The U.S. Department of Justice (“DOJ”) released a memorandum (the “FCPA Enforcement Memorandum”) on April 5, 2016 detailing a new enforcement plan for Foreign Corrupt Practices Act (“FCPA”) investigations. The DOJ announced that it will significantly increase resources devoted to the FCPA (adding ten new prosecutors and additional investigators), will strengthen the DOJ’s coordination with international law enforcement counterparts,1 and implement a "pilot program" designed to encourage self-reporting. The FCPA Enforcement Memorandum also underscores the DOJ’s increased focus on prosecution of individuals, as detailed in the September 2015 Yates Memorandum on Individual Accountability (The "Yates Memorandum").2 For U.S. companies doing business overseas, the message from the DOJ’s latest pronouncement is just how critical a well-executed, properly tailored internal investigation can be and how difficult the decision to self-report remains.
The most significant announcement – the pilot program3 – specifies, for the first time, how the DOJ will reduce fines when companies voluntarily disclose FCPA violations, cooperate and implement timely and appropriate remediation. To qualify, the DOJ sets three requirements:
- First, the company must voluntarily disclose FCPA violations and all the relevant facts prior to an “imminent” investigation and within a “reasonably prompt time after becoming aware of the offense.”
- Second, the company must fully cooperate with the DOJ's investigation and prosecution of individuals. This includes disclosure of all the facts the company learns in its internal investigation and the specific sources of information, including witnesses and documents.4 The FCPA Enforcement Memorandum places particular emphasis on the requirement to disclose all relevant facts about individuals involved in wrongdoing, consistent with the requirements of the Yates Memorandum.
- Finally, the company must complete timely and appropriate remediation of its compliance program (e.g., establishing a robust compliance program, taking appropriate disciplinary measures, and reducing the risk of a repeat offense) and disgorge all profits resulting from the FCPA violation.
If a company satisfies the three required elements the DOJ, in connection with a settlement: (1) may reduce the fine up to 50% below the low-end5 of the U.S. Sentencing Guidelines fine range; (2) generally will not require appointment of a monitor if a company has, at the time of resolution, implemented an effective compliance program; and (3) may decline to press charges altogether.
Notably, if a company chooses not to disclose a FCPA violation but later cooperates with a government investigation, the company may still qualify for a fine reduction – but only a maximum of a 25 percent reduction below the low-end of the Sentencing Guidelines range. The FCPA Enforcement Memorandum does not outline the precise circumstances for a declination of a prosecution but identifies factors the DOJ will consider including: the seriousness of the case; whether executive management was involved in the offense; the amount of profit the company derived from the FCPA violations; whether the company had entered into a resolution related to FCPA violations in the last five years; and, more generally, history of non-compliance.
The pilot program provides the DOJ’s most specific guidance to date as to how self-reporting and cooperating could potentially result in lower fines. Despite this, the decision whether to self-report or not remains a difficult one. When a company’s internal investigation uncovers clear FCPA violations, the FCPA Enforcement Memorandum does provide substantial incentives for self-disclosure. However, when a company finds suspicious circumstances that do not amount to clear FCPA violations, or only isolated violations, the Enforcement Memorandum does not provide clear guidance as to whether or not self-reporting makes sense. It will also often be unclear whether the DOJ will agree with the company’s assessment of the seriousness of the offense, the level of involvement of executive management, extent of profit and the company’s history of compliance. Thus, companies will likely continue to struggle with the decision to self-disclose in many circumstances.
Finally, it is possible that the FCPA Enforcement Memorandum will substantially increase the volume of reports to regulators which may strain the DOJ’s resources despite the increase of prosecutors and investigators. The likely result will be that regulators are even more likely to heavily rely on a company’s internal investigation and reports by outside counsel. Dechert has extensive experience throughout the world in conducting internal investigations and providing advice to corporations on whether to self-report.