Key Takeaways:
- DOJ revised its Corporate Enforcement Policy (CEP) to further incentivize robust voluntary disclosures by corporations when they discover misconduct.
- Even when aggravating circumstances would otherwise warrant criminal resolution, prosecutors will now have discretion to decline to prosecute when a company provides extraordinary cooperation.
- Recognizing the unique opportunity to encourage disclosure and remediation in M&A transactions, DOJ took the opportunity to highlight particular benefits available in that context.
- Companies, in consultation with outside counsel, must be prepared to act quickly and proactively should they uncover misconduct to take maximum advantage of the CEP.
________________________________________________________________________________________
Earlier in January 2023, the U.S. Department of Justice (DOJ)
announced revisions to its Corporate Enforcement Policy (CEP) under
the Foreign Corrupt Practices Act (FCPA) for the first time since
2017. In his speech announcing the revisions,
Assistant Attorney General Kenneth A. Polite emphasized that the
revisions "provide specific, additional incentives to
companies for voluntary self-disclosures [of misconduct], as well
as for cooperation and remediation...[and] that there will be very
different outcomes for companies that do not self-disclose,
meaningfully cooperate with [DOJ] investigations, or
remediate." This is the latest development in DOJ's
decade-long effort to provide greater transparency and
predictability in how it will respond to a voluntary disclosure.
DOJ's revised policy remains focused on individual
accountability, with AAG Polite emphasizing in his speech that the
revised policy will "further [DOJ's] ability to bring
individual wrongdoers—the corporate executives, employees,
and agents who engage in misconduct—to justice,"
including by focusing on the extent to which companies
"discipline bad actors and reward the good one." The
revised policy continues to emphasize the requirement that
companies identify specific individuals involved in the misconduct
to receive credit for full cooperation and self-disclosure.
In this revised policy, DOJ has included a
number of enhancements and clarifications of the incentives to
encourage companies to disclose misconduct. In general, these
revisions represent DOJ's ongoing promotion of the value of
self-disclosure and remediation—that a company's
voluntary and timely self-disclosure and effective remediation may
carry tangible benefits. Notable revisions include the
following:
Declinations in the Face of Aggravating
Circumstances. Perhaps most notable is that the CEP now
explicitly allows a prosecutor to determine that a declination is
still appropriate, despite the presence of "aggravating
circumstances," where the company has provided
"extraordinary" cooperation and remediation. Prior to the
revisions, the presence of any aggravating circumstance generally
was seen as disqualifying.
The CEP now makes clear that prosecutors may find a declination is
appropriate in the face of aggravating circumstances if the
company: self-disclosed immediately upon the company's becoming
aware of the misconduct; had an effective compliance system that
led to the self-disclosure; paid disgorgement, forfeiture or
restitution resulting from the misconduct; and provided
"extraordinary cooperation" and "extraordinary
remediation." While these criteria set a high bar, DOJ's
acknowledgement of a pathway to declination in the face of
aggravating circumstances does provide an additional incentive to
disclose for a company facing that difficult situation.
DOJ considers concepts of immediacy, consistency, degree, and
impact when it assesses a company's level of cooperation, and
has expanded its description of what it views as "full"
cooperation, including its continued emphasis on the identification
of individuals involved in the misconduct regardless of their
position within the company. Of course, DOJ's assessment of
cooperation will vary on a case-by-case basis. The revised policy
makes clear that a company starts with zero credit and must
affirmatively earn credit up to "full" cooperation
(rather than starting with a presumption of 100% credit and
"losing" credit for deficiencies in cooperation). That
said, DOJ did not specify what constitutes
"extraordinary" cooperation, except to say that it must
"exceed" the factors set out in the policy that define
"full" cooperation. As with other aspects of the CEP over
the past half-dozen years, DOJ will undoubtedly use future cases to
provide case-by-case guidance.
DOJ has also expanded its description of "appropriate"
remediation. Factors such as the company's commitment to
instilling corporate values that promote compliance; the
effectiveness of the company's risk assessment and the manner
in which it was utilized; the resources a company has dedicated to
compliance; the quality and experience of personnel involved in
compliance, the authority and independence of the compliance
function, and the ongoing testing of the compliance program to
ensure effectiveness figure into DOJ's remediation analysis. As
with the concept of cooperation discussed above, DOJ will look for
a company's remediation efforts that exceed the factors listed
in order to find "extraordinary" remediation.
Polite's speech highlighted the DOJ's "undeniable
message" in releasing these revisions—companies must
"come forward, cooperate, and remediate."
Additional Tangible Benefits for Self-Disclosure Where a
Criminal Resolution Is Warranted. DOJ has expanded the
range of benefits available to companies facing a criminal
resolution in situations where they have voluntarily
self-disclosed, fully cooperated, and timely and appropriately
remediated. In such instances, DOJ will accord or recommend a 50%
to 75% reduction of the low end of sentencing guideline fine
ranges. Where a company is a "criminal recidivist," the
50% to 75% reduction will generally not be from the low end of the
range—prosecutors have discretion to determine the starting
point for reductions. DOJ will generally not require a guilty plea,
even for recidivist companies, unless there are "particularly
egregious" or multiple aggravating circumstances. Further, DOJ
will generally not require a compliance monitor if the company has
demonstrated an effective compliance program.
Highlighting the Benefits of Self-Disclosure in the M&A
Context. Recognizing that corporate mergers and
acquisitions present a unique opportunity to incentivize voluntary
disclosure and to encourage the swift implementation of a
compliance program, the CEP now highlights particular benefits
available to an acquiring entity. Where a company that has a robust
compliance program in place undertakes an acquisition, then
uncovers misconduct at the target company either during
pre-acquisition due diligence or post-acquisition integration, and
voluntarily discloses the misconduct and rapidly remediates and
implements an effective compliance program at the target, there
will be a presumption of declination, even in the face of
aggravating circumstances at the target. This represents some
acknowledgment of the benefits of enabling a company that has been
"doing the right thing" to acquire a company that
historically has not been compliant and bring it into
compliance.
A company's decision regarding whether, and the extent to
which, it will voluntarily self-disclose is one that should be made
with care, in consultation with counsel. The bar to receive credit
for such voluntary self-disclosure and cooperation is
high—especially in situations where aggravating circumstances
are present. As before, the revised CEP continues to give DOJ a
great deal of flexibility in determining whether a company has met
the requirements for full cooperation and disclosure. DOJ may make
such determinations on a case-by-case basis. Further, it remains to
be seen exactly what level of cooperation constitutes
"extraordinary" cooperation in practice.
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.