More corporate enforcement guidance geared to provide companies a path toward penalty reductions or declinations. Reiterated messages regarding the importance of investing in compliance. A slow year for Foreign Corrupt Practices Act (FCPA) enforcement. All these trends at the Department of Justice (DOJ) can be easily linked together as part of one larger narrative.
My guess at the result: The DOJ is gearing up for a lot of future “we warned yous.”
The realist in me finds it hard not to believe all the carrots being offered by the DOJ in the past year—greater penalty reduction thresholds, relief related to compensation clawbacks, voluntary self-disclosure incentives—are part of a strategy to strengthen the enforcement stick when companies don’t cooperate. Former Criminal Division head Kenneth Polite Jr. said as much during his keynote address at Compliance Week’s 2022 National Conference.
“Support your compliance programs now—or pay later,” Polite said.
His acting successor, Nicole Argentieri, hasn’t drifted from this stance.
“[R]emember the benefits that await you if you choose to do the right thing,” Argentieri said in a speech Tuesday. “The business case for compliance is clear.”
Despite all the cooperation-geared programs the DOJ has put forward, the difficulty compliance teams face in getting their companies to “do the right thing” has likely not changed. Concerns remain regarding voluntary self-disclosures—once you invite a government agency in, your past is fair game. The DOJ might not have an issue with what you sought to bring to their attention but could instead get a whiff of another problem somewhere else within your business.
The latest initiative introduced by the DOJ was its voluntary self-disclosure safe harbor for mergers and acquisitions (M&A) announced by Deputy Attorney General Lisa Monaco last week. The policy offers the potential for companies to receive the presumption of a declination when coming forward with evidence of misconduct at an acquired entity.
The timelines to qualify for the safe harbor are tight: Misconduct at the acquired entity must be disclosed within six months from the date of closing, and the issues discovered must be fully remediated at a baseline of one year. The program places a premium on pre-acquisition due diligence and the ability of the acquiring company’s compliance team to quickly wrap their heads around the extent of a potential problem at a new business.
In describing the M&A safe harbor, Monaco cited a 2008 DOJ no-enforcement opinion in response to a request by energy giant Halliburton that illustrates the complexities of the acquisition process. In that case, Halliburton was restricted from full access to information to complete its FCPA due diligence until closing as a result of the target company being public in the United Kingdom. Further, the company only received the support of the DOJ by putting forward a significant post-closing disclosure plan with detailed compliance deadlines.
Suffice to say, the path to an M&A self-disclosure declination won’t be easy.
Another DOJ initiative businesses are said to be struggling with is the clawback pilot program. Under the program, companies can qualify for fine reductions if they claw back compensation paid to individuals found to be involved in corporate wrongdoing. Failed efforts, if conducted in good faith, can also earn companies a reduction.
The program played part in the DOJ’s two FCPA actions this year: Corficolombiana pledged to include compliance-promoting criteria in its compensation and bonus system, and Albemarle earned a penalty reduction of nearly $765,000 for its efforts, which included 16 employees not receiving bonuses.
And yes, you read that correctly: The DOJ has only announced two new corporate FCPA enforcement actions this year. Monaco has promised a strong enforcement pipeline coming.
Because the DOJ often points to its enforcement actions as case studies for companies to learn from regarding new policies, that pipeline is key to compliance teams getting the buy-in from their respective businesses that the agency wants to see. Actions with reduced penalties spelled out in relation to cooperation efforts are instructive, while larger penalties against companies who don’t take advantage of any of the DOJ’s new programs will prove dissuasive. Expect the agency to go out of its way to make an example of the latter.
Remember: The DOJ warned you.
- Department of Justice
- DOJ Compensation Clawback Pilot
- Foreign Corrupt Practices Act
- Kenneth Polite
- Lisa Monaco
- M&A Self-Disclosure Safe Harbor
- Nicole Argentieri
- Regulatory Enforcement
- Regulatory Policy
- Risk Management
- United States