Through the Revolving Door
As Top DOJ Officials Depart for Big Law, Can Corporate Anticorruption Enforcement Recover?
The Justice Department’s longtime top attorney overseeing Foreign Corrupt Practices Act (FCPA) enforcement is taking a spin through the revolving door.
After 11 years in DOJ’s Fraud section, including six years as chief of the FCPA unit, Daniel Kahn is returning to Davis Polk — the Big Law firm where Kahn worked prior to the DOJ — as a partner.
The revolving door between the DOJ and the corporate bar is well trod by department leaders from both major parties. Eric Holder, the Attorney General under President Obama, returned to law firm Covington & Burling after helming the DOJ. Former U.S. Attorney for the Southern District of New York and Obama SEC chair Mary Jo White revolved between government the corporate defense firm Debevoise and Plympton six times. Top Trump DOJ veterans Rachel Brand and Matt Miner are now Walmart’s chief legal officer and chief compliance officer, respectively.
Christopher Cestaro, another top DOJ FCPA official, preceded his colleague through the revolving door by departing the DOJ earlier this year for another top corporate defense firm, Wilmer Hale.
It’s a problem for many reasons — not the least of which is that the nature of the revolving door might tempt DOJ prosecutors, whose job is to hold corporate criminals accountable, to pull punches.
ProPublica reporter and Chickenshit Club author Jesse Eisinger diagnoses the problem succinctly:
[T]he Department of Justice has almost become this kind of post juris doctor-education-resume building opportunity to become a partner at a law firm and make more money there. That’s not what we want from our government law enforcement operations. And it of course leads to very pernicious effects where they want to seem tough and smart, but ultimately not unreasonable. So they negotiate settlements, but the settlements are actually not very punitive, not excessive. And they also don’t want to prosecute individuals because prosecuting individuals is very difficult and risky and you risk losing. And if you’ve lost a big marquee trial, that doesn’t do any good for your resume and then you can’t get that job in Corporate America or in Big Law.
Which brings us back to the former FCPA chief and current Big Law partner Daniel Kahn.
Kahn’s tenure at the helm of the FCPA division coincided with the Obama DOJ launching a pilot program, which the Trump DOJ made permanent, to allow corporations that engage in illegal bribery abroad to completely avoid prosecution. So long as they meet certain conditions, corporations that violate the law can avoid prosecution and see their penalties reduced by 50 percent.
It’s exactly the kind of policy that makes one wonder whose interests in these cases the DOJ is prioritizing — the victims of corporate crime, or the perpetrators.
As one might reasonably expect, the establishment of the program allowing corporations that commit these crimes to avoid prosecution and instead resolve the cases through leniency agreements (i.e. deferred prosecution agreements, nonprosecution agreements and declinations that resolve criminal allegations) was followed by a surge in leniency agreements.
While the number of actual prosecutions — i.e., plea agreements — between the DOJ and corporate FCPA violators remained fairly consistent over the past decade, leniency agreements spiked in 2016 around the time Kahn took over. That year, 11 of the 22 criminal FCPA resolutions the DOJ made were declinations.
Note: Single cases are sometimes resolved through multiple agreements with various divisions of a corporation. These numbers reflect the numbers of resolutions as documented in the Duke Law / UVA Law Corporate Prosecution Registry.
Prior to the institution of the pilot program, the DOJ issuing a declination typically meant that it was concluding a criminal investigation without filing charges. Once the pilot program was in place, the DOJ starting making agreements with corporations accused of FCPA violations that both conclude the investigation and note that the accused corporation has been required to disgorge ill-gotten gains.
There are several notable instances of corporations avoiding prosecution for FCPA crimes when Kahn and Cestaro were in charge. These include examples of letting corporate repeat offenders off the hook, as the DOJ did in 2016 when instead of prosecuting JPMorgan Chase for alleged FCPA violations, the department made its third leniency agreement with the multinational megabank in less than 10 years. JPMorgan was corruptly awarding jobs to friends and relatives of Chinese government officials.
Meanwhile, the casino business Las Vegas Sands (whose CEO and chairman at the time was billionaire Republican megadonor Sheldon Adelson) in 2017 entered its a second leniency agreement in less than five years to resolve FCPA allegations. The corporation “knowingly and willfully failed” to ensure payments to a consultant totaling $5.8 million ostensibly to promote the business in China and Macao were being made for legitimate business purposes.
But the most egregious corporate offender to avoid prosecution during Kahn and Cestaro’s tenure was Walmart.
In 2012, a Pulitzer Prize-winning investigation by The New York Times exposed how bribery facilitated the big box store chain’s aggressive expansion into foreign markets. (Walmart currently tops the Fortune 500 as the largest corporation in the world by revenue.)
Public Citizen called on the DOJ in 2016 to prosecute Walmart. Three years later, the DOJ’s settlement with Walmart acknowledged the corporation’s corrupt practices in Brazil, Mexico, India and China — and cemented a non-prosecution leniency agreement with the corporation. The settlements with DOJ and the SEC required payment of $282 million in penalties — which sounds like a lot, but was in fact less than half the penalty that was expected from the Obama administration.
That year, Walmart reported $6.7 billion in profit.
Now that Kahn and Cestaro are gone, the DOJ should take the opportunity this change in leadership provides to stop preemptively rewarding corporate criminals with ways to avoid prosecution.
Instead, the DOJ should prosecute FCPA violators and impose fines that sufficiently remediate the harm corrupt payments cause. David Montero, whose in-depth book Kickback exposes the inadequacy of the FCPA enforcement status quo, tells Corporate Crime Reporter:
“For me, the solution is that these companies have to pay fines, they should be much higher than they are now. And the fines should take into consideration the most important crucial element – the damage these bribes inflict for a lasting amount of time on the foreign citizens where those bribes are paid. That’s part of the problem with the way we are enforcing this law. These settlements say nothing about the actual impact of these bribes — which is that it devastates the economy, the social fabric, the political fabric of these countries for generations.”
Gibson Dunn’s assessment of public statements in recent months by Kahn and other top officials sees reason to believe the DOJ under Attorney General Merrick Garland will take a “more aggressive posture in corporate investigations and away from the last administration’s perceived approach.”
No new policy announcements have yet been made. Time will tell.
Big Business Blotter news roundup:
NEW RESEARCH
Targeting Polluters in the Courts - Dirt Diggers Digest
The latest expansion of Violation Tracker includes entries on the PG&E and DuPont cases as well as 100 other lawsuits resolved over the past two decades. As a result of these actions, dozens of major corporations have paid out a total of more than $15 billion in settlements around the country. These are all group actions in which multiple plaintiffs sued the companies for widespread harm.
CORPORATE VIOLENCE
PG&E Is Charged With Manslaughter In A California Wildfire That Killed 4 - AP
Shasta County District Attorney Stephanie Bridgett announced the 31 charges, including 11 felonies, against PG&E, saying it failed to perform its legal duties and that its "failure was reckless and criminally negligent, and it resulted in the death of four people."
Tesla sued by Texas cops after a Model X on Autopilot slammed into five officers - The Verge
The crash took place February 27, 2021, in Splendora, a small town in Montgomery County in the eastern part of the state. According to the lawsuit, the Model X SUV crashed into several police officers while they were engaged in a traffic stop on the Eastex Freeway in Texas. “All were badly injured,” the lawsuit says.
“The tragic deaths due to the failure by West Texas Gas to safely manage hazardous chemicals, as required by law, demonstrates the severe dangers that these violations pose to workers, nearby communities and the environment,” said Acting Assistant Administrator Larry Starfield of the Environmental Protection Agency’s (EPA) Office of Enforcement and Compliance Assurance. “Today’s settlement requires West Texas Gas to take concrete steps to prevent future accidents and will improve air quality in the vicinity of these facilities.”
FRAUD / CORRUPTION
Wells Fargo will pay a total of approximately $72.6 million, with approximately $35.3 million having been paid directly to the 771 customers collectively as restitution and approximately $37.3 million to be paid to the United States as civil penalties under FIRREA and as asset forfeiture. Wells Fargo also made extensive admissions of certain conduct alleged in the Government’s complaint, including that many FX sales specialists overcharged hundreds of commercial customers by applying larger sales margins or spreads than they represented they would, and that, in certain instances, when customers contacted the Bank to inquire about higher-than-agreed-upon pricing, FX sales specialists would give customers false explanations for the inflated prices.
Devon Energy Corporation, an Oklahoma-based oil and natural gas exploration and production company, and its affiliates, Devon Energy Corp. (Oklahoma) and Devon Energy Production Company LP (collectively, “Devon”), have agreed to pay $6.15 million to resolve allegations that it violated the False Claims Act by underpaying and underreporting royalties for natural gas from federal lands in Wyoming and New Mexico.
United States Returns to Iraq Rare Tablet Bearing Portion of the Epic of Gilgamesh - DOJ
Known as the Gilgamesh Dream Tablet, the artifact originated in the area of modern-day Iraq and entered the United States contrary to federal law. An international auction house (the Auction House) later sold the tablet to Hobby Lobby Stores Inc. (Hobby Lobby), an arts-and-crafts retailer based in Oklahoma City, Oklahoma, for display at the Museum of the Bible (the Museum). Law enforcement agents seized the tablet from the Museum, pursuant to a judicially-authorized seizure warrant, in September 2019.
ANTITRUST
Three generic pharmaceutical manufacturers, Taro Pharmaceuticals USA, Inc., Sandoz Inc. and Apotex Corporation, have agreed to pay a total of $447.2 million to resolve alleged violations of the False Claims Act arising from conspiracies to fix the price of various generic drugs. These conspiracies allegedly resulted in higher drug prices for federal health care programs and beneficiaries according to the Justice Department.
The U.S. Department of Justice, together with Attorneys General in six states and the District of Columbia, sued today in the District of Massachusetts to block an unprecedented series of agreements between American Airlines and JetBlue through which the two airlines will consolidate their operations in Boston and New York City. The civil antitrust complaint alleges that this extensive combination, which they call the “Northeast Alliance,” will not only eliminate important competition in these cities, but will also harm air travelers across the country by significantly diminishing JetBlue’s incentive to compete with American elsewhere, further consolidating an already highly concentrated industry.
POLLUTERS
Taconic to pay $23.5M to settle Petersburgh water pollution case - Times Union
A Petersburgh plastics company has agreed to pay $23.5 million to settle a class-action lawsuit that will benefit hundreds of residents whose drinking water supplies — and in many instances, their blood — was contaminated with a toxic manufacturing chemical. (PFOAs)
Acting United States Attorney Alexander C. Van Hook announced that Firestone Polymers LLC (Firestone) has agreed to resolve alleged violations of the Clean Air Act and several other federal and state environmental laws at the company’s synthetic rubber manufacturing facility in Sulfur, Louisiana. The company will also pay a total of $3.35 million in civil penalties.
ENFORCEMENT POLICY
A big job for small government agency. Enforce vaccine mandate for 80 million workers - NPR
Fines for a serious violation can be up to $13,653 per violation, or ten times that for a willful or repeated violation. Still, the press releases that accompany OSHA fines often have a larger impact than the fines themselves, says Jordan Barab, who was acting head of OSHA under President Obama. "Employers told us OSHA penalties are... really just a part of doing business," he says. What companies really don't like is having their name in the news in a negative light.