FCPA Enforcement in Trump Era: Example 1

Two weeks ago we had our first FCPA enforcement action under the Trump Administration: a decision not to prosecute Linde Corp., a German chemical company that confessed sketchy transactions a subsidiary made with officials from the Republic of Georgia nearly 10 years ago.

As the first FCPA action we’ve seen in the Age of Trump, the case is worth a close look. The facts involved, however, also raise valuable points about the purpose of corporate ethics & compliance functions versus a purely legal view of FCPA misconduct. So let’s get into it.

First, the facts of the case. We don’t have as many as we’d like. In October 2006 Linde acquired Spectra Gases, a company based in New Jersey. Several weeks later, Spectra Gases purchased assets from the National High Tech Center of the Republic of Georgia—a “boron column” used to manufacture boron gas, which Spectra would then sell.

Prior to Linde scooping up Spectra, three Spectra executives agreed to funnel some profits from those boron gas sales back to Georgia officials who ran the NHTC. In exchange, the foreign officials steered parties needing boron gas to Spectra. In 2010 Linde dissolved Spectra Gases and operated the business directly, but hadn’t yet discovered the scheme. Until that point, Linde had received about $6.39 million from the corrupt conduct; afterward it received another $1.43 million, apparently until Linde did discover the misconduct and disclosed to the Justice Department.

We don’t know how Linde discovered the bribery, nor when the company reported to the Justice Department. We do know that the Justice Department credits Linde with meeting all the criteria of the FCPA Pilot Program. Namely, Linde disclosed the misconduct voluntarily; conducted its own investigation and cooperated with the Justice Department’s probe; and remediated the problems, including firing the executives who hatched this scheme. Linde also surrendered all profit generated from the misconduct ($7.82 million) plus $3.41 million in corrupt proceeds due to other parties, that Linde had been holding in escrow.

As a result of all that effort, Linde received a lovely letter from the Justice Department declining to prosecute the company.

FCPA Pilot Program in Action

This declination fits the FPCA enforcement posture I predicted back in February: that the Trump Administration would take the Pilot Program to its logical conclusion, and offer companies no punishment if the meet all of the Pilot Program’s tenets.

Attorney general Jeff Sessions has said numerous times that he believes individuals should be prosecuted for breaking the law rather than the corporations employing them. The FCPA Pilot Program achieves that end for FCPA violations. Bring a matter to the department’s attention, fall all over yourself to help prosecutors understand the case, and show them you cleaned up your act—and presto, you avoid the DPA or monitor that Sessions isn’t interested in handing out anyway.

I know that prior sentence glosses over something that can still be expensive (internal investigations and remediation are not cheap), but in the abstract, the principle is clear. The company needs an awareness of its FCPA issues, a willingness to confess them, and a desire to correct. Then you can avoid sanction.

Compliance officers can take this case to your supervisors, as more proof that having an ethics & compliance program can bring rewards—and that not having one leaves you worse off, even in this supposedly deregulatory Trump Era we’ve entered.

That is, a company can’t easily reap the benefits of the FCPA Pilot Program (which will probably get bigger under the Trump Administration) if you have no effective compliance program in the first place. You might not discover FCPA trouble before some other party dimes you out to the Justice Department; you may mishandle an investigation, or botch the remediation work. Then the rewards of the Pilot Program might go away, and you’re back to facing penalties or added expense of a monitor.

One caveat: I say the Pilot Program rewards might go away, because we still don’t know how the Trump Administration will enforce the FCPA when you don’t meet the Pilot Program’s criteria. President Trump himself doesn’t seem much interested in enforcing the law. The only time Sessions talked specifically about the FCPA, he flimflammed about whether vigorous enforcement puts the United States at a competitive disadvantage on the world stage.

So how will Team Trump handle egregious FCPA misconduct and sloppy compliance? That remains to be seen.

The Ethics Lesson Here

At least some people will question whether Linde had to disclose this misconduct at all. It’s a fair point to raise. The executives who led this scheme devised it before they worked for Linde. We don’t know when Linde discovered the misconduct, or when it ended; although we do know Linde received $1.43 million in ill-gotten profits after it dissolved Spectra Gases in January 2010. How far after January 2010? We don’t know. But the FCPA’s statute of limitations is five years. I suspect if the bribery continued into 2013, the declination letter would have mentioned that.

So I can see the “don’t disclose” argument here: that the Justice Department might well never discover the bribery on its own, and if the statute of limitations has expired, why invite trouble? As we mentioned above, internal investigations and remediations don’t come cheap.

That’s a very Legal Department perspective on corporate misconduct—and while it might be a point the legal team can raise, chief ethics and compliance officers have larger issues to consider. Not disclosing wrongful acts simply because you don’t need to disclose them sends a corrosive message to employees; and let’s not kid ourselves, employees are cynical enough as it is.

First, there are some risks in that legal line of thought. Some other party might tip off regulators about the scheme. A decision not to disclose might lead executives not to bother remediating, either; and then you risk the misconduct happening again in some new way. You might end up under investigation in the future anyway, and then prosecutors discover the old misconduct that you never reported because you didn’t need to report, and that weakens your position to say no, guys, seriously, we’re all about good ethical conduct this time around. We swear.

That’s the headache about ethics: it’s not fun. It’s about stepping up and doing the right thing when that’s a total pain, such as when you have no legal obligation to admit prior wrongdoing and probably won’t get caught by regulators anyway.

I find that if you apply this logic to misconduct that happens in the home, the answer becomes clear. For example, if you have a teen-ager who is drinking or engaging in risky sexual behavior, let’s be honest: you, the parental regulator, may well never discover it. The teen’s best move is not to tell you about it, if his primary motivation is to avoid punishment.

Is that the sort of child you’d want to raise? Or do you want a child who strives to be a better adult, and when they fail, they tell you about it so you can help them do better?

Scale up your answer to a corporation. That tells you whether you believe compliance is a subset of the legal department; or you believe that ethics & compliance is an important part of running a good organization in its own right.

A workforce really is a lot like children: they hear only 50 percent of what you say (at best), but they see 100 percent of what you do. In that case, confessing your sins even when you have no legal obligation to do so might sting in the present, and drive the legal team nuts; but it makes an ethics & compliance impression for the future.

(Bonus: If you cannot get enough Linde analysis, Tom Fox and I did a podcast on the subject earlier this week, and it will also get a mention on the Everything Compliance podcast Fox will post later today.)

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