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Business Organizations Should Not Take The DOJ’s Latest Voluntary Disclosure Bait


The DOJ’s efforts to entice business organizations to voluntarily disclose (in the Foreign Corrupt Practices Act context and otherwise) stretches back approximately 15 years (see this prior post collecting various DOJ speeches going back to 2004).

Fast forward to 2012, then it was the FCPA Guidance which sought to entice business organizations to voluntarily disclose by, among other things, highlighting six “anonymized examples of matters DOJ and SEC have declined to pursue” where a common thread was voluntary disclosure.

In April 2016, it was the DOJ’s pilot program, an effort – in the words of the DOJ –  to “encourage voluntary corporate self-disclosure.”

Thereafter, it was the November 2017 DOJ FCPA Corporate Enforcement policy which – in the words of the DOJ – was intended to provide “guidance and greater certainty for companies struggling with the question of whether to make voluntary disclosures of wrongdoing…”

Most recently, it was the DOJ’s announcement last week of its “piling on policy”(see here and here for prior posts) which was motivated in large part to further entice business organizations to voluntarily disclose.

In the words of the DOJ: “The Department also recognizes the value of corporate voluntary disclosures of misconduct and cooperation by responsible corporate actors. In appropriate cases, coordination and balancing of corporate resolution penalties furthers those aims.”

The business decision of whether to voluntarily disclose conduct that could implicate the FCPA is fact specific. Nevertheless, business organizations should pause before taking the DOJ’s latest voluntary disclosure bait.

The reasons are largely the same for why business organizations should long have paused before taking the DOJ’s voluntary disclosure bait. (See here for the prior article “Grading the FCPA Guidance, here for the prior article “Grading the DOJ’s FCPA Pilot Program” and here for the article “Grading the DOJ’s Corporate Enforcement Policy”).

Like prior DOJ incentives, the recent “piling on” policy (in addition to being non-binding and reserving a tremendous amount of discretion to the DOJ) only addresses a relatively minor portion of the overall financial consequences that result from FCPA scrutiny and enforcement.

To best demonstrate this point, consider the following visual – something I have long called the “three buckets” of FCPA financial exposure. (See here for the article “FCPA Ripples”).

In other words FCPA scrutiny and enforcement results in:

  • bucket #1 (pre-enforcement action professional fees and expenses);
  • bucket #2 (enforcement action day – in other words a settlement amount); and
  • bucket #3 (post-enforcement action professional fees and expenses).

The above visual is intended to be representative. In other words, while the public’s attention is focused on bucket #2, bucket #1 in a typical instance of FCPA scrutiny is the largest bucket (often by a ratio of 3, 5, sometimes higher than settlement amounts).

Those making decisions on behalf of business organizations need to realize as well that all of the non-binding forms of DOJ guidance mentioned above focus only on bucket #2 (settlement amounts). Sure the DOJ’s November 2017 FCPA Corporate Enforcement Policy made passing reference to monitors (bucket #3), but in the modern era it is extremely rare (even long before the November 2017 non-binding guidance) for a cooperating U.S. company to have a monitor imposed upon it as a condition of resolving an FCPA matter.

If the above visual did not grab your attention, consider the below visual as well.

Once again, all of the non-binding forms of DOJ guidance mentioned above (including the recent “piling on” policy) only address a relatively minor financial aspect of FCPA scrutiny and enforcement. And then of course, in addition to the three buckets of FCPA financial exposure, there are the many other “ripples” FCPA scrutiny and enforcement such as: a drop in market capitalization, an increase in the cost of capital, a negative impact on merger and acquisition activity, lost or delayed business opportunities, and shareholder litigation. In certain cases, these other negative financial consequences can far exceed even the ‘‘three buckets’’ of financial exposure.

What the above information also seemingly demonstrates is just how little the DOJ (and SEC) understand the dynamics that drive business organization decisions to voluntarily disclose and why so few business organizations (that could voluntarily disclose FCPA conduct) make the decision not to take the DOJ’s bait.

Business organizations should once again not take the DOJ’s latest bait.

Rather, business leaders need to fully understand and appreciate that a voluntary disclosure of potential FCPA violations is going to set into motion a wide-ranging sequence of events that will be far more costly to the company than any marginal settlement amount benefit obtained through non-binding DOJ guidance.

No doubt there are some who are likely to respond along the following lines: if a business organization does not voluntarily disclose FCPA violations, it is likely that the enforcement agencies will independently find out about the violations, and when this happens, the company is going to experience the same negative financial consequences highlighted above plus, because of the lack of voluntary disclosure, a potential larger settlement amount.

However, this line of reasoning represents pure speculation. The following is anecdotal and not offered to establish the truth of the matter asserted; however, I have been actively involved in the FCPA space for approximately 15 years both as a lawyer in private practice who conducted FCPA internal investigations around the world and in other professional capacities. To my knowledge, never once did the DOJ independently find out about the underlying conduct and in speaking to other FCPA practitioners about this precise topic, it has never happened to their clients either.

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