On April 5, the U.S. Department of Justice (DOJ) announced a one-year Foreign Corrupt Practices Act (FCPA) enforcement pilot program designed to incentivize companies to voluntarily self-report FCPA misconduct to DOJ. Under the program, companies may receive expanded credit from DOJ for making an early, voluntary disclosure to DOJ, fully cooperating with the DOJ’s investigation, and taking prompt remedial action. The substantial benefits that companies may receive under this program range from a full declination of prosecution to, if charges are brought, a 50 percent reduction from the bottom of the applicable Sentencing Guidelines’ fine range and no imposition of a corporate monitor. In contrast, should a company decline to voluntarily self-report, it would be eligible for at most a 25 percent reduction from the bottom of the Sentencing Guidelines fine range.
In announcing this program, Assistant Attorney General Leslie Caldwell stated that it was “designed to motivate companies to voluntarily self-disclose FCPA-related misconduct, fully cooperate with the [DOJ Criminal Division] Fraud Section, and, where appropriate, remediate flaws in their controls and compliance programs.” Caldwell suggested the program was, in part, a response to criticisms that DOJ was not transparent enough in identifying the credit that companies receive for self-disclosure, cooperation and remediation, and what fines and other resolution components may be imposed.
Caldwell also stated that the plan is designed to build upon the September 2015 Yates memo, which emphasizes individual accountability. For more details on the Yates memo, please see our prior Sidley Update. DOJ is encouraging companies to self-report early in the process, when prosecutors are likely to have more time to make a case against individuals within the statute of limitations and DOJ may be able to leverage a corporation’s relationship with employees and third parties to obtain more information.
As noted, the enforcement plan articulates three steps a company must take to receive additional credit. This credit will impact DOJ’s decisions on the type of disposition. Where these three steps are met, “the Fraud Section’s FCPA Unit will consider a declination of prosecution,” provided the company disgorges all profits from the misconduct at issue. In addition, where charges are pursued, these steps will determine the extent of any reduction in fines above and beyond what is provided for under the Sentencing Guidelines.
1. The company must voluntarily self-report its misconduct.
According to the enforcement plan, to qualify as a voluntary self-report, the disclosure must (1) be prior to an imminent threat of disclosure or government investigation, (2) be within a reasonably prompt time after becoming aware of the offense and (3) include all relevant facts known to it, including all relevant facts about the individuals involved in any FCPA violation. DOJ noted that the burden is on the company to demonstrate the timeliness of any self-reporting.
2. The company must fully cooperate with DOJ in its investigation.
The enforcement plan states that a company must fully cooperate in the DOJ’s investigation and articulated several specific guidelines in this regard.
First, the enforcement plan includes guidelines to be considered cooperative that encourage providing federal prosecutors with relevant documents. DOJ counsels companies to (1) preserve, collect and disclose relevant documents within a company’s control, (2) disclose overseas documents, including the location where they were found and who found the documents, (3) where requested, provide translations of relevant documents in foreign languages and (4) facilitate third-party production of documents.
Second, in line with the Yates memo, DOJ advises that cooperating companies (1) timely disclose all facts relevant to the wrongdoing, including all facts relevant to the involvement of the company’s officers, employees or agents, (2) make company officers and employees available for DOJ interviews, including those located overseas and former officers or employees, (3) identify the specific source of facts in the disclosure of all relevant facts where such identification does not violate attorney-client privilege and (4) facilitate DOJ interviews with third-party witnesses in foreign jurisdiction. Importantly, DOJ stressed that “eligibility for full cooperation credit is not predicated upon waiver of the attorney-client privilege or work product protection and none of the requirements above require such waiver. Nothing in the Guidance or the [Yates memo] on Individual Accountability alters that policy, which remains in full force and effect.”
Third, the guidelines also counsel on the nature of the relationship between the cooperating company and federal prosecutors. Companies are advised to (1) be proactive rather than reactive in their disclosure and, specifically, to identify opportunities for the government to obtain relevant evidence not in the company’s possession, (2) provide timely updates on the company’s internal investigation, including rolling disclosures and (3) where requested, stop any action in the company’s internal investigation that conflicts with the government investigation.
3. The company must engage in timely and appropriate remediation.
While noting that the Fraud Section’s new compliance counsel is assisting DOJ’s FCPA Unit in refining its benchmarks for assessing compliance programs and for evaluating an organization’s remediation efforts, the plan articulates three items required to receive credit for remediation.
First, the company must implement an effective compliance program that will be periodically updated. In assessing the program, DOJ will look at (1) whether the company has established a culture of compliance, (2) whether the company dedicates sufficient resources to the compliance function, (3) the quality and experience of the compliance personnel, (4) the independence of the compliance function, (5) whether the company has performed effective risk assessments and tailored the compliance program based on risks, (6) how a company’s compliance personnel are compensated and promoted compared with other employees, (7) whether the compliance program is audited and (8) the reporting structure of compliance personnel.
Second, the company must appropriately discipline employees responsible for misconduct. DOJ advises that companies implement a system that provides for the possibility of also disciplining those with oversight of the responsible individuals and adjusts compensation based on disciplinary infractions and failure to supervise adequately.
Third, the company should take “[a]ny additional steps to demonstrate recognition of the seriousness of the corporation’s misconduct, acceptance of responsibility for it, and the implementation of measures to reduce the risk of repetition of such misconduct, including measures to identify future risks.”
Additional Announcement Relating to Increased FCPA Enforcement Resources
In announcing the pilot program, Caldwell highlighted that DOJ is adding resources to investigate and prosecute FCPA cases. Ten prosecutors are being added to the DOJ Fraud Section’s FCPA Unit, increasing its size by more than 50 percent. She also noted that the Federal Bureau of Investigation has established three new squads of special agents devoted to FCPA investigations. Further, Caldwell stated that the DOJ is “strengthening our coordination with foreign counterparts — sharing leads, making available essential documents and witnesses, and more generally working together to reduce criminals’ ability to hide behind international borders.”
While DOJ has always emphasized the importance it places on voluntary self-reporting, cooperation and remediation, this pilot enforcement program articulates the tangible benefits a company can expect to receive for fulfilling all three. It remains unclear, however, how the new pilot program will be implemented. Under it, companies may receive “up to” a 50 percent reduction, but whether and how often a company will gain the full benefit is uncertain. Questions also linger about how the plan will work in practice. For example, it remains to be seen how DOJ anticipates that a company will balance protecting attorney-client privilege with full disclosure of relevant information. It is also unknown whether the enforcement plan will be revised or extended beyond April 5, 2017.