For years, companies, lawyers and observers alike have debated whether the possible benefits of self-reporting potential violations of the Foreign Corrupt Practices Act (FCPA) to the US Department of Justice (DOJ) outweighs the risks. Companies that favored self-reporting to the DOJ – especially in light of the increasing number and sophistication of whistleblowers – hoped that they would receive leniency. Those opting against self-disclosure hoped that FCPA violations would go unnoticed or, if they were discovered, that an internal investigation and remediation would suffice.
On November 29, 2017, the DOJ announced its new FCPA Corporate Enforcement Policy which – in large part – made permanent the DOJ's FCPA Pilot Program launched in April 2016. The Pilot Program, among other things, attempted to incentivize self-disclosure by permitting declinations when certain criteria were met. The Policy went a step further by creating a presumption that the DOJ will not prosecute a self-reporting company when certain criteria are satisfied (although a qualifying company will still be required to disgorge any ill-gotten "profits").1 Although the Policy will not settle the self-reporting debate, it certainly requires companies and their counsel to reconsider their assumptions
Qualifying for a declination
To qualify for a declination under the Policy, a company must (i) voluntarily disclose its potential FCPA violation, all relevant facts and individuals involved to the DOJ prior to the threat of a government investigation; (ii) fully cooperate with the DOJ's investigation by preserving and disclosing all evidence, coordinating the company's internal investigation with the DOJ's investigation and making relevant individuals available for the DOJ interviews; and (iii) demonstrate timely and appropriate remediation of the FCPA violation by implementing an effective compliance program, disciplining culpable employees and preserving and retaining all relevant evidence.
Even if a company satisfies these criteria, it will not qualify for a declination if "aggravating circumstances" exist, which include – but are not limited to – "involvement by executive management" in the misconduct, a "significant profit," the "pervasiveness of the misconduct" and "criminal recidivism."
The results are in (for now)
Over two years have elapsed since the DOJ began formally incentivizing self-disclosure through the Pilot Program and, so far, the results show that the DOJ is declining to prosecute companies that self-report FCPA violations. Since instituting the Pilot Program, the DOJ has issued formal declination letters to eight companies.
According to the declination letters, the DOJ has declined to prosecute self-reporting companies for the following reasons:
- Prompt disclosure: Upon discovering the potential improper payments, the companies promptly and voluntary disclosed them to the DOJ.
- Thorough investigation: Companies thoroughly investigated the facts and circumstances surrounding the inappropriate payment and the individuals involved.
- Detailed disclosure: Companies cooperated with the DOJ's investigations by disclosing all relevant information and identifying individuals involved in or responsible for the misconduct.
- Full cooperation: Companies agreed to continue cooperating with the DOJ's investigations after the declinations.
- Compliance program enhancements: Companies took steps to enhance their compliance program so that they could more readily detect and prevent future FCPA violations.
- Remediation and discipline: Companies remediated their violations by terminating employees involved in the misconduct, sanctioning other liable employees through suspensions, pay freezes, bonus suspensions and reductions of responsibilities and terminating business relationships with intermediaries involved in the violation.
- Disgorgement: Companies agreed to disgorge the profits associated with the improper payments.
The DOJ appears to be following through on its pledge to increase declinations in exchange for self-reporting potential FCPA violations.
Notwithstanding the incentives created by the Pilot Program and Policy, the question of whether a company should self-disclose in any given case remains fact-dependent. In addition to properly assessing the nature and scope of any potential misconduct, a company considering self-disclosure must continue to weigh multi-faceted risks and benefits of disclosing against the those of not doing so. For example, while the presumption of a declination may be enticing, whether and how the DOJ will assess and apply the "aggravating circumstances" exceptions in any given case is unknow.
Additionally, the SEC has independent jurisdiction to investigate and prosecute violations of the FCPA's accounting provisions. And while the SEC and DOJ often coordinate investigations and resolutions, the SEC is not bound by the Policy; thus it may proceed with an enforcement action even if the DOJ issues a declination. And, as anticorruption regulation and enforcement continues to expand around the globe, a company must also consider simultaneous disclosures to one or more foreign regulators.2 Deciding whether to disclose a potential FCPA violation, as well as how to plan and execute any investigation, disclosure, and remediation, requires the assistance of experienced counsel.