Technology Services Company Enters Into FCPA Settlement With SEC, While SEC And DOJ Charge Two Former Executives With FCPA Violations
02/20/2019On February 15, 2019, the Securities and Exchange Commission (“SEC”) announced a settlement with a New Jersey-based technology company (the “Company”) over allegations that the Company violated the anti-bribery, books-and-records, and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”). In the Matter of Cognizant Technology Solutions Corporation, Admin Proc. No 3-19000 (Feb. 15, 2019). Without admitting or denying the allegations, the Company agreed to pay disgorgement and prejudgment interest of approximately $19 million and a civil monetary penalty of $6 million to the SEC to resolve the agency’s claims. The same day, the Department of Justice (“DOJ”) issued a letter announcing that it had declined to prosecute the Company pursuant to the Department’s FCPA Corporate Enforcement Policy. Finally, the DOJ announced that the Company’s former president and chief legal officer were indicted on criminal charges relating to their alleged involvement, and the SEC filed a civil complaint against the same two executives, in United States District Court for the District of New Jersey.
The allegations against the Company arise from the Company’s project involving the construction of a corporate campus in Chennai, India, for which the Company engaged a contracting firm to obtain permits and construct the facility. According to the SEC’s order, a senior government official in India allegedly demanded a $2 million payment from the contracting firm as a condition for issuing a necessary permit. This demand was allegedly escalated to the Company’s executives for guidance. According to the SEC, the two executives allegedly participated in a videoconference in which the former president both authorized the payment of the demanded bribes and suggested that the payments be disguised as payments on change order requests designed to look like cost overruns on the project. On that same videoconference, the former chief legal officer allegedly approved of this proposal. The SEC order also contained allegations related to alleged bribes paid by the Company’s Indian subsidiary (through the same contracting firm) to obtain permits required for unrelated projects. In total, the SEC alleged that the Company authorized the payment of approximately $3.6 million in bribes to various Indian government officials.
The actions against the Company’s two former executives track the allegations made by the SEC in its order against the Company. The criminal charges are contained in a twelve-count indictment against the two former executives, charging the individuals with conspiracy to violate the FCPA, violating the FCPA, falsifying books and records, and circumventing and failing to implement effective internal controls. United States v. Gordon J. Coburn and Steven Schwartz, No. 19-120 (D.N.J. Feb. 14, 2019). Meanwhile, the SEC filed a civil complaint in the District of New Jersey against Coburn and Schwartz containing allegations that mirror the allegations set forth in the SEC’s order. Complaint, SEC v. Gordon J. Coburn and Steven E. Schwartz, 2:19-cv-5820 (D.N.J. Feb. 15, 2019).
The enforcement actions resulting from this alleged bribery scheme are significant for several reasons. Despite the existence of aggravating circumstances (i.e., the involvement of executives in the conduct at issue), the DOJ’s decision to decline to bring criminal charges pursuant to its FCPA Corporate Enforcement Policy is noteworthy, though not particularly surprising. Indeed, the central role of the charged executives, who were essentially in charge of the Company, in allegedly devising and authorizing the alleged bribery scheme makes it unsurprising that the DOJ opted for criminal charges against the executives, but not the Company. Furthermore, the DOJ made clear in its declination letter that the Company self-disclosed the alleged conduct to the DOJ only two weeks after the board learned about it, and the Company subsequently engaged in extensive cooperation and remediation, thus providing additional justification for the decision not to prosecute. The charges filed by the SEC against the executives are also noteworthy because in recent years the Commission has brought charges against a very small number of individuals for alleged FCPA violations, and there have been a very small number of instances where the DOJ and SEC both brought charges against executives. The decision by both the DOJ and SEC to bring cases against the two former executives allegedly involved in the conduct may simply reflect the perceived egregiousness of the facts and the strength of the evidence, but it may also reflect the start of a shift to try to bring more such cases.