FCPA and the Inability to Pay

Let’s say you are a corporation.

And you get caught dishing out bribes overseas.

And the Justice Department wants to fine you a hundred million dollars.

Can you say – hey, I can’t afford that.

And get out of paying the fine?

Mike Koehler, a professor of law at Southern Illinois University says – yes.

And Koehler comes up with two examples of corporations avoiding hefty Foreign Corrupt Practices Act (FCPA) fines by “duping” the Justice Department into believing that the company can’t afford the fine.

A Justice Department spokesperson said the Department would have no comment on the allegation.

In 2010, Innospec pled guilty to FCPA and other wrongdoing based on conduct in Iraq and Indonesia.

The company paid $25.3 million in fines and penalties.

But Koehler says that Innospec received a pass on approximately $135 million in fines and penalties based on its “claimed inability to pay.”

“Innospec, despite receiving a substantial pass based on inability to pay, thereafter consistently reported positive financial results,” Koehler writes. “In addition, Innospec settled a civil case connected to the FCPA enforcement action by agreeing to make an immediate $25 million cash payment to the plaintiff, as well as a commitment to pay an additional $15 million in installments.”

In the Innospec case, “it appears that the Department of Justice was duped,” Koehler concludes.

The second time the Justice Department has waived a corporate fine based on the corporation’s claim that it was unable to pay was earlier this year with the settlement of the Nordam Group enforcement action.

In that case, the Tulsa, Oklahoma based privately held provider of aircraft maintenance, repair and overhaul services entered into a non-prosecution agreement and paid a $2 million penalty “to resolve violations of FCPA” concerning business conduct in China.

In the non-prosecution agreement, the Justice Department agreed that “a fine below the standard range under the U.S. Sentencing Guidelines is appropriate because Nordam fully demonstrated to the Department, and an independent accounting expert retained by the Department verified, that a fine exceeding $2 million would substantially jeopardize the company’s continued viability.”

“Unlike Innospec, Nordam Group is not publicly held, so it is difficult to assess the true nature of its financial condition,” Koehler writes. “However, Nordam Group’s federal government contracts are in the public domain and a simple internet search indicates that in the 90 days after resolving its FCPA enforcement action – in which the company received a pass on larger fine and penalty amounts because such larger amounts could jeopardize the company’s continued viability – Nordam Group has racked in approximately $24.4 million in federal government contracts.”

“Was the Department of Justice duped again?” Koehler asks.

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