One for You, Two for Me — Cognizant FCPA Declination a Mixed Bag for Companies
V&E FCPA and Global Anti-Corruption Update, March 07, 2019
In the first FCPA enforcement action of the 2019 season, DOJ issued a particularly lenient declination to Cognizant Technology Solutions Corporation, but required additional disgorgement beyond what the SEC could collect in its own parallel action and indicted two of the company’s most senior executives.
DOJ issued its declination letter to Cognizant on February 13 under its Corporate Enforcement Policy that was announced in November 2017 — a policy that rewards companies for voluntarily self-disclosing violations like bribery under the FCPA, even where sufficient evidence exists to support criminal charges. The SEC followed shortly thereafter with an announced settlement for $25 million. Cognizant was alleged to have paid as much as $3.6 million in bribes to government officials in India related to various permits needed to build and operate office buildings in the region. The bribes were said to be disguised through reimbursement of third-party construction contractors.
What’s interesting is that DOJ declined to prosecute Cognizant despite the existence of evidence that the payments and the concealment scheme were formulated and blessed during video conferences and over email messages with U.S. senior executives, who took what the SEC characterized as “active steps to advance the scheme.” Those executives included Cognizant’s (now former) President Gordon Coburn and Chief Legal Officer Steven E. Schwartz, both of whom have now been indicted by DOJ and charged by the SEC in parallel actions. DOJ’s Corporate Enforcement Policy expressly identifies “involvement by executive management of the company in the misconduct” as an aggravating circumstance that may preclude a company from being eligible for a full declination, but Cognizant nonetheless received one.
So did Cognizant pull a fast one, here? Actually, DOJ has been signaling a willingness to look past the involvement of senior executives when considering corporate liability for the last several months. In August 2018, DOJ issued two declinations in cases involving evidence of senior executives’ participation — one to Guralp Systems Limited, despite charges being filed by the U.K.’s Serious Fraud Office against both the company’s founder and former managing director; and another to Insurance Corporation of Barbados Limited (“ICBL”), where DOJ cited “high-level involvement of corporate officers” in the declination letter itself. Then, in October 2018, Principal Deputy Assistant Attorney General John B. Cronan delivered a speech in Sao Paulo stressing the Department’s commitment to its leniency program. Cronan specifically cited the declinations issued to Guralp and ICBL, and the significance that DOJ was willing to look past the involvement of senior management in issuing those declinations. DOJ has been keen to incentivize companies to self-report violations and cooperate in subsequent investigations, and those seem to be the key considerations (along with appropriate remediation) currently looked at in a declination determination.
The other noteworthy aspect of the Cognizant case is how the disgorgement calculations were reached. DOJ’s Corporate Enforcement Policy makes clear that companies are only eligible for a declination if they disgorge the entirety of their alleged ill-gotten gains. Typically, DOJ has fully credited the amount of disgorgement a company pays to the SEC in a parallel action and, indeed, the May 2018 Rosenstein Memo (that has since been incorporated into the U.S. Attorneys Manual) announced a policy against piling on duplicative fines, penalties and/or forfeiture against a company. Since the Supreme Court ruled in U.S. v. Kokesh, however, that the SEC is not able to collect disgorgement from years that fall outside of the applicable five-year statute of limitations period, there have been a few examples of DOJ requiring disgorgement of amounts in addition to the amount required by the SEC.
For example, at the end of December 2018, DOJ issued a declination to Polycom related to a bribery scheme in China, calculating total profits from the illegally obtained contracts at roughly $31 million. The SEC’s parallel order describes the relevant scheme as having spanned 2006-2014, yet charged Polycom with only $10.6 million in disgorgement, reflecting the amount obtained from 2012-2014. DOJ expressly recognized the disgorgement limitation on the SEC, and required the remainder of its calculation be paid separately. Though not stated as expressly, DOJ and the SEC have again reached different disgorgement calculations in the Cognizant matter — $19.4 million and $16.4 million, respectively — with the stub again payable to DOJ. The conduct charged dates back to 2013, which could be outside of the 5-year period absent a tolling agreement. While it appears to represent a workaround to the Kokesh limitation placed on the SEC, it could also be due to a difference in methodology: the SEC termed its amount as representative of “ill-gotten gains,” while DOJ purportedly used a “cost avoidance calculation” to reach its figure, though it is unclear if there is a distinction between the two. Whether this is the beginning of a trend or not, it is apparent that there are signs of a divergence between the two agencies’ calculations, and companies have been left holding the bag for the largest calculation available.
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