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DOJ Recognizes “The Need For Better Defined ‘Rules Of The Road’ In Corporate Enforcement

Yesterday, Principal Deputy Assistant Attorney General John Cronan delivered this FCPA speech [1] in Brazil.

In the speech, Cronan stated that the DOJ recognizes “the need for better defined ‘rules of the road’ in corporate enforcement” and that the DOJ “has taken affirmative steps to make our prevailing ‘rules of the road’ as plain and predictable as possible” citing as evidence, among other things, the DOJ’s November 2017 Corporate Enforcement Policy (CEP). (See here [2] for numerous prior posts).

In honor of the start of the basketball season, I call a time out – a full time out!

The way to better define the “rules of the road” and provide “settled and predictable guideposts” (another concept Cronan discussed) is not through non-binding guidance which is all the CEP represents.

The way to better define the “rules of the road” and provide “settled and predictable guideposts” is not by peppering the CEP with vague and ambiguous terms on which the DOJ retains absolute, unreviewable discretion.

The way to better define the “rules of the road” and provide “settled and predictable guideposts” is not by refusing to answer good faith questions about what these numerous vague and ambiguous terms in the CEP actually mean (see here [3] for the prior post).

In short, if the DOJ believes that the CEP better defines the “rules of the road,” there are many people in the corporate community who disagree and still view certain aspects of FCPA enforcement as a cat and mouse game [4].

As highlighted below, other issues discussed in Cronan’s speech include individual accountability (another timeout is called on that), so-called declinations (another timeout is called on that), and the DOJ’s so-called no “piling on” policy (another timeout is called on that).

Cronan stated:

“Today’s conference has been an ideal opportunity for us to take stock of our collective efforts to address corporate and government corruption. But it also provides an opportunity to pause and reflect more fundamentally on the principles that guide our efforts at the Department of Justice in combatting such corruption. Sometimes, there can be such a fixation on the end results that garner the headlines that we overlook the importance of the prosecutorial principles that led to those results.

Today, I want to talk about those principles and how we, at the Department of Justice, are applying them. Specifically, I want to talk about the Department of Justice’s recognition of the need for better defined “rules of the road” in corporate enforcement, and what we have been doing to articulate and clarify those rules. By that, I am referring to the Department’s efforts to establish settled and predictable guideposts by which prosecutors exercise their discretion – guideposts that we hope provide greater clarity and clearer expectations to the private sector, and allow companies to conform their conduct accordingly.

We realize that transparency in this space is essential to inducing results that benefit both law enforcement and the private sector alike. Companies regularly face difficult decisions with respect to law enforcement – perhaps most notably, for purposes of today’s conference, how to respond after uncovering misconduct. Companies also usually behave as rational actors. If a company knows what factors we are considering and what outcome the company can reasonably expect based on the actions it takes, that company is in a better position to make an informed, rational decision as to what course of action is in its interests.

In addition, when the Department of Justice not only strives for greater transparency in its guiding principles, but sets those principles with an eye on providing tangible incentives for good corporate behavior and pursuing fair and appropriate corporate resolutions, we hope companies will realize it is in their interests to implement robust internal controls and effective compliance programs, and if they uncover misconduct, to voluntarily disclose to law enforcement, cooperate, and remediate.

Often times, prosecutors and companies are perceived as adversaries. While that certainly is sometimes the case, the goals and interests of prosecutors and companies often are very much aligned. When prosecutors and companies each work to advance the fight against corruption, it inures to our mutual benefit – just as the harms of corruption are a mutual plague that we all endure. Corruption not only distorts private competition, but it erodes the public trust. Rampant bribery of government officials hurts not just honest businesses, but innocent citizens and faith in the rule of law. Conversely, compliance with anti-corruption laws like the Foreign Corrupt Practices Act (FCPA) facilitates not just the freedom and fairness of our markets, but also deeper values of governmental integrity and democratic accountability.

It is for these reasons that we want companies to comprehend what conduct on their part will be favorably credited and what will be penalized, as well as the standards and factors that will guide our exercise of prosecutorial discretion in the first place.

To foster that transparency, the Department has taken affirmative steps to make our prevailing “rules of the road” as plain and predictable as possible for prosecutors, companies, and business leaders. We have done that through various policies we have announced, some of which I will discuss this afternoon, specifically, the Department’s FCPA Corporate Enforcement Policy, the Criminal Division’s application of the principles underlying the Corporate Enforcement Policy beyond the FCPA, and the Department’s policy governing coordinated resolutions. While these policies, like the Department’s other internal operating policies, do not create a private right and are not enforceable in court, they do promote consistency among our prosecutors, guide prosecutors’ exercise of discretion, and afford those outside the Department greater clarity about how prosecutors go about our decision-making.”

On individual accountability, Cronan stated:

“[L]et me say a few words about the cases we prosecute. The Department’s recent enforcement of the FCPA should send a very clear message: We remain steadfastly committed to protecting free markets and promoting ethical business practices through our continued vigorous enforcement of the FCPA.

To that end, we believe that our emphasis on individual accountability has the greatest impact on preventing and deterring corruption. In the past fiscal year, the Criminal Division’s FCPA Unit brought public charges against over 30 individuals, and secured 19 convictions. That was on par with the prior year, when our FCPA Unit charged 28 individuals and obtained 23 convictions. Over the next six months, Criminal Division prosecutors are scheduled to conduct five trials in FCPA prosecutions against individuals. That is on top of the three FCPA trials we had in calendar year 2017. To give a sense of the significance of those numbers, from the years 2013 to 2016, only one FCPA case went to trial.”

Time out.

Approximately 80% of corporate FCPA enforcement actions lack any related individual charges of company employees and a very high percentage of individual enforcement actions are “clustered” around just a few core cases (see previous posts here [5]here [6], and here [7]).

Cronan continued:

“Our enforcement actions against corporations that violate the FCPA likewise have remained robust. Over the past fiscal year, we reached eight corporate FCPA resolutions, with about $925 million in total corporate U.S. criminal fines, penalties, and forfeiture. That too was consistent with the prior fiscal year, when we announced 11 FCPA corporate enforcement actions with about $1.15 billion in U.S. criminal fines, penalties, and forfeiture. These figures of course do not account for instances where we exercised our discretion to decline prosecution, given the company’s voluntary self-disclosure, cooperation, and remediation.”

Time out, I thought Cronan began his speech by saying we should not be “fixat[ed] on the end results that garner the headlines.”

Cronan continued:

“Importantly … the Department conveys its approach to fighting corporate and government corruption not only through the matters that have led to sizable criminal resolutions, but also through the criminal violations we decline to prosecute. We have made concerted efforts to formalize and clarify the “rules of the road” in this regard by clearly articulating the criteria the Department considers when deciding whether to pursue FCPA charges.

This has been largely through the Department’s FCPA Corporate Enforcement Policy that I mentioned earlier. The Department’s Justice Manual – which previously had been known as the U.S. Attorneys’ Manual – contains our FCPA Corporate Enforcement Policy. The decision to memorialize the Corporate Enforcement Policy in the Justice Manual is part of our efforts to ensure greater transparency, consistency, and predictability in our enforcement of the FCPA. The Policy, in clear terms, sets out how we evaluate a company’s violation of the FCPA, based on our assessment of actions taken by that company in the face of the misconduct and the credit we afford those actions.

Most importantly, if a company voluntarily self-discloses the misconduct, fully cooperates with the Department, and engages in timely and appropriate remediation, including by paying all disgorgement, forfeiture, and restitution for the misconduct, there will be a presumption of a declination. The Policy also enumerates a non-exhaustive list of aggravating circumstances that can overcome that presumption.

If aggravating circumstances call for a criminal resolution, notwithstanding a company’s voluntary self-disclosure, full cooperation, and timely and appropriate remediation, the Policy instructs that prosecutors shall seek up to a 50 percent reduction off the bottom of the applicable fine range pursuant to the U.S. Sentencing Guidelines, unless the company was a criminal recidivist, and also provides that prosecutors normally will not require the appointment of a monitor assuming an effective compliance program has been implemented.

The Policy further advises companies that if they fail to voluntarily self-disclose, they still are eligible for limited credit – up to a 25 percent reduction off of the low end of the Sentencing Guidelines fine range – provided they fully cooperate and engage in timely and appropriate remediation.

We also want to make sure companies understand what these terms mean [as highlighted above the DOJ has refused to provide clarification as to what many terms in the CEP actually mean], so they can conduct themselves accordingly. The FCPA Corporate Enforcement Policy therefore contains detailed, multi-factor definitions of “voluntary self-disclosure,” “full cooperation,” and “timely and appropriate remediation.”

I am not going to mention all the factors that are considered, but I do want to emphasize that an important part of a company’s cooperation is assisting in the investigation and prosecution of individuals involved in the misconduct. Our commitment to individual accountability stands in the interest of both companies and the Department alike. After all, a company that violated the FCPA only acted through its employees and agents, and that company most likely is composed predominantly of employees who had nothing at all to do with the illegal conduct. It therefore makes sense that if a company is doing everything right in the face of misconduct committed by a limited subset of employees, we should prosecute those culpable individuals, yet remain mindful of how we are impacting those employees who did not break the law.

The principles underlying the FCPA Corporate Enforcement Policy make sense and are grounded in sound policy. For that reason, in March, we explained that the Criminal Division would consider the criteria contained in the FCPA Corporate Enforcement Policy as “nonbinding guidance” in other corporate criminal cases outside the FCPA context. In July, we clarified that the principles from the Corporate Enforcement Policy also apply to mergers and acquisitions that uncover potential FCPA violations. And less than a month ago, we announced that Criminal Division prosecutors also will look at these principles in the context of mergers and acquisitions that uncover other types of criminal wrongdoing, not just FCPA violations.

Through the principles articulated in the FCPA Corporate Enforcement Policy, we are trying to create a climate in which companies can expect to be treated fairly and predictably when they decide to timely and voluntarily report misconduct, and then cooperate and remediate.”

Cronan then stated:

“Thus far, the results have been very positive.

In 2018, we have issued multiple corporate declinations under the FCPA Corporate Enforcement Policy.

I will briefly discuss two declinations that were issued this past August. In one instance, we declined to prosecute the Insurance Corporation of Barbados Limited (ICBL) for bribery of a Barbadian government official in exchange for insurance contracts. In the other, we declined to prosecute Guralp Systems Limited, a company that designs and manufactures seismological instruments, despite evidence of FCPA violations relating to payments to an Earthquake Research Center director in Korea.

In each case, our declination letter cited, among other relevant factors, the company’s voluntary disclosure, significant remediation efforts, and cooperation with the Department’s investigation, including with respect to culpable individuals. With respect to ICBL, we also emphasized that the company conducted a comprehensive investigation and undertook remedial actions that included terminating all employees involved in the misconduct and implementing an enhanced compliance program and internal accounting controls.

The declinations in ICBL and Guralp Systems are also notable because, in both cases, senior executives were implicated in the misconduct. The involvement of executive management in misconduct is one of the enumerated aggravating factors that can weigh against a declination pursuant to the FCPA Corporate Enforcement Policy. Our decisions nonetheless to decline as to both ICBL and Gurlap Systems demonstrate that, although aggravating circumstances can overcome the presumption of a declination, the presence of such circumstances does not necessarily preclude a declination for a company that does the right thing by voluntarily self-disclosing, cooperating, and remediating.

For both of these declinations – as well as the eight declinations that preceded them under the Corporate Enforcement Policy and the predecessor Pilot Program – we have made our declination letters public and available on the Department of Justice website. Those 10 letters cite factors such as the company’s enhanced compliance programs and internal controls, as well as the company’s full remediation. Here too, we are doing this in the interest of transparency, so future companies understand what we expect if they hope to qualify for a declination.”

Time out on the so-called declinations involving ICBL and Gurlap Systems. Before drinking the Kool-Aid on this, perhaps the better question is just what viable criminal charges against these companies did the DOJ actually decline? (See here [8] and here for prior posts).

Cronan continued:

“To be sure, the facts of no two cases are alike. Nor are any two companies. Every decision by the Department will turn on an individualized assessment of the totality of circumstances. But transparency as to our declination criteria should help guide informed and rational decision-making by companies and compliance professionals. After all, companies stand in the best position to evaluate risk and implement measures to deter corruption at the front end. The ideal scenario, of course, is a corporate environment where criminal violations do not occur in the first place. That is why a prevailing objective of our efforts is to motivate companies to voluntarily fortify themselves against the very violations that ultimately could lead to criminal charges by investing in robust internal controls and effective compliance programs. When business and industry work with the Department, not against it, our public institutions and the rule of law stand to gain.

As prosecutors with the Department of Justice, our goal is just that: promoting the rule of law and working toward achieving justice. That means pursuing just, fair, and appropriate results.

This brings me to the flip side of giving credit where credit is due: when a criminal resolution is warranted, excessive penalties should not be imposed for penalties’ sake. In May, the Department announced a policy to address coordinated resolutions and issues that arise when a company faces a combination of criminal penalties along with civil or foreign penalties.

There is no question that there has been a rise in global enforcement of corporate corruption. Earlier today, panels discussed Brazil’s evolving enforcement landscape, including the passage of the Clean Company Act about five years ago, as well as other developments in anti-corruption laws throughout Latin America.

In 2018, companies understandably are concerned about facing multiple enforcement actions for the same conduct. That is particularly the case in highly regulated industries, where a company may be accountable to multiple regulatory bodies in multiple countries. This expansion of possible exposure can create a risk of repeated and disproportionate punishment that goes beyond what is necessary to rectify the harm and deter future violations. Duplicative fines and penalties also could deter the very voluntary disclosures and cooperation that we are trying to encourage.

The Department of Justice’s close relationships with many of our foreign partners is more important than ever both in investigating and prosecuting corporate corruption, and also in working toward fair and appropriate resolutions. For instance, of our eight corporate FCPA resolutions in the past fiscal year, four of them were coordinated with foreign authorities. This number of coordinated resolutions speaks volumes both to the significant increase in global efforts to combat corruption and to our steadfast commitment to coordinate with foreign authorities to avoid duplicative penalties.

The formalization of a Department of Justice-wide policy governing coordinated resolutions – which also has been memorialized in the Justice Manual – reinforces that commitment and marks another step toward greater transparency and consistency in our corporate enforcement. Under the policy, Department components must appropriately coordinate with other Department components when looking to resolve a corporate case based on the same misconduct, to achieve an overall equitable result. And similarly, Department of Justice attorneys, when possible, should coordinate with other U.S. and foreign authorities seeking to resolve a case with a company for the same misconduct. This may include crediting and apportionment of financial fines, forfeiture, and restitution.

Obviously, there are practical considerations that can constrain reaching coordinated outcomes, such as the timing of other agency action, limits on cross-border information sharing, and situations in which the company resists, rather than facilitates, a coordinated resolution. But the message of the policy is clear: the Department of Justice is committed to coordinating with domestic and foreign authorities, where doing so is consistent with our enforcement mission.

In Petrobras’s case, this meant crediting amounts being paid to the Securities and Exchange Commission (SEC) and Brazilian authorities, with Brazil receiving 80 percent, or about $682 million, and the Department of Justice and the SEC each receiving 10 percent, or about $85 million. In addition, in agreeing to a non-prosecution agreement with Petrobras, rather than pursuing a harsher resolution, the Department took into account that Brazil was entering into a resolution with Petrobras and that Brazilian authorities would be maintaining oversight of Petrobras as a state-owned entity.

Similarly, the resolution in Keppel Offshore, which predated by the announcement of a formal policy by several months, marked the Department of Justice’s first coordinated FCPA resolution with Singapore. There, Brazil received half of the total penalty, with the United States and Singapore each receiving one-quarter.

Likewise, when we calculated the fine in SBM Offshore, we credited the company’s payment of penalties to the Dutch Prosecutor’s Office and expected payments to the Brazilian Ministério Público Federal.

Earlier, I mentioned the Department’s decision to decline to prosecute Guralp Systems Limited for FCPA violations. In deciding to issue that declination, we not only considered the company’s voluntary self-disclosure, full cooperation, and timely and appropriate remediation, but also the fact that Guralp, a U.K. company with its primary place of business in the United Kingdom, was the subject of an ongoing parallel investigation by the U.K.’s Serious Fraud Office (SFO) and had committed to accepting responsibility with the SFO.

In our June resolution with Société Générale for LIBOR manipulation and FCPA violations, we agreed to credit about $300 million that Société Générale is paying to French authorities. In addition, we determined that the company did not warrant a monitor, a determination we reached on account of the company’s significant remediation, as well as the fact that there would be ongoing monitoring by the French anti-corruption agency.

In each of these cases, we worked to reach a coordinated resolution that amounted to a just and fair outcome and one that avoided excessive punishment for the misconduct.

Whether through the policies we announce, the cases we prosecute, the cases we decline to prosecute, or the credits and penalties we impose, the Department has sought to make the “rules of the road” as transparent as possible. Our efforts are ongoing, and we hope they will be lasting. And it is also our hope that this transparency will assist companies as they make rational decisions, and that those decisions will favor greater reporting of misconduct, increased cooperation with law enforcement, and stronger compliance programs and internal controls.”

Time out.

For more on the DOJ’s no “piling on” policy (including its application to certain of the above referenced matters, see here [9], here [10] and here [11]).

I think I am out of time outs.

Thus this post needs to end.

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