The U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) continue to deploy DPAs and NPAs aggressively. This past year left no doubt that such resolutions are a vital part of the federal corporate law enforcement arsenal, affording the U.S. government an avenue both to punish and reform corporations accused of wrongdoing. In early December, for example, U.S. Assistant Attorney General for DOJ’s Criminal Division, Leslie Caldwell, highlighted the importance of negotiated resolutions that allowed DOJ to “impose reforms, impose compliance controls, and impose all sorts of behavioral change.” She concluded: “In the United States system at least [settlement] is a more powerful tool than actually going to trial.” DOJ and the SEC have used negotiated resolutions, including DPAs and NPAs, to require companies to implement an effective compliance program. In 2014 we witnessed a number of notable developments in negotiated resolutions that demonstrate that the traditional hallmarks of DPAs and NPAs, including post-settlement compliance and reporting obligations, are here to stay.
Posts Tagged ‘DOJ’
The ability of corporate directors to exercise effective judgment and oversight will be aided by an awareness of emerging white collar enforcement trends of the federal government.
These trends are primarily reflected in a notable series of significant speeches and other public comments made this fall by representatives of the Department of Justice. These include speeches made by senior officials of DOJ’s Criminal and Antitrust Divisions, as well as Attorney General Holder. Collectively, these trends may help to inform boards with respect to transactional planning, risk evaluation and compliance oversight, among other critical matters.
On November 7, 2014, the Antitrust Division of the U.S. Department of Justice brought a lawsuit against Flakeboard America Limited, its foreign parents, and SierraPine, charging that Flakeboard exercised operational control over SierraPine prior to expiration of the statutory pre-merger waiting period, prematurely assuming beneficial ownership of the target assets in violation of the Hart-Scott-Rodino Act and conspiring in violation of Section 1 of the Sherman Act. Flakeboard and SierraPine settled the case, with each agreeing to pay $1.9 million in HSR fines and Flakeboard disgorging an additional $1.15 million in unlawful profits.
According to the U.S. Department of Justice (“DOJ”), deferred prosecution agreements are said to occupy an “important middle ground” between declining to prosecute on the one hand, and trials or guilty pleas on the other. A top DOJ official has declared that, over the last decade, the agreements have become a “mainstay” of white collar criminal law enforcement; a prominent criminal law professor calls their increased use part of the “biggest change in corporate law enforcement policy in the last ten years.”
As the debate continues over whether and how to punish companies for unlawful conduct, U.S. federal prosecutors continue to rely significantly on Non-Prosecution Agreements (“NPAs”) and Deferred Prosecution Agreements (“DPAs”) (collectively, “agreements”). Such agreements have emerged as a flexible alternative to prosecutorial declination, on the one hand, and trials or guilty pleas, on the other. Companies and prosecutors alike rely on NPAs and DPAs to resolve allegations of corporate misconduct while mitigating the collateral consequences that guilty pleas or verdicts can inflict on companies, employees, communities, or the economy. NPAs and DPAs allow prosecutors, without obtaining a criminal conviction, to ensure that corporate wrongdoers receive punishment, including often eye-popping financial penalties, deep reforms to corporate culture through compliance requirements, and independent monitoring or self-reporting arrangements. Although the trend has been robust for more than a decade, Attorney General Eric Holder’s statements in connection with recent prosecutions of financial institutions underscore the dynamic environment in which NPAs and DPAs have evolved.
The announcement of the Credit Suisse guilty plea on May 19, 2014 marks the first time in more than a decade that a large financial institution has been convicted of a financial crime in the United States. For this reason alone, some will herald it a watershed moment in the history of corporate criminal liability. But the government’s well-publicized efforts to mitigate the collateral consequences resulting from the plea will likely limit the plea’s practical significance for companies that find themselves in the unenviable position of negotiating a resolution of criminal allegations with the government. This post will explore the potential implications of the Credit Suisse guilty plea for corporate criminal liability.
In the paper, Breaking Bad? Too-Big-To-Fail Banks Not Guilty As Not Charged, forthcoming in the Washington University Law Review, Vol. 91, No. 4, 2014, I focus on the benefits that the largest financial institutions receive because they are too-big-to-fail. Since the 2008 financial crisis, rating agencies, regulators, global organizations, and academics have argued that large banks receive significant competitive advantages because the market still perceives them as likely to be saved in a future financial crisis. The most significant advantage is a government implicit subsidy, which stems from this market perception and enables the largest banks to borrow at lower interest rates. And while government subsidies were the subject of a November 2013 Government Accounting Office report, in the paper I focus on a specific aspect of the benefits the largest banks receive: the economic advantages resulting from exempting the largest financial institutions from criminal statutes. I argue that this exemption—which has been widely discussed in the media over the last few years, following several scandals involving large financial institutions—not only contributes to the subsidies’ economic value, but also creates incentives for unethical and even criminal activity.
Delay in confronting crises is deadly. Corporate leaders must have processes for learning of important safety issues. Then they must seize control immediately and lead a systematic response. Crisis management is the ultimate stress test for the CEO and other top leaders of companies. The mantra for all leaders in crisis management must be: “It is our problem the moment we hear about it. We will be judged from that instant forward for everything we do—and don’t do.”
These are key lessons for leaders in all types of businesses from the front page stories about Toyota’s and GM’s separate, lengthy delays in responding promptly and fully to reports of deadly accidents possibly linked to product defects.
The news focus has been on regulatory investigations and enforcement relating to each company, but the ultimate question is why the company leaders didn’t forcefully address the possible defect issues when deaths started to occur.
“This Order contains no findings that an officer, director or employee of Alcoa knowingly engaged in the bribe scheme.”
There are several notable aspects of aluminum producer Alcoa, Inc.’s (“Alcoa”) recent FCPA settlement. The $384 million in penalties, forfeitures and disgorgement qualify as the fifth largest FCPA case to date. Further, it is remarkable that such a large monetary sanction was imposed when the criminal charges brought by the U.K. Serious Fraud Office against the consultant central to the alleged bribery scheme were dismissed on the grounds that there was no “realistic prospect of conviction.” Perhaps most striking, however, is the theory of parent corporate liability that the settlement reflects. Although there is no allegation that an Alcoa official participated in, or knew of, the improper payments made by its subsidiaries, the government held the parent corporation liable for FCPA anti-bribery violations under purported “agency” principles. Alcoa serves as an important marker in what appears to be a steady progression toward a strict liability FCPA regime.
Last year, in our annual survey (discussed on the Forum here) of the white collar and regulatory enforcement landscape, we noted that the trend toward ever more aggressive prosecutions reflected a “gloomy picture” for large companies facing such investigations. Our assessment remains the same, as the pattern of imposing massive fines and extracting huge financial settlements from companies continued unabated in 2013. For example, on November 17, 2013, DOJ announced that it had reached a $13 billion settlement with JPMorgan to resolve claims arising out of the marketing and sale of residential mortgage-backed securities—the largest settlement with a single entity in American history. Johnson & Johnson agreed to pay more than $2.2 billion to resolve criminal and civil investigations into off-label drug marketing and the payment of kickbacks to doctors and pharmacists. Deutsche Bank agreed to pay $1.9 billion to settle claims by the Federal Housing Finance Agency that it made misleading disclosures about mortgage-backed securities sold to Fannie Mae and Freddie Mac. SAC Capital entered a guilty plea to insider trading charges and was subjected to a $1.8 billion financial penalty—the largest insider trading penalty in history. And in the fourth largest FCPA case ever, French oil company Total S.A. agreed to pay $398 million in penalties and disgorgement for bribing an Iranian official. Not to be outdone, the SEC announced that it had recovered a record $3.4 billion in monetary sanctions in the 2013 fiscal year.