Last week, according to a Department of Justice (DOJ) Press Release, Deutsche Bank Aktiengesellschaft, “agreed to pay more than $130 million to resolve the government’s investigation into violations of the Foreign Corrupt Practices Act (FCPA) and a separate investigation into a commodities fraud scheme. “The resolution includes criminal penalties of $85,186,206, criminal disgorgement of $681,480, victim compensation payments of $1,223,738 and $43,329,622 to be paid to the US Securities & Exchange Commission in a coordinated resolution.” Settlement documents include a Deferred Prosecution Agreement (DPA) and Information from the DOJ and a Cease and Desist Order (Order) entered to with the SEC. This settlement comes on the heels of another Foreign Corrupt Practices Act (FCPA) settlement in August 2019, where the Bank paid $16.2 million to settle a ‘Princeling’ charge that it corruptly hired sons and daughters of foreign officials and of employees of state-owned enterprises. Today, I want to consider recidivism, the penalty and the FCPA Corporate Enforcement Policy (the Policy).

This FCPA enforcement action brings the Bank into the ignominious category of recidivist. Although given the corrupt nature of the Bank, they obviously do not give a flying flip to be labeled as such and may even see it as a badge of pride (The ‘Edgy’ Bank). Nevertheless, this status does provide some interesting points for consider and distinct lessons to draw from going forward.

Under the Policy, companies have the presumption of a declination if they meet four criteria: (1) self-disclose, (2) timely and appropriately remediated, (3) extensively cooperated with the DOJ, and (4) disgorged all ill-gotten gain. According to the Policy, “absent aggravating circumstances involving the seriousness of the offense or the nature of the offender. Aggravating circumstances that may warrant a criminal resolution include, but are not limited to, involvement by executive management of the company in the misconduct; a significant profit to the company from the misconduct; pervasiveness of the misconduct within the company; and criminal recidivism.”

If a company does not meet the above criteria, it still can receive credit under the Policy. “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.” There is nothing in this subsequent paragraph about aggravating circumstances or criminal recidivism nor does it relate back to the paragraph laying out the factors for the presumption of a declination.

Deutsche Bank was still able to receive a 25% discount off the minimum US Sentencing Guidelines calculation. How did they achieve this result? As noted in the DPA, the Bank did not self-disclose to authorities. Indeed, there is no mention of how these crimes came to light. The Bank is under a Monitorship and perhaps it came about through that mechanism. If so, it illustrates one important aspect of a Monitorship not often discussed which is that a monitor may well uncover instances of additional illegal acts which can be stopped. It may even be that employees or ex-employees may well be willing to talk to a monitor and reveals such actions.

The Bank did receive credit in three areas: (1) Cooperation – the Bank “received full credit for its cooperation with the FCPA investigation conducted by the Offices, including making detailed factual presentations, providing regular updates on the Company’s internal investigation, highlighting key facts and documents, making foreign-based employees available for interviews in the United States, and producing extensive documentation to the Offices, including documents located in foreign jurisdictions”; (2) Disclosure pursuant to the Yates Memo – the Bank provided to the DOJ all relevant facts known to the Bank, including information about the individuals involved in the conduct; and (3) Timely and Appropriate Remediation – the DPA and Order provided the following factors of remediation:

• Significantly enhancing its internal accounting controls, its anti-bribery and anti-corruption program, and its third-party agent program on a global basis;
• Reducing the number of third-party agents used by the Bank;
• Requiring that the Anti-Fraud, Bribery and Corruption (“AFBC”) function approve, and a member of the Management Board support, any new third-party agents;
• Reviewing the third-party agents on an annual basis with involvement by representatives of AFBC;
• Instituting enhanced due diligence procedures and practices on third-party agents;
• Disciplining and terminating certain employees involved in the misconduct;
• Enhanced monitor and control of third-party agents;
• Increasing the Bank’s anti-corruption compliance staff; and
• Increased and more regular anti-bribery training specifically addressing the use of third parties to obtain and retain business.

What all this continues to communicate to the compliance community and the white-collar defense bar is that the DOJ will provide solid and tangible credit for companies no matter how corrupt the companies were, if they move forward to substantively clean up their act and cooperate with the DOJ. The Policy language of “Aggravating circumstances that may warrant a criminal resolution” including “involvement by executive management of the company in the misconduct; a significant profit to the company from the misconduct; pervasiveness of the misconduct within the company; and criminal recidivism” only appears to apply to the first part of the Policy, dealing with a presumption of a declination. It does not appear to apply to a company which does not self-disclose and thereby is ineligible for a declination.

If you significantly clean up your act during the investigation phase and cooperate, it can save you some big bucks, even for a recidivist. How much did that mean in hard dollars deducted from the overall fine and penalty? Somewhere in the neighborhood of $20 million.

Tomorrow I conclude with some final thoughts on lessons learned.

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