Coordination or Duplication? DOJ Adopts New Policy to Prevent 'Piling On' of Corporate Penalties

The new policy aims to give companies greater certainty and finality in settlements by addressing the “piling on” of fines, penalties and forfeitures imposed across the department and in conjunction with other enforcement agencies domestically and abroad. See, Memorandum from Rod Rosenstein, Deputy Att'y Gen. U.S. Dep't of Just. to Heads of Dep't Components U.S. Att'ys, Policy on Coordination of Corporate Resolution Penalties (May 9, 2018). Duplicative penalties imposed by multiple jurisdictions are not only unfair, but they can also constitute an inefficient use of law enforcement resources and chill productive business decisions through over-deterrence.

The Policy is comprised of four features:

1. The Policy reaffirms that the federal government should not use its criminal enforcement authority for any purposes unrelated to the investigation and prosecution of a crime. This includes the threat of criminal prosecution in order to obtain a larger civil settlement. In his speech, Rosenstein stated: “This is not a policy change. It is a reminder of and commitment to principles of fairness and the rule of law.”
2. The Policy directs DOJ prosecutors and trial attorneys to coordinate whenever different DOJ components and offices may be seeking to resolve a case based on the same misconduct. This coordination can include the crediting and apportionment of penalties, fines, forfeitures, or any other means of avoiding disproportionate or duplicative punishment of a corporation.
3. Not only does the Policy direct coordination within the DOJ, but it also encourages DOJ prosecutors and attorneys to coordinate with other federal, state, local and foreign authorities who may be seeking to resolve a case based on the same misconduct.
4. Despite the general policy against piling on, the Policy also sets forth several case-specific factors for determining whether the imposition of multiple penalties would nevertheless serve the interests of justice.

With respect to the fourth feature, which permits repetitive penalties in certain circumstances, Rosenstein stated that when necessary to protect the public and achieve justice, “we will not hesitate to pursue complete remedies, and to assist our law enforcement partners in doing the same.” The DOJ will consider factors including the egregiousness of a company's misconduct; statutory mandates regarding penalties, fines or forfeitures; the risk of unwarranted delay in achieving a final resolution; and the adequacy and timeliness of a company's disclosures and its cooperation with the Department. See, USAM Title 1. 1-12.100. Rosenstein specifically warned that “[c]ooperating with a different agency or a foreign government is not a substitute for cooperating with the [DOJ],” and the DOJ “will not look kindly on companies that come to the [DOJ] only after making inadequate disclosures to secure lenient penalties with other agencies or foreign governments.”

Only time will tell whether the fourth feature of the Policy is the exception that swallows the rule. There is currently no guidance beyond the general considerations identified in the fourth feature of the Policy to determine whether the DOJ will seek to impose a potentially duplicative penalty. The features identified in the Policy, such as the seriousness of the misconduct, the timeliness of disclosures and the adequacy of cooperation overlap with the factors prosecutors already consider under the Principles of Federal Prosecution of Business Organizations set out in the U.S. Attorney's Manual. See, USAM 9-28.300. Thus, it is unclear what additional factors would warrant an exception to the new “anti-piling on” policy.

Potential Impact on Domestic Coordination

Although the Policy only applies to the DOJ, other U.S. regulatory enforcement agencies appear to be following the DOJ's lead. In fact, two days after Rosenstein's announcement of this new DOJ policy, Commissioner Hester Peirce of the SEC announced that the SEC will no longer follow a “broken windows” approach to enforcement. While in the past the SEC has taken an approach of “more is better” and punished even small actions in order to demonstrate the seriousness of the SEC's enforcement, now the SEC is committed to focusing on only “meaningful” enforcement actions. The SEC intends to work with other regulators and criminal authorities, considering whether other agencies are investigating a case when deciding whether to pursue the matter. See, Commissioner Hester M. Peirce, Sec. & Exch. Comm'n, The Why Behind the No: Remarks at the 50th Annual Rocky Mountain Securities Conference (May 11, 2018) (http://bit.ly/2P0r3Jz).

Similarly, on June 12, 2018, the Federal Financial Institutions Examination Council rescinded an interagency coordination statement from 1997, replacing it with a new interagency policy designed to ensure coordination among the boards of governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. Prior to these promises of coordination from the DOJ, SEC and Federal Financial Institutions Examination Council, financial institutions at the center of these investigations commonly faced penalties from three or more regulatory authorities, resulting in the significant piling on of fines.

Moreover, on July 11, 2018, Rosenstein announced a new Task Force on Market Integrity and Consumer Fraud. In his speech, Rosenstein specifically connected this task force to the new DOJ policy against piling on of duplicative penalties. The task force will comprise representatives from the U.S. attorneys' offices, DOJ, Federal Trade Commission, Consumer Financial Protection Bureau and SEC.

International Coordination

The potential for duplicative penalties is particularly high in cross-border investigations where cooperation among regulators is common. In recent years, however, DOJ has been moving informally in the direction of the Policy by agreeing to settlements of investigations under the Foreign Corrupt Practices Act (FCPA) in which companies have received credit for penalties paid to other jurisdictions. In December 2016, a global bribery investigation by the U.S. DOJ, Brazilian and Swiss authorities into Brazilian petrochemical company Braskem S.A. and construction conglomerate Odebrecht S.A. resulted in a $3.5 billion resolution. Under the agreement reached with the companies, the United States credited the amount of criminal penalties that Odebrecht and Braskem paid to Brazil and Switzerland such that the United States would receive 10% and 15%, respectively, of the total criminal fine. More recently, in September 2017, Telia Company AB reached a global settlement with the SEC, the DOJ, the Dutch DPPS and the Swedish Prosecution Authority in connection with a multinational investigation of Telia for corrupt payments in Uzbekistan. As part of the settlement, the DOJ imposed $548.6 million in penalties, but agreed to offset up to $274 million for any criminal penalties paid to Dutch authorities. The SEC resolved a parallel investigation into the same conduct by Telia, requiring additional disgorgement of $457 million, but agreed to offset that amount by $40 million in light of the DOJ penalty.

The Antitrust Division is another division of DOJ that regularly cooperates with foreign law enforcement agencies in multinational investigations. In the past four years, the DOJ Antitrust Division has cooperated with 21 different international agencies in 58 different merger investigations. The Policy will serve to bolster its efforts to coordinate with foreign counterparts. However, the extent to which this policy will alter its current practices remains to be seen.

The United States is not the only country to recognize the importance of coordination in multi-jurisdictional criminal investigations and enforcement actions. To aid in this effort, coordination centers have been set up all over the world to facilitate multilateral cooperation. The International Anti-Corruption Coordination Centre (IACCC) brings together law enforcement officers from multiple jurisdictions to tackle allegations of public corruption. Member agencies in the IACCC include the Australian Federal Police, New Zealand's Serious Fraud Office, New Zealand Police, Royal Canadian Mounted Police, Corrupt Practices Investigation Bureau of the Republic of Singapore, UK's National Crime Agency, INTERPOL, and numerous U.S. agencies, including the DOJ, Department of Homeland Security, and Immigration and Customs Enforcement. Similarly, the Anti-Corruption Network for Eastern Europe and Central Asia supports its member countries in their work to prevent and fight corruption by supporting the efforts of Eastern European and Central Asian countries. The Global Focal Point Initiative — created under endorsement from INTERPOL's General Assembly — is an initiative working to trace, seize, and return stolen public funds to the originating country. The network members utilize the secure Global Focal Point Platform on Asset Recovery to engage in international asset recovery. The initiative is also working to facilitate the secure exchange of sensitive information between members working in anti-corruption and asset recovery agencies.

Conclusion

In an increasingly interconnected world, these organizations are facilitating the coming together of governments and enforcement agencies from numerous countries in order to coordinate overlapping investigations, particularly with regard to alleged financial crimes. However, as reflected in the Policy, more than mere coordination is needed in order to ensure transparency, consistency and fairness. The DOJ has taken the lead in reigning in disproportionate punishments, but the potential will remain until other jurisdictions follow suit. For example, a French appellate court recently upheld a fine imposed on Vitol LTD for corrupting foreign officials despite the fact that Vitol had previously paid $17 million in criminal penalties to U.S. authorities to resolve an investigation of the same conduct.

In sum, the Policy provides a measure of certainty and finality to companies seeking to resolve multi-jurisdictional investigations and enforcement efforts. As DOJ is often the primary driver in many of these investigations, the Policy provides welcome guidance to companies and counsel. However, uncertainties will remain until other law enforcement agencies in the U.S. and abroad clarify their respective positions on duplicative financial penalties

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Jonathan B. New is a partner in the White Collar, Investigations, and Securities Enforcement and Litigation Group in the New York office of BakerHostetler and a member of the Board of Editors of this newsletter.  Victoria L. Stork is an associate in BakerHostetler's New York office. The views expressed in this article are those of the authors and not necessarily those of BakerHostetler or its clients.