United States: DOJ Fraud Section Offers Super Credit In FCPA Pilot Program

This week, the Fraud Section of the Department of Justice (DOJ) announced a pilot program that extends additional "mitigation credit" to qualifying companies that "fully cooperate" in matters involving the Foreign Corrupt Practices Act (FCPA). Under the new program, companies that self-disclose and satisfy the DOJ's expectations for cooperation and remediation can obtain up to a 50 percent reduction off the low end of the potential fine range that would otherwise be applicable to the violation. The program furthers the DOJ's ongoing campaign to both (i) encourage companies to self-disclose FCPA violations, cooperate fully, and improve their compliance programs; and (ii) identify and target for prosecution all individuals – including corporate directors and high-level officers – who are implicated in the misconduct.

The new year-long program and guidance (Guidance) are intended to bolster the DOJ's aggressive enforcement of the FCPA and provide a more transparent framework with explicit mandates for the additional credit. Additional credit for a business organization can result in a significant fine reduction, proceeding without a post-resolution compliance monitor, and the DOJ's consideration of a declination to prosecute. Timely and voluntary self-disclosure is expected. Full cooperation, encompassing an expanded list of DOJ must-dos, also is a critical component of the program. Full credit requires satisfaction of all aspects of full cooperation. Companies unwilling to report to the DOJ all relevant facts, including the involvement of all company officers, employees, and agents in the misconduct, will be ineligible.

To qualify, the company must voluntarily and timely:

  • Self-disclose an FCPA violation
  • Fully cooperate, including disclosing all relevant facts and identifying all individual corporate wrongdoers
  • Remediate appropriately

All profits arising from the FCPA violation must be disgorged as well. The additional credit extends beyond the largest fine reduction that the Sentencing Guidelines currently offer, and the Guidance sets out specific standards and criteria for companies to earn the credit.

DOJ's Reaffirmation of Aggressive Prosecution of FCPA Offenses — and Especially Individual Corporate Insiders

The Guidance is the most recent component of a multi-part initiative to reaffirm the DOJ's commitment to prosecute FCPA violations aggressively, employ more investigative tools to identify individual wrongdoers — up and down the corporate ladder — and hold individuals accountable through criminal prosecution and imprisonment following conviction. The program is intended to promote greater accountability for both companies and individuals for corporate wrongdoing, deterrence, appropriate remediation through effective compliance programs, and prosecution of individual wrongdoers who otherwise might have eluded law enforcement. The seriousness with which the DOJ takes bribery of foreign officials is underscored by its announcement that it added 10 more prosecutors to the FCPA unit — a 50 percent increase — and that the FBI has added three new agent squads dedicated to FCPA investigations and prosecutions. The DOJ also recently hired a compliance attorney, responsible for reviewing and approving all cooperating companies' compliance programs and their adherence to them. The DOJ Guidance also highlights ongoing enhanced coordination with foreign counterparts and international cooperation as generating successful FCPA prosecutions involving large companies operating around the world. With increased resources and enhanced international cooperation, the pilot program constitutes another component of the DOJ's enhanced FCPA enforcement initiative. (Read Foley's earlier Alert discussing the initiative.)

The pilot program supplements, but does not supersede, existing authority for corporation credit. DOJ prosecutors are still directed first to apply the Principles of Federal Prosecution of Business Organizations (the Filip Memo) in determining how criminal investigations of companies are resolved. Analysis of the Sentencing Guidelines' factors for credit and reduced fines still applies to companies that voluntarily disclose criminal conduct, cooperate, and accept responsibility. The objectives of holding culpable individuals accountable for their roles in corporate misconduct, as set forth in the 2015 Yates Memo (by Deputy Attorney General Sally Yates), are reinforced in the Guidance. Under the Yates Memo, companies are required to identify individual corporate wrongdoers as part of the full disclosure of relevant facts to the DOJ to qualify for cooperation credit. The Guidance emphasizes that disclosure requirement and expressly embraces its pursuit of individual prosecutions. Under the program, companies are encouraged "to disclose FCPA misconduct to permit the prosecution of individuals whose criminal wrongdoing might otherwise never be uncovered or disclosed to law enforcement."

Companies seeking additional "mitigation credit" must satisfy the detailed and multi-part requirements set forth in the Guidance. While the standards are familiar, the specific descriptions of each mandate make clear the breadth and depth of the required corporate undertaking. Whether a company satisfies the criteria for the additional credit is left to the DOJ's own assessment — and discretion. In encouraging companies' voluntary disclosure, DOJ Fraud Section Chief Andrew Weissmann referred to the general advantages offered for companies that timely self-report, asserting that the pilot program "draws a clear distinction between credit that [companies] can be eligible for [with] voluntary self-disclosure as opposed to companies that may decide to wait to see if they get caught, and then cooperate."

DOJ's FCPA Pilot Program Requirements for Companies to Earn Additional "Mitigation Credit":

1. Voluntary Self-Disclosure

  • Must occur "prior to an imminent threat of disclosure or government investigation"
  • Must be made "within a reasonably prompt time after becoming aware of the offenses"
  • Must disclose all known relevant facts, including those about the individuals involved

2. Full Cooperation

  • Timely disclose all relevant facts, "including all facts related to involvement in the criminal activity by the corporation's officers, employees, or agents"
  • Cooperate proactively — must disclose relevant facts even when not asked and must identify opportunities for the government to obtain relevant evidence that the company does not possess and is "not otherwise known to the government"
  • Preserve, collect, and disclose relevant documents and information about their source
  • Provide timely updates of internal investigation
  • "De-conflict" in internal investigation when the DOJ requests1
  • Identify all implicated "third-party companies (including their officers and employees) and third-party individuals"
  • Make available for DOJ interviews, upon request, current and former company officers and employees, including, where appropriate and possible, those living abroad (subject to Fifth Amendment rights)
  • Disclose all learned relevant facts, including attribution to specific sources, subject to attorney-client privilege
  • Disclose documents abroad and related information, except where the company can establish it would be impossible under foreign law
  • Facilitate third-party production of documents and witnesses from abroad, subject to foreign law prohibitions
  • Provide English translations of relevant documents (where requested and appropriate)

3. Timely and Appropriate Remediation

  • Implement appropriate and timely remediation (subject to standards established by Fraud Section's compliance counsel)
  • Implement effective compliance and ethics program for circumstances of the particular organization, to be scrutinized by the DOJ's FCPA compliance counsel

    • Considered criteria (tailored to circumstances of organization):

      • Culture of compliance, including intolerance for any criminal conduct
      • Sufficient resources for compliance
      • Sophistication and experience of compliance personnel to identify potential risks
      • Independence of compliance
      • Evaluation of tailored program based on effective risk assessment
      • Comparative compensation and promotion of compliance personnel
      • Auditing of compliance program
      • Reporting structure for compliance program
    • Appropriate employee discipline system to cover individual wrongdoers and supervisors
    • Additional measures to account for seriousness of identified misconduct, accept responsibility, and reduce risk of repeated misconduct

Awarding Limited and Full Credit Under the Pilot Program

Limited Credit

In the absence of voluntary disclosure of FCPA misconduct, a company may still receive limited credit under the pilot program if it has satisfied the other requirements. Nonetheless, the DOJ places a premium on timely voluntary self-disclosure. As a result, a company that later cooperates fully and implements timely and appropriate remediation may be eligible for a maximum reduction of 25 percent from the lowest level of the fine range in the Sentencing Guidelines. (Without cooperation, however, a company cannot expect to receive such credit for satisfying remediation requirements.)

Full Credit

A company that has satisfied all the requirements for self-disclosure, full cooperation, and remediation is eligible for the maximum mitigation credit:

  • Up to a 50 percent reduction from the lowest level of the Sentencing Guidelines fine range, if the government seeks a fine
  • Proceeding without a monitor if an effective compliance program is in place
  • Eligibility for consideration of a declination of prosecution (subject to countervailing considerations)

TAKEAWAYS

First, the FCPA pilot program reaffirms the DOJ's commitment to aggressively prosecuting FCPA violations. With its announcement of a 50 percent increase in FCPA prosecutors, an FBI task force dedicated to investigating foreign bribery, a dedicated attorney critiquing all compliance efforts, and ongoing international cooperation, the DOJ continues to pursue FCPA enforcement in new and comprehensive ways. A clear and unmistakable objective is prosecuting corporate individuals whom the DOJ determines are personally accountable for corporate FCPA misconduct. The guidance supplements the Filip Memo and extends the principles in the Yates Memo for corporate cooperation. The DOJ's offer of "mitigation credit" will not be contemplated unless a company fully discloses all relevant facts and wrongdoing, and identifies all corporate executives and other individual wrongdoers — with specific evidence attributable to those individuals, subject to the protection of the attorney-client privilege. Corporate executives and boards of directors would be wise to act now: take a fresh hard look at their FCPA and ethics compliance programs in light of the new Guidance, evaluate the structure of the compliance function, reassess the company's FCPA risks, and test the overall effectiveness of their programs. Doing so, and implementing modifications tailored to the specific circumstances, may be among the most cost-effective measures that responsibly can be taken to protect the company and its directors, officers, managers, employees, and agents from criminal prosecution and the long-lasting and ugly consequences of prosecution.

Second, the DOJ's efforts to reward cooperators are laudable, but do not replace meaningful and deep-dive internal investigations. Only by lifting the hood and examining whether a crime occurred, who was responsible, and what should be done in remediation can companies truly and proactively comply with the FCPA and other statutes. The DOJ's encouragement to law-abiding companies notwithstanding, the agency's view of the world is often that mistakes are based on ill intent rather than oversight. With the DOJ's imposing more and more oversight requirements, it is increasingly important that companies and their counsel investigate allegations fully before contacting the DOJ, which remains an adversary.

Footnote

1. The "de-conflicting" requirement raises a particularly troubling development, as the DOJ apparently is reserving the right to insert itself into — and veto — company counsel's determinations regarding potential conflicts. This example constitutes another attempt by the DOJ to intervene in potentially privileged investigation work and heightens the compliance challenges for many companies, including those that act in good faith to implement effective programs and instill a culture of compliance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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