Calculating the New Balance Between Disclosure and Non-Disclosure of Potential FCPA Violations

Michael Volkov
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The Justice Department’s new FCPA Corporate Enforcement Policy has altered the balance between disclosure and non-disclosure of FCPA violations.  How is that for a profound grasp of the obvious?

All kidding aside, the question is how much has the balance been changed?  I am not sure there will be a significant increase in the number of companies deciding to seek the benefits under the new policy by voluntarily disclosing FCPA violations, but I am convinced there will be an increase.

At the outset, the new policy’s adoption of a declination presumption is a significant new policy.  Instead of the promise of up to a 50 percent reduction from the lower end of the US Sentencing Guideline range, the new policy gives FCPA practitioners a strong argument for a declination.  But, the declination still comes with costs for disgorgement, restitution and forfeiture.

In contrast, the Antitrust Division’s leniency policy gives the first-in leniency applicant a complete pass, along with the company’s officers, directors and employees.  Notwithstanding this complete pass to the first-in applicant, the company earning leniency is still subject to an antitrust class action for damages that are inevitably filed by customers, vendors and suppliers of a cartel.

Going back to the FCPA Corporate Enforcement Policy, a declination-disgorgement result requires the absence of aggravating factors.  The Justice Department’s illustrative list of such factors is understandable – involvement of senior executives, large profits earned from bribery, systemic violations and recidivism.  A company with a prior FCPA settlement will not be entitled to the benefits of a declination-disgorgement settlement.  No one can argue with such a result.  Nor should a company that engaged in systemic bribery — such as Rolls Royce, Telia, Teva, Odebrecht, VimpelCom, Siemens, or Daimler — be eligible for a declination-disgorgement resolution.  As with any government prosecution policy, there will be close cases where the resolution of a case may turn on specific facts and circumstances.

Even when a company is disqualified from a declination-disgorgement resolution, the company can still earn a 50 percent reduction and a probable avoidance of a corporate monitor under the new policy by voluntarily disclosing the conduct, fully cooperating with the investigation, and remediating its corporate ethics and compliance program.

It is important to put this new policy in context.  It is extraordinary for US prosecutors to issue such guidance to the business community in order to explain its exercise of prosecutorial discretion.  As with every policy issuance by federal prosecutors, the new policy does not create enforceable legal rights.  But the new policy statement is an extraordinary effort at increasing transparency and providing clear rules on how DOJ will handle such cases.

Given the new policy, companies have to recalibrate the disclosure versus non-disclosure decision tree.  If a company chooses not to disclose its conduct to the Justice Department, the company has to conduct an in-depth internal investigation, follow all leads, terminate those actors responsible for the conduct, including supervisory personnel who knew or should have known about the conduct, and then remediate its compliance program.  The entire process has to be documented.  In the event that the Justice Department learns of the conduct and launches an investigation, the company can then present prosecutors with a full report and presentation on how it handled the matter.  If the company fully cooperates and remediates its compliance program, it will still be entitled to a 25 percent reduction from the lower end of the US Sentencing Guideline range.

In the non-disclosure case, the company has to take into account the likelihood of detection, which in most cases should be fairly low, against the increase in the fine, which could be declination-disgorgement or 50 percent (and disgorgement) from the lower end of the US Sentencing Guideline range versus only a 25 percent reduction from the lower end of the US Sentencing Guideline range.

This calculation appears to be difficult but given the FCPA track record there are plenty of data points to use for comparison to a company’s potential choice.

Aside from the question of voluntary disclosure versus non-disclosure, a company has to take into account its culture and the impact that the matter has had on its overall corporate operations.  There is nothing that requires or mandates that company disclose to the government FCPA violations.  If a company chooses the non-disclosure route, the company has to demonstrate its full commitment to integrity by conducting an aggressive and robust internal investigation, terminate all executives and employees connected to the misconduct, and invest in enhanced ethics and compliance program improvements.

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.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

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