On April 5, the U.S. Department of Justice ("DOJ")
announced a one-year "FCPA Enforcement Pilot Program" to
encourage voluntary self-disclosure, cooperation, and remediation
(the "Pilot Program").1 This effort is
designed to boost enforcement by further incentivizing companies to
voluntarily self-disclose foreign corruption-related misconduct
that might otherwise go undetected by law enforcement, fully
cooperate with DOJ, remediate flaws in their compliance programs,
and disgorge all profits from the improper conduct. In exchange for
self-disclosure, DOJ offers the possibility of a declination of
prosecution, up to a 50 percent reduction in criminal fines, and
the avoidance of an appointed compliance monitor. Consistent with
the Deputy Attorney General's September 9, 2015 memorandum (the
"Yates Memo"), the Pilot Program requires disclosure of
all relevant facts regarding individuals involved in the
misconduct, including the company's former and current
officers, employees, and agents.2
The concept of a reduced fine or even a declination in return for
self-disclosure, cooperation, and remediation is not new. However,
the Pilot Program attempts to provide a more detailed framework for
describing the potential amount of fine reduction, which could be
useful for companies evaluating whether to self-disclose. The
additional DOJ guidance should generally help companies more
effectively analyze whether or not to disclose potential
violations, but companies will still face uncertainty when
balancing the benefits of disclosing otherwise unknown Foreign
Corrupt Practices Act ("FCPA") violations and assessing
whether, on balance, such self-disclosure is advisable.
Requirements of the Pilot Program
To be eligible under the Pilot Program, companies must first
satisfy the threshold standards for cooperation by business
organizations described in the U.S. Attorneys' Manual, the
United States Sentencing Guidelines (the "Sentencing
Guidelines" or the "USSG"), and the Yates
Memo.3 They must then satisfy the additional
requirements described below:
Voluntary Self-Disclosure. To qualify as
"voluntary," any self-disclosure must (i) be made before
"an imminent threat of disclosure or government
investigation"; (ii) be "within a reasonably prompt time
of becoming aware of the offense"; (iii) include "all
relevant known facts, including facts about any individuals"
involved in the offense, including the company's officers,
employees, and agents; and (iv) not be required by law, agreement,
or contract.4
Full Cooperation. While DOJ will evaluate the
"scope, quantity, quality, and timing of cooperation"
under the unique circumstances of each case,5
cooperating companies are generally expected to perform the
following specified activities:
- Identify opportunities for DOJ to obtain relevant information that is not in the company's possession and is not otherwise known to DOJ,
- Preserve, collect, and disclose relevant documents, including overseas documents, and information relating to their provenance,
- Make individuals available for interviews upon request, including overseas and former officers and employees, where possible,
- Timely disclose all facts gathered during the company's independent investigation, with attribution, and, when requested, de-confliction of the internal investigation with a DOJ investigation, and
- Provide all facts relevant to criminal conduct by third parties, including facilitating the production of third-party documents and witnesses from foreign jurisdictions.
If a company claims disclosure is prohibited due to conflicting
foreign law, the burden is on the company to establish the
prohibition, and the company should "work diligently" to
identify a legal basis to provide disclosure. Nothing in the Pilot
Program, however, alters DOJ's policy that full cooperation
credit is not dependent upon waiver of the attorney–client
privilege or work product protection.
Meeting some of these requirements may result in partial, but
"markedly less" than full, credit. Importantly, the Pilot
Program places the burden on a company to demonstrate that it
satisfies the above requirements.
Timely and Appropriate Remediation. The Pilot
Program also requires timely and appropriate remediation, taking
into account the company's overall compliance program. These
remediation efforts will be considered only if the standard for
cooperation is met. DOJ considers the company's implementation
of an effective compliance and ethics program, including:
- Whether the company has a culture of compliance including the awareness among employees that criminal conduct will not be tolerated,
- Whether sufficient resources are dedicated to compliance,
- The compliance personnel's quality, independence, reporting structure, and comparative compensation and promotion opportunities,
- Auditing of the compliance program for effectiveness and risk assessment,
- Appropriate discipline of employees, including supervisors of wrongdoers and effects on compensation,
- Any additional steps demonstrating recognition of the seriousness of misconduct and acceptance of responsibility, and
- Measures to reduce a company's recidivism.6
Again, the Pilot Program provides that a company carries the burden
to demonstrate timely remediation.
In addition to the factors outlined in the Pilot Program, DOJ also
directs companies to follow the DOJ and Securities and Exchange
Commission Resource Guide's "Hallmarks of Effective
Compliance Programs," which includes other benchmarks of an
effective FCPA compliance program (e.g., third-party due diligence,
financial and accounting controls, training, and M&A
pre-acquisition diligence and post-acquisition integration).
Disgorgement of Profits. A company must disgorge
all profits from the FCPA violation in order to qualify for any
mitigation credit under the program.
Benefits of Participation
If the strict requirements of the Pilot Program are met, DOJ
offers specific mitigation credit, including the possibility of a
declination of prosecution. Factors that weigh against a
declination include the seriousness of the offense, the involvement
of executive management in the misconduct, a significant profit (in
relation to the company's size and wealth), any history of
noncompliance, and any prior resolution by the company within the
past five years. Even where such countervailing interests are
minimal, DOJ promises only to consider a declination, not
to grant one, and retains complete discretion over whether or not
to pursue a criminal resolution.
If DOJ determines a criminal resolution is warranted, under the
Pilot Program, the self-disclosing company will be eligible for up
to a 50 percent reduction from the low end of the Sentencing
Guidelines fine range, and generally DOJ will not require the
appointment of an outside compliance monitor. Given the burdens and
costs that come with an outside monitor, this potential result is
appealing.
The Pilot Program also allows for limited cooperation credit in the
absence of voluntary self-disclosure. Where a company has not
voluntarily disclosed its FCPA misconduct, but later provides full
cooperation and demonstrates timely and appropriate remediation, it
may receive up to a 25 percent reduction from the low end of the
Sentencing Guidelines fine range.
Conclusion
The Pilot Program is a response to ongoing criticisms about the
lack of transparency and predictability in FCPA fines, as well as
the decisions on whether to impose an outside monitor or decline
prosecution.7 The Pilot Program does not provide any
groundbreaking or novel concepts, since timely and voluntary
self-disclosure, full cooperation, and remediation have
historically led to declinations and/or reductions in fines. What
appears to be new in the Pilot Program is the commitment to
specific fine reductions when companies take the steps encouraged
by DOJ. The fine reduction guidelines are, however, just
guidelines, and the company bears the burden of proving it has
satisfied DOJ's requirements. Therefore, even if a company
participates in the Pilot Program, a declination, no monitor, and
even full or partial credit are far from guaranteed outcomes.
In balancing the costs and benefits of self-disclosure, companies
should continue to account for the fact that DOJ FCPA
investigations still take a long time to investigate and resolve.
While the DOJ Criminal Division Chief recently indicated that he
wants to resolve voluntary self-disclosure FCPA cases within one
year,8 it could take several years for a company to
conduct a thorough and credible internal investigation and satisfy
the Pilot Program's cooperation and remediation
requirements.9
Another consideration for companies is that, by inviting DOJ
scrutiny, a company is also exposed to additional risks: (i)
individual prosecutions against current and former employees, (ii)
a parallel U.S. regulator (e.g., SEC) investigation, and (iii)
civil/shareholder lawsuits, all of which entail tangible and
intangible costs. DOJ's increased cooperation with foreign
counterparts also increases the number of stakeholders in
investigations, which could lead to more complicated investigations
and still more collateral consequences.
While the specific benefits included in the Pilot Program are
welcome news, the success of the program will be judged by how it
is applied by DOJ line prosecutors and their supervisors. It
remains to be seen how the program will affect corporate
self-disclosures generally and if, in individual cases, DOJ applies
the guidelines in a way that delivers more certainty to
self-disclosing companies.
Footnotes
1 "Criminal Division Launches New FCPA Pilot Program," DOJ, (Apr. 5, 2016); "The Fraud Section's Foreign Corrupt Practices Act Enforcement Plan and Guidance" ("Pilot Program"), DOJ, (Apr. 5, 2016). Together with the Pilot Program, DOJ also trumpeted increased efforts to detect and prosecute FCPA violations. First, the Department added 10 more prosecutors to the Fraud Section's FCPA Unit, increasing its ranks by more than 50 percent. Second, the FBI established three new squads of special agents dedicated to investigating and prosecuting FCPA violations. Third, the Department announced that it has strengthened and increased cooperation with foreign law enforcement partners to share leads and information about FCPA misconduct.
2 Sally Q. Yates, Deputy Attorney General, DOJ, "Individual Accountability for Corporate
Wrongdoing," Memorandum (Sept. 9, 2015) (the "Yates
Memo"). For additional analysis on the Yates Memo, please
review "U.S. Department of Justice Announces Updated
Guidelines on Individual Accountability for Corporate Wrongdoing:
Implications for Internal and Government Investigations,"
Jones Day (Sept. 2015).
3 USAM 9-28.000; USSG §§8C2.5(g)(1) and (2), and Yates
Memo, supra note 2.
4 The Pilot Program closely tracks USSG §§8C2.5(g)(1)(A)
and (B), which permit credit for prompt disclosure "prior to
an imminent threat of disclosure or government investigation"
and full cooperation, and the Yates Memo, which requires companies
to disclose "all relevant facts about the individuals involved
in any FCPA violation."
5 Just as with voluntary self-disclosure, the Pilot Program's
treatment of cooperation also mirrors USSG §8C2.5(g)(1)(B),
which allows credit if a company "fully cooperated" in
DOJ's investigation.
6 Last year, DOJ hired a full-time compliance expert to bring an
"expert eye" to corporate FCPA resolutions. With the
expert's assistance, DOJ is refining the benchmarks by which it
will assess a company's compliance program and other
remediation efforts.
7 "Criminal Division Launches New FCPA Pilot Program,"
supra note 1 at 1.
8Global Investigations Review Live: DC: Weissmann Speech and Q&A (Feb. 9, 2016).
9 Pilot Program, supra note 1 at 4-8.
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