Beverage Company Agrees To Pay $19.6 Million And Enter DPA To Resolve FCPA Charges With The DOJ, In Follow-Up To SEC Action That Had Starkly Different Tone
On October 27, 2020, the U.S. Department of Justice (“DOJ”) announced that a Chicago-based company that produces and sells distilled beverages (the “Company”), agreed to pay a monetary penalty of approximately $19.6 million to resolve the DOJ’s investigation into alleged violations of the U.S. Foreign Corrupt Practices Act (“FCPA”). As part of its resolution with the DOJ, the Company also entered into a three-year deferred prosecution agreement (“DPA”). The DOJ settlement targets the same underlying conduct that was subject to a separate settlement with the U.S. Securities and Exchange Commission (“SEC”) in 2018, where the Company agreed to pay $8 million, including a civil penalty of $2 million; but the DOJ took a different view of certain facts and refused to credit the $2 million civil penalty paid by the Company to the SEC because, according to the DOJ, the Company “did not seek to coordinate a parallel resolution” with the DOJ.
Between 2006 and 2012, the Company’s Indian subsidiary allegedly paid bribes and made other improper payments to various Indian government officials, including “corrupt payments to obtain or retain business in the Indian market.” Most of these payments were reportedly made through third-party sales promoters and distributors. The DOJ claims that the Indian subsidiary also conspired to pay a bribe of approximately one million Indian Rupees (18,000 USD) to a senior government official in exchange for that official’s approval of a license to bottle a new line of products that the Company sought to market and sell in India.
According to the DOJ, the Company failed to implement and maintain adequate internal controls to detect and stop improper payments and recorded falsified expenses in an effort to conceal improper payments. This included characterizing bribes as legitimate expenses such as commissions for third parties or commercial discounts.
While the underlying conduct at issue is the same as that which was subject to a prior SEC enforcement action in 2018, the DOJ’s posture in this settlement with the Company differs from that of the SEC in 2018 in a number of ways. First, the DOJ did not give the Company credit for voluntary self-disclosure, although the SEC did so in 2018. Second, the DOJ did not give full credit to the Company for its cooperation because DOJ claimed that the Company had “inconsistent and, at times, inadequate cooperation.” The Company also did not receive full credit from the DOJ for remediation steps taken because DOJ found that “it failed to discipline certain individuals” involved in the misconduct. Significantly, the DOJ highlighted the Company’s “refusal to accept responsibility for several years.” In contrast, the SEC in 2018 stated that the Company cooperated with the investigation and carried out remediation. For example, the SEC highlighted the Company’s cooperation in “voluntarily producing documents, summarizing its factual findings, … and making current or former employees available to the [SEC].” The SEC also credited the Company’s remedial steps, which included ceasing the Indian subsidiary’s business operations, terminating employees involved in misconduct, terminating third-party sales promoters in government markets in India, and improving its overall compliance procedures and orientation.
Finally, unlike the SEC, the DOJ emphasized affirmative actions taken by the Company’s internal legal department in failing to uncover improper activities by the Indian subsidiary that presented corruption risks. According to the DOJ, the Company failed to implement certain compliance measures at the Indian subsidiary that had been recommended by a global accounting firm, a U.S. law firm, and a local Indian law firm. For example, the DOJ highlighted (critically) an email from a member of the Company’s legal department to an executive at the Indian subsidiary stating that the Company’s legal department “believes it is critical to approach a compliance review with the understanding that a U.S. regulatory regime should not be imposed on [its] Indian business and that acknowledges India customs and ways of doing business.”
Although it remains somewhat unclear why the DOJ and SEC took such starkly different postures in related enforcement actions targeting the same underlying conduct by the same company, it highlights the risk companies face when failing to secure parallel resolutions from multiple regulators. Sometimes, it is not possible to coordinate resolutions with multiple regulators, and sometimes there are appropriate reasons why a company should push back on theories offered by one regulator but not another (or self-disclose to one regulator but not another). Any such decisions must be carefully considered, however.