DOJ official: ‘Inability to pay’ playing more prominent role in criminal cases

“We’re in the middle of a once-in-a-lifetime pandemic, and that has required us to change our approach to cases,” acting Criminal Division head Brian Rabbitt said at the Wall Street Journal’s Risk and Compliance Forum on Thursday. “We understand that it’s going to impact those whom we regulate—those whose conduct we may be examining down the road.”

In particular, the pandemic is playing a role in settlement negotiations with cash-strapped companies. “We certainly have seen arguments raised—claims raised—about ability to pay during the pandemic,” Rabbitt said. “We’re approaching those like we would approach them during normal times.”

In October 2019, even before the pandemic turned the world upside down, then-Assistant Attorney General Brian Benczkowski announced the Criminal Division’s “Inability to Pay” policy, providing guidance for prosecutors—and greater transparency to the public—when making determinations about companies that assert their inability to pay a criminal fine.

Consistent with its policy, the Criminal Division first will determine a form of resolution—for example, a deferred prosecution agreement, a non-prosecution agreement, or guilty plea. “Then, we will calculate what we believe the appropriate fine to be under the circumstances,” Rabbitt said.

The DOJ will weigh the policy only if such a request is made, but the burden rests upon the company to demonstrate its inability to pay. “The organization must cooperate fully in providing information and access to appropriate company personnel to respond to prosecutors’ inquiries,” the guidance states. “In every case where an inability to pay is asserted, the business organization will be expected to provide a complete and timely response to the Inability-to-Pay Questionnaire, as well as to any follow up inquiries.”

While the policy was announced last year, a criminal fine levied against asphalt company Sargeant Marine on Sept. 22 marked the first “publicly acknowledged application” of the policy, Rabbitt said.

According to its own admissions, Sargeant Marine and its affiliated companies engaged in an eight-year scheme paying millions of dollars in bribes to foreign officials in Brazil, Venezuela, and Ecuador between 2010 and 2018 in exchange for obtaining contracts to purchase or sell asphalt to the countries’ state-owned and state-controlled oil companies.

What should have resulted in a $90 million criminal fine was reduced to $16.6 million. “The reduction in the case was quite substantial in absolute terms,” Rabbitt said. “There was also a reduction at the outset for the company’s cooperation with our investigation and its efforts to remediate the misconduct as well.”

Rabbitt said additional applications of the policy will continue to be applied on a case-by-case basis, only after the Department is satisfied that it is “absolutely appropriate to do so in a particular case,” he said. “When companies do come in, we take those claims seriously, but we verify them.”

Lessons from JPMorgan

Rabbitt also spoke candidly about the recent JPMorgan Chase settlement, in which the financial services giant will pay $920 million as part of an agreement reached with three federal agencies to resolve allegations that the firm’s traders manipulated the precious metals markets with false trades, an illegal practice called “spoofing.” He offered two key lessons for chief compliance officers from the case: “First, market manipulation in that space continues to be a focus for us,” Rabbitt said.

In reaching the settlement, JPMorgan’s commitment to compliance was an important factor in terms of not requiring an independent compliance monitor, Rabbit said. That brings about the second lesson: the importance of a robust compliance program.

“Between the time when the conduct at issue in the settlement was uncovered and the resolution, the company really engaged in a significant compliance uplift,” Rabbitt said. “They engaged in thoughtful remedial action following the discovery of misconduct. That, coupled with enhancements and improvements to their compliance program and their internal controls, allowed them to really demonstrate to us that they had taken the issue seriously, that they had remediated, and that going forward they would be able to protect and prevent similar misconduct in the future.”

Rabbitt further cautioned against companies looking at their compliance programs and compliance departments merely as call centers, particularly during a pandemic when everyone is looking to cut costs or save money. “We recognize that tweaks and changes and adjustments will have to be made,” he said. “The message that we would send to compliance professionals and to corporations is to make sure you’re thoughtful about how you do that. Make sure that any changes you make are risk-based.”

When a compliance program is able to “identify, deter, and prevent misconduct both within the company and more broadly across markets,” Rabbitt said, “that can actually save companies money in the long run by either stopping illegal conduct before it occurs or, if illegal conduct is going on, stopping it at an early stage and helping put the company on its best foot when dealing with regulators, like the Department of Justice.”

Moving forward

Looking into the enforcement crystal ball over the next few months, Rabbit signaled that more big-ticket resolutions are on the horizon, irrespective of the results of the presidential election. Cases are resolved when they are ready to be resolved, including numerous cases that have been delayed or impacted by the pandemic that potentially would have been resolved over the course of the summer, he said.

“We have a lot of work left to do, and we’re working hard between now and the end of the year to resolve a couple of important matters,” Rabbitt said.