For the next year, the Justice Department may be offering up to a 50% discount on fines imposed in FCPA cases. Yesterday, the U.S. Department of Justice’s (“DOJ”) Criminal Division announced the launch of a one-year pilot program in the FCPA Unit of the DOJ’s Fraud Section. The DOJ has long encouraged and advocated that a company that discovers corruption misconduct should (i) voluntarily self-disclose the misconduct, (ii) cooperate with prosecutors in a government investigation, and (iii) remediate the violations in a timely manner. Under the pilot program, the DOJ has now formalized the criteria for prosecutors to assess the adequacy of a company’s self-disclosure, cooperation, and remediation. Depending on whether the government finds a company has satisfied these criteria, the company may be eligible for specific credit on fines and other penalties.
What Credit is Available Under the Pilot Program?
In order to assess whether a company should receive credit on the ultimate penalties imposed for potential FCPA violations, the DOJ has identified specific criteria for self-disclosure, cooperation, and remediation as detailed below. Where the DOJ determines that a company meets the “stringent requirements” of the pilot program, a company can qualify for the full range of mitigation credit. That credit includes:
- Fine Reduction – Up to a 50% reduction off the bottom end of the fine range identified in the Sentencing Guidelines.
- Less Likely Appointment of Corporate Monitor – Where a company has implemented an effective compliance program, the FCPA Unit “generally should not require appointment of a monitor.”
- Possible Declination of Prosecution – The DOJ claims it will consider a declination where a company satisfies the pilot program criteria. But it advises that declination is likely unwarranted where executive management is involved in misconduct; the company received a significant profit from the misconduct; the company has a history of non-compliance; or the company has resolved an FCPA violation with the DOJ in the past five years.
If the DOJ determines that a company has not met the pilot program requirements, the disclosing company will be eligible for at most a 25% reduction off the bottom end of the fine range in the Sentencing Guidelines. Further, such credit under the pilot program is only available to corporations and not to individuals.
What is Voluntary Self-Disclosure?
The DOJ will evaluate the following circumstances of a company’s disclosure to determine whether a company should receive credit:
- Voluntary Nature – No “voluntary” disclosure if a company is required to disclose by law, agreement, or contract.
- Independent – Disclosure must occur prior to an “imminent threat of disclosure or government investigation.”
- Timeliness – Disclosure of violations “within a reasonably prompt time after becoming aware of the offense.” While the DOJ does not specify that time period, the burden remains on a company to demonstrate timeliness of a disclosure.
- Full Disclosure – Disclosure of “all relevant facts known to it,” including those facts about individuals involved in the violation.
What is Full Cooperation?
The DOJ will require a company provide the following in order to be eligible to receive full cooperation credit under the pilot program:
- Full Factual Disclosure – Timely disclosure of all facts “relevant to the wrongdoing at issue.” Specific requirements relate to (i) involvement by the company’s officers, employees, or agents, (ii) potential criminal conduct by all third-party companies and individuals, and (iii) preservation, collection, and disclosure of relevant documents and information.
- Disclosure of Independent Investigation – Disclosure of facts gathered during the company’s independent investigation and attributing facts to specific sources (where attorney-client privilege is not waived) as opposed to a general factual narrative. Timely updates on its internal investigation to prosecutors, including rolling disclosures of information. Where requested, “de-confliction of an internal investigation with the government investigation.”
- Proactive Cooperation – Cooperation must be proactive, not reactive. A company must disclose relevant facts even when the DOJ does not ask for them.
- Interview Availability – Where requested, accommodating interviews with the company’s officers and employees who possess relevant information.
- Third-Party Disclosure – Facilitating foreign third-party production of documents and witnesses.
- Overseas Document Disclosure – Disclosure of overseas documents, including origin and facts around discovery. The burden remains on the company to demonstrate that any such disclosure is prohibited. Providing translations of relevant documents in foreign languages.
The DOJ emphasizes that it will give cooperation credit for an “appropriately tailored investigation,” noting that the nature and scope of a company’s investigation will depend on the company’s size.
What is Timely and Appropriate Remediation?
The DOJ will assess the following items in determining whether a company has implemented timely and appropriate remediation following the company learning of an FCPA violation:
- Effective Compliance and Ethics Program – Implementation of an effective compliance and ethics program which will vary based on organization size and resources. Criteria include:
- Culture of Compliance – Established compliance culture, including employee awareness that criminal conduct will not be tolerated;
- Resource Allocation – Dedicated and sufficient company resources for compliance;
- Risk-Based Compliance – Performance of risk assessment and tailored compliance program based on identified risk;
- Compliance Program Independence & Effectiveness – Independent compliance function and regular auditing of compliance program to assure effectiveness; and
- Compliance Personnel – Experienced and quality compliance personnel to understand and identify risky transactions. Understanding of (i) reporting structure for compliance personnel within company and (ii) how compliance personnel are compensated and promoted compared to other employees.
- Corrective Action & Discipline – Employees responsible for misconduct have received appropriate discipline. System exists to (i) discipline the supervisors of such employees and (ii) consider how compensation is affected by misconduct and failure to adequately supervise.
- Additional Steps – Actions that demonstrate recognition of seriousness of misconduct, acceptance of responsibility, and implementation of measures to reduce and identify corruption risk in future.
What Does it Mean for Companies?
For years, Justice Department officials have preached that companies should voluntarily disclose potential FCPA violations before prosecutors learn of misconduct from other sources. The government recently further expanded its investigation and enforcement capabilities. The FCPA Unit doubled its team (adding 10 additional prosecutors) and the FBI established new special agent squads devoted to FCPA investigations and prosecutions. In addition, the DOJ’s enforcement actions in recent years have demonstrated an increasing collaboration among the DOJ, the FBI, and their foreign counterparts.
While the pilot program more specifically identifies the criteria that prosecutors will use in assessing the adequacy of voluntary disclosure, the discretion for charging decisions and credit on penalties still lies squarely with the government. The criteria that the DOJ has set forth in the pilot program are strict and it appears it will not be easy for companies to satisfy them. For example, while the DOJ claims eligibility for full cooperation credit will not require the waiver of the attorney-client privilege or work product protection, some of the mandated criteria clearly implicate such protections.