When it comes to enforcement of the Foreign Corrupt Practices Act (FCPA), the Justice Department is lost.

That’s according to the FCPA Professor Mike Koehler. Koehler is a Professor of Law at Southern Illinois University.

Koehler says that Department of Justice officials have recognized “the need for better defined rules of the road in corporate enforcement” meaning “settled and predictable guideposts by which prosecutors exercise their discretion – guideposts that we hope provide greater clarity and clearer expectations to the private sector, and allow companies to conform their conduct accordingly.”

Nice rhetoric, Koehler says, but the Department is “lost when it comes to resolving alleged Foreign Corrupt Practices Act violations by business organizations.”

Take the case of FCPA declinations.

The Justice Department’s FCPA Corporate Enforcement Policy says that “when a company has voluntarily self-disclosed misconduct in an FCPA matter, fully cooperated, and timely and appropriately remediated, all in accordance with the standards set forth below, there will be a presumption that the company will receive a declination absent aggravating circumstances involving the seriousness of the offense or the nature of the offender.”

Aggravating circumstances means no declination.

Simple enough. But in a number of recent cases, the company does rack up aggravating circumstances and is still granted a declination.

Take the case of Cognizant Technologies.

In February, the Justice Department delivered to Cognizant an FCPA declination with disgorgement.

Koehler points out that “there seemed to be plenty of aggravating circumstances in the Cognizant matter as per the government’s own allegations – “high-level employees” were involved in the improper conduct, the company “received ill-gotten gains of approximately $16,394,351 as a result of the conduct,” and the improper payments were not just in connection with one project, but “other improper payments in connection with other projects in India.”

Nevertheless, the Department resolved Cognizant’s FCPA scrutiny through a so-called “declination with disgorgement” – crediting the amount paid to the SEC, Koehler says.

And then along comes the Fresenius matter.

“According to the Department of Justice, the conduct at issue was widespread involving improper conduct in Angola, Saudi Arabia, Morocco, Spain, Turkey, and West Africa, resulting in tens of millions of dollars of gain to the company, the misconduct continued even after the company’s disclosure to the government, the conduct at issue involved high level executives who, among other things, engaged in document destruction, and the company did not even fully cooperate in the Department of Justice’s investigation ‘because it did not timely respond to requests by the Department and, at times, did not provide fulsome responses to requests for information.’”

Fresenius got a non prosecution agreement.

“They put out guidance that says – in these instances, there is a presumption of declination unless there aren’t aggravating factors,” Koehler told Corporate Crime Reporter in an interview last week. “The Cognizant enforcement action from earlier this year involves high level executives, alleged improper payments, not just in connection with one project, but multiple projects, and – we are going to give that company a declination.”

“The reason I say the Justice Department is lost is because the policies are constantly changing, the guidance is constantly changing. They put out guidance and then they act inconsistent with the guidance. The Department of Justice has said as to the Cognizant enforcement action – well, if you knew what we knew, you would look at this differently.”

The Department documents the aggravating circumstances, but they ignore their own rule that the case has to be absent aggravating circumstances.

“It’s not a rule per se, it’s non binding guidance. But still, many people in the FCPA space were like – what happened here?”

“Another one was against the Insurance Corporation of Barbados. The Department of Justice specifically says there was high level involvement by corporate officers in the conduct. And they still get a declination. What good is this guidance? There seems to be a lot of internal contradictions and the Department of Justice not following its guidance.”

“There should be some consistency and predictability. There should be some transparency in how the Department goes about enforcing the FCPA. But those issues have long been issues that have been found in FCPA enforcement actions since these alternative resolution vehicles were introduced in about 2004.”

The other case you raise is the Fresenius non prosecution agreement.

“When non prosecution and deferred prosecution agreements were first introduced in the FCPA area, they were described as a middle ground options that probably were not going to be used in many cases. They are now used in whole or in part in about 90 percent of corporate FCPA actions over the last decade. I’ve long said that these alternative resolution vehicles are problematic on both sides of the spectrum. You have egregious instances of corporate bribery in many cases that are resolved too lightly – the company is offered a non prosecution agreement or a deferred prosecution agreement. And then in other cases, you have very questionable, not provable or not viable FCPA enforcement actions, where because of risk aversion, the company just says — okay fine, we will sign this agreement. These resolution vehicles are problematic on both sides of the spectrum.”

Is it about a third of the cases too lenient, a third too harsh and a third just right?

“Roughly speaking, that’s a decent way of looking at it.”

Is there any way to challenge a settlement that is too lenient or too harsh?

“To my knowledge, no. I know that in the United Kingdom in connection with the BAE enforcement action, there were challenges by civil society organizations. Built into the deferred prosecution laws in the UK, France and Canada, a court and a judge can consider public interest factors.”

Sometimes where there is smoke, there is fire. When you see these settlements going against avowed Department of Justice guidance, you wonder — how did this company get this declination?

“While the FCPA Corporate Enforcement Policy is relatively new, the notion that aggravating circumstances matter has always been part of the Justice Department’s Principles of Federal Prosecution of Business Organizations. The potential has been there for nearly fifteen years. The reason there is no scandal is because you have what should be two traditional adversaries — the government and the company — both loving the way these cases are resolved. The companies like them because it is time and cost efficient. They are predictable. They are able to avoid the most serious consequences of their alleged criminal conduct. And the government loves them because they are easy, they are efficient, they don’t have to prove anything, they can just exercise their leverage.”

“You have two traditional adversaries that both love these cases. And couple that with the fact that there is no ability for the public to seek review of these cases. That is why you don’t see people talking about these. And let’s face it, the average American, or even average lawyer, doesn’t recognize the uniqueness of FCPA enforcement.

How long has it been since the New York Times did its expose of Wal-Mart in Mexico?

“About seven years ago.”

That’s longer than the usual lead time for an FCPA enforcement action. How do you explain what is going on there?

“It’s a complete joke that a major company is under FCPA scrutiny for seven to eight years. Whatever the merits of this case, whatever the allegations are, for a company to be under FCPA scrutiny for seven to eight years, against the backdrop of a company cooperating – that’s the joke of it.”

“The Department of Justice says – long gone are the days of multi-year investigations. I think that was said in 2005. Most recently, two years ago, Trevor McFadden, said – our goal is to wrap up FCPA investigations in months, not years. But time and time again, the average length of time for FCPA scrutiny tends to be four years, and then you have FCPA scrutiny last six, seven and in this case eight years.”

“What is often lost in this conversation is that Wal-Mart voluntarily disclosed in November 2011, five months before the New York Times article. The New York Times article obviously elevated the profile of that scrutiny. It has been a long time. And I can’t explain it. It just reflects very poorly on the government’s ability to efficiently prosecute alleged wrongdoers.”

“Wal-Mart disclosed about a year and a half ago that the settlement is going to be for about $280 million. The questions are –  is it going to be a guilty plea, a deferred prosecution, is a monitor going to be required. Those are some of the questions.”

You say that Wal-Mart has spent $907 million on pre-enforcement professional fee and compliance enhancement expenses over the past ten years. We are closing in on a billion dollars. It might be $1 billion now. The company says it will settle this for $283 million. But it will spend over $1 billion on fees and costs.

“That ratio is very common. Three to one over settlement. And in some cases it’s five to one and in some cases it is seven to one. The biggest ratio I have ever been able to calculate is 150 to one.”

[For the complete q/a format Interview with Mike Koehler, see 33 Corporate Crime Reporter 20(12), May 20, 2019, print edition only.]