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Cognizant case shows how corporates can avoid charges even amid wrongdoing

Prosecutors declined to charge the company, citing recent enforcement policies

Samuel Rubenfeld | WSJ 

Photo: Shutterstock

The case of Technology Solutions Corp. shows how a company can avoid criminal charges even if its C-Suite was involved in the alleged wrongdoing.

Two former executives—an ex-president and a former chief legal officer, who oversaw the company’s compliance program—were charged last week for allegedly approving illicit payments to help build a corporate campus in India.

Not facing criminal charges: itself. The Teaneck, N.J., company agreed to pay $25 million in disgorgement and civil penalties to settle its role in the case. The Justice Department said the company avoided criminal charges because it voluntarily disclosed the matter within two weeks of learning about it.

The company’s internal investigation, its cooperation, remediation and the presence and effectiveness of Cognizant’s pre-existing compliance program also played a role, prosecutors said in a letter to Cognizant’s lawyers. Cognizant also agreed to cooperate in the Justice Department’s ongoing investigations.

Attorneys for the two men say they will fight the charges.

ALSO READ: Explained: Cognizant bribed govt officials in India, to pay $25-mn penalty

The main US law against bribery of foreign officials, the Foreign Corrupt Practices Act, is enforced jointly by the Justice Department and the Securities and Exchange Commission. It prohibits the use of bribes by Americans, as well as foreign that list shares on American exchanges, to foreign officials to get or keep business.

The Justice Department brings criminal cases against violators, while the SEC imposes civil penalties. sometimes strike parallel settlements with both agencies. In the case of Cognizant, the company settled with the SEC without admitting or denying wrongdoing, and the Justice Department said it would close its case without criminally charging the company.

ALSO READ: Cognizant bribery case: CEO writes to employees against 'improper conduct'

The decision not to prosecute, the Justice Department said, was consistent with its corporate enforcement policy, a program in which embroiled in bribery cases receive a presumption of avoiding charges if they meet certain conditions, such as voluntary disclosure.

But experts were surprised by the result in the Historically, it has been difficult to charge C-Suite leaders with corporate-linked crimes, especially in foreign bribery cases, because the schemes typically don’t rise to their level or because there is often little evidence tying them to the wrongdoing, they say.

“The CEO isn’t [typically] sending emails,” said Kathleen Hamann, a partner at law firm Pierce Atwood LLP who prosecuted foreign bribery cases when working for the Justice Department.

Companies often enter into settlements and pay fines in foreign-bribery cases, while executives tend to avoid facing charges. Justice Department officials have tried to combat this by issuing guidance and directing prosecutors to target culpable individuals in corporate crime cases, but the charges typically stick to low- and mid-level employees.

The Cognizant case, however, involved senior management allegedly directing the bribery scheme at issue. And in cases in which executives do face charges, the company typically also enters into a criminal settlement.

It is possible that the offense at issue in the Cognizant case—an alleged $2 million bribe to secure permits for the Indian campus—was insufficiently pervasive to justify prosecuting the company, said Kristen Savelle, managing director of the Rock Center for Corporate Governance at Stanford University.

“The company’s strong compliance program, its prompt disclosures and its willingness to turn over information about high-level employees for criminal prosecution may have outweighed the existence of ‘aggravating’ factors in this case,” she said.

Not all companies will be able to avoid charges, according to Richard Bistrong, an who previously served prison time in a foreign bribery case.

“Multinationals are going to have to present a very robust argument to the regulators, backed by data, that even senior leaders can circumvent a strong compliance program, without it impacting the entire organization, [when arguing] for a declination or cooperation credit,” Mr. Bistrong said.

“From my experience and perspective,” he said, “that’s a much greater hill to climb.”

Source: The Wall Street Journal

First Published: Thu, February 21 2019. 08:50 IST