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DOJ declines prosecution under FCPA cooperation policy

Publication March 2019

On February 15, 2019, the US Department of Justice (DOJ) announced that it had declined to prosecute Cognizant Technology Solutions Corporation (Cognizant), a publicly-traded, multinational IT consulting firm based in New Jersey, for alleged violations of the Foreign Corrupt Practices Act (FCPA) stemming from work Cognizant performed in India. The DOJ resolved the matter without prosecution with Cognizant reportedly agreeing to pay US$25 million to settle alleged violations of the FCPA with the US Securities and Exchange Commission (SEC). Separately, two of Cognizant’s former executives – Cognizant’s president and chief legal officer – were charged in connection with the alleged FCPA violations, and the SEC filed a civil complaint seeking permanent injunctions, monetary penalties and an order barring the two executives from serving in the future as an officer or director. The DOJ’s declination was in part based on Cognizant’s quick and voluntary disclosure of the corrupt payments, from which the DOJ was able to identify culpable individuals. The decision declining prosecution marks the DOJ’s 12th published declination under its FCPA Corporate Enforcement Policy pursuant to which the DOJ has committed to extend significant cooperation credit, up to and including declinations, to companies that provide meaningful assistance to DOJ investigations.

The alleged bribery scheme 

The FCPA, jointly enforced by the DOJ and SEC, contains both anti-bribery and accounting provisions. In broad terms, the anti-bribery provisions prohibit US persons and businesses and certain US and foreign businesses from making corrupt payments to foreign officials to obtain or retain business. As a corollary, the accounting provisions require companies with securities listed on stock exchanges in the US to maintain books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls.

According to the DOJ, in 2011, Cognizant retained a construction company (Construction Company) to develop a work campus office park for Cognizant in Tamil Nadu, India. The contract provided that the Construction Company would obtain all necessary approvals and permits for the development project and contemplated that the Construction Company would seek reimbursement from Cognizant for any unforeseen cost overruns on the project through “variation claims” and “change order requests.” 

The Construction Company reportedly applied for the permits in February 2013 with the Indian government, but did not successfully obtain the permits in 2013. According to the DOJ, roughly 14 months later in April 2014, Cognizant executives learned that the Construction Company had received a US$2 million bribe demand from government officials in India related to the permit requests. The DOJ alleged that Cognizant’s executives directed the Construction Company to pay the bribe and agreed that Cognizant would reimburse the Construction Company for payment of the bribe through change order requests after completion of the development project. The DOJ further alleged that Cognizant’s executives withheld future payments of the Construction Company’s invoices and the prospect of future business as leverage to coerce the Construction Company to make the US$2 million bribe payment to secure the permits. The Construction Company reportedly acquiesced to Cognizant’s requests and made the bribe payment on behalf of Cognizant through a third-party consultant. 

According to the DOJ, by May 2014, Cognizant had approximately US$17 million in outstanding bills owed to the Construction Company. Reportedly, after learning that the Construction Company had hired a third-party consultant as an intermediary to facilitate the bribe payment, Cognizant executives allegedly authorized payment of US$7 million on the Construction Company’s outstanding invoices. In June 2014, Cognizant reportedly authorized another payment of US$5 million against Cognizant’s outstanding bills after it received a scanned copy of the government order authorizing the permits, while allegedly holding the remaining US$5 million payment until November 2014, when the government agency issued the permit to Cognizant. 

The DOJ alleged that the Construction Company later submitted approximately 45 change order requests to Cognizant, totaling approximately US$25 million, which included a claims list for approximately US$3.7 million for “approvals/campus regularization,” which in turn included an item for US$2.5 million for “statutory approvals – planning permit.” The DOJ alleged that Cognizant created a fake version of the claims list that replaced the “approvals/campus regularization” requests with 11 previously-rejected claims worth roughly the same US$3.7 million to disguise its reimbursement of the US$2 million bribe payment and associated expenses. The SEC alleged that Cognizant employees falsified internal books and records in connection with the bribery payments. Cognizant agreed to pay US$16.4 million in disgorgement, US$2.8 million in prejudgment interest and US$6 million in civil money penalties to the SEC. 

The declination 

Even though the alleged bribery scheme reportedly involved senior executives at Cognizant, the DOJ declined prosecution of this matter based on an assessment of the factors in the DOJ’s Corporate Enforcement Policy and Principles of Federal Prosecution of Business Organizations, including the following:

  1. Cognizant’s prompt and voluntary self-disclosure of the matter within two weeks of the Board of Director’s learning about the alleged misconduct; 
  2. Cognizant’s comprehensive internal investigation of the alleged misconduct; 
  3. Cognizant’s full cooperation in the DOJ’s investigation, including the disclosure of all known relevant facts, and Cognizant’s agreement to continue to cooperate in the DOJ’s ongoing investigations and potential prosecutions of individuals related to the matter; 
  4. The nature and seriousness of Cognizant’s alleged offense; 
  5. Cognizant’s lack of prior criminal history;
  6. The existence and effectiveness of Cognizant’s pre-existing compliance program, and steps Cognizant had taken to enhance its compliance program and internal accounting controls; 
  7. Cognizant’s full remediation, including the termination and discipline of employees and contractors involved in the alleged misconduct; 
  8. Cognizant’s involvement in other remedies, including its resolution with the SEC and agreement to pay civil penalties plus disgorgement; 
  9. Cognizant’s agreement to disgorge the full amount of its cost savings from the alleged bribery payment; and
  10. Cognizant’s timely disclosure permitting the DOJ to conduct an independent investigation and identify culpable individuals who allegedly participated in and directed the conduct at issue. 

Key takeaways

The DOJ’s declination provides valuable insight into the DOJ’s Corporate Enforcement Policy. Recall that under the DOJ’s Corporate Enforcement Policy, discussed in our previous briefing and commentary, a company that (1) voluntarily self-discloses, (2) fully cooperates, and (3) timely and appropriately remediates the misconduct is given a “presumption that the company will receive a declination absent aggravating circumstances.” Even though the DOJ found aggravating circumstances – top executives at Cognizant were allegedly involved directly in the bribery conduct – the DOJ nevertheless declined to prosecute Cognizant, which suggests that the presence of aggravating factors will not necessarily preclude companies from receiving a declination, particularly where civil enforcement remedies are determined to be adequate. Indeed, the DOJ expressly observed the adequacy of civil enforcement remedies obtained by the SEC in declining to prosecute Cognizant and credited the disgorgement amount Cognizant agreed to pay under the SEC’s resolution.

The DOJ’s declination is also notable in that it reinforces the DOJ’s commitment to the prosecution of culpable individuals. Though the DOJ declined to prosecute Cognizant for the alleged bribery scheme, the Grand Jury of the District of New Jersey indicted Cognizant’s executives on 12 counts, including conspiracy violations, FCPA violations, books and records violations and internal accounting controls violations. It is also noteworthy that one of the stated reasons the DOJ declined prosecution in the matter was due in part to the existence and effectiveness of Cognizant’s pre-existing compliance program, which seems counterintuitive given that the conduct occurred and went undetected with the program in place. Presumably, Cognizant was able to show that the alleged misconduct was not pervasive throughout the company in light of its strong compliance program. 

 

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