The Department of Justice yesterday upped the ante in its efforts to encourage companies to self-report potential Foreign Corrupt Practices Act (“FCPA”) violations when it unveiled a one-year pilot program that includes carrots for companies who take the self-reporting route and sticks for those that don’t. This announcement follows the Department’s recent emphasis on prosecuting individuals in white collar cases, the addition of new resources to combat corruption that includes ten new FCPA prosecutors and three new squads of FBI agents dedicated to investigating corruption, and enhanced cooperation between U.S. law enforcement and their international counterparts. Assistant Attorney General of the Criminal Division Leslie Caldwell said that the objective of the pilot program is to provide greater transparency into the Department’s charging decisions and to provide an incentive for companies to self-disclose FCPA misconduct so that the Department can prosecute “individuals whose criminal wrongdoing might otherwise never be uncovered by or disclosed to law enforcement.”
Under the program, companies that voluntarily self-disclose FCPA-related misconduct, cooperate with the government, and remediate flaws in their compliance programs will be eligible for enhanced mitigation credit. According to Caldwell, “[t]hat means that if a criminal resolution is warranted, the Fraud Section may grant a reduction of up to 50 percent below the low end of the applicable U.S. Sentencing Guidelines fine range, and generally will not require appointment of a monitor.” Where these conditions are met, the Fraud Section will also consider declination of prosecution.
The Foreign Corrupt Practices Act Enforcement Plan and Guidance, a nine-page memorandum released yesterday, outlines how the Department will evaluate companies’ “voluntary self-disclosure,” “full cooperation,” and “remediation.”
Voluntary Self-Disclosure. In evaluating voluntary self-disclosure, the Department will carefully assess the circumstances of the disclosure, including:
- Whether the disclosure occurred prior to an imminent threat of disclosure or government investigation;
- Whether the disclosure occurred within a reasonably prompt time after the company became aware of the misconduct; and
- Whether the company disclosed all relevant facts, including facts related to the individuals involved.
Full Cooperation. In order to receive credit for full cooperation under the pilot program, companies must, among other things:
- Make a timely disclosure of all facts relevant to the wrongdoing, including any facts related to misconduct by the corporation’s officers, employees, or agents, and facts uncovered during the company’s internal investigation;
- Proactively cooperate with the government, providing timely updates and identifying opportunities for the government to obtain evidence not in the company’s possession;
- Preserve, collect and disclose all relevant documents, and, upon request, make officers or employees with relevant information available for interviews;
- Provide all facts relevant to potential criminal conduct by third parties; and
- Where documents and witnesses are located abroad, facilitate the production of documents and witnesses from foreign jurisdictions, and, where appropriate, provide translations of relevant documents in foreign languages.
Remediation. The Guidance makes clear that full cooperation is a prerequisite to receiving credit for remediation, stating that “a company cannot fail to cooperate and then expect to receive credit for remediation despite that lack of cooperation.” Beyond cooperation, however, to receive credit for remediation, the Guidance provides that companies generally will be required to do the following:
- Implement an effective compliance and ethics program, which takes into account whether the company has an established culture of compliance, whether the company dedicates sufficient resources to the compliance function, whether it employs qualified and experienced compliance personnel, whether systems are in place to monitor the effectiveness of the compliance program (e.g., periodic risk assessments and audits); how the company’s compliance personnel are compensated and promoted compared to other employees; the independence of the compliance function; and the reporting structure of compliance personnel within the company;
- Appropriately discipline employees, including those responsible for the misconduct, through a system that contemplates discipline for employees with oversight responsibilities and takes disciplinary infractions and failures to supervise into account when making determinations about compensation; and
- Any additional steps necessary to show that the company takes the issue seriously, accepts responsibility for the misconduct, and will implement measures to identify and mitigate future risks.
Where companies meet the requirements set out in the Guidance and agree to disgorge all profits resulting from the FCPA violation, they will be eligible for a 50 percent reduction off the bottom end of the Sentencing Guidelines and generally will not require appointment of a monitor. However, as noted by Caldwell, where companies choose not to voluntarily disclose they will receive only limited credit for any subsequent cooperation and remediation – “any such credit will be markedly less than that afforded to companies that do self-disclose wrongdoing.” According to the Guidelines, in circumstances where no voluntary self-disclosure has been made, companies will receive, at most, a 25 percent reduction off the bottom end of the Sentencing Guidelines.
Although many of the factors identified in the guidance had already been known prior to the implementation of a formal “pilot program,” the Department is clearly trying to change the calculus that companies undertake when making that critical self-disclosure decision. We will be watching closely to see if this achieves the Department’s intended results: more cases against individuals and an increase in the numbers of companies that choose to self-disclose. To achieve those results, the Department will have to come through in a significant way on its promise to treat companies who self-disclose quickly and fully far better and it will have to publicize those decisions. Regardless, with the increase in Department resources, we should expect to see an increase in FCPA cases.