Just a few years back, major federal corporate crime investigations were handled by the Justice Department and the Securities and Exchange Commission (SEC). If you settled with the Department and the SEC, you were home free.
No longer.
Now, the practice is global. You have the SEC, the Department of Justice, and UK’s Serious Fraud Office and — Chinese anti-corruption police?
Laurence Urgenson is a partner at Mayer Brown in Washington, D.C. For more than 40 years now, he has been on the front lines of corporate crime prosecutions.
“For a long time, the Department of Justice and the SEC were the only game in town in terms of well resourced aggressive prosecution of corporations,” Urgenson told Corporate Crime Reporter in an interview last week. “In the Foreign Corrupt Practices Act (FCPA) and other areas, you see the risk of enforcement actions against corporations becoming a global risk.”
“That greatly increases the exposure and complicates the nature of the representations. When you are talking to the Department and the SEC, you now have to imagine that there are prosecutors from other countries in the room. And they will essentially have access to that information and take actions. The prosecution in one jurisdiction can be used as a basis for prosecutions in other jurisdictions. This is an emerging concern.”
The U.S. is still the big fish when it comes to corporate crime enforcement. Maybe the UK coming in a distant second. But is there anyone who comes in a distant third?
“The question is how the Chinese government is going to deal with corruption issues,” Urgenson said. “That’s the big unknown. If China were to undertake an aggressive enforcement policy, that would be a game changer in a lot of ways. I’m not saying it’s a bad thing or a good thing — but it would be a dramatic change.”
“The Chinese government is going in the direction of a more aggressive anti-corruption enforcement. How they do it is not known. And one thing you can’t do is reason by analogy and assume that the rules of the road in the U.S. system is going to resemble the process and procedures the Chinese adopt.”
“Figuring that out and how to handle it is going to be a major part of global white collar practice. It’s an emerging market.”
Urgenson said another big change in the practice is a move away from voluntary disclosure as a default position for major corporations.
“Voluntary disclosure is still an important option in dealing with FCPA risk,” Urgenson said. “It used to be the default position — people had a predisposition toward it. It’s moved from the default position to one taken only after a clear-eyed case by case analysis of the benefits and the costs.”
“That’s because the benefits and costs of voluntary disclosure have shifted. Part of that is the result of globalization. Part of it has to do with the increased penalties.”
“It used to be that the Department of Justice and the SEC could provide companies with one stop shopping. If you volunteered to the Department and SEC, and you settled the matter, you had finality.”
“That was a big benefit of the voluntary disclosure process. Now, because in part of the high penalties and globalization, the Department and SEC resolution can be the first stop in a long journey, which includes dealing with law enforcement authorities around the world, dealing with NGOs such as the World Bank which has an enforcement process, and navigating the risks of civil litigation.”
“Once the Department of Justice resorted to the alternative fine provisions, which greatly increases the potential fines and once the SEC began to use the disgorgement remedy, FCPA settlements became much more costly, so much so that they could affect the stock price and provoke civil actions.”
“You really have to sit down with the client and look at the list of pluses and minuses to voluntary disclosure. You have to go through with the client the long list of things that follow from voluntary disclosure.”
Do you need to voluntarily disclose in order to get a deferred prosecution agreement?
“The answer is no,” Urgenson says. “The options are — voluntary disclosure or preservation of documents and remediation. If the government does undertake an investigation of the activity, you have the option at that point to say — I understand, I preserved the documents, I remediated and I will cooperate.”
“In the dialogue you have with companies across the board — and I think this is common among FCPA lawyers — the general instinct to voluntarily disclose in most instances has gone from a commonplace automatic decision to one that turns on a case by case analysis.”
“There is a recognition that deferred prosecution agreements have great value. They allow you to avoid the collateral consequences of conviction. But deferred prosecution agreements are not only available to companies that voluntarily disclose. Very frequently, they are given to cooperators as well.”
“Let say you are talking to a client. And they say — look at the settlements and tell me what is the difference between a volunteer company on the one hand and the company that doesn’t volunteer but cooperates. Can you quantify that? And it’s very difficult to quantify a material difference between the two in terms of the amount of the penalties involved.”
“And the Department of Justice and the SEC realize that. That’s why they have recently said that they are willing to consider your status as a volunteer in assessing the scope of the investigation that you will be required to undertake. And that is a good thing. It would be a new benefit. But it reflects the understanding by the government that the bloom is off the rose to a certain degree.”
What about the whistleblower provisions as they apply to the FCPA?
“It’s a potential game changer,” Urgenson says. “It ensures the continuation of vigorous FCPA prosecutions, even if the SEC and the Department of Justice determine that they want to make it less of a priority. It is now in the hands, in essence, of private parties.”
“You can’t judge a statute by what happens in the first five years after it passes. There is a latency period when you institute a new law of that kind. If you look at the civil RICO statute, the Department wasn’t really using it until ten years after its enactment. And then it became a prominent part of the enforcement program. It takes time for the practices to develop, for the cases to be brought in, and for the cases to be brought to fruition.”
“It takes years. I don’t think you can measure the impact of the whistleblower provisions of Dodd-Frank until a couple of years from now. But it’s trending to more and more significant cases. And it will potentially have a dramatic and lasting effect on FCPA matters. As I said, sometimes the Department of Justice and SEC priorities change over time. But plaintiffs counsel and whistleblowers are always going to want to make money. It is important, although the data at this point may not necessarily show it’s dramatic and immediate. But it’s coming.”
[For the complete q/a transcript of the Interview with Laurence Urgenson, see 28 Corporate Crime Reporter 39(12), October 13, 2014, print edition only.]