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Flip-Flop On The Merits Of Voluntary Disclosure

flipflop

Based on conversations I’ve had with several Foreign Corrupt Practices Act practitioners (those in law firms and those in companies), one common frustration with FCPA enforcement is the extent to which government enforcement attorneys say one thing while with the government and then say another thing  (often contradictory) when they leave the government.

The below flip-flop example concerning the merits of voluntary disclosure is not the only example (see here for a similar prior post), yet represents the latest example.

Between April 2010 and early January 2014, Charles Duross was the “Deputy Chief in the Fraud Section in the Criminal Division of the U.S. Department of Justice, where he led the Foreign Corrupt Practices Act (FCPA) Unit and was in charge of all of the DOJ’s FCPA investigations, prosecutions and resolutions in the United States.” (See here).

Like numerous other DOJ and SEC enforcement officials, while at the DOJ Duross often talked about how business organizations subject to the FCPA should voluntarily disclose.

For instance, as noted in this prior post, when asked “at what point do you expect a company to make a voluntary disclosure,” Duross answered “the earlier the better.”

As referenced here: “Charles Duross, deputy chief of the Justice Department’s FCPA Unit, recently said that “[t]he risk of getting caught…is greater today than any point previously,” and opined that a company’s decision whether to self-report potential violations was “kind of a no-brainer.”

As referenced here, Duross stated: “if there is a bribe we want to hear about it, even if it is small.”

The above statements by Duross about voluntary disclosure while he was at the government make recent statements attributed to him about the same topic interesting. As noted in this Global Investigations Review article titled: “Former FCPA Unit Chiefs Say Self-Reporting Is Still Probably Not Worth It”:

“Three former foreign bribery unit chiefs have agreed that it rarely makes sense for companies to voluntarily report misconduct to the government despite the incentives in the DOJ’s FCPA corporate enforcement policy.

At the “Emerging Issues in FCPA Enforcement” conference at George Washington University Law School on 9 March, two former heads of the Department of Justice’s Foreign Corrupt Practices Act unit, Mark Mendelsohn and Chuck Duross, and a former chief of the Securities and Exchange Commission’s parallel unit, Cheryl Scarboro, discussed the benefits of self-reporting under the DOJ’s corporate enforcement policy for foreign bribery cases.

While they praised the DOJ for its transparency in releasing a policy that offers self-reporting companies a declination, they also agreed that the consequences of voluntarily disclosing misconduct mostly outweigh the potential benefits.

[…]

One of the biggest deterrents for companies is the prospect of its declination being released publicly on the DOJ’s website.

“I think the DOJ has tried to provide greater certainty and clarity and a list of criteria,” Duross said. “But boy, in doing that they have reached this resolution where they take almost all of it [the incentives to self-report] back because if you are a company, what you care a lot about is its reputation.”

[…]

“The reward is forever more your name will be tattooed on their [the DOJ’s] website as having violated the FCPA and paid disgorgement,” said Duross, now a partner at Morrison & Foerster. “It is a huge disincentive.”

Duross said the only scenario in which a company’s name would stay off the DOJ’s declinations page on its website was if there wasn’t a violation in the first place or if the violation was time-barred. In those cases, it wouldn’t make sense to report in the first place, he said.

[…]

In cases with aggravating circumstances the potential benefit to self-reporting to the DOJ is a 50% reduction off a criminal fine. However, companies that do not self-report can still qualify for a 25% if they remediate and cooperate with the DOJ.

Duross said the difference between 50% and 25% is not enough to make companies view self-disclosing as favourable. He added that the main criterion that companies should look at when deciding if they should self-report is if they think the government could find out about the conduct anyway.

“I don’t know if the delta between the 50 and 25 is going to move the needle for many clients,” Duross said. “What oftentimes I think the most important variable is, what is the likelihood that the DOJ and SEC are going to find out about this regardless of what we do?”

Incidentally, this is not the first time Duross has seemingly flipped-flopped on the merits of voluntarily disclosure. As highlighted in this 2016 Corporate Crime Reporter article, Duross stated:

“When I was leaving the Department, one of the things I thought to myself was — as a newly minted defense attorney, what would my advice be to a company and under what circumstances would a voluntary disclosure make sense to them? I always thought that it was a legitimate criticism for people to say — the problem with voluntary disclosure is — it takes too long and it costs too much and on top of that the benefits are too uncertain.”

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