Enforcement of the Federal Corrupt Practices Act (“FCPA”) is at an all-time high, and 2019 marks the fourth consecutive year where results broke the records that had been set in the previous year. Notably, this heightened level of enforcement is a departure from FCPA enforcement historically. During the first 30 years of enforcement, from the time the FCPA was passed in 1977 through 2007, the FCPA was largely ignored by the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”), with enforcement actions against approximately 70 companies (averaging just over two cases each year) resulting in fines and disgorgement of only $50 million during that time.1 By comparison, since 2007, DOJ and the SEC have brought approximately 250 corporate cases, involving over $14 billion in global fines and disgorgement, including over $11 billion since 2016.2
In 2016, there was a record amount of over $7 billion in global fines, disgorgement and administrative penalties imposed in corporate FCPA cases by DOJ, the SEC and their foreign counterparts.3 In 2017, DOJ and the SEC charged 27 people with violations of the FCPA and related offenses,4 which was then a record-year for individual enforcement. That number rose again in 2018, as DOJ and the SEC charged 35 people.5 This past year, the trend continued: in 2019, DOJ publicly announced charges against 35 individuals, including more guilty pleas (30) than ever before, and the SEC brought an additional five enforcement actions against individuals, and moreover, the United States collected more through DOJ’s and the SEC’s actions against companies in FCPA cases than ever before.6 Equally important, DOJ and the SEC have been charging far more senior executives, directors and officials than they have in the past. The government has ceased focusing their efforts on low-level sales managers and intermediaries, and recent years have seen the government target CEOs,7 directors,8 company presidents,9 general counsels,10 high-profile bankers,11 and hedge fund executives12 in FCPA cases.
This recent spike in FCPA enforcement is due, in part, to the dramatic increase in resources available to U.S. authorities and a trend towards global resolutions with foreign authorities. Since 2015, DOJ’s FCPA Unit has nearly doubled in size, from 19 full-time FCPA prosecutors to 35 prosecutors in 2019.13 Moreover, whereas DOJ and the SEC only had two instances of coordinating corporate FCPA resolutions prior to 2007,14 there have been 11 coordinated FCPA resolutions since 2016, resulting in more than $9.5 billion in total fines and disgorgement against companies in such cases.15 Significantly, in each of the recent coordinated resolutions, DOJ and the SEC agreed to allow the foreign authorities to take the lion’s share of the corporate fines and disgorgement, which significantly incentivized these and other countries to cooperate and collaborate with the United States on foreign corruption cases, which has significantly advanced the government’s capability in investigating international cases.16
As we look to the year and decade ahead, we join the chorus of others who expect to see the momentum continue with increased global engagement by U.S. authorities leading to more record levels of FCPA enforcement. In addition to this modest prediction, here are five more—and perhaps less predictable—predictions for FCPA enforcement in the year ahead.
I. DOJ Will Issue a Traditional Declination to a Company That Self-Reports Corruption Discovered Through Post-Acquisition Due Diligence.
DOJ’s FCPA Corporate Enforcement Policy (“CEP”) has been modified a handful of times since it began as a pilot program in 2016 designed at incentivizing companies to self-report corruption in return for the presumption of a declination of prosecution. On June 27, 2019, DOJ announced the second change in a year focused entirely on mergers and acquisitions (“M&A”).17 Although the CEP had allowed for companies to receive self-disclosure credit and a declination for historic conduct disclosed post-acquisition since July 2018, DOJ’s policy at the time still retained significant disincentives: companies would be required to disgorge profits (which could be tens or hundreds of millions of dollars in FCPA cases) and DOJ publicly acknowledged each declination on its website.18 For the first time, a traditional, non-public declination without disgorgement may now be available for self-disclosures emanating from the M&A context. As the former Deputy Assistant Attorney General (“DAAG”) announced at a White Collar Conference in Prague on June 27, 2019, if a company self-discloses misconduct discovered in a merger or acquisition, and DOJ determines that the conduct and financial impact was de minimis, then DOJ may not publicize the declination.19 Under such circumstances, it stands to reason that DOJ also will be far less likely to require any disgorgement from an acquiring company that has yet to realize significant gains from the corrupt conduct it discovered.
While it remains unclear what type of conduct or financial benefit ultimately would be considered “de minimis” under the CEP, some of DOJ’s declinations in 2019 suggest it DOJ would be willing to take a liberal approach to granting leniency for the benefit self-reporting companies. For example, in the ICBL20 enforcement action, and other recent cases, DOJ has declined to bring any types of charges against companies even though the Department had filed criminal charges against company executives, which at the time was generally understood to constitute “aggravating circumstances” that would disqualify a company for consideration of a declination under the CEP.
In order to secure a traditional, non-public declination, an acquiring company will be required to self-report, terminate any problematic contracts or third-party relationships before significant benefits are realized, and fully remediate and cooperate with DOJ’s investigation of the selling entity and individuals. Identifying potential FCPA issues during the due diligence process will go a long way, and with a relatively low-cost resolution available, discovering such an issue could pose less of an obstacle to closing the deal. On the seller-side, additional value can be created by being able to market enhanced compliance systems and demonstrating that potential issues have already been fully remediated. The added incentive for a company to receive a traditional declination without publicity or disgorgement finally could move the needle for companies deciding whether to self-report corrupt conduct that it discovers, and it is likely that more acquiring companies in the M&A context now will be inclined to make a self-report in 2020.
II. More “Victims” Will File Claims for Restitution in FCPA cases.
On September 3, 2019, a federal court issued a significant decision finding that 50 individual and entity investors were “victims” under the Mandatory Victims Restitution Act (“MVRA”) of Och-Ziff Capital Management Group LLC (“Och-Ziff”) and its subsidiary for a wide-ranging foreign bribery scheme, and were eligible to recover restitution for their losses in connection with the subsidiary’s plea agreement.21 Though restitution is not entirely unheard-of in FCPA cases, it typically is ordered only against individual defendants when other crimes of embezzlement or fraud are also found,22 and restitution in connection with a corporate resolutions with DOJ is a rarity. For Och-Ziff, whose settlement with DOJ was already in place, the new claim potential added restitution of hundreds of millions of dollars to the company’s final price tag.
While the harm that befell investors in the Och-Ziff case was fairly unique—they claim to have been induced to sell off a set of valuable mining rights after losing a court battle allegedly influenced by the defendants’ bribes—the Och-Ziff court offered a broad interpretation of “victim” under the MVRA, which embraced intangible property rights.23 If the court’s ruling stands, it could open a floodgate of new claims by many categories of potential victims, including, among others: investors in defendant companies whose funds were used improperly to make corrupt payments and the large fines that resulted; competitor companies and their shareholders who may have lost out on business as a direct result of the bribery schemes; or even foreign states and its citizens who may claim to have been victimized by payments to their corrupt officials, thereby depriving them of the value of honest services and rule of law.24 Of course, any victim seeking restitution under the MVRA will be required to show that it has been directly and proximately harmed by a defendant that entered into plea agreement (as opposed to a DPA or NPA) with DOJ.
Notably, DOJ did not initially accept that the investor-claimants were “victims” under the MVRA,25 but after the court’s September 3, 2019 order, the Department reversed its position and signaled much more openness to evaluating restitution claims. On November 22, 2019, DOJ filed a brief in response to a court order effectively siding with the investors’ claim and valuing the restitution award at between $150-189 million.26 On December 3, 2019, Daniel Kahn, the Principal Deputy of the Criminal Fraud Section at DOJ, went a step further and invited purported victims of FCPA cases to make a claim: “If there is a victim of a crime, [DOJ] of course wants those victims to come forward. That is our primary objective, to ensure that victims are made whole.”27
DOJ may not issue formal guidance on this issue anytime soon, but public statements by DOJ officials or formal positions in public filings may provide some insight into how DOJ will prioritize certain categories of victims over others, thereby lending more weight to some types of claims. With enforcement levels expected to remain high, a wide variety of victim claims are likely to roll in. And because victims can also interject directly in the sentencing process (as the Och-Ziff investor-claimants did), there is also a good chance we will see judicial clarification around the metes and bounds of potential victim claims. The doors clearly have been opened, and we should expect to see more victim claims in connection with corporate pleas in FCPA cases in 2020.
III. More Companies Will Make Inability-to-Pay Claims.
On September 12, 2019, DOJ announced that the Criminal Division was considering issuing guidance on how the Department would evaluate claims by companies when they are unable to pay guideline-range fines that often accompany corporate resolutions.28 At the time, the only formal guidance on “inability-to-pay” claims lay within the U.S. Sentencing Guidelines, which state that the reduction of a criminal fine “shall not be more than necessary to avoid substantially jeopardizing the continued viability of the organization.”29 There was a general understanding that the Guidelines “don’t provide much in the way of concrete guidance or factors to consider,” and just weeks later, DOJ released an internal policy memo providing for the much-needed guidance on October 8, 2019, and outlining the multi-step process for how prosecutors should assess “inability-to-pay” claims.30
The “Inability-to-Pay Memo” included guidance for how and when such a claim should be raised (after the resolution and appropriate penalty have been determined), and attached a questionnaire with specific information and documentation DOJ would use to assess the claim.31 But perhaps the most significant aspect of the new policy was included within Footnote 4 of the memo:
. . . Criminal Division attorneys may, where appropriate, make an adjustment to a proposed criminal fine or monetary penalty based on the existence of a significant adverse collateral consequence that, while severe, may not necessarily threaten the continued viability of the organization. In such cases, the adjustment to the monetary penalty amount should not be more than necessary to avoid causing the severe adverse collateral consequence at issue.32
Compared to the Sentencing Guidelines’ standard of jeopardizing continued viability (a standard that seemed to require substantial risk of bankruptcy), DOJ’s policy memo provides for potentially far more flexibility. Under the new policy, companies that face “severe” collateral consequences—but not so severe that the company might fail as a result—may request that their fines and penalties be reduced. This move away from the “continued viability” standard provides businesses a chance to explain the severity of criminal fines to DOJ, even if their business could theoretically survive the full brunt of a criminal fine.
Questions remain, however, as to how DOJ will evaluate claims under this new standard. While the language of Footnote 4 does allow for a more lenient standard, it did not explain how prosecutors will decide what qualifies as a “severe” collateral consequence. Fortunately, there is some precedent to point to,33 and DOJ may provide further guidance consistent with its stated approach to improved transparency for the business community to understand into its decision-making processes. What remains clear is that we are likely to see more companies avail themselves of the new policy and seek a reduced fines based on an inability to pay in 2020.
IV. DOJ Will Continue to Charge Foreign Nationals as “Agents” Under the FCPA.
On November 8, 2019, in what was perhaps the most-watched FCPA trial in years, DOJ obtained a guilty verdict against Lawrence Hoskins, a British national who took part in a scheme to pay bribes on behalf of his French company in Indonesia.34 The trial was the sixth of seven consecutive victories at trial for DOJ’s FCPA Unit, and the case demonstrated federal prosecutors’ ability to use an “agency” theory of liability to prosecute foreign nationals under the FCPA.35
Hoskins was an employee of French non-issuer corporation Alstom SA, and he had never been to the United States. DOJ initially pursued a theory that Hoskins should be held liable for conspiring with entities that are within the FCPA’s reach, even if Hoskins himself was not. The Second Circuit rejected that theory in 2018, holding that someone who is incapable of committing the FCPA violation as a principal cannot be held liable under a conspiracy or complicity theory.36
Following the Second Circuit’s decision, DOJ moved ahead with its trial against Hoskins arguing that, as an executive at the French parent company who oversaw the U.S. subsidiary’s operations in Indonesia, he, in fact, acted as an “agent” of the U.S. subsidiary since he had approved the bribery scheme and provided support for the Alstom subsidiary. Hoskins was ultimately convicted at trial under this theory for violating the FCPA, in addition to violating other money laundering and conspiracy statutes.
The prosecution and conviction raised some concerns among practitioners in the white collar defense bar, particularly in light of seemingly attenuated agency theories used to pursue foreign persons and entities in the past.37 In response to those concerns, Assistant Attorney General Brian Benczkowski, emphasized during a speech on December 4, 2019, that there are limits as to how far DOJ might pursue cases under an agency theory.38 For instance, Benczkowski noted that DOJ will not take the position that “every subsidiary, joint venture, or affiliate is an ‘agent’ of the parent company simply by virtue of ownership status.” Nor will it assert that “every parent company should automatically be held liable for the acts of its subsidiaries, joint ventures, or affiliates based on an agency theory.” Instead, Benczkowski stated that DOJ recognizes that “the law requires more,” but he also warned that if evidence exists that corporate structures are being used to shield parent corporations or their executives from criminal liability, DOJ will “strongly favor prosecution” under agency theory.
Benczkowksi’s comments were significant and they mirrored an important departure for DOJ in how it prosecutes agency cases under the FCPA. For example, the first FCPA trial to address the agency question following the Second Circuit’s decision in Hoskins was United States v. Ho in 2018. In Ho, DOJ actually argued that agency did not require any element of “control” by the principal and the government proposed jury instructions that “[j]oint participation in a partnership or joint venture . . . suffices to make each partner or joint venture an agent of the others.”39 As Benczkowski noted in his speech, DOJ agreed to a higher bar in the Hoskins trial, which required the government prove that an agent operate under the “control” of the principal. The change obviously did not deter the jury from finding the defendant guilty of the FCPA violations and it proved to be a savvy move as it should better position the government to preserve the conviction when the Second Circuit revisits the issue on appeal.
With the Hoskins victory at trial, we should expect to see DOJ continue to charge foreign defendants as agents under the FCPA, and we also should see prosecutors make more intentional efforts at developing facts to prove up the control element, as well. In addition, we should expect future cases to also find foreign defendants charged with related charges like conspiracy to commit money laundering or fraud, which do not carry the same statutory constraints as the FCPA.
V. DOJ Will Publicly Decline to Bring a Case Based Largely on the Strength of a Company’s Compliance Program.
On April 30, 2019, DOJ released an updated guidance document to be used by prosecutors to evaluate the effectiveness of corporate compliance programs.40 The new guidance was released on the same day that DOJ conducted its first-ever full day of compliance training for prosecutors engaged in investigating corporate crime and the move continued DOJ’s focus on educating and empowering line prosecutors to play a more meaningful part in the assessment of compliance programs. The focus on corporate compliance has remained steady, and on December 4, 2019, a senior DOJ official even referred to compliance programs as a “super factor,” suggesting that a strong compliance program will be weighed heavily in a company’s favor during a DOJ investigation.41
The guidance document itself harmonizes past guidance materials and is the most comprehensive and detailed roadmap DOJ has released to date for what the government will expect from a company’s compliance program. It follows a familiar three-pronged framework: (1) is the program well designed; (2) is the program being applied earnestly and in good faith; and (3) does the corporation’s compliance program work in practice?42 From there, it contains 18 pages of sub-categories and specific questions that companies should expect to address if they ever find themselves across the table from federal prosecutors.
Of course, DOJ intends the guidance to not only be a playbook for both its prosecutors, but a playbook for corporations to build their compliance programs proactively. Regulators want companies to have an effective compliance program in place before they find themselves across the table. A company’s pre-existing compliance program has long been a factor for determining whether to bring charges under the “Filip Factors,”43 and more recently whether to reduce fines under the CEP.
Unlike some other countries’ bribery regimes (the UK Bribery Act, for example), having an effective compliance program is not an affirmative defense under the FCPA. That said, we may be entering an era where DOJ treats it as one. The Department has committed to weighing compliance heavily in its prosecutorial decisions, and has now equipped its line prosecutors to make meaningful fact-specific determinations on a case-by-case basis. It is a framework that provides the flexibility for a high degree of leniency where the circumstances permit, without creating a blanket exception for every company that meets some technical requirement. This is intended to significantly incentivize companies to invest in compliance. To that end, in the coming year, we may see DOJ publicly announce that it has issued a full declination to a company based almost entirely on the strength of that company’s compliance program.