Both the Department of Justice and the Serious Fraud Office in the U.K. want companies to voluntarily disclose conduct that implicates the Foreign Corrupt Practices Act and/or Bribery Act. Notwithstanding the DOJ slapping a formal title on its policy goal in April 2016 (i.e. the FCPA Pilot Program), this has long been the articulated policy position on both sides of the Atlantic for nearly a decade.
Why then are the DOJ and SFO shooting themselves 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?
For starters, recognize that the April 2016 FCPA Pilot Program and its “carrot” of potential reduced fine amounts was nothing new as this post collects similar DOJ statements going back to 2005. Further, this post demonstrates through reference to several pre-Pilot Program enforcement actions that the monetary thresholds set forth in the Pilot Program were not new either. For these reasons, among others, this post suggested that the compliance community should take the Pilot Program with a grain of salt.
Since the Pilot Program, the DOJ has resolved six corporate FCPA enforcement actions that did not originate with a voluntary disclosure. The Odebrecht / Braskem enforcement action, from an FCPA settlement amount perspective, was unique in that it involved credits and deductions for foreign law enforcement investigations and a claimed inability to pay.
In the other five actions (Teva, JPMorgan, Embraer, Och-Ziff and LAN/LATAM Airlines), the DOJ agreed to a below-guidelines range settlement amount in four of the five actions (the LAN/LATAM action was resolved for a fine amount near the low-end of the guidelines range).
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; and Och-Ziff approximately 20% below the minimum amount suggested by the guidelines. Moreover, all of these enforcement actions included either an NPA or DPA.
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, 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 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.
Consider the recent repeat offender FCPA enforcement actions 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.”
Across the Atlantic, the U.K. SFO recently offered Rolls-Royce a DPA which was accepted by a court. (See here and here for the prior posts). The conduct at issue was long-standing, wide-spread across various countries, and involved high-level executives. In the words of the U.K. judge: “egregious criminality over decades, involving countries around the world, making truly vast corrupt payments and, consequentially, even greater profits.”
If I am that same rational board member, audit committee member, or general counsel of a U.K. corporate [where the disclose or not disclose issue is still in its infancy compared to the U.S.] I look at the “precedent” that the U.K. SFO recently created and think to myself:
“Well gosh, the company [it probably helps if the company sells certain products to certain customers] can engage in egregious criminality over decades, involving countries around the world, and make truly vast corrupt payments, and even greater profits, and the SFO is still likely to offer the company a DPA that a court is going to approve.”
In short, if the goal of the DOJ and SFO is to encourage corporate voluntarily disclosures, the enforcement agencies are actually “shooting themselves in the foot” by virtue of their 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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