CFTC issues enforcement advisory on self-reporting and cooperation

The advisory makes clear that if a company or individual not registered (or required to be registered) with the CFTC timely self-reports a violation of the Commodity Exchange Act (CEA) involving foreign corrupt practices, fully cooperates, and appropriately remediates, the CFTC Enforcement Division “will apply a presumption, absent aggravating circumstances, that it will not recommend a civil monetary penalty,” CFTC Enforcement Director James McDonald announced in remarks made on March 6 at the American Bar Association’s National Institute on White Collar Crime.

In contrast to non-registrants, CFTC registrants have existing obligations to disclose to the Commission CEA violations, including those involving foreign corrupt practices; registrants are thus not eligible for the presumptive recommendation of no penalty set out in this Advisory. Nevertheless, CFTC registrants who self-report, cooperate, and remediate still would be eligible to receive the recommended substantial reduction in penalty generally applicable under the Division’s existing Enforcement Advisories.

“In all events, a self-reporting company or individual will be required to pay disgorgement and restitution resulting from the misconduct,” McDonald said. “In addition, the Division will seek all available remedies—including, where appropriate, substantial civil monetary penalties—with respect to companies or individuals implicated in the misconduct that did not make the voluntary disclosure.”

Collaborative effort

McDonald stressed that the CFTC is committed to enforcing the CEA provisions that encompass foreign corrupt practices. “We recognize, of course, that such misconduct might also violate the Foreign Corrupt Practices Act, and thus might be subject to prosecution under that statute by our partners at DOJ or the SEC,” he said. “So, as we at the CFTC work to police our markets for this type of misconduct, we’ll work closely with our enforcement partners to ensure that any investigations are properly coordinated and are appropriately aimed at identifying and eliminating any gaps in our investigative and regulatory frameworks.”

“In fact, it was just this sort of coordination that led to our involvement in this space,” McDonald added. “It began through conversations with our enforcement partners about factual scenarios known to them, to which we at the CFTC might be able to add our expertise about how those facts would affect American derivatives markets.”

No “piling on”

Moving forward with this program, the CFTC “will not pile onto other existing investigations,” McDonald said. “When we investigate in parallel with other enforcement authorities, we will work closely with them to avoid duplicative investigative steps.”

“To the extent the CFTC brings an action that includes a monetary penalty, we will ensure that our penalty appropriately accounts for any imposed by any other enforcement body, and when the CFTC imposes disgorgement or restitution, we will give dollar-for-dollar credit for disgorgement or restitution payments in connection with other related actions,” McDonald continued.

“Combating misconduct that affects our financial markets has truly become a team effort, and that is particularly true with respect to foreign corrupt practices,” McDonald said. “We at the CFTC will do our job as part of the team to identify this type of misconduct in our markets and hold wrongdoers accountable, working closely with our enforcement partners domestically and abroad.”

In a statement, Brian Benczkowski, assistant attorney general of the Department of Justice’s Criminal Division, said, “We look forward to working in parallel with the CFTC in cases involving foreign corrupt practices.”

In prior advisories, the CFTC’s Enforcement Division has made clear that it gives substantial credit for self-reporting and cooperation in determining, among other things, the appropriate level of sanctions to impose or seek. With its latest advisory, the Enforcement Division “builds on that foundation to further incentivize individuals and companies to self-report misconduct, cooperate fully in CFTC investigations and enforcement actions, and appropriately remediate to ensure the wrongdoing does not happen again,” the CFTC said.

Whistleblowers and compliance

McDonald also commented in his remarks that the CFTC’s Whistleblower Office “remains open and ready for business.” He noted that the CFTC “issued a record number of whistleblower awards last year, with record payments to whistleblowers.”

“We know that wrongdoers will try to evade law enforcement, but they also need to evade internal controls and compliance programs within their companies,” McDonald said. “Companies that are honest, law-abiding, and ethical—and that have meaningful compliance programs and that self-report misconduct when they see it—can significantly deter wrongdoing.”