Companies Raise Inability-To-Pay Claims Amid Pandemic, Justice Department Official Says

Some companies have claimed they can’t pay a full criminal penalty amid the recession caused by the coronavirus, the official says. Companies Raise Inability-To-Pay Claims Amid Pandemic, Justice Department Official Says

Recent Justice Department guidance on how prosecutors should handle claims by companies that say they can’t pay a criminal penalty has taken on new relevance in light of the economic downturn caused by the coronavirus pandemic.

Some companies have claimed they can’t pay criminal penalties as a result of the recession caused by the coronavirus, Brian Rabbitt, the acting assistant attorney general in charge of the department’s criminal division, said Thursday during the WSJ Risk & Compliance Forum.

“We certainly have seen arguments raised, claims raised about ability to pay during the pandemic,” Mr. Rabbitt said during the virtual conference. “We’re approaching those like we would approach them during normal times.”

The criminal division, which investigates a range of business crimes, released guidance on such inability-to-pay claims in October 2019—well before the pandemic began. The document spells out the legal considerations prosecutors should bring to bear when evaluating such claims, including the business’s income, earning capacity and financial resources.

Prosecutors last month applied the guidance for the first time to a Foreign Corrupt Practices Act case involving Sargeant Marine Inc. The Florida asphalt company was given a discount of more than 80% off its criminal penalty.

Sargeant Marine ultimately agreed to pay $16.6 million to resolve charges that it paid millions of dollars in bribes to officials in Brazil, Venezuela and Ecuador. The company had earned more than twice that much—$38 million—in profits from its bribery schemes, prosecutors said.

The Justice Department will consider inability-to-pay claims even when a company’s misconduct is egregious, Mr. Rabbitt said.

Prosecutors must balance the harm caused by a company’s misconduct with the considerations outlined in the guidance, including the company’s anticipated future cash flows, its need for working capital and its anticipated uses of that capital, he said.

“When companies do come in, we take those claims seriously,” Mr. Rabbitt said. “But we verify them.”

The burden of proving that it can’t pay a fine rests with the company, according to the guidance. Vetting that claim could require the Justice Department to hire an independent forensic accounting expert to analyze a company’s financials, the guidance says.

While the department is willing to consider the financial woes faced by companies currently negotiating a settlement, it might be less sympathetic when investigating compliance failures that occur as a result of cuts made to a company’s compliance program.

“We recognize that tweaks and changes and adjustments will have to be made,” Mr. Rabbitt said. “The message that we would send to compliance professionals and to corporations is to make sure you’re thoughtful about how you do that. Make sure that any changes you make are risk-based.”

“When we’re looking back on all this in retrospect…we’re going to ask tough questions about why changes were made,” he added.

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