In running this website, I often have to “roll up my sleeves” and “get to work” to provide you comprehensive information about the Foreign Corrupt Practices Act.
Whether it’s reading hundreds of pages relevant to an FCPA enforcement action (vs. summarizing a DOJ/SEC press as other FCPA websites do) or in this case analyzing over 40 law firm publications about the DOJ’s new “FCPA Corporate Enforcement Policy,” it’s what I do and I hope you gain value from it.
In analyzing the over 40 law firm publications, it was shocking to me how several failed to mention arguably the most important feature of the “FCPA Corporate Enforcement Policy.” That is, even a business organization does all the DOJ wants it to do under the policy, there is still a requirement that the company “pay all disgorgement, forfeiture, and/or restitution resulting from the misconduct at issue.”
It also reinforced that truism that the primary goal of most FCPA Inc. participants is not necessarily to convey information and knowledge, but to write in a way that markets the services one can provide. I know this well as this was also my primary objective when I was an FCPA lawyer in private practice for nearly a decade. For instance, many of the law firm alerts stated that “companies are well advised to examine and reassess their anti-corruption compliance and audit programs” in light of the new policy or that “companies with significant operations overseas should strongly consider whether their existing anti-bribery policies and practices are sufficient to address compliance risks under the FCPA and other applicable anti-corruption laws.”
Regardless, these are the law firm publications that caught my eye for the reasons highlighted.
“The question that companies face when they uncover a potential FCPA violation is TO REPORT OR NOT REPORT. Last week, Deputy Attorney General Rosenstein announced a new “FCPA Corporate Enforcement Policy.” Does this new policy “move the needle” in terms of answering that most important question? We think that the new policy offers no concrete change from how the DOJ has handled past cases, and certainly does not provide companies with an automatic “YES” answer to the key question. Companies still should weigh the risks and benefits of just fixing the problem, remediating as much as reasonably possible, strengthening their compliance programs, and moving forward versus the certain costs of reporting the issue to DOJ.
There is no doubt that this new policy is helpful for a company that, for reasons other than the policy, would likely voluntarily disclose anyway. For example, a public company that would have to disclose to the public the violation due to the violation’s materiality, would clearly benefit by disclosing under this policy.
For other companies, however, this new policy does not create a large enough incentive on its own to report a suspected violation. This is especially true when weighed against a company that takes the responsible steps of ending the violation, remediating to the extent possible, strengthening its compliance program, but does not self-report. A company making a voluntary disclosure under this new policy will have to pay a great deal to its legal team for the requisite internal investigation and settlement dance with the government. In addition, it will pay disgorgement, forfeiture and/or restitution. A company deciding to just fix the problem and move forward will pay some reduced costs to its legal team but nothing else – unless the government finds the violation on its own or through a whistleblower.
It is usually good for the government to operate pursuant to written policies and the new FCPA Corporate Enforcement Policy is a good thing to have. It does not, however, change current practice nor is it sufficient incentive to make a voluntary disclosure to the DOJ without first weighing the pros and cons.”
“[Q]uestions still abound surrounding how the Department will approach FCPA cases in the coming years and whether the Policy will have a broader impact throughout the Department on other types of corporate prosecutions. It also remains true that, even with the presumption of a declination in an FCPA case that is voluntarily disclosed, DOJ still will require disgorgement of ill-gotten gains. So, while the Policy makes the benefits of self-reporting a little more certain, companies still will incur a potentially substantial cost—one that must be balanced against the benefits of not self-reporting but remediating any improper conduct and then fully cooperating if the Department comes calling, which is what many companies do today.
We will be watching to see how DOJ interprets the “aggravating circumstances” exception in practice. For example, with respect to “involvement by executive management,” will DOJ be focused on parent-level executives, or will misconduct by executives in country-level subsidiaries qualify as “aggravating circumstances”? Similarly, how will DOJ interpret and apply the “significant profit” exception? Will the significance of the profit turn on the sheer magnitude of the profit; will DOJ consider the profits relative to the company’s scale and financial performance more generally; and how will this factor be applied in cases where the misconduct may not be tied to specific revenue streams but is nonetheless significant in a company’s commercial strategy and operations?”
“DOJ’s policy includes several important limitations. First, the presumption of declination only applies to criminal prosecution; eligible companies are still required to pay all disgorgement, forfeiture, and/or restitution resulting from the misconduct at issue. Second, the policy provides no protection for individuals. Indeed, a principal purpose of the policy is to enable the DOJ to utilize the cooperation of self-reporting companies to build cases against culpable individuals—an enforcement priority DOJ has emphasized in recent years, including in its 2015 Yates Memo and other recent public statements. Third, the policy also does not bind other enforcement authorities in the United States, including the SEC, which has civil enforcement jurisdiction over the FCPA, or abroad. As noted in in the U.S. Attorneys’ Manual, FCPA cases are “inherently international” in character; any misconduct is likely to fall within the jurisdiction of one or more regulators abroad. Fourth, the policy—while added to the United States Attorneys’ Manual—does not have the binding force of law: it merely guides the exercise of DOJ prosecutorial discretion.
[T]he policy may not dramatically change the calculus for companies deciding whether to self-report potential FCPA violations. While the possibility of a predictable and lenient resolution with DOJ is undoubtedly a powerful incentive to self-report, a self-reporting company that receives a DOJ declination may still be responsible for substantial monetary payments to the DOJ (in the form of disgorgement); regulatory actions by the SEC (for U.S. listed companies) and foreign prosecutors; potential debarment and other collateral consequences; and significant reputational harm. The aggravating circumstances that make a company ineligible for declination under the revised policy, moreover, often drive decisions of whether to self-report.”
“The DOJ expects—and the FCPA Corporate Enforcement Policy requires—timely action. The policy states that to be credited with voluntary self-disclosure in FCPA matters, a company must self-report “within a reasonably prompt time after becoming aware of the offense,” and the burden is on “the company to demonstrate timeliness.” Often companies face the decision of whether to self-report before a full investigation has occurred, meaning that a company may or may not know whether there are “aggravating circumstances” that would disqualify it from receiving a declination at the point when it must decide to self-report.
Although the prospect of a declination is encouraging for companies that would consider self-reporting, the issues of cooperation, what constitutes an effective compliance program, and whether aggravating circumstances are involved are subjective determinations. Ultimately, the government will still hold the power in deciding what credit should be given in any particular case.”
“Although the Policy provides welcome guidance and greater certainty about how DOJ will reward self-disclosure, it will be important to monitor carefully how DOJ actually applies this presumption and the extent to which the presumption ultimately trumps aggravating circumstances. The Policy likely improves predictability of outcome when reporting smaller matters to DOJ, but without materially changing the self-reporting calculus as to more significant matters. For issuers of U.S. securities, the likelihood of a parallel investigation by the U.S. Securities and Exchange Commission (“SEC”) persists. Additionally, with enhanced anticorruption enforcement worldwide, companies must consider how such declinations by DOJ may trigger or influence anti-corruption investigations abroad, especially given the extent of international coordination and cooperation.”
“Companies nevertheless also need to carefully consider the risks associated with making a voluntary disclosure, which may outweigh the potential benefits. Among other considerations is the risk of other enforcement actions by DOJ, other US authorities, or non-US authorities that increasingly are taking firm enforcement actions. DOJ and other US authorities may use the disclosure to enforce statutes other than the FCPA, such as those relating to antitrust, cyber crime, insider trading, accounting fraud, and others. In addition, the US Securities and Exchange Commission (“SEC”) may have parallel FCPA jurisdiction but is not bound by DOJ’s policy. In fact, at the same conference at which DOJ announced its new FCPA Corporate Enforcement Policy, Steven Peikin, Co-Director of the SEC’s Enforcement Division, stated that DOJ’s new policy will not change SEC’s approach at this time; instead, SEC will examine the policy to determine whether any changes to its own policies are necessary.”
“While Mr. Rosenstein characterized these revisions as “new policy,” they largely restate the terms and definitions of the prior Pilot Program, albeit with a more definitive (and generally more favorable) statement of the benefits of cooperation. In this respect, the Department seeks to provide more certainty concerning the benefits a company may anticipate if it elects to self-disclose and fully cooperate. Mr. Rosenstein was careful to note, however, that the Policy is intended to “help guide [the Department’s] exercise of discretion,” makes no guarantees, and cannot eliminate all uncertainties as to outcomes.
Additionally, the most notable aspect of the Policy––the “presumption” that a company will receive a declination if it self-discloses, cooperates and remediates––remains contingent upon yet another requirement: disgorgement, forfeiture, and/or payment of restitution in connection with the unlawful conduct. Thus, putting aside the controversy surrounding the Department’s relatively recent practice of offering “declination-with-disgorgement,” companies will still need to make a potentially sizeable payment to the government in order to receive a declination under the Policy.”
“The Enforcement Policy signals a further effort by DOJ to encourage companies to self-report and cooperate, although the policy also leaves the Department with considerable leeway in assessing key threshold questions for eligibility even for companies that do self-report.
It remains to be seen how the new policy will work in practice – notably, it is unclear how the DOJ will define “voluntary disclosure” (and what constitutes an “imminent threat” of disclosure), and how expansively the DOJ will define the aggravating circumstances that limit the possibility of a declination. And, of course, any decision to self-report raises additional questions that have to be considered, particularly with respect to potential investigations by other authorities in the U.S. (such as the SEC) and abroad, the potential for multiple, overlapping penalties, and other collateral consequences.”
“There is, of course, nothing in the revised (or pre-existing) policy that requires a company to cooperate by self-disclosing, cooperating in the investigation and taking remediation measures. Just like an individual, a company is free to make its own choices in this regard, and there are risks and benefits to both approaches. On the one hand, self-disclosure is a guarantee that the government will learn about an offense when it otherwise might not, an assurance of an expensive and potentially lengthy investigation, and a near certainty that there will be some type of sanction.”
“Another issue that has been raised in connection with the Pilot Program has been whether “declinations” include only matters where DOJ could have brought a case but elected not to, or whether declinations also include other cases where DOJ may have faced jurisdictional or proof challenges that may have limited their ability to bring a case at all. The new policy clarifies that issue, stating that a declination under the policy “is a case that would have been prosecuted or criminally resolved except for the company’s voluntary disclosure, full cooperation, remediation, and payment of disgorgement, forfeiture, and/or restitution. If a case would have been declined in the absence of such circumstances, it is not a declination pursuant to this Policy.”
“[C]ompanies should not equate declinations with immunity, as DOJ will continue to require companies to disgorge any profits from the unlawful conduct, as appropriate. […] Companies should be mindful … that the FCPA Policy is limited to the DOJ, and does not bind the US Securities and Exchange Commission, which expressly opted out of the original Pilot Program. In addition, companies should be aware that information they voluntary disclose to the DOJ may be shared by the DOJ with foreign regulators, who would not be required to provide the benefits stipulated by the FCPA Policy.”
“[I]n assessing whether aggravating factors exist, prosecutors still retain discretion to look at other non-identified criteria to make a case-by-case assessment about whether criminal prosecution is warranted (as opposed to declination). Similarly, prosecutors continue to be the arbiter of whether a corporation’s compliance program is effective and whether the circumstances warrant imposition of a monitor.”
“While language providing general guidance on implementation of an effective compliance and ethics program has been added to the FCPA section of the US Attorney’s Manual, this guidance is under a sub-section titled “Timely and Appropriate Remediation in FCPA Matters.” Thus, it is unclear at this point whether the DOJ, under the new policy, will consider a company’s preexisting compliance program (and gaps or deficiencies therein) or whether implementation of an effective program after the fact will be deemed sufficient.”
“[T]he decision to self-disclose remains a difficult and momentous choice. The Securities and Exchange Commission (“SEC”), as well as enforcement authorities in other countries–many of which have begun aggressively prosecuting international bribery cases–have not made similar firm commitments to declinations and remain focused on corporate prosecution. In an era of cross-border cooperation and information-sharing between enforcement authorities, companies should not assume that a DOJ declination means the end to their potential criminal and civil liability. In fact, such a self-report may quickly trigger investigations both in the U.S. and abroad.
[C]ompanies must remain aware that they may still pay a steep price for a self-disclosure, even if they receive a declination from DOJ.”
“The Policy does not, of course, eliminate all qualifications. [T]he Policy’s list of aggravating circumstances that may warrant a criminal resolution is non-exhaustive. There is also some ambiguity in the term “criminal recidivist”—does that term mean a company that has committed any prior crime or a company that has previously violated the FCPA specifically? Moreover, disagreements over whether a disclosure truly counts as a “self-disclosure” or whether a company “fully” cooperated are not uncommon, which will mean that the specific outcome of any case will always be somewhat in doubt until the ink is dry. Nevertheless, these types of caveats and ambiguities are inherent to our system, in which prosecutors are called upon to exercise their discretion to tailor outcomes to specific facts …”.
Like the Pilot Program, the Policy requires a company to fully disgorge all profits resulting from the misconduct in order to receive mitigation credit, but, interestingly, the Policy also specifies that forfeiture and restitution are required. In the FCPA context, identifying who are the “victims” that may be entitled to restitution has been somewhat challenging in practice, such as in cases where restitution to a foreign government or agency would end up rewarding complicit officials. In a final comment section, the Policy notes that this requirement may be satisfied by a parallel resolution with a relevant regulator, including the U.S. Securities and Exchange Commission. One interesting question that we will see play out in practice is whether DOJ will view a foreign enforcement agency as a “relevant regulator.”
One key issue that DOJ does not appear to have addressed is whether such declinations with disgorgement—which, although likely preferable to other forms of resolution, come with the added stigma of a company being publicly branded as a bribe-payer—provide an incentive or disincentive to voluntary self-reporting. Indeed, the Policy itself suggests that even a declination without disgorgement may still be made public. In other words, according to the Policy, every voluntary self-disclosure made to DOJ, as long as the matter would have otherwise been prosecuted or criminally resolved, may result in a public disclosure of the declination. This permanent reputational harm to companies that may be otherwise doing everything right provides a very significant disincentive to voluntarily self-disclose conduct to DOJ and will continue to impact negatively the calculus of companies in deciding whether to self-disclose.
[T]he Policy does try to address an area of some confusion, that is, the definition of what exactly a declination is. In doing so, DOJ makes clear that “declinations” occurring under this Policy are those cases that “would have been prosecuted or criminally resolved except for the company’s voluntary disclosure, full cooperation, remediation, and payment of disgorgement, forfeiture, and/or restitution.” Said differently, DOJ will not count as “declinations” in its statistics those cases that were not brought for other reasons, such as lack of jurisdiction, expiration of the statute of limitations, or inability to prove the offense beyond a reasonable doubt.”
“As with the pilot program, companies are still required to disgorge — without a discount — any profits arising out of the misconduct. Disgorgement is owed regardless of a declination or a criminal prosecution — in the case of a criminal fine, the disgorgement is an additional payment. Critically, the exercise of calculating tainted profits is subjective and is the focus of considerable negotiation with the DOJ (and the SEC), often involving experts. Unsurprisingly, the government’s calculation of “profits” often exceeds that of the disclosing party, and the government has substantial leverage to impose its conclusion.”
“While the prospect of a presumptive declination under the new policy is potentially significant, it is difficult to assess how much of a game-changer it may be at this juncture. It is not a leniency program, nor does it provide a compliance defense. The presumption may be overcome based on the same factors articulated under the Pilot Program, which leave substantial room for the exercise of prosecutorial discretion, in determining whether any of the broadly-stated aggravating circumstances may apply. The availability of a declination under this new policy will also turn on prosecutors’ judgment whether a company has met its burden in demonstrating it made a voluntary self-disclosure, has fully cooperated, and has taken timely and appropriate steps to remediate the misconduct consistent with the new policy.
The new policy does not address what will transpire with corporate groups, for example, when a parent and one or more subsidiaries are implicated in misconduct. In the past, DOJ enforcement frequently differentiated between parent and subsidiaries, sometimes giving the parent a non-prosecution agreement or deferred prosecution agreement, while requiring a plea from the subsidiary. It is possible under this policy that the parent would receive a declination for its reporting, cooperation, and remediation, while the subsidiary would be subjected to a criminal resolution.
Moreover, as under the Pilot Program, declinations under the FCPA Corporate Enforcement Policy will be made public. Thus, overall, while the new policy offers a potentially significant benefit, the decision whether to self-report an FCPA violation to US enforcement authorities will likely still be one that requires careful consideration. In this era of increased international cooperation among enforcement authorities, companies that self-report to the DOJ are likely to be opening themselves up to investigation and potential prosecution in multiple jurisdictions, as well as the collateral consequences that may flow from a public FCPA matter, even a declination.”
“[T]he devil is in the details. It remains to be seen how DOJ will apply the “aggravating circumstances” carve-outs to the declination presumption. For instance, how much profit is significant enough to carve a company out of the declination presumption? Also, companies are well advised to remember that the DOJ FCPA Enforcement Policy does not bind other regulators like the Securities and Exchange Commission (“”SEC), which does not have a parallel policy with the same presumptive declination provision. Accordingly, SEC registrants weighing the complex decision of whether to self-disclose to DOJ must still consider the likelihood that self-disclosure could lead to an SEC enforcement action under the FCPA, even where DOJ may decline prosecution under the revised FCPA Corporate Enforcement Policy.”
“Uncertainty remains, however, regarding the criteria DOJ will use to assess the timeliness of disclosure and, in particular, what DOJ means when it demands “reasonably prompt” self-disclosure. Likewise, the change in policy does not address the defense bar’s concern that DOJ’s financial calculations are unreasonably high, such that even a 50 percent reduction in recommended fine amount may entail a significant financial penalty.”
“[C]ertain questions persist about the specifics of the Enforcement Policy and how it will be applied.
For example, it remains to be seen how the DOJ will apply the “aggravating circumstances” exception. […] While the Enforcement Policy provides some examples of what will be considered aggravating circumstances, it is a non-exhaustive list and even the examples provided leave significant room for interpretation.
It is also unclear what the DOJ will consider “criminal recidivism.” Companies worried about whether an aggravating circumstance may deprive them of the full benefits of the Enforcement Policy can take some comfort in the fact that they will receive, at worst, a 50% reduction off the bottom of the Sentencing Guidelines fine range if they meet the conditions of the Enforcement Policy. The same cannot be said for companies considered to be criminal recidivists, which are excepted from both the presumption for declination and the 50% reduction benefit. It is unclear from the Enforcement Policy what will be considered criminal recidivism. Will it be limited to prior FCPA violations? How will prior SEC enforcement actions be treated? How will foreign criminal actions be treated? What is the relevant timeframe?”
“The decision to self-report, however, may not be an easy one, particularly if a company is unsure whether an FCPA violation has in fact occurred. The FCPA Corporate Enforcement Policy does not guarantee a declination or assure that a resolution will be kept confidential. Nor does it provide the equivalent of a “Get Out of Jail Free” card for companies that violated the FCPA. Even if a company receives a declination, the DOJ will not allow it to keep the profits from its misconduct. Companies therefore will need to weigh both the benefits and risks of self-reporting under DOJ policy.”
“Rosenstein did not mention any expedited timeline (such as the one-year goal previously articulated by Weissmann) for resolving investigations following a voluntary disclosure. Experience would suggest that any company considering a voluntary disclosure must be prepared for a potentially lengthy investigation whose scope and duration cannot necessarily be predicted at the outset.”
“Overall, DOJ still retains considerable leeway in crafting FCPA resolutions. Deputy Attorney General Rosenstein made a point of stating that the “new policy does not provide a guarantee,” specifying that “prosecutorial discretion” remains “central to ensuring the exercise of justice.”
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