Businesses in possible criminal violation of the U.S. Foreign Corrupt Practices Act (FCPA) may be inclined to reach for the olive branch that the U.S. Department of Justice (DOJ) recently extended with its new “FCPA Corporate Enforcement Policy.” Under the FCPA policy, the DOJ promises to not take criminal action against companies with foreign bribery concerns if three factors are met: voluntary disclosure, full cooperation and robust remediation.
Authors: James L. Sanders
But corporate counsel must carefully weigh many potential pitfalls before taking the fraught and irreversible step of accepting the DOJ’s offer.
Historically, in enforcing the FCPA, the DOJ has encouraged businesses to voluntarily disclose foreign bribery violations in return for potential leniency. Voluntary disclosure, however, creates the risk of criminal prosecution.
To reduce this risk and provide guidelines on voluntary disclosure, the DOJ had implemented a temporary FCPA pilot program between April 2016 and October 2017 that, according to the DOJ, resulted in a 66-percent increase in voluntary disclosures by companies, and corresponding decisions by the DOJ to not prosecute.
That pilot program is now permanent with the FCPA policy, which—in a notable shift—is written into the DOJ’s U.S. Attorneys’ Manual (rather than as a separate memo), USAM 9-47.120, FCPA Corporate Enforcement Policy (added Nov. 2017).
Under the policy, the DOJ will operate under a “presumption” of no criminal action (a declination) against a company facing FCPA criminal liability, if the policy’s three factors are met to the DOJ’s satisfaction.
Businesses discovering possible FCPA violations may believe it’s simple: Disclose, cooperate, remediate—and receive a declination rather than a criminal resolution. But little with the DOJ is simple.
Although its placement in the USAM should encourage uniform application across the entire DOJ, the FCPA policy’s text provides wiggle room for prosecutors to determine that a company did not meet the declination requirements—which could possibly result in a full prosecution by the DOJ.
Each policy factor is subject to multiple bullet-points defining how a prosecutor may—or may not—be satisfied by a company’s efforts, and utilizing subjective terms like “timely,” “reasonably,” and “all relevant facts.” Such baked-in prosecutorial discretion breeds uncertainty for businesses weighing the costs, benefits, risks, and repercussions of availing themselves of the policy.
The policy may be intended as a carrot incentivizing disclosure, cooperation and remediation. But that carrot may swiftly disappear, and be replaced with the stick of severe criminal penalties, if a prosecutor is not satisfied with a company’s efforts over the long course of a DOJ investigation.
To be sure, the pilot program’s encouraging results show that the factors can be satisfied. But, crucially, satisfaction remains in the eye of the DOJ.
DOJ ‘May’ Consider a Company’s Size and Resources
The FCPA policy recognizes that when it comes to cooperation and remediation, a company’s size and resources matter.
While the policy omits the pilot program’s statement that the DOJ “does not expect a small company to conduct as expansive an investigation in as short a period of time as a Fortune 100 company,” the policy’s comment provides that the DOJ “will assess the scope, quantity, quality, and timing of cooperation based on the circumstances of each case when assessing how to evaluate a company’s cooperation.” The DOJ will take any claimed “impediment into consideration in assessing whether the company has fully cooperated,” including the company’s financial condition.
The FCPA policy’s remediation factor expressly states that the criteria for an effective compliance and ethics program “may vary based on the size and resources of the organization.”
According to the FCPA policy’s comment on remediation, “the company must have effectively remediated at the time of the resolution.” Likely, even businesses lacking anti-corruption compliance programs when the bribery occurred can nevertheless satisfy the remediation factor, by creating and implementing an effective risk-based program, with possible input from the DOJ, before resolving their issues.
The FCPA policy adds one remediation item not present in the pilot program: a company must satisfactorily demonstrate a records-retention policy that includes “prohibiting employees from using software that generates but does not appropriately retain business records or communications.”
The DOJ does not provide guidance on its intent with this addition, but prosecutors may be frustrated with the lack of digital “paper trails” from the increased use of text messaging and smartphone communications apps in conducting business worldwide. It appears that the DOJ wants businesses to require all work done electronically—including communications—to be within the confines of an environment that retains those records, and to prohibit employees from working outside those controlled environments.
A Declination Is Not Immunity
Importantly, achieving the desired result—a declination by the DOJ—does not alleviate all of a company’s risks.
All declinations under the FCPA Policy are made public—raising reputational risks from the announcement—and the policy requires companies to pay all disgorgement, forfeiture or restitution resulting from the misconduct at issue. This could amount to many millions of dollars.
Furthermore, if the company is publicly traded, the DOJ’s declination decision does not bind the U.S. Securities and Exchange Commission (SEC), which exercises civil enforcement authority over FCPA violations by “issuers,” and which notably declined to participate in the pilot program. But a parallel resolution with the SEC may satisfy the DOJ’s disgorgement requirement under the FCPA policy.
Moreover, the DOJ’s decision may have no effect on criminal proceedings in the country where the bribe occurred. Coordination between U.S. and international anti-bribery officials is on the rise, and following a declination, the DOJ could provide all investigation materials to its foreign colleagues It is also unknown the extent a monetary resolution with non-U.S. prosecutors applies to the DOJ’s disgorgement requirement.
Rebuttable ‘Presumption’ of a Declination
The FCPA policy’s “presumption” of a declination will be rebutted—resulting in a criminal resolution—if the DOJ determines that “aggravating circumstances involving the seriousness of the offense or the nature of the offender” exist, adding another level of prosecutorial discretion to the analysis.
USAM 9-47.120 provides a nonexhaustive list of such “aggravating circumstances,” but does not define vital terms in the list. Do corporate vice presidents qualify as “executive management?” What is the threshold for “significant profit”: 10 percent, or even less? And how does DOJ measure “pervasiveness?”
The DOJ also does not provide guidance on whether “criminal recidivism” involves the company itself or the responsible individuals, or whether past crimes not involving bribery will apply to the repeat-offender analysis.
If the declination presumption is rebutted, all is not lost.
The FCPA policy provides that a company that (i) is not a criminal recidivist and has satisfied the DOJ on the three factors—disclose, cooperate, remediate—“will” receive the DOJ’s recommendation of a 50-percent reduction in the lowest fine provided under the U.S. Sentencing Guidelines (USSG), and “generally will not” have an independent compliance monitor imposed.
These are stronger assurances than under the pilot program, which said that the DOJ “may” make the 50-percent reduction recommendation, and that a monitor “generally should not” be required.
Those assurances, however, are not binding. USAM 1-1.100 states that the USAM “does not … create any rights, substantive or procedural, enforceable at law by any party in any matter”—and, importantly, in determining a criminal sentence, a U.S. district court can reject the DOJ’s below-guidelines sentencing recommendations.
Companies determined to be criminal recidivists that nevertheless satisfy the three requirements will not receive the FCPA policy’s 50-percent discount, but may be eligible for other sentencing reductions and cooperation credit under the USSG.
‘Up To’ 25-Percent Reduction Recommendation
Companies with foreign bribery concerns may ultimately decide that voluntary self-disclosure is not the best path, given all of the uncertainties lurking in the FCPA policy. Or they may disclose misconduct, but fall short in satisfying the DOJ that “voluntary self-disclosure” occurred.
Either way, the FCPA policy still encourages non-disclosing companies to cooperate and remediate if the DOJ begins an investigation, offering that the DOJ will recommend “up to” a 25-percent discount on the lowest criminal fine under the USSG.
This incentive, though, exists on a sliding scale, subject to considerable prosecutorial discretion on the amount of the discount “up to” 25 percent. It is also subject to the same concerns underpinning the 50-percent reduction: it is not guaranteed, and a sentencing judge can reject it. Finally, it lacks the waiver of a compliance monitor that “generally” accompanies the 50-percent discount.
Proceed With Caution
Companies facing FCPA criminal liability should consult knowledgeable anti-bribery counsel before pursuing the FCPA policy. Any missteps could prompt a federal prosecutor to exercise the discretion afforded by the policy, possibly to the business’s detriment.
An early internal investigation by experienced lawyers will help companies assess whether a DOJ declination is a viable result, or whether other avenues should be explored.
Reprinted with permission from the March 6, 2018 issue of The Legal Intelligencer. © 2018 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.