On September 29, 2016, the U.S. Department of Justice (“DOJ”) issued two letters “closing its investigations” into alleged violations of the U.S. Foreign Corrupt Practices Act by HMT LLC, a Texas based manufacturer, supplier and servicer of above ground liquid storage tanks, (the “HMT Declination”) and NCH Corporation, a Texas based industrial supply and maintenance corporation (the “NCH Declination). Unlike in the three earlier “declinations” the DOJ issued since the start of its FCPA Enforcement “Pilot Program,” the companies here (HMT and NCH) are not issuers, so there were no parallel Securities and Exchange Commission (“SEC”) enforcement actions. Each declination also includes what are described as findings of the DOJ’s investigation underlying violations of the FCPA and a requirement that each company pay “disgorgement” to the U.S. Treasury. The HMT and NCH declinations therefore raise the question of whether and to what extent the Pilot Program, in addition to offering guidance on how to receive a declination, has altered the meaning of what a declination ordinarily will be. Specifically, under what circumstances can a company receive a declination without the DOJ publicizing its “findings” and the company paying disgorgement (i.e., a “clean” declination)? Continue reading
Over the last decade, corporate criminal enforcement in the U.S. has undergone a dramatic transformation. Federal officials no longer simply fine publicly held firms that commit crimes. Instead, in addition to imposing a fine, prosecutors regularly use their enforcement authority to impose mandates on firms that alter their internal governance.
Prosecutors generally impose mandates through pretrial diversion agreements (PDAs), specifically deferred and non-prosecution agreements. PDAs are criminal settlements that subject the firm to sanctions without formally convicting it. In return, firms usually agree to cooperate in the investigation and admit the facts of the crime.
Most PDAs contain mandates that govern the firm’s future behavior. These mandates impose new prosecutor-created duties on the firm. They may require the firm to adopt a corporate compliance program with specified features not otherwise required by law, to alter its internal reporting structure, to add specific individuals to the board of directors, to modify certain business practices, or to hire a prosecutor-approved corporate monitor.
Prosecutors’ use of PDAs to create and impose such mandates on firms with detected misconduct fundamentally alters both the structure of corporate criminal law and the role of the prosecutor. Continue reading
by Lee G. Dunst
We are now almost one year in since the DOJ announced with much fanfare its repackaged approach to corporate cooperation in the Yates memo in September 2015, followed months later with the much-ballyhooed release of the FCPA Pilot Program in April 2016. These highly publicized pronouncements reinforced the perception of DOJ’s focus on proactive corporate cooperation and voluntary disclosure with the enticement of the alleged benefits for companies. At the same time, DOJ clearly has been engaged in a deliberate effort to tout the apparent benefits of corporate cooperation with its very public announcements in spring/summer 2016 of declinations of prosecutions in some circumstances (for example, Akamai, Johnson Controls and Nortek) and reduced penalties in other cases (such as Analogic/BK Medical), citing voluntary disclosures and cooperation as one of the primary reasons for leniency. Continue reading
by Harry First*
Corporations sometimes argue that individuals who engage in cartel behavior are “rogues,” a term often used in two different ways. One is the dictionary sense of a “rascal or scoundrel,” one who “wanders apart from the herd” or varies “markedly from the standard.” The other is a low-level employee who participates in cartel behavior out of view of management. Deterring such people requires an understanding of the psychology of rogue behavior, but it is the rogue who is at fault, not the corporation. Indeed, it is this conclusion that makes “rogues” so attractive an explanation to corporations. Continue reading
How to develop a corporate culture supporting corporate compliance is a key topic. Directors and officers both play roles in creating corporate culture; they are responsible for tone at the top, and that tone is key to compliance. The role of directors is what we explore today – as well as how the securities and corporate laws set the contours of that role. Our interest is in whether and how directors can and do play a role in building a culture of candor and its contribution to a culture of compliance.
Various actors on the federal level have been pushing boards of directors to become more involved in disclosure quality control, and as boards do so, they are increasingly engaged in setting the compliance and candor culture. Continue reading
FBI Director James Comey was grilled last week on Capitol Hill where Republicans condemned and Democrats lauded his decision to not recommend prosecuting presidential candidate Hillary Clinton for her actions of handling (mishandling) classified information. As I watched Comey’s testimony, I was struck by how two groups of people could look at the same acts of a person and have such polarizing views as to whether or not a criminal act had occurred. Politics aside, we need to have more of a consensus on what constitutes a crime. Continue reading
On April 5, 2016, the Department of Justice’s Fraud Section announced a new Foreign Corrupt Practices Act (“FCPA”) enforcement pilot program (the “Pilot Program”) designed to “promote greater accountability for individuals and companies that engage in corporate crime by motivating 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.” The memorandum announcing the Pilot Program sets forth four prerequisites for corporations seeking to obtain credit under the program—voluntary self-disclosure of the misconduct, full cooperation with the investigation, timely and appropriate remediation, and disgorgement of all profits related to the violation—and describes the additional cooperation credit available to companies under the terms of the Pilot Program. Continue reading
Over the last decade, deferred prosecution agreements (“DPAs”) have been increasingly employed to resolve allegations of corporate criminal misconduct. When a DPA is reached between the government and a corporate defendant, the general practice has been for the government to file the DPA with the court, together with a charging document and a tolling agreement. But once the power of the judiciary has been invoked by these simultaneous filings, what then becomes the role of the court?
While the narrow holding in United States v. Fokker Services B.V. correctly pointed out what the court’s role is not, the Federal Circuit missed an opportunity to provide clear guidance on the scope of judicial authority to the district courts that increasingly find deferred prosecutions pending on their dockets. Continue reading
Many have noted the impetuous growth of the administrative state: the massive expansion and awe-inspiring authority of official departments and commissions; the billions of dollars of penalties assessed against offenders; the modalities of agency action that seem to grow more refined and more pervasive with each passing year.
Less attention is given, however, to the necessary concomitant of this regulatory mission creep: the progressive disempowerment of the judicial branch. Judges in administrative cases are often relegated to the role of juridical Bob Cratchits – clerks who rubber-stamp documents without exercising substantive influence over the matters that come before them. Continue reading
The standards for judicial review of corporate settlements have entered a period of ferment. As Alan Morrison and I have just described in the National Law Journal, the U.S. Court of Appeals for the D.C. Circuit erred in its much-anticipated ruling in Fokker Services, holding that judicial approval of a corporate deferred prosecution agreement should be de rigueur, absent indicia of illegality. The result may have been correct, given the terms of the deal at issue, but the reasoning was quite overblown and unsupported. Continue reading