Building on Pilot Program, DOJ Announces New FCPA Corporate Enforcement Policy

Morrison & Foerster LLP

Morrison & Foerster LLP

On November 29, 2017, Deputy Attorney General Rod Rosenstein announced a new “FCPA Corporate Enforcement Policy” (“Policy”) that extends and revises the FCPA Pilot Program.  In his announcement, DAG Rosenstein explained that the Policy would be incorporated into the United States Attorneys’ Manual (USAM), an internal DOJ document that sets forth policies and guidance for federal prosecutors.  To a large extent, the Policy replicates elements of the FCPA Pilot Program but with some modifications.  Most notably, the Policy newly provides that when a company voluntarily self-discloses, fully cooperates, and timely and appropriately remediates, all in accordance with specified standards set forth in the Policy, there is a “presumption that the company will receive a declination” absent aggravating circumstances relating to the seriousness of the offense or the nature of the offender, including criminal recidivism.  Also of note, the Policy enshrines in the USAM “declinations with disgorgements,” which we believe was the most significant change created by the Pilot Program.

Background of the FCPA Pilot Program

Announced in April 2016, the “FCPA Pilot Program” sought to incentivize companies to voluntarily self-disclose FCPA-related misconduct by providing greater transparency about the benefits of such self-disclosure.  The Pilot Program was laid out in a policy document entitled “The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance” (the “Pilot Program Guidance”), authored by then-Fraud Section Chief Andrew Weissmann.  Under the Pilot Program, for a one-year period beginning April 5, 2016, companies that voluntarily self-disclosed improper conduct to the Fraud Section’s FCPA Unit (part of DOJ’s Criminal Division), fully cooperated, and appropriately remediated were eligible for one of two outcomes:  (1) they could receive up to a 50% reduction off the bottom of the U.S. Sentencing Guidelines fine range or (2) they were eligible for a “declination with disgorgement,” meaning they would be required to disgorge all profits resulting from the FCPA violation.  Companies that did not voluntarily disclose misconduct but fully cooperated and appropriately remediated could receive, at most, a 25% reduction off the bottom of the fine range. 

The Pilot Program Guidance described specific criteria that would be used when assessing whether a company had voluntarily self-disclosed, fully cooperated, and appropriately remediated.  For instance, any disclosures required by law, agreement, or contract would not be considered voluntary.  To receive full cooperation credit, a company would have to both satisfy and exceed the requirements of the Principles of Federal Prosecution of Business Organizations and the Yates Memo.  The Pilot Program Guidance specified a number of steps that companies must take in this regard, including, for example, by providing proactive cooperation, de-conflicting an internal investigation with the government’s investigation, and disclosing documents located overseas.  In order to receive remediation credit, the Pilot Program Guidance explained that a company must (1) implement an effective compliance and ethics program; (2) appropriately discipline responsible employees and their supervisors; and (3) take additional steps that demonstrate the company’s recognition of the seriousness of its misconduct, its acceptance of responsibility, and the implementation of measures to reduce the risk of repeating the misconduct.  The Pilot Program Guidance set forth eight criteria to be considered in assessing the effectiveness of the company’s compliance and ethics program, such as the company’s culture of compliance and the independence of its compliance function.

Notably, although announced in connection with the Pilot Program, the Fraud Section began entering into declinations with disgorgement in connection with investigations that had commenced before the Pilot Program began, and all declinations with disgorgement were published on the Fraud Section’s website—meaning that, unlike other declinations, declinations with disgorgement were made public. 

Extension of the Pilot Program

Although the Pilot Program was initially set to end in April 2017, in March 2017, the then-Acting Assistant Attorney General of DOJ’s Criminal Division, Kenneth Blanco, announced that the program would be indefinitely extended pending an evaluation of its “utility and efficacy . . . , whether to extend it, and what revisions, if any, we should make to it.”  DOJ did not disclose details of the criteria it was using to evaluate the Pilot Program, including what, if any, metrics or feedback from companies it was using to determine whether the Pilot Program was in fact incentivizing companies to self-disclose potential FCPA violations.

The New FCPA Corporate Enforcement Policy

In early October 2017, DAG Rosenstein announced that a working group convened by DOJ to evaluate its “long-term effectiveness in promoting individual accountability and deterring fraud,” would be reviewing the Pilot Program, among other matters.  One outcome of that review appears to be the new “FCPA Corporate Enforcement Policy” announced on November 29, 2017, which is now set forth in Section 9-47.120 of the USAM.

Presumption of Declination Under Certain Circumstances

The Policy’s elements largely track those of the Pilot Program.  A key difference is that the Policy provides at the outset that a company that voluntarily self-discloses, fully cooperates, and timely and appropriately remediates, in accordance with specified standards, will be presumed to be entitled to a declination unless there are certain aggravating circumstances relating to the seriousness of the offense or the nature of the offender.  Such aggravating circumstances could include, for instance, involvement by executive management of the company in the misconduct, a significant profit to the company from the misconduct, pervasiveness of the misconduct, and criminal recidivism.  The Policy notes that these examples are non-exhaustive.  Despite the Policy’s caveat regarding these aggravating circumstances, the new presumption of declination goes farther than the Pilot Program in terms of making explicit the benefits of self-disclosure.  Moreover, by creating a presumption of declination and then listing factors that would overcome that presumption, the Policy strives to provide greater clarity regarding the factors that DOJ considers when choosing between a declination with disgorgement or another form of resolution.

Less Qualifying Language

Consistent with the Pilot Program, the Policy provides that if a criminal resolution is warranted for a company that has voluntarily self-disclosed, fully cooperated, and timely and appropriately remediated, the company will still be eligible to receive a 50% reduction off the bottom end of the U.S. Sentencing Guidelines fine range, while a company that fully cooperates and timely and appropriately remediates, but does not voluntarily self-disclose, will be eligible for a 25% reduction off the bottom end of the fine range.  One notable difference here, however, is that while the Pilot Program described these benefits, and other elements, using heavily qualifying language (e.g., the FCPA unit “may accord up to a 50% reduction,” and a non-self-disclosing company that later fully cooperates and remediates “may receive limited credit”), the Policy is more unequivocal.  For instance, the Policy states that the Fraud Section “will accord, or recommend to a sentencing court,” a 50% reduction, and that a non-self-disclosing company that later fully cooperates and remediates “will receive, or the Department will recommend to a sentencing court,” up to a 25% reduction off the bottom end of the applicable fine range.  Unlike the Pilot Program, the Policy also makes clear that a criminal recidivist will not be eligible for a declination or for the 50% reduction off the bottom end of the applicable fine range, even if it satisfies all of the other criteria.  (The Policy does not explicitly state that a recidivist is ineligible for a discount of up to 25%.) 

The Policy does not, of course, eliminate all qualifications.  As noted above, the Policy’s list of aggravating circumstances that may warrant a criminal resolution is non-exhaustive.  There is also some ambiguity in the term “criminal recidivist”—does that term mean a company that has committed any prior crime or a company that has previously violated the FCPA specifically?  Moreover, disagreements over whether a disclosure truly counts as a “self-disclosure” or whether a company “fully” cooperated are not uncommon, which will mean that the specific outcome of any case will always be somewhat in doubt until the ink is dry.  Nevertheless, these types of caveats and ambiguities are inherent to our system, in which prosecutors are called upon to exercise their discretion to tailor outcomes to specific facts, and the Policy seems to add more clarity to the process.

Disgorgement, Restitution, and Forfeiture

Like the Pilot Program, the Policy requires a company to fully disgorge all profits resulting from the misconduct in order to receive mitigation credit, but, interestingly, the Policy also specifies that forfeiture and restitution are required.  In the FCPA context, identifying who are the “victims” that may be entitled to restitution has been somewhat challenging in practice, such as in cases where restitution to a foreign government or agency would end up rewarding complicit officials.  In a final comment section, the Policy notes that this requirement may be satisfied by a parallel resolution with a relevant regulator, including the U.S. Securities and Exchange Commission.  One interesting question that we will see play out in practice is whether DOJ will view a foreign enforcement agency as a “relevant regulator.”

From a broader perspective, the creation of “declinations with disgorgement” was, in our view, the most significant outcome of the Pilot Program, and the enshrinement of this new form of resolution in the USAM may be the most significant outcome of the Policy.  While the Pilot Program provided more formalistic guidance as to when, and how much, credit would be given for voluntary self-disclosure, cooperation, and remediation, these elements were not wholly new to the Pilot Program—DOJ had been providing such credit and guidance through resolution documents for years.  But DOJ had rarely, if ever, pursued declinations with disgorgement in FCPA (or any other) cases prior to the Pilot Program.  One key issue that DOJ does not appear to have addressed is whether such declinations with disgorgement—which, although likely preferable to other forms of resolution, come with the added stigma of a company being publicly branded as a bribe-payer—provide an incentive or disincentive to voluntary self-reporting.  Indeed, the Policy itself suggests that even a declination without disgorgement may still be made public.[1]  In other words, according to the Policy, every voluntary self-disclosure made to DOJ, as long as the matter would have otherwise been prosecuted or criminally resolved, may result in a public disclosure of the declination.  This permanent reputational harm to companies that may be otherwise doing everything right provides a very significant disincentive to voluntarily self-disclose conduct to DOJ and will continue to impact negatively the calculus of companies in deciding whether to self-disclose.

Criteria Largely Mirror Those of the Pilot Program

Like the Pilot Program, the Policy provides explicit guidance regarding the requirements for a company to show that it has voluntarily self-disclosed, fully cooperated, and timely and appropriately remediated.  For the most part, the Policy’s requirements track those of the Pilot Program with some new language. 

For example, the Policy now explains that “de-confliction” of an internal investigation with the government investigation, one of the requirements to receive full cooperation credit, means de-confliction of witness interviews and other investigative steps that a company intends to take with those DOJ intends to take as part of their respective investigations.  Perhaps responding to concerns that the de-confliction requirement may hamper a company’s ability to conduct its own fulsome and rigorous internal investigation, in a final comment section, the Policy further explains that any requests by DOJ to defer certain investigative steps, such as interviews 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.”  Furthermore, “[o]nce the justification dissipates,” DOJ will notify the company that it is lifting its request.  These limitations are consistent with public statements made by previous DOJ leadership, but some practitioners have been concerned that, in practice, DOJ prosecutors have been increasing the use and scope of de-confliction since the Pilot Program was released.

In the same comment section, the Policy also notes that it will consider a company’s financial condition in evaluating a company’s full cooperation.  A company asserting that its financial condition impedes its ability to cooperate more fully will bear the burden of proving this assertion, but DOJ will take this “impediment into consideration” in assessing cooperation credit.

The Policy requires two additional items for a company to receive full remediation credit:

  • “Demonstration of a thorough analysis of causes of underlying conduct (i.e., a root cause analysis) and, where appropriate, remediation to address the root causes.”  The reference to a “root cause analysis” has also been seen in the Fraud Section’s “Evaluation of Corporate Compliance Programs” document, published in February 2017, and the Policy thus endorses that approach.
  • “Appropriate retention of business records, and prohibiting the improper destruction or deletion of business records, including prohibiting employees from using software that generates but does not appropriately retain business records or communications.”  The meaning of this item is unclear.  Presumably DOJ is not suggesting that a company will be penalized for instituting an appropriate document retention policy and is instead suggesting that companies should discourage employees from using ephemeral messaging systems to conduct business.

The Policy emphasizes the timeliness of a company’s cooperation (e.g., noting that a company must timely disclose relevant facts and timely preserve, collect, and disclose relevant documents) and remediation, explicitly providing that a company that has not effectively remediated at the time of the resolution will not receive full remediation credit, and thus creating strong incentives for companies to act swiftly to assess and redress weaknesses in their compliance programs and internal controls.

Finally, the Policy does try to address an area of some confusion, that is, the definition of what exactly a declination is.  In doing so, DOJ makes clear that “declinations” occurring under this Policy are those cases that “would have been prosecuted or criminally resolved except for the company’s voluntary disclosure, full cooperation, remediation, and payment of disgorgement, forfeiture, and/or restitution.”  Said differently, DOJ will not count as “declinations” in its statistics those cases that were not brought for other reasons, such as lack of jurisdiction, expiration of the statute of limitations, or inability to prove the offense beyond a reasonable doubt.

Key Takeaways

  • The Policy’s new presumption of declination when a company voluntarily self-discloses misconduct related to a FCPA violation, fully cooperates, and timely and appropriately remediates goes further than the Pilot Program in terms of quantifying the tangible benefits of these actions.
  • Declinations with disgorgement are now a permanent fixture in FCPA cases.  The fact that a self-disclosing company who satisfies the criteria for declination will nonetheless be required to pay disgorgement (and potentially forfeiture and restitution) in a publicly announced enforcement action must still be taken into account by companies considering whether to self-disclose a potential FCPA violation.
  • The Policy’s incorporation into the USAM provides greater certainty for companies regarding its longevity.  While the USAM is updated and revised on an ongoing basis, its guidance and policies may be seen as less likely to change than policy pronouncements, guidance, or programs announced at the level of the Fraud Section or the Fraud Section’s FCPA Unit, although the Policy, like the Pilot Program, remains limited to FCPA matters.

[1] U.S. Attorneys’ Manual, 9-47.120.4 – FCPA Corporate Enforcement Policy, Comment (“Public Release: A declination pursuant to the FCPA Corporate Enforcement Policy is a case that would have been prosecuted or criminally resolved except for the company’s voluntary disclosure, full cooperation, remediation, and payment of disgorgement, forfeiture, and/or restitution. If a case would have been declined in the absence of such circumstances, it is not a declination pursuant to this Policy. Declinations awarded under the FCPA Corporate Enforcement Policy will be made public.”)  (emphasis added).

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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