In recent months, senior leaders of the U.S. Department of Justice (“DOJ”) have garnered significant headlines by publicizing a renewed focus on prosecuting individuals for white-collar offenses, including under the FCPA. These efforts include various changes to departmental procedure and decision-making, as highlighted in the so-called “Yates Memorandum” announced by Deputy Attorney General Sally Quillian Yates on September 10, 2015.1 As we have written previously, the Yates Memorandum underscores a number of important factors for companies to consider in deciding whether to self-report possible wrongdoing to the DOJ.2 For companies also subject to oversight by the U.S. Securities and Exchange Commission (“SEC”), a recently announced change in policy has likewise attracted public attention and complicated further the already difficult decision of whether to self-report evidence of misconduct. A few weeks ago, in remarks to the American Conference Institute’s annual conference on FCPA enforcement, SEC Director of Enforcement Andrew J. Ceresney stated that self-reporting – and not merely robust cooperation – will be a pre-requisite to the SEC’s agreeing to certain forms of leniency. In particular, he highlighted self-reporting in FCPA cases as a requirement for corporate entities to resolve matters through civil Deferred Prosecution Agreements (“DPAs”) and Non-Prosecution Agreements (“NPAs”), as opposed to other forms of resolution.3 This new policy raises challenging questions, both as to how the SEC will implement the policy and how the policy will affect companies’ decisions relating to self-reporting. Continued on page 22 1. See Mem. of the Deputy Attorney General, “Individual Accountability for Corporate Wrongdoing” (U.S. DOJ Sept. 9, 2015), http://www. justice.gov/opa/speech/deputy-attorney-general-sally-quillian-yates-delivers-remarks-new-york-university-school. See also Assistant Attorney General Leslie R. Caldwell Delivers Remarks at American Conference Institute’s 32nd Annual International Conference on the Foreign Corrupt Practices Act (Nov. 19, 2015), http://www.justice.gov/opa/speech/assistant-attorney-general-leslie-r-caldwell-speaksamerican-conference-institute-s-31st. 2. See Helen V. Cantwell, Matthew E. Fishbein, Bruce E. Yannett, and David A. O’Neil, “‘The “Yates Memorandum’: Has DOJ Really Changed Its Approach To White Collar Criminal Investigations and Individual Prosecutions?” (Sept. 15, 2015), http://www.debevoise.com/insights/ publications/2015/09/the-yates-memorandum-has-doj-really-changed. 3. Andrew J. Ceresney, “ACI’s 32nd FCPA Conference Keynote Address” (U.S. SEC Nov. 17, 2015), http://www.sec.gov/news/speech/ceresneyfcpa-keynote-11-17-15.html. www.debevoise.com FCPA Update 22 December 2015 Volume 7 Number 5 4. Id. 5. Id. 6. Id. 7. Id. 8. Id. 9. For example, in the past five years, at least twenty-five companies have reached Deferred Prosecution Agreements with the DOJ in FCPA matters. Only six of these cases (AGA Medical, Diebold, Johnson & Johnson, Maxwell Technologies, Orthofix, and Tyson Foods) occurred in cases initiated by a voluntary disclosure. Nineteen settlements (AGCO, Bilfinger SE, Biomet, Data Systems & Solutions, Dallas Airmotive, Inc., Eni S.p.A./Snamprogetti, Fiat, Flowserve Pompes SAS, JGC Corp., Marubeni Corporation (2014), Novo Nordisk A/S, Parker Drilling Company, Shell, Smith & Nephew, Technip S.A., Total S.A., TransOcean, Volvo AB, and Willbros Group) occurred in cases where there had been no initial voluntary disclosure. The SEC’s New Policy In announcing the new SEC policy, Director Ceresney observed that “[s]elf-reporting is critical to the success of the SEC’s cooperation program,” given that it allows misconduct to be identified “more quickly and reliably,” and, more generally, gives the agency “a significant head start on our investigations.”4 The agency therefore has provided an array of benefits to self-reporting entities, “from reduced charges and penalties, to deferred or non-prosecution agreements – known as DPAs and NPAs – in instances of outstanding cooperation, or in certain instances in which the violations are minimal, no charges.”5 Against this background, Ceresney said, “[i]f the Enforcement Division finds the violation through its own investigation or from a whistleblower, the consequences to the company will be worse and the opportunity to earn additional cooperation credit may well be lost.”6 Announcing the SEC’s new policy, he then added that “the Enforcement Division has determined that going forward, a company must self-report misconduct in order to be eligible for the Division to recommend a DPA or NPA to the Commission in an FCPA case.”7 Ceresney noted that “self-reporting is not enough,” and whether the agency will take the “extraordinary” step of entering into a DPA or NPA will depend on a range of factors, including self-policing, remediation, and cooperation.8 How the SEC’s New Approach to Self-Reporting Differs From the DOJ’s The SEC’s new policy contrasts with the manner in which, at least publicly, the DOJ has indicated it will be approaching cases in a similar posture to those at the SEC. While continually emphasizing how self-reporting can assist a company as the Department considers whether to bring charges, the DOJ has never suggested that self-reporting is a pre-requisite to a criminal law DPA or NPA. And many such resolutions in recent years have been concluded without self-reporting, as that term is generally understood.9 While self-reporting has for many years been an important factor in the DOJ’s determination to decline to prosecute certain companies, Continued on page 23 The SEC’s Most-Recent Nudge to Self-Report: Will it Make a Difference? Continued from page 21 www.debevoise.com FCPA Update 23 December 2015 Volume 7 Number 5 10. For example, of 35 DOJ declinations in FCPA cases that have been made public between January 2012 and June 2015, 17 (3M Company, Agilent Technologies, DynCorp, Grifols S.A., Huntsman International, Image Sensing Systems, Inc., Koninklijke Philips Electronics NV, Layne Christensen Co., Morgan Stanley, Owens-Illinois Group, PetroTiger, Raytheon, Sensata Technologies, Stryker Corporation, W.W. Grainger, LyondellBasell Industries NV, and SL Industries, Inc.) followed voluntary disclosure while 18 (Academi/Blackwater, Allianz, Allied Defense Group, Baxter International, Dialogic, Inc., Deere & Company, EHRC Energy, Eli Lilly, Hercules Offshore, Medtronic, Merck, Nabors Industries, News Corporation Schlumberger N.V., Twenty-First Century Fox, Inc., Wynn Resorts, and Zimmer Holdings ) followed a DOJ or SEC-initiated investigation. not all DOJ declination cases have resulted from self-reporting.10 And the Yates Memorandum, while placing a premium on robust cooperation with respect to the prosecution of individuals, is noticeably silent on how self-reporting is affected by its new provisions, which, absent further guidance, suggests that self-reporting will continue to play the “one-of-many-factors” role that it plays now in DOJ-led FCPA enforcement and charging decisions. This difference in how the two U.S. agencies charged with enforcing the FCPA address decisions whether to enter into DPAs and NPAs may be driven in part by the different enforcement tools available to each agency. For example, even in adjudicated cases, SEC dispositions do not give rise to the same potentially severe collateral consequences as a criminal conviction. The desire to take all steps possible to avoid a criminal conviction may be a significant incentive in and of itself to selfreport to the DOJ, given that any possible factor could lead to a decision not to bring charges, depending on the facts. And if the DOJ does not need expressly to condition the availability of a non-conviction resolution (such as a DPA or NPA) on a company’s self-reporting to sufficiently incentivize companies to self-report misconduct, the Department can avoid, to that extent, claims that it improperly coerces companies to self-report. Whatever the motive for and rationale behind the SEC’s new policy, it remains to be seen whether it will actually result in a raft of new self-reporting to the agency. Given the ever-present risk that self-reporting to the SEC will lead to a parallel DOJ investigation, companies seeking an SEC DPA or NPA will still need to contend with the risk of criminal law enforcement. Of course, where the SEC agrees to a DPA or Continued on page 24 The SEC’s Most-Recent Nudge to Self-Report: Will it Make a Difference? Continued from page 22 “This difference in how the two U.S. agencies charged with enforcing the FCPA address decisions whether to enter into DPAs and NPAs may be driven in part by the different enforcement tools available to each agency. For example, even in adjudicated cases, SEC dispositions do not give rise to the same potentially severe collateral consequences as a criminal conviction.” www.debevoise.com FCPA Update 24 December 2015 Volume 7 Number 5 NPA, one might reasonably expect the DOJ would be less likely to pursue a more aggressive enforcement posture, i.e., actively prosecuting FCPA criminal charges in situations in which the SEC would choose to resolve an FCPA matter through a DPA or an NPA. Still, for the SEC’s new policy to succeed, there will need to be a substantial showing by the agency that self-reporting is likely to lead to the most favorable forms of disposition before both agencies. Indeed, if both a civil DPA and NPA are truly unavailable in the absence of selfreporting, the SEC policy could backfire in the sense that it creates a potential incentive to cooperate less, not more, in a case in which the SEC opens an investigation after learning of a matter through channels other than self-reporting. Companies that might under prior policy have cooperated robustly, may see less point to doing so, let the statute of limitations run, and wait to see whether the SEC can prove its case with the evidence it obtains. This is especially true in light of the SEC’s statement that self-reporting is “not enough” to assure the SEC will be willing to resolve a matter by a DPA or NPA. Given all the factors that an issuer will need to consider when deciding whether to self-report, including the pressures and costs of being in a mode of robust cooperation with an ongoing government investigation, the notion that self-reporting is not enough to assure a DPA or NPA, let alone a declination, may persuade issuers to refrain from self-reporting. Yet in situations in which an issuer subject to SEC jurisdiction is confident that no case can be made that a criminal books and records or internal controls prosecution can be initiated, and no actionable FCPA primary bribery charge could be lodged by either agency, the SEC’s new policy may have meaningful bite and encourage self-reporting of civil books and records and internal controls issues that might not otherwise see the light of day. While this scenario assumes a company can know with some confidence that the law’s requirements for proof beyond a reasonable doubt of intentional misconduct would not be met with respect to a criminal FCPA accounting provisions breach, self-reporting in such cases could be beneficial both to companies, which could buy down their risk of a more serious form of FCPA disposition, and the SEC, which is charged with civil FCPA enforcement with respect to issuers, control persons, and those who aid and abet them. Beyond these practical considerations lies the argument that the SEC’s new Continued on page 25 The SEC’s Most-Recent Nudge to Self-Report: Will it Make a Difference? Continued from page 23 www.debevoise.com FCPA Update 25 December 2015 Volume 7 Number 5 policy is inappropriately coercive. It could also well be argued that only Congress or administrative agencies implementing regulations promulgated through formal notice-and-comment rule making have the authority to require self-reporting, as has been done for federal contractors under certain circumstances.11 But given the dynamics of FCPA enforcement, it may take a brave company indeed to put the new policy to the legal test. Conclusion The SEC’s new policy of conditioning the entry of a civil DPA or NPA on a self-report to the agency adds new complexity to an already complex decision for companies subject to the SEC’s jurisdiction over FCPA matters. Firms subject to both DOJ and SEC jurisdiction will be watching carefully to see how the SEC actually enforces the new policy. In this situation, as in so many in law enforcement, it will be important to see whether the law will truly reward companies that self-report. Paul R. Berger Sean Hecker Andrew M. Levine Bruce E. Yannett Steven S. Michaels Paul R. Berger is a partner in the Washington, DC office. Sean Hecker, Andrew M. Levine and Bruce E. Yannett are partners, and Steven S. Michaels is a counsel, in the New York office. They are members of the Litigation Department and the White Collar Litigation Practice Group. The authors may be reached at [email protected], [email protected], [email protected], [email protected] and [email protected] Full contact details for each author are available at www.debevoise.com.