DOJ Enforcement

Subscribe to DOJ Enforcement via RSS

US DOJ sealLast week, the DOJ announced its first corporate enforcement action under the Foreign Corrupt Practice Act (“FCPA”) for 2015. IAP World Services, Inc., a Florida-based defense and government contractor, agreed to pay $7.1 million in a non-prosecution agreement (NPA) for conspiring to bribe Kuwaiti officials in exchange for a contract to build a large-scale homeland surveillance system in Kuwait. The primary employee involved, James Rama, pleaded guilty to one count of conspiracy to violate the FCPA. (see here for criminal information and here for plea agreement). Fresh off the heels of the announcement that the DOJ has declined to prosecute Petro Tiger (only the second publicly-acknowledged declination of its kind), the IAP settlement is the first significant case from the DOJ in a year where FCPA enforcement has thus far been dominated by the SEC.

According to the NPA, Kuwait’s Ministry of the Interior started a homeland security project in 2004, which was divided into two phases. Rama and others allegedly created a shell company, Ramaco, which bid on and won the Phase I contract. Rama and IAP allegedly designated half of the approximately $4 million Ramaco received from the Phase I contract to bribe Kuwaiti officials through a consultant to assist IAP in gaining the lucrative Phase II contract.

Leslie Caldwell, head of the Justice Department’s Criminal Division, is, in her own words, “pounding the pavement on cooperation and transparency.”  Speaking on Tuesday at the New York City Bar’s fourth annual White Collar Crime Institute in Manhattan, Caldwell took another opportunity to discuss what the government expects of companies that seek to cooperate with criminal investigations.  She emphasized that companies choosing cooperation and expecting to get full credit must act with candor and give the Department all relevant information in a timely fashion. In particular, the Justice Department expects companies to learn and disclose all knowable, relevant facts and to share them, whether they be good or bad and no matter how high the rank of the individuals responsible for the misconduct.

The Justice Department continues to send the strong signal that it is looking to charge senior executives of companies.  At a conference this week in London, senior Justice Department official Deputy Assistant Attorney General Sung-Hee Suh focused not only on the high priority the Department places on prosecution of corporate…

Last week, the Department of Justice announced the first Foreign Corrupt Practices Act enforcement action of 2015, against Dmitrij Harder, the former owner and president of the Chestnut Consulting Group.  The allegations are premised, in part, on a seldom-used section of the FCPA: the statutory provision that prohibits bribing officials of public international organizations.

According to the indictment, Harder operated the Chestnut Consulting Group entities, which provided consulting services to companies seeking financing from multilateral development banks.  Harder and the Chestnut Consulting Group assisted two oil and gas companies obtain several hundred million dollars and euros in financing for development projects from the European Bank for Reconstruction and Development (“EBRD”).  The Chestnut Consulting Group’s services were retained “despite its relatively small size, distant location from the EBRD, and unproven track record as a financial advisor.”

Earlier this week, Alstom S.A., a French multinational power and transportation company, pleaded guilty in the District of Connecticut to a two-count information charging it with violating the accounting provisions of the Foreign Corrupt Practices Act.  The penalty levied against Alstom, over $772 million, will be the largest criminal fine that has ever been imposed under the FCPA.  Provided that the District Court approves the plea agreement negotiated between Alstom and the Department of Justice, the resolution will rank just under the 2008 Siemens FCPA resolution, which involved combined criminal and civil penalties of approximately $800 million.

According to the information, the corrupt conduct of Alstom personnel and agents, though noteworthy in its breadth and length of time, has the hallmarks of a textbook FCPA case: the use of third party consultants (often referred to by codename) with little documentation corroborating the purposes for their massive fees; a foreign subsidiary subject to insufficient parental supervision; attempts to obtain lucrative contracts for power and transportation projects for state-owned companies; and a failure to respond to red flags.

US DOJ sealThe U.S. Department of Justice recently publicized its second Foreign Corrupt Practices Act Opinion Procedure Release of 2014.  In the Release, the DOJ reiterated that an acquiring company may not inherit FCPA liability when the DOJ did not have jurisdiction over the target company’s prior corrupt activities.

The DOJ has repeatedly asserted that, through principles of successor liability, an acquiring company in an M&A transaction may assume FCPA liability for the pre-acquisition bribes paid by the target to foreign government officials.  Out of concern for this potential avenue of liability, a U.S.-based consumer products company recently sought guidance from the DOJ on whether it would bring an enforcement action for the pre-acquisition corrupt activities of a wholly-foreign target company.  The U.S. company sought this guidance by exercising a unique statutory procedure whereby companies can request a DOJ opinion on the FCPA enforcement ramifications of proposed conduct.  See 15 U.S.C. §§ 78dd-1(e), -2(f).

2014 was a banner year for federal recoveries under the False Claims Act (“FCA”). In a press release dated November 20, 2014, the DOJ announced that its total recoveries – including those from both settlements and judgments – amounted to $5.69 billion for the fiscal year ending September 30th. These results mark the first time that annual recoveries have exceeded $5 billion, and they continue a recent trend of aggressive FCA enforcement. The FCA is the primary civil statute through which the DOJ combats fraud on the federal Government. It includes qui tam provisions which provide monetary incentives for whistleblowers to file suit directly against wrongdoers. $3 billion of FY 2014’s $5.69 billion recoveries arose from qui tam actions, with the Government paying $435 million to reward the whistleblowers. The number of qui tam suits has exceeded 700 for each of the last two fiscal years, far exceeding the 300 – 400 per year in the period between FY 2000 and 2009.

Guest Post from Proskauer’s Whistleblower Defense Blog
Written By Steven J. Pearlman and Rachel Fischer on November 5, 2014

According to an academic study published on October 6, 2014 by Andrew C. Hall, Gerald S. Martin, Nathan Y. Sharp, and Jaron H. Wilde, the presence of whistleblowers may have a meaningful impact on the outcomes of enforcement actions brought by the SEC and DOJ. The study involved an analysis of the effect of whistleblowers on enforcement actions for alleged financial misrepresentation, as measured by regulatory penalties (and criminal prison sentences). The study’s authors reviewed the outcomes of SEC and DOJ enforcement actions between 1978 and 2012 associated with alleged financial misrepresentation. According to the study, the involvement of whistleblowers in enforcement actions is associated with an average penalty of $90.16 to $92.88 million higher than when no whistleblower is involved. The study also found that whistleblower involvement is associated with executives and employees at firms being fined $50.22 to $56.50 million more than in actions without whistleblowers.