Before getting down to some of the “nitty-gritty” issues addressed in the FCPA Guidance, I wanted to take a moment to provide a quick list of headlines from the FCPA Guidance.
My review does not reflect any of the typical “hard sell” strategies employed by the FCPA Paparazzi to try and strike fear in the heart of corporate counsel and compliance officers. I have already set the stage for assessing the Guidance in today’s political environment. So, with that explanation, here are ten important points to consider.
- DOJ and SEC Professionalism: The Justice Department and the SEC have demonstrated good faith and professionalism in attempting to explain the FCPA and their enforcement policies. DOJ’s and SEC’s staff have acted with integrity and demonstrated their commitment to the public interest, fairness and the rule of law. I commend them on a job well done and acknowledge their contribution to FCPA enforcement, the rule of law and compliance.
- The FCPA Guidance and Prior Enforcement Actions: The FCPA Guidance explains DOJ’s and SEC’s prior enforcement actions. It is no surprise that the Guidance follows the contours of DOJ’s and SEC’s prior enforcement actions – it is a window into their thinking and rational for prior actions. While some might cynically characterize the Guidance as a stretch to justify prior enforcement actions, I am not so cynical and see the Guidance as a way for DOJ and SEC staff to explain their rationale in support of their decisions.
- Prosecutorial Discretion: The FCPA Guidance provides a window into the thinking of DOJ and the SEC. It is a valuable resource in that it outlines important information about how the government evaluates cases, weighs evidence and overall factors in carrying out its enforcement mission. In fact, the FCPA Guidance provides invaluable insight for compliance practitioners, and FCPA defense counsel. As a former federal prosecutor for over 20 years, I understand their thinking and how they approach cases. They explained it well and it is hard to quibble with most of what they wrote.
- Compliance Programs: The FCPA Guidance includes a valuable discussion of how they evaluate and review compliance programs. It is a carefully crafted discussion, which embraces important principles, and will prove instructive to all compliance practitioners.
- Hypothesizing the Hypotheticals: The FCPA Guidance contains a number of discussions and hypothetical’s which provide some important instructions and guidance on third party due diligence and gifts, meals, travel and entertainment expenses. It is clear that the FCPA Guidance was intended to demonstrate DOJ’s and the SEC’s reasonableness when it comes to evaluating company treatment of gifts, meals, entertainment and travel expenses. In doing so, they highlighted important compliance principles which I have long advocated — transparency, prospective policies, and good faith attempts to comply with the law. At the same time, they distinguished the need for prosecuting situations where companies engage in systematic violations and when a business suffers serious compliance program meltdowns.
- Voluntary Disclosure – the FCPA Guidance reflects DOJ‘s and SEC’s continued drumbeat urging companies to voluntarily disclose. The hypotheticals and discussions are replete with instances when voluntary disclosure led to declinations or significantly reduced penalties. It is a good public relations effort but until there are more definite standards articulated by DOJ and the SEC governing benefits from voluntary disclosures, companies clearly have to weigh the alternative strategy of fixing a problem and non-disclosure (assuming there is no public disclosure obligation under a materiality test).
- Successor Liability – the FCPA Guidance discussion on this area was disappointing. DOJ and the SEC tried to provide some safe harbors and practical solutions but they were somewhat confusing. The DOJ and SEC has to try and stick with Opinion Release No. 08-02 (Halliburton) which is a strict and difficult policy to enforce. At the same time, DOJ and SEC reiterated their more flexible approach to integrating new companies into existing compliance programs and completion of FCPA audits. Until 08-02 is brushed aside, DOJ and the SEC will not have as much flexibility as they wish.
- Declinations – the FCPA Guidance provided important hypotheticals on prior declinations. Some have argued that DOJ and the SEC should release all declinations. As I have stated on numerous occasions, this will never occur. It sets a dangerous precedent and prosecutors will always oppose any attempt to formalize the exercise of discretion and their ability to weigh all appropriate factors. Notwithstanding these concerns, the hypotheticals outlined by DOJ and the SEC are very valuable and provide helpful guidance to practitioners, companies and compliance professionals.
- Cooperation Benefits – unfortunately, the FCPA Guidance did not help to clarify the specific benefits from cooperation. It would not have been hard to define some benefits while retaining discretion to address “extraordinary” cooperation situations (e.g. 25 percent reduction after government investigation initiated, and 50 percent reduction if prior to government knowledge of conduct). The failure to address this issue may undermine, at the margins, future attempts to secure cooperation from companies.
- Simplifying Definition of “Foreign Officials” – DOJ and the SEC reiterated prior court decisions on the definition of “instrumentality” in the definition of a “foreign official.” Again, in the interest of clarity and simplicity, DOJ and the SEC could have narrowed its reliance to situations where a foreign government has ownership or voting control of an entity. We now must wait for the 11th Circuit’s resolution of the pending appeal to gain further guidance. Hopefully, the court will narrow the analysis from a “hodge podge” of factors to a more reasoned analysis.