Corporate Criminal Liability

Kevin Feldis

Assistant United States Attorney

DOJ Resident Legal Advisor

U.S. Embassy, Jakarta

Respondeat Superior

• Latin for "let the master answer“

• Key doctrine in the law of agency, which provides that a principal (employer) is responsible for the actions of his/her/its agent (employee) in the course of employment.

New York Central & Hudson River Railroad v. United States

• U.S. Supreme Court adopted RespondeatSuperior – Corporate Criminal Liability (1909)

• Corporation can be convicted of a crime when one of its agents has committed a criminal act: (1) within the scope of his or her employment, and (2) for the intent to benefit of the corporation (no actual benefit necessary)

Corporate Criminal Liability

• Any Crime:

(a) committed by the corporation’s officers, employees, or agents;

(b) within the scope of their employment; and

(c) at least in part for the benefit of the corporation.

Corporate Criminal Liability

• Does not matter that company expressly directed its agent, employee, or officer NOT to engage in the conduct.

• However, prosecutorial discretion/DOJ Policy required prosecutors to evaluate a number of factors.

Supreme Court RegulationNo. 13 2016

• December 29, 2016 Indonesia Supreme Court issued Regulation No. 13 2106

• New procedures for handling criminal offense committed by corporations

• Clarifies how corporations may be prosecuted, convicted and penalized in Indonesian courts

• Does not expand current criminal law

Corporations = Persons

1. Under both U.S. and Indonesian law, Corporations are legal persons.

2. Corporation have generally the same rights and legal obligations (with some exceptions) as natural persons.

Purpose & Significance

1. Necessary to insure that corporations are not above the law. Corporations have great economic power and wealth and their activities must be regulated.

2. Necessary to protects the public, consumers, investors and other businesses from corporate misconduct.

3. Necessary to protect free capital markets.

Prosecutorial Discretion

1. http://www.justice.gov/opa/documents/corp-charging-guidelines.pdf

2. DOJ Guidelines Require MORE than respondeat superior

3. Avoid potential negative impacts of prosecuting companies while creating deterring bad conduct

4. Must be more than cost of doing business

Factors to Consider1. the nature and seriousness of the offense, including the risk of harm to the public, and applicable policies and priorities, if any, governing the prosecution of corporations for particular categories of crime;

2. the pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management

3. the corporation's history of similar misconduct, including prior criminal, civil, and regulatory enforcement actions against it;

4. the corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents;

5. the existence and effectiveness of the corporation's pre-existing compliance program;

6. the corporation's remedial actions, including any efforts to implement an effective corporate compliance program or to improve an existing one, to replace responsible management, to discipline or terminate wrongdoers, to pay restitution, and to cooperate with the relevant government agencies;

7. collateral consequences, including whether there is disproportionate harm to shareholders, pension holders, employees, and others not proven personally culpable, as well as impact on the public arising from the prosecution;

8. the adequacy of the prosecution of individuals responsible for the corporation's malfeasance; and

9. the adequacy of remedies such as civil or regulatory enforcement actions.

Corporate Legal Rights

• Right to Counsel

• Right to jury trial

• Protections against unreasonable search and seizure

• Double Jeopardy

• Other procedural rights

Results of Corporate Prosecution

Benefits:

– Significant penalties and forfeiture of criminally derived money

– Place restrictions on future conduct of corporation

– Deter similar conduct by other organizations

– Change Biz Culture of Criminality

– Prosecute company, even where you don’t have opportunity to prosecute individuals

Penalties

• Fines

• Restitution

• Compliance Plans

• Probation and Supervision

• Collateral consequences – loss of license, debarment from doing business with the United States Government, etc.

• Public Image/Stock Price

Defendant: Lumber Liquidators, Inc.

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• Largest specialty Hardwood Flooring Retailer in U.S.

• Traded on New York Stock Exchange

• More than $1B in revenue

Investigation

• DOJ received information from an NGO that

LL was bringing in timber products:– Illegally harvested in Russian Far East;

– Transported to China for manufacturing;

– Falsely declared upon import into the U.S.• The Russian Far East is

home to:• The last 450 wild Siberian

tigers (CITES-I) and 47 Amur leopards (CITES-I)

• Greatest threat to the cats’ survival is illegal logging

3/2/2017 17

Charges

• False declaration of harvest country (Counts 1 & 2): LL declared that Mongolian oak (Quercus mongolica) was harvested in Germany.– Germany provided information showing that no

commercial Mongolian oak was present in Germany

– Russia could have provided chain of custody documents showing that timber was harvested in or exported from Russia

– China could have provided import documents showing that timber was imported from Russia

3/2/2017 18

Charges

• False declaration of species (Count 3): LL declared Mongolian oak as Western European oak– Russia could have provided export documents showing species

and location of harvest– China could have provided import documents or phytosanitary

certificates showing species• Import of timber illegally logged in Russia (Count 4): More timber

was logged by a concession than legally allowed (~800%)– Russia could have provided documents showing the amount of

timber that was allocated to that concession upon export• Transport of illegal timber (Count 5): Merpauh from Myanmar

declared upon import as Mahogany from Indonesia– Myanmar could have provided documents showing export to

China– China could have provided documents showing import from

Myanmar

3/2/2017 19

3/2/2017 20

Examples

Outcome

• One felony violation, four misdemeanor violations– First felony conviction under Lacey Act

timber amendments– Provided due care guidance

• Largest Lacey Act criminal penalty ever– $7.8 million criminal fine– $1.2 million community service payments– $4.5 million in forfeiture

• Detailed factual statement• Environmental Compliance Plan

– Annual auditing and reporting to the court

• 5 years probation

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Restitution

• Under U.S. law, if the timber (or other wildlife or fisheries product) was illegal in the harvest country, and could have been seized by that harvest country, then a court can require the defendant to pay restitution for those products to the harvest country

– In this case, that could have been over $6,000,000 paid to Russia

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NOBLE DRILLING (U.S.) LLC

Operator & bare boat charterer of M/V NOBLE DISCOVERER and MODU KULLUK which Shell Oil intended to use for oil exploration in 2012 in the Beaufort Sea.

Globally, the Noble parent company operates a fleet of 35 drilling ships world wide.

According to their website, “Noble owns and operates one of the most modern, versatile and

technically advanced fleets in the offshore drilling industry. The Company focused largely on ultra-deepwater and high-specification jack-up drilling opportunities in both established and emerging regions worldwide.”

M/V NOBLE DISCOVERER

MODU KULLUK

265’ diameter mobile offshore drilling unit which was un-propelled

Investigation

572’ Liberian flagged mobile drill ship propelled by a single screw

Investigation

2/28/12: M/V NOBLE DISCOVERER sails from Tasman Sea to Dutch Harbor by way of Hawaii & Seattle. USCG/BSSE inspection activity occurs in Seattle.

7/12/12: EPA receives anonymous tip of pollution control equipment bypass

7/14/12: M/V NOBLE DISCOVERER “near” grounding

7/22/12: Oil spill in Dutch Harbor

M/V NOBLE DISCOVERER; engine backfires & excessive shaft vibration

12/31/12: MODU KULLUK runs aground

Whistleblower

Investigation

Propulsion failure casualty triggers CG inspection.

CG inspection in Seward; heavy oil in bilges.

Initial interviews of crew revealing “seawater” discharge from the bilge without utilizing pollution control equipment.

Review of Noble records revealed unreported oil transfers and discharges of oily waste into the ocean and other areas of the vessel.

Noble acknowledged installing a make shift bilge water dumping system bypassing the OWS for bilge water & intentional usage of the OWS while in Dutch Harbor.

Conducted 75+ comprehensive interviews providing evidence of poor pollution control practices and failure to report especially hazardous conditions.

Acquisition & review of nearly 900k documents

Summary of Charges

Conviction

Act to Prevent Pollution from Ships (5 counts) 33 U.S.C. §§ 1901 et seq

Non-indigenous Aquatic Nuisance Prevention & Control Act 16 U.S.C. §§ 4701-4728

Ports & Waterways Safety Act (2 counts) 33 U.S.C. §§ 1221, et seq.

Per plea $12.2 million in fines and community service payments, implement a comprehensive fleet-wide Environmental Compliance Plan, & 4 years of probation.

Charging Document

Plea Agreement – Fine and CSP

Compliance Plan

Compliance Plan

United States v. Herm. Dauelsberg

Whistleblower

Whistleblower

Indictment

Conviction

Herm. Dauelsberg on probation out of CDCA; agrees to probation violation

Herm. Dauelsberg pleads to APPS violation

$600,000 fine

$150,000 community service payment

3-year term of probation with Environmental Compliance Plan

United States v. AML Ship Management and Nicolas Sassin

Whistleblower Note, Pictures, and Video

Sounding Log Entries

Sounding Log Entry on 29 Aug 14 showing 35.6 m3

Sounding Log Entry on 30 Aug 14 showing 18.8 m3

Indictment

Corporate Conviction

District of Oregon and District of Alaska charged AML Ship Management with APPS violation and CWA violation, respectively

$675,000 fine

$125,000 community service payment

3 years’ probation with Environmental Compliance Plan

CE Conviction

District of Oregon and District of Alaska charged Chief Engineer with APPS violation and CWA violation, respectively

5 years’ probation with home detention of 5 months

Mining Pollution Prosecution

XS Platinum, Inc.

Delaware Corporation (shell only)

Parent Company off-shore in Seychelles

Corporate Officer

Chart of Electronic Files

Contact Information:

Kevin Feldis

FeldisKR@state.gov