Gregory A. Brower is Chief Global Compliance Officer for Wynn Resorts. He also serves on WLF Legal Policy Advisory Board and is the WLF Legal Pulse’s Featured Expert Contributor, White Collar Crime and Corporate Compliance.
Over the past few years, U.S. companies with operations abroad have increasingly focused on mitigating potential risk under the Foreign Corruption Practices Act (“FCPA”), and with very good reason. FCPA enforcement has been a focus for both the DOJ and the SEC in recent years, with 2020 seeing 32 combined cases, and a record $2.7 billion in corporate fines and penalties. While FCPA risk mitigation should continue to be a priority for U.S. companies operating overseas, an ongoing domestic bribery prosecution in Ohio serves as a reminder that corruption risk is not limited to foreign business activity.
Back in July of 2020, a federal grand jury indicted the then-Speaker of the Ohio House of Representatives on federal racketeering conspiracy charges involving an eye-popping $60 million in allegedly corrupt payments. The alleged scheme centered around a controversial piece of legislation known as House Bill 6 which was introduced in the Ohio House in April of 2019 and would have benefited certain subsidiaries of FirstEnergy Corp., a large electric utility. A few months later, both chambers passed the bill by narrow margins and the governor signed into law. Almost immediately, opponents of the new law initiated an effort to put a referendum on the ballot to allow voters to stop it from taking effect, claiming it was a corporate bailout that would harm consumers. The referendum effort ultimately did not obtain the number of signatures required under Ohio law and failed to make it on to the ballot.
Now, FirstEnergy has acknowledged its role in the scheme. According to a deferred prosecution agreement (“DPA”) between DOJ and FirstEnergy announced July 22, House Bill 6 wasn’t enacted simply because a majority of legislators in each house believed it was good public policy. Instead, the DPA’s statement of facts reveals that FirstEnergy, through its officers, employees, and other agents, conspired to pay millions of dollars for the benefit of certain public officials, including “Public Official A,” otherwise described in the DPA’s statement of facts as the former Speaker of the Ohio House, in exchange for ensuring passage of the bill. According to the statement of facts, these payments were facilitated by the creation of a bogus 504(c)(4) which allowed FirstEnergy executives and their co-conspirators to conceal the scheme.
While the case against the former Speaker and several other alleged co-conspirators continues, last week’s DPA resolves the matter for FirstEnergy, at least for now. According to the agreement, DOJ will file an information charging FirstEnergy with one count of conspiracy to commit honest services wire fraud, and then dismiss the information after three years if FirstEnergy meets certain conditions. These conditions include payment of a monetary penalty of $230,000,000, forfeiture of approximately $6,000,000, FirstEnergy’s cooperation in the ongoing investigation, and implementation of certain corporate reforms including: (a) establishing an Executive Director position for the board of directors; (b) separating the Chief Legal Officer (“CLO”) and Chief Ethics and Compliance Officer (“CECO”) functions, and hiring both a new CLO and a new CECO who reports directly to the board’s audit committee; (c) creating a Compliance Oversight Subcommittee of the audit committee; (d) reviewing and revising political activity and lobbying/consulting policies and disclosures; and (e) working to establish a culture of ethics, integrity, and accountability at every level of the organization.
While public corruption schemes approaching this scale are exceedingly rare in the U.S., virtually all companies that operate in the U.S. are at some risk of exposure to such domestic public corruption. Companies that engage in lobbying at the local, state, or federal levels, or are required to have permits or licenses in order to operate are theoretically at risk. Although the FirstEnergy case includes evidence that company executives actually participated in the corrupt activity, FCPA enforcement history tells us that it is typically third-party agents—consultants, lobbyists, lawyers—that engage in such illegal conduct on behalf of their company client. And, as we also know from the FCPA context, such third-party illegality can create significant liability for the company even when the illegal conduct is not directed by or even known to the company.
In light of this reality, any company that has interaction with government officials should ensure that programs, policies, and training are appropriately focused on both domestic and foreign corruption risks as may be appropriate given the company’s business model and footprint. Corporate anti-corruption policies should address more than just the FCPA, and contracts with third-parties who could create such risks should include robust anti-corruption provisions. Finally, while it is generally legal for companies to make political and charitable contributions, appropriate scrutiny should be applied to both.