James Tillen (here) and Marc Bohn (here) of Miller Chevalier recently published (here) a dandy article about declinations. Titled “Declinations During the FCPA Boom,” the article chronicles the “less publicized trend that has paralleled” the increase in FCPA enforcement actions and that is “decisions by the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) to conclude formal and informal investigations into potential violations of the FCPA without bringing enforcement actions.” Although the authors note that “it is difficult to know how frequently they occur” Tillen and Bohn “partially corroborated” – using SEC filings and other public records – DOJ’s claims that there were a record number of declinations in 2010.
The authors note as follows. “Even where we have been able to confirm a declination, there are usually significant unanswered questions as companies, in most instances, do not state the basis for the declinations they have received and often provide only limited information about the conduct that was investigated. Thus, it is often unclear why a government investigation has closed without enforcement. It could be that no violations were found to have occurred, that no basis for jurisdiction existed, that enforcement authorities elected to do nothing in deference to a foreign investigation, or that the declination itself represents a benefit in recognition of a company’s voluntary self disclosure, remediation and/or cooperation.”
Tillen and Bohn also found as follows. “Although divining the specific rationale of the DOJ and SEC in individual cases like these can be challenging, the vast majority of known declinations are nevertheless in response to conduct that companies have voluntarily self disclosed. Nineteen of the twenty five declinations we identified (or 76 percent) involved self disclosures. It is clear that, as general matter based on known declinations, a company that self disclosed potential FCPA violations is significantly more likely to secure a declination than a company that does not.”
Tillen and Bohn’s article is an excellent contribution to this emerging issue of importance to the FCPA debate. Yet the biggest unknown variable in my estimation – and one that is directly relevant to their conclusion that a “company that self disclosed potential FCPA violations is significantly more likely to secure a declination than a company that does not” – is the triggering mechanism causing the company to disclose in the first place – an issue that really boils down to risk tolerance.
For instance, if Company A discloses conduct that counsel advises is only 30% likely to trigger an enforcement action (because of the lack of solid evidence, applicability of the FCPA’s exception or affirmative defenses, etc.); Company B discloses conduct that counsel advises is 60% likely to trigger an enforcement action; and Company C discloses conduct that counsel advises is 90% likely to trigger an enforcement action – in all of these situations the company voluntarily disclosed given their risk tolerance, yet the declination vs. enforcement action decision will likely be based on other factors. In other words, not all voluntarily discloses are created equal making an analysis difficult.
Readers may recall that DOJ declinations were a topic covered during the June FCPA hearing in the House. See here for the prior post. During the hearing, Sandra Adams (R-FL) asked DOJ representative Greg Andres several pointed questions about DOJ declination decisions and whether such decisions are published or transparent. Andres stated that this is a difficult area for the government because the DOJ does not want to “penalize a company or individual investigated by not prosecuted.” Adams asked – in the last year, how many instances of FCPA conduct have been disclosed to the DOJ where no enforcement action resulted. Andres did not offer any specific number, but retreated to the FCPA Opinion Procedure and noted that if a company ever has a question about the FCPA, it has the ability to ask the DOJ and the DOJ is obligated to give an opinion. Before her time expired, Adams requested that the DOJ provide the Committee with more detail as to its declination decisions, including the DOJ’s reasons and rationale for why enforcement actions did not result. Chairman Sensenbrenner then followed up and said DOJ’s responses will be made part of hearing record.
I’ve argued before (see here for the prior post) that the DOJ should publish its declination decisions in a manner similar to its FCPA Opinion Procedure releases.