- FCPA Professor - http://fcpaprofessor.com -

A Simple Common Sense Fix To Enhance The Credibility Of The DOJ’s So-Called “Declinations”

The DOJ’s recent so-called “declinations” suffer from a credibility problem.

As highlighted in prior posts here [1] and here [2], the salient question that should be asked in connection with the DOJ’s recent “declination” letters to Johnson Controls, Nortek and Akamai Technologies is what viable criminal charges did the DOJ actually decline? From the only information in the public domain (the SEC’s resolution documents in each matter) the answer appears to be none.

If the DOJ wants to enhance the credibility of its so-called “declinations,” there is a simple fix – a modest proposal first advanced on this page six years ago [3] – long before the DOJ’s FCPA Pilot Program and long before the term “declination” became part of the FCPA vocabulary.

For starters and long discussed on these pages [4], the proper meaning of “declination” is an instance in which an enforcement agency has concluded that it could bring a case, consistent with its burden of proof as to all necessary elements, yet decides not to pursue the action.  Others have offered the same definition (see here [5] for a Wilmer Hale Client Alert -“the concept of a declination is supposed to be reserved for instances in which the offense is chargeable but the government declines in its own discretion to bring a case”).

The DOJ’s recent declination letters merely address non-substantive issues such as voluntary disclosure, cooperation, and remediation. The letters tell the public absolutely nothing about the substantive facts that the DOJ supposedly “declined” to prosecute.

As first highlighted here in August 2010 [3], there is a simple common sense fix to this problem.

In instances such as Johnson Controls, Nortek and Akamai (that is – when a company voluntarily discloses an FCPA internal investigation to the DOJ and/or SEC and when one or both of the enforcement agencies do not bring an enforcement action), have the “declining” enforcement agency publicly state, in a thorough and transparent manner, the facts the company disclosed and why the “declining” agency did not bring an enforcement action based on those facts.

Here is why the proposal makes sense and is in the public interest.

For starters (as I wrote in 2010 and even more relevant today), the DOJ and the SEC are already wildly enthusiastic when it comes to talking about FCPA issues. Enforcement attorneys from both agencies are frequent participants on the FCPA conference circuit and there seems to be no other single law that is the focus of more DOJ or SEC speeches than the FCPA. Thus, there is clearly enthusiasm and ambition at both agencies when it comes to the FCPA.

Further (as I wrote in 2010 and even more relevant today), both the DOJ and the SEC have the resources to accomplish this task. Both agencies have touted the increased FCPA resources in their respective offices and the new personnel hired to focus on the FCPA. Combine enthusiasm and ambition with sufficient resources and personnel and the proposal certainly seems doable considering that there are likely less than 10 relevant examples per year.

Most important, the DOJ is already used to this type of exercise. It is called the FCPA Opinion Procedure Release (see here [6]) a process the DOJ frequently urges those subject to the FCPA to utilize.

Under the Opinion Procedure regulations, an issuer or domestic concern subject to the FCPA can voluntarily disclose prospective business conduct to the DOJ which then has 30 days to respond to the request by issuing an opinion that states whether the prospective conduct would, for purposes of the DOJ’s present enforcement policy, violate the FCPA.

The DOJ’s opinions are publicly released and the FCPA bar and the rest of FCPA Inc. study these opinions in advising clients largely because of the general lack of substantive FCPA case law.

If the DOJ is able to issue an enforcement opinion as to voluntarily disclosed prospective conduct there seems to be no principled reason why the enforcement agencies could not issue a non-enforcement opinion as to voluntarily disclosed actual conduct. If the enforcement agencies are sincere about providing guidance on the FCPA, as they presumably are, such agency opinions would seem to provide an ideal platform to accomplish such a purpose.

Requiring the enforcement agencies to disclose non-enforcement decisions after a voluntary disclosure could also inject some much needed discipline into the voluntary disclosure decision itself – a decision which seems to be reflexive in many instances any time facts suggest the FCPA may be implicated. (For more on the important voluntary disclosure decision and the role of FCPA counsel see here [7].)

Notwithstanding the presence of significant conflicting incentives to do otherwise, it is hoped that FCPA counsel advise clients to disclose only if a reasonably certain legal conclusion has been reached that the conduct at issue actually violates the FCPA. Accepting this assumption, transparency in FCPA enforcement would be enhanced if the public learned why the enforcement agencies, in the face of a voluntary disclosure, presumably disagreed with the company’s conclusion as informed by FCPA counsel. If the enforcement agencies agreed with the conclusion that the FCPA was violated, but decided not to bring an enforcement action, transparency in FCPA enforcement would similarly be enhanced if the public learned why.

A final reason in support of the proposal is that it would give the disclosing companies (and others similarly situated) a benefit by contributing to the mix of public information about the FCPA.

In most cases, companies spend tens of millions of dollars investigating conduct that may implicate the FCPA and on the voluntary disclosure process. When the enforcement agencies decline an enforcement action, presumably because the FCPA was not violated, these costs are forever sunk and the company can legitimately ask why it just spent tens of millions investigating and disclosing conduct that the DOJ and the SEC did not conclude violated the FCPA.

However, if the enforcement agencies were required to publicly justify their declination decision, the company would achieve, however small, a return on its investment and contribute to the mix of public information about the FCPA – a law which the company will remain subject to long after its voluntary disclosure and long after the enforcement agencies declination decision. Thus, the company, the company’s industry peers, and indeed all those subject to the FCPA would benefit by learning more about the DOJ and the SEC’s enforcement conclusions.

Transparency, accountability, useful guidance, a return on investment.

All would be accomplished by requiring the enforcement agencies to publicly justify a declination decision (beyond the current non-substantive justifications) in instances where no enforcement action follows a voluntary disclosure.

However, the DOJ has long rejected this common sense suggestion by advancing a nonsensical position. The most recent iteration of the DOJ’s position for not providing substantive specifics regarding “declination” decisions was advanced by Assistant Attorney General Leslie Caldwell in this 2015 speech [8].

“The department has maintained a long-standing practice not to discuss non-public information on matters it has declined to prosecute, based in large part on concerns about the privacy rights and interests of uncharged parties.  There are serious privacy concerns inherent in publicly identifying an individual who was implicated in our criminal investigation if we eventually decide not to bring charges.  Indeed, internal department policy prohibits us from publicly identifying those individuals who have been investigated, but not charged. Likewise, companies often strongly oppose publicity that they were under Justice Department scrutiny, even if we ultimately declined to prosecute.”

Newsflash.

Voluntary disclosures are just that – voluntary. There are no legitimate privacy issues of the sort Caldwell speaks of when a company makes the affirmative decision to tell the government something. Moreover, in the vast majority of voluntary disclosures the company itself draws public attention to the disclosure in its SEC filings, a press release, or otherwise.

In short, the DOJ’s privacy and publicity assertions in rejecting greater transparency about its declination decisions make little sense.