DOJForeign Corrupt Practices Act (FCPA) enforcement by the Department of Justice (DOJ) was a bit different in 2015 than the preceding years. Obviously the record fines and penalties of 2014 dropped considerably. Further, there was the Joseph Sigelman trial disaster where the DOJ had to change horses in mid-stream and offer a very attractive deal to the defendant after the government’s star witness folded on the witness stand. Yet most of the DOJ nay-sayers conveniently forgot that Sigelman did plead guilty to violating the FCPA, along with two other former executives and with their former company PetroTiger admitting to conduct at issue, it would seem to mitigate the trial issues.

There were a couple of notable DOJ enforcement actions around the FCPA in 2015. The enforcement action involving IAP Worldwide Services, Inc. (IAP or “the company”) and its former Vice President (VP) James Rama, where the company agreed to a fine of $7.1MM was a bit of a head scratcher. While Rama pled guilty to a single count of conspiracy to violate the FCPA and was sentenced to 120 days in prison, IAP secured a Non-Prosecution Agreement (NPA) in addition to its fine.

What it is difficult to determine from the company NPA and Rama Plea Agreement is what conduct the company engaged in which led to the NPA because clearly both the company and Rama engaged in conduct that violated the FCPA. Under the facts presented it would appear that this case was egregious. There was a US company, setting up a scheme to pay bribes through both a US person, who was a former employee, and a foreign third party agent. Meetings to facilitate the scheme were held in the US and monies to fund bribes were wired out of a US bank account. There was nothing reported in the NPA which indicated that the company self-disclosed this FCPA violation. While there were statements of cooperation and remediation going forward, there was nothing other than the standard boilerplate language generally seen in NPAs.

In July, Louis Berger International Inc. (LBI) received a Deferred Prosecution Agreement (DPA) for its FCPA sins. As reported by the FCPA Blog, the “company, admitted violating the Foreign Corrupt Practices Act and agreed to pay a $17.1 million criminal penalty. The company said it bribed foreign officials in India, Indonesia, Vietnam, and Kuwait to win construction management contracts.” Two of its former executives, Richard Hirsch and James McClung, also pleaded guilty to conspiracy and FCPA charges. Both are currently scheduled to be sentenced in February, 2016.

In its Press Release the DOJ reported, “it gave Louis Berger a DPA because the company self reported the FCPA offenses and made U.S. and foreign employees available for interviews. The company collected and organized evidence for federal investigators and undertook “extensive remediation, including terminating the officers and employees responsible for the corrupt payments.” It also promised to improve its compliance program and internal controls.”

Contrasting the Sigelman trial were several high profiles cases where individuals pled guilty and were sentenced in 2015, most notably several former executives and employees of Direct Access Partners LLC (DAP). Former Chief Executive Officer (CEO) Benito Chinea, was sentenced to four years in prison and forfeited $3.6 million for bribing a Venezuela state bank official in return for bond trading business. Former Managing Director Joseph DeMeneses, was sentenced to four years in prison and ordered to forfeit nearly $2.7 after pleading guilty. Former Managing Partner Ernesto Lujan, was sentenced to two years in prison and ordered to forfeit $18.5 million for bribing a Venezuela state bank official. Former Senior Vice President Tomas Clarke pleaded guilty and was sentenced to two years in prison and ordered to forfeit nearly $5.8 million. Finally, Broker Jose Alejandro Hurtado was sentenced to three years in prison and ordered to forfeit nearly $11.9 million for being the middleman in a scheme to bribe a Venezuela state bank official in exchange for bond trading work.

In December Vicente Eduardo Garcia, a former Regional Director of Enterprise Software for SAP International Inc., was sentenced to 22 months in prison for bribing officials in Panama to win government contracts. Garcia admitted that he conspired with others, including advisors and consultants to SAP, to pay bribes to two Panamanian government officials, as well as to the agent of a third government official, with the understanding that a portion of the money would be paid to the third official. Garcia used sham contracts and false invoices to disguise the bribes. The money shot in this case was set out in the DOJ Press Release, which stated “Garcia further admitted that he believed paying such bribes was necessary to secure both the initial contract and additional Panamanian government contracts.” The bribery scheme netted the Panamanian SAP channel ops partner at least one contract valued at $14.5MM.

Other than the priceless quote from Garcia above, the year was fairly quiet on the DOJ enforcement front; there were no blockbuster settlements as we saw in 2014. However, that does not mean the year was not significant for the compliance practitioner. The DOJ provide quite a bit of solid information to the Chief Compliance Officer (CCO) and compliance practitioner. The Yates Memo set out a new calculus for the receipt of any cooperation credit for a company embroiled in a FCPA investigation (emphasis was in the original Memo). Now if a company desires such credit it must investigate and turn over information on individuals in the corporation involved, directly or indirectly (that is the question) before it even gets to the question of an effective compliance program.

Immediately after the release of the Yates Memo came news the DOJ was hiring a compliance program subject matter expert (SME) in a new Compliance Counsel role. This new hire turned out to be Hui Chen, an experienced corporate compliance practitioner who is also an ex-DOJer. Through Ms. Chen and through remarks by Assistant Attorney General Leslie R. Caldwell, the DOJ communicated its expectations around how this new position would evaluate the compliance programs of company’s in enforcement actions before the DOJ.

Caldwell laid out these metrics or factors the Compliance Counsel would utilize in her evaluation using the following factors:

  • Does the institution ensure that its directors and senior managers provide strong, explicit and visible support for its corporate compliance policies?
  • Do the people who are responsible for compliance have stature within the company? Do compliance teams get adequate funding and access to necessary resources? Of course, we won’t expect that a smaller company has the same compliance resources as a Fortune-50 company.
  • Are the institution’s compliance policies clear and in writing? Are they easily understood by employees? Are the policies translated into languages spoken by the company’s employees?
  • Does the institution ensure that its compliance policies are effectively communicated to all employees? Are its written policies easy for employees to find? Do employees have repeated training, which should include direction regarding what to do or with whom to consult when issues arise?
  • Does the institution review its policies and practices to keep them up to date with evolving risks and circumstances? This is especially important if a U.S.-based entity acquires or merges with another business, especially a foreign one.
  • Are there mechanisms to enforce compliance policies? Those include both incentivizing good compliance and disciplining violations. Is discipline even handed? The department does not look favorably on situations in which low-level employees who may have engaged in misconduct are terminated, but the more senior people who either directed or deliberately turned a blind eye to the conduct suffer no consequences. Such action sends the wrong message – to other employees, to the market and to the government – about the institution’s commitment to compliance.
  • Does the institution sensitize third parties like vendors, agents or consultants to the company’s expectation that its partners are also serious about compliance? This means more than including boilerplate language in a contract. It means taking action – including termination of a business relationship – if a partner demonstrates a lack of respect for laws and policies. And that attitude toward partner compliance must exist regardless of geographic location.

While the DOJ enforcement actions against companies for FCPA violations may have taken a dip in 2015, the DOJ aggressively pursued and brought to justice several individuals who violated the FCPA. Yet, for the compliance practitioner, the biggest information came from the Caldwell, Yates and Chen’s public comments around compliance programs and what the DOJ would evaluate going forward.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016