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The revelation in DaimlerChrysler A.G.’s latest earnings report of the extent of its cooperation with federal investigators indicates that the automaker may be seeking to benefit from recent Department of Justice policy that allows some companies to avoid criminal prosecution. The company’s filing said that it is “voluntarily sharing with the DOJ and the SEC information from its own internal investigation of payments from certain accounts,” and complying with subpoenas from the Justice Department and the U.S. Securities and Exchange Commission, which began a foreign bribery probe last year. A DaimlerChrysler spokesman said the company would not comment beyond what it stated in its earnings report. Before 2004, all companies criminally charged under the Foreign Corrupt Practices Act (FCPA)-which bars U.S. companies from bribing foreign officials-had to enter guilty pleas or go to trial. Since then, the DOJ has allowed at least three companies either to defer prosecution or to enter into a nonprosecution agreement. The problem, say many involved in corporate compliance, is that the DOJ’s policy is neither transparent nor consistent. Predictability is vital because corporations have to decide how much, if any, incriminating information they want to disclose to the government long before the government makes its final determination about whether or not it will criminally charge the company. For example, a company that discloses its violation before it gets caught, and then waives attorney-client privilege, stands a better chance of avoiding prosecution. But taking those actions is no guarantee against prosecution, said former Justice Department FCPA specialist Nicole Healy, now at Wilson Sonsini Goodrich & Rosati in Palo Alto, Calif. Mark Mendelsohn, the DOJ criminal fraud section deputy chief, declined to comment about how his office makes charging decisions. The shift in policy came in the midst of the government’s increased interest in corporate fraud as evidenced, for example, by the Enron, Tyco International and WorldCom prosecutions. With that increased interest came changes in the Federal Sentencing Guidelines for corporations and the passage of the Sarbanes-Oxley Act corporate accountability law. Also, a January 2003 memo from then-Deputy Attorney General Larry D. Thompson to U.S. attorneys established for the first time a middle ground between prosecuting and not prosecuting. It laid out the factors the Justice Department would consider when it determined whether or not a corporation was cooperating enough to avoid prosecution, which might include the company’s waiver of attorney-client and work-product privileges. The memo gave the government the flexibility to allow corporations to pay fines and reform themselves under a future threat of prosecution if they failed. Seeking a ‘guarantee’ Regardless of the reasons behind the DOJ’s increased use of deferred prosecutions in FCPA cases, companies are seeking some assurance that they’re not committing suicide when they cooperate. “Yes, companies who make inappropriate payments should fall on their sword, but there should be some transparency to that process,” said Alexandra Wrage, a former Northrop Grumman Corp. international senior counsel who is now president of Washington-based TRACE International Inc., a non-profit company that assists companies with FCPA compliance issues before they get into trouble. “The bar has been pressing for more clarity on when prosecution will be deferred,” said Philip Urofsky, who in January left the DOJ, where he had been assistant chief of the criminal fraud section. “We generally would consider a deferred prosecution when the company had voluntarily disclosed the conduct, and where it had cooperated and undertook to continue cooperating in our investigation,” said Urofsky, who is now at the Washington office of New York-based Cadwalader, Wickersham & Taft. That “cooperation” could include making witnesses available, providing documents voluntarily, disclosing the results and conclusions of their internal investigation and, if necessary, waiving the privilege with respect to contemporaneous legal advice, where advice of counsel is a potential defense, Urofsky noted. In addition, he said that the company would have to turn over interview and witness statements from its internal investigation, and show that it had already taken remedial steps to put new compliance and financial control systems in place. The company would also have had to discipline the wrongdoers. “The decision to go the deferred prosecution route . . . may also turn on factors such as the extent-in dollars and duration-of the misconduct, and the involvement of senior management,” Urofsky added. No prosecution The three agreements that allowed companies to escape FCPA prosecution are: The March 2005 nonprosecution agreement between the DOJ and closely held Micrus Corp., a Mountain View, Calif.-based medical supply company. Micrus paid foreign doctors incentives to use its medical devices. The January 2005 deferred prosecution agreement between the DOJ and the St. Louis-based Monsanto Co., a publicly traded agricultural products corporation. The case also included a civil settlement with the SEC. Monsanto caused a local official in Indonesia to be bribed in an attempt to have an environmental impact decree repealed. The December 2004 nonprosecution agreement between the DOJ and the publicly traded, Newark, Calif.-based InVision Technologies Corp. (since acquired by General Electric Co.) The case also included a civil settlement with the SEC. InVision attempted to bribe foreign officials to purchase explosive-detection scanners. These deals also included, among other requirements, payment of fines or penalties, and agreements to employ, on an ongoing basis, independent compliance experts who monitor a company’s policies and practices. In InVision’s case, that was limited to reviewing its integration into General Electric’s existing FCPA compliance program. But deferred prosecutions are still not the norm. For example: In early July, two former executives of Houston-based American Rice Inc. were sentenced to lengthy prison terms after being convicted of authorizing payments to Haitian customs officials to illegally reduce American Rice’s import taxes. In May, Los Angeles-based Diagnostics Products Corp. (DPC), a medical laboratory-instrumentation manufacturer, and its wholly owned Chinese subsidiary, pleaded guilty to making payments to Chinese doctors and staff to induce them to buy the company’s products. DPC paid a $2 million penalty and settled with the SEC by disgorging more than $2.5 million in profits and interest. In March, San Diego-based Titan Corp., a security-technology firm, pleaded to a criminal charge for making a $3.5 million payment to a sales agent in Benin to assist its subsidiaries. The sales agent was a business advisor to the country’s president, and $2 million of the fee was funneled into the president’s re-election campaign. Titan also falsified invoices to hide the nature of the payments. The plea deal included disgorgement of $15.5 million in profits and $13 million in penalties, the largest penalty ever assessed under FCPA. What more? Former Northrop counsel Wrage decried the absence of predictability. “Catching the problem, firing the employees, disgorging the benefits from the illegal activity and voluntarily disclosing to DOJ and the SEC-what more can be expected?” said Wrage. Andrew Good of Boston’s Good & Cormier, who often represents corporate officers in criminal matters, said that corporations avoid prosecution because of their importance to the government. “My sense of what’s going on is how important is the corporation in terms of government contracting. The more central the company is to the government’s infrastructure, the less likely it will be prosecuted,” asserted Good. “The debarment remedy drives the process.” Roma Theus, vice chairman of the Defense Research Institute’s white-collar crime subcommittee and a partner in Edwards & Angell’s Fort Lauderdale, Fla., office, echoed Good’s view. “The bottom line for the government is that it will try not to harm itself,” Theus asserted. “The government does what is in its best interest.” However, the Justice Department said there are no such policies. “The size and importance of a company is not a factor in making the decision about whether or not to prosecute a corporation in an FCPA case,” said Bryan Sierra, a DOJ spokesman. “As with any criminal prosecution, there are a variety of factors that prosecutors weigh that are specific to an individual case.” Urofsky said that the DOJ was often asked by companies to tell them how to plan, implement and monitor a company’s compliance program. That’s because a reasonably adequate program could preclude punitive action by both the SEC and the DOJ, and would likely mitigate potential penalties should an action be taken. “We were asked that a lot at DOJ-give us a list,” said Urofsky. “Our view was that the businesspeople were the experts on their own businesses.” And they could get outside experts to help them, he added. That’s where TRACE and like companies come in. Even an insignificant bribe that bares no relation to the value of a contract could trigger government action. “It isn’t always clear,” said Wrage. “How expensive a dinner can you buy an official in Cairo [Egypt] before it becomes an FCPA violation? A $100 tie might be appropriate as a gift in Italy, but that could be a month’s salary for a minor official in other countries and therefore a violation that might risk the reputation and the value of an entire company.”

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