The Department of Justice has long wanted companies to voluntarily disclose conduct that implicates the Foreign Corrupt Practices Act. The latest attempt to achieve this policy goal of course was the DOJ’s November 29th announcement of a new “FCPA Corporate Enforcement Policy.” (This post rounds up all previous posts on this topic).
Why then, literally a few hours after announcing its latest attempt to motivate companies to voluntarily disclose, did the DOJ in announcing the SBM Offshore enforcement action (see here and here for prior posts) once again (see here and here for prior similar posts) shot itself in the foot by making decisions that should result in any board member, audit committee member, or general counsel informed of current events not making the decision to voluntarily disclose?
Since the April 2016 FCPA Pilot Program (another DOJ attempt to encourage voluntary disclosure), the DOJ has resolved eight corporate FCPA enforcement actions that did not originate with a true voluntary disclosure.
In seven of the eight actions (SBM Offshore, Telia, Teva, JPMorgan, Embraer, Och-Ziff, and Odebrecht/Braskem) the DOJ agreed to a below-guidelines range settlement amount. (The LAN/LATAM action was resolved for a fine amount near the low-end of the guidelines range).
Telia was resolved for approximately 25% below the minimum amount suggested by the guidelines; Teva was resolved for approximately 20% below the minimum amount suggested by the guidelines; JPMorgan for 25% below the minimum amount suggested by the guidelines; Embraer approximately 20% below the minimum amount suggested by the guidelines; Och-Ziff approximately 20% below the minimum amount suggested by the guidelines; and Odebrecht/Braskem approximately 15% – 20% below the minimum amount suggested by the guidelines.
Moreover, all of these enforcement actions included either an NPA or DPA.
As informative as these examples are, the SBM Offshore enforcement action is perhaps most informative.
As highlighted in this prior post, the conduct at issue was egregious. In the words of the DOJ, the improper conduct:
“lasted over 16 years, was carried out by employees at the highest level of the organization, including two high-level executives who were at times directors of a wholly-owned U.S. domestic concern, involved large bribe payments, and included deliberate efforts to conceal the scheme.”
The conduct was broad in scope (involving alleged bribery schemes in Brazil, Angola, Equatorial Guinea, Kazakhstan and Iraq) and most notably the DOJ alleged that at least $180 million in corrupt “commission” payments were made to intermediaries for the purpose of obtaining or retaining business.
The end result?
SBM Offshore received a DPA with a settlement amount – according to the DOJ – 25% below the minimum amount suggested by the guidelines. However, as highlighted in this prior post, that figure is clearly wrong because the DOJ’s advisory sentencing guidelines sets forth a range of $4.5 billion to $9.02 billion. The DOJ did state that a $238 million settlement “is appropriate given the facts and circumstances of this case … and in consideration of imposing a penalty that will avoid substantially jeopardizing the continued viability of the Company.”
In short, if I am a rational board member, audit committee member, or general counsel, I look at this “precedent” (and I use that term loosely and not in the sense of case-law precedent) the DOJ has created since the April 2016 Pilot Program and think to myself:
“Why in the world should we disclose. Let’s thoroughly investigate the issues, promptly implement remedial measures, and effectively revise and enhance compliance policies and procedures – all internally and without disclosing to the enforcement agencies. In the unlikely event the DOJ finds out about the conduct, even if it is truly egregious, the DOJ is still likely to offer the company an NPA or DPA and we will still likely be able to resolve the matter for a meaningful reduction off the minimum amount suggested by the guidelines. Sure the Pilot Program and now the “FCPA Corporate Enforcement Policy” may offers bigger “carrots” but those are discretionary and it is pure speculation as to whether or not this would actually happen.”
As informative as the above examples are, they are not the main reason why the DOJ is shooting itself in the foot when it comes to the policy goals it sought to achieve with the Pilot Program and now the “FCPA Corporate Enforcement Policy.”
Consider the repeat offender FCPA enforcement actions from earlier this year involving Biomet (see here and here) and Orthofix International (see here).
The first time Biomet resolved an FCPA enforcement action in March 2012, the DOJ offered the company a DPA and agreed to a settlement amount 20% below the minimum amount suggested by the guidelines. The second time Biomet resolved an FCPA enforcement in January 2017 (a portion of the improper conduct involved the same distributor in Brazil that gave rise to the 2012 FCPA enforcement action), the DOJ again offered the company a DPA and agreed to a settlement amount in the middle range of the suggested guidelines amount.
The first time Orthofix resolved an FCPA enforcement action in July 2012, the DOJ offered the company a DPA and agreed to a settlement amount for the minimum amount suggested by the guidelines. When Orthofix again became the subject of FCPA scrutiny a short time later, the company stated that it “was informed that the DOJ has decided to take no further action with respect to this matter” even though the SEC brought a January 2017 FCPA enforcement action against the company. (See here).
If I am that same rational board member, audit committee member, or general counsel, I look at this additional “precedent” the DOJ recently created and think to myself (in addition to the points mentioned above):
“Why in the world should we disclose. Even if we resolved an FCPA enforcement action a few years ago, if additional FCPA issues arise, let’s thoroughly investigate, promptly implement remedial measures, and effectively revise and enhance compliance policies and procedures – all internally and without disclosing to the enforcement agencies. In the unlikely event the DOJ finds out about the conduct, the DOJ is again likely to offer the company a DPA and again likely to resolve the matter for something less than the top range settlement amount suggested by the guidelines.”
In short, if the goal of the DOJ is to encourage corporate voluntarily disclosures, it is actually shooting itself in the foot by virtue of its recent decisions.
The message seems to be clear for any board member, audit committee member, or general counsel informed of current events – do not voluntarily disclose.
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