Earlier this week, DOJ’s Fraud Section released a guidance memorandum (the FCPA Enforcement Guidance Memorandum) outlining an FCPA Pilot Program that allows for fine reductions beyond what is available under the U.S. Sentencing Guidelines to companies that voluntarily self-disclose possible FCPA violations, fully cooperate with investigators, and implement timely and appropriate remediation, which we refer to here as the Pilot Program.  The Memorandum also discusses the increase in resources that DOJ will be devoting to FCPA investigations.  This Client Update focuses on the Pilot Program.  

The Pilot Program will run for one year beginning April 5, 2016.  As a threshold matter, companies must: (1) disclose all relevant facts about individuals involved in wrongdoing consistent with the Deputy Attorney General’s September 9, 2015 Memorandum on Individual Accountability (DAG Memo on Individual Accountability) and (2) disgorge all profits resulting from any FCPA violation to receive any mitigation credit under the Pilot Program. 

The announcement acknowledges that the Fraud Section has historically provided mitigation for self-disclosure, cooperation and effective remediation without written guidance outlining the criteria used to award such reductions.  The Pilot Program aims to promote greater accountability for individuals and corporations (and aid the Fraud Section’s ability to prosecute individuals) by motivating companies to self-disclose and cooperate with investigators. To this end, the Memorandum outlines the mitigation benefits that can be earned through the Pilot Program and the requirements for earning such benefits.Earlier this week, DOJ’s Fraud Section released a guidance memorandum (the FCPA Enforcement Guidance Memorandum) outlining an FCPA Pilot Program that allows for fine reductions beyond what is available under the U.S. Sentencing Guidelines to companies that voluntarily self-disclose possible FCPA violations, fully cooperate with investigators, and implement timely and appropriate remediation, which we refer to here as the Pilot Program.  The Memorandum also discusses the increase in resources that DOJ will be devoting to FCPA investigations.  This Client Update focuses on the Pilot Program.  

The Pilot Program will run for one year beginning April 5, 2016.  As a threshold matter, companies must: (1) disclose all relevant facts about individuals involved in wrongdoing consistent with the Deputy Attorney General’s September 9, 2015 Memorandum on Individual Accountability (DAG Memo on Individual Accountability) and (2) disgorge all profits resulting from any FCPA violation to receive any mitigation credit under the Pilot Program. 

The announcement acknowledges that the Fraud Section has historically provided mitigation for self-disclosure, cooperation and effective remediation without written guidance outlining the criteria used to award such reductions.  The Pilot Program aims to promote greater accountability for individuals and corporations (and aid the Fraud Section’s ability to prosecute individuals) by motivating companies to self-disclose and cooperate with investigators. To this end, the Memorandum outlines the mitigation benefits that can be earned through the Pilot Program and the requirements for earning such benefits.

What qualifies as timely and appropriate remediation?

The Pilot Program makes credit for timely and appropriately remediating flaws in controls and compliance programs available only to companies that qualify for cooperation credit under the program1.   In order to earn this additional mitigation credit, the following criteria must be met:

  • 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 size and resources of the company but 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 responsible 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 cooperation’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."

Up to a 50% fine reduction or a declination of prosecution is available under the pilot program

Companies that fully cooperate in a manner consistent with the DAG Memo on Individual Accountability, the USAM Principles, and all the more stringent requirements listed above qualify for the full range of potential mitigation credit under the Pilot Program. Where a criminal resolution is appropriate, such mitigation may include:

  • Up to a 50% reduction off the bottom end of the Sentencing Guidelines fine range, if a fine is sought; and
  • Foregoing appointment of a compliance monitor if the company has implemented an effective compliance program at the time the matter is resolved.

Alternatively, when all of these conditions are met, the Fraud Section’s FCPA Unit “will consider a declination of prosecution.”  In making this decision, the FCPA Unit will consider the seriousness of the offense.  The Memorandum indicates a declination is not likely in cases in which executive management was involved in the wrongdoing, where the company made a significant profit from the misconduct in relation to the company’s size and wealth, or where the company has any history of non-compliance or resolved a separate matter with DOJ within the last five years.

Up to a 25% reduction under the pilot program absent voluntary self-disclosure

Companies that do not voluntarily self-disclose, but later fully cooperate and timely and appropriately remediate, can receive partial credit under the Pilot Program.  This credit will be “markedly less” than those that self-disclose wrongdoing and will be at most a 25% reduction off the bottom of the Sentencing Guidelines range.