This previous post first reported the DOJ’s announcement of a “new” Foreign Corrupt Practices Act “pilot program” and contained a general observation regarding the announcement.
Future posts will continue to analyze and provide commentary on the “pilot program.”
This post accepts the “pilot program” for what it is and sets forth in Q&A format, based on the DOJ’s own information, what you need to know about the program.
The user-friently Q&A is published as a courtesy to the legal and compliance community.
© 2016 FCPA Professor LLC. All Rights Reserved.
Q: The document released by the DOJ is titled “The Fraud Section’s FCPA Enforcement Plan and Guidance.” Why did the DOJ release this document?
A: According to the document, the DOJ “is committed to enhancing its efforts to detect and prosecute both individuals and companies for violations of the FCPA” and the document “sets forth three steps in [the DOJ’s] enhanced FCPA enforcement strategy.”
Q: What are those “three steps.”
A: According to the document:
(1) the DOJ “is intensifying its investigative and prosecutorial efforts by substantially increasing its FCPA law enforcement resources.” “Specifically, the Fraud Section is increasing its FCPA unit by more than 50% by adding 10 more prosecutors to its ranks. At the same time, the FBI has established three new squads of special agents devoted to FCPA investigations and prosecutions.”
(2) The DOJ “is strengthening its coordination with foreign counterparts in the effort to hold corrupt individuals and companies accountable.”
(3) “The Fraud Section is conducting an FCPA enforcement pilot program.”
Q: Are these “three steps” new?
A: Steps 1 and 2 are most certainly not new as information about general and specific information about these “steps” have been in the public domain for some time. As to Step 3, the “pilot program,” there is very little new information to those previously knowledgeable about DOJ FCPA enforcement policies and practices.
The remainder of the Q&A’s focus on the “pilot program.”
Q: What is the goal of the “pilot program” and why did the DOJ create the “pilot program”?
A: According to the document: “The principal goal of this program is to promote greater accountability for individuals and companies that engage in corporate crime by motivating companies to voluntarily self-disclose FCPA-related misconduct, fully cooperate with the Fraud Section, and, where appropriate, remediate flaws in their controls and compliance programs. If successful, the pilot program will serve to further deter individuals and companies from engaging in FCPA violations in the first place, encourage companies to implement strong anti-corruption compliance programs to prevent and detect FCPA violations, and, consistent with the memorandum of the Deputy Attorney General dated September 9, 2015 (“DAG Memo on Individual Accountability”) [the so-called “Yates Memo], increase the Fraud Section’s ability to prosecute individual wrongdoers whose conduct might otherwise have gone undiscovered or been impossible to prove.”
According to the document: “The pilot program is intended to encourage companies to disclose FCPA misconduct to permit the prosecution of individuals whose criminal wrongdoing might otherwise never be uncovered by or disclosed to law enforcement.”
As noted in the prior post, in the DOJ’s press conference, Assistant Attorney General Leslie Caldwell stated that the DOJ is “confident that there are lots of FCPA violations” that do not come to the DOJ’s attention.
Q: Are the factors set forth in the “pilot program” binding?
A: No. Like prior DOJ guidance on the FCPA, such as the 2012 FCPA Guidance, the document states: “This memorandum is for internal use only and does not create any privileges, benefits, or rights, substantive or procedural, enforceable by any individual, organization, party or witness in any administrative, civil, or criminal matter.”
Q: The “pilot program” encourages voluntarily disclose of FCPA issues. Does a company have a specific legal obligation under the FCPA to voluntarily disclose?
A: No. As stated in the document: “Nothing in the Guidance is intended to suggest that the government can require business organizations to voluntarily self-disclose, cooperate, or remediate. Companies remain free to reject these options and forego the credit available under the pilot program.”
Q: Has the DOJ previously encouraged companies to voluntarily disclose FCPA issues?
A: Yes. The DOJ as a matter of policy, as reflected in among other sources of information DOJ enforcement officials speeches, have long encouraged companies to voluntarily disclose FCPA issues.
Moreover, as the document rightly recognizes the DOJ’s Principles of Federal Prosecution of Business Organizations and U.S. Sentencing Guidelines “have long provided guidance on whether a criminal disposition against a company is appropriate and what form that disposition should take” as well as “provided for reduced fines for business organizations that voluntarily disclose criminal conduct, fully cooperate, and accept responsibility for the criminal conduct.”
Q: Why then the need for the “pilot program”?
A: According to the document: “These fine reductions and other incentives have not previously been articulated in a written framework. By setting forth this Guidance, we intend to provide a clear and consistent understanding of the circumstances in which the Fraud Section may accord additional credit in FCPA matters to organizations that voluntarily disclose misconduct, fully cooperate, and timely and appropriately remediate.”
Q: Does the “pilot program” supplant the Principals of Prosecution and/or Sentencing Guidelines?
A: No. According to the document: “The Guidance does not supplant the USAM Principles. Prosecutors must consider the ten factors set forth in the USAM when determining how to resolve criminal investigations of organizations. Prosecutors must also calculate the appropriate fine range under Chapter 8 of the Sentencing Guidelines. This Guidance, by contrast, sets forth the circumstances in which an organization can receive additional credit in FCPA matters, above and beyond any fine reduction provided for under the Sentencing Guidelines, and the manner in which that additional credit should be determined, whether it be in the type of disposition, the extent of reduction in fine, or the determination of the need for a monitor.”
Q: How can companies potentially receive “mitigation credit” under the “pilot program”?
A: According to the document, “mitigation credit” may be available “to business organizations that voluntarily self-disclose, fully cooperate, and remediate.”
Q: What does “voluntary self-disclosure” mean under the “pilot program”?
A: According to the document: “In evaluating self-disclosure during this pilot, the Fraud Section will make a careful assessment of the circumstances of the disclosure. A disclosure that a company is required to make, by law, agreement, or contract, does not constitute voluntary self-disclosure for purposes of this pilot. Thus, the Fraud Section will determine whether the disclosure was already required to be made. In addition, the Fraud Section will require the following items for a company to receive credit for voluntary self-disclosure of wrongdoing under this pilot:
- The voluntary disclosure qualifies under U.S.S.G. § 8C2.5(g)(1) as occurring “prior to an imminent threat of disclosure or government investigation”;
- The company discloses the conduct to the Department “within a reasonably prompt time after becoming aware of the offense,” with the burden being on the company to demonstrate timeliness; and
- The company discloses all relevant facts known to it, including all relevant facts about the individuals involved in any FCPA violation.
Q: What does “full cooperation” mean under the “pilot program”?
A: According to the document: “In addition to the USAM Principles, the following items will be required for a company to receive credit for full cooperation under this pilot (beyond the credit available under the Sentencing Guidelines)
- As set forth in the DAG Memo on Individual Accountability [the Yates Memo], disclosure on a timely basis of all facts relevant to the wrongdoing at issue, including all facts related to involvement in the criminal activity by the corporation’s officers, employees, or agents;
- Proactive cooperation, rather than reactive; that is, the company must disclose facts that are relevant to the investigation, even when not specifically asked to do so, and must identify opportunities for the government to obtain relevant evidence not in the company’s possession and not otherwise known to the government;
- Preservation, collection, and disclosure of relevant documents and information relating to their provenance;
- Provision of timely updates on a company’s internal investigation, including but not limited to rolling disclosures of information;
- Where requested, de-confliction of an internal investigation with the government investigation;
- Provision of all facts relevant to potential criminal conduct by all third-patty companies (including their officers or employees) and third-party individuals;
- Upon request, making available for Department interviews those company officers and employees who possess relevant information; this includes, where appropriate and possible, officers and employees located overseas as well as former officers and employees (subject to the individuals’ Fifth Amendment rights);
- Disclosure of all relevant facts gathered during a company’s independent investigation, including attribution of facts to specific sources where such attribution does not violate the attorney-client privilege, rather than a general narrative of the facts;
- Disclosure of overseas documents, the location in which such documents were found, and who found the documents (except where such disclosure is impossible due to foreign law, including but not limited to foreign data privacy laws);
- Unless legally prohibited, facilitation of the third-party production of documents and witnesses from foreign jurisdictions; and
- Where requested and appropriate, provision of translations of relevant documents in foreign languages.”
Q: Some of these factors for “full cooperation” seem onerous, burdensome or potentially in conflict with other legal rules. Does the DOJ have different expectations for different companies?
A: In various places, the document states:
“If a company claims that it is impossible to meet one of these requirements, for example because of conflicting foreign law, the Fraud Section should closely evaluate the validity of that claim and should take the impediment into consideration in assessing whether the company has fully cooperated. The company will bear the burden of establishing why it cannot meet one of these requirements.”
“Where a company claims that disclosure [of overseas documents] is prohibited, the burden is on the company to establish the prohibition. Moreover, a company should work diligently to identify all available legal bases to provide such documents.”
“The Fraud Section does not expect a small company to conduct as expansive an investigation in as short a period of time as a Fortune 100 company.”
“Where a company of any size asserts that its financial condition impairs its ability to cooperate more fully, the company will bear the burden to provide factual support for such an assertion.”
Q: Does the “pilot program” address the scope of internal investigations?
A: Yes. Similar to Assistant Attorney General Leslie Caldwell’s April 2015 “boil the ocean” comments, the document states:
“[The DOJ does not] generally expect a company to investigate matters unrelated in time or subject to the matter under investigation in order to qualify for full cooperation credit. An appropriately tailored investigation is what typically should be required to receive full cooperation credit; the company may, of course, for its own business reasons seek to conduct a broader investigation.”
“[A]bsent facts to suggest a more widespread problem, evidence of criminality in one country, without more, would not lead to an expectation that an investigation would need to extend to other countries. By contrast, evidence that the corporate team engaged in criminal misconduct in overseeing one country also oversaw other countries would normally trigger the need for a broader investigation. In order to provide clarity as to the scope of an appropriately tailored investigation, the business organization (whether through internal or outside counsel, or both) is encouraged to consult with Fraud Section attorneys.”
Q: What does “timely and appropriate remediation” mean under the “pilot program”?
A: According to the document:
“Remediation can be difficult to ascertain and highly case specific. In spite of these difficulties, encouraging appropriate and timely remediation is important to reducing corporate recidivism and detecting and deterring individual wrongdoing. The Fraud Section’s Compliance Counsel is assisting us in refining our benchmarks for assessing compliance programs and for thoroughly evaluating an organization’s remediation efforts.
In evaluating remediation efforts under this pilot program, the Fraud Section will first determine whether a company is eligible for cooperation credit; in other words, a company cannot fail to cooperate and then expect to receive credit for remediation despite that lack of cooperation. The following items generally will be required for a company to receive credit for timely and appropriate remediation under this pilot (beyond the credit available under the Sentencing Guidelines):
Implementation of an effective compliance and ethics program, the criteria for which will be periodically updated and which may vary based on the size and resources of the organization, but will include:
- Whether the company has established a culture of compliance, including an awareness among employees that any criminal conduct, including the conduct underlying the investigation, will not be tolerated;
- Whether the company dedicates sufficient resources to the compliance function;
- The quality and experience of the compliance personnel such that they can understand and identify the transactions identified as posing a potential risk;
- The independence of the compliance function;
- Whether the company’s compliance program has performed an effective risk assessment and tailored the compliance program based on that assessment;
- How a company’s compliance personnel are compensated and promoted compared to other employees;
- The auditing of the compliance program to assure its effectiveness; and
- The reporting structure of compliance personnel within the company
Appropriate discipline of employees, including those identified by the corporation as responsible for the misconduct, and a system that provides for the possibility of disciplining others with oversight of the responsible individuals, and considers how compensation is affected by both disciplinary infractions and failure to supervise adequately; and
Any additional steps that demonstrate recognition of the seriousness of the corporation’s misconduct, acceptance of responsibility for it, and the implementation of measures to reduce the risk of repetition of such misconduct, including measures to identify future risks.”
Q: Under the “pilot program,” what happens when a company full cooperates and timely and appropriate remediates without voluntary self-disclosure?
A: According to the document: “If a company has not voluntarily disclosed its FCPA misconduct in accordance with the standards set forth above, it may receive limited credit under this pilot program if it later fully cooperates and timely and appropriately remediates. Such credit will be markedly less than that afforded to companies that do self-disclose wrongdoing […] Specifically, in circumstances where no voluntary self-disclosure has been made, the Fraud Section’s FCPA Unit will accord at most a 25% reduction off the bottom of the Sentencing Guidelines fine range.”
Q: Under the “pilot program,” what happens when a company voluntarily self-discloses as well as fully cooperates and timely and appropriately remediates?
A: According to the document: “When a company has voluntarily self-disclosed misconduct in an FCPA matter in accordance with the standards set forth above; has fully cooperated in a manner consistent with the DAG Memo on Individual Accountability [the Yates Memo] and the USAM Principles; has met the additional stringent requirements of the pilot program; and has timely and appropriately remediated, the company qualifies for the full range of potential mitigation credit.
In such cases, if a criminal resolution is warranted, the Fraud Section’s FCPA Unit:
- may accord up to a 50% reduction off the bottom end of the Sentencing Guidelines fine range, if a fine is sought; and
- generally should not require appointment of a monitor if a company has, at the time of resolution, implemented an effective compliance program.
Where those same conditions are met, the Fraud Section’s FCPA Unit will consider a declination of prosecution. […] To qualify for any mitigation credit under this pilot […] the company should be required to disgorge all profits from the FCPA misconduct at issue.”
Q: When is the “pilot program” effective?
A: According to the document: “The pilot program will be effective April 5, 2016 as part of a one-year program applicable to all FCPA matters handled by the Fraud Section. The Guidance is being applied by the Fraud Section to organizations that voluntarily self-disclose or cooperate in FCPA matters during the pilot period, even if the pilot thereafter expires.”
Q: What happens after one year?
A: According to the document: “By the end of this pilot period, the Fraud Section will determine whether the Guidance will be extended in duration and whether it should be modified in light of the pilot experience.”
Q: Does the “pilot program” extend beyond FCPA enforcement?
A: No. According to the document: “The Guidance applies only to the Fraud Section’s FCPA Unit and not to any other part of the Fraud Section, the Criminal Division, the United States Attorneys’ Offices, or any other part of the Department of Justice, or any other agency.”