Numerous companies in recent weeks have said the government will not be pursuing enforcement actions following previously disclosed investigations into potential violations of the Foreign Corrupt Practices Act—a development that compliance professionals and in-house counsel will want to follow closely.
In August, at least two companies—MTS Systems and Vantage Drilling—announced the closure of FCPA investigations without charges (also known as a “declination”). These followed a spate of similar announcements made in July by several other companies, including IBM, Net1 UEPS Technologies, and Newmont Mining.
An analysis conducted by Miller & Chevalier identified more than 20 FCPA declinations in 2017, through the end of July. That figure’s already on track to outpace every year’s annual total since the law firm began tracking declinations in 2008. And that number represents only those that have been made public.
Many companies may not find it necessary, or in their best interest, to make a disclosure about an initial FCPA inquiry, even when they self-disclose to the government. As a result, they may have no need to announce the closure of the investigation., which suggests that even more FCPA declinations may have occurred than what is being disclosed.
For purposes of this article, a “declination” includes all decisions by the Department of Justice or Securities and Exchange Commission to close an FCPA investigation without enforcement. “Ideally, a ‘declination,’ as defined, would be a case that the Department of Justice or SEC could have prosecuted, had the facts to prosecute, but chose not to in recognition of a company’s decision to cooperate,” says Marc Bohn, counsel at Miller & Chevalier. But the reasons underlying the agencies’ decisions are rarely that simple, he says.
For example, Miller & Chevalier has represented several companies in which the Department of Justice notified the company that it was closing its FCPA investigation without an enforcement action, but never offered an explanation as to why, Bohn says. “It could be a confluence of factors,” he says.
Risks vs. benefits. Companies’ public announcements touting FCPA case closures without enforcement often are no less cryptic. Still, compliance professionals and in-house counsel can glean valuable insight and trends by tracking FCPA case closures and gauge better whether self-disclosing a potential violation may be in the best interest of the company.
Historically, companies have been reluctant to self-disclose because the risks seemed to outweigh the benefits. That may be changing, however, in response to the FCPA pilot program launched last year by the Criminal Division’s Fraud Section.
“It looks as though it’s a more welcoming environment for disclosures today than it certainly has been in the past.”
Lindsay Meyer, Partner, Venable
The pilot program delineates specified mitigation credit a company can receive if it acts in accordance with standards of self-disclosure, cooperation, and remediation—each of which are carefully defined as part of the rollout of the program.
One of the most difficult decisions a company must wrestle with once it uncovers a potential issue is whether and when to self-disclose the matter to the government. “That’s the only way you’re going to get a full-blown declination,” says Lee Dunst, a partner at law firm Gibson Dunn.
Once it makes the decision to self-disclose, the company must be prepared to fully cooperate. “That’s the critical decision point,” Dunst says. Many companies are still waiting to see whether making a voluntarily disclosure and fully cooperating results in any “significant, tangible benefit,” he says.
The recent spate in publicly announced FCPA case closures without enforcement may be a promising indication that the tides are turning. “It looks as though it’s a more welcoming environment for disclosures today than it certainly has been in the past,” says Lindsay Meyer, a partner at law firm Venable.
It would appear many companies feel the same way. Figures released by the Department of Justice reveal that in the pilot program’s first year, 22 companies voluntarily disclosed violations, an increase from 13 during the previous year.
Behind the numbers. Because so much ambiguity surrounds FCPA declinations, the reasons behind the recent uptick are difficult to discern.
One possible reason is that the agencies are decluttering their FCPA caseload. The sense is that the Fraud Section wants to “clear the decks” and close investigations lingering from the Obama Administration concerning activities that don’t merit further scrutiny, Bohn says.
Expect to see an uptick in FCPA declinations going forward. Between cleaning up lingering FCPA cases, managing the new FCPA investigations and self-disclosures that arise, and having to prioritize its limited resources to focus on bigger cases and individual prosecutions, the Department of Justice and SEC certainly has a full plate.
For compliance professionals and in-house counsel, now may be the most opportune time to come clean and self-disclose any current internal FCPA investigations.
Deputy Assistant Attorney General Trevor McFadden indicated as much: “Over the last few years, we have hired additional trial attorneys in the Criminal Division’s Fraud Section’s FCPA Unit to help investigate cases more quickly, and the Fraud Section leadership and I are focused on wrapping up old investigations,” he said in prepared remarks at the Anti-Corruption, Export Controls & Sanctions Compliance Summit in April.
“Our responsibility as prosecutors is to follow the facts wherever they lead us,” McFadden added. “Sometimes the facts lead us to stop and close an investigation.”
For compliance professionals and in-house counsel, “this is probably good news for companies with smaller, one-time issues that are not systemic, that don’t reflect poorly on senior management,” says Tom Hanusik, partner and a member of Crowell & Moring’s white-collar and regulatory enforcement group.
In other instances, where companies determine that the issue is not a material event, they may take the more conservative approach of disclosing it anyway, because they don’t want to be second-guessed by the government down the road about their decision not to self-disclose, Hanusik says. “A disclosure doesn’t necessarily mean it’s a big case,” he says.
In conjunction with the uptick in FCPA declinations is a substantial number of new FCPA investigations in the pipeline. Miller & Chevalier has identified 26 new FCPA investigations initiated by the Department of Justice and SEC this year, to date—a figure that is currently on pace to exceed the total number of new FCPA investigations identified in any other year over the past decade, their analysis found.
That being said, another factor contributing to the recent wave in FCPA declinations is simply resource allocation. The volume of activity—both in terms of more self-disclosures in response to the Pilot Program and more FCPA investigations sitting in the pipeline—is driving the agencies to be more selective about cases “that they know are going to be successful and a wise use of their resources,” Meyer says.
The SEC, in particular, is having to reevaluate its enforcement strategy following the unanimous U.S. Supreme Court’s decision on June 5 in the case Kokesh v. SEC. In that decision, the court ruled that disgorgement collected by the SEC is subject to a five-year statute of limitations.
Whereas disgorgement was not subject to any statute of limitations previously, the Kokesh decision forces the SEC to be more careful about the cases it brings forward, “which may or not have been as important of a factor in the past, when most matters settled out,” Meyer says.
In parallel with the Kokesh decision, the Justice Department, itself, has indicated that it will be focusing on bigger cases and individual prosecutions, which may also result in more FCPA declinations. “When we do not have evidence of the requisite criminal intent, there is no justification for a Criminal Division resolution, and we will defer to our regulatory colleagues to handle the matter,” McFadden said.