Over the last 10 years, 143 companies have paid a combined $10.9 billion to resolve Foreign Corrupt Practices Act cases.
That staggering price tag shows the U.S. Department of Justice’s willingness to go after alleged bribery of foreign officials, shoddy bookkeeping, and fraud. In recent years, the DOJ has beefed up its enforcement unit focused on the Foreign Corrupt Practices Act (FCPA), and officials in the Trump administration have made clear that enforcement remains a priority. If you think about FCPA enforcement as a carrot-and-stick approach, the stick isn’t going anywhere.
As for the carrot, the DOJ recently announced changes that give companies even more benefits for self-disclosing violations. The new FCPA corporate enforcement policy expands on a pilot program that had offered mitigation credit for self-disclosures.
What Are the Changes From the Pilot Program?
First, when a company meets the DOJ’s standards of voluntary self-disclosure, full cooperation, and timely and appropriate remediation, there is a presumption that the case will be resolved through a declination (no prosecution). That presumption can be overcome, however, if there are aggravating circumstances related to the nature and seriousness of the offense or if the offender has made previous criminal violations.
If a company voluntarily discloses and satisfies all other requirements but has aggravating factors that justify enforcement, the DOJ will recommend a 50 percent reduction off the low end of the fine range in the U.S. sentencing guidelines and generally will not require the appointment of a monitor if, at the time of resolution, the company has implemented an effective compliance program. Again, a repeat offender may not be eligible for this reduction.
For companies that do not voluntarily self-disclose, the DOJ will recommend a 25 percent reduction off the low end of the fine range so long as the company has fully cooperated, as well as timely and appropriately remediated.
What Are Aggravating Circumstances That Might Make a Company Ineligible for a Declination?
Aggravating circumstances include, among other things, involvement by executive management of the company in the misconduct, a significant profit to the company resulting from the misconduct, pervasiveness of the misconduct within the company, and criminal recidivism.
What Are the Benefits of Self-Disclosure?
If a company doesn’t disclose, a whistleblower may beat them to it. Whistleblowers can sometimes earn a percentage of the penalty and are incentivized to report. Whistleblowers are often competitors, vendors, business partners, disgruntled current or former employees, or even just an employee out to make a buck. Other times, investigative reporters uncover the violations or the DOJ discovers the violation through its own investigations. Companies that self-disclose can greatly reduce or even eliminate their criminal penalties and beat the whistleblowers and others to the punch. Once the DOJ is informed of the violation, the most a company can hope for is a recommendation of 25 percent off the low end of the sentencing guideline penalty range. Additionally, companies take less of a reputational hit when they self-disclose than when the issue comes to light through media reports.
What Are the Downsides to Self-Disclosure?
To receive credit under the new FCPA policy, companies must pay disgorgement, forfeiture, and/or restitution resulting from the violation at issue. And, although the reputation hit is smaller for self-disclosed violations than for those discovered by others, some companies may determine that they are willing to gamble that the violation will never be discovered. Investigating and dealing with the DOJ on a self-disclosure will require a company to spend a large amount of money on legal and other investigative costs in addition to any penalties paid. However, the amount a company will pay will be greatly increased if the DOJ ultimately discovers the conduct.
Where Can I Find More Details on the FCPA Policy?
The policy is now contained in the United States Attorneys’ Manual. The USAM is a reference document for United States Attorneys and other DOJ employees containing general policies and guidance. Although it is an internal document without the force of law, it sets out various policies DOJ prosecutors are directed to follow. The FCPA policy is found at Title 9-47.120 of the USAM.
What’s the Takeaway?
The timely and appropriate remediation required under the policy means conducting a root cause analysis, addressing the root causes where appropriate, and implementing an effective compliance and ethics program. However, it is much more efficient to put a compliance plan in place to prevent violations from happening in the first place than to implement such a plan after a costly violation occurs.
Every company doing business overseas directly or through intermediaries should invest in a robust anti-corruption compliance plan. Likewise, an anti-corruption compliance review should be a part of all merger and acquisition due diligence, as many companies have acquired liability for the corrupt conduct of their targets’ employees.
And if the FCPA weren’t enough to recommend an investment in compliance, the U.K. Bribery Act contains a compliance defense that may enable a company to avoid strict penalties even when a violation occurs if the company had adequate procedures designed to prevent bribery (a robust compliance policy).