The Latest FCPA Declination
We have yet another example of the Justice Department trying to put its new corporate misconduct policies into practice, allowing a Pennsylvania coal company to pay only $1.2 million to settle FCPA charges thanks to the company’s voluntary self-disclosure and other cooperative actions.
The company in question is Corsa Coal Corp., a company that does about $130 million in annual revenue selling coal to the steel industry around the world. Corsa had been under investigation for bribing government officials in Egypt in the late 2010s to win a contract with a state-owned steel company there; but last week the Justice Department decided against prosecuting Corsa for its FCPA violations because of the company’s outreach.
What were the allegations? As described in the Justice Department’s declination letter, from 2016 into 2020, Cora employees and overseas agents funneled bribes to government officials who controlled Al-Nasr Company for Coke and Chemicals, a state-owned steel business. The employees worked with the agents to send $4.8 million to those power-brokers — “used, at least in part, to pay bribes to Egyptian government officials,” including the chairman of Al-Nasr.
In exchange for the bribe payments, Corsa secured $143 million in coal contracts from Al Nasr and earned roughly $32.7 million in profits.
What led to the declination to prosecute? The Justice Department flagged several factors in its letter:
- Corsa’s prompt and voluntary self-disclosure of the misconduct;
- The company’s “full and proactive cooperation,” including its provision of all known relevant facts about the misconduct;
- The company’s agreement to continue to cooperate with ongoing government investigations and any prosecutions might arise in the future;
- The nature and seriousness of the violations; and
- Corsa’s timely and appropriate remediation, including firing a sales rep who engaged in the bribe scheme and overhauling the company’s compliance program and internal controls.
Corsa also offered to disgorge as much of the ill-gotten gains as it could, and that deserves special attention because Corsa didn’t have much ability to pay. As we noted above, Corsa had revenue of $131.4 million at the end of 2021 (the company hasn’t filed 2022 numbers yet), with net income of only $1.5 million that year. 2020 numbers were even worse, with a loss of more than $63 million.
So while the Justice Department typically expects companies to disgorge all their ill-gotten gains in exchange for a declination, disgorging the $32.7 million in illicit profits from the Egypt scheme would have left Corsa financially gutshot. After an independent forensic review, prosecutors decided on $1.2 million in disgorgement, which Corsa agreed to pay.
An Analysis of FCPA Factors
The two (now former)Corsa executives involved in the FCPA scheme were Frederick Cushmore, former VP and head of international sales for the company; and Charles Hunter Hobson, another vice president and the executive in charge of Corsa’s relationship with Al-Nasr.
Cushmore was indicted by the Justice Department in 2021 and pleaded guilty later that year. Hobson was indicted last year, with further proceedings still pending.
One point for the greater compliance community to consider here is whether this case against Corsa Coal rises to the level of an FCPA case that includes aggravating factors. That matters because a company whose case includes aggravating factors typically is not eligible for a declination, unless the company engages in “extraordinary cooperation” and does pretty much everything possible to convince the Justice Department that, yes, the company truly has changed its ethics and compliance stripes.
As defined by the Justice Department, aggravating factors in a corporate misconduct case are primarily:
- Involvement by executive management of the company in the misconduct;
- Egregiousness or pervasiveness of the misconduct within the company;
- A significant profit to the company from the misconduct; or
- Criminal recidivism.
Well, Corsa doesn’t seem to be a recidivist FCPA offender. Nor, according to the Justice Department declination letter, is there much evidence of pervasive misconduct; this was a scheme managed by only a few people, involving one specific foreign government and state-owned company. So that disposes of two aggravating factors.
On the other hand, Corsa’s total net income for 2017, 2018, and 2019 combined was only $88.6 million — so that Egypt deal and its $32.4 million of profit was certainly a significant amount of money for the company. So we can mark one aggravating factor as present.
That only leaves the involvement of executive management. Does a vice president of international sales count? Does the involvement of a second vice president? Is there some critical mass of VPs which triggers an aggravating factor, like uranium atoms and a nuclear explosion? I’m not sure.
Regardless, it also seems that Corsa’s voluntary self-disclosure, its “full and proactive” cooperation, and its overhaul of compliance policies and procedures were enough to carry the company into Declination Land. For other companies, the case is just another mile marker on the road as you strive to reach the same destination.
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