Another day, another speech by a DOJ official.
Recently, Acting Assistant Attorney General Nicole Argentieri delivered this speech in which she discussed the following topics: foreign law enforcement cooperation, corporate cooperation, compensation incentives and clawbacks, voluntary disclosure, and the DOJ’s recent “safe harbor” policy in connection with merger and acquisition activity.
Regarding foreign law enforcement cooperation, Argentieri stated:
“As our recent cases show, we are regularly working with a large number of foreign law enforcement partners, not only in Foreign Corrupt Practices Act (FCPA) matters, but across the full range of our investigations. And our footprint of successful partnerships continues to grow. In recent years, we’ve worked with our enforcement colleagues all across the globe, including of course here in the United Kingdom, but also in Brazil, Malaysia, Switzerland, Ecuador, France, South Africa, Colombia, the Netherlands, Singapore, and more. We forge these relationships not only by cooperating on cases, but also by working together in critical international organizations. This week in Paris, two of our Fraud Section prosecutors are participating in the Organisation for Economic Co-operation and Development’s (OECD’s) Working Group on Bribery where they are meeting with foreign counterparts about existing and potential investigations.
This coordination among international law enforcement partners is one of the most important developments in white collar enforcement over the last decade.”
Regarding corporate cooperation, Argentieri stated:
“As you all may know, in January 2023, my predecessor Assistant Attorney General Kenneth Polite announced the first substantive changes in five years to the Criminal Division’s Corporate Enforcement and Voluntary Self-Disclosure Policy, or CEP. The CEP sets forth specific benefits for companies that voluntarily self-disclose misconduct, fully cooperate with our investigations, and timely and appropriately remediate misconduct.
One of the goals of these policy changes was to allow prosecutors to make finer distinctions between companies that do the right thing and those that fall short, both in terms of the form of the resolution and the amount of the fine. Under our previous CEP, the maximum credit available to companies that did not voluntarily self-disclose misconduct but fully cooperated and timely and appropriately remediated was a 25% reduction from the low-end of the applicable fine range. The recent revisions increased that cap to a 50% reduction.
Keep in mind, every company still starts with zero cooperation credit. By increasing the maximum amount of credit a company can receive, we are not grading on a curve – the new policy is meant to more greatly reward good actors, not companies that do the bare minimum. Simply responding to legal process, standing alone, is not “cooperating.” To earn credit, we expect companies to truly cooperate in our investigations. We expect them to be both responsive and proactive. And do not forget, these fine reductions account for both cooperation and remediation. With Corficolombiana, the first case announced under the new CEP, we awarded a 30% reduction to recognize its efforts on both fronts. The company not only took significant cooperative steps. It also took significant remedial steps. Among other things, it conducted a root cause analysis of the misconduct and promptly took actions to enhance its corporate governance and controls at joint venture entities; it also overhauled its compliance program and established a disciplinary process overseen by a cross-functional ethics committee.”
Regarding compensation incentives and clawbacks, Argentieri stated:
“In addition to being the first FCPA case under the revised CEP, the Corficolombiana resolution also implemented new requirements in the Criminal Division’s Compensation Incentives and Clawbacks Pilot Program that we announced in March of this year.
The first part of the pilot program underscores the Department’s view that corporations should have compensation and bonus systems that reward behavior consistent with compliance values. Under this part of the pilot program, every corporate resolution involving the Criminal Division will require that the resolving company include compliance-promoting criteria in its compensation and bonus system. As part of its agreement with the Department, Corficolombiana pledged to do just that, “consistent with local labor laws.” We appreciate that relevant labor and employment laws and other laws across the world vary, and so the pilot program also takes that into account. As the language in our resolutions and policies make clear, it is subject to such laws.
The second part of the pilot program provides clear and predictable monetary incentives for companies to claw back, or withhold, compensation paid or otherwise due to individual wrongdoers. This applies to employees who engaged in suspected wrongdoing in connection with the conduct under investigation or had supervisory authority over those who engaged in the misconduct and knew of, or were willfully blind to, the misconduct. Indeed, companies will be able to reduce criminal penalties when they attempt in good faith to claw back or withhold compensation – even if those efforts are unsuccessful.
The pilot program provides that for every dollar that a resolving company recoups from a wrongdoer – whether through money that’s withheld or paid and then clawed back – the otherwise applicable fine for the conduct will be reduced by a dollar. This is a double savings – the company not only receives the benefit of not paying a wrongdoer, it is also rewarded with an additional fine reduction in its resolution with the Department.
The program also recognizes that clawing back compensation can be a timely and complicated process, and that clawbacks may not be complete at the time of the resolution, even if the company had effective clawback policies in place. In those circumstances, the resolving company will pay the applicable fine at the time of resolution, minus a reserved credit equaling the amount of compensation the company is actively attempting to claw back or withhold from culpable executives and employees. Once the company completes the clawback, the corresponding reserved credit will be released to the company. And even if the company is unable to achieve the clawback, prosecutors can credit the good faith effort by releasing to the company up to 25% of the amount the company sought.
The recent resolution with Albemarle Corp. a few weeks ago is a good example of how we’re implementing many of our recent policy changes, including both parts of the pilot program as well as the CEP. In that case, Albemarle, a publicly traded chemicals manufacturing company headquartered in North Carolina, entered into a three-year non-prosecution agreement with the Fraud Section’s FCPA Unit and the U.S. Attorney’s Office in the Western District of North Carolina to resolve foreign bribery charges. The company admitted to agreeing to pay, through its third-party sales agents and subsidiary employees, bribes to government officials to obtain and retain business with state-owned oil refineries in Vietnam, Indonesia, and India. The company agreed to pay a penalty of approximately $98.2 million and forfeit approximately $98.5 million in ill-gotten gains. The company also simultaneously resolved with the U.S. Securities and Exchange Commission.
How were our policies put into action? Take the pilot program: Albemarle, like Corficolombiana, agreed to implement compliance-related criteria in its compensation structures subject to local labor laws. In addition, we awarded the first ever penalty reduction under the pilot program because the company withheld bonuses totaling over $763,000 during the course of its investigation from employees who fell within the policy’s scope. Because Albemarle had proactively implemented procedures to freeze future bonuses for those suspected of misconduct, they were able to withhold compensation, rather than have to claw it back, and were rewarded with a reduction in their criminal monetary penalty equal to the amount of the bonuses that were withheld.
Now take the CEP: Albemarle was awarded a 45% reduction from the low-end of the applicable penalty range, the highest percentage reduction under the revised CEP to date. Albemarle substantially cooperated with our investigation and also undertook significant remediation. It created extensive enhancements to its corporate compliance program, particularly regarding its third-party due diligence and monitoring. The company transformed its business model and risk management process to reduce corruption risk and to embed compliance in the business, including by eliminating the use of sales agents throughout the company. The company also terminated hundreds of other third-party sales representatives, such as distributors and resellers, and shifted to a direct sales business model. These improvements carry significant weight with us because we encourage companies to invest in effective risk analysis, mitigation and compliance programs that help prevent misconduct from occurring in the first place.”
Regarding voluntary disclosure, Argentieri continued:
“But I want to emphasize what set Albemarle apart from many other companies: it voluntarily disclosed the misconduct that formed the basis for this agreement before the conduct came to the Department’s attention. To be sure, the company was not “reasonably prompt” in doing so, as defined under the CEP and the Sentencing Guidelines. The company learned of allegations regarding possible misconduct in one country approximately 16 months before disclosing it to the Department. After an internal investigation, the company gathered evidence relating to the potential misconduct at least nine months prior to the disclosure. Taking too long to self-report meant the company was not eligible for the greatest benefit under the CEP – a declination.
But as they say, better late than never. The company’s decision to come forward – even if belatedly – resulted in significant and concrete benefits, including benefits that would not have been available under the older version of our policies. For one thing, the company resolved the case through a non-prosecution agreement, rather than a deferred prosecution agreement or a guilty plea. And within the new range of zero to a 50% reduction under the CEP, Albemarle’s decision to disclose factored heavily in our decision to award a 45% discount off the low end of the penalty range. The previous maximum discount under the prior policy would have been only 25%.
We know the decision to self-report misconduct is a difficult one for Boards of Directors and their counsel. But remember the benefits that await you if you choose to do the right thing. The business case for compliance is clear. As Department leaders have repeatedly emphasized, we greatly value expediency and therefore can offer a presumption of a declination if the voluntary disclosure is reasonably prompt. This allows us to move quickly, to gather and preserve evidence, and enhances our ability to charge culpable individuals. But it’s not an all or nothing proposition. Don’t let the passage of time alone dissuade you from coming forward. As the Albermarle resolution shows, even a belated self-report will result in significant and meaningful benefits.”
Finally, Argentieri discussed the DOJ’s recent “safe harbor” policy in connection with merger and acquisition activity (see here and here for prior posts).
“Let me explain for a minute how we envision the Safe Harbor Policy will interact with our CEP. The CEP states that companies that uncover misconduct at an acquired entity through pre- or post-acquisition due diligence or integration efforts, remediate the misconduct, appropriately implement a compliance program, disclose the misconduct, and disgorge all ill-gotten gains will receive the benefit of a presumption of a declination. The recent declination for French aerospace company Safran S.A., shows how this policy has been applied in practice. Safran acquired two companies in 2015. Through its post-acquisition due diligence, Safran learned that both had paid bribes to a close-relative of a then-senior Chinese government official. Safran earned a declination by identifying the misconduct, voluntarily self-disclosing it to the FCPA Unit, fully cooperating and remediating, and disgorging ill-gotten gains. [As highlighted here, the Safran enforcement action – and that is what a declination with disgorgement most certainly is – was a $17.2 million enforcement action]. Under the new policy announced by the DAG, to the extent that companies were not already motivated to rapidly come forward to report misconduct uncovered in the M&A context and remediate, the message is clear: companies will best position themselves for a declination if they move swiftly – within six months, if not sooner. And if they fall short, keep in mind the lesson of Albemarle – while early reporting is best, self-reporting late is always better than never, whether in the M&A context or otherwise. There are significant benefits available under our policies, in terms of both penalty reductions and the form of the resolution.
We also expect the new safe harbor policy working in conjunction with the Criminal Division’s CEP to increase our ability to both prosecute and prevent additional corporate crime. By encouraging companies to come forward and disclose, we will be able to hold wrongdoers accountable for crimes that were otherwise ongoing and undetected. We expect to receive information that will promote our Department-wide goal of holding individual wrongdoers accountable. This will increase both accountability and deterrence. We see this policy as working hand-in-hand with the Criminal Division’s CEP as a way to incentivize companies to report bad acts that we would not otherwise know about.”
