Remediation, Cooperation Key to Lower DOJ FCPA Sanctions

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By Yin Wilczek

Oct. 22 — The most significant message that the Department of Justice is sending through its Foreign Corrupt Practices Act enforcement actions this year is that corporations may drastically reduce their penalties through remediation and cooperation, an attorney said Oct. 21.

Thomas Fox, founder of Houston firm tomfoxlaw.com and creator of the FCPA Compliance and Ethics Blog, pointed to the DOJ's recent action against Hewlett-Packard Co. in connection with separate bribery schemes in Poland, Russia and Mexico.

HP agreed in April to pay more than $76.7 million in criminal penalties and forfeiture fines, an amount that was far below what the U.S. Sentencing Guidelines advocated, Fox said at an FCPA compliance webcast.

The conduct at issue was “truly one of the worst cases in terms of the bribery schemes that I have seen,” Fox added. The light criminal sanctions against HP make clear that “as bad as things may be, as bad as your conduct was,” companies can significantly reduce their prospective fines and penalties “through an extensive remediation of whatever it was that allowed the conduct to occur, and cooperating with the government,” he said. “I cannot emphasize that enough from the HP settlement.”

Message Reinforced

Fox said the message was reinforced by recent remarks by Leslie Caldwell, assistant attorney general for the DOJ's Criminal Division, that Alcoa Inc.—had it not cooperated—could have been hit with a $1 billion fine regarding an entity's bribes to officials in Bahrain. Alcoa ultimately had to pay $384 million in criminal and civil fines and restitution to resolve the department's charges.

The two cases emphasize that “the key to reducing an overall fine and penalty is your conduct during the pendency of the investigation,” Fox said.

“Do not wait under the end of the investigation to start your remediation,” he continued. “Get in there, do the remediation, communicate that remediation plan to the government through your counsel, and make sure that the government understands and knows what you're doing.”

According to Caldwell, Alcoa's cooperation included an extensive internal investigation, proffers to the government, and ensuring that current and former employees and documents were available to the DOJ.

Unfortunately, it is not as clear how HP obtained more lenient sanctions, Fox said. HP didn't even self-disclose the violations, but it came out with a “stunningly good resolution” so it obviously “did something very right,” he said.

Thomson Reuters Accelus hosted the webcast.

New IT Sweep?

In other discussions, Fox said the HP case could signal the DOJ's new focus on FCPA issues in the information technology sector. As the Panalpina cases illustrate, the government, once it homes in on a sector, may conduct a sweep on other companies in the same industry, he said.

The DOJ's actions related to Panalpina Inc. resulted in, among other measures, the company and several of its corporate customers paying more than $156 million in criminal penalties.

Fox also urged attorneys and compliance professionals to pay attention to the DOJ's ongoing FCPA case against PetroTiger Ltd. executive Joseph Sigelman. Sigelman, one of the joint chief executive officers of the company, is fighting the DOJ's charges that he bribed a Colombian official.

Two other executives—co-CEO Knut Hammarskjold and former general counsel Gregory Weisman—pleaded guilty to the charges.

Sigelman's case implicates the attorney-client privilege because the executive has asked for materials related to the company's internal investigation, some or all of which have been turned over to the DOJ, Fox noted.

“Generally, you can waive the privilege when you disclose attorney-client materials to a third party,” he said. “Whether the government” would be a third party, whether the company is under any obligation to produce such materials to the government; and “a whole plethora of attorney-client-related questions may be answered by” the case.

Opinion Releases

Fox also discussed the DOJ's FCPA opinion procedure releases. The department thus far has issued only one opinion in 2014 in which it said it wouldn't initiate an FCPA enforcement action regarding an investment bank's buyout of a minority shareholder after the shareholder was appointed to a senior position in a foreign government.

As in prior years, the department's latest release contains fact scenarios that Fox said he would have found, “a hundred times out of a hundred,” violated the FCPA. The opinions say the DOJ is open to “appropriate legal arguments” when the company in question has ensured that there are adequate protections in place, he said.

“More importantly for lawyers and compliance practitioners, there is room for creative lawyering” in this area, Fox added. “If you can make a persuasive case to the government, you may be able to engage in conduct that I would have said violates the FCPA.”

Houston Model

Meanwhile, Houston energy companies have developed a business solution to FCPA compliance, Fox said. He described Houston as the “epicenter” of FCPA enforcement, noting that because of the DOJ's focus on the energy sector, more Houston-based companies have been involved in FCPA investigations and actions than companies from any other U.S. cities. “That has led to a lot of knowledge of compliance here in Houston,” he said.

Under the Houston model, the big exploration and production companies require their service companies to have an FCPA compliance program. In turn, the service companies require their contractors to have compliance programs. As part of the contracting process, the service companies will ask about the contractor's compliance procedures and policies, and they may even audit the programs of those that have dealings with foreign governments.

Compliance programs, protocols and codes of conduct are embedded in the contracts and are required as part of the Houston energy sector's business relationships, Fox noted. “If you want to do business with any of these companies you have to have compliance programs,” he said. “It's driven compliance down the chain.”

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Mike Moore at mmoore@bna.com

Caldwell's remarks are available at http://www.justice.gov/opa/speech/remarks-assistant-attorney-general-criminal-division-leslie-r-caldwell-22nd-annual-ethics.