How BizJet Convinced the Justice Department to Go Easy

Looking to reduce the cost of running afoul of the Foreign Corrupt Practices Act? You might want to take a page from BizJet International.

The aviation maintenance company entered into a deferred-prosecution agreement with the Justice Department earlier this month over alleged FCPA violations, and its extensive cooperation led to a 30 percent reduction in the minimum base fine it could have received under the U.S. Sentencing Guidelines. The result was a fine totaling $11.8 million rather than a potential $17.1 million—a savings of $5.3 million.

Aside from the significant fine reduction, the case is also newsworthy because of the charges against senior-level executives. “It's not always the case where you see allegations against high-ranking executives in an enforcement action, and that's what you saw here,” says Mike Koehler, a law professor at Butler University who follows the FCPA closely. That involvement of high-level executives makes BizJet's quick reaction and cooperation all the more surprising.

According to the complaint, BizJet employees paid bribes to government officials in Mexico and Panama to secure aircraft maintenance contracts from 2004 to 2010. In some instances the bribes were paid directly to foreign officials, and in others they were funneled through a shell company owned and operated by a BizJet sales manager. In all cases, BizJet senior executives “orchestrated, authorized, and approved the unlawful payments,” the Justice Department said.

The case further highlights the need for audits on the overseas actions of affiliates. BizJet's indirect parent company, Lufthansa Technik, discovered these issues as a result of an internal audit, explains Jay Holtmeier, a partner with WilmerHale and BizJet's and Lufthansa Technik's lawyer in the case.

What helped BizJet earn concessions from the Justice Department was how swiftly and fully it reacted to the allegations. Following discovery of the FCPA violations, BizJet immediately initiated an internal investigation led by an outside U.S. law firm and accounting firm, voluntarily notified the Justice Department, and cooperated with the investigation.

In any FCPA case where a company has agreed to cooperate and voluntarily disclose, “it's fair to say the government commonly shows a greater willingness to work with the company,” Holtmeier says. He cautions, however, that voluntary disclosure is “absolutely not the right approach for every company in every situation.”

In BizJet and Lufthansa Technik's case, such extensive remedial actions are why the Justice Department credited the companies for “extraordinary cooperation.” The Justice Department also credited BizJet with “conducting an extensive internal investigation; voluntarily making U.S. and foreign employees available for interviews; and collecting, analyzing, and organizing voluminous evidence and information for the department.” The officers and employees responsible for the corrupt payments were fired.

According to the Justice Department, as part of the deferred-prosecution agreement, BizJet will cooperate in ongoing investigations and report periodically to the department about its compliance efforts. If all terms of the agreement are met, the charges will be dismissed after three years.

BizJet will not need to answer to an independent compliance monitor, but instead will self-report its compliance developments. “In more recent cases, you're seeing a move away from compliance monitors,” says Tom Gorman, a partner with law firm Dorsey & Whitney.

“If you want to be deemed to be cooperating, you've got to live with the fact that that means both good and bad facts have to be brought to the attention of the government.”

—Jay Holtmeier,

Partner,

WilmerHale

In BizJet's case, the company has agreed to report to the Justice Department at “no less than 12-month intervals” during the DPA's three-year term on remediation and implementation of the compliance program and internal controls, policies, and procedures, according to the DPA.

In addition to BizJet's DPA, Lufthansa Technik entered into a non-prosecution agreement, meaning the company will not be charged with any criminal conduct, provided that satisfies its compliance obligations under the agreement for three years. Such obligations include ongoing cooperation and the continued implementation of rigorous internal controls.

Koehler does say that if Lufthansa Technik had to agree to an NPA solely because it's the indirect corporate parent of BizJet, that's troubling. “There is no strict criminal liability that parent companies have for subsidiary entities,” he says. He wishes the Justice Department shared more of its reasons for the NPA, given that “absolutely, positively nothing” in the DPA or NPA suggests BizJet lacked supervision. 

The Justice Department finding a parent company liable for a subsidiary is not unprecedented, Gorman says. “I see this more as the parent company stepping up and taking responsibility for the subsidiary as part of the overall resolution,” he says.

BizJet's Chief Executive Officer Kai Roepke declined further comment, referring all questions to Holtmeier. Lufthansa Technik also declined further comment.

Where Credit Is Due

BizJet is only the latest company to be snared by the FCPA for paying bribes to government officials to win contracts. Other companies reaching settlements with the Justice Department recently include ABB, Johnson & Johnson, Alcatel-Lucent, and Siemens.

BIZJET SETTLEMENT

Below is an excerpt from the Justice Department's announcement of the BizJet case:

BizJet International Sales and Support Inc., a provider of aircraft maintenance, repair and overhaul (MRO) services based in Tulsa, Okla., has agreed to pay an $11.8 million criminal penalty to resolve charges related to the Foreign Corrupt Practices Act (FCPA) for bribing government officials in Latin America to secure contracts to perform aircraft MRO services for government agencies, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division.

The department filed a one-count criminal information today charging BizJet with conspiring to violate the FCPA's anti-bribery provisions and a deferred prosecution agreement in U.S. District Court for the Northern District of Oklahoma.

According to court documents, BizJet paid bribes to officials employed by the Mexican Policia Federal Preventiva, the Mexican Coordinacion General de Transportes Aereos Presidenciales, the air fleet for the Gobierno del Estado de Sinaloa, the air fleet for the Gobierno del Estado de Sonora and the Republica de Panama Autoridad Aeronautica Civil. In many instances, BizJet paid the bribes directly to the foreign officials. In other instances, BizJet funneled the bribes through a shell company owned and operated by a BizJet sales manager. BizJet executives orchestrated, authorized and approved the unlawful payments.

Under the terms of the department's agreement with BizJet, the department agreed to defer prosecution of BizJet for three years. In addition to the monetary penalty, BizJet agreed to cooperate with the department in ongoing investigations, to report periodically to the department concerning BizJet's compliance efforts, and to continue to implement an enhanced compliance program and internal controls designed to prevent and detect FCPA violations. If BizJet abides by the terms of the deferred prosecution agreement, the department will dismiss the criminal information when the agreement's term expires.

In addition, BizJet's indirect parent company, Lufthansa Technik AG, itself a German provider of aircraft-related services, entered into an agreement with the department in connection with the unlawful payments by BizJet and its directors, officers, employees and agents. The department has agreed not to prosecute Lufthansa Technik provided that Lufthansa Technik satisfies its obligations under the agreement for a period of three years. Those obligations include ongoing cooperation and the continued implementation of rigorous internal controls.

The agreements acknowledge BizJet's and Lufthansa Technik's voluntary disclosure of the FCPA violations to the department and their extraordinary cooperation, including conducting an extensive internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing and organizing voluminous evidence and information for the department. In addition, BizJet and Lufthansa Technik engaged in extensive remediation, including terminating the officers and employees responsible for the corrupt payments, enhancing their due-diligence protocol for third-party agents and consultants, and heightening review of proposals and other transactional documents for all BizJet contracts.

The case is being prosecuted by Trial Attorneys Daniel S. Kahn and Stephen J. Spiegelhalter of the Criminal Division's Fraud Section. Assistant U.S. Attorney Kevin Leitch from the Northern District of Oklahoma has provided assistance in the case. The department has also worked closely with its law-enforcement counterparts in Mexico and Panama in this matter and is grateful for their assistance. The ongoing investigation is being assisted by the FBI's Washington Field Office.

Source: Justice Department.

Holtmeier offers a list of some steps a company can take to demonstrate cooperation and to minimize the penalties in the event of a Justice Department FCPA enforcement action.

Be thorough. “The government will listen to sensible arguments about what needs to be done and what doesn't need to be done, but the government needs to be comfortable that the company has pursued all relevant leads,” Holtmeier says.

Facilitate access. The government places a high value on anything a company can do to help it get access to current and former employees, or relevant third parties.

Simplify complicated facts. Where necessary, provide the government with charts or binders of key documents that relate to relevant transactions. “Producing to the government mass volumes of material without context tends not to be very useful to them,” Holtmeier says. Ultimately, the government will figure out what is in those documents; making that process easier for investigators will go a long way toward gaining cooperation credit and may help the company conclude the investigation more quickly.

Keep in mind, what the government views as helpful will vary based upon the facts of each case. For example, binders or charts may be helpful in complicated cases involving lots of intricate transactions, while tracking down a key witness may be more helpful in a case involving a single payment by a single person, Holtmeier advises.

Be candid.  Don't hide or minimize any facts. “There is plenty of opportunity for zealous advocacy, but if you want to be deemed to be cooperating, you've got to live with the fact that that means both good and bad facts have to be brought to the attention of the government,” Holtmeier says.

Think outside the company. While much corporate cooperation relates to investigating the company's own misdeeds, the U.S. Sentencing Guidelines allow credit for providing substantial assistance in the investigation and prosecution of others. “It's often the case that, if one business is making payments to government officials to win business, its competitors may be making those same kinds of payments,” Holtmeier says. “If that company has information about what its competitors are doing, that certainly can be valuable to the government and can be a source of cooperation credit.”

Remediate. If problems are found, begin remediation right away. “The company should demonstrate that it recognizes the problems, that it's serious about fixing them, and that it's taking a reasonable approach to fixing them,” Holtmeier says. That may mean terminating or disciplining employees, stopping certain business practices, implementing additional controls, or auditing.

“Sometimes you can't fully solve the problem until you know what all the facts are,” Holtmeier says, “but often you are able to begin the remediation process once you've got your initial understanding of the facts.”