When Kirkland & Ellis partner Larry Urgenson was at the Fraud Section at the Justice Department in the early 1990s, it was all about the savings and loan scandal.
“There was $100 million that prosecutors had to spend. And the theme was – put the crooks in jail,” Urgenson told Corporate Crime Reporter last week. “And that process was centralized in the Fraud Section.”
Fast forward to today. It’s been three years since the financial crisis on Wall Street and there has not been one single prosecution of a high ranking Wall Street executive or major financial firm for fraud or misrepresentation.
Why not?
“Everything that is offensive is not necessarily an offense,” Urgenson shoots back. “The Wall Street cases are different from the savings and loan cases.”
“In the savings and loan cases, you had a government victim – and that’s a natural fit for prosecutors.”
“In the Wall Street cases, you had private transactions between private parties.”
“And those kinds of private transactions do not necessarily lend themselves to prosecutions the same way the savings and loan crisis might have.”
The savings and loan cases “were easier in the sense that you had these lifestyle cases – you had tremendous wealth,” Urgenson says.
“You had false statements to the government. And also, you had dead institutions. There was no resort to civil actions that would have been profitable because the bank was out of business. And the only thing left to do was to punish individuals.”
“With respect to Wall Street, you have a lot of viable institutions. Civil remedies may make sense. And this may be a case where the government doesn’t want to undermine the viability of important financial institutions with prosecutions where they can achieve what they need with a civil remedy.”
“With respect to the savings and loans, the corporations were corpses, and there was nothing to pursue.”
But there was a silver lining to Urgenson in the prosecution of the savings and loan cases. He stumbled upon the Foreign Corrupt Practices Act.
“So, as chief of the Fraud Section, a big part of my job was to be involved in that savings and loan initiative,” Urgenson says.
“In the process of doing that, I bumped into the FCPA. It was centralized in the Fraud Section. And it was an enormous surprise to me when I came out into private practice that the FCPA experience turned out to be much more valuable and pertinent in representing companies than anything I had done in savings and loan, or health care, or government procurement.”
And now FCPA is a big part of his practice at Kirkland & Ellis.
“It has become a nomadic practice. FCPA lawyers are going back and forth to China more often than they go to California,” Urgenson said. “It has become very much of an international practice.”
But given the amount of the business of U.S. corporations in China, why are there very few FCPA cases coming out of China?
“There may not be a large number in terms of absolute numbers of cases, but in terms of the percentage of FCPA cases being brought, China is taking an increasing proportion of the Department’s time,” he says. “It is the most important jurisdiction in the world as far as the FCPA is concerned.”
Urgenson defends the use of deferred and non prosecutions in FCPA cases.
He’s just settled one such case – the Biomet case – where the company entered into a deferred prosecution agreement and paid more than $17 million in criminal penalties.
“The deferred prosecution agreement is a necessary compromise,” Urgenson says. “It’s a way in which a company can put the FCPA problem behind it and avoid the risk of suspension and debarment, which would result from a conviction.”
“It’s a tool available to us, but it doesn’t come without a lot of collateral costs and burdens.”
“It just happens to present, right now, often the best solution, and enables the company to put the problem behind it. It’s not really designed for corporate settlements. It’s designed for individuals.”
“And there are a lot of provisions in deferred prosecution agreements which don’t make sense in a corporate resolution. But it’s a practical way to solve the problem right now.”
What are some of those things that don’t make sense?
“There is a provision that the defendant will commit no crimes whatsoever. And if you are dealing with a global corporation, the notion that you can agree not to commit any crime globally means that you are effectively saying that no individual acting on behalf of your company worldwide is going to violate a criminal statute. And that is often completely unrealistic. It could theoretically involve traffic violations.”
“Now, when you talk to the Justice Department, they will say that it is applied practically.”
“But when you sit there and present the agreement to a client, they look at you and say – what does this provision mean?”
“And the reason it is in there is because it is a legacy from when the document dealt with individuals.”
And why can’t you get it stripped out?
“Sometimes it is qualified. But the Department of Justice – in the FCPA world – has become very highly standardized.”
“And the Department knows that any change made in the wording of the standard deferred prosecution agreement is a change that they are going to have to negotiate, talk to defense counsel about in all the deferred prosecution agreements that they negotiate going forward.”
“So, they often say – the standard provision is the standard provision and we don’t want to change it.”
“And because it is more of a theoretical rather than a practical problem, companies uniformly sign those agreements. But if you look at it from a technical point of view, the provision doesn’t make any sense.”
There is no case where a deferred prosecution agreement has been revoked as a result of a violation of that provision?
“No. And that is what you tell your client. And that is why they resolve themselves to sign it. But it is still a theoretical risk. And from a literal point of view, it doesn’t make a lot of sense.”
[For complete Interview question/answer format with Laurence Urgenson, see 26 Corporate Crime Reporter 14, April 2, 2012, print edition only.]