Top Five Department of Justice FCPA Enforcement Actions in 2019

Thomas Fox - Compliance Evangelist

Compliance Evangelist

Welcome to the 2020’s. The past decade helped shape both Foreign Corrupt Practices Act (FCPA) enforcement and corporate compliance programs. 2019 FCPA enforcements bore out many of the developments from the preceding years of the second decade of the 21st century.  Dick Cassin has said the year was about enforcement and he was right, “Corporate and individual actions generated a steady stream of FCPA news and smashed records along the way.” Over the next few blog posts, I will consider what 2019 brought us and where we may be headed over the next few years. Today, I want to consider my Top Five 2019 FCPA Department of Justice (DOJ) enforcement actions.

  1. Fresenius – Monitor Requirement

This enforcement action involved multiple corruption schemes in multiple countries, some continuing to occur after the company had self-disclosed to the DOJ. The company agreed to pay a total criminal penalty of $84,715,273. Fresenius Medical Care AG & Co. KGaA (FMC) settled a related FCPA matter with the US Securities and Exchange Commission (SEC) and paid $147 million in disgorgement and prejudgment interest to the SEC, which the DOJ credited in its resolution, bringing the total amount paid by FMC to over $231 million. Due to its conduct, the company did not qualify for a Declination under the FCPA Corporate Enforcement Policy; however, the company was afforded a reduction of 40 percent below the low end of the US Sentencing Guidelines fine range.

FMC achieved the 40% reduction through an extensive remediation program and robust cooperation with the DOJ during the investigation. 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. As part of the Non-Prosecution Agreement (NPA) the company received, it agreed to an independent compliance monitor for a term of two years, followed by an additional year of self-reporting.

  1. Cognizant Technology Solutions Corporation – Declination in the face of C-Suite Involvement

This case had the anomaly of alleged senior executive conduct as a part of the bribery scheme. Both the Chief Executive Officer (CEO) and General Counsel (GC) have been charged criminally for their alleged violation of the FCPA. Yet the company received  a full Declination in the face of C-Suite directing the bribery scheme. This was due to a self-disclosure to the DOJ by the company’s Board of Directors only two weeks after being informed of the bribery and corruption. This was a critical element which led to the Declination, Assistant Attorney General Brian Benczkowski said of the Declination, “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.”

  1. MTS – More bad news from Uzbekistan

While these two enforcement actions were not tied together by the facts, they were tied together by industry – telecommunication. Mobile TeleSystems PJSC (MTS) was one of three telecom giants who came to grief from doing business in Uzbekistan and doing business with the daughter of the former President of Uzbekistan, Gulnara Karimova. If that name sounds familiar to compliance professionals it is because she was also involved in the receipt of bribes paid in two other Top 10 FCPA enforcement actions involving telecoms; VimpelCom (now VEON Ltd.) and Telia Company AB. MTS paid a total fine and penalty of $850 million.

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.

  1. Ericsson-no cooperation is very costly

Coming in with more bad news from telecom was the Swedish company Telefonaktiebolaget LM Ericsson (Ericsson), which resolved its long-running FCPA enforcement action near the end of 2019 and came in with a stunning fine and penalty of $1.06 billion. Ericsson did not self-disclose its conduct. Moreover, it did not receive full credit for cooperation and remediation pursuant to the FCPA Corporate Enforcement Policy because it did not disclose allegations of corruption with respect to two relevant matters, produced certain relevant materials in an untimely manner, and did not timely and fully remediate, including by failing to take adequate disciplinary measures with respect to certain executives and other employees involved in the misconduct.How much did these actions cost Ericsson? By my estimation, some $95 million in additional penalties.

Perhaps the largest lesson is that telecom is now the Number 1 industry for FCPA enforcement actions. Ericsson’s fine and penalty have put them second place in the FCPA Blog’s all-time Top Ten FCPA Enforcements and also Number 2 on the all-time Disgorgement List. But, perhaps more interesting, telecom now has four of the top six of all-time FCPA enforcement actions:

  1. Telefonaktiebolaget LM Ericsson (Sweden): $1.06 billion in 2019
  2. Telia Company AB (Sweden): $965 million in 2017
  3. MTS (Russia): $850 million in 2019
  4. VimpelCom (Netherlands): $795 million in 2016
  1. Walmart – Top management does make a difference

One of the longest-awaited FCPA resolutions was that of Walmart Inc. This massive case came in with multiple documents, a long list of instances of bribery and corruption, a slew of individuals who turned some very blind eyes to evidence literally in front of them, some $900+ million in pre-resolution investigative and remediation costs and a total fine and penalty of $282 million. Walmart’s response was stunning in both the amount of money spent on compliance and its willingness to go all in to create one of the world’s best compliance programs.

Of course, the commitment from senior management is critical in all of this. There is a reason it is Hallmark Number 1 in the 10 Hallmarks of an Effective Compliance Program. Even if you are sick to death of the ubiquitous “Tone at the Top” this matter has shown that when senior management is not committed to doing business ethically and in compliance, it does not really matter how robust your compliance program may be. Conversely, when senior management is focused on compliance you see the type of all-encompassing response that only a Walmart can and indeed did make. Walmart should be celebrated for their response to the allegations of bribery and corruption after the New York Times (NYT) story broke. That response alone should be considered landmark.

Tomorrow I will consider the Top Five SEC enforcement actions involving the FCPA.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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