White collar law enforcers and regulators rely heavily on tips and voluntary reporting to enhance their enforcement capabilities. As discussed previously in past posts, formalized whistleblower programs – with or without bounty programs – are frequently pointed to by authorities as important parts of their evidence-gathering regimes. Similarly, programs enabling “no-contest” settlements often available to self-reporting market participants yield results that save enforcers significant time and expense.

The Department of Justice (“DOJ”) Fraud Section’s pilot program that encourages companies to self-report and remediate violations of the Foreign Corrupt Practices Act (“FCPA”) (the “Pilot Program”) is part of its broader efforts to enhance FCPA enforcement capabilities. The Pilot Program was introduced on April 5, 2016, with the objective of formalizing the granting of cooperation credits – in the form of reduced fines as well as other benefits, including declined prosecution in certain cases – to companies that meet certain self-reporting, cooperation, and remediation requirements in respect of their FCPA violations.

On March 10, 2017, Acting Assistant Attorney General Kenneth A. Blanco announced that the Pilot Program will continue after its one-year pilot period ends on April 5, 2017.

The FCPA Cooperation Pilot Program

To qualify for the Pilot Program, companies must meet three requirements:

1. Voluntarily disclose the FCPA violation – Companies must disclose all relevant facts known to them, including all relevant facts about the individuals involved in any FCPA violation. Disclosure must occur “prior to an imminent threat of disclosure or government investigation”, and the company bears the burden of demonstrating the timeliness of its disclosure. This requirement is stringent, and goes beyond disclosure which is already required by law, agreement, or contract;

2. Fully cooperate with the DOJ – Companies are required to proactively (and not reactively) cooperate with the DOJ, and must disclose all relevant facts – even when not specifically asked. Among other things, companies must: preserve, collect, and disclose all relevant documents; update the DOJ on the company’s internal investigation from time to time; and, upon request, make officers and employees available for interviews. Full cooperation will not, however, require companies to waive attorney-client privilege or work product protection; and

3. Remediate the FCPA violation – While remediation will be highly case-specific, companies will be required to: implement an effective compliance and ethics program; appropriately discipline employees; and take additional steps that demonstrates the company’s recognition of the seriousness of the FCPA violation, accepts responsibility for the violation, and implements measures to reduce future risk of misconduct.

In addition, the Pilot Program provides that companies should be required to disgorge all profits as a result of the FCPA misconduct.

Limited credit under the Pilot Program is also available where companies have not made voluntary disclosure, but where they have later fully cooperated and made timely and appropriate remediation.

DOJ Announces the Pilot Program’s Extension and Review

In his speech to the American Bar Association’s Annual Institute on White Collar Crime on March 10, 2017, Mr. Blanco announced that the Pilot Program will remain in place after April 5, 2017. At that time, the DOJ will begin reviewing the program’s “utility and efficacy” and consider whether it should be extended or revised. Until the DOJ reaches a final decision on those issues, the program will continue.

Mr. Blanco closed his remarks by highlighting both the DOJ’s commitment to prosecuting international crime and the international trend towards pursuing corruption:

It is clear that global investigations of corruption are on the rise. We are seeing that often within a close temporal proximity of our prosecutions, other countries are also taking action. It is no longer just us and a few other countries.

[…]

As I said last year at a corruption and white collar crime forum in Bogota, Colombia, the current trend of international cooperation among our counterparts who are all fighting transnational financial corruption and other white collar crimes reminds me of the 1960s song made popular by the singing group Martha and the Vandellas – the lyrics of which are the appropriate message for all the corrupt officials and bad actors, foreign and domestic: Nowhere to run baby, Nowhere to hide.

Implications for Canadian Business with Operations in the United States

FCPA enforcers experienced a record year in 2016. A panel at the ABA’s 2017 Annual Institute on White Collar Crime noted that the degree of multijurisdictional cooperation is increasing, which is a significant factor in the record number of FCPA resolutions – 27 companies paid approximately $2.48 billion in penalties and disgorgement in 2016.

Under the Canadian equivalent to the FCPA, the Corruption of Foreign Public Officials Act (the “CFPOA”), Canada does not have an equivalent to the Pilot Program, in that it has not formalized the necessary requirements to obtain leniency, or the implications of self-reporting on offenses under the statute. Whereas the U.S. Securities and Exchange Commission is responsible for pursuing FCPA matters south of the border, enforcement of the CFPOA is largely policed by the RCMP. Perhaps giving responsibility for such matters to a regulatory body such as the proposed Canadian Cooperative Capital Markets Regulatory Authority, even on the basis of shared jurisdiction, would assist in the execution of a more coherent enforcement approach.

On a related note, at a recent roundtable discussion at Osler, a panel comprised of Canadian regulators and law enforcement and former US regulators discussed various cross-border securities and anti-trust enforcement issues. A general comment from the Canadian panelists was that Canada tends to ultimately follow the US enforcement regime – but perhaps several years after the fact. It remains to be seen whether Canada will institute a similar cooperation program, and whether it will have the effect of increasing CFPOA prosecutions in Canada.