It might just be time to let the skeletons out of the closet.
Fashion and retail’s top companies are often hard-charging profit machines with thousands of employees negotiating partnerships, signing deals and trying to extend their influence across markets in several time zones. When someone pushes too hard — or outright cheats — the corporate impulse once might have been to just try to make it all go away.
But a golden age for cooperating with the feds is dawning and the calculus of coming clean is changing.
Nike Inc. shined a light on the new dynamic last month, noting that it’s been working with the government’s investigation into recruitment in college basketball for more than a year. Since 2017, the Justice Department has actively encouraged companies to come forward, spelling out more clearly what they want from companies during investigations, and what they might get in return.
The DOJ now more readily rewards companies that name at least some bad actors within their ranks, respond to questions, and show effort to course-correct, according to former prosecutors. Being amenable can translate to lower penalties for companies and settlements that don’t require pleading guilty to criminal charges. In some cases, prosecutors will drop their investigation altogether.
“I think that the last couple of years have clarified the DOJ’s policies, and have made increasingly clear that the department is interested in self-reporting, full cooperation and remediation,” said Christopher Casey, a partner at Duane Morris LLP and a former deputy associate attorney general in the Obama administration. “And that the companies who do that will be rewarded.”
While fashion companies and retailers spend most of their time worried about consumers or competitors, they also sometimes find their push to grab market share left them on the wrong side of the law. For seven years, Walmart Inc. has been entangled in a government investigation over reported bribes to officials in Mexico to speed along building permits for new stores. In 2014, Avon Products Inc. and its Chinese subsidiary agreed to pay $135 million in fines for hiding more than $8 million in gifts to Chinese officials to grease its operations there.
After Avenatti’s arrest last month, the sportswear company said it has been cooperating with the government’s college basketball investigation. Since at least 2015, federal prosecutors in Manhattan have worked with the FBI to investigate bribes paid by sportswear executives and coaches to families of high-school basketball standouts. The investigation led to the conviction in the fall of an Adidas marketing executive and two others who schemed to nudge promising athletes to schools with Adidas sponsorships.
By the time Avenatti, best known as Stormy Daniels’ lawyer and an antagonist of President Trump, allegedly approached Nike asking for a job or more than $20 million in exchange for his silence regarding a similar scheme involving Nike, the company was already talking to the feds.
“Nike has been cooperating with the government’s investigation into NCAA basketball for over a year,” a Nike spokesman said in March. “When Nike became aware of this matter, Nike immediately reported it to federal prosecutors.”
Nike’s statement doesn’t necessarily mean Avenatti’s allegations about its employees are true or even that the government is specifically investigating Nike in this case, only that it’s cooperating.
But this type of cooperation would give the company leverage in any potential settlement negotiations.
The Justice Department’s approach in the area has been evolving, but one thing is clear — the feds want companies to come clean.
In November, deputy attorney general Rod Rosenstein described the policy shift during a white-collar conference in Maryland. He said the feds would still pursue individuals in corporate criminal investigations, as emphasized in a 2015 policy by his predecessor Sally Yates. But it wouldn’t require companies to name every bad actor in a case, just the ones who were “substantially involved.”
This makes it easier for companies to get credit for cooperating, former prosecutors said.
“[The Yates memo] placed a more specific responsibility on the company to demonstrate its cooperation with the government by turning over all the information that it had regarding its employees’ misconduct,” said Sara Lord, a partner at Arnall Golden Gregory LLP and a former assistant U.S. Attorney in the Northern District of New York.
“The deputy attorney general’s remarks say, you do need to look into whether there are individuals who have to be held accountable, but you don’t have to look into whether a company has identified every single person whose hands might have touched something,” she said.
The Justice Department’s unusually transparent foreign bribery unit has paved the way for this cultural shift. The bribery unit publicly announces its pursuits, even when it declines to prosecute a case or negotiates a deferred prosecution agreement, which carries far milder consequences than a guilty plea in court.
The Foreign Corrupt Practices Act unit, which investigates foreign bribery, took it even further in 2017 by spelling out clearer rewards for companies that come forward on their own. Companies that take initiative can avoid prosecution or, if fined, ask the court to slash up to half the penalties.
This sort of leniency, particularly around deferred prosecution agreements, has been controversial among watchdogs and even some courts, who have decried them as a slap on the wrist for even potentially serious offenses. A large number of government investigations are never made public.
“There is a burgeoning literature on DPAs — whether they are too ‘soft’ on corporate offenders, fail to induce sufficient reporting and raise separation of powers concerns,” said Miriam Baer, a professor at Brooklyn Law School and a former assistant U.S. Attorney in the U.S. Attorney’s office in Manhattan.
Nonetheless, the FCPA unit’s approach has led the way for negotiating leniency and cooperation throughout other parts of the justice department, even the U.S. Attorney’s offices.
“If you were defending a company outside of an FCPA case, and if you self-disclose, you provide all the information and do everything you think you’re supposed to do, you’d then say, ‘Given all our cooperation, we ask that you decline the case,’” said Stephen Stigall, a partner at Ballard Spahr LLP and a former Assistant U.S. Attorney in New Jersey.
“Even if that’s not set out in the broader policy for the DOJ, most defense attorneys would make that ask, and prosecutors would listen,” he said.