In June 2017, the DOJ released the first two corporate FCPA resolutions since the new administration took office. In both cases, the DOJ issued declination letters “consistent with” the FCPA Pilot Program and required the disgorgement of associated gains. In one of the two instances, the declination letter also required the forfeiture of funds withheld by the company from foreign government officials involved in the alleged wrongdoing. Neither company is a U.S. “issuer”; thus, unlike in some of the early Pilot Program declinations, there was no SEC disgorgement.
Many FCPA commentators have speculated on the reasons for the slowdown in corporate FCPA enforcement since the new administration took office. We do not intend to enter into that debate here, except to note that we continue to see robust DOJ and SEC activity at the investigation stage. And, as we noted in our 2017 FCPA Mid-Year Review, final resolutions of ongoing matters may be delayed as a result of the slow pace to date of confirming senior DOJ and SEC officials to permanent enforcement posts.
Despite the slowdown in certain aspects of enforcement, however, the recent declinations are interesting for a number of reasons. First, the DOJ appears at least to remain committed to clearing longstanding investigations out of its inventory. The DOJ issued the first declination, dated June 16, 2017, to Linde North America Inc. and Linde Gas North America Inc. (collectively “Linde”) relating to conduct that dated to 2006 and had been under investigation for a substantial period of time.
Further, the formulation used in both cases, that the resolution is “consistent with” rather than “pursuant to” the FCPA Pilot Program, suggests conduct disclosed to the Department before the Pilot Program was announced, rather than after the April 5, 2016 date when it took effect. Although the CDM Smith Inc. declination letter is not clear as to when the matter was disclosed to the DOJ, we are still left to speculate just how effective the Pilot Program has been in generating the voluntary disclosures and individual prosecutions it was intended to incentivize.
As for the two declinations themselves, the publicly available facts are limited but contain some noteworthy aspects. The Linde declination, in which Steptoe was involved, represents the first M&A-related matter resolved under the Pilot Program framework. As set out in the letter, Linde acquired Spectra Gases, Inc. in October 2006, and three high-level executives of that company (“Spectra executives”) remained at Linde for three years following the acquisition. According to the declination letter, upon taking control of Spectra, Linde discovered that the Spectra executives had made payments to Georgian officials as part of a scheme, originally put in place before the Spectra acquisition, to secure the physical plant used to produce boron gas. Upon discovering the scheme, Linde withheld $10 million from the Spectra executives due under the terms of the Spectra acquisition agreement, which the DOJ noted was derived in part from Spectra’s earnings from the Georgian boron business. Linde agreed to disgorge $7.82 million in profits (the large majority of which was earned before Linde took control of Spectra) and to forfeit $3.415 million in payments discovered before they were made and that Linde withheld from officials in the Republic of Georgia. In issuing the declination, the DOJ cited Linde’s having met the DOJ’s Pilot Program declination conditions: timely voluntary self-disclosure; thoroughness of its investigation; full cooperation (including providing all known relevant facts regarding individuals); agreement to disgorge the amounts; compliance program enhancements and full remediation.
The DOJ’s June 21, 2017 declination in the CDM Smith Inc. (“CDM Smith”) matter resolved an investigation that appeared to have been significantly more recent than the Linde matter. CDM Smith, a Massachusetts-based engineering and construction firm, allegedly paid approximately $1.8 million in bribes to Indian government officials from 2011 to 2015 in exchange for highway construction contracts and a water project contract. Interestingly, the letter asserts as a basis for FCPA anti-bribery provision jurisdiction that senior management and employees of CDM India “acted as employees and agents” of CDM Smith, and that CDM Smith’s “division responsible for India” (which may have been based in the United States) made $25,000 in payments to local officials in the Indian state of Goa on a water project contract. This stands in contrast to the Akamai Technologies, Inc. and Nortek, Inc. declinations from 2016, which did not state an obvious basis for FCPA anti-bribery jurisdiction. As we also noted in our 2016 FCPA Year in Review, the lack of obvious jurisdiction raised the question as to whether those resolutions were true declinations (where the DOJ could have prosecuted based on both the conduct at issue and adequate jurisdiction over the conduct, but chose not to) or more on the order of file closures.
As with the Linde declination, DOJ cited CDM Smith’s having met the DOJ’s conditions for a Pilot Program declination.
On a related note, the World Bank also announced on June 30, 2017 that it had entered into a Non-Resolution Agreement with CDM Smith providing for a 15-month conditional non-debarment relating to Vietnam, which did not appear in the DOJ declination letter.
Finally, we note that the two declinations were issued in the wake of the decision of the U.S. Supreme Court in Kokesh on the statute of limitations for disgorgement in SEC civil penalty cases. At least at this point, the decision does not appear to have deterred the DOJ from pursuing disgorgement in the Pilot Program context. Time will tell what the repercussions of Kokesh will be on the FCPA enforcement program of both the SEC and DOJ. For further information regarding the decision in Kokesh, please see our prior alert.
While we cannot divine “trends” or “lessons learned” from these isolated data points, we do see FCPA investigations by DOJ and SEC progressing largely as before, and companies should not assume that compliance and enforcement are any less important than in recent years. We will continue to monitor developments during the second half of the 2017.