To understand how the government will regulate companies in the future, it is important to understand the problems that the government is currently trying to solve. In its efforts to enforce the Foreign Corrupt Practices Act (“FCPA”), the U.S. Justice Department faces a particularly difficult problem. How does the Justice Department incentivize companies to volunteer information about their own illegal conduct and still retain its ability to punish those companies for breaking the law?

The Justice Department’s problem arises from its pursuit of two very different goals. On one hand, the Justice Department wants businesses to come forward and voluntarily disclose potential violations of the FCPA. Through voluntary disclosures, the Justice Department obtains a steady stream of cases, conserving its limited resources, increasing the likelihood of successful prosecutions of individuals, and maximizing the effectiveness of its enforcement actions against companies. The Justice Department has obtained a large number of settlements and recovered billions of dollars in penalties because of voluntary disclosures.

On the other hand, the Justice Department wants to retain as much discretion as possible to penalize companies for violating the FCPA, including those who voluntarily disclose their problems. The Justice Department worries about sending the wrong message and failing to achieve the just result if it declines prosecution of a company in a case with egregious facts. If the Justice Department makes a blanket commitment to decline prosecution of any company making a voluntary disclosure, the Justice Department might encourage voluntary disclosures but inhibit its own ability to enforce the law.

In the past, the Justice Department tried to solve this problem by promising more lenient treatment for companies with voluntary disclosures but not committing to providing any specific benefits. That way, the Justice Department retained its full discretion while it generally tried to reward companies that voluntarily disclosed their misconduct, provided full cooperation, and improved their compliance programs.

Companies, however, have become increasingly restless with the status quo and the ambiguity that it produced. Many companies have questioned whether voluntary disclosures are worthwhile when there is no certainty that a company will receive any benefit at all. Others have argued about the unfairness of imposing criminal liability on companies that have operated strong compliance programs. The U.S. Chamber of Commerce, for instance, has urged for the adoption of a compliance defense to the FCPA, which would allow companies to avoid criminal liability altogether if they had a strong compliance program in place. If a significant number of companies decline to make voluntary disclosures in the future because of these or similar concerns, the Justice Department’s enforcement efforts will be substantially hindered.

In speeches given by officials such as Assistant Attorney General Leslie Caldwell, the Justice Department has recognized the concerns of companies, promised more transparency about its enforcement decisions, and announced its intent to publicize declinations where appropriate. In April, the Justice Department’s Fraud Section announced a Pilot Program governing the disclosure of potential FCPA violations. Because it was an experimental program, the Fraud Section limited the program only to disclosures concerning FCPA issues and limited its operation only to one year.

Under the program, the Fraud Section has tried to quantify the benefits that a company could receive by voluntarily disclosing potential FCPA violations. For companies that make a voluntary disclosure, fully cooperate, and adopt timely and appropriate remedial measures, the Pilot Program offers the following benefits: (1) the potential of a 50% reduction of the fine off of the bottom end of the U.S. Sentencing Guidelines; (2) an understanding that the Justice Department “generally” will not require an appointment of a monitor; and (3) the promise that the Justice Department “will consider a declination of prosecution.” However, if the company does not voluntarily disclose but later cooperates and remediates, the Justice Department will be willing to consider only a maximum 25% reduction off the bottom of the guidelines and will make no assurance about whether a monitor would be required.

By itself, the Pilot Program is not likely to cause a significant increase in the number of voluntary disclosures. The Pilot Program does not offer anything significantly different than what companies could have expected in previous years. The Pilot Program does not make any promise of declinations for companies that voluntarily disclose, and, just as before, the Justice Department has retained its full discretion to prosecute companies as it sees fit. The Justice Department has issued two declination letters since the Pilot Program was announced, and those were cases that likely would have been declined even before the Pilot Program was announced.

Moreover, companies may view the increased transparency of the Pilot Program as negated by the Justice Department’s aggressive rhetoric about the heightened standards that it expects companies to meet in cooperating with the government. The first seven pages of the Pilot Program discuss all of the ways in which the Fraud Section might conclude that a company has not met the standards for voluntary disclosure, cooperation, and remediation. The Yates Memorandum, issued last September by Deputy Attorney General Sally Yates, compounds that uncertainty by adding another hurdle for companies to surmount in order to qualify for cooperation credit. The Yates Memorandum instructs prosecutors to deny all cooperation credit if a company has not identified all relevant facts about culpable conduct by its employees. The Justice Department is fully aware of the concerns raised by companies and defense counsel about whether the costs of cooperation outweigh the benefits.

That is why the Justice Department likely intends to promote the benefits of the Pilot Program extensively over the next year, highlighting the declinations that it awards and the penalty reductions that it grants. At the same time, while exercising its discretion, the Justice Department is likely to seek harsher penalties from those companies that decide not to cooperate or that do not voluntarily disclose misconduct. Assistant Attorney General Caldwell has hinted at such a strategy in speeches in the past year when she predicted that there would be more declinations, more guilty pleas, and fewer deferred prosecution agreements and non-prosecution agreements.

In considering how the Fraud Section is likely to react to internal investigations over the next year under the Pilot Program, companies should carefully consider the problem that the Fraud Section is trying to solve. The Pilot Program is not intended to dictate how the Fraud Section exercises its prosecutorial discretion in prosecutions of companies for FCPA violations. It is not meant to provide blanket immunity to companies with strong compliance programs. It does not even make any promises about the treatment that a company is necessarily entitled to receive if it voluntarily discloses information. The Pilot Program is designed to preserve the government’s exercise of prosecutorial discretion and to incentivize companies to disclose misconduct voluntarily. Companies should expect the Fraud Section to operate the Pilot Program over the next year with those goals in mind.