On
April 5, 2016, in a memorandum entitled Fraud Section's Foreign Corrupt
Practices Act Enforcement Plan and Guidance ("Guidance"), the DOJ's
Fraud Section unveiled an initiative to encourage voluntary self-reporting in
FCPA cases.
The
purported "carrot" is the one-year pilot program laid out by the
Guidance, under which the DOJ will allow a reduction of up to 50% off the
low-end of the applicable U.S. Sentencing Guidelines penalty range for
companies that self-report violations, cooperate fully with the DOJ's subsequent
investigation, and take steps to remediate the misconduct. In addition, under
the pilot program, companies that have implemented an effective compliance
program may not be required to retain a corporate compliance monitor. The
"stick" is the threat that "FCPA violations that might have gone
uncovered in the past are now more likely to come to light." In
particular, the Fraud Section points to: (1) its increase in FCPA investigative
and prosecutorial resources through the addition of 10 new prosecutors and
three new FBI squads -- all dedicated to corruption; and (2) the increased
collaboration between the DOJ and international law enforcement bodies to
combat bribery.
Pilot
Program
According
to the Guidance, in order to qualify for full credit under the pilot program
(50% reduction from the otherwise applicable U.S. Sentencing Guidelines penalty
range, no compliance monitor, and consideration of declination of prosecution),
companies must meet certain requirements.
First,
a company must voluntarily disclose the FCPA violation. In order for a
disclosure to be considered voluntary, it must occur prior to an "imminent
threat" of disclosure by an employee or third party or the initiation of a
government investigation, be made within a reasonable time of the company
becoming aware of the violation, and must include all relevant facts (including
information regarding the individuals involved). Moreover, a disclosure will
not be considered voluntary if the company is required to make it by law, agreement
or contract. The Guidance is clear that even with full cooperation and appropriate
remediation, absent voluntary disclosure, the Fraud Section's FCPA Unit will grant
a maximum reduction of only 25% off the bottom of the U.S. Sentencing
Guidelines penalty range.
Second,
a company must provide full cooperation to the Fraud Section's FCPA Unit. Doubling-down
on the so-called Yates Memo issued last year, in order to receive full cooperation
credit, a company must be prepared to disclose all facts relevant to the investigation,
including the involvement of the company's officers, employees, or agents.
Third,
a company must take appropriate and timely steps to remediate the misconduct, including
implementing an effective ethics and compliance program, appropriate discipline
of employees, and any other steps to reduce the risk of misconduct recurring.
Finally,
to be eligible for the credit, even a company that voluntarily self-discloses,
fully cooperates and remediates will be required to disgorge all profits
resulting from the FCPA violation.
Potential
Impact on the Decision Whether to Voluntarily Disclose an FCPA Violation
Will
this program change the equation for a company with knowledge of an FCPA
violation? The potential reductions from the otherwise applicable Sentencing
Guidelines penalty range under the pilot program are significant, as is the
opportunity to avoid the imposition of the compliance monitor or avoid
prosecution altogether.
Moreover,
the chances of an FCPA violation forever staying "internal" are
growing smaller and smaller by the day. The Guidance's reference to increased
cooperation among international enforcement bodies is not just bluster. In the
last 18 months, we have seen DOJ settlements arising out of cooperation with
the national authorities in the U.K., Indonesia, Switzerland, Germany, the
Netherlands, Saudi Arabia, Cyprus and Taiwan, as well as other international organizations
such as the African Development Bank. In addition, employees have more
incentive than ever to report violations directly to U.S. authorities and
collect potentially millions of dollars in whistle-blower awards. Finally, as
recent headlines such as those covering the "Panama Papers" demonstrate,
the potential for a data breach (either internal or through the work of
hackers) that reveals wrongdoing is perhaps at its greatest discovery risk
point in history. This would suggest that in some situations a company would be
wise to self-disclose misconduct and take the accompanying remediation credit
rather than waiting for the DOJ to come knocking on the door.
However,
even under the pilot program, there are no guarantees for companies willing to approach
the DOJ hat-in-hand. In allowing "up to" a 50% reduction, the
Guidance still provides significant discretion to the FCPA Unit under the pilot
program in determining how much credit will be given to companies who choose to
participate, without any guidance as to how the determination will ultimately
be made. The requirement of full disgorgement of profits also allows for a
great deal of discretion, as the amount of profit resulting from improper
conduct is often difficult to calculate and can be a point of negotiation itself.
Given that FCPA settlements can now reach into the billions of dollars, how
much comfort will companies take from such a heavily couched offer?
Moreover,
it is not clear that the pilot program will actually change the way the FCPA
Unit approaches settlements. The DOJ has historically afforded substantial
credit to companies that voluntarily disclose FCPA violations, cooperate with
an investigation and remediate misconduct--a fact acknowledged in the Guidance.
A Resource Guide to the U.S. Foreign Corrupt Practices Act issued by the DOJ
and SEC in 2012 provides several examples of companies that were able to avoid
prosecution because the companies voluntarily disclosed the violation,
cooperated fully and took appropriate remedial action. It is not clear that the
reduction offered under the pilot program is significantly, if at all, greater
for those companies willing to voluntarily disclose than it was before.
Ultimately,
even if the pilot program does not have the impact that was intended, it
remains essential that corporations consider the range of potential
consequences and benefits of voluntary self-disclosure, particularly in light
of the increasing likelihood that any significant FCPA violation will
eventually become public. To make an informed analysis and best protect its
interests, it remains as important as ever that a company fully investigate
potential wrongdoing in an organized, transparent and defensible manner. It is
only after such an investigation that a company can make the difficult decision
regarding voluntary disclosure and take the appropriate remedial measures that
are essential to prevent similar misconduct in the future.
