Compliance Defense

Does the DOJ favor exploring a "formal compliance defense" to the FCPA?

No.

The DOJ "opposes the adoption of a formal compliance defense."

According to the DOJ, it "already considers a company's compliance efforts in making appropriate prosecutorial decisions, and the United States Sentencing Guidelines also appropriately credits a company's compliance efforts in any sentencing determination." "Among other things" the DOJ states, "the creation of such a defense would transform criminal FCPA trials into a battle of experts over whether the company had established a sufficient compliance mechanism." "Against this backdrop, companies may feel the need to implement a purely paper compliance program that could be defended by an 'expert,' even if the measures are not effective in stopping bribery." "If the FCPA were amended to permit companies to hide behind such programs, it would erect an additional hurdle for prosecutors in what are already difficult and complex cases to prove."

As readers likely know, the U.K. Bribery Act, set to go live on July 1st, contains a so-called adequate procedures defense and such a defense should be considered under the FCPA as well.

Amending the FCPA to include a compliance defense is not a new idea. In the mid-1980’s numerous FCPA reform bills included such a defense and provided that a company would not be held vicariously liable for a violation of the FCPA’s anti-bribery provisions by its employees or agents, who were not an officer or director, if the company established procedures reasonably designed to prevent and detect FCPA violations by employees and agents. In fact, an FCPA reform bill containing such a provision did pass the U.S. House.

A compliance defense is not about hiding behind "paper programs" as the DOJ asserts. Rather a so-called compliance defense, one that would be inapplicable in cases such as Siemens, it is about properly incentivizing corporate FCPA compliance and not putting a company at risk of FCPA scrutiny, costly FCPA internal investigations, and the growing collateral consequences of FCPA inquiries should a non-executive employee engage in conduct contrary to a company's pre-existing, published, and trained on FCPA compliance policies and procedures.

Amnesty Program

Is the DOJ in favor of a so-called "amnesty program" as recently advocated by some?

No.

The DOJ says it "does not support the idea of an FCPA amnesty program." Among other things, the DOJ says that "as the beneficiary of [several established sources of information such as voluntary disclosures] the Department does not presently face difficulty in identifying sources of information of FCPA criminal violations." "Consequently, an amnesty program would provide protection for corporations who violate the law without providing accompanying meaningful benefits to law enforcement." "Finally, consistent with the United States Sentencing Guidelines and the Department's Principles of Federal Prosecution of Business Organizations, the Department already provides meaningful credit for voluntary self-disclosures, extraordinary cooperation, and substantial remediation by corporations where appropriate and deserved."

Uncertainty?

Does the DOJ believe that "well-meaning businesses are faced with significant uncertainty as to their potential exposure to civil and criminal penalties under the FCPA?"

No.

The DOJ says that "it provides clear guidance to companies with respect to FCPA enforcement through a variety of means." It lists the DOJ's Lay Person Guide to the FCPA, various charging documents, plea agreements, non-prosecution and deferred prosecution agreements [see here for a recent guest post on prosecutorial common law] and the DOJ's FCPA Opinion Procedure Releases.

The DOJ concludes its response by saying "in the end, a review of the Department's FCPA enforcement actions makes clear that companies have never been charged for minor or incidental issues." "By contrast, the Department's prosecutions involved extensive and often widespread corruption over significant periods of time."

As explored in this prior guest post, in the FCPA's 1988 amendments, Congress directed the DOJ to consider providing formal guidance. However, in 1990 the DOJ declined to issue guidelines and stated as follows. "After consideration of the comments received, and after consultation with the appropriate agencies, the Attorney General has determined that no guidelines are necessary…. [C]ompliance with the [anti-bribery provisions] would not be enhanced nor would the business community be assisted by further clarification of these provisions through the issuance of guidelines."

"Foreign Official"

Does the DOJ agree that statutory clarification of "foreign official" would help clarify to businesses which of their transactions could be subject to the FCPA?"

No.

The DOJ response begins as follows. "The term 'foreign official' has been defined in relevant case law and opinion releases. Some defense attorneys have attempted to argue that the definition of 'foreign official' does not extend to the employees of state-owned or state-controlled enterprises."

For the record, I am not a "defense attorney." See here for my declaration as to the legislative history on "foreign official."

In a related question, the DOJ further stated that it "has provided significant guidance regarding the definition of 'foreign official.'"

Intent

Should the FCPA be amended to "bring the intent standard for corporations in line with the current 'willfulness" standard that applies to individuals?"

No.

The DOJ responded that it "does not believe that it is necessary or appropriate to amend the FCPA's intent standard with respect to corporations." "The Principles of Federal Prosecution of Business Organizations already governs the Department's decisions regarding whether to charge corporations for federal crimes, including under the FCPA." "Furthermore, the Department is not prosecuting FCPA matters where a corporation engaged in something less than willful criminal conduct."

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DOJ Enforcement of the FCPA - Year in Review

A few weeks ago I ran a SEC FCPA enforcement year in review (here).

Today I highlight facts and figures from the DOJ's FCPA enforcement program in 2010.

And what it year it had.

As noted in this recent DOJ release, "the Criminal Division’s Foreign Corrupt Practices Act (FCPA) enforcement involved imposition of $1 billion in penalties in FY 2010, the largest in the history of FCPA enforcement."

In comparison, in 2000 the DOJ did not bring one FCPA enforcement action. The past decade has thus witnessed a remarkable transformation – not as to the FCPA itself (the statute has not changed since 1998), but as to FCPA enforcement and theories of prosecution both at the DOJ and the SEC.

As the DOJ’s former Assistant Chief for FCPA enforcement candidly stated (here), “the government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.”

This post highlights the 16 DOJ corporate FCPA enforcement actions from 2010. Not included are BAE (an enforcement action (see here) in which the DOJ did not even charge FCPA offenses) or Lindsey Manufacturing (see here) given that the company was indicted and thus the enforcement action remains open.

Of the 16 enforcement actions, 6 of the actions were in Panalpina related actions; 2 were the related Bonny Island, Nigeria actions; and 2 were the related Alliance One and Universal actions. Thus, if one looks at unique enforcement actions (the best way to analyze FCPA facts and figures in my opinion), the DOJ broght 9 unique corporate FCPA enforcement actions in 2010.

In the 16 corporate FCPA enforcement actions from 2010, the DOJ brought in $870 million in criminal fines - thrown in the $400 million BAE enforcement action if you insist and the number is $1.27 billion.

Tack on the SEC's recovery (both civil penalties and disgorgement) in 2010 corporate FCPA enforcement actions of approximately $530 million and one finds $1.8 billion in corporate FCPA fines, penalties and disgorgement in 2010.

DOJ FCPA enforcement in 2010 was both large ($240 million in criminal fines against both Technip and Snamprogetti, $93.6 million in criminal fines against Daimler) and small ($32,000 against Mercator Corporation in the bizarre James Giffen related case involving two snowmobiles, and $1.7 million against RAE Systems).

The numbers present some interesting results.

Despite aggressive DOJ rhetoric and despite the DOJ seeking a sentencing guidelines enhancement applicable to FCPA offenses (see here) in 10 of 12 FCPA enforcement actions where an analysis was possible, the DOJ agreed to a criminal fine below the minimum range suggested by the sentencing guidelines.

In these 10 cases, the average was approximately 25% below the minimum guidelines range and the distribution range was 55% below the minimum guidelines range (Pride International) and 5% below the minimum guidelines range (Panalpina).

The only two corporate FCPA enforcement actions from 2010 where the company paid a criminal fine within the guidelines range were Alliance One (the company voluntarily disclosed and receive a non-prosecution agreement) and Alcatel-Lucent.

[Note - why are only 12 of the 16 enforcement actions included in the above analysis? I excluded Innospec because the company's claimed inability to pay (but see here) resulted in an invalid fine to guidelines analysis; I excluded Mercator Corp. because the DOJ and the company could not even agree on what guidelines to use; and I excluded Noble Corp. and RAE Systems (both enforcement actions resolved via an NPA) because the DOJ never set forth a guidelines range in the agreement or related documents].

During the November 2010 Senate FCPA hearing (see here) an issue discussed was the general lack of individual DOJ FCPA prosecutions.

How many corporate FCPA enforcement actions involved related individual prosecutions of company employees (not talking agents here such as in Innospec) by the DOJ (recognizing that such prosecutions may be forthcoming in the future)?

Of the 17 corporate DOJ enforcement actions or indictments (Lindsey Manufacturing is back in the mix here) 12 of the 17 enforcement actions (70%) have not involved (at least thus far) DOJ prosecutions of company employees. Included in the 12 enforcement actions are the top 3 from 2010 from a criminal fine perspective: Technip, Snamprogetti, and Daimler.

What about non-prosecution and deferred prosecutions vs. old fashioned law enforcement (i.e., if a company committed a crime the DOJ charged it and if the company did not commit a crime the DOJ did not charge it)?

2010 saw 15 such resolution vehicles (4 NPAs) and (11 DPAs).

As Gibson Dunn highlighted in this recent report, FCPA enforcement actions comprised approximately 50% of all DOJ NPA or DPA agreements.

Among the criticisms noted in the Gibson Dunn report is that "by continually entering DPAs and NPAs, the DOJ can shield its expansive interpretation of important statutes from judicial review." As to the FCPA the report states, "because FCPA allegations against corporations rarely, if ever, go to trial, and DPAs and NPAs are subject to only minimal judicial scrutiny, the DOJ's sometimes expansive interpretations of the FCPA is never truly tested."

Spot on!

As evident from the material below, a typical way for DOJ to resolve corporate FCPA enforcement actions in 2010 was for the parent company to enter into an NPA or DPA and for a subsidiary (usually a foreign subsidiary) to plea to a criminal charge. Daimler, Alliance One, Universal, ABB, Panalpina, Pride International, Royal Dutch Shell, and Alcatel-Lucent all involved such hybrid resolution vehicles.

In the SEC year in review piece, I noted that 97% of the $529,967,294 collected in SEC FCPA enforcement actions in 2010 appears to be in enforcement actions that were voluntarily or otherwise publicly disclosed and not the result of original investigation by either the SEC or DOJ.

What does this number look like for DOJ FCPA enforcement actions in 2010 - recognizing that by disclosure I am talking about voluntary disclosure in the traditional sense (i.e. the company disclosing the conduct at issue to the enforcement agencies) as well as other forms of public disclosure (such as identification in the U.N. Oil for Food Report, the result of a whistleblower complaint to U.S. authorities, the result of prior foreign law enforcement agency investigations, or based on disclosures by other companies)?

Of the $870 million in criminal fines collected by the DOJ in FCPA enforcement actions, 97% would appear to fit this description as well.

Thus, much like the SEC, the DOJ also appears to be a reactive agency when it comes to corporate FCPA enforcement.

Set forth below are facts and figures from each 2010 DOJ corporate FCPA enforcement action.

Innospec (March 2010)

See here for the prior analysis and principal allegations.

Charges: Conspiracy to commit wire fraud and to violate the FCPA's anti-bribery and books and records provisions; wire fraud; and FCPA anti-bribery and books and records violations.

Resolution Vehicle: Plea.

Guidelines Range: $101.5 - $203 million.

Penalty: $14.1 million (based on claimed inability to pay).

Disclosure: Yes.

Monitor: Yes - three years.

Individuals Charged by DOJ: No.

Daimler (March 2010)

See here for the prior analysis and principal allegations.

Charges: Daimler AG (conspiracy to violate the FCPA's books and records provisions and violating the FCPA's books and records provisions); DaimlerChrysler China Ltd. (conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions); DaimlerChrysler Automotive Russia SAO (conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions); Daimler Export and Trade Finance GmbH (conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions).

Resolution Vehicle: Daimler AG (deferred prosecution agreement); DaimlerChrysler China Ltd. (deferred prosecution agreement); DaimlerChrysler Automotive Russia SAO (plea); Daimler Export and Trade Finance GmbH (plea).

Guidelines Range: $116 - $232 million.

Penalty: $93.6 million (20% below the minimum guidelines range).

Disclosure: Yes.

Monitor: Yes - three years.

Individuals Charged by DOJ: No.

Technip (June 2010)

See here for the prior analysis and principal allegations.

Charges: Conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions.

Resolution Vehicle: Deferred prosecution agreement.

Guidelines Range: $318.4 - $636.8 Million

Penalty: $240 million (25% below the minimum guidelines range).

Disclosure: Yes.

Monitor: Yes - two years.

Individuals Charged by DOJ: No.

Snamprogetti (July 2010)

See here for the prior analysis and principal allegations.

Charges: Conspiracy to violate the FCPA's anti-bribery provisions and aiding and abetting FCPA anti-bribery violations.

Resolution Vehicle: Deferred prosecution agreement.

Guidelines Range: $300 Million - $600 Million

Penalty: $240 million (20% below the minimum guidelines range)

Disclosure: Yes.

Monitor: No.

Individuals Charged by DOJ: No.

Alliance One (August 2010)

See here for the prior analysis and principal allegations.

Charges: Alliance One International AG (conspiracy to violate the FCPA, violations of the FCPA's anti-bribery provisions, and violations of the FCPA's books and records provisions); Alliance One Tobacco Osh LLC (conspiracy to violate the FCPA, violations of the FCPA's anti-bribery provisions and books and records provisions).

Resolution Vehicle: Alliance One International Inc. (non-prosecution agreement); Alliance One International AG (plea); Alliance One Tobacco Osh LLC (plea).

Guidelines Range: $8.4 - $16.8 million.

Penalty: $9.45 million.

Disclosure: Yes.

Monitor: Yes - three years.

Individuals Charged by DOJ: Yes.

Universal Corp. (August 2010)

See here for the prior analysis and principal allegations.

Charges: Universal Leaf Tabacos Ltd. (conspiracy to violate the FCPA's anti-bribery and books and records provisions and violating the FCPA's anti-bribery provisions).

Resolution Vehicle: Universal Corporation (non-prosecution agreement); Universal Leaf Tabacos Ltd. (plea).

Guidelines Range: $6.3 - $12.6 million

Penalty: $4.4 million (30% below the minimum guidelines range).

Disclosure: Yes.

Monitor: Yes - three years.

Individuals Charged by DOJ: No.

Mercator Corp. (August 2010)

See here for the prior analysis and principal allegations.

Charges: FCPA anti-bribery violations.

Resolution Vehicle: Plea.

Guidelines Range: The parties disagreed as to whether the 2009 or 2008 guidelines applied. If 2009, $650,000 - $1.3 million; If 2008, $30,000 to $60,000.

Penalty: $32,000.

Disclosure: Unclear.

Monitor: No.

Individuals Charged by DOJ: Yes (but Giffen pleaded to a misdemeanor tax violation).

ABB Ltd. (September 2010)

See here for the prior analysis and principal allegations.

Charges: ABB Inc. (conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions); ABB Ltd. - Jordan (conspiracy to commit wire fraud and to violate the FCPA's books and records provisions).

Resolution Vehicle: ABB Ltd. (deferred prosecution agreement); ABB Inc. (plea); ABB Ltd. - Jordan (plea).

Guidelines Range: $30.42 - $60.2 million.

Penalty: $19 million (approximately 38% below the minimum guidelines range).

Disclosure: Yes.

Monitor: Company agreed to follow the recommendations of an independent compliance consultant.

Individuals Charged by DOJ: Yes.

Lindsey Manuf. (October 2010)

See here for the prior analysis and principal allegations.

Charges: Conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions.

Resolution Vehicle: N/A

Guidelines Range: N/A

Penalty: N/A

Disclosure: Unclear.

Monitor: N/A

Individuals Charged by DOJ: Yes.

Panalpina (November 2010)

See here for the prior analysis and principal allegations.

Charges: Panalpina World Transport (Holding) Ltd. (conspiracy to violate and violating the FCPA's anti-bribery provisions) ; Panalpina Inc. (conspiracy to violate the FCPA's books and records provisions and aiding and abetting certain customers in violating the FCPA books and records provisions).

Resolution Vehicle: Panalpina World (deferred prosecution agreement); Panalpina Inc. (plea).

Guidelines Range: 72.8 million to $145.6 million.

Penalty: 70.6 million (approximately 5% below the minimum guidelines range).

Disclosure: Yes.

Monitor: No.

Individuals Charged by DOJ: No.

Pride International (November 2010)

See here for the prior analysis and principal allegations.

Charges: Pride International Inc. (conspiracy to violate the FCPA's anti-bribery and books and records provisions and violating the FCPA's anti-bribery and books and records provisions); Pride Forasol S.A.S. (conspiracy to violate the FCPA's anti-bribery and books and records provisions, violating the FCPA's anti-bribery provisions, and aiding and abetting violations of the FCPA's books and records provisions).

Resolution Vehicle: Pride International Inc. (deferred prosecution agreement); Pride Forasol (plea).

Guidelines Range: $72.5 - $145 million.

Penalty: $32.6 million (approximately 55% below the minimum guideline range).

Voluntary Disclosure: Yes.

Monitor: No.

Individuals Charged: No.

Tidewater (November 2010)

See here for the prior analysis and principal allegations.

Charges: Tidewater Marine International Inc. (conspiracy to violate the FCPA's anti-bribery and books and records provisions and violating the FCPA's books and records provisions).

Resolution Vehicle: Deferred prosecution agreement.

Guidelines Range: $10.5 - $21 million.

Penalty: $7.4 million (30% below the minimum guidelines range).

Disclosure: Yes.

Monitor: No.

Individuals Charged by DOJ: No.

Transocean (November 2010)

See here for the prior analysis and principal allegations.

Charges: Transocean Inc. (conspiracy to violate the FCPA's anti-bribery and books and records provisions; violating the FCPA's anti-bribery provisions; and aiding and abetting FCPA books and record violations).

Resolution Vehicle: Deferred prosecution agreement.

Guidelines Range: $16.8 - $33.6 million.

Penalty: $13.4 million (20% below the minimum guidelines range).

Disclosure: Yes.

Monitor: No.

Individuals Charged by DOJ: No.

Noble Corp. (November 2010)

See here for the prior analysis and principal allegations.

Charges: N/A

Resolution Vehicle: Non-prosecution agreement.

Guidelines Range: Not addressed.

Penalty: $2.6 million.

Disclosure: Yes.

Monitor: No.

Individuals Charged by DOJ: No.

Royal Dutch Shell (November 2010)

See here for the prior analysis and principal allegations.

Charges: Shell Nigeria Exploration and Production Company Ltd. (conspiracy to violate the FCPA's anti-bribery and books and records provisions; aiding and abetting FCPA books and records violations).

Resolution Vehicle: Deferred prosecution agreement.

Guidelines Range: $34.2 - $68.4 million.

Penalty: $30 million (approximately 15% below the minimum guidelines range).

Disclosure: No.

Monitor: No.

Individuals Charged by DOJ: No.

RAE Systems (December 2010)

See here for the prior analysis and principal allegations.

Charges: Although a non-prosecution agreement, the agreements states "knowing violations of the FCPA's books and records and internal controls provisions."

Resolution Vehicle: Non-prosecution agreement.

Guidelines Range: Not addressed.

Penalty: $1.7 million.

Disclosure: Yes.

Monitor: No.

Individuals Charged by DOJ: No.

Alcatel-Lucent (December 2010)

See here for the prior analysis and principal allegations.

Charges: Alcatel-Lucent S.A. (FCPA books and records and internal control provisions); Alcatel-Lucent France S.A., Alcatel-Lucent Trade International A.G., and Alcatel Centroamerica S.A. (conspiracy to violate the FCPA's anti-bribery, books and records, and internal control provisions).

Resolution Vehicle: Alcatel-Lucent S.A. (deferred prosecution agreement); Alcatel-Lucent France S.A., Alcatel-Lucent Trade International A.G., and Alcatel Centroamerica S.A. pleas.

Guidelines Range: $86.58 - $173.16 million.

Penalty: $92 million.

Disclosure: Yes.

Monitor: Yes - three years.

Individuals Charged by DOJ: Yes.

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Beefing Up the Budget

DOJ recently announced (here) its FY 2011 budget request. The budget request includes a $235 million increase over the FY 2010 enacted appropriation, "including 708 new positions (143 agents and 157 attorneys) to restore confidence in our markets, protect the federal treasury and defend the interests of the U.S. Government."

Included in the $235 million figure (see here) is "$550,000 and 5 positions (3 attorneys) to increase [the Criminal Division's] capacity prosecute crimes of financial and mortgage fraud, procurement and grant fraud, and violations of the Foreign Corrupt Practices Act."

Not exactly a figure that "knocks one's socks off," but nevertheless consistent with repeated DOJ statements about a ramp-up in FCPA resources and enforcement.

The SEC's budget justification (here) does contain any FCPA specific language.

*****

Perhaps it's because my favorite show, Mike Rowe's Dirty Jobs on the Discovery Channel, recently profiled this company (see here). In any event, PBS&J continues to make news and continues to intrigue even though the whole issue, at least it seems, involves a relatively minor potential FCPA issue. This week, Florida media (here) reports that the company's CEO, John Zumwalt, has resigned. The article notes that up until summer 2009, Zumwalt was also the President of PBS&J International, the subsidiary that has become the focus of an FCPA internal investigation. See here for prior posts. According to the article, Zumwalt will continue as Chairman of the company's board. Should PBS&J become the focus of an enforcement action, it will be interesting to follow as the company has millions of public sector contracts.

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Was the DOJ's FCPA Enforcement Action Against Siemens Award-Worthy?

That's the question I have after reading that the DOJ recently awarded distinguished service awards to eight individuals involved in its Siemens FCPA enforcement action.

First, let me be clear. With the post, I mean no disrespect to the award recipients - I used to work with one recipient, and I congratulate all the recipients for the recognition received by their employer. Rather, my post is a commentary on DOJ's enforcement of the FCPA.

With that out of the way, let's return to the question - was the DOJ's FCPA enforcement action against Siemens award-worthy?

The DOJ press release announcing the awards (see here) states that all DOJ award recipients (not just those receiving an award in connection with the Siemens matter) have “advanced the interests of justice on behalf of the American people.”

As to the recipients specifically receiving an award in connection with the Siemens FCPA enforcement matter, the press release states:

"The department’s investigation uncovered evidence of hundreds of millions of dollars of corrupt payments in dozens of countries spanning several decades, and in virtually every Siemens operating group and region. The Department’s prosecution was announced simultaneously and coordinated with a civil enforcement action by the Securities and Exchange Commission (SEC) and a criminal prosecution by the Munich Public Prosecutor’s Office, resulting in overall sanctions of more than $1.6 billion. The Department of Justice’s coordination of its settlement not only with the SEC, but also with a foreign regulator sets a new standard in international cooperation and coordination, and serves as a model for future global anti-corruption enforcement."

In Attorney General Holder’s speech at the actual awards ceremony (see here), he said to the award recipients:

“... you have not just my sincere gratitude, but the knowledge that you have all truly done justice on behalf of the American people.”

Using Holder's words to thus ask the question - did the DOJ's FCPA enforcement action against Siemens "advance[] the interests of justice on behalf of the American people?"

In FCPA terms - did the DOJ's FCPA enforcement action against Siemens represent a "red-letter" day (i.e. a good day for FCPA enforcement) or a "black-letter" day (i.e. a bad day for FCPA enforcement)?

Reasonable minds may differ as to the answer, but for the reasons stated below, I submit that DOJ's FCPA enforcement action against Siemens was a "black-letter" day in the history of FCPA enforcement - a farcical facade of enforcement if ever there was such a thing. Surely not an award-worthy event.

First, some background.

In December 2008, Siemens (a global corporation organized under the laws of Germany with shares listed on the New York Stock Exchange since March 2001) agreed to pay $800 million in combined fines and penalties to settle FCPA charges for a pattern of bribery the Department of Justice ("DOJ") termed "unprecedented in scale and geographic scope." The combined fines and penalties were easily the largest ever levied against an FCPA violator.

Resolution of the FCPA charges against Siemens (and its affiliates) included both DOJ and Securities and Exchange Commission ("SEC") enforcement actions.

Because this post is about the DOJ awards, and more broadly DOJ FCPA enforcement, the below background information relates only to the DOJ enforcement action. (See here for all DOJ material related to the enforcement action including the criminal informations against Siemens and its affiliates, the DOJ plea agreement and sentencing memo, the DOJ news release and a transcript of the DOJ press conference).

In the DOJ enforcement action, Siemens pleaded guilty to a two-count criminal information charging violations of the FCPA's books and records and internal control provisions. The criminal information describes approximately $1.36 billion in payments Siemens made through various mechanisms, including approximately $555 million paid for unknown purposes (including approximately $341 million in direct payments to business consultants for unknown purposes) and approximately $806 million intended, in whole or in part, as corrupt payments to foreign officials.

According to the DOJ, for much of Siemens operations around the world "bribery was nothing less than standard operating procedure" and the criminal information details improper conduct in various of Siemens operating groups and subsidiaries around the world, several of which had offices in the U.S.

In conjunction with the filing of the Siemens' criminal information, the DOJ also filed separate criminal informations against Siemens' subsidiaries in Argentina, Bangladesh and Venezuela charging each with conspiracy to violate the FCPA's anti-bribery provisions and books and records provisions in connection with projects in those countries.

The total criminal penalty was $450 million (a $448.5 million fine against Siemens and a $500,000 fine against each of the three subsidiaries).

In agreeing to fines and penalties below the maximum $2.7 billion available under the advisory U.S. Sentencing Guidelines, the DOJ noted that resolution of the matter reflected, in large part, Siemens' actions in disclosing the conduct at issue to U.S. enforcement agencies after German authorities searched its offices and after Siemens conducted an extensive internal investigation. The DOJ specifically noted, among other things, the company's "extraordinary" cooperation in connection with its investigation (and the investigations of foreign law enforcement agencies), the "unprecedented" scope of the company's internal investigation which included virtually all aspects of its worldwide operations, and the significant remedial measures the company has undertaken.

With that background out of the way, and before returning to the ultimate question, is it really accurate for the DOJ to say that it "uncovered evidence of hundreds of millions of dollars of corrupt payments in dozens of countries spanning several decades, and in virtually every Siemens operating group and region?"

Use of the self-congratulatory term "uncovered" would seem a bit distorted given that the DOJ itself noted that "[t]he resolution of the U.S. criminal investigation of Siemens AG and its subsidiaries reflects, in large part, the actions of Siemens AG and its audit committee in disclosing potential FCPA violations to the Department after the Munich Public Prosecutor's Office initiated searches of multiple Siemens AG offices and homes of Siemens AG employees." (see here at p. 3).

Whether DOJ "uncovered" Siemens conduct or not is besides the point. The question remains - was the DOJ's FCPA enforcement action against Siemens award-worthy?

An initial reaction is most likely - "why of course, handing down the largest ever criminal penalty under the FCPA is indeed award-worthy and a good day for FCPA enforcement."

But, is agreeing to a $450 million criminal penalty when the advisory U.S. Sentencing Guidelines set forth a penalty range of $1.35 - $2.7 billion based on the alleged conduct award-worthy? (See DOJ Sentencing Memo here at p. 12). Is agreeing to a criminal penalty approximately 33% of the amount available under the guidelines (on the low end) and approximately 16% of the amount available (on the high end) “advanc[ing] the interests of justice on behalf of the American people?" If the answer is yes, what then does this say about the guidelines' formula for calculating criminal fines?

But, regardless of the guidelines, is agreeing to a $450 million criminal penalty when, per the DOJ, Siemens' corrupt or questionable payments totaled $1.36 billion award-worthy? Is agreeing to a criminal penalty approximately 33% of the amount of the actual improper or questionable payments "advanc[ing] the interests of justice on behalf of the American people?"

But, is agreeing to a $500,000 fine based on allegations of making over $31 million in corrupt payments in exchange for favorable business treatment in connection with a $1 billion project in Argentina award-worthy? Is agreeing to a criminal penalty approximately 2% of the amount of the actual corrupt payments "advanc[ing] the interests of justice on behalf of the American people?"

But, is agreeing to a $500,000 fine based on allegations of making over $18 million in corrupt payments in exchange for favorable business treatment in connection with two major metropolitian mass transit projects in Venezuela award-worthy? Is agreeing to a criminal penalty approximately 3% of the amount of the actual corrupt payments "advanc[ing] the interests of justice on behalf of the American people."

But, is agreeing to a $500,000 fine based on allegations of making over $5 million in corrupt payments in exchange for favorable treatment during the bidding process on a mobile telephone project in Bangladesh award-worthy? Is agreeing to a criminal penalty approximately 10% of the amount of the actual corrupt payments "advanc[ing] the interests of justice on behalf of the American people?"

Numbers, schulmbers you may be saying.

OK fine, but here is the real-kicker in my mind. Despite the DOJ's rhetoric - that Siemens engaged in bribery that was "unprecedented in scale and geographic scope" and that Siemens was a company where "bribery was nothing less than standard operating procedure" you will not find anywhere in the DOJ's enforcement action against Siemens FCPA anti-bribery charges!

If ever facts were deserving of an FCPA anti-bribery charge, would it not be the Siemens facts? Per the DOJ's information charging Siemens with FCPA books and records and internal controls only, the essential elements of an anti-bribery charge would seem to be present. Among other relevant facts, beginning in March 2001, Siemens became an "issuer" and thus subject to the FCPA's anti-bribery provisions and certain of its subsidiaries involved in the improper payments had offices in the U.S.

Yet, one will not find FCPA anti-bribery charges in the DOJ's enforcement action against Siemens despite the company being engaged in a bribery scheme that was "unprecedented in scale and geographic scope" and Siemens being a company where "bribery was nothing less than standard operating procedure."

Is the exercise of prosecutorial discretion in this instance, in the face of these facts, award-worthy and an example of "advanc[ing] the interests of justice on behalf of the American people?"

I submit that the answer to all of these above questions is a resounding NO and that DOJ's FCPA enforcement action against Siemens was a "black-letter" day in the history of FCPA enforcement - a farcical facade of enforcement if ever there was such a thing. Surely not an award-worthy event.

Those who frequent this blog are well aware of my frequent criticisms of DOJ/SEC FCPA enforcement as being too aggressive most often where DOJ/SEC advance untested legal theories resulting in an enforcement action being settled even though it is questionable as to whether the elements of an anti-bribery violation are even met.

However, I submit that the FCPA is a fundamentally sound statute when enforced by DOJ/SEC in a way that is consistent with Congressional intent (i.e. when the facts applied to the law results in all the elements of an anti-bribery violation being met).

In these cases, an FCPA violator ought to be punished and punished aggressively to deter others from engaging in bribery "unprecedented in scale and geographic scope" and operating a company where "bribery [is] nothing less than standard operating procedure."

I understand that cooperation means something in corporation criminal resolutions and I understand that Siemens, in addition to paying an SEC fine, paid fines in other jurisdictions (most notably in Germany).

I also understand that justice is probably not served when criminal fines and penalties force a company into bankruptcy.

Nevertheless, given the figures above, it is disturbing to see how Siemens ended up paying significantly less in DOJ criminal fines than the actual amount of the corrupt or questionable payments. In other words, even after payment of the $450 million DOJ criminal fine, Siemens appears to have profited, rather handsomely, from the bribery scheme that was "unprecedented in scale and geographic scope."

And consider this.

During the five year period (2004-2008), a period which does not even cover the entire time frame of Siemens' "unprecedented" bribery scheme, its net income was approximately $28.3 billion (after a currency conversion) (see here). Given these numbers, is a $450 million criminal fine even noteworthy, let alone award-worthy?

The final act in this comedy would seem to be this.

Earlier this year, a few weeks after DOJ termed Siemens' bribery "unprecedented in scale and geographic scope" and Siemens as a company where "bribery was nothing less than standard operating procedure" the company issued a new release (see here) announcing that:

"the lead agency for U.S. federal government contracts, the Defense Logistics Agency (DLA), issued a formal determination that Siemens remains a responsible contractor for U.S. government business."

If Siemens is a "responsible" contractor, I can't imagine a set of facts which would lead the DLA to conclude that a company is an "irresponsible" contractor for U.S. government business!

So what do you think - was the DOJ's FCPA enforcement action against Siemens award-worthy or did it represent a farcical facade of enforcement?

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Changing of the Guard?

Mark Mendelsohn, "Mr. FCPA" at the DOJ, is looking to leave government service and is in negotiations with private law firms for new employment. So reports our friends over at the Main Justice Blog (see here).

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