After months of waiting, the compliance community finally has the answer it has been waiting for: The incentives of the FCPA Pilot Program are now permanent, under the guise of the revised and newly renamed FCPA Corporate Enforcement Policy.
In April 2016, Andrew Weissmann, chief of the Criminal Division’s Fraud section, issued a nine-page memo setting forth the details of a one-year FCPA enforcement pilot program initiated by the Fraud Section’s FCPA Unit. That pilot program stated that when a company has (1) voluntarily self-disclosed misconduct in an FCPA matter, (2) fully cooperated, (3) remediated in a timely and appropriate manner, and (4) disgorges all profits resulting from the FCPA violation, it then qualifies for the full range of potential mitigation credit.
On Nov. 29, in prepared remarks at the International Conference on the Foreign Corrupt Practices Act, Deputy Attorney General Rod Rosenstein formally announced that the incentives of the pilot program would be made permanent, with a few minor adjustments. “We analyzed the pilot program and concluded that it proved to be a step forward in fighting corporate crime,” he said. “We also determined that there were opportunities for improvement.”
The result: the newly revised FCPA Corporate Enforcement Policy. As a further sign of its permanence, the policy has been incorporated into the U.S. Attorneys’ Manual.
Just as important as the permanency of the program is how it’s substantively different than the FCPA pilot program. Another key question is: To what extent is the new enforcement policy really going to change companies’ internal conversations about self-reporting misconduct?
The most important change between the FCPA pilot program and the enforcement policy is this new “presumption” that the Department of Justice will resolve the company’s case through a declination where the company satisfies the standards of voluntary self-disclosure, full cooperation, and timely and appropriate remediation, absent aggravating circumstances.
Jason Linder, who until May 2017, served as federal prosecutor in the FCPA Unit in the Fraud Section of the U.S. Department of Justice’s Criminal Division, says “at a high level, it provides more certainty.” Yes, companies could receive a declination long before this new enforcement policy was announced, “but there wasn’t a presumption in favor of it,” he says.
“That carrot may well change the conversations boards and companies will have when deciding whether to self-disclose in the first instance,” adds Linder, who now heads Irell & Manella’s global investigations and anti-corruption practice.
Others are not so sure. It’s still not clear “whether self-reporting at the end of the day is going to always be in the best interest of the companies that are self-reporting,” says Bob Huff, a managing director in Kroll’s compliance practice.
There is still uncertainty as to what it takes to satisfy each of those three requirements, Huff says. For a company to receive credit for voluntary self-disclosure, for example, the enforcement policy states that the company must disclose “all relevant facts known to it” and “within a reasonably prompt time.”
“We analyzed the pilot program and concluded that it proved to be a step forward in fighting corporate crime. We also determined that there were opportunities for improvement.”
Deputy Attorney General Rod Rosenstein
The same is true of remediation, Huff says, which also is weighed against subjective factors, such as whether the company can demonstrate that it has done a thorough analysis of the causes underlying the conduct and that it has implemented an effective ethics and compliance program.
And there’s no guarantee that a disclosure won’t result in a criminal resolution. Examples of aggravating circumstances that may warrant a criminal resolution include, but are not limited to, “involvement by executive management of the company in the misconduct; a significant profit to the company from the misconduct; pervasiveness of the misconduct within the company; and criminal recidivism,” the policy states.
Another change, albeit a subtle one, for legal and compliance executives to be aware of is that if a criminal resolution is warranted for a company that has voluntarily self-disclosed, fully cooperated, and timely and appropriately remediated, the new policy states that the Fraud Section, “will accord, or recommend to a sentencing court, a 50 percent reduction off the low end of the U.S. Sentencing Guidelines fine range.”
This language differs from the pilot program, which stated that the Department “may accord up to a 50 percent reduction off the bottom end of the Sentencing Guidelines fine range, if a fine is sought.”
“Here again, criminal recidivists may not be eligible for such credit,” Rosenstein said. “We want to provide an incentive for good conduct and scrutiny of repeat visitors.”
The policy further states that, in these circumstances, the Department of Justice “generally will not require appointment of a monitor if a company has, at the time of resolution, implemented an effective compliance program.”
Since 2016, the Fraud Section’s FCPA Unit has secured criminal resolutions in 17 FCPA-related corporate cases, resulting in more than $1.6 billion in penalties and forfeiture to the Department, according to the agency. Of those corporate criminal resolutions, two were voluntary disclosures under the Pilot Program—and each were resolved through a non-prosecution agreement, without a compliance monitor.
Of the 15 corporate resolutions that were not voluntary disclosures, three were resolved through guilty pleas, deferred prosecution agreements, or some combination of the two. In 10 of those cases, the company was required to engage an independent compliance monitor, according to data from the agency. Over that same period, seven additional matters that came to the Department’s attention through voluntary disclosures were resolved under the Pilot Program through declinations with the payment of disgorgement.
FCPA Corporate Enforcement Policy
1. Credit for Voluntary Self-Disclosure, Full Cooperation, and Timely and Appropriate Remediation in FCPA Matters
Due to the unique issues presented in FCPA matters, including their inherently international character and other factors, the FCPA Corporate Enforcement Policy is aimed at providing additional benefits to companies based on their corporate behavior once they learn of misconduct. When a company has voluntarily self-disclosed misconduct in an FCPA matter, fully cooperated, and timely and appropriately remediated, all in accordance with the standards set forth below, there will be a presumption that the company will receive a declination absent aggravating circumstances involving the seriousness of the offense or the nature of the offender. Aggravating circumstances that may warrant a criminal resolution include, but are not limited to, involvement by executive management of the company in the misconduct; a significant profit to the company from the misconduct; pervasiveness of the misconduct within the company; and criminal recidivism.
If a criminal resolution is warranted for a company that has voluntarily self-disclosed, fully cooperated, and timely and appropriately remediated, the Fraud Section:
will accord, or recommend to a sentencing court, a 50% reduction off of the low end of the U.S. Sentencing Guidelines (U.S.S.G.) fine range, except in the case of a criminal recidivist; and
generally will not require appointment of a monitor if a company has, at the time of resolution, implemented an effective compliance program.
To qualify for the FCPA Corporate Enforcement Policy, the company is required to pay all disgorgement, forfeiture, and/or restitution resulting from the misconduct at issue.
2. Limited Credit for Full Cooperation and Timely and Appropriate Remediation in FCPA Matters Without Voluntary Self-Disclosure
If a company did not voluntarily disclose its misconduct to the Department of Justice (the Department) in accordance with the standards set forth above, but later fully cooperated and timely and appropriately remediated in accordance with the standards set forth above, the company will receive, or the Department will recommend to a sentencing court, up to a 25% reduction off of the low end of the U.S.S.G. fine range.
Source: Department of Justice
The legal and compliance community also received a bit of relief concerning “de-confliction.” To receive full cooperation credit, a company must de-conflict its internal investigation from the government’s parallel probe, which can prove to be a headache for any company trying to conduct a thorough and timely internal investigation. If a company can’t figure out all the facts, it can’t then know which controls need to be put in place or enhanced, or which employees need to be disciplined or terminated, for example.
The new policy, however, limits in scope the Department’s demands for de-confliction. “The Department’s requests to defer investigative steps—such as the interview of company employees or third parties—will be made for a limited period of time and will be narrowly tailored to a legitimate investigative purpose (e.g., to prevent impeding a specified aspect of the Department’s investigation),” the policy states. “Once the justification dissipates, the Department will notify the company that the Department is lifting its request.”
“That shows that the Department has been aware of, and responsive to, the appropriate concerns that the defense bar and the compliance community have raised about the original version of the pilot program, and they have tweaked it in response,” Linder says.
From the Justice Department’s perspective, the intent of the FCPA enforcement policy is a win-win by encouraging more companies to voluntary self-disclose, while enhancing the Department’s ability to identify and punish culpable individuals. Not everyone else sees it that way.
“I think board members, audit committee members, and other business managers should take this new policy with a complete grain of salt,” says Mike Koehler, associate professor of law at Southern Illinois University School of Law. This “presumption” being stated by the Department of Justice is “not that there will be no enforcement action; the presumption is really that there will be a declination with disgorgement,” he says.
In fact, the Department of Justice explicitly states that, “to qualify for the FCPA Corporate Enforcement Policy, the company is required to pay all disgorgement, forfeiture, and/or restitution resulting from the misconduct at issue.” That requirement may be satisfied by a parallel resolution with the Securities and Exchange Commission. “The DoJ can call it whatever it wants to call it, but a declination with disgorgement is an FCPA enforcement action,” Koehler says.
What this enforcement policy also makes explicit is that any declination awarded to a company will be made public. Many companies prefer to keep that information private, Linder says, so that may be another sticking point in how a company decides whether to self-disclose a potential FCPA violation or not.
Nor can the legal and compliance community gain any real assurance about the true success of the enforcement program. In his remarks, Rosenstein commented that the pilot program has been successful because companies made more disclosures in 2017 than 2016.
In the first year of the pilot program, he noted, the FCPA Unit received 22 voluntary disclosures, compared to 13 during the previous year. In total, during the year and a half that the pilot program was in effect, the FCPA Unit received 30 voluntary disclosures, compared to 18 during the previous 18-month period.
That said, companies have been voluntarily disclosing FCPA misconduct for several years now, Koehler says. The Justice Department can’t say for sure if those disclosures would have occurred in the absence of the pilot program.