We are at the end of my exploration of the long-awaited Fresenius Medical Care AG & Co. KGaA (FMC) Foreign Corrupt Practices Act (FCPA) enforcement action. I have explored the background, the underlying facts, the bribery schemes used and lessons for the compliance professional from those bribery schemes, the steps the company took which facilitated its steep discount of the eventual penalty paid. We have now had three significant FCPA enforcement actions in 2019; FMC, Cognizant Technology Solutions Corporation (Cognizant) and Mobile TeleSystems PJSC (MTS). All three demonstrated the 2017 FCPA Corporate Enforcement Policy (Policy) at work.
In a speech to the 33rd Annual ABA National Institute on White Collar Crime Conference last month, Assistant Attorney General Brian Benczkowski spoke about the Policy. Initially this Policy has led to greater transparency from the Department of Justice (DOJ). Benczkowski said that the DOJ strives “to be open books about which factors we find aggravating, which we find mitigating, and how each is penalized, credited, and ultimately weighed.” Yet it is more than having transparency. It is also about clarity in conveying “the right incentives for responsible corporate behavior” and not simply slapping on fines and penalties “imposed for penalties’ sake.” Finally, it is about fairness as the DOJ “will avoid penalties that disproportionately punish innocent employees, shareholders, customers, and other stakeholders.”
But more than simply all this, is the clarity brought by the Policy and how the DOJ has implemented it. Benczkowski noted that the Policy details “standards for what constitutes voluntary self-disclosure, full cooperation, and timely remediation”. Further, the Policy “fosters transparency about when credit is due, and how we will award that credit. With that information, companies and their officers will be better equipped to engage in rational decision-making about the steps they should take to qualify for a declination.” He ended this section of his remarks by stating, “At the end of the day, companies that voluntarily self-disclose, take steps to prevent misconduct through robust compliance programs, and take appropriate remedial steps when misconduct is detected should know that they will get a fair shake from the Department.”
With no self-disclosure, FMC was not eligible for a Declination. Yet the company did receive a 40% reduction from the minimum of the US Sentencing Guidelines as its criminal penalty. They achieved this reduction through an extensive remediation program and robust cooperation with the DOJ in the investigation, which I have previously highlighted. It not only included the robust nature of the investigation but its assistance to the DOJ. FMC went above and beyond in obtaining and providing documents, securing witness testimony and presenting witnesses to the DOJ and disclosing conduct that was outside the scope of its initial voluntary self-disclosure. In the area of remedial action, the company took swift steps to terminate or separate from employment those directly involved in the bribery schemes, enhancing its internal controls, policies and procedures, upgrading its third-party program and increasing oversight and monitoring.
While the FMC FCPA enforcement action did not feature a self-disclosure by the company, the Cognizant FCPA enforcement action did. This self-disclosure was a critical element in the company receiving a full Declination in the face of C-Suite directing the bribery scheme. About that Declination, Benczkowski said, “Notwithstanding the fact that the misconduct reached the highest levels of the company, we declined prosecution. And we have made it clear why: The company voluntarily self-disclosed the conduct within two weeks of when the company’s board learned of it. As a result, the Department was able to identify the culpable individuals – and indeed, we have announced charges against the former president and the former chief legal officer of the company for their alleged involvement in the scheme.”
In the MTS FCPA enforcement action there were none of the factors present that led to FMC or Cognizant receiving reductions. In applying the Policy factors, MTS did not voluntarily disclose the matter to the DOJ; MTS’s cooperation and remediation was lacking because it was slow to provide information and evidence in response to DOJ requests and MTS failed to discipline senior executives involved in the conduct. The DOJ also noted a mitigating factor included the fact that the Uzbek government expropriated MTS’s telecommunications assets in Uzbekistan, resulting in no realized pecuniary gain to the companies’ telecommunications assets in Uzbekistan. As a result, the DOJ and MTS agreed that MTS would pay a total fine equal to 25% above the bottom of the US Sentencing Guidelines range.
Beyond MTS’ monetary penalty, the company’s wholly owned Uzbek subsidiary pled guilty to conspiracy to violate the FCPA’s anti-bribery and books and records provisions. The DOJ also announced charges against two individuals, the former Uzbek government official Gulnara Karimova and Bekhzod Akhmedov, the former Chief Executive Officer (CEO) based in Uzbekistan.
There are those who still criticize the DOJ for even developing the Policy or applying it. Such criticism fails to even consider the application of the Policy in practice and therefore does not speak to the compliance aspect of the Policy or even to the compliance professional. For it is in the application of the Policy where the rubber meets the road. One can only conclude from the application of the Policy since its inception in November 2017, through the additions and modifications made to date, it is working. Companies are receiving real benefits just as the DOJ intended.
Going forward, through this application of the Policy, the DOJ has laid out what companies need to do from the compliance perspective if they find themselves in a FCPA enforcement action.
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© Thomas R. Fox, 2019