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Jeff Kaplan
Kaplan & Walker, LLP

Mr. Kaplan has worked in the compliance field since the early 1990's, developing, implementing, improving and assessing compliance programs for companies in nearly every major business area. In addition to his role as Chair of the Law & Business Ethics Advisory Board, he is a member of Kaplan & Walker, LLP, a law firm based in Princeton, NJ and Santa Monica, CA, and is an Adjunct Professor - Markets Ethics and Law at the Stern School of Business of New York University. He is also co-editor of Compliance Programs and the Corporate Sentencing Guidelines (West Pub.); co-publisher of ethikos magazine; and a frequent speaker on compliance and ethics issues at ECOA and SCCE, PLI, and the Conference Board.
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The Era of Mega Fines – Implications for Directors and Officers

by Jeff Kaplan, Feb 02, 2009

While the Corporate Sentencing Guidelines went into effect in 1991, it was not until 1996 that the real punitive potential of the law was realized – with the imposition of a $340 million criminal fine in a case against Daiwa Bank. Writing that same year in the Caremark decision, Delaware Chancellor William Allen noted how the Guidelines had created the prospect of “penalties that often equal or massively exceed those previously imposed on corporations” and that “[a]ny rational person attempting in good faith to meet an organizational governance responsibility would be bound to take into account this development” by reducing the risks of large fines through implementing compliance and ethics (C&E) programs.

In 1999 the penalty amount in the Daiwa Bank case was topped, when Hoffman LaRoche was fined $500 million in an antitrust prosecution. But, despite these two record-setting fines, for whatever reason, the government seemed generally hesitant for many years after that to seek fines that “massively exceed[ed]” prior corporate penalties.

That reluctance has now evidently vanished. Just in the past few months we have seen the following criminal fines.

  • Eli Lilly: $515 million – breaking the old record – in a case involving pharma marketing abuses. (This does not include other costs of about $900 million.)
  • Siemens: $450 million in an FCPA case (which does not include $350 million paid to the SEC, or the cost of the settlement of a parallel case in Germany).
  • LG: $400 million in an antitrust case.
  • Air France: $350 million in an antitrust case.

    • Also, according to recent press reports, Halliburton will apparently pay $382 million to the Justice Department and $177 million to the SEC in an FCPA case, and a new criminal fine record may be set in case against Pfizer, which recently announced that it has reserved $2.3 billion to settle a Justice Department investigation into marketing practices.

    Significantly for global companies, this phenomenon is not limited to the U.S. For instance, in November, the European Commission imposed a €896 million fine against glass maker St. Gobain in a competition law case – considerably larger than the costliest US antitrust fine.

    In other words, corporations are now deeper than ever in the danger zone that Chancellor Allen foresaw nearly thirteen years ago. Thus, “any rational” director or officer (including general counsels) should – to follow his warning in Caremark – take whatever steps are reasonably necessary to ensure that his or her company’s C&E program is up to the task of sufficiently mitigating the unprecedented peril posed by the mega fine.

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