“Voluntary self-disclosure of criminality,” “full cooperation” and “timely and appropriate remediation” in connection with violations of the Foreign Corrupt Practices Act (FCPA) are the main ingredients in the recipe for qualifying for additional mitigation credit in FCPA matters, according to the newly launched one-year pilot program by the Fraud Section’s FCPA Unit of the Criminal Division of the Department of Justice.
In a memorandum dated April 5, 2016, Andrew Weissmann, chief of the Criminal Division’s Fraud Section, explained that the pilot program seeks to promote greater accountability for individuals and companies that engage in FCPA-related misconduct. There are two parts to accomplishing this goal. The first part consists of enhanced enforcement resources, such as the addition of 10 more prosecutors to the Fraud Section’s FCPA Unit and the FBI’s addition of three new squads of special agents dedicated to investigate and prosecute FCPA criminal activity, and increased collaboration with foreign law enforcement authorities. The second part consists of guidance for the business community with respect to the expectations of the FCPA Unit from companies seeking mitigation credit.
Most of the memorandum focuses on the second part, setting forth the standards for what constitutes (1) voluntary self-disclosure, (2) full cooperation, and (3) remediation. If there is satisfactory compliance with these conditions, companies may receive up to a 50 percent reduction in fines, no compliance monitor, and potentially even a declination of prosecution. These are obviously significant benefits that have to be considered when deciding whether to voluntarily disclose potential FCPA-related wrongdoing.
The memorandum states, simply, that “voluntary self-disclosure of an FCPA violation is encouraged.” No disclosure that is required by law, agreement or contract will, however, be considered. In addition, to be eligible for the additional mitigation credit, entities must make the disclosure “prior to an imminent threat of disclosure or government investigation” and “within a reasonably prompt time after becoming aware of the offense.” The disclosing entity will have to demonstrate timeliness and ensure that it disclosed all relevant facts known to it, including the identity of the individuals involved in the misconduct. This focus on individual liability is in furtherance of the September 9, 2015 memorandum by Deputy Attorney General Sally Yates regarding individual accountability for corporate wrongdoing.
Cooperation is obviously unique to each case and comes in many forms. The memorandum provides a list of requirements that companies will have to meet to receive credit for full cooperation:
- Timely disclosure of all relevant facts, including those related to individuals involved
- Proactive cooperation
- Preservation, collection and disclosure of relevant documents and information about the source
- Provision of timely updates on any internal investigation
- De-confliction of an internal investigation with the government investigation, where requested
- Disclosure of relevant facts regarding potential criminal conduct by third parties and their officers or employees, and third-party individuals
- Making available officers and employees with relevant information for interview upon request (subject to the individuals’ Fifth Amendment rights)
- Disclosure of all relevant facts gathered during the entity’s internal investigation and attribution of facts to specific source, subject to the attorney-client privilege
- Disclosure of overseas documents, subject to foreign law, including foreign data privacy laws
- Facilitation of third-party production of documents and witnesses from foreign jurisdiction, unless legally prohibited
- Provision of translations of relevant documents in foreign languages, where requested and appropriate
In addition, the memorandum provides three important clarifications regarding cooperation. First, “the Fraud Section does not expect a small company to conduct as expansive an investigation in as short a period of time as a Fortune 100 company.” Second, eligibility for full cooperation credit is not predicated upon waiver of the attorney-client privilege or work product protection and none of the above listed items requires such waiver. Third, less than full cooperation – whether an entity decides to cooperate only later in an investigation or cooperates in a timely manner, but does not meet all the criteria – does not disqualify the entity from receiving some cooperation credit.
Timely and Appropriate Remediation
Finally, the memorandum acknowledges that “remediation can be difficult to ascertain and highly case specific.” Additional credit for remediation can be obtained only if the entity is eligible for cooperation credit, and is predicated upon the implementation of an effective compliance and ethics program in accordance with certain criteria that are subject to periodic updates as well as the appropriate discipline of those responsible for the misconduct. In particular, the entity must establish a culture of compliance, dedicate sufficient resources to compliance, ensure the quality and independence of the compliance personnel and function, perform risk assessments and audits of the compliance program and institute a reporting structure.
If a company meets the three requirements of voluntary self-disclosure, full cooperation and remediation to the satisfaction of the Fraud Section’s FCPA Unit, then the entity will be eligible for the “full range of potential mitigation credit,” including a reduction of up to 50 percent off the bottom sentencing guidelines fine range and no appointment of a monitor. In addition, a declination of prosecution will be considered. If a company fails to meet the voluntary self-disclosure standards, it may still receive some credit if it later fully cooperates and remediates in a timely and appropriate manner. In that case, the FCPA Unit will accord up to a 25 percent reduction off the bottom of the sentencing guidelines fine range.
The pilot program is an important step in establishing some guideposts and transparency to the Fraud Section’s FCPA enforcement program, giving companies and counsel important information to consider when deciding FCPA-related strategies. Of course, it remains to be seen if the Department of Justice’s sales pitch will be successful and whether companies will come forward and provide information in the hopes of lower fines, no monitors and potential declinations.