Justice Department Ends DPA Early, Citing Robust Compliance

In a rare case, the Department of Justice agreed this month to end a deferred prosecution agreement related to alleged violations of the Foreign Corrupt Practices Act one year early.

The case also marks the first time the Justice Department has expressed—at least publicly—its willingness to relax enforcement of successor liability in situations where the acquiring company has in place a robust compliance program and expresses a commitment to prevent further violations. Successor liability in the FCPA context occurs when one company inherits the FCPA violations of another company through an acquisition.

“The case is an example of where, if the right controls are put in place and if there is a really robust effort to change behaviors, you're going to get some credit,” says Dan Nardello, a former assistant U.S. attorney and founder of investigation firm Nardello & Co.

Still, Nardello sounds a word of caution to acquiring companies who may be tempted to scale back due diligence on corruption risks. To say this case broadly signals that the Justice Department may go easy on similar successor liability cases in the future would be a “dangerous” assumption, he says.

In November 2010, offshore drilling company Pride International entered into a three-year DPA with the Justice Department to settle allegations of illegal bribes paid to government officials in Venezuela, India, Mexico, and other countries in order to extend drilling contracts and obtain other improper benefits from 2001 to 2006. Pride was acquired by Ensco, a British provider of offshore drilling services, in May 2011, which then took on the requirements of the DPA.

Under the DPA, Pride paid a $32.6 million criminal fine and agreed to adhere to the following compliance procedures:

Institute and maintain a compliance and ethics program that is designed to prevent and detect violations of the FCPA;

Maintain internal controls, policies, and procedures to ensure that books, records, and accounts are fairly and accurately made and kept; and

Reduce its reliance on third-party business partners and subject them to appropriate due-diligence requirements pertaining to the retention and oversight of agents and business partners.

“Pride has fully met its obligation under the DPA of cooperating with the United States,” the Justice Department stated in its motion to free Pride of its agreed commitments early. “In light of the foregoing circumstances, the government has determined that the continued deferred prosecution of Pride is no longer warranted.”

“Pride hit all the marks of effective compliance and good governance,” says Jan Handzlik, a partner with law firm Venable. For the Justice Department to recognize these efforts is a “hopeful sign and a further indication of the benefits of disclosure and cooperation,” he says.

In a related motion, the Justice Department also agreed to end the unsupervised probation period imposed on Pride Forasol, Pride's French drilling subsidiary, citing similar compliance improvements. U.S. District Court Judge Lynn Hughes granted the dismissals for both motions on Nov. 2.

“Pride hit all the marks of effective compliance and good governance.”

—Jan Handzlik,

Partner,

Venable

“The sentence imposed reflected the seriousness of the offense and has promoted respect for the law and ‘adequate deterrence' against international corruption,” the motion to dismiss stated. “The government, therefore, has determined that no further purpose of the United States in the enforcement of the federal criminal laws would be served by continuing the term of probation imposed on Pride Forasol.”

In addition to Pride's own compliance undertakings, Ensco's commitment to honor the DPA following its acquisition of Pride also appears to have played a role in the early dismissal of the DPA. 

With its acquisition of Pride, Ensco additionally represented to the Justice Department a high-level of anti-corruption oversight, with its general counsel, chief compliance officer, and director of internal audit all directly reporting to the chair of the audit committee.

The Pride case is unusual “in the sense that Pride had already entered into the DPA at the time it was acquired by Ensco, as opposed to Ensco finding evidence of FCPA violations during the pre- or post-acquisition due diligence on Pride,” says Valarie Hays, a partner in the corporate compliance practice and the litigation practice at law firm Schiff Hardin.

“Presumably, the Justice Department dismissed the DPA early because Ensco had a strong and effective compliance program in place,” Hays adds.  “A company can minimize its chances of successor liability by doing exactly what Ensco did: putting an effective compliance program in place and immediately incorporating newly acquired companies into that program.”

The Justice Department declined to comment beyond the filings it has made in the case. Ensco also declined to comment.

MOTION TO DISMISS

Below is an excerpt from the Government's Unopposed Motion to Dismiss Criminal Information:

On November 4, 2010, the United States filed a criminal information charging Pride

with conspiracy to violate the anti-bribery provisions of the Foreign Corrupt

Practices Act …

… On the same date, the United States also filed a three-year deferred prosecution

agreement it entered with Pride. While the DPA was for a three-year

period, the DPA also provides that “in the event the Department finds . . . that there exists a

change in circumstances sufficient to eliminate the need for the corporate compliance reporting

obligation” in the DPA, the DPA may be terminated early.

The DPA required, among other things, that Pride acknowledge responsibility for

the actions of its employees and agents who agreed to pay at least $294,000 to officials of a

state-owned Venezuelan oil company to secure off-shore rig contracts; agreed to pay at least

$500,000 to an Indian administrative law judge to secure a favorable ruling regarding the

payment of customs duties assessed for an offshore rig; agreed to pay approximately $10,000 to

a Mexican customs official to avoid taxes and penalties for alleged violations of Mexican

customs regulations relating to a vessel leased by Pride; and falsely characterized these payments

in Pride's books and records.

As part of the DPA, Pride agreed, among other things, to pay a $32,625,000

monetary penalty. Pride also agreed to continue to cooperate with the United States and adhere

to certain compliance undertakings. Pride has fully met its obligation

under the DPA of cooperating with the United States …

… On November 4, 2010, the United States also filed a criminal information in a

related action against Pride Forasol, S.A.S., a

subsidiary of Pride, charging it with violations of the FCPA in connection with the

aforementioned scheme to bribe an Indian administrative law judge to secure a favorable ruling

regarding the payment of customs duties assessed for an off-shore rig. On Dec. 7, 2010,

Pride Forasol entered a plea of guilty to the charges in the criminal information. That same day,

the Court sentenced Pride Forasol to a three-year term of unsupervised probation and imposed a

criminal fine of $32,625,000 as part of the sentence …

... On or about May 31, 2011, Ensco plc acquired Pride in a merger and

assumed the obligations of Pride under the DPA. Ensco has represented that

after the merger, (a) Pride's business units have become subject to Ensco's compliance and

ethics program, which is designed to prevent and detect violations of the FCPA, among other

laws; (b) that Ensco maintains internal controls, policies and procedures to ensure that books,

records and accounts are fairly and accurately made and kept; and (c) that Ensco conducts

appropriate due diligence pertaining to the retention and oversight of agents and business partners.

Ensco has further represented that its general counsel, its chief compliance officers,

and its director of internal audit are responsible for the implementation and oversight of

compliance with policies, procedures and internal controls regarding the FCPA and other

applicable anti-corruption laws across the entire Ensco organization, and that these corporate

officers report directly to the chair of the audit committee of the board of directors.

In light of the foregoing circumstances, the government has determined that the

continued deferred prosecution of Pride is no longer warranted. Accordingly, the

United States moves to dismiss the criminal information filed against Pride at this time.

In a related motion filed today in Criminal Action No. 4:10-771-01, the United

States is moving to terminate the term of unsupervised probation imposed on Pride Forasol.

Source: Justice Department.

Other Examples

Paul Pelletier, a member in the litigation section of law firm Mintz Levin, says that it is not unprecedented that the government would permit early termination from the terms of a DPA. “Upon objective and independent proof that a deferred company's anti-corruption compliance program is now working and effective, government prosecutors have often shown a willingness to terminate potentially onerous supervision conditions,” he says.

Mike Koehler, a law professor at Southern Illinois University and better known for his blog, “the FCPA professor,” points to another case, where the Justice Department filed a motion to dismiss criminal charges in April against pipeline construction company Willbros, stemming from legacy issues in Nigeria and South America in 2005 and prior years, resulting in the DPA.

During a recent earnings conference call, Willbros stated that the motion to dismiss followed the company's completion of the requirements of the DPA and the expiration in March of the terms of its compliance monitorship. On April 2, a U.S. District Court judge in Texas signed an order of dismissal of all charges.

“We are pleased to have successfully completed the requirements of the DPA and the monitorship,” Willbros CEO Randy Harl said during a recent earnings conference call. “Willbros is committed to compliance with the law, and we have instituted values and processes that we believe will prevent any future FCPA-related incidents.”

Only in the last few months has the Justice Department been especially vocal about doling out credit for having robust internal controls. For example, the Pride International case together with the Morgan Stanley case, “while two very different situations,” both send the same important message to companies that “the Justice Department does take into account compliance procedures,” says Tom Gorman, a partner with Dorsey & Whitney.

In the Morgan Stanley case, the Justice Department opted not to bring an enforcement action over violations by one individual of the FCPA, similarly citing the company's compliance program as the reason for declining to prosecute.

With each case study, companies should be comforted to know that cooperation credit with the government isn't hopeless. “There's no reason why the Department of Justice shouldn't have the flexibility and discretion to dismiss a case early,” Nardello says, “if they believe the goal and the conditions of a deferred prosecution agreement have been met.”