Breaking new ground, the Department of Justice (DOJ) recently issued two “declinations with disgorgement” to two companies accused of Foreign Corrupt Practices Act (FCPA) violations. These declinations, released under the DOJ’s new Pilot Program, provide that the two privately-held Texas companies will not be prosecuted for FCPA violations, but will have to disgorge all profits made from the bribery.

These “declinations with disgorgement” represent a new kind of FCPA enforcement action in a year with more corporate enforcement actions than any prior year in FCPA history. In the past, the Securities and Exchange Commission (SEC) could require public companies to disgorge profits even if they declined an enforcement action. Essentially, the DOJ’s declinations here are applying disgorgement to non-public companies, over which the SEC has no jurisdiction. Previously, the DOJ did not require companies to disgorge profits when it issued a declination letter.

The DOJ announced its Pilot Program in April to encourage companies to self-report potential FCPA violations and cooperate in federal investigations. The DOJ had previously issued three declinations under the Pilot Program. Unlike HMT and NCH, all three were public companies and each had already agreed to disgorge profits to the SEC for their FCPA violations.

HMT LLC, who makes above-ground liquid storage tanks for the oil and gas industry, paid about $500,000 in bribes in Venezuela and China that resulted in a profit of approximately $2.7 million, all of which it was required to disgorge.

NCH Corporation, a cleaning products producer, via a Chinese subsidiary gave Chinese officials cash, gifts, meals and entertainment worth about $44,000. NCH was required to disgorge the $335,000 profits it generated from the bribery.

The DOJ said it closed its investigations of the two companies despite FCPA antibribery violations because of several factors, including:

  • Timely, voluntary self-disclosure of the violations
  • Thorough and comprehensive global investigations of the violations
  • Full cooperation including providing all known relevant facts about the individuals involved in or responsible for the misconduct
  • Agreement to continue to cooperate in any ongoing investigations of individuals
  • The disgorgement of all profits made from the bribery
  • Enhancing compliance programs and internal accounting controls, and
  • Full remediation including terminating employees involved in the FCPA violations, sanctioning other employees through suspensions, pay freezes, bonus suspensions, and reductions of responsibilities, and severing business relationships with the intermediaries involved in the bribery.

These two declinations may be only the first shoe to drop in these investigations. Given the continuing cooperation requirements, including naming individuals responsible for the bribery, there could be additional criminal actions taken against individuals related to both of these cases. Although the companies may have dodged prosecution, it is not clear that individuals will be as fortunate, especially in view of the Yates Memo, which emphasizes the DOJ’s desire to prosecute responsible individuals.