When apparel maker Ralph Lauren Corp. first discovered that one of its employees had been bribing custom officials in Argentina, the company immediately notified the U.S. government, offering its employees for interviews and turning over documents. In exchange, Ralph Lauren on April 22 obtained nonprosecution agreements with both the U.S. Justice Department and the U.S. Securities and Exchange Commission. The company agreed to pay about $1.6 million in penalties to resolve claims that it violated the Foreign Corrupt Practices Act (FCPA).
"Ralph Lauren Corporation did all of the right things when these issues surfaced in Argentina: it investigated, self-reported, cooperated fully with the authorities, conducted a world-wide risk assessment and implemented a series of remedial measures, including enhanced compliance programs and training," Ralph Lauren attorney Tom Hanusik, a partner at Washington’s Crowell & Moring, told The National Law Journal by email. "The unprecedented use of non-prosecution agreements by both DOJ and SEC reflects these efforts and is a direct result of the terrific tone from the top that exists at this company."
The Ralph Lauren deal and additional recent deferred and nonprosecution agreements haven’t gone unnoticed within the FCPA community. Lawyers and former federal prosecutors said both are becoming more commonplace as companies realize that cooperation and compliance with FCPA regulations could lead to reduced fines and spare them criminal actions. The government, meanwhile, avoids the substantial effort entailed in investigating and bringing cases to trial.
"Both the SEC and DOJ are looking for different ways to resolve cases to encourage corporations to cooperate with the government and voluntarily disclose improper conduct," said Nathaniel Edmonds, a partner at Paul Hastings and former assistant chief of the FCPA unit of the fraud section in the Justice Department’s Criminal Division.
APRIL IS FCPA MONTH
This year got off to a slow start for FCPA enforcement. After collaborating on a new compliance resource guide in November, DOJ and SEC announced no new cases during the first three months of this year.
"The DOJ and the SEC devoted significant resources toward getting the guidance out last year, and I think that actually slowed their ability to resolve investigations they had in the pipelines and may have affected the extent to which they could push forward their investigations," said Sean Hecker, a partner at New York’s Debevoise & Plimpton.
But in April, the agencies issued a barrage of announcements of new enforcement actions and previously sealed cases alleging FCPA violations. And as was the case in 2012, deferred and nonprosecution agreements increasingly have become the most common outcome for FCPA actions against corporate defendants.
In one case involving bribes paid to government officials in Latin America, prosecutors reached a deferred-prosecution agreement with BizJet International Sales and Support Inc., a subsidiary of Lufthansa Technik A.G., which disclosed the wrongdoing and agreed to pay $11.8 million in penalties. But prosecutors also unsealed charges against four of its former executives, two of whom have pleaded guilty. In another case, Parker Drilling Co. reached a deferred-prosecution agreement in which it agreed to pay $11.76 million to resolve charges related to bribes paid to Nigerian government officials.
In a deferred-prosecution agreement, the government reserves the right to bring a criminal action if a company fails to comply with the terms of the deal. In a nonprosecution agreement, the government agrees not to bring a criminal action.
"What all of this shows is, in the amount of the factors the government takes into account, you could make an argument that self-reporting is the most important," said James Keneally, a partner at Kelley Drye & Warren in New York. Government investigators "clearly rely on companies to provide their own compliance, their own oversight, and when things go wrong to take the initial action in both self-correction and self-reporting." In exchange, companies avoid a corporate conviction.
From the government’s perspective, such agreements save money. "What deferred-prosecution agreements do is they encourage companies to cooperate and that saves law enforcement resources," Edmonds said. "As cases are brought, resources will be provided to meet those demands, but there are only a certain number of hours in a day and a certain number of bodies."
In announcing the Ralph Lauren agreement, the SEC admitted as much: "Ralph Lauren Corporation’s cooperation saved the agency substantial time and resources ordinarily consumed in investigations of comparable conduct."
Despite the prevalence of deferred and nonprosecution agreements, no one suggests that the government is slowing down its pursuit of FCPA cases, particularly against individuals. "If they have evidence against you, and particularly if you’ve engaged in any kind of effort to cover up and obstruct any wrongdoing, yeah, you’re going to get hammered," Keneally said.
In one case announced in April, for example, a French citizen was arrested in Jacksonville, Fla., after allegedly attempting to destroy documents and convince witnesses to give false testimony to a federal grand jury investigating whether a mining company had paid bribes in the Republic of Guinea.
Additionally, more foreign countries have begun to collaborate with U.S. authorities in pursuing bribery cases. In February, for example, 120 prosecutors from 30 countries converged in Washington to discuss how best to investigate foreign bribery.
"Whenever there are formal or informal communications with law enforcement, the sharing of information makes it more effective in identifying where individuals are and ensuring the law is most effectively enforced," said Edmonds, who helped organize the gathering.
Edmonds pointed to the recent legislative changes that encourage whistleblowers to alert the government to potential FCPA violations. Such actions are "shifting the calculus of a company about whether or not they will quickly remediate a problem and bring that potential corruption issue to the attention of the [Justice] Department or the SEC."
Still, the SEC has reached only a handful of deferred and nonprosecution agreements since announcing its Enforcement Cooperation Initiative in 2010. The Ralph Lauren deal was the agency’s first nonprosecution agreement in an FCPA case.
And the agreements have their imperfections. Former U.S. Attorney General Alberto Gonzales, an outspoken critic, said that sometimes the government resolves a case in which the company has behaved egregiously. "But you also have cases in which a company arguably hasn’t violated the statute but to avoid publicity they enter into the agreements," said Gonzales, now counsel to Nashville, Tenn.’s Waller Lansden Dortch & Davis. "I don’t know if that’s an appropriate use of an agreement."
In addition to deferred and nonprosecution agreements, companies have been enticed by an even larger carrot: the prospect of declinations — investigations in which the government declines to prosecute. There were at least six declinations during the first quarter of 2013, Hecker said. "That’s a significant number."
Declinations first gained notice within the FCPA bar one year ago, when the DOJ and SEC reached a plea deal with Garth Peterson, a former managing director at Morgan Stanley, but declined to prosecute Morgan Stanley for his misconduct, citing the company’s disclosure of the matter and its extensive internal policies designed to prevent bribery.
"The Morgan Stanley case was one of the first cases the DOJ, in making the announcement, said they were declining prosecution," said Jacqueline Wolff, co-chairwoman of the corporate investigations and white-collar defense group at Manatt, Phelps & Phillips. But whether the government declines to prosecute depends much on the company’s ability to identify individuals who committed wrongdoing. "In the same time period they made the announcement, they announced an executive was pleading guilty," Wolff said of the Morgan Stanley case.
During the rest of 2013, the prospects for FCPA cases remain unclear, especially since the chief enforcers at both the DOJ and the SEC — assistant attorney general Lanny Breuer and director Robert Khuzami, respectively — have recently stepped down. Neither has been replaced yet.
"It’s hard to guess ahead," Wolff said. "It’s difficult to do when the people driving the initiatives in the past are no longer there."
Amanda Bronstad can be contacted at email@example.com.