Harris Corporation buys CareFx.

CareFx has a subsidiary in China that has paid bribes.

Harris investigates and reports to the Department of Justice and the Securities and Exchange Commission.

The SEC charges the CEO of the China subsidiary.

Clear potential legal liability for Harris.

What result for Harris?

Criminal prosecution?

Nope.

Deferred prosecution?

Nope.

Non-prosecution agreement?

Nope.

Try — declination.

Welcome to the new world of Foreign Corrupt Practices Act (FCPA) enforcement.

Cough up foreign bribery to enforcement authorities and good things will happen.

Harris was represented by Robert Kent Jr. of Baker & McKenzie in Chicago.

Kent says that the declinations in the Harris case represent the first time in a pure FCPA investigation that a multinational corporation has avoided prosecution entirely while one of its former employees was sanctioned for FCPA violations that created clear potential FCPA liability for the company.

“Harris was not formally under the FCPA Pilot Program,” Kent told Corporate Crime Reporter in an interview last week. “Harris obtained its Department of Justice declination in November 2015, five months before the Pilot Program was formally announced. But the Pilot Program was an extension of policies that had been announced through various other means, such as speeches from officials.”

“For several years there has been concern among companies and FCPA practitioners that the Department of Justice wasn’t giving clear benefits to companies that voluntarily disclosed. There had been many instances where a company had voluntarily disclosed and the company ended up paying a significant penalty.”

“At the same time, there had not been very many prosecutions under the FCPA of individuals. There was this concern that there had been declinations issued to companies, but perhaps they weren’t as much based on the voluntary disclosure and the compliance program as they were on the possibility that there wasn’t evidence to support a prosecution.”

“What is significant about the Harris case is the SEC’s charges against the employee shows that there was a basis for proceeding against the company and yet we know that the company got declinations from both agencies. It’s the first time that that confluence of factors has occurred.”

The Harris declination came before the Pilot Program. But did you negotiate with the Department of Justice not to make the declination letter public?

“The Pilot Program refers to declinations, but it doesn’t officially state that they are going to start publishing declination letters,” Kent said. “Since the Pilot Program was announced, we have seen several declination letters published. I believe that this is now a negotiated result whenever the Department of Justice seeks it.”

“Historically they have not been made public. Historically, that has been something the government has not sought and could only really be done with the consent of the company. We have seen some declination letters come out because the companies would make them public. But now it appears that because of their desire to be more transparent, the Department of Justice appears to be requiring companies to agree to the publication of the declination letters in FCPA matters.”

Are we seeing a bit of a morph between declinations and non prosecution agreements where the companies are required, as a condition of the declination, to disgorge?

“The FCPA Pilot Program states that declinations will require companies to disgorge profits that the company retained through the conduct. It’s disgorgement of profits. We have seen that happen in several instances since the FCPA Pilot Program was launched.”

Was that the case in Harris?

“Harris was not required to do that. That may be in part related to the earlier point about the Harris FCPA declination coming out prior to the FCPA Pilot Program was announced.”

Let’s put Harris aside for a moment. How would a declination be different from a non prosecution agreement if there are conditions built into the declination?

“With this policy of requiring disgorgement, the distance between a declination and a non prosecution gets shorter.”

You talk about the corporations complaining about disclosing to the Department of Justice and still getting hit with heavy penalties. What about the other side of the coin where companies don’t voluntarily disclose but still seem to get some kind of preferential treatment, including deferred prosecution agreements?

“That is actually built into the Pilot Program. The Pilot Program says that if a company does not voluntarily disclose, a company can still get up to 25 percent reduction of the penalty that might be imposed. And the company can also get a deferred prosecution agreement or perhaps even a non prosecution agreement in that situation if it appropriately remediates the problem and cooperates fully once the company and the government do start dealing with each other.”

Isn’t the Justice Department sending a signal to companies — if you find out about wrongdoing, you don’t have to report it at first, because you can still get a deferred prosecution agreement?

“The 25 percent difference is significant. In many of these cases, we are talking about tens or hundreds of millions of dollars. A company can lose tens of millions of dollars if it chooses not to voluntarily disclose. There is still an incentive to voluntarily disclose. There is a distinction. It does create a penalty for not voluntarily disclosing.”

Money is a factor. But isn’t a bigger factor the guilty plea compared to a deferred prosecution?

“Yes. But we have moved into a situation where almost every corporate resolution of significant criminal charges is a negotiated resolution that does not involve the parent company pleading guilty. We do have FCPA resolutions where the parent company will get a deferred or a non prosecution agreement and one of its subsidiaries might take a guilty plea. But in those situations, it’s always the subsidiary.”

“This grew out of the Arthur Andersen case almost fifteen years ago. Ever since, the Department of Justice and companies have realized that if there is going to be a resolution, it may as well be to the benefit of both sides to have a negotiated resolution. In FCPA cases, fraud cases, money laundering cases – you will see the parent company almost always ends up with a negotiated resolution.”

Senator Jeff Sessions, Donald Trump’s choice for Attorney General, during the confirmation of James Cole a couple of years ago, said this: “I was taught that if they violated the law, you charge them. If they didn’t violate the law, you don’t charge them.”

“I’ve seen that quote,” Kent said. “It will be interesting to see how he approaches that. Senator Sessions was the U.S. Attorney in Alabama back in the 1980s. At that time, the approach to corporate prosecutions was different. There weren’t as many corporate enforcement actions. And the notion of deferred and non prosecution agreements didn’t exist for corporations at all. It was a practice that grew in the 21st century. It’s due to a combination of increased complexity of the corporate fraud and misconduct situations as well as the change in the FBI since 9/11. After 9/11, the FBI moved many agents who used to investigate white collar crime over to fighting terrorism. As a result, the government has moved to this scenario to where they rely on companies to do the vast amount of internal investigations. We have these negotiated resolutions rather than corporate prosecutions.”

What do you see coming down the road?

“The notion that a compliance program can provide a complete defense to a corporate FCPA violation — we are seeing that develop around the world. It’s in the UK Bribery Act. We are seeing it being introduced in legislation in other countries — Brazil, Spain and other countries. In the U.S., a compliance program is not a complete defense and has never been a complete defense. But it has been considered a primary factor that enforcement authorities will consider in determining whether to exercise their discretion in fashioning whatever resolution they think is appropriate.”

“We are going to see a greater willingness to recognize that a good company can have a strong compliance program and still have a problem develop. In that situation, if the company can demonstrate that it has done a good job of developing a strong compliance program and has a strong compliance culture, maybe a greater number of declinations should be appropriate.”

“That’s a trend you could see over the next few years.”

[For the complete q/a format Interview with Robert Kent, see page 30 Corporate Crime Reporter 48(12), December 12, 2016, print edition only.]