Given the tremendous fines imposed upon Siemens AG and Kellogg Brown & Root LLC (“KBR”) in the past 10 months, many have asked how the DOJ calculates criminal fines in FCPA cases and how statutory penalties and the United States Sentencing Guidelines (“U.S.S.G.”) interact in that calculation. We turned to Billy Jacobson, formerly at Justice and now Chief Compliance Officer at Weatherford, for an explanation:

“Despite two separate statutory schemes and the Sentencing Guidelines (all explained below), it is important to realize that the DOJ has tremendous discretion in this area and its decisions will, almost always, boil down to three relatively simple criteria, the first objective and the latter two subjective and dependant on the DOJ’s discretion and judgment: (1) how much the company profited from its corruption; (2) the extent of the company’s cooperation with the government’s investigation; and (3) the quality of the company’s remediation efforts.

The FCPA itself contains penalty provisions: violations of the anti-bribery provisions carry penalties of up to $2 million per violation and accounting provision violations carry fines of up to $25 million. Another statute, however, provides that the fines can be even higher. The Alternative Fines Act—as its name suggests—provides an alternative to most criminal fine thresholds and means that companies may be fined “the greater of twice the gross gain or twice the gross loss [to a person other than the company].” 18 U.S.C § 3571(d); see 18 U.S.C. § 3571(c)(2).

Despite these statutory limits, the Sentencing Guidelines and DOJ’s decision about how those guidelines should be applied usually dictate the fine a company will pay. This is true in cases of a corporate conviction (which usually occur in the context of a plea agreement) and also in cases of deferred prosecution agreements. Both the KBR and Siemens plea agreements provide helpful illustrations of how this works.

In KBR’s plea agreement, the DOJ and the company explained the Sentencing Guideline calculation to which they agreed. First, the parties agreed that “the value of the benefit KBR received in return for the unlawful payments” was $235 million. This amount was used as the “Base Fine.” In most FCPA cases, the Base Fine will be the profit earned as a result of the corrupt conduct. Next, under the theory that to be truly penalized a company must be forced to pay more than simply the amount if profited from the illicit conduct, a “culpability score” must be determined. That score leads to a multiplier that will be applied to the base fine to arrive at a final fine range. Several factors go into determining the culpability score, including the size of the company, whether high-level officials of the company were involved in the conduct and the extent of cooperation by the company. The KBR culpability score resulted in a multiplier range of 1.6 to 3.2. By doing math simple enough even for lawyers, the parties arrived at a fine range between $376.8 and $753.6 million. The final, agreed-upon criminal fine of $402 million fell squarely within this range. (KBR plea agreement)

In the Siemens case, however, DOJ agreed to a fine amount well below the Guidelines range which would have been between $1.35 and $2.7 billion. (The DOJ’s Sentencing Memorandum explains in detail how the parties arrived at the figure, in part, by walking step-by-step through the Sentencing Guidelines). Instead, the DOJ agreed to a $450 million fine. It’s hard to think of a $450 million fine as getting off lightly, but that is at least arguably what happened in this case. In its Sentencing Memorandum, the DOJ explained that it was agreeing to such a large departure from the sentencing range in recognition of several factors, including: Siemens’ assistance in investigations of itself, individuals and other organizations; its payments of penalties in other proceedings; its compliance and remediation efforts; and its “extraordinary rehabilitation.” The DOJ further explained that a downward departure from the Sentencing Guidelines range was warranted, under 18 U.S.C. § 3553(b)(1), because the “mitigating circumstances [were] ‘of a kind, or to a degree, not adequately taken into consideration by the United States Sentencing Commission.’” (Siemens’ sentencing memo)

The discussion above makes obvious that companies will be treated very differently by DOJ depending on their level of cooperation and remediation. While the DOJ has not to my knowledge specifically said this, it can be inferred that prosecutors felt Siemens’ cooperation and remediation was superior to that of KBR. Hence, Siemens was allowed to pay a fine well below the Guidelines range while KBR was not. As explained above, other factors were also at play, but they all lead to the inescapable conclusion that despite two clear statutory schemes and the very detailed Sentencing Guidelines, much in this area depends on the DOJ’s discretion and judgment.”