Tuesday, June 3, 2008
A DOJ Press Release reports that "AGA Medical Corporation (AGA), a privately-held medical device manufacturer, has agreed to pay a $2 million criminal penalty in connection with corrupt payments to Chinese government officials in violation of the Foreign Corrupt Practices Act (FCPA)." The 2 count Information filed by the government "charges AGA with one count of conspiring to make bribe payments to Chinese officials and one count of violating the FCPA in connection with the authorization of specific corrupt payments to officials in China."
Wednesday, May 21, 2008
It doesn't look like the DOJ will be suggesting to a company that a law professor receive an endowed chair as part of a deferred prosecution agreement. The change comes as a result of a recent DOJ Memo issued. (See Reisinger, Corporate Counsel, Law.com - New DOJ Policy: Just Call it the Christopher Christie Amendment). But it doesn't preclude a company from going ahead and giving the chair to the law school professor and then using that as a basis for arguing leniency at sentencing. The new guideline issued by DOJ is as follows:
Plea agreements, deferred prosecution agreements and non-prosecution agreements should not include terms requiring the defendant to pay funds to a charitable, educational, community, or other organization or individual that is not a victim of the criminal activity or is not providing services to redress the harm caused by the defendant's criminal conduct.
Such payments have sometimes been referred to as "extraordinary restitution." This is a misnomer, however, as restitution is intended to restore the victim's losses caused by the criminal conduct, not to provide funds to an unrelated third party.
Apart from the limited circumstances described below, this practice is restricted because it can create actual or perceived conflicts of interest and/or other ethical issues.
This section does not, of course, restrict a defendant's own decision, outside the context of a plea agreement, deferred prosecution agreement or a non-prosecution agreement, to unilaterally pay monies to a charitable, educational, community, or other organization or individual, and then to request leniency from the judge at sentencing based upon such action.
This section also does not restrict "community restitution" payments made pursuant to 18 U.S.C. § 3663(c). That section provides guidance for such payments where the defendant is convicted under 21 U.S.C. § 841, § 848(a), § 849, § 856, § 861 or § 863. Among other factors, that section requires the absence of identifiable victims, as well as a nexus between the payment and the offense.
Neither does this section restrict the use of community service as a condition of probation for environmental prosecutions. United States Attorneys' Offices contemplating such community service as a condition of probation in a case involving environmental crimes shall consult with the Environmental Crimes Section of the Environmental and Natural Resources Division, which has issued guidance to ensure that the community service requirements are narrowly tailored to the facts of the case. The guidance also requires that any funds paid by a defendant as part of the community service portion of a sentence be directed to an entity in which the prosecutors have no interest that could give rise to a conflict and that is legally authorized to receive funds.
There is also the continual concern that DOJ guidelines are not enforceable at law. They are merely internal guidelines. And in some cases, these guidelines are not adhered to. (See my 2004 article in the Cornell Jrl of Law and Public Policy, Department of Justice Guidelines: Balancing 'Discretionary Justice,' ).
(esp)(w/ a hat tip to Dick Cassin)
Thursday, May 15, 2008
Looking at the deferred prosecution agreement signed in the Willbros matter, two things are interesting. First is the treatment of attorney-client privileged materials and the second is the document related to the appointment of an internal monitor.
With respect to attorney client privileged material, the deferred prosecution agreement allows the government to obtain the items and penalizes the company for non-compliance. The company can give notice to the DOJ if they wish to withhold access to "information, documents, records, facilities and/or employees based upon an assertion of a valid claim of attorney-client privilege or application of the attorney work-product doctrine." But "[i]n the event that WGI and WII withhold access to the information, documents, records, facilities and/or employees of WGI and WII, the Department may consider this fact in determining whether WGI and WII have fully cooperated with the Department." Is this a determination that DOJ should have control over, and should they be allowed to obtain this attorney-client privilege material as part of a deferred prosecution agreement? And is it proper to allow one party to a contract the ability to determine if there is compliance with a term within the contract?
The Deferred Prosecution Agreement - Download willbros_deferred_agreement.pdf
The monitor gets selected by Willbros. It is subject to approval by the DOJ. This may avoid situations of a DOJ appointment of a friend or former political boss. But is this going to the other extreme by allowing the company the right to chose the person who will provide oversight? Wouldn't a better approach be to have an impartial member of the judiciary making these decisions?
The Monitor Attachment - Download attachment_d_independent_corporate_monitor.pdf
(esp) (w/ thanks to Librarian Whitney Curtis)
Wednesday, May 14, 2008
Although there has been talk previously, it is now official that Willbros will receive a deferred prosecution agreement as a resolution of its matters with the DOJ. The DOJ's press release states that this company, a "construction, engineering and other services in the oil and gas industry, and Willbros International Inc. (Willbros International), the wholly owned subsidiary through which it conducts international operations, have agreed to pay a $22 million criminal penalty in connection with corrupt payments to Nigerian and Ecuadoran government officials in violation of the Foreign Corrupt Practices Act (FCPA)." The government states that "[t]he six-count criminal information charges Willbros with one count of conspiring to make bribe payments to Nigerian and Ecuadoran officials, two counts of violating the FCPA in connection with the authorization of specific corrupt payments to officials in those countries and three counts of violating the FCPA by falsifying books and records relating to corrupt payments and a tax fraud scheme."
Why a deferred prosecution agreement here? The DOJ explains that
"[i]n recognition of Willbros' thorough review of the improper payments, the companies’ exemplary cooperation, the companies’ implementation of enhanced compliance policies and procedures, and the companies’ engagement of an independent corporate monitor, the Department has agreed to defer prosecution of these companies for three years. If Willbros Group and Willbros International abide by the terms of the agreement, the Department will dismiss the criminal information when the term of the agreement ends."
Willbros now has a foreign corrupt practices act policy, and this policy was issued in October 2007.
Wednesday, April 23, 2008
Corporations reaching deferred or non-prosecution agreements with the government, often find themselves paying money and offering cooperation in return for an agreement that will allow the company to continue its existence. From this cooperation, which in some cases includes a waiver of attorney-client privilege, comes the indictment of individuals within the company. From the government, and sometimes the corporations perspective, these folks are the employees that failed to adhere to internal memorandum and internal regulation, and instead decide to break the law.
This week we see the aftermath of the Bristol-Myers agreement as the DOJ in a press release states "that the former senior vice president of Bristol-Myers Squibb Company (BMS) [ ] was indicted for his [alleged]role in lying to the federal government about a patent deal involving the popular blood-thinning drug, Plavix, used by heart attack, stroke and other patients." "On June 11, 2007, BMS agreed to plead guilty and pay a $1 million criminal fine for misleading the government about the Plavix patent deal." It is, therefore, not surprising to see an individual as opposed to a company prosecution happening here.
Wednesday, April 9, 2008
Guest Blogger - Stephanie Martz, White Collar Crime Project Director - NACDL - writes:
I think that a lot of us are admirers of Eric Lichtblau, who after all won a well-deserved Pulitzer for his coverage of the "TSP," or whatever name the administration is currently giving it. Therefore, I was saddened when I read -- and re-read, because I couldn't believe my eyes -- his surprisingly unsubstantiated piece on deferred prosecution agreements that appeared on A1 of the April 9 NY Times (here).
For starters, I couldn't find any, well, facts. To start with, the headline – "Corporate Deals Replace Trials" – is not actually supported in the piece. Neither Mr. Lichtblau nor anyone he quoted seemed to have tried to figure out whether, based on past conviction rates or even actual "trials" (which are always few and far between in the corporate context), prosecutions have actually been "replaced." In the second paragraph, he makes the unattributed assertion that Monsanto "would have been prosecuted" in an earlier era. Really? Maybe, but not a very supportable assertion. Monsanto involved a few hundred dollar bills being passed by an employee of a subsidiary in a foreign country. In the spirit of supposion, I feel like this case would have resulted in a CIVIL settlement with the SEC, rather than criminal charges. And nowhere does he acknowledge that deferred prosecution agreements require that charges be filed with a U.S. District Court. They are then dismissed IF the company complies with the terms of the DPA.
Let's continue: "In many cases, the details are kept secret." Really? They can be hard to find because DOJ hasn't compiled them or made them available anywhere. But two law review authors in the last 6 months alone have gathered more than 80 of them and analyzed them. I'm not sure why Mr. Lichtblau didn't interview them, since they are the actual experts in this area. (McConnell/Finder piece and Joe Warin's piece).
Mr. Lichtblau also quotes a former prosecutor, apparently without asking that person for supporting information, as saying that the DPA fines are "peanuts" compared to fines imposed by a criminal conviction. Really? Has Mr. Lichtblau actually looked at these agreements? I think that Purdue Pharmaceuticals, Reliant Energy, and Vetco would disagree. Again, the actual facts do not bear this out. Around 85% of companies that are actually sentenced in federal court pursuant to plea OR trial are small, privately held companies that would be ruined by multi-million dollar fines. We don't even have a good "set" to compare with the big publicly traded companies that are doing these DPAs. I might add that if "peanuts" means that companies get to live but pay tons of money to the government under DPAs or die under indictment, I think "peanuts" might be in the public interest.
In short, I suspect that an accurate assessment of DPAs would indicate that they are representative of more, rather than less, government oversight of companies; or at least a shifting focus at DOJ from prosecution to reform, which traditionally has been the bailiwick of the SEC. Even if that proves to be untrue, any conclusion should be based on facts rather than unfounded speculation. Don't you think?
Monday, March 24, 2008
The fact that AB Volvo entered into a deferred prosecution agreement was previously discussed here. Based upon this agreement it seems unlikely that there will be a company statement, at least one that has not first been vetted through the DOJ. The deferred prosecution agreement in paragraph 14 states:
"14. Statements to the Media: In connection with this Agreement, AB Volvo, Renault Trucks and VCE shall only issue a press release if they first determine that the text of the release is acceptable to the Department."
And it further looks like some of the terms of the agreement seriously diminish the attorney-client privilege rights. The Department reserved the right to ask for attorney-client privileged material. And yes, the company can withhold them, but -
iii. In the event that AB Volvo, Renault Trucks and VCE withhold access to the information, documents, records, facilities and/or employees, the Department may consider this fact in determining whether AB Volvo, Renault Trucks and VCE has fully cooperated with the Department."
And breaches of the agreement, it looks like the Department gets to decide that also, and the company loses some of their statute of limitation rights. To view a copy of the agreement, see here -
If you find this agreement problematic from a contracts perspective, you'll probably be interested in this article by Professor Candace Zierdt (Stetson) and myself here.
(esp) (w/ a Stetson thank you to Librarian Whitney Curtis).
Glenn R. Simpson, of the Wall Street Journal, has an article this morning titled, "U.S. Opens Alcoa Bribery Probe." Alcoa, a global company, clearly has internal rules related to the giving and taking of company gifts. For example, one finds this one on the company website:
"Gifts, favors and entertainment may be given at company expense or accepted by directors, officers or employees from a competitor or an individual or firm doing or seeking to do business with the company only if they meet all of the following criteria:
- they are consistent with customary business practices and do not violate applicable law or ethical standards;
- they are not excessive in value;
- they cannot be construed as a bribe, payoff or improper inducement; and
- public disclosure of the facts would not embarrass the company or the director, officer or employee.
Payments or gifts of cash (or of cash equivalents such as stocks or commodities) to or from a competitor or an individual or firm doing or seeking to do business with the company are never permitted and may not be solicited, offered, made or accepted by directors, officers or employees"
Although a big believer in the presumption of innocence, one has to wonder what could happen if this investigation turns up a bribe to a foreign official. The Foreign Corrupt Practices Act is easily explained in this DOJ Layperson's Guide discussed here. But one notices in looking at the results of a good number of cases (see here) against companies, that if the DOJ does decide to proceed, there is little likelihood of a trial. When a company is involved, the matter tends to end with a payment of a fine and in some cases a deferred prosecution agreement. In a post-Arthur Andersen world, this is easily explained as the cost of fighting can be a death sentence to a company. If the government does find something here, one has to wonder if this will be the result. But, on the other hand, if there is nothing to this investigation - it is hoped that the press received will not hurt the company.
Friday, March 21, 2008
A DOJ Press Release states that "AB Volvo has agreed to pay a $7 million penalty as part of an agreement with the U.S. Department of Justice regarding charges brought in connection with an ongoing investigation related to the U.N. Oil for Food program." The release describes the breadth of the investigation in stating:
"The Department of Justice today filed an agreement with AB Volvo, as well as criminal informations against AB Volvo subsidiaries, Renault Trucks SAS (Renault Trucks) and Volvo Construction Equipment AB (VCE), in the U.S. District Court for the District of Columbia. The informations charge that Renault Trucks and VCE engaged in separate conspiracies to commit wire fraud and to violate the books and records provisions of the Foreign Corrupt Practices Act.
According to the agreement, AB Volvo has acknowledged responsibility for the actions of its subsidiaries, whose employees, agents and distributors paid kickbacks to the Iraqi government in order to obtain contracts for the sale of trucks and heavy commercial construction equipment. The agreement requires the company to cooperate fully with the Department’s ongoing Oil for Food investigations.
The SEC press release also notes that the "SEC Files Settled Books and Records and Internal Controls Charges Against AB Volvo For Improper Payments to Iraq Under the U.N. Oil for Food Program - Company Agrees to Pay Over $12.6 Million in Civil Penalties, Disgorgement of Profits, and Interest."
The company issued a statement saying that "'[t]he incident is, of course, regrettable, but we do note with some satisfaction that the authorities spoke favorably of the cooperation by Volvo as well as Volvo’s own investigation and measures', says Volvo CEO Leif Johansson. 'It is important that we all now learn from what occurred.'”
SEC Complaint here
Information (Renault) here
Friday, March 14, 2008
The FCPA Blog appropriately notes we haven't being seeing many deferred prosecution agreements these days (see here). As the FCPA Blog points out, there have been no reported agreements since Flowserve on February 21.(see here). It is probably a wise move for the government to lay low on deferred prosecution agreements right now with the microscope focused on how monitors are being appointed on the agreements, and also looking at issues of who should have oversight - prosecutors or the courts.
And then to hear discussion of the possibility of former NY Governor Spitzer obtaining a deferred prosecution agreement sends an interesting message. One finds this mention noticeably in an article in the Wall Street Journal by Laurie P. Cohen, Glen R. Simpson and Amir Efrati. (see here). In the corporate setting, it is rare that we see an individual obtaining a deferred prosecution agreement. The last ones of major significance were Former Monster Worldwide CEO Andrew McKelvey (see here) and Frank Quattrone (see here). Now if they decide upon a deferred prosecution agreement with Spitzer, what kind of terms will they include, and will it include a clause used in the Quattrone agreement requiring that he "can only associate with law-abiding persons."
Tuesday, March 11, 2008
The hearing on monitors in Deferred Prosecution Agreements was held yesterday. To listen and view a video webcast of the hearing go here. It is 2 hours and 54 minutes, but there is a long break between the two sessions.
In his opening comments, Hon. John Conyors, Jr. called for judicial oversight of these agreements. He stated as his second point that "despite the guidance the Department released just yesterday regarding use of corporate monitors in these agreements, this guidance still fails to ensure uniformity in the agreements themselves. Indeed, some agreements require the implementation of compliance programs, restitution and fines, while others do not." His fourth point was that "there should be independent judicial oversight of corporate settlement agreements because currently there is no transparency and no requirement that they be made public." Additionally he stated,
"Judicial oversight would help to ensure greater legitimacy of these agreements by providing a neutral decision-maker to prevent abuses and improper politicization, as well as ensure proper completion of the terms of the agreements. Judicial oversight would also provide some currently lacking public exposure of some aspects of the agreement process itself."
Former AG John Ashcroft's written testimony can be found here. From the DOJ, David Nahmais, (see written testimony here), noted the recent adoption of new DOJ guidelines. A few interesting items discussed in the hearing:
- Ashcroft was hit with questions such as - "who besides yourself was considered for the Zimmer Case?" He admitted that he did not know who else was considered for this position, and he did not know if the appointment of the monitor was bid out for others to be considered.
- As one might suspect there was discussion of the ethics chair being given to a U.S. Attorney's alma mater. A comment was made that another law school had been approached first, but that they already had a business ethics chair. This listener was wondering - should that have precluded them from receiving this new chair, and aren't there other law schools out there - even in this same state or close by in an adjoining state?
- There was also discussion of the transparency problems when there are non-prosecution agreements. After all, these agreements bypass the court system.
- There were also comments on whether these agreements should even be allowed.
- It was brought out that there have been over 80 agreements.
Today is the Subcommittee on Commercial and Administrative Law hearing on "Deferred Prosecution: Should Corporate Settlement Agreements Be Without Guidelines?" (see here) And on the eve of this hearing, the DOJ has issued a new memo on the selection and use of monitors in deferred prosecution agreements.(see here). But what exactly does this new memo do, and does it alleviate the issues that have arisen with respect to these agreements.
Clearly this memo provides some internal oversight by main justice when a monitor is being appointed. Perhaps the best aspect of this memo is that it provides that the Deputy AG must approve a monitor. It also creates a standard of a "reasonable person to question the monitor's impartiality" and precludes an association between the monitor and corporation for a period of time following the completion of the monitoring relationship. Clearly these provisions are a step in the correct direction.
But the memo fails to go far enough in many respects. For example:
- The memo emphasizes that it is merely internal guidance, and outside parties have no ability to enforce the statements in the memo. Like most DOJ guidelines, there is no remedy when the government fails to abide by its internal guidelines.
- The choice of the monitor, the control of the monitor, and the communication by the monitor is all within the government. Perhaps in the case of a non-prosecution agreement an argument can be made that there is no body for oversight. But when a case has been filed in the courts, and a deferred prosecution agreement is reached, it seems fairer to have the neutral magistrate in the role of selecting the individual for this position.
- Monitors should not be seen as working for the DOJ, yet the memo even goes so far as to say that "the agreement should provide for an extension of the monitor provision(s) at the discretion of the Government in the event that the corporation has not successfully satisfied its obligations under the agreement."
This memo emphasizes a basic flaw in many deferred prosecution agreements. In many instances, the agreements are not contractually valid and are lopsided agreements that basically provide for the corporation becoming an investigator and agent of the DOJ. Deferred prosecution agreements contain terms that place exclusive power in the hands of the government, even for determining whether a breach of the agreement has occurred. (See Zierdt & Podgor, Corporate Deferred Prosecutions Through the Looking Glass of Contract Policing, 96 Kentucky LJ (2007))
Congress is right to be holding hearings here. If the best that the government can offer is more DOJ control, then Congress needs to intervene with legislation.
Monday, March 10, 2008
A House Judiciary Committee hearing on deferred prosecution agreements issued its list of witnesses for the Tuesday, March 3, 2008 - 10:30 AM Subcommittee on Commercial and Administrative Law Hearing on "Deferred Prosecution: Should Corporate Settlement Agreements Be Without Guidelines?" The panelists are:
Panel I: Hon. David E. Nahmais
The U.S. Attorney's Office
Northern District of Georgia
Timothy L. Dickinson, Esq.
Paul, Hastings, Janofsky & Walker, LLP
Hon. John D. Ashcroft
The Ashcroft Group, LLC
George J. Terwilliger, III
White & Case, LLP
University of Virginia School of Law
Panel II: Hon. Frank Pallone Jr.
Member of Congress
New Jersey, 8th District
Hon. William J. Pascrell Jr.
Member of Congress
New Jersey, 6th District
Sunday, March 2, 2008
FoxNews - Ashcroft to Testify on Monitors
Houston Chronicle (Mary Flood) - Justice's Deals Draw Scrutiny -Research by Houston Lawyers Takes Issue With Corporate Penalties
Northrup Talks Blog - (Item removed as a reader notified me that the link had been compromised)
The Record- NewJersey.com - Editorial: Christie's Cross
Wednesday, February 27, 2008
The controversy over the appointment of monitors under deferred prosecution agreements will be the subject of a hearing on Capitol Hill, and former Attorney General John Ashcroft has agreed to testify at the proceeding. Ashcroft was appointed by Christopher Christie, the U.S. Attorney for the District of New Jersey, to serve as a monitor for Zimmer Holdings, the medical device manufacturer that settled charges that it made improper payments to doctors. The company disclosed that the monitorship with Aschcroft's consulting firm would cost between $28 million and $52 million, which drew the attention of two New Jersey Congressmen who questioned the appointment by USA Christie of his former boss. There were rumblings that the House Judiciary Committee would subpoena Ashcroft if he did not agree to testify, and that threat is now gone. An AP story (here) discusses the former Attorney General's decision. (ph)
Thursday, February 21, 2008
A press release of the DOJ states that "Flowserve Corporation (Flowserve) has agreed to pay a $4 million penalty as part of an agreement with the U.S. government regarding charges brought in connection with an ongoing investigation related to the United Nations Oil for Food program." Flowserve notes the agreed upon penalty on their website as being "a fine, profit disgorgement and related prejudgment interest to the SEC totaling $6,574,225 and a penalty to the DOJ of $4,000,000."
DOJ notes that "[t]he Information [filed by the government] charges that Flowserve Pompes engaged in a conspiracy to commit wire fraud and to violate the books and records provisions of the Foreign Corrupt Practices Act."
Wednesday, January 30, 2008
One need only look at Carrie Johnson's Washington Post article of today to realize the importance of deferred prosecution agreements and the controversy on the appointment of monitors. The article focuses on how Attorney General Mukasey, prior to his approval as AG, had been a finalist for such an appointment. In the background is legislation proposed by Rep. Frank Pallone (D-NJ) which would provide transparency and oversight on some of the existing DOJ practices with respect to deferred prosecution agreements. It reads as follows:
2d Session H. R. 5086
To require the Attorney General to issue guidelines delineating when to enter into deferred prosecution agreements, to require judicial sanction of deferred prosecution agreements, and to provide for Federal monitors to oversee deferred prosecution agreements.
IN THE HOUSE OF REPRESENTATIVES January 22, 2008 Mr. PALLONE introduced the following bill; which was referred to the Committee on the Judiciary A BILL To require the Attorney General to issue guidelines delineating when to enter into deferred prosecution agreements, to require judicial sanction of deferred prosecution agreements, and to provide for Federal monitors to oversee deferred prosecution agreements.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. DEFERRED PROSECUTION AGREEMENT GUIDELINES.
(a) In General- The Attorney General shall issue guidelines delineating when United States attorneys should enter into deferred prosecution agreements, including appropriate factors for United States attorneys to consider in determining whether to enter such agreements as described in subsection (b).
(b) Appropriate Factors for Consideration- Appropriate factors for consideration in the determination of whether to enter into a deferred prosecution agreement include--
(1) the potential harm of entering into a deferred prosecution agreement to employees, shareholders, and other stakeholders of the corporation that is to enter into the deferred prosecution agreement who are not potential parties to litigation relative to the corporate wrongdoing;
(2) the degree of cooperation by a corporation that is to enter into a deferred prosecution agreement with investigators including the corporation's willingness to provide documents and make available for questioning employees, officers, and directors of the corporation;
(3) remedial action taken by the corporation that is to enter into a deferred prosecution agreement in response to wrongdoing such as internal investigation, dismissal of employees, acknowledgment of wrongdoing, payment of restitution, and other structural, management, and policy changes;
(4) availability of criminal charges against specific employees who may have engaged in illegal acts relative to the corporate wrongdoing; and
(5) availability of sufficient alternative punishments or remedial actions pursuant to a deferred prosecution agreement.
SEC. 2. JUDICIAL APPROVAL OF DEFERRED PROSECUTION AGREEMENTS.
(a) In General- A deferred prosecution agreement shall be approved by a United States district court judge or a United States magistrate judge in the United States district court where criminal charges would be prosecuted by a United States attorney.
(b) Submission of Deferred Prosecution Agreement- A deferred prosecution agreement shall be submitted to the appropriate United States district court where criminal charges would be prosecuted by a United States attorney to receive judicial sanction.
(c) Judicial Review and Sanction- A United States district court judge or a United States magistrate judge shall review the terms of a deferred prosecution agreement to ensure that the agreement comports with public interest and all applicable laws and legal precedent before authorizing the deferred prosecution agreement to be entered into by the parties.
SEC. 3. FEDERAL MONITORS.
(a) In General- A Federal monitor shall oversee a deferred prosecution agreement.
(b) Appointment of Federal Monitors- A Federal monitor shall be appointed by an independent third party (a United States district court judge or a United States magistrate judge) from a pool of pre-qualified firms or individuals (or both).
(c) Qualifications of Federal Monitors- A Federal monitor shall have experience in criminal and civil litigation.
(d) Payment of Federal Monitors- A Federal monitor shall be paid according to a pre-determined fee schedule set by the United States district court.
(e) Report Requirement in Deferred Prosecution Agreement-
(1) A deferred prosecution agreement shall include a requirement that a Federal monitor submit reports to the United States attorney and to the United States district court.
(2) A deferred prosecution agreement shall include the number and frequency of reports required by a Federal monitor.
SEC. 4. BREACH OF DEFERRED PROSECUTION AGREEMENTS. Upon request from a United States attorney, the presiding judge in the district court where a deferred prosecution agreement was approved shall determine if the deferred prosecution agreement has been breached.
(esp) (w/ a hat tip to Stephanie Martz)
Tuesday, January 29, 2008
As anticipated here, the DOJ has announced in a press release that "Sigue Corporation and Sigue, LLC (“Sigue”), San Fernando, California-based money service businesses, entered into a deferred prosecution agreement on charges of failing to maintain an effective anti-money laundering program and will forfeit $15 million to the U.S. government." In addition the "Financial Crimes Enforcement Network (FinCEN) announced the assessment of a civil money penalty in the amount of $12 million against Sigue Corporation and Sigue, LLC, . . . . for violations of the Bank Secrecy Act (BSA). Sigue, without admitting or denying the allegations, consented to the civil money penalty." (see here)
The DOJ reports that the Information was filed in the Eastern District of Missouri and that it "charges Sigue with one count of failing to maintain an effective anti-money laundering program." The press release states that
"The company will pay $15 million to the United States, representing funds that are subject to forfeiture as a result of the criminal charge, and has agreed to commit an additional $9.7 million to improving its anti-money laundering program. In light of Sigue’s remedial actions to date and its willingness to accept responsibility for its anti-money laundering failures, the government will recommend the dismissal of the charge in 12 months, provided the company fully implements the significant anti-money laundering and Bank Secrecy Act measures required by the agreement, and complies in all other respects with the terms of the agreement."
The requirements placed by the government on those doing money transfers in the United States is highlighted in this passage of the DOJ press release -
"The charges filed today arose out of transactions conducted by Sigue and its authorized agents from November 2003 through March 2005. Sigue operates by and through more than 7,000 money remitter agents across the country. During this time, more than $24.7 million in suspicious transactions were conducted through registered agents of Sigue, including transactions conducted by undercover U.S. law enforcement agents using funds represented to be proceeds of drug trafficking. Sigue filed suspicious activity reports (SARS) on the obviously structured transactions, but ultimately failed to identify the broader patterns of money laundering activity and prevent the unlawful activity from continuing. Sigue failed to create systems and procedures to identify suspicious financial transactions being conducted by related senders and beneficiaries, from the same or multiple remitter agent locations on the same day, or over several days, months, and, in some cases, years."
The agreement makes it very clear that companies, like Sigue, who are in the business of handling money transfers will pay dearly if they fail to implement systems that will assist the government in monitoring monetary transfer activities. One can anticipate a strong corporate compliance program being used at Sigue.
Friday, January 25, 2008
Former Monster Worldwide CEO Andrew McKelvey entered into a deferred prosecution agreement with the U.S. Attorney's Office for the Southern District of New York (available below) related to options backdating at the company. This is the second such deferral agreement involving an individual in a white collar crime case that I'm aware of, the other one involving former investment banker Frank Quattrone to settle obstruction of justice charges. While the Department of Justice has entered into these agreements with corporations with increased regularity, they are uncommon for individuals, with both coming from the same office and each involving special circumstances. For Quattrone, the government would have had to try him a third time, after the first proceeding ended with a hung jury and the conviction after the second trial reversed due to improper jury instructions -- and the case would be transferred to a new judge because of a perception of possible bias by the judge in the first two trials.
The reason given for the DPA with McKelvey is that he is suffering from a terminal medical condition, so that it would be unlikely a trial could take place on the charges, and even if there was a conviction it would be unlikely to survive under the abatement doctrine applied in federal cases. The DPA essentially requires McKelvey to obey the law for twelve months and restrict his travel. He acknowledged his involvement in backdating options at Monster Worldwide from 1997 to 2003, and the company's former general counsel earlier entered a guilty plea to charges related to the backdating and was cooperating in the investigation. A U.S. Attorney's Office press release (here) discusses the DPA, and the SEC also entered into a settlement with McKelvey that requires him to disgorge profits of $275,000 but does not impose a civil penalty due to his illness (see SEC Litigation Release here).
The disposition in this case appears to be based on the unique situation of the defendant, and does not seem to signal a trend toward using DPAs to resolve cases involving individuals involved in corporate misconduct. I suspect, however, that defense lawyers may try to push for such dispositions in the future for individual clients in addition to corporations, and it will be interesting to see if these agreements become more common. (ph)
Friday, January 11, 2008
A standard feature of most deferred and non-prosecution agreements involving corporations is the appointment of an outside monitor to ensure the company's compliance with the terms of the settlement, which often includes increased internal controls and other changes to the line of business that triggered the investigation. These agreements have become the norm these days, and hardly a month goes by without an announcement that a case has been resolved and a monitor appointed. There are no rules related to DPAs, with each U.S. Attorney's Office and the Department of Justice sections pretty much on their own regarding the particulars of the agreement. The "Wild West" aspect may be coming to an end, however, as the Department disclosed that it is looking at adopting internal guidelines for the selection of monitors and the standards for entering into DPAs. This comes on the heels of Congressional pressure to rein in the discretion of U.S. Attorneys, specifically the U.S. Attorney in New Jersey, who picked the monitors for five medical implant suppliers as a condition of settling a case involving improper kickbacks. The tipping point was the revelation that one of the five, former Attorney General John Ashcroft, the monitor for Zimmer Holdings, will be paid anywhere from $29 million to $52 million for the work by his firm. These positions can be quite lucrative, and as I discussed in an earlier post (here), the monitored company has little leverage in controlling the costs of the monitorship because it has a powerful incentive to cooperate at almost any cost to get out from under the DPA.
Congress has started to weigh in on the matter. Letters from the chairmen of the House and Senate Judiciary Committees to Attorney General Mukasey seek information about the appointment of monitors. Senator Leahy's letter (here) states, "Please provide the Judiciary Committee with a list of all contracts, including dollar amounts, awarded since 2001 to outside lawyers retained by companies for monitoring compliance with out-of-court settlements reached in criminal investigations between companies and the Department. Please also explain the procedure followed to select the person or firm monitoring compliance." The monitors work for the company, not the federal government, so it is unlikely the Department of Justice has access to most contracts for serving as a monitor. The Department has little interest in getting involved in such details, so to gather that information the Committee may have to contact each company, a much more laborious process. Regarding the procedure for selection, the simple answer is that there does not appear to be one, or at least each district has its own process. The promise of Congressional hearings will likely push the Department of complete its internal guidelines as soon as possible to avoid having legislation proposed on the issue.
One appeal of DPAs has been the fact that they are subject to almost no outside oversight: the judiciary does not become involved in the negotiation or approval of the agreement because it is only a contract between the parties, and there have been no general guidelines by the Main Justice about what types of cases are appropriate for resolution by a DPA. That will change in the near future now that the agreements, especially the appointment of monitors, has come under greater scrutiny. An interesting question will be whether greater regulation means these agreements will be used less frequently. A Newark Star-Ledger story (here) discusses the situation. (ph)