CORPORATE CRIME REPORTER

Mark Mendelsohn on the Rise of FCPA Enforcement
24 Corporate Crime Reporter 35, September 10, 2010

Remember the good old days?

Say five years ago?

When the Justice Department brought a total of four or five Foreign Corrupt Practices Act (FCPA) cases a year?

This year, that number might be over 40 – an eight fold increase in five years.

Why the acceleration?

More foreign bribery?

Doubtful.

Try increased enforcement.

And the prosecutor generally acknowledged to have ramped up the program?

Mark Mendelsohn.

Mendelsohn was the head of the foreign bribery unit at the Justice Department from 2005 until he left earlier this year.

In June, he signed on as a partner at Paul Weiss in Washington, D.C.

When Mendelsohn left the Department in April, the FCPA unit had more than 150 cases open.

“Those investigations vary in size and complexity,” Mendelsohn told Corporate Crime Reporter. “Some were quite modest in size. Some were enormous in size and highly complex. And the numbers are actually greater than 150. There are more cases coming in all the time.”

Word on the street is that the majority of foreign bribery cases reported to the Department are brought in by the companies themselves – self-reported.

Not true, says Mendelsohn.

“About a year ago, I looked at this exact question,” Mendelsohn said. “I looked at the complete inventory of cases we had and counted up the number that had come in through voluntary disclosures. It was less than 30 percent.”

“There is a common misperception that the majority of cases are self-disclosed by companies. To be clear, self disclosures are a significant source of cases. But foreign law enforcement authorities refer cases all the time. The FBI identifies cases. State Department and Commerce Department personnel stationed overseas report cases to the Justice Department.”

“The Justice Department opens up cases just from what it reads in the newspaper or from civil lawsuits that are filed. There are a whole host of ways that cases come in.”

And that number could get bigger still.

Why?

Included in the recently passed financial reform legislation – the Frank-Dodd Act – is a foreign bribery whistleblower provision.

“Whistleblowers who report alleged FCPA violations to the SEC regarding public companies are eligible to receive a percentage of any penalties assessed in connection with those cases,” Mendelsohn said. “So, I think we are going to find out in the next couple of years whether or not a program like that will create an incentive for reporting.”

Was that a Justice Department initiative?

“My understanding is that it was not a Justice Department initiative,” Mendelsohn said.

Did the Justice Department take a position on it?

“I’m not in a position to say,” Mendelsohn said. “I’m sure the Department commented on the overall legislation. But I’m not aware of any public comment the Department provided on that provision.”

Mendelsohn doesn’t seem too enthralled by the whistleblower provision.

“The danger is that you are creating incentives for people within companies to go outside the company prematurely with information about potential violations rather than taking those issues to the company and its management and giving management the opportunity to investigate the matter, figure out whether there is an issue there and deal responsibly with the issue,” Mendelsohn said.

“There are some tremendous advantages to having company personnel report compliance issues internally. When you create a whistleblower system which tantalizes individuals with the prospect of huge financial rewards, then you create a disincentive for those people to let management know about issues and let them deal with them.”

Mendelsohn swatted away criticism that under his tenure, the Department deployed a double standard in FCPA cases – one for large multinational corporations – and another for individuals and smaller companies.

“If I understand the argument well, there is no merit to it,” Mendelsohn said. “The largest FCPA and FCPA-related prosecutions brought – at least as measured by monetary penalties – have been brought against major, multinational corporations. They have been brought against Siemens, Daimler, BAE, Halliburton and KBR. None of these are small companies. I certainly don’t think there is a double standard.”

“What is difficult to understand from the outside is the wide variety of factors the Justice Department has to weigh in figuring out how to resolve a case.”

“Some of those factors are transparent and you can see them from the outside. They relate to the severity of the conduct, who in the company was responsible for it, how senior were the officials that were corrupted, how pervasive was the conduct throughout the organization, was there a compliance program in place. These are factors that are identified in various Department policy guidance documents and the Federal Sentencing Guidelines.”

“But there are other factors less easy to see from the outside. The strength of the evidence in the case. How difficult it would be to actually bring the case to trial given the location of witnesses, given the quality of the evidence, given the strength or weakness of the evidence. There are a lot of factors that some on the outside don’t have access to.”

“I can understand how it might be difficult to compare one case to another and understand why the two were resolved differently. But from the inside, I can assure you that the Justice Department tries to treat like cases in a like fashion, is cognizant of the precedent it has set in settling other cases, and is always attentive to whether or not what they are doing is fair and appropriate and creates the right kinds of incentives.”

“So, my response to the criticism is that I can understand the difficulty in evaluating how these cases are settled. But it is certainly not the case that large companies are treated differently – or more leniently – from small companies.”

What if a U.S. Attorney wanted to bring an FCPA case – on his or her own initiative?

Can’t do it, Mendelsohn said.

“It’s not possible under Department policy,” Mendelsohn said. “What does happen is that the Fraud Section works in collaboration with U.S. Attorneys’ offices around the country. So, you may have one prosecutor from the Fraud Section and one prosecutor from the U.S. Attorney’s office working together. But the U.S. Attorney’s offices are prohibited by Department policy from opening an FCPA investigation without the Fraud Section’s involvement. In addition, they are prohibited from bringing FCPA charges without the Fraud Section’s involvement.”

[For a complete transcript of the Interview with Mark Mendelsohn, see 24 Corporate Crime Reporter 35(11), September 13, 2010, print edition only.]

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