When senior government prosecutors discuss their white collar enforcement priorities, prosecuting individuals frequently tops their list. The U.S. Department of Justice’s head of the Criminal Division recently said that there has been an “increased emphasis” on individual prosecutions, and her deputy has suggested that corporations seeking cooperation credit in settlement negotiations should come to the table with a list of the guilty individuals and evidence of their wrongdoing. This focus is understandable, given criticism from lawmakers, judges and commentators for a pattern of massive corporate settlements relating to widespread malfeasance but that often fail to result in anyone being prosecuted for the misconduct. Indeed, a recent study suggested that 75 percent of the Justice Department’s corporate Foreign Corrupt Practices Act resolutions since 2008 have not resulted in any criminal charges against company employees. Holding company employees criminally responsible for corporate misconduct is easier said than done. Earlier this summer, the DOJ’s prosecution of PetroTiger Ltd.’s former CEO, Joseph Sigelman, ended midtrial with a plea deal that resulted in noncustodial sentence even though he had faced up to 20 years’ incarceration under the original charges. This was the first trial of an individual on criminal FCPA charges since the January 2012 acquittal of John Joseph O’Shea in the Shot Show prosecution. Most recently, Alstom Holdings SA’s former senior vice president, Lawrence Hoskins, won a significant pretrial motion in August curtailing the Justice Department’s theory in his upcoming trial this autumn. So why does the Justice Department, which routinely concludes multimillion-dollar criminal settlements with the world’s largest corporations, struggle to convict individuals associated with the alleged misconduct? First, the investigation process that is so successful in resulting in large corporate fines often hampers subsequent efforts to prosecute individuals. Today, it is not uncommon for corporate internal investigations and settlement negotiations to stretch out for three to five years. The resulting settlements often also cover years of misconduct that may span various corporate subsidiaries and many countries. Although the Justice Department can hold the company liable for the concerted misconduct of its many employees, rarely will any one of them be responsible for more than a small portion of the relevant actions. While the prosecutors ferret out misconduct in various corners of the corporate enterprise, the statutes of limitations against individual employees continue to run, limiting prosecutors’ ability to bring charges for old crimes. Meanwhile, witnesses’ memories fade, evidentiary records are lost or deteriorate, and potential defendants disappear into countries unlikely to extradite them to the United States. Criminal prosecutions rarely grow stronger with age, and white collar investigations are no exception. Even if the prosecutors are able to identify and indict a culpable individual, cases that make for large corporate settlements often lack the jury appeal necessary for successful convictions for those responsible. Today’s largest corporate settlements usually involve conduct that occurs largely if not entirely abroad, committed by foreign actors and involving no clear victims, and certainly not American victims. These circumstances make it difficult for prosecutors to create jury appeal and often create concerns for judges. For instance, in May, a federal judge in California dismissed bribery-related charges involving two Ukrainian businessmen living in Dubai who bribed an executive of an international organization located in Canada. Although the prosecutors argued that they had jurisdiction due to the fact that the U.S. government partially funds the international organization at issue, the judge rebuked the prosecutors for wasting scarce government resources and suggested that they should have “phone[d] the Mounties” instead. Lack of jury appeal also explains the midtrial Sigelman settlement that resulted in a noncustodial sentence. The settlement was reached shortly after the Justice Department’s purported key witness testified for several days and ultimately admitted to lying on the stand about his prior cooperation with the government. Although many federal criminal trials involve testimony from unsavory and potentially unreliable government cooperators, unlike other crimes white collar cases also typically involve relatively dry, complex facts and a paucity of gory photographs and attention-grabbing eyewitness and victim testimony. The ill-fated “Africa Sting case,” which involved 22 individual arrests but zero trial convictions (although some defendants pled guilty before trial), further illustrates the difficulty in convincing juries to care about FCPA cases with remote facts and no identifiable victims. Finally, white collar prosecutors face mounting legal difficulties in bringing cases against individual defendants. Given the enormous litigation and reputational risk, companies are generally averse to contesting criminal charges at trial. As a result, the FCPA practice has primarily evolved through a series of corporate settlement agreements, over which courts have little to no supervision and in which the burden of proof for evidentiary purposes has less impact. The relative absence of case law in the field has meant that the Justice Department has been able to advance expansive views regarding the scope and applicability of the FCPA, largely unhindered by skeptical juries and contrary case law. However, these settlements carry little to no precedential value, and if individual prosecutions multiply as the Justice Department has promised, then prosecutors will increasingly be held to the high burden of proof and forced to defend their theories before judges. It is already clear that the Justice Department will face difficulties in advancing some of its more aggressive theories in court. Last month, a federal judge rejected the Justice Department’s contention that a nonresident foreign national who worked for a U.S. company’s foreign affiliate could be convicted of conspiracy to violate the FCPA based on traditional accomplice liability theories. See United States v. Lawrence Hoskins, 3:12cr238 (D. Conn. Aug. 13, 2015). Instead, the Justice Department must show that the defendant acted as an agent for the U.S. company itself, a harder task given the defendant’s lack of a direct relationship to the U.S. company. Over the last few years, the Justice Department has used increasingly expansive views of conspiracy and accomplice liability to assert jurisdiction over potentially improper payments paid by employees and agents of foreign subsidiaries and affiliates of U.S.-listed companies. As a result, companies have routinely entered into massive FCPA settlements regarding conduct that has only minimal connections to the United States, U.S. citizens or even U.S. companies. The court’s ruling may ultimately encourage other nonresident foreign nationals, and corporations that only face exposure due to the conduct of their foreign affiliates’ employees, to resist settling future charges with the government. Hoskins is likely to be one of a number of adverse legal rulings regarding the scope of the FCPA if the Justice Department maintains its commitment to increase individual FCPA prosecutions. Adverse case law seems to beget more adverse case law for the DOJ; Hoskins heavily relied on the reasoning of one of the other rare FCPA cases to go to trial, United States v. Castle, 925 F.2d 831 (5th Cir. 1991), which rejected prosecutors’ efforts to charge officials who accept bribes under the FCPA. Despite the challenges prosecutors face, the Justice Department is right to prioritize individual prosecutions. Individual prosecutions do have the potential to deter misconduct in a way that corporate settlements cannot, and it is increasingly difficult for the government to justify massive corporate settlements for which no one is held personally responsible. Indeed, a reasonable argument can made that the Justice Department should elevate the importance of individual prosecutions above corporate settlements in order to hold accountable those most culpable and avoid the collateral consequences associated with penalizing an entire corporate entity along with many innocent employees and shareholders. Furthermore, trials against individuals will provide much-needed clarity to an increasingly important and complex area of the law. In the United States, laws were never meant to be interpreted solely by the executive branch. Allowing courts to opine on the metes and bounds of the FCPA, after hearing arguments from opposing counsel and with the potential for appellate review thereafter, is in everyone’s interests. Corporations and their employees, FCPA practitioners, and prosecutors deserve more clarity than the Justice Department alone can provide, and contested trials will allow this to occur. This article was first published by Law360 and has been re-published with the permission of Law360.
Brian Whisler is a member of Baker McKenzie’s Compliance and Investigations, Dispute Resolution and Global Pharmaceuticals Practice Groups. Prior to joining the Firm, Mr. Whisler served as the criminal chief assistant United States attorney in the Eastern District of Virginia, where he managed the criminal trial practice of the Richmond office which handled cases ranging from white collar crime, violent crime, public corruption and terrorism. Mr. Whisler focused his own trial practice on white collar prosecutions including health care fraud, securities fraud, money laundering, and tax fraud. He also served as an assistant United States attorney for the Western District of North Carolina where he focused on white collar prosecutions and served as chief of appeals and health care fraud coordinator.
Trevor McFadden is a partner in Baker & McKenzie’s North America Compliance & Investigations Practice Group in Washington, DC, where he focuses on corporate compliance and internal investigations. His experience includes a distinguished career with the US Department of Justice. As an assistant United States attorney in DC, he prosecuted numerous criminal cases. Previously, he was counsel to the Deputy Attorney General, where he advised on white collar and violent crime matters. Mr. McFadden also served as a law clerk for Judge Steven Colloton of the US Eighth Circuit Court of Appeals and was on the Editorial Board of the Virginia Law Review.