Department of Justice Cites Poor Compliance Program and Lack of Cooperation in Extracting Significant FCPA Penalties in Marubeni Settlement
The importance of a company’s response to a Department of Justice (“DOJ”) investigation into possible violations of the Foreign Corrupt Practices Act (“FCPA”) was highlighted last week when Marubeni Corporation (“Marubeni”) pleaded guilty to FCPA violations and agreed to pay an $88 million fine. Two things in particular stand out about the Marubeni resolution: 1) there was a guilty plea by a parent company, rather than a deferred prosecution or non-prosecution agreement, and 2) the comments made by DOJ in its press release citing Marubeni’s lack of an effective compliance program and failure to cooperate and remediate as factors considered in reaching the resolution. Marubeni’s guilty plea (and $88 million fine, when the bribe payments by Marubeni totaled around $350,000) demonstrates the real consequences companies can face for neglecting to implement an effective FCPA and anti-corruption compliance program and for a poorly calculated response to a government investigation.
On March 19, 2014, Japanese trading company Marubeni admitted its guilt to a criminal information charging one count of conspiracy to violate the FCPA’s anti-bribery provisions and seven counts of substantive anti-bribery violations. Marubeni and its subsidiaries partnered with a French power company (unnamed in the court filings but thought to be Alstom SA) to bid on a contract to install boilers at the Tarahan power plant in Indonesia. The project was contracted by Indonesia’s state-owned electricity company, Perusahaan Listrik Negara (“PLN”). According to the court filings, Marubeni and its partner retained two consultants to pay bribes to three Indonesian officials, two of whom worked for PLN and one of whom was a Member of Parliament with influence over the award of the Tarahan contract. In 2004, the consortium was awarded the Tarahan Project, worth approximately $118 million. Altogether, the guilty plea cites $2,091,681 in payments by the consortium to the consultants, $357,793 of which were made by Marubeni.
Corporate guilty pleas are unusual in the FCPA enforcement arena, and guilty pleas by parent companies, rather than the responsible subsidiary, are more uncommon still. Between 2012 and 2013, only three companies pleaded guilty to FCPA charges, and all three were foreign subsidiaries. The parent companies of those subsidiaries—Archer Daniels Midland, Tyco International, and Weatherford International—entered non-prosecution or deferred prosecution agreements with DOJ.
In its press release announcing the Marubeni resolution, DOJ noted:
The plea agreement cites Marubeni’s decision not to cooperate with the department’s investigation when given the opportunity to do so, its lack of an effective compliance and ethics program at the time of the offense, its failure to properly remediate and the lack of its voluntary disclosure of the conduct as some of the factors considered by the department in reaching an appropriate resolution.
The Marubeni plea vividly demonstrates that, after almost 10 years of rigorous FCPA enforcement, the government has come to expect companies operating abroad to have comprehensive anti-corruption compliance programs and to demonstrate their commitment to compliance by cooperating with agency investigations and swiftly remediating when misconduct is uncovered.
Certainly a company’s response to an FCPA investigation by DOJ or the Securities and Exchange Commission will be calibrated based on the particular circumstances at issue. There is no one-size-fits-all response to a government investigation, and DOJ would not suggest there is. Nonetheless, the Marubeni resolution highlights the importance of thinking early and carefully about what that response will be and taking a course designed to minimize the impact on the company and its employees, customers, and shareholders.
Companies have been on notice, and this case drives the point home, that they are now expected by the government to be proactive in detecting and preventing FCPA violations. A company’s response to the risk of foreign bribery must begin before a problem arises or government investigation commences. The first page of the criminal information against Marubeni notes that Marubeni engaged in transactions worth $74 billion annually, all over the world. It had 24,000 employees working in over 70 countries. Yet, according to the plea agreement, at the time of the improper payments in Indonesia, it lacked an effective anti-corruption compliance and ethics program. DOJ has long broadcasted its position that failure to implement compliance policies, procedures, and controls commensurate with the risks of operating in foreign nations will lead to significant sanctions. The Marubeni settlement demonstrates the department’s willingness to enforce that policy.
On the same day that Marubeni pleaded guilty, another company that had been under investigation for possible FCPA violations, SL Industries, announced in its 10-K that DOJ had closed its investigation without taking enforcement action. According to the filing, SL Industries conducted an internal investigation into the possible violations, notified DOJ of the investigation, and offered the government its full cooperation. The company remediated by hiring outside consultants to help implement a mandatory FCPA compliance program for all employees and to conduct annual FCPA compliance tests at the company’s operations in China and Mexico.
The juxtaposition of Marubeni’s guilty plea with DOJ’s decision not to prosecute SL Industries speaks volumes for any company facing an FCPA investigation now or in the future.