Baker & McKenzie Partner Ryan McConnell on Deferred Prosecutions, the Decline in Self Reporting, FCPA and Internal Bounties

You spend a few years prosecuting white collar and corporate crime. And then you take a job with a big white collar law firm defending white collar and corporate criminals.

Sometimes, the transition is not an easy one.

“When you leave the Justice Department, it takes a while to get used to the fact that you are not an AUSA,” Ryan McConnell, a partner at Baker & McKenzie, told Corporate Crime Reporter last week. “That’s just not your job. The Justice Department is not your client anymore. You need to represent your client as effectively and aggressively as you can.”

“It takes different former prosecutors different amounts of time to get into that mindset. Companies don’t want someone who says – you have FCPA issues, we need to go ahead and report it.”

“You have to think – is it really an FCPA issue? Is there corrupt intent?”

“Second, is it significant enough so that we need to report it? Is the Department going to find out about it?”

“You need to help the company make a good business decision as opposed to having the former prosecutor say – okay, if you have an OFAC (Office of Foreign Assets Control) issue, you have to go ahead and report it.”

“That may not make sense for the company.”

“I don’t know that there is a predominate view. But it is something that companies looking at. I have had companies ask me – tell us a time when you have recommended that a company not do a voluntary disclosure and why did you make that recommendation.”

“So, clients are getting sophisticated in hiring compliance people who have white collar experience, and pushing them to see if they are going to be somebody who is going to work with the company, or whether they are going to be somebody who is just a shill for the Department.”

“We represented an entity in Mexico,” McConnell says. “There were a series of gifts systemic to the officials who worked at the state owned oil company – Pemex. The gifts occurred over a long period of time. And they progressively got more substantial in terms of value. But at the end of the day, when we looked at it, there was no corrupt intent. It was a situation where there was a long standing issue. But the gifts were given around holiday time. And the investigation did not reveal that element.”

“The advice was not to disclose that issue.”

Had you disclosed, what would have happened?

“I don’t know,” McConnell says. “We think there should have been a declination because we didn’t see the element of corrupt intent. The government may take a different view and often does take a different view in these cases. And from the company’s perspective, you are fighting about one element. And when you are talking about an indictment versus a non prosecution agreement or a deferred prosecution agreement – do you really want to roll the dice? Is the Justice Department going to see the cases differently? And if they do, and they threaten to charge or indict you, what is that going to do to your company? You are obviously not going to be in the same position with your suppliers, with your customers. Who wants to do business with a company under indictment?”

“What are the business consequences of that going to be versus just settling? When you don’t think you have an issue and you believe it should be a declination and they shouldn’t prosecute – why would you go and incur millions of dollars worth of investigation costs when you know you don’t have a real issue but you know some prosecutor in Washington may see it differently?”
McConnell is somewhat of an expert in deferred and non prosecution agreements and corporate compliance programs for major corporations, having compiled searchable database for both.

Why are companies pleading guilty to environmental crimes but not FCPA crimes – where overwhelmingly big corporations get deferred and non prosecution agreements?

“I don’t know,” McConnell says. “A prosecutor is faced with the same corporate charging factors. Why do you always get a different result depending on the area of law? Companies are pleading guilty to crimes, but just not in the FCPA area. I don’t know that it makes a lot of sense, but I’m not sure the judiciary will begin challenging the practice. In those agreements, the companies do make a factual admission. It’s not like the SEC agreements, where they neither admit nor deny. But it will be interesting to see what happens.”

More and more, companies faced with Foreign Corrupt Practices Act (FCPA) and other corporate crime problems are not self reporting.

“I have seen that,” McConnell says. “And it’s a product of a couple of things. The benefit is not always clear as to what you are going to get. Lawyers are taking a close look at the conduct to see if they are meeting all of the elements. An FCPA case isn’t a slam dunk. You need to show corrupt intent. You may have a payment, but there may not be that corrupt intent.”

“Law firms are doing a better job of analyzing those sorts of elements and advising them on what the cost benefit is. It goes back to the data that is out there now. Ten years ago, you didn’t know what the benefit of a self-disclosure is. Now, they have studies showing exactly what the discounts are down to a percentage.”

“I read that the average penalty for FCPA cases is still only $25 million. It’s all a matter of cost benefit and what you think is going to happen. Weatherford International disclosed last year that they have spent over $100 million investigating an FCPA case. I read recently where NewsCorp spent a similar amount. You know that if you do a disclosure, you are going to incur significant investigation costs.”

Dodd-Frank offers FCPA whistleblowers cash incentives for reporting violations to the SEC.

What’s a corporation to do?

“From the companies perspective, they want people to come to the company first, so they can try to get it right, as opposed to going to the SEC,” McConnell says.“Companies are trying to figure out what is the best carrot or stick approach. Do we tell them – you have to report to the company first? Do we offer them an incentive?”

“Do we say – if you report internally, we are going to pay you for doing that?”

McConnell says that at conferences, he has heard company lawyers mention internal bounties.

“The more sophisticated clients have really just focused on their culture and made sure that employees know that that is the expectation for their compliance program – that you bring concerns to the company,” McConnell says.

[For the complete transcript of the Interview with Ryan McConnell, see 26 Corporate Crime Reporter 17(11), April 23, 2012, print edition only.]


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