Morrison & Foerster Partner James Koukios on the Future of Partial FCPA Cooperation

When Deputy Attorney General Sally Yates released her memo last month detailing investigations of corporations and their executives, she stated matter of factly — “No more partial credit for cooperation that doesn’t include information about individuals.”


Morrison & Foerster partner James Koukios, a former federal prosecutor, wants to know — is it all or nothing?

“The Deputy Attorney General said — no more partial cooperation credit — it’s all or nothing,” Koukios told Corporate Crime Reporter in an interview last week. “She says in her speech that this is a substantial shift and the rules have just changed. If we take her at her word, there is going to be change. At the end of the day, the rough edges are going to be smoothed out and I’m not sure exactly how much change there will be. But I do see some potential problems for companies that are trying to cooperate with the Department.”

“First of all, if it’s true that it’s all or nothing, and if there is some kind of disagreement about how good the cooperation was, or if the cooperation was fulsome, does that mean that the Department at the end of the day can say — this wasn’t 100 percent, you get nothing?”

“That would be an extreme result. I don’t think that is consistent with prior practice. I don’t think that would be a good result. That could result in companies being less likely to self report and less likely to cooperate. They instead might just wait for a subpoena to come and answer that subpoena when it arrives.”

“At the end of the day, there are still potential benefits for a company to self-report and cooperate — not in all cases but in some. And so they may not take that risk. They may still try and cooperate and get the credit. But I can still see a disincentive for companies to come forward and cooperate if the rule is going to be all or nothing. And who is the arbiter of whether they met that standard or not?”

It has always been a sliding scale and the Justice Department has always had to make a judgment whether there was cooperation or not. There never was really such a thing as partial cooperation credit, was there?

“Look at a case like Alstom. It does reflect partial cooperation credit,” Koukios said. “It says right in the papers — they didn’t cooperate at first at all, then they cooperated poorly and then they fully cooperated. And they didn’t get the full cooperation credit under the sentencing guidelines. But they certainly got some concessions in the final product — for example, pleading guilty to a books and records and accounting controls charge instead of an anti-bribery charge, which can have debarment ramifications. And also, getting a mid range penalty instead of a top of the guidelines penalty.”

“Alstom is a good example of where you can negotiate somewhere on that sliding scale that may not be available any more under the Yates memo.”

“Ironically, Leslie Caldwell cited Alstom as an example of what the practice will look like under the Yates memo. But if you read the Yates memo literally, Alstom couldn’t happen under that memo.”

You are saying though that the Yates memo says — no more Alstom.

“That’s my interpretation,” Koukios said. “If you take it literally, I don’t see how there can be any concessions at all to Alstom under the Yates memo. If you look at Alstom, there was a guilty plea instead of a DPA — no doubt about it. The penalty was severe — no doubt about it. But there were some concessions that reflected the eventual cooperation, which from a policy perspective is not a bad thing. You don’t want companies to come away with the lesson that you can never cooperate. It’s better to get eventual cooperation than no cooperation. But a literal reading of the Yates memo says that the Alstom resolution would take a different shape.”

On the FCPA side, how may declinations are there for every case made public?

“There are no requirements that statistics be kept,” Koukios says. “I couldn’t tell you an exact number. But it was substantial. I would say there were many more declinations than there were announced resolutions.”

How does a prosecutor decide whether to go with a non prosecution agreement or a declination?

“The big difference between an NPA and a declination is that an NPA has a series of penalties and undertakings — the most prominent of them being compliance undertakings. A declination is just — we’re done, we are not pursuing this, you don’t have to pay money, you don’t have to do anything.”

“The way you decide is my considering all of the factors in the U.S. Attorney’s Manual, including the Filip factors. Is it a company that has an effective compliance program, where they are clearly committed to stopping the violations but one slipped by? If so, that’s an appropriate case for a declination. Is it a small case? Is it one that really, all things considered can be better handled by the SEC alone or by some changes the company made in the process? And then of course the question is — can we prove it? And if not, that’s a declination as well.”

“But a lot of times, we had these other factors that did focus on the things we were talking about earlier — the compliance factors.”

We report this week on an SEC FCPA settlement with Bristol Myers Squibb. Did not see a Justice Department settlement in that case. Most of them are announced on the same day. Putting Bristol Myers Squibb aside, if we see the SEC moving without a simultaneous move from the Justice Department, can we safely assume that the Justice Department is not going to come in with a case?

“Most of the time that means the Department is not going to proceed,” Koukios said. “In my six years in the FCPA unit, I don’t recall ever having a parallel resolution that wasn’t announced simultaneously. There are lot of reasons for that — much of it is driven by the company. The SEC and the Department will try to accommodate the company’s desire to have just one bad news day as opposed to two.”

“At least historically, individuals may be announced at a different time. But typically if you see an SEC only resolution, it’s going to stay that way. And that’s what most of this year has been. The Bristol Myers case was the tenth or eleventh this year that was SEC only.”

That’s unusual. Why is that happening?

“One big reason is that there has been a shift in perception at the upper level of the Department of Justice management about what cases should go criminal. I believe Leslie Caldwell was saying that the Department is focusing on big cases. And if you look at the SEC only cases this year, they have been fairly small in size compared to some other FCPA resolutions. The biggest one was $25 million and one was as small as $75,000.”

“A decision was taken that many of those cases under the Filip factors are less serious and can be resolved appropriately and handled appropriately with a non criminal resolution.”

“In some cases, the SEC had jurisdiction and there wasn’t criminal jurisdiction. But there has been a policy shift focusing on bigger cases.”

Obviously when you say bigger cases, you are not talking about the size of the company. Bristol Myers Squibb is a huge international pharmaceutical company. We are talking about size of fine.

“Right, with size of fine being a proxy for the seriousness of the wrongdoing. What type of benefit was received? How big was the benefit received? Was it low level bribery versus high level bribery? Was it over a short and contained time period? Or was it a long standing pattern and practice of bribery?”

What is the cut off — $50 million?

“I don’t think there is a strict dollar cut off. But it is going to have to be bigger these days. There were two Department of Justice FCPA resolutions this year that were fairly small given historical resolutions. But notably in those two, they were both not subject to SEC jurisdiction because they were not issuers. The Department decided to go forward with those two.”

“You may see that when there is no alternative SEC resolution, the Department may act in smaller cases.”

[For the complete q/a format Interview with James Koukios, see 29 Corporate Crime Reporter 39(12), October 12, 2015, print edition only.]

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