In an aggressive effort to encourage companies to self-report putative violations of the FCPA, the Department of Justice has been touting several recent decisions to decline prosecutions ("declinations") based on the self-reporting companies’ full cooperation and disgorgement of all profits attributable to the illicit payments. While clearly part of a marketing effort to push the benefits available under the FCPA Pilot Program launched in April 2016, these resolutions provide additional guidance to companies and compliance professionals as to the kinds of investigation and remediation DOJ and SEC have come to expect. They also provide some data points that can assist in the ongoing struggle to determine when self-reporting is in a company’s interest.
This spring, the Department of Justice announced a one-year Pilot Program intended to incentivize companies to self-report FCPA violations and encourage cooperation with investigations. Pursuant to that program, companies that self-report and cooperate are, in certain circumstances, eligible for declinations and/or reductions in fines. Such companies can also avoid the appointment of a monitor. At the end of the one-year FCPA Pilot Program, the DOJ will determine whether or not to extend it.
On September 29, 2016, the DOJ announced that two Texas-based private companies − HMT LLC and NCH Corporation − would not face prosecution under the FCPA, notwithstanding the DOJ's conclusion that both companies violated the FCPA. HMT, a manufacturer of above-ground liquid storage tanks, purportedly paid $500,000 in bribes to government officials in Venezuela and China, which resulted in the purchase of products manufactured by HMT. NCH, an industrial supply and maintenance company, allegedly gave cash and other things of value to government officials in China for purposes of influencing their purchasing decisions. The DOJ found these activities constituted violations of the FCPA.
Pursuant to its FCPA Pilot Program, the DOJ issued declination letters conditioned upon, among other things, the disgorgement of profits resulting from the companies’ FCPA violations. As a consequence, HMT was required to disgorge $2.7 million; NCH was required to disgorge $335,000.
Prior to these recent agreements, DOJ entered into “declinations with disgorgement” back in June and July with three other companies. Unlike HMT and NCH (both privately held companies over which the SEC lacked jurisdiction) each of those three companies were publicly held “issuers” under the FCPA, and the DOJ’s declinations occurred in the context of ongoing SEC enforcement actions; concurrent with the DOJ’s declinations, the companies entered into non-prosecution agreements with the SEC. But, in broad strokes, all five resolutions share some common factors. All five included disgorgement, in amounts ranging from roughly $320,000 to $13.2 million. This is unsurprising as the FCPA Pilot Program Guidance makes explicit that “even a company that voluntarily self-discloses, fully cooperates, and remediates will be required to disgorge all profits resulting from the FCPA violation.”
More illuminating is the detailed recitations in the HMT and NCH declination letters (and similarly in the statement of facts accompanying the Non-Prosecution Agreements with the SEC) of what each company did to “earn” DOJ’s decision not to bring charges. In each instance the DOJ cited the fact that the company self-disclosed. But of seeming equal importance were the robustness of the companies’ internal investigations (characterized by DOJ as “HMT’s thorough and comprehensive global investigation” and “NCH’s thorough and comprehensive internal investigation”) and the sweeping remediation undertaken. Both HMT and NCH took significant steps to enhance their respective compliance programs and internal accounting controls.
The DOJ declination letters also spelled out in particular detail remediation efforts linked to punishing bad actors − including in HMT’s case firing eight employees (“including two regional managers and a director of business development”), sanctioning through suspension and financial penalties ten other employees, and severing ties with nine agents/distributors.
Rounding out the reasons for DOJ’s decision to bring no charges were the agreement to disgorge all profits, which each company agreed not to use for any tax deduction or to accept reimbursement from insurance or any other source, and the obligation to continue to fully cooperate – including specifically by continuing to provide “all known relevant facts about the individuals involved in or responsible for the misconduct,” who are expressly carved out of the declination and could still face prosecution.
In the wake of these actions, what should businesses be doing?
The goal of the FCPA Pilot Program, remember, is to offer companies greater transparency about the benefits of early and complete cooperation with the government. And, in fairness, these resolutions do reflect an effort to spell out in more detail, publicly, the thinking behind declinations. At minimum, the recent letters provide more details as to what the government expects in terms of an internal investigation – “a thorough and comprehensive global investigation” – and remediation, with a renewed focus on individual executives, including (a) consequences regarding their employment (including termination), and (b) continuing cooperation by the company with an eye toward individual criminal prosecutions.
It is not yet clear whether these declinations with disgorgement are really of much substantive difference from the DOJ’s past non-prosecution agreements with disgorgement or are simply form over substance in aid of marketing the pilot program. But these resolutions do signal, quite intentionally, that companies should expect meaningful, tangible benefits from early self-disclosure. The devil, as always, will be in the details.
The clear takeaway is that companies need to react to FCPA issues aggressively, investigate and remediate fully, and focus on individual accountability. Whether these resolutions are sufficiently predictive to change the calculus on self-disclosure remains to be seen.