The Other FCPA Investigation Worth Following

Washington gave the compliance community a bucket of FCPA enforcement actions to study last week, from the Ochs-Ziff settlement (holding a chief executive personally liable for misconduct) to the HMT and NCH Corp. deals (declining to file charges, but taking ill-gotten gains back from the companies anyway).

To my mind, however, the most interesting FCPA case right now is the one that came to light last Friday: Cognizant Technology Solutions. Watch how this one unfolds.

Cognizant disclosed in an SEC filing last Friday (end of the week and end of the quarter, exactly when you want to admit bad news) that it is investigating possible Foreign Corrupt Practices Act trouble at its operations in India. It also confirmed the departure of Gordon Coburn, Cognizant’s president since 2012 and CFO before that.

A potentially serious FCPA investigation begins, and right away the company’s senior executive bolts. This is what the Yates Memo and the Justice Department’s insistence on companies’ full cooperation looks like.

To be clear, we don’t know that Coburn left the company specifically because of potential FCPA trouble. So before we go any further, let’s recap what we do know about Cognizant’s investigation so far.

• Cognizant is an Indian IT outsourcing giant. It has 244,000 employees, with roughly 75 percent of them working in India.
• The company owns 12 of its 45 facilities in India, and has already committed $184 million to a major expansion of its operations there.
• Cognizant has launched an investigation into improper payments for building permits, operating licenses, and so forth for some of its company-owned facilities in India.
• The audit committee is overseeing the investigation, which is in early stages, and working with outside counsel.
• The company self-disclosed the violations to the Justice Department and SEC, and is “fully cooperating.”
• Coburn resigned on Sept. 28.

Now let’s remember what the Yates Memo requires: that if a company under investigation wants to win any cooperation credit at all, it must share all information it can find about the persons responsible for the misconduct in question. And as a federal appeals court affirmed this summer—yes, a company can demand full cooperation from an employee, even if that means the employee might incriminate himself. The only recourse that employee would have is to quit the company.

Again, do we know that’s what happened here with Cognizant and Coburn? No. But if Cognizant is following the dictum of the Yates Memo, to conduct thorough investigations even if that means employees might resign rather than incriminate themselves—well, that scenario would look like the facts we have here.

Yates & Consequences

Lots of people in the ethics & compliance community will look at the Cognizant case and say that even if our assumptions above are correct—um, so what? If your company president is involved in misconduct, wouldn’t you want that person removed from the organization?

In theory, yes. In practice, one can easily imagine a few prickly outcomes that might stem from the Yates Memo’s heavy-handed tactics. That is why the Cognizant case is worth watching: to see whether prickly outcomes do arise from investigations like this, and how companies might defuse them.

First, whenever the Cognizant investigation ends, we’ll want to see how the company handled its investigation. The appellate court decision I mentioned above, Gilman v. Marsh, gives companies broad leeway to require employee cooperation so long as the company isn’t doing so specifically upon orders of the government. That is, your employee agreements and investigations protocols should already require full cooperation, long before any particular matter brings a federal prosecutor to your conference room.

Second, we need to see how the Justice Department defines “full cooperation” when an investigation target immediately walks out the door. My suspicion is that under the Yates Memo, employee interviews might get more aggressive, but also shorter—the target will be ordered to disclose something incriminating, and resign rather than see his admission handed over to the Justice Department. (Especially after the Ochs-Ziff settlement, where its CEO faced personal charges and $2.2 million in fines.)

If you’re a compliance or legal officer having that conversation with an assistant U.S. attorney, how will that discussion unfold? (“We tried to interview the senior executive immediately, and he told us to shove it.”) Would a slim amount of evidence from interviews mean you’ll need to scrounge around your email archives and accounting ledgers to find more documentary evidence there? We don’t yet know.

Unfortunately we may need to wait years before a final resolution emerges for Cognizant. Maybe the investigation will amount to nothing; maybe Coburn played no role in it at all. But if the Cognizant investigation is what it seems to be at this early stage, I’ll be curious to see what it looks like in the final stage.