In April 2016, the U.S. Department of Justice’s Fraud Section introduced a one-year FCPA Pilot Program. With that year now having passed and Acting Assistant Attorney General Kenneth Blanco’s recent announcement that the program would remain in place at least temporarily, companies doing business internationally would be well-served to examine how implementation has evolved in the last 12 months. Whether you are in the middle of an internal investigation, fine-tuning your compliance program or just thinking you should be doing something to protect your company, there are lessons to be learned.
The Pilot Program was part of the Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance, the stated goals of which are to:
- deter violations by individuals and companies;
- encourage strong compliance programs designed to prevent and detect FCPA violations; and
- heighten the government’s ability to discover and prosecute wrongdoing by individuals.
To do so, the DOJ is encouraging companies to disclose violations voluntarily, cooperate fully with government investigations and demonstrate specifically how they have remediated any deficiencies in their compliance programs that contributed to the violation. An organization that meets those parameters is eligible for a reduction of up to 50 percent off the bottom of the fine range in the U.S. Sentencing Guidelines, may avoid a monitor and, under some circumstances, prosecution could be declined. In line with the guidance in the well-publicized 2015 Yates memorandum, the cooperation requirement includes the direction that the organization must promptly report to the government relevant facts about the conduct of individuals involved in the violation.
A clear break from the past occasioned by the Pilot Program has been DOJ’s public issuance of declinations. In prior years, DOJ often declined to prosecute companies that cooperated and remediated effectively and did so without any public disclosure. But in the last year, it publicly identified five companies it had declined to prosecute. In each case, DOJ cited the company’s voluntary disclosure and full cooperation with the government investigation and noted that the company had identified the individuals involved in the conduct. Another key aspect of these declinations was each company’s disgorgement of the profits related to the violation.
Not all companies under investigation fared as well, but many still obtained some of the Pilot Program’s benefits. For example, General Cable Corporation entered into a non-prosecution agreement and its fine was set at a level 50 percent below the low end of the Guidelines range, with DOJ citing the company’s voluntary disclosure and cooperation, as well as significant remedial measures such as terminating certain employees and business relationships. Several other companies received lesser discounts, with DOJ determining that disclosures were not as timely as they should have been or that cooperation or remediation was not up to its standards.
While these resolutions provide some insight into how the government will evaluate a disclosure of a possible violation, there still appears to be a subjective dimension to how DOJ quantifies the value of the factors of disclosure, cooperation and remediation that it weighs under the Pilot Program. We examine each of these in turn.
Voluntary Disclosure Expectations
Pilot Program guidance states that credit for voluntary disclosure is available only if it occurs “prior to an imminent threat of disclosure or government investigation” and “within a reasonably prompt time after becoming aware of the offense.” The disclosure must include “all relevant facts,” meaning, among other things, that it must identify the individuals involved in the conduct. This formulation does not necessarily make the difficult decision of whether to disclose to the government any easier. In the initial stages of an internal review (and sometimes even in the end), facts are frequently murky and the existence of an actual violation may be less than clear. Even where a violation seems relatively clear but the full extent and context is not yet known, does DOJ’s requirement that the disclosure be “reasonably prompt” mean that it must occur prior to the conclusion of a full internal investigation? Some companies may determine that the best course (particularly where conduct is isolated or the amounts involved are small) is to complete their investigations and take remedial measures, since the alternative is to self-disclose and roll the dice with DOJ in the hope that it will deem the disclosure to be sufficiently prompt. At the other extreme, an outlier would seem to be a global heating, air conditioning and refrigeration equipment manufacturer, which in October 2016 disclosed an alleged payment of approximately U.S. $475 to a Russian customs broker or official.
The Pilot Program’s second requirement is that the organization provide “full cooperation” to the government, which underscores the importance of a thorough internal investigation and the need for the company not only to disclose all relevant documents, but also to make individuals available for interviews with prosecutors. Meeting these standards can be challenging and expensive, particularly where foreign data privacy laws and language translation issues arise and employees are reluctant to be interviewed by government attorneys. In investigations over the last year, a global financial services firm received significant credit for timely producing documents and facilitating overseas employees’ travel to the United States for interviews, and DOJ praised Olympus for translating documents. But on the other hand, DOJ cited BK Medical, PTC and Och-Ziff Capital Management Group for failing to provide certain information that prosecutors deemed to be relevant.
A third critical factor DOJ weighs in evaluating the remediation element is whether a company has taken significant disciplinary action against those it deems responsible for a violation. While it required the financial services firm to pay $264 million to resolve FCPA charges arising from the firm’s hiring of unqualified relatives and friends of Chinese government officials to win banking deals, DOJ entered into a non-prosecution agreement due in part to the firm firing six employees who were involved in the hirings and disciplining another 23 employees who “failed to effectively detect the misconduct or supervise those engaged in it.” In contrast, DOJ provided no remediation credit to Embraer, finding that the company had failed to discipline a senior executive who knew or should have known about the bribery of foreign government officials.
Continued Emphasis on Enhanced Compliance Programs
In all cases publicized over the last year, DOJ has stressed the importance of sound, effective anti-bribery compliance programs. In several 2016 FCPA settlements, DOJ cited the company’s failure to maintain adequate internal controls and forced the organization to agree to a monitor. In addition, in February 2017 the Fraud Section released Evaluation of Corporate Compliance Programs, a document containing a compendium of guidance that builds on pronouncements in prior settlements, the DOJ/SEC FCPA Resource Guide that was issued in 2012, the U.S. Sentencing Guidelines, and publications on anti-corruption compliance by the Organization for Economic Cooperation and Development. That the government will continue to emphasize the importance of compliance programs that are not just paper documents is underscored not only by the developments of the last year, but also by DOJ’s hiring in November 2015 of its first full-time compliance expert – a former federal prosecutor – whose work apparently led to the development of the benchmarks contained in the February 2017 document.
Although some commentators initially expressed doubts about the Trump administration’s commitment to FCPA enforcement, recent pronouncements by DOJ officials suggest that there will be continued focus on this area. For example, at a recent Washington, D.C. conference, Acting Principal Deputy Assistant Attorney General Trevor McFadden declared that DOJ “remains committed to enforcing the FCPA and to prosecuting fraud and corruption more generally.” Accordingly, companies conducting business internationally would do well to assess their anti-bribery compliance programs and refine them if necessary.