This article was reprinted with permission
from FCPA Professor
In December 2012, the DOJ announced here as
"Standard Chartered Bank, a financial institution
headquartered in London, has agreed to forfeit $227 million to the Justice
Department for conspiring to violate the International Emergency Economic
Powers Act (IEEPA). The bank has agreed to the forfeiture as part of a
deferred prosecution agreement with the Justice Department and a deferred
prosecution agreement with the New York County District Attorney's Office for
violating New York state laws by illegally moving millions of dollars through
the U.S. financial system on behalf of sanctioned Iranian, Sudanese, Libyan and
Burmese entities. The bank has also entered into settlement agreements
with the Treasury Department's Office of Foreign Assets Control (OFAC) and the
Board of Governors of the Federal Reserve System."
As indicated in the above release,
Standard Chartered agreed to resolve its potential exposure via a deferred
Like DPAs in the Foreign Corrupt Practices
Act context, the Standard Chartered DPA required the company to accept
responsiblity for the conduct set forth in the agreement.
Like DPAs in the FCPA context, the Standard
Chartered DPA contained a "public statements" clause under which the company
was prohibited, directly or indirectly through others (such as attorneys,
consultants, etc.), from making "any public statements contradicting the
acceptance of responsibility." If the company, directly or indirectly,
made such public statements, it would constitute, subject to cure rights, "a
willful and material breach" of the DPA thereby subjecting the company to
criminal prosecution. A further provision in the "public
statements" clause was that the determination of whether a public
statement contradicts acceptance of responsibility "shall be in the sole
discretion" of the DOJ. A further provision in the clause was that the
company shall not issue a press release or hold a press conference
concerning the facts at issue in the DPA without first consulting with the
DOJ "to determine (a) whether the text of the release or proposed statements at
the press conference are true and accurate with respect to matters between the
United States and [the company]; and (b) whether the United States has no
objection to the release."
Portions of the Standard Chartered "public
statements" clause were recently triggered. (See here
from the Wall Street Journal and here
from the U.K. Guardian).
In short, during a recent earnings conference call with
investors, Standard Chartered Chairman John Peace was asked a
question "concerning individual employee conduct and compensation"
following the DPA. Peace responded, when asked about bonuses for
executives, as follows. "We had no wilful act to avoid sanctions; you
know, mistakes are made - clerical errors - and we talked about last year a
number of transactions which clearly were clerical errors or mistakes that were
According to the Wall Street Journal article, prosecutors
"pounced when they heard Mr. Peace's comments" and demanded a copy of the
conference call transcript. According to the article, "Mr. Peace and
other top executives were [soon] in Washington to [apologize] before
a room full of top prosecutors at the U.S. Justice Department, which has
threatened to bring criminal charges if Mr. Peace didn't recant."
According to the article, "Standard Chartered officials and the U.S.
prosecutors spent more than a week negotiating possible wording of the bank's
On March 21st, Mr. Peace, through the
company, issued this
statement which read as follows.
"I, together with Chief Executive Officer Peter Sands and
Group Finance Director Richard Meddings, representing Standard Chartered Bank
(the "Group"), held a press conference where certain questions were asked
concerning individual employee conduct and compensation in light of the
deferred prosecution agreements made with the US Department of Justice and the
New York County District Attorney's Office in December 2012. During that
press conference, which took place via phone, I made certain statements that I
very much regret and that were at best inaccurate.
In particular, I made the following statements in
reference to a question regarding the reduction of bonuses for [company]
executives: We had no willful act to avoid sanctions; you know, mistakes
are made - clerical errors - and we talked about last year a number of transactions
which clearly were clerical errors or mistakes that were made...
My statement that [the company] "had no willful
act to avoid sanctions" was wrong, and directly contradicts [the
company's] acceptance of responsibility in the deferred prosecution agreement
and accompanying factual statement.
Standard Chartered Bank, together with me, Mr. Peter
Sands and Mr. Richard Meddings, who jointly hosted the press conference,
retract the comment I made as both legally and factually incorrect. To be
clear, Standard Chartered Bank unequivocally acknowledges and accepts
responsibility, on behalf of the Bank and its employees, for past knowing and
willful criminal conduct in violating US economic sanctions laws and
regulations, and related New York criminal laws, as set out in the deferred
prosecution agreement. I, Mr. Sands, Mr. Meddings, and Standard Chartered
Bank apologize for the statements I made to the contrary."
I've written before about what I will call the "muzzle"
clause in FCPA DPAs.
In response to an FCPA commentator who believed that
NPAs and DPAs have never been used to resolve cases that do not actually
represent provable FCPA violations - because the
commentator had never heard any complaint "from any
practitioners, on or off the record, in public or in private" of this being the
case - I noted that there was a simple explanation for this. I then
proceeded to analyze a "muzzle" clause in an FCPA DPA. See here for the prior post.
Greater scrutiny is needed of "muzzle" clauses.
First, the DOJ can use its leverage and its
ability to bring criminal charges against a company. Second, the DOJ will
can then use an NPA or DPA to insulate its version of the facts and
enforcement theories from judicial scrutiny which the risk averse company
will more often that not accept. Third, in the resolution agreement,
the DOJ can include a "muzzle" clause prohibiting anyone associated with
the company from making any statement inconsistent with the DOJ's version of
the facts or its enforcement theories. Fourth, if the DOJ believes, in
its sole discretion, that a public statement has been made contradicting
its version of the facts or its enforcement theories, the DOJ can "pounce"
and threaten to bring criminal charges.
Is this an effective system of justice?
Is this consistent with the rule of law (recognizing that
one accepted factor in analyzing the rule of law is distribution of
authority in a manner that ensures that no single organ of government has the
practical ability to exercise unchecked power)?
Professor Ellen Podgor has rightfully asked on
the her White Collar Crime Prof Blog (see here)
whether the government can include such clauses in resolution
agreements without infringing on First Amendment rights.
Reacting to the August 2012 DOJ enfocement action
against Gibson Guitar resolved with a DPA (with a "muzzle" clause), Harvey
Silverglate(author of "Three Felonies a Day: How the Feds Target the Innocent")
wrote in this Wall
Street Journal opinion piece as follows.
"Put another way, Gibson is now forbidden to tell the
world the whole truth about its conduct and its reasons for settling a case it
previously claimed publicly, including in an opinion piece in [the Wall Street
Journal], involved no criminal conduct on its part. In exchange for agreeing to
read the government's script, Gibson regained its ability to conduct business
without a federal sword of Damocles dangling over its corporate head.
This naked effort by federal prosecutors to control both news and outcomes, not
to mention their own reputations, does not surprise those familiar with the
modern federal criminal justice system."
As noted in this previous
post, when the U.K. Serious Fraud office attempted to insert a "muzzle" clause
in its Innospec resolution documents, it received a lashing from Lord Justice
Thomas who stated as follows. "It would be inconceivable for a prosecutor
to approve a press statement to be made by a person convicted of burglary or
rape; companies who are guilty of corruption should be treated no differently
to others who commit serious crimes."
Whether in the FCPA context or otherwise, "muzzle"
clauses are in need of greater scrutiny.
Read more articles on the FCPA by Mike
Koehler at FCPA Professor.
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