Monday, May 24, 2010

Congressman Towns Is Asking The Right Questions

One interesting, surprising, and controversial aspect of FCPA enforcement is that the U.S. government remains a lucrative customer for many FCPA violators, including some of the most egregious violators.

Last December, on the one-year anniversary of the record-setting Siemens enforcement actions, I ran this post - "Siemens ... The Year After."

Among other things, the post noted that in the year since resolution of the Siemens FCPA matter, the U.S. government continues to do substantial business with the company it charged with engaging in a pattern of bribery “unprecedented in scale and geographic scope.”

Using www.recovery.gov, the post then identifies many of the hundreds of government contracts awarded to Siemens' business units with funds made available from the American Recovery and Reinvestment Act, the $787 billion stimulus bill passed by Congress and signed by President Obama in February 2009.

These contracts have been awarded by the following government agencies: Department of Defense, Department of the Air Force, Department of the Army, Department of Transportation, Department of Health and Human Services, Department of Energy, Department of Commerce, Department of Housing and Urban Development, and the General Services Administration. According to Recovery.gov, even the DOJ (i.e. the same government agency that prosecuted Siemens for a pattern of bribery the agency termed “unprecedented in scale and geographic scope”) awarded a Siemens business unit a contract funded with stimulus dollars. Because these are just government contracts awarded with stimulus money, they represent merely the tip of the iceberg.

Siemens is not alone.

In February, BAE settled "FCPA-like" charges. Since the enforcement action, the company has been inking contracts with U.S. government agencies left and right.

Last week it was a $10.7 million contract with the U.S. Army (see here). The week before it was a $5.5 million contract and a $10 million contract with U.S. government agencies (see here and here).

Numerous other FCPA violators could be listed as well.

Against this backdrop, Congressman Edolphus Towns (D-NY), Chairman of the House Committee on Oversight and Government Reform, is asking the right questions.

In a May 18th letter to Attorney General Eric Holder (see here) the Committee expresses its concern "that settlements of civil and criminal cases by DOJ are being used as a shield to foreclose other appropriate remedies, such as suspension and debarment, that protect the government from continuing to do business with contractors who do not have satisfactory records of quality performance and business ethics."

The letter specifically mentions Kellogg, Brown & Root (KBR), including its 2009 FCPA enforcement action (see here and here).

The letter notes that "remarkably, neither the criminal [FCPA] conviction" nor KBR's other legal woes "have precluded KBR from continuing to receive new government contracts."

The letter then correctly notes, as detailed above, that "KBR does not appear to be an isolated example of this inconsistent policy whereby DOJ pursues fines and criminal sanctions for illegal actions by government contractors, yet the negotiated resolution of these cases does not have any effect on the company's eligibility to continue to receive new contracts. In fact, an agreement by DOJ to intervene on the company's behalf in any collateral proceedings, such as suspension and debarment, is a staple of deferred prosecution agreements."

The letter continues:

"This type of clause, in which DOJ agrees to take the company's side in suspension and debarment proceedings, has become standard and continues to this day. In a settlement just last month in which Daimler paid $185 million to settle criminal and civil charges that it violated the Foreign Corrupt Practices Act, DOJ "agrees to cooperate with Daimler" "[w]ith respect to Daimler's present reliability and responsibility as a government contractor." (See here for the Deferred Prosecution Agreement - para 21).

The letter concludes by the Committee asking for answers to the following questions by May 28th.

1. Does DOJ consider resolution of charges to foreclose action by other government agencies to suspend or debar companies from contracting?

2. In view of the fact that suspension and debarment is not a penalty, but is an important means for government agencies to protect themselves from unscrupulous and poorly performing contractors, please provide a detailed explanation of whether the Justice Department believes it is in the government's best interest to continue to award contracts to those with a record of violations of law.

3. Does DOJ consult with federal government contracting authorities when entering into settlement agreements with companies that compete for government contracts?

4. Identify all instances in which DOJ officials intervened in a suspension and debarment proceeding on behalf of government contractors since 2005 and explain the basis for the DOJ intervention.

These are all the right questions to ask of the DOJ.

I've noted in numerous other posts (and elsewhere) that DOJ's deterrance message will not fully be heard until an FCPA violator is debarred from receiving lucrative government contracts.

For a copy of the Committee's news release (see here).

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