There were two notable deaths in the sports world this week, one in baseball and one in football. They both will inform today’s blog post on Legg Mason’s Foreign Corrupt Practices Act (FCPA) enforcement action and demonstrate the positive benefits available to a company which meets the requirements in the new FCPA Corporate Enforcement Policy.From the world of baseball comes one of the lesser known players, yet one who has always stuck with me, Bruce Kison. I was huge fan of Roberto Clemente and the Pittsburgh Pirates in the ‘60s and ‘70s. Many fans remember Kison as a rookie pitcher for the ‘71 Pirates, who won the first World Series game played in Pittsburgh at night, against the Baltimore Orioles. I was in high school at that time and because game was played at night, I was able to watch it. The Orioles were up in the series 2-1 and in Game 4 rocked the Pirates starting pitcher for three runs in the top of the first. Pirates’ Manager, Danny Murtaugh, brought in the rookie, who pitched 6 scoreless innings. During that time the Pirates tied the game, then took the lead and held on to win this critical game. Baltimore manager Earl Weaversaid, “the fourth [game] was the turning point of the Series, and that Kison had been the pivotal figure. Weaver explained that with a three-run lead in the first inning and a rookie pitcher at their disposal, the Orioles never should have lost.” Pittsburgh won the series, 4-3.

Kison was a cool as a cucumber in mowing down the Orioles in Game 4 and his performance is still etched in my memory. The other sports hero who died this week was more demonstrative and is equally etched in my memory but for a more negative reason. It was Dwight Clark who made “The Catch” over Everson Walls in the 1982 NFC Championship Game, giving the San Francisco 49ers the win over my Dallas Cowboys. It marked the end of a Cowboy dynasty, led by Coach Tom Landry, which had stretched back to the late 1960s and the beginning of the 49er dynasty which led them to four Super Bowl wins in the next 8 years. “The Catch” is second only to Bart Starr’s touchdown in the 1967 Ice Bowl as the worst moment in the annuls of the storied Dallas Cowboys.

Legg Mason, Inc. (Legg Mason) also demonstrated that an entity can make a comeback through some very egregious facts and failure to self-disclose if it meets the remaining components of the new FCPA Corporate Enforcement Policy. The Department of Justice (DOJ) continued its trend to give maximum reward to companies who fully cooperate during the investigation and extensively remediate their compliance program. This was demonstrated in the Non-Prosecution Agreement(NPA) secured by the company.

Legg Mason had engaged in a straight-forward bribery scheme and the perpetrators had actively engaged to hide it from the corporate headquarters. The bribery scheme involved Société Générale S.A. (SocGen) and the entity “Permal Group Ltd. (“Permal”) a U.S.-headquartered investment management firm within Legg Mason’s International Division.” Permal acted as agent, broker and fund manager for SocGen. Permal was a group of companies who rushed into Libya, after economic sanctions were dropped against it and the country was opened to the west for investment in 2005. It was obvious to anyone who looked that all the national wealth management agencies were covered by the FCPA, as they had the following names Central Bank of Libya, the Libyan Investment Authority, the Libyan Arab Foreign Bank and the Economic and Social Development Fund.

It was also specifically clear that “By at least 2006, two Permal employees and several Société Générale employees, together with their co-conspirators, knew that the Libyan Intermediary was paying bribes and providing other improper financial benefits to Libyan government officials in order to secure financial investments for Société Générale, and willfully agreed to continue to use the Libyan Intermediary despite that knowledge.” Indeed, the actions of Permal employees continued to demonstrate they knew they were engaging in illegal conduct as they paid commissions for no work, paid commissions when no contract existed with Libyan agents and Permal, paid monies into offshore accounts in Panama, entertained state-owned enterprise officials lavishly and in locations which had no business connection to the transactions and used Libyan intermediaries who were family members or close associates of state-owned enterprise officials.

In other words, the conduct of Permal was about as pernicious as a company can engage it. Yet even with this level of activity, Legg Mason was able to obtain a NPA. What were the factors the DOJ specifically called out?

  1. Extensive cooperation – Here Legg Mason received full credit under the FCPA Corporate Enforcement Policy for “conducting a thorough and robust internal investigation; proactively bringing information” to the DOJ; making factual presentations to the DOJ, “timely and fully producing all requested documents; voluntarily making foreign-based employees available for interviews in the United States and facilitating their occurrence; entering into agreements tolling relevant statutes of limitations; and collecting, analyzing, and organizing voluminous evidence and information” for the benefit of and delivery to the DOJ.
  2. Disclosed Individuals – Legg Mason provided “all relevant facts known to it” about the individuals identified as having participated in the bribery scheme.
  3. Extensive Remediation – Legg Mason extensively remediated its compliance program and internal controls in the wake of the FCPA violations by its subsidiary. Further, the company will continue to implement its enhanced compliance obligations as set in Attachment C to the NPA and will report at regular intervals to the DOJ on their progress. The perpetrators at the Legg Mason subsidiary left the company over four years ago.
  4. Mitigating Factors – The specific facts of the matter were cited by the DOJ as mitigating the overall penalty. They included, “the misconduct in the attached Statement of Facts involved only two mid-to-lower level employees of a subsidiary of the Company and was not pervasive throughout the Company; that the employees are no longer employed by the subsidiary and have not been for at least four years; that the Company’s coconspirator — and not the Company itself — maintained the relationship with the intermediary and was responsible for originating and leading the scheme; that the profits earned by the Company in connection with the corrupt transactions described in the attached Statement of Facts were less than one-tenth of the profits earned by the Company’s co-conspirator; and that the Company has no history of similar misconduct.”

All of the above led to a 25% discount off the low end of the US Sentencing Guidelines bottom range.

In the new FCPA Corporate Enforcement Policyit states:

  1. Limited Credit for Full Cooperation and Timely and Appropriate Remediation in FCPA Matters Without Voluntary Self-Disclosure 

If a company did not voluntarily disclose its misconduct to the Department of Justice (the Department) in accordance with the standards set forth above, but later fully cooperated and timely and appropriately remediated in accordance with the standards set forth above, the company will receive, or the Department will recommend to a sentencing court, up to a 25% reduction off of the low end of the U.S.S.G. fine range.

The DOJ has now put in this component of the new Policy into an enforcement action. We previously saw the presumption of a declination come to fruition in the Dun & Bradstreet Inc. declination. The Legg Mason enforcement action provides solid information for every compliance practitioner to use in setting up compliance programs to prevent, detect and remediatein a company. It also gives companies a clear incentive to step up and follow the new policy. Now imagine if Legg Mason had self-disclosed the matter, what level of sanction would they have received?

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© Thomas R. Fox, 2018