Following an 18-month “pilot program” designed to incentivize corporate self-disclosure of potential Foreign Corrupt Practice Act violations, the Department of Justice in November announced the adoption of a formal FCPA Corporate Enforcement Policy incorporating, and expanding on, the guidelines from the pilot.
The corporate enforcement policy creates a presumption that a company that voluntarily self-discloses a violation, fully cooperates with the investigation, and remediates will receive a declination absent enumerated aggravating circumstances. The policy further provides that, if a fine is deemed warranted, the Department of Justice will recommend a 50 percent reduction off the low end of the sentencing guidelines and “generally” will not require appointment of a compliance monitor in self-disclosure cases.
Moreover, the corporate enforcement policy was enacted following 18 months of real-world experiences, providing companies valuable lessons as to how best to approach a potential FCPA violation. Those lessons are discussed in further detail below.
Now more than ever, self-disclosure must be seriously considered. While disclosing a potential FCPA violation is still a frightening proposition for many companies, the pilot program resulted in a significant increase in self-disclosures and declinations. This result, in combination with the policy’s presumption of a declination in self-disclosure cases, demonstrates that the benefits of self-disclosure are very real.
Companies still have an opportunity to fight. Even where there has been self-disclosure, full cooperation, and remediation, every defense should be explored and raised. The key with these cases is to employ every strategy available to reach the best resolution and, ideally, a declination.
This is not to say that an internal investigation should be disregarded. It is critical for the company to get its hands around the problem as quickly and efficiently as possible. Before disclosure, the company must have some understanding of what the problem is and a sense of the scope of the issue.
Time is of the essence in providing a disclosure, however, as the corporate enforcement policy makes clear that to receive credit for self-disclosure, it must come “prior to an imminent threat of disclosure or government investigation,” meaning before any whistleblower has run to regulators or law enforcement and before any whiff of the issue has been leaked to the press. Therefore, while an internal investigation will be necessary, it will not be possible to have a complete understanding of every aspect of the problem before deciding whether and how to disclose.
The corporate enforcement policy specifically contemplates the provision of information on a “rolling” basis, meaning that it is not necessary to have all the facts and circumstances pulled together and presented in final form before disclosure. Beyond just the words in the policy, experienced FCPA prosecutors understand that to accomplish timely disclosure, the disclosure will occur early in the process, which is why identifying the right venue for disclosure—whether it be the Fraud Section or perhaps a local U.S. Attorney’s Office that has handled such cases in the past—is critical.
By making the report and engaging with prosecutors early on, the internal investigation can be carried out more efficiently and with specific direction guided by interaction with the investigators. And even more importantly, a “preliminary” discussion of the issue allows more flexibility down the road in terms of the company’s ultimate position.
“Full” cooperation is critical, regardless of a self-disclosure. Both the specific FCPA enforcement policy and the more general Principles of Federal Prosecution of Business Organizations provide for real credit for “full” cooperation, up to 25 percent off the minimum fine provided by the sentencing guidelines even absent self-disclosure, and the policy states that Department of Justice “will” provide or recommend such a reduction for full cooperation.
As the policy also makes clear, however, “full” cooperation requires “proactive” cooperation, not just “reactive” responses to subpoenas and requests for information. Frankly, if everyone agrees that there is a problem, half-hearted attempts to cooperate will only frustrate the investigation and undermine chances for a more favorable resolution. Again, this proactive cooperation, which necessarily involves an ongoing dialogue with prosecutors, can be beneficial because it results in better access to and more information about where the government’s investigation is headed, and allows for a more efficient and properly-directed internal investigation. Once a decision has been made to cooperate it makes sense to “fully” cooperate.
Fix the problem. Once a problem has been identified, fix it. Restructure the problematic relationship and discipline, or move, the individuals involved. Review the compliance program—figure out how the misconduct slipped through the cracks, and make the necessary changes so that it does not happen again; this is not only good business practice, but it also serves well in the final negotiations as to whether a compliance monitor will be required.
Monitors are expensive and disruptive, so it’s worth taking the necessary steps upfront to avoid one. If the Department of Justice sees tangible changes to the compliance program made not just for the sake of change, but that specifically address the problem at hand, a compliance monitor likely will not be deemed necessary—as the policy and history of declinations and resolutions under the pilot program demonstrate.
Keep up the good fight. Companies still have an opportunity to fight. Even where there has been self-disclosure, full cooperation, and remediation, every defense should be explored and raised. The key with these cases is to employ every strategy available to reach the best resolution and, ideally, a declination. The successes achieved under the pilot program provide concrete guidance on how to achieve a declination, and as is clear not just through the implementation of the policy, but the enhanced benefits set forth in that policy, the Department of Justice has embraced these results in a way that cannot be ignored.
Sarah Walters, a partner in McDermott Will & Emery’s White Collar & Securities Defense group, previously served as an Assistant United States Attorney in the Boston U.S. Attorney’s office, where she held the position of Chief of the Economic Crimes Unit. Katrina Rogachevsky, co-author, is an associate in McDermott Will & Emery’s trial department.