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DOJ’s McFadden Makes Sense When Talking About “Declinations” And States That FCPA Investigations Should Be “Measured In Months, Not Years”

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Yesterday, Acting Principal Deputy Assistant Attorney General Trevor McFadden deliver this speech in Washington, D.C.

Sure, like a prior recent speech, McFadden did read from the “DOJ’s FCPA script,” but to his credit he did say some important things about FCPA compliance that is refreshing to hear from the DOJ. In addition, McFadden’s statement that his “intent is for our FCPA investigations to be measured in months, not years” should be welcome news to the business community. However, the DOJ has been saying the same thing for years and a wait and see approach is most prudent. For instance, in this 2005 speech then DOJ Assistant Attorney General for the Criminal Division Christopher Wray talked about “real-time enforcement” and stated: “in other words, punishing wrongdoers promptly after they commit their crimes. Simply put, speed matters in corporate fraud investigations . The days of five-year investigations, of agreement after agreement tolling the statute of limitations-while ill-gotten gains are frittered away and investor confidence sinks-are increasingly a thing of the past.”

Moreover, as highlighted in more detail below, McFadden made sense when talking about DOJ “declinations” and his reasons for why the DOJ may not bring a Foreign Corrupt Practices Act enforcement action in an instance of FCPA scrutiny undermines the “declination” definition used by certain FCPA Inc. participants.

When McFadden assumed his DOJ position after a private practice stint, this prior post highlighted his spot-on observations regarding certain aspects of FCPA enforcement.

McFadden began his speech with mentioning his private practice experience and it was refreshing to hear a DOJ FCPA enforcement official offer the following words.

“I have rejoined the Department of Justice after a four-year stint in private practice.  While I am glad to be back at the department, my experience on the private side was extremely valuable to me.  Having worked regularly with general counsels and corporate executives, it is clear to me that the vast majority of international businesses and business leaders want to get compliance right.  I saw companies working hard to do the right thing – not because they were afraid of getting caught – but because that’s how they wanted to run their businesses.  In my experience, most corporate leaders care about their corporate values and ethos, and they don’t want anything to do with corrupt deals or shady transactions.  I’ve seen companies give up potentially lucrative business opportunities or forgo entry into certain markets because they valued their brand reputation over additional profits made under dubious circumstances.  This is quite impressive to compare the status quo to when the Foreign Corrupt Practices Act (FCPA) was enacted 40 years ago, when bribing foreign officials in order to gain business advantages abroad was often considered a routine business expense.” (emphasis added)

In the speech, McFadden made sense when talking about DOJ “declinations” and his reasons for why the DOJ may not bring an FCPA enforcement action in an instance of FCPA scrutiny undermines the “declination” definition used by certain FCPA Inc. participants.

First, a bit of background.

Ever since the term “declination” became part of the FCPA vocabulary circa 2012, FCPA Professor has called out (see here, here and here among other posts) certain FCPA Inc. participants overly expansive definition of the term.

I long maintained that the proper and responsible definition of a 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.

I long used the following analogy.

A driver approaches a law enforcement sobriety checkpoint and successfully passes through because the driver has not had anything to drink. It would be absurd to say that the police “declined” to charge the driver with drunk driving, rather the police did what the law commanded and such reasoning applies in the FCPA context as well.

It was nice to see McFadden burst overly expansive definitions of “declination” and explicitly state, consistent with the above definition and analogy, that sometimes there are not corporate FCPA enforcement actions because of “insufficient evidence of corporate criminal misconduct.”

In pertinent part, McFadden stated:

“Let me take this opportunity to address a few additional matters regarding our FCPA enforcement practices.  The Criminal Division’s aims are not to prosecute every company we can, nor to break our own records for the largest fines or longest prison sentences.  Our goal is for companies and individuals to voluntarily comply with the law.  And it is by working with companies transparently and in partnership that we can achieve this goal.  Indeed, working with cooperating businesses is a very important element in fighting corruption, whether by preventing violations before they occur or dealing with past violations.  We recognize that businesses are our partners in the fight against corruption, because they are in the best position to detect risk, to take preventative measures, and to educate those who act on their behalf on appropriate best practices.

With that in mind, the Fraud Section’s FCPA prosecutions are intended to level the playing field for honest businesses that are undercut by businesses that engage in corrupt behavior.  Our responsibility as prosecutors is to follow the facts wherever they lead us.  Sometimes the facts lead us to stop and close an investigation.  Other times, the facts convince us that a criminal resolution is required.  When we do not have evidence of the requisite criminal intent, there is no justification for a Criminal Division resolution, and we will defer to our regulatory colleagues to handle the matter.  As prosecutors, we have significant enforcement tools, but we also have heightened evidentiary and scienter standards, and we take those requirements seriously.

[…]

As you may know, in the last year as part of the FCPA Pilot Program, the Fraud Section has begun publishing information on cases we have declined to prosecute, where we would have brought criminal cases but for the companies’ voluntary self-disclosure, full cooperation, and comprehensive remediation.  There have already been five such cases.  Of course, this number does not include the many cases we routinely decline for various reasons including insufficient evidence of corporate criminal misconduct.  This is part of our long-standing effort to lay out transparent and clear guidelines and benefits for those companies and individuals subject to the FCPA.

Transparency about our enforcement policies and practices is important.  The Fraud Section’s Pilot Program is one example of an effort to provide more transparency and consistency for our corporate resolutions.  The program began a year ago, and we are now conducting a full assessment of it.  In our review, we are examining whether there is more that we can do to promote voluntary compliance with the law and what more we can be doing to provide appropriate transparency regarding our expectations and prosecutorial priorities.  In the meantime, the Program will continue in full force.” (emphasis added).

Even though McFadden provided a sensible framework for analyzing DOJ declinations, it should be noted (as highlighted in prior posts here and here) that in three of the five DOJ self-declared declinations (all before McFadden assumed his position at the DOJ) the salient question needed to be asked: just what viable criminal charges did the DOJ actually “decline.” Based on the only information in the public domain about the enforcement actions, the answer appears to be none.

McFadden next spoke about the timing of FCPA investigations.

In terms of background, FCPA Professor (see here) and many others, including perhaps most prominently Paul Pelletier (former Principal Deputy Chief of the DOJ’s fraud section) (see here and here) have frequently written about the long time periods often associated with FCPA inquiries. (See here for the FCPA Flash podcast episode with Pelletier in which he discusses this issue).

On this issue, McFadden stated:

“We are also making a concerted effort to move corporate investigations expeditiously, and we expect cooperating companies to do so as well.  This will maximize our ability to bring cases against responsible individuals, before applicable statutes of limitations have run or evidence is lost.  Of course, this should also be good for cooperating companies.  No executive wants to deal with a lingering government investigation or the associated costs and distraction from the company’s mission.  Over the last few years, we have hired additional trial attorneys in the Criminal Division’s Fraud Section’s FCPA Unit to help investigate cases more quickly, and the Fraud Section leadership and I are focused on wrapping up old investigations.  We expect cooperating companies to work with us to prioritize internal investigations and to respond to Fraud Section requests promptly to ensure there are no unnecessary delays.  My intent is for our FCPA investigations to be measured in months, not years.”

This should be welcome news to the business community.

However, actions speak louder than words and a wait a see approach is most prudent as the DOJ has been saying the same general thing for a couple of years now.

In the meantime, the facts are the facts and as highlighted in this 2016 year in review post, 4.25 years was the median length of time companies that resolved FCPA enforcement actions in 2016 were under scrutiny.

As to international cooperation, McFadden stated:

“Just as many American companies have been leading the way globally in CSR and compliance standards, I am proud of the department’s role in encouraging and assisting other regulators around the world to fight corruption where it arises.  Indeed, there has been growing international recognition of the need to disrupt corrupt payments in order to create a level playing field in the global marketplace.  Countries around the world have strengthened their domestic laws and central authorities, and have increasingly prioritized anti-corruption prosecutions.  We are proud to be partnering with countries like the UK, Brazil, the Netherlands and others who are taking new strides to fight corporate corruption at home and around the world.

Corrupt conduct may be investigated and prosecuted by the United States, but also by other countries with concurrent jurisdiction over the corrupt conduct.  As part of our cooperation with our international partners, where appropriate, we seek to reach global resolutions that apportion penalties between the relevant jurisdictions so that companies that want to accept responsibility for misconduct are not unfairly penalized by multiple agencies.  This is similar to how we have worked with sister regulators here in the United States – most notably the Securities and Exchange Commission – for years.  I should note that our willingness to apportion or credit penalties based on resolutions with other regulators assumes that the company cooperated with our investigation and did not engage in forum shopping to avoid department involvement in the matter.

We also refer evidence of violations of foreign law to our international law enforcement partners where we do not have jurisdiction over the wrongdoers.  We offer them other assistance as well.  This is all part of our effort to ensure that companies and individuals subject to the jurisdiction of the FCPA are not disadvantaged as compared to other companies.  Similarly, over the years, Congress has expanded the jurisdictional reach of the FCPA in order to maximize our ability to level the playing field for companies and individuals that refuse to engage in corrupt conduct.”

As to the “script-like” comments in his speech, McFadden stated:

“Although Corporate Social Responsibility (CSR) means many things, at the very least it must mean that a company rejects bribery of government officials as a means to get ahead.  Today, corporate leaders recognize the high costs of official corruption.  Corruption impedes free competition and creates a high risk that prices will be distorted and products and services will be substandard.  Of course, corruption disadvantages honest businesses that do not pay bribes.  In fact, these bribes actually impede economic growth, undermine democratic values and public accountability and weaken the rule of law.

This has particularly harmful effects on the most vulnerable citizens of countries in which the corruption occurs.  If corrupt officials can extort multinational businesses with impunity, think of the expectations that sets for their interactions with the poor and unprotected in their countries.  Moreover, bribes to officials often come at the expense of legitimate fees that should have been paid to the government fisc.

It is my hope that companies recognize the importance of effective compliance with the FCPA and other anti-corruption laws is not only to avoid prosecution.  Fighting corruption leads to a robust and transparent marketplace.  My fellow prosecutors and I at the Justice Department are intent on creating an even playing field for honest businesses.  Corruption introduces significant uncertainty into business transactions, and it actually increases the cost of doing business.  Bribery has destructive effects within a business as well, undermining employee confidence in a company’s management and fostering a permissive atmosphere for other kinds of corporate misconduct, such as employee self-dealing, embezzlement, financial fraud and anti-competitive behavior.  Companies that pay bribes to win business ultimately undermine their own long-term interests and the best interests of their investors.

We are certainly far from seeing an end to the global problem of corruption, but I think it is safe to say that we are headed in the right direction.  And this is in large part thanks to our allies in the private sector – people like you – who are leading the way in CSR and anti-corruption compliance efforts.

That is not to say that companies that reach a resolution with the department are “bad companies,” or that they don’t care about corporate compliance.  Indeed, many of our resolutions are with companies that voluntarily self-disclose past mistakes, and I know from having been on both sides of this process that companies that reach a resolution with us typically work hard to improve their compliance systems to ensure their compliance failures are not repeated.

We recognize that companies with good intentions can make mistakes.  That said, compliance requires more than good intentions, and companies – particularly those that operate in high-risk environments – must ensure that their compliance policies go beyond ink on paper and actually become part of a company’s culture.  The example is set at the top and management must ensure that an appropriate system is in place to ensure corporate expectations are followed.  I have also seen how companies that expand quickly – especially into new markets or through acquisition of foreign companies – often struggle to maintain compliance standards that they may have taken for granted as a smaller business.  We frequently note in these types of compliance symposiums that no “one size fits all” when it comes to compliance programs, and a compliance program that worked for a domestic company of 500 employees will rarely be appropriate if that company triples in size or enters foreign markets.

As I have said before, and more importantly as Attorney General Jeff Sessions has stated in his confirmation process, the department remains committed to enforcing the FCPA and to prosecuting fraud and corruption more generally.  The department does not make the law, but it is responsible for enforcing the law, and we will continue to do so.  Also, the department continues to prioritize prosecutions of individuals who have willfully and corruptly violated the FCPA – Attorney General Sessions has noted the importance of individual accountability for corporate misconduct.  Finally, and just as successive Deputy Attorneys General under both Republican and Democratic administrations have directed, the department regularly takes into consideration voluntary self-disclosures, cooperation and remedial efforts when making charging decisions involving business organizations.”

Certain aspects of this script, represent hollow rhetoric.

For instance, here are the facts about DOJ individual FCPA prosecutions.

The last 17 DOJ corporate FCPA enforcement (4 in 2017 thus far and 13 in 2016) have lacked related DOJ charges against company employees. Indeed, in the past decade over 75% of DOJ corporate enforcement actions have lacked related DOJ charges against company employees. Moreover, as highlighted in this prior post, the number of DOJ individual FCPA enforcement actions in 2016 and 2015 were fewer than the following years: 2008, 2009, 2010, 2011, 2013, and 2014.

McFadden knows certain of these statistics, indeed some of them appeared in his 2015 article titled “Why DOJ Struggles to Convict Individuals in FCPA Cases.” (See here for the prior post).

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