On November 29, 2018, Deputy Attorney General Rod J. Rosenstein appeared at the American Conference Institute’s 35th International Conference on the Foreign Corrupt Practices Act (FCPA) in Oxon Hill, Maryland to announce several policy updates on behalf of the U.S. Department of Justice (DOJ). In his speech, the full text of which is available here, Rosenstein stated that the DOJ was modifying its approach to fighting corporate corruption and enforcing the FCPA, explaining that individual wrongdoers – who, in the broad scope of corporate prosecutions, may sometimes escape liability – would receive greater focus in corporate criminal investigations. However, Rosenstein also noted that DOJ attorneys would have more discretion to extend “cooperation credit” to companies that provided “meaningful” assistance to investigators. As Rosenstein explained in his remarks, the DOJ’s new approach is designed to increase the efficiency of both civil and criminal investigations. For companies or individuals who engage in tax and financial crimes, such as tax evasion or wire fraud, this signals heightened peril – and with it, greater need for dependable criminal tax defense representation.
Rosenstein’s remarks contained both good and bad news for businesses.
The good news is that the DOJ, in an effort to “avoid duplicative penalties” against noncompliant entities, will maintain its “policy against ‘piling on’” with redundant fines – a relatively new policy that was only announced in May 2018. As Rosenstein explained at the time, “In football, the term ‘piling on’ refers to a player jumping on a pile of other players after the opponent is already tackled. [The] new policy discourages ‘piling on’ by instructing Department components to appropriately coordinate with one another and… other enforcement agencies in imposing multiple penalties on a company in relation to investigations of the same misconduct.” (Tax attorneys may wish to examine Section 1-12.100 of the U.S. Attorney’s Manual, under which this policy is formally set forth.)
Appearing at the FCPA conference in November, approximately eight months after first announcing the DOJ’s policy against “piling on,” Rosenstein noted that the policy had already led to “Three recent corporate resolutions,” which “involved collaboration with the Securities and Exchange Commission,” the federal agency responsible for regulating the financial sector.
For example, on July 5, 2018 – mere months after the policy’s unveiling – the DOJ issued a press release announcing that Credit Suisse Group AG would “pay a $47 million criminal penalty for its role in a scheme to corruptly win banking business by awarding employment to friends and family of Chinese officials in violation of the Foreign Corrupt Practices Act.” On the same day, the SEC issued its own press release announcing that Credit Suisse would “pay approximately $30 million to resolve SEC charges that it obtained investment banking business in the Asia-Pacific region by corruptly influencing foreign officials in violation of [the FCPA].”
As you can see, these are two separate fines, being imposed by two separate entities, for the same underlying misconduct – precisely what the policy against piling on is intended to prohibit. As a result of that policy, the SEC agreed not to impose civil fines upon Credit Suisse, with the relevant administrative order stating, at Section 62 (Non-Imposition of a Civil Penalty), “Respondent acknowledges that the Commission is not imposing a civil penalty based upon the imposition of a $47 million criminal fine as part of Credit Suisse’s settlement with the United States Department of Justice.” In other words, to promote and comply with revised DOJ policy, the duplicative penalties were removed. (Of course, this would not be the first occasion on which Credit Suisse, which was once raided on suspicion of tax evasion, has had to contend with substantial penalties.)
The policy revisions may feature another upswing for business entities as well: companies may obtain “cooperation credit” (such as fine reductions) in civil or criminal cases, subject to certain conditions. As Rosenstein explained, “Our revised policy… makes clear that any company seeking cooperation credit in criminal cases must identify every individual who was substantially involved in or responsible for the criminal conduct,” italics our emphasis.
In civil cases, the standards around cooperation credits are less stringent. As Rosenstein stated, “When a company honestly did meaningfully assist the government’s investigation, our civil attorneys now have discretion to offer some credit even if the company does not qualify for maximum credit.” However, in order for the entity to earn the maximum cooperation credit possible, the business “must identify every individual person who was substantially involved in or responsible for the misconduct.”
Rosenstein also clarified that no credit “whatsoever” would be awarded “to any corporation that conceals misconduct by members of senior management or the board of directors, or otherwise demonstrates a lack of good faith in its representations.”
Now, for the bad news: even though it aims to eliminate duplicative penalties (while taking a more flexible, “realistic” approach to awarding credit in corporate investigations), the DOJ also intends to ensure that those penalties are directed more effectively toward “individual wrongdoers” – 30 of whom were criminally charged, and 19 convicted, during the year preceding the announcement. Pointing to “The success of [the DOJ’s] FCPA program,” Rosenstein also noted that “white collar prosecutions increased in 2018, to more than 6,500 defendants.” (For more information on prosecutions, see our article covering 2017 tax crime statistics.)
As Rosenstein elaborated in his remarks, “Under [the DOJ’s] revised policy, pursuing individuals responsible for wrongdoing will be a top priority in every corporate investigation.” He acknowledged that, despite the tremendous value of corporate prosecutions – which, after all, help the DOJ accomplish important objectives like “recovering fraudulent proceeds, reimbursing victims, and deterring future wrongdoing” – it remains an issue that “Corporate cases often penalize innocent employees and shareholders without effectively punishing the human beings responsible for making corrupt decisions.” By targeting individual wrongdoers more narrowly, the DOJ hopes to rectify this issue, revising its policies and practices “to make clear that absent extraordinary circumstances, a corporate resolution should not protect individuals from criminal liability.”
On one hand, the DOJ now seems more willing to extend credit to cooperative entities, while simultaneously enforcing new rules that seek to limit superfluous or inappropriate penalties. On the other hand, investigators are increasingly focused on the targeting of specific individuals – even in sprawling corporate cases that involve huge numbers of employees and documents.
The Tax Law Office of David W. Klasing is a boutique, award-winning tax firm that provides civil and criminal tax representation to all types of business entities, including S and C corporations, partnerships, and limited liability companies (LLCs). Our practice is heavily focused on international taxation issues such as FBAR, FATCA, and other matters related to foreign account reporting, making our firm the clear choice for businesses and individual taxpayers who need to resolve complex international tax controversies.
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