IT outsourcing firm Cognizant Technologies agreed Friday to pay $25 million in disgorgement and penalties to settle FCPA charges related to bribery in India, while the company’s former president and top legal officer were indicted for their roles in orchestrating the scheme.

The settlement included $19 million in disgorgement of ill-gotten profits, plus $6 million in civil penalties to the Securities and Exchange Commission for Cognizant’s poor internal controls. The Justice Department indicted Gordon Coburn, the company’s former president; and Steven Schwartz, its former chief legal officer — but declined to bring any criminal charge against Cognizant itself.

This is only the latest example of a pattern where the Justice Department declines criminal FCPA prosecution but the SEC imposes civil penalties anyway for poor internal controls that violate the books-and-record portion of the FCPA. We’ll get back to that question another day.

The real news here is that the Justice Department indicted two senior corporate executives for criminal FCPA misconduct, Coburn and Schwartz; and still decided against criminal prosecution of the company. It’s a rather dissonant outcome when we look at what happened and the supposed importance of strong ethical leadership in Corporate America.

According to the civil and criminal complaints, in 2014 Coburn and Schwartz worked with a construction firm in India to arrange a $2 million bribe to local officials there, to secure permits necessary for Cognizant to build a massive office park. The construction firm paid the bribe; Cognizant then reimbursed the firm through padded invoices and “change orders” made at the end of construction. To cover up those bogus payments, Cognizant executives also falsified records and certifications for SOX compliance reviews.

Let’s not mince words — that’s bad. Still, the Justice Department declined to bring any criminal charges, and in its declination letter, fell all over itself trying to explain why.

Some of the reasons are no surprise. Cognizant’s board reported the misconduct to prosecutors within two weeks of hearing about it; the company cooperated fully in the investigation and promises continued cooperation for any future prosecutions that might arise. Cognizant also had no prior criminal history, and swiftly fired the offending individuals.

That all makes sense so far. The Justice Department also cited this, however, which will leave more than a few compliance officers scratching their heads:

The existence and effectiveness of the company’s pre-existing compliance program, as well as steps the company has taken to enhance its compliance program and internal accounting controls.

I’m not sure I follow. Two of the most senior executives in the company were involved in the crime. Clearly your compliance program is not that effective if the most senior people in the company, the ones who supposedly set the example of high ethical conduct for others, are flouting its basic principles.

It doesn’t matter if everyone else in the firm took the training and followed the policy. If the policy leaders themselves are going through the motions publicly but violating policy secretly, that is a failure of the compliance program unto itself, and anyone with a modicum of common sense knows it.

The FCPA Corporate Enforcement Policy, rolled out by deputy attorney general Rod Rosenstein in 2017, specifically cited misconduct by senior executives as an aggravating circumstance that typically would lead to criminal charges against a company.

Here’s the relevant text from the U.S. Attorney’s Manual, emphasis added:

When a company has voluntarily self-disclosed misconduct in an FCPA matter, fully cooperated, and timely and appropriately remediated, all in accordance with the standards set forth below, there will be a presumption that the company will receive a declination absent aggravating circumstances involving the seriousness of the offense or the nature of the offender. Aggravating circumstances that may warrant a criminal resolution include, but are not limited to, involvement by executive management of the company in the misconduct

To be clear: Misconduct by senior executives is an aggravating circumstance that typically would lead to criminal charges, even if your company meets the three criteria of the Corporate Enforcement Policy (which Cognizant did). That aggravating circumstance was present in this case. And then we didn’t have a criminal charge anyway.

So either there are a lot of other extenuating circumstances in this case that the public doesn’t know (which is possible); or we had an abdication of the FCPA Corporate Enforcement Policy here.

Weird twist: after Schwartz got sacked at Cognizant in 2016, he pulled a stint as general counsel at Consumer Reports — yes, that Consumer Reports, typically a leading voice for good governance. According to his LinkedIn profile, Schwartz worked there from January 2017 until February 2018.

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