The Justice Department’s reexamination of corporate incentives to disclose violations appears to be in reaction to the steady escalation of cooperation requirements. In response to these extra burdens, DOJ could be concerned that FCPA voluntary disclosures will dwindle. For years, voluntary disclosures have fueled DOJ’s FCPA enforcement program.
In the context of a voluntary disclosure program, I have consistently written that DOJ has failed to define a critical element: what is the benefit the company will receive?
The answer to that question cannot be trust us or citation of examples in which companies benefitted. In many cases, a company earned a reduction of 25 percent from the bottom of the sentencing guideline range. Companies need to know in advance what to expect and then balance that against other factors – potential reputation or earnings decline, risk of detection, and cost of remediation.
The dialogue surrounding this issue can be very troublesome, however, when simplistic solutions are offered. For example, it is easy to say that no company should be fined because it is unfair to punish shareholders of a company. Such an approach, while facially appealing, ignores several factors. First, the cost of a corporate fine or penalty is not just the amount of money involved but the reputational damage. Second, if there is some notion of corporate democracy, board members and shareholders should hold accountable those senior executives who failed to follow or ensure FCPA compliance.
Corporate penalties are an important way to trigger corporate governance reforms and should not be ignored as a tool in the punishment and deterrence of corporations.
The FCPA enforcement history is replete with instances in which companies systematically, from top to bottom, were involved in active bribery schemes. Siemens, Alstom, Avon, Daimler and others all engaged in bribery with the active participation of senior executives. A systemic breakdown requires a punishing fine and overhaul of corporate governance. Prosecuting individual executives may or may not lead to that needed response.
On the other hand, in the balancing process, it is clear that active prosecutions of individual actors, particularly in the systemic cases, should be part of DOJ enforcement actions. The Yates Memorandum has now changed the equation so that individuals who are culpable and prosecutable will be charged. As a consequence, company internal investigations that are conducted as part of a DOJ investigation will require more comprehensive analysis of individual liability. The burden of such an analysis will depend on the circumstances – in some cases, it could be significant.
There has to be a proper balance between corporate and individual enforcement. The Antitrust Division has a long record of criminal prosecutions of cartel members with a proper balancing of individual and corporate defendants. On average, the Antitrust Division charges three individuals for every company that pleads guilty. Of course, the Antitrust Division’s Leniency Program offers immunity to the first company to report a cartel. That system of encouraging companies to report each other does not readily apply in the FCPA context where bribery typically occurs within one company and does not require illegal anti-competitive agreements among multiple companies.
As DOJ wrestles with these considerations, it is a welcome development to have DOJ define the benefits of corporate cooperation and to inject a needed stimulus to corporate incentives to self-report, so long as DOJ properly reserves the right to prosecute companies in appropriate cases and increase individual prosecutions.