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Tuesday, December 31, 2013

End of year enforcement trends

With the end of the year closely approaching, it appears that several major corporations either have resolved or are about to resolve government investigations of their employees' violations of the Foreign Corrupt Practices Act.  Among them:

Hewlett-Packard, whose Polish and German subsidiaries allegedly committed a number of crimes in connection with transactions in Poland, Russia and other countries. 

JP Morgan, whose Chinese subsidiary is under investigation for public sector transactions that may have come about as a result of hiring under its "sons and daughters" hiring program.  JP Morgan's New York headquarters reportedly had no knowledge of the program.  

Archer Daniels Midland (ADM), whose Ukrainian subsidiary entered a guilty plea in connection with its violations of the FCPA in regard to securing certain Value Added Tax refunds (you can read more about the guilty plea here).  Although charged in an SEC complaint, ADM itself will not be criminally prosecuted for it subsidiary's violation, due in part to its voluntary disclosure of its subsidiary's wrongdoing, its extensive cooperation with the government's investigation, its agreement to implement changes in its compliance program (which reportedly was too decentralized) and provide the government with compliance reports for the next three years.

I'm sure there are more out there, but these came to mind as I was perusing various news outlets and blogs.  The ADM resolution is interesting because it combines the corporate parent's criminal non-prosecution agreement (NPA) with its offending subsidiary's criminal indictment and guilty plea. (To be exact, it is in fact a "criminal information" that was filed; for all practical purposes, the information and indictment are identical, except that the defendant's waiver allows the government to file the information in court without seeking a "true bill" from the grand jury).

Subsidiary indictments are neither new nor unique (particularly in the FCPA context).  They have been in existence for some time now, and as the case with ADM, they often represent some negotiated settlement between the offending corporation and the Department of Justice.  Indeed, it would be interesting to know what percentage of the convicted foreign firms that were the source of Brandon Garrett's relatively recent study (discussed here), and the convicted firms that formed the focus of Gabriel Markoff's study were in fact subsidiaries entering negotiated guilty pleas. 

Given that NPA's and deferred prosecution agreements (DPA's) have been on the receiving end of much criticism (including my own), one cannot help but wonder if the ADM model - NPA/DPA for the parent, plus criminal indictment for the sub - will become the norm for most high-profile corporate prosecutions in 2014 and beyond.  If it does, I doubt it will quell criticisms of corporate prosecutions, from either the right or left.  


The subsidiary "indictment" is still, at bottom, a negotiated agreement bewteen a corporation and a government prosecutor.   As noted earlier, the term "indictment" is a misnomer in this context, since in most instances, the defendant entity will waive indictment and accept the entry of an information, whose content will likely be the product of intense negotiation.  

Accordingly, subsidiary convictions are not likely to dispell the transparency concerns that scholars have raised regarding DPA's and NPA's. The process by which the government decides which subsidiary to charge and which charges to file will continue to take place outside the public eye.  Courts may retain the power to reject or alter the terms of the subsidiary's plea agreement, but courts are already moving in that direction anyway where DPA's are concerned.  So it is unclear how much additional transparency or accountability a subsidiary conviction will add to the mix.  

Does the subsidiary indictment represent an improvement over the reported retributive weaknesses (most recently pointed out by Judge Rakoff) of DPA's and NPA's?  If it does, it seems marginal at best.  Those who believe the government has coddled corporate offenders are not likely to be pleased by subsidiary convictions.  (See, e.g., this post here).  And those who prefer blame to be levelled at responsible individuals will continue to feel discomfort that the government has chosen to afix blame to a diffuse entity.   

Putting aside retributive concerns, do subsidiary convictions deter more misconduct than straight DPA's?  

One can imagine subsidiary convictions imposing additional punishment on top of a straight DPA; the same level of punishment, now split between the two entities (in which case there should be no additional deterrent effect).  Finally, and quite perversely, we might imagine subsidiary convictions resulting in reduced punishment in the event a parent is able to extract significant concessions on parent-level fines and monitoring in exchange for the sub's guilty plea.  In that case, the subsidiary conviction may appear more symbolically palatable, but otherwise represent a reduction in actual punishment. 

Perhaps this third possibility is too far-fetched.  Then again, I've floated counter-intuitive ideas about federal cooperation in the past.  I'll think - and write - about these issues at greater length in the coming year.                      

Posted by Miriam Baer on December 31, 2013 at 05:25 PM | Permalink


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