On April 5, 2016, the U.S. Department of Justice (DOJ) announced it is taking a series of steps to encourage companies to voluntarily self-disclose Foreign Corrupt Practices Act (FCPA) violations, cooperate with the Criminal Division’s Fraud Section, and remediate deficiencies in their internal FCPA controls and compliance programs. This initiative builds on the requirements set forth in the Deputy Attorney General’s Individual Accountability memorandum issued in September 2015, commonly referred to as the Yates Memo.
In a nine-page memorandum, Andrew Weissmann, Chief of the Fraud Section, set forth three key areas for DOJ’s enhanced FCPA enforcement strategy. The principal change that should get companies’ attention is the initiation of a one-year pilot program designed to give companies an incentive to turn in employees who violate the FCPA in return for cooperation credit. The memorandum also announced that the DOJ is increasing its investigative and prosecutorial ranks by more than 50 percent, adding 10 more prosecutors at the same time the FBI has established three new squads of agents devoted to FCPA investigations, and that it is enhancing its international approach to combatting bribery schemes by improving its coordination with foreign counterparts, including sharing leads, documents and witnesses.
The new pilot program extends additional “mitigation credit” to companies that voluntarily self-disclose all relevant facts relating to FCPA-related misconduct, including by identifying culpable individuals, fully cooperating with the Fraud Section, and, where appropriate, remediating the misconduct. Under the program, companies that self-disclose and satisfy the DOJ’s requirements for cooperation and remediation can obtain up to a 50 percent reduction from the low end of the otherwise applicable U.S. Sentencing Guidelines fine range. Appointment of a post-resolution compliance monitor will not be required if a company has implemented an “effective compliance program” by the time of resolution. The DOJ will also consider a declination to prosecute for qualifying companies. Companies will, however, be required to disgorge all profits resulting from the FCPA violation.
The pilot program does not supplant existing authority for corporate cooperation credit. Prosecutors must still consider the factors set forth in the Principles of Federal Prosecution of Organizations to determine whether a criminal disposition against a company is appropriate and in what form. Similarly, a Sentencing Guidelines analysis still applies for determining credit and reduced fines for companies that voluntarily disclose criminal conduct, cooperate and accept responsibility. But now there are added incentives for companies “to disclose FCPA misconduct to permit the prosecution of individuals whose criminal wrongdoing might otherwise never be uncovered by or disclosed to law enforcement.” In order to receive this additional credit, under the pilot program, companies must meet specified standards, which are more demanding than those previously applicable.
In order to receive credit for voluntary self-disclosure of wrongdoing, the company must disclose all known relevant facts, including those about the individuals involved, “prior to an imminent threat of disclosure or government investigation” and “within a reasonably prompt time after becoming aware of the offense.” Disclosures already required by law, agreement or contract will not qualify as voluntary self-disclosures.
The pilot program also sets forth a number of items required for a company to receive credit for full cooperation:
- Disclosure on a timely basis of all facts relevant to the wrongdoing at issue, including all facts related to involvement in the criminal activity by the corporation’s officers, employees or agents;
- Proactive cooperation, rather than reactive; that is, the company must disclose facts that are relevant to the investigation, even when not specifically asked to do so, and must identify opportunities for the government to obtain relevant evidence not in the company’s possession and not otherwise known to the government;
- Preservation, collection and disclosure of relevant documents and information relating to their provenance;
- Provision of timely updates on a company’s internal investigation, including, but not limited to, rolling disclosures of information;
- Provision of all facts relevant to potential criminal conduct by all third-party companies (including their officers or employees) and third-party individuals;
- Upon request, making available for DOJ interviews company officers and employees who possess relevant information; this includes, where appropriate and possible, officers and employees located overseas as well as former officers and employees (subject to the individuals’ Fifth Amendment rights);
- Disclosure of all relevant facts gathered during a company’s independent investigation, including attribution of facts to specific sources where such attribution does not violate the attorney-client privilege, rather than a general narrative of the facts;
- Disclosure of overseas documents, the location in which such documents were found, and who found the documents (except where such disclosure is impossible due to foreign law, including, but not limited to, foreign data privacy laws);
- Unless legally prohibited, facilitation of third-party production of documents and witnesses from foreign jurisdictions; and
- Where requested and appropriate, provision of translations of relevant documents in foreign languages.
Once these threshold requirements have been met, DOJ will assess the scope, quantity, quality and timing of the company’s cooperation based on the circumstances of each case when determining how to evaluate a company’s cooperation under the program. Importantly, eligibility for full cooperation credit does not require waiver of the attorney-client privilege or work product protection, although the DOJ has traditionally maintained that these protections do not shield facts gathered in a company’s internal investigation.
The pilot program makes mitigation credit available to companies that timely and appropriately remediate flaws in their controls and compliance programs, but only to companies that qualify for full cooperation credit. In order to earn remediation credit, a company must meet the following criteria:
- Implementation of an effective compliance and ethics program. The criteria the Fraud Section will use to determine whether a compliance program is effective will be updated periodically and will vary based on the size and resources of the company, but it will consider:
- Whether the company has established a culture of compliance;
- Whether it dedicates sufficient resources to the compliance function;
- The quality and experience of the compliance personnel;
- The independence of the compliance function;
- Whether the company has performed an effective risk assessment and tailored the compliance program based on that assessment;
- How a company’s compliance personnel are compensated and promoted in relation to other employees;
- Auditing of the compliance program to assure its effectiveness; and
- The reporting structure of compliance personnel within the company.
- Appropriate discipline of employees, including those identified by the corporation as responsible for the misconduct.
- A system for possibly disciplining those responsible for overseeing the culpable individuals and for considering how compensation is affected by disciplinary infractions and failure to supervise adequately.
- “Any additional steps that demonstrate recognition of the seriousness of the corporation’s misconduct, acceptance of responsibility for it, and the implementation of measures to reduce the risk of repetition of such misconduct, including measures to identify future risks.”
Credit Under the Pilot Program
As noted above, the memorandum also discusses the specific “amount” of credit a company can earn by participating in the program. A company that fully meets the requirements for voluntary self-disclosure, cooperation and remediation can receive up to a 50 percent reduction off the bottom end of the Sentencing Guidelines fine range. Additionally, if the company has implemented an effective compliance program at the time of resolution, DOJ typically will not require the appointment of a monitor.
In some circumstances, full compliance with the pilot program can result in declination to prosecute. The memorandum makes clear, however, that a declination to prosecute will be unlikely if senior management took part in the subject misconduct, if the company made a relatively significant profit from the misconduct, or if there has been a prior resolution between the company and DOJ within the past five years.
Companies that do not self-report can still be eligible for partial credit if they fully cooperate and remediate, but the memorandum makes explicit that any credit awarded will be “markedly less” than that offered to companies that self-disclose. At most, companies that do not self-disclose can receive a 25 percent reduction from the bottom of the otherwise applicable Sentencing Guidelines fine range.
The DOJ cannot require companies to voluntarily self-disclose, cooperate or remediate. Companies are, of course, free to reject these options and forego the credit available under the pilot program. Nevertheless, this DOJ initiative underscores the importance of conducting regular FCPA compliance audits and making judgments about whether to report any incidents of non-compliance revealed by those audits.
After one year, the DOJ will assess the effectiveness of the pilot program and make a determination as to whether to continue it in its present or some other form.