In today’s edition of Daily Compliance News:
Tag: DOJ
Welcome to the Hughes Hubbard Anti-Corruption and Internal Investigations Practice Group’s Podcast, All Things Investigations. In this podcast, host Tom Fox and returning guest Mike Huneke of the Hughes Hubbard Anti-Corruption & Internal Investigations Practice Group, highlight some of the key legal issues in white collar investigations, locally and internationally.
Mike Huneke is a partner in the firm’s Washington office. Among many other things, Mike advises clients on the navigation and resolution of multi-jurisdictional criminal or Multilateral Development Bank (MDB) anti-corruption investigations, assisting companies subject to post-resolution monitorships or other commitments, and designing and executing risk-based strategies for due diligence on third parties.
Key areas we discuss on this podcast are:
- Explaining the new CCO certification policy the DOJ has released.
- The DOJ has likely made changes to CCO certification policy due to a significant feeling of mistrust about the adequacy of some companies’ compliance with the terms of settlements.
- How has the DOJ evolved?
- Reasonableness is not a factual basis.
- Companies with full transparency are unlikely to have conflicts due to the recent changes in CCO certification.
- What is the role of the monitor?
Resources
Hughes Hubbard & Reed website
In today’s edition of Daily Compliance News:
- Razak’s lawyer can’t withdraw. (Bloomberg)
- DOJ wants other FirstEnergy investigations to ‘back off.’ (Ohio Capital-Journal)
- JBS shakes up the compliance team. (WSJ)
- Purpose-driven, then not. (Reuters)
The Compliance Life details the journey to and in the role of a Chief Compliance Officer. How does one come to sit in the CCO chair? What skills does a CCO need to navigate the compliance waters in any company successfully? What are some of the top challenges CCOs have faced, and how did they meet them? These questions and many others will be explored in this new podcast series. Over four episodes each month on The Compliance Life, I visit with one current or former CCO to explore their journey to the CCO chair. This month, I am joined by Scott Garland, Managing Director at AMI. Scott came to AMI from the DOJ, where he held the role of Professional Responsibility Officer. As he described, it was akin to a CCO role for the US Attorney’s Office for Massachusetts.
It was at the US Attorney’s Office for the District of Massachusetts where Garland moved into the Professional Responsibility Officer role. In this role, he was the Office’s primary expert on legal ethics, but his remit extended to constitutional issues and DOJ regulations. Some typical issues he dealt with included conflicts of interest, allegations/findings of lawyer misconduct, dealing with represented parties, handling confidential or privileged information, and liaising with oversight agencies.
Resources
Scott Garland’s Profile on AMI
Compliance into the Weeds is the only weekly podcast that takes a deep dive into a compliance-related topic, literally going into the weeds to more fully explore a subject. In this episode, we explore the new requirements for CCO certification by considering what is meant by the term ‘reasonably designed’ compliance program. Highlights include:
· What does ‘reasonably designed’ mean in practice and the eyes of the DOJ?
· Should the DOJ articulate a standard?
· Are CCOs certifying under greater risk?
· What have other thought leaders opined?
· Does this standard impact ‘effective’ compliance programs?
Resources
Matt in Radical Compliance
The Compliance Life details the journey to and in the role of a Chief Compliance Officer. How does one come to sit in the CCO chair? What skills does a CCO need to navigate the compliance waters in any company successfully? What are some of the top challenges CCOs have faced, and how did they meet them? These questions and many others will be explored in this new podcast series. Over four episodes each month on The Compliance Life, I visit with one current or former CCO to explore their journey to the CCO chair. This month, I am joined by Scott Garland, Managing Director at AMI. Scott came to AMI from the DOJ, where he held the role of Professional Responsibility Officer. As he described, it was akin to a CCO role for the US Attorney’s Office for Massachusetts.
With a knack for understanding technology, relating it to legal issues, and translating it for lawyers, judges, and juries, Garland went to the DOJ, working at Main Justice in Computer Crime & Intellectual Property Section in DC. His work there included criminal investigations and trials, policy analysis, and drafting manuals. From that position, he moved to Boston to the US Attorney’s Office for the District of Massachusetts. He began in the Cybercrime Unit, then National Security Unit, eventually becoming NSU’s Deputy Chief, then Acting Chief of the Unit. Along the way, he picked up a variety of advisory responsibilities: identity theft coordinator, committee on dealing with cooperating witnesses, and grand jury supervisor.
Resources
Scott Garland’s Profile on AMI
Over this series, I am reviewing the corruption enforcement action Involving the company formerly known as Chrysler Group LLC, now FCA US LLC (Chrysler or the company herein) which was criminally sentenced to pay a fine of over $96 million and a forfeiture money judgment over $203 million. These amounts were above a previous civil penalty of $310 million. All of this was for designing a vehicle emissions system for the company’s Jeep Grand Cherokee and Ram 1500 that would evade federal emissions standards for diesel vehicles and then lying about it to federal authorities. It was a different type of corruption from a Foreign Corrupt Practices Act (FCPA) enforcement action but corruption, nonetheless. Today, I want to consider some of the lessons for the anti-corruption compliance professional.
The actions by the company are instructive for what not to do in any corruption investigation. The Plea Agreement specified that the company did not receive credit for self-disclosure as it did not self-disclose its criminal conduct or fraud. The company did receive some cooperation credit for cooperating during the scope of the investigation but did not receive any credit for failures in both taking timely remedial action and for failing to discipline senior executives who were involved in or had knowledge of the criminal action and fraud. (Recall that one executive involved directly in the fraud was with the company until 2020.)
All these actions were very costly to the company in terms of how it was evaluated under the US Sentencing Guidelines. Under Section 8(C)2.5(g)(2) a company can receive credit of up to five (5) points for cooperating in the investigation and affirmatively accepting responsibility for it’s conduct. The company only received a two (2) point discount. Since the Plea Agreement specified the company did cooperate in the investigation, it clearly did not accept responsibility for its conduct. The lack of those three points in discount cost the company somewhere in the estimated range of $20 to $30 million in additional fines and penalties.
The Plea Agreement also specified for the first time the Monaco Doctrine of evaluating past conduct as a part of the overall evaluation of the company. The Plea Agreement detailed that the company had a prior criminal conviction for bribery and corruption under the National Labor Relations Act (NLRA) for bribing union officials. However, it is not clear how that worked into the overall fine and penalty except to note that the company paid the maximum under the US Sentencing Guidelines, after credit for the civil penalty.
Additionally, while there is no requirement for a monitor in this resolution of the criminal action, there was a such a requirement in the Consent Decree from the civil action. It mandated an Independent Compliance Auditor for a period of three years from the resolution of the civil matter, which was May 2019.
Lessons Learned
There are multiple lessons for the anti-corruption compliance professional from this enforcement action. Obviously, the need to engage in robust remediation for the matter at issue and your compliance program is critical. Moreover, and once again the Department of Justice (DOJ) criticized a company for tardiness in disciplining those who were involved in the fraud or those who were aware of it. As I noted in Part 1, multiple former company employees were criminally indicted for their conduct in this sordid affair. Yet some of them were with the company until 2019 and 2020 and not all were terminated, some left the company in voluntary separations, which sounds suspiciously like retirements. Such actions could save your organization literally millions of dollars.
One of the clearest, which was not stated in any of the resolution documents, was that every Chief Compliance Officer (CCO) needs to read the newspapers and stay abreast of current events in their industry. It was September 2015 that the Volkswagen (VW) emissions-testing scandal became public. It was by far the largest scandal in emissions-testing and cost VW billions in investigative and remediation costs, fines, penalties, buy-backs, market share loss and reputational damages. To say that anyone at the company was not aware of it is to simply defy belief.
Beyond just the CCO, every Board member was no doubt aware of the VW emissions-testing scandal. Under the current state of the Caremark Doctrine, there may well be a duty to make an inquiry by the Board of auto manufacturers to senior management to investigate if they have been involved in similar conduct. Here we do not know how the scandal got to the attention of the DOJ, but it was clear from the Plea Agreement, it was not from self-disclosure. CCOs and Boards need to be much more proactive when competitors get into trouble about investigating similar products or services which could lead to criminal and civil fines and penalties.
This matter warrants consideration by every CCO in every US public and private company. Every CCO can also use the case as instruction and training for both senior management and their company Board of Directors.
Resources
DOJ Press Release
Consent Decree from the civil action
Corruption comes in all shapes, sizes and forms. It is certainly far beyond bribery made illegal under the Foreign Corrupt Practices Act (FCPA) and UK Bribery Act. I was reminded of this fact this week and the company formerly known as Chrysler Group LLC, now FCA US LLC (Chrysler or the company herein) was criminally sentenced to, according to a Department of Justice (DOJ) Press Release, “pay a fine of $96,145,784; and a forfeiture money judgment of $203,572,892. The court also imposed a three-year term of organizational probation.” About all I can say after reading the Press Release and underlying Information and Plea Agreement is that both Lee Iacocca and Walter Chrysler are both turning over in their graves now.
The Plea Agreement detailed a series of corruption so deep and systemic within the organization that it is a wonder anyone ever wanting any type of clean diesel vehicle would ever purchase a Chrysler again (even if it is re-monikered an ‘FCA US LLC’ vehicle). Indeed, the over $300 million criminal assessment was only after a $310 million civil penalty. This means over $600 million in civil and criminal fines and penalties before we even get to pre-resolution investigative costs and post-resolution remediation. If you apply the standard multiplier of pre and post settlement costs of two to five X; you can see the company paid a very large price for its conduct.
The basic facts of the case and actions by Chrysler included deliberately creating a vehicle designed to evade and defeat emissions testing from at least 2010 up to 2017, some two years after the Volkswagen emission testing scandal broke. In addition, Chrysler engineers and others intentionally lied to the US government during the emission certification process. Finally, the conduct of Chrysler after the scandal broke was so forlorn the company did not receive full credit for full cooperation or in accepting full responsibility for its actions.
The underlying facts were as disheartening to read as any I have recently come across. According to the Information, beginning at least as early as 2010, Chrysler developed a new 3.0-liter diesel engine for use in FCA US’s Jeep Grand Cherokee and Ram 1500 vehicles to be sold in the United States. They were marketed as “clean EcoDiesel” vehicles with best-in-class fuel efficiency. However, and to the contrary, the company installed software features and engaged in other deceptive and fraudulent conduct intended to avoid regulatory scrutiny all the while “maintaining features that would make them more attractive to consumers, including with respect to fuel efficiency, service intervals, and performance.”
According to the Information, the company purposely calibrated the emissions control systems on the vehicles to produce less NOx emissions during the federal test procedures, or driving “cycles,” than when the vehicles were being driven by customers under normal driving conditions. But as the Press Release noted, Chrysler took it several steps further as it “engaged in deceptive and fraudulent conduct to conceal the emissions impact and function of the emissions control systems from its U.S. regulators and U.S. customers by (a) submitting false and misleading applications to U.S. regulators to receive authorization to sell the vehicles, (b) making false and misleading representations to U.S. regulators both in person and in response to written requests for information, and (c) making false and misleading representations to consumers” in advertisements and in window labels, including that the vehicles complied with US emissions requirements, had best-in-class fuel efficiency as measured by EPA testing, and were equipped with “clean EcoDiesel engine[s]” that reduced emissions.
A number of those identified in the Plea Agreement have been criminally indicted as well. According to the Press Release, “In the related criminal prosecution, three FCA employees, Emanuele Palma, Sergio Pasini, and Gianluca Sabbioni were indicted for conspiracy to defraud the United States and to violate the Clean Air Act and six counts of violating the Clean Air Act. They await trial.” Of these individuals who were involved, most worked on the corrupt emissions work around beginning as early as 2010 and some were with the company up to 2020.
For reasons not explained in any of the resolution documents, the company avoided the imposition of an external monitor. They do however have a reporting obligation to the DOJ of annual reports on the compliance program required under the Plea Agreement. The reporting is required for three years on a go-forward basis.
Join me tomorrow where I look at some of the lessons learned from this sordid affair for the anti-bribery/anti-corruption compliance professional.
In today’s edition of Daily Compliance News:
· Dan Snyder testifies. (Bloomberg)
· Ukraine appoints ABC prosecutor. (Reuters)
· DOJ is teaming up with NLRB for recalcitrant employers. (WSJ)
· Booz Allen settles the no-poach claim. (Reuters)
