Department of Justice Puts Clawbacks Pilot Program Into Practice in Reduced Penalty Amount
For the first time, the Department of Justice (DOJ) has announced a fine reduction based on implementation of its March 2023 Pilot Program Regarding Compensation Incentives and Clawbacks (Pilot Program).
As previously covered in Enforcement Edge in March of this year, Assistant Attorney General Kenneth A. Polite unveiled details about DOJ’s first-ever pilot program related to corporate compensation incentives and clawbacks. The Pilot Program, which is a three-year initiative, aims to prevent crime by encouraging companies to incentivize compliance and voluntarily penalize culpable conduct by executives and other employees through clawbacks of bonuses and other compensation benefits.
As announced in March, the Pilot Program has two components:
- Corporate resolutions involving the Criminal Division will require the corporation to develop a compensation and bonus system tied to compliance-promoting criteria.
- The Criminal Division will consider the reduction of fines when companies seek to recoup compensation from corporate wrongdoers. In particular, when certain conditions are met, corporations will be required to pay the applicable fine at the beginning of a criminal resolution minus a credit equal to the amount of compensation the company is attempting to claw-back from culpable employees. If the company successfully claws back the money, the company gets to keep it. If it is unsuccessful, it remains eligible for a fine reduction of up to 25% of the money the company tried to retrieve.
Now, DOJ is putting the Pilot Program into practice. On September 29, the DOJ and the U.S. Securities and Exchange Commission (SEC) announced a settlement agreement for over US$218 million reached with Albemarle Corporation (Albemarle), a publicly-traded global specialty chemicals company. The settlement resolves parallel Foreign Corrupt Practices Act (FCPA) investigations by DOJ and the SEC. The government charged that Albemarle, through its agents and subsidiary employees, paid bribes to government officials connected to state-owned oil refineries in Vietnam, India, and Indonesia from at least 2009 through 2017. The government alleged that Albemarle’s conduct resulted in profits of approximately US$98.5 million.
Upon reaching a resolution with the government, Albemarle entered into a three-year non-prosecution agreement with DOJ and agreed to pay a US$98.2 million criminal fine and an administrative forfeiture of approximately US$98.5 million, of which US$81.8 million will be satisfied by the company’s payment of disgorgement to the SEC.
Here’s where the Pilot Program comes in: DOJ’s criminal penalty against Albemarle reflected a reduction in the settlement amount by $763,453 due to bonuses the company withheld from qualifying employees, pursuant to the Pilot Program. DOJ also credited the voluntary disclosures Albemarle made regarding the bribery scheme, its cooperation with the government’s investigation, and the remedial and disciplinary actions taken by the company, including terminating culpable employees.
Commenting on the settlement, Acting Assistant Attorney General Nicole M. Argentieri of the Criminal Division noted: “Today’s resolution also demonstrates the real benefits that companies can receive if they self-disclose misconduct, substantially cooperate, and extensively remediate.”
Although the clawbacks component of the Pilot Program remains voluntary, the fine reduction in connection with the Albemarle settlement may encourage other companies to make prompt disclosures to relevant government agencies, cooperate with government investigations, and take proactive remedial action, including clawing back compensation from culpable employees, where appropriate.
For questions on these or any other subject, please reach out to the authors or any of their colleagues in Arnold & Porter’s White Collar Defense & Investigations practice group.
© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.