In late November, the Department of Justice (DOJ) premiered a new policy regarding Foreign Corrupt Practices Act (FCPA) enforcement. Deputy Attorney General Rod Rosenstein, in a speech, called it the FCPA Corporate Enforcement Policy and stated that it is now “incorporated into the United States Attorneys’ Manual.” The new Policy has four sections: 9-47.100 Introduction; 9-47.110 Policy Concerning Criminal Investigations and Prosecutions of the Foreign Corrupt Practices Act; 9-47.120 FCPA Corporate Enforcement Policy and 9-47.130 Civil Injunctive Actions.

I. Introduction

The thing that struck me in Rosenstein’s was the DOJ’s commitment to moving forward not just the concept of compliance but compliance programs and the compliance profession. Rosenstein recognized “The United States plays a central role in the worldwide fight against corruption, and we serve as a role model. Following our lead, many other countries have joined America by implementing their own anti-corruption laws. Those laws do not just encourage good business.  They promote good government.” 

Yet FCPA enforcement is more than simply about good government. Just as the Saudi Arabian government explained the economic costs of bribery and corruption to its country, Rosenstein spoke about the costs to business from those who try to game the system, obtaining an unfair advantage through payment of bribes and engaging in corruption. He cited back to the April speech by Attorney General Sessions who spoke about other negative aspects of corruption including “increased prices, substandard products and services, and reduced investment.” Finally, Rosenstein spoke to the basic need for businesses to operate honestly and ethically. This is both true for US companies and the greater international business community.  

Internationally, he noted “the Organization for Economic Co-operation and Development adopted an Anti-Bribery Convention in 1997. That convention fuels the growing international rejection of corruption. Forty-three nations participate in the OECD Anti-Bribery Convention. The agreement establishes legally binding standards. Member countries are required to adopt laws that criminalize bribery of foreign public officials in international business transactions.” He also spoke about the continuing cooperation among international authorities in both investigation of bribery and corruption and of enforcement against wrong-doers. 

Obviously, the prime job of the DOJ is to enforce our laws. They do so in the FCPA world with vigor, honor and upholding the highest values of the rule of law. The DOJ has embraced the role of encouraging companies to not only follow the law through rigorous enforcement but with incentives to operate best practices compliance program. Corporate America should and does see the DOJ as a valued partner in supporting “the rule of law, which establishes and safeguards a vibrant economic marketplace for your products and services.”

Over the past several years, the DOJ has consistently provided “incentives for companies to engage in ethical corporate behavior.” In the context of an enforcement action, “That means fully cooperating with government investigations, and doing what is necessary to remediate misconduct – including implementing a robust compliance program. Good corporate behavior also means notifying law enforcement about wrongdoing.” This was one of the goals in creating the FCPA Corporate Enforcement Policy. But more than simply having such a policy, Rosenstein desired transparency and predictability. He stated, “I want the Department to issue concise policy statements. Historical background and commentary should go in a cover memo or a press release. In most instances, the substance of a policy should be in the United States Attorneys’ Manual, and it should be readily understood and easily applied by busy prosecutors.”

The compliance professional reviewing the new FCPA Corporate Enforcement Policy will certainly be heartened with the language around best practices compliance program, including the specific incorporation of the 2012 FCPA Guidance, with the Ten Hallmarks of an Effective Compliance program directly into the section on remediating compliance programs. This section has taken some of the most robust portions of the FCPA Pilot Program and incorporated them directly into the new FCPA Corporate Enforcement Policy. This will drive a corporate compliance function more to the front and center of an organization going forward. 

The section on remediation, coupled with Rosenstein’s remarks, demonstrates how significant the compliance profession and compliance practitioner is now and will be going forward. This new FCPA Corporate Enforcement Policy puts more pressure on companies to get compliance right in a best practices, effective compliance program. It has become far more than a “you can pay now or later and only if you get caught mentality” which is still articulated by some today. The DOJ has made clear that it views part of its role in anti-corruption enforcement to more than encourage compliance but to move to partnering with compliance practitioners to design, create and implement best practices compliance programs. 

Yet is more than written proscriptions with policies and procedures. Rosenstein ended with comments that spoke directly to doing business ethically. He concluded, “Companies can protect themselves by exercising caution in choosing their business associates and by ensuring appropriate oversight of their activities. There is an ancient proverb that counsels, “If you want to know a person’s character, consider his friends.” My advice is to make sure that you can stand proudly with the company you keep.”

The new FCPA Corporate Enforcement Policy will be focused on primarily for enforcement concepts and issues. Yet I see it as one more step by the DOJ to raise up the important, prestige and esteem of compliance programs. When the Deputy Attorney General talks about corporations partnering with the DOJ to fight the global scourge of bribery and corruption, it drives home the importance of doing compliance through the operationalization of a compliance program into the very DNA of an organization. 

II. Root Cause Analysis

Next, I want to consider what this new policy means for a best practices compliance program. There are several different points to note about compliance programs under the new Corporate Enforcement Policy. The first is the incorporation of the 10 Hallmarks of an Effective Compliance Program through reference to the 2012 FCPA Resource Guide. Second is the language that makes clear that credit for a best practices compliance program is available for programs which are beyond simply the bare minimum under the US Sentencing Guidelines. Finally, is that language and concepts in this new Policy come from a variety of sources, including the DOJ’s 2016 FCPA Pilot Program and the 2017 Evaluation of Corporate Compliance Programs (Evaluation). This builds upon the 10 Hallmarks of an Effective Compliance Program incorporated through reference into the new Enforcement Policy. 

In the new Enforcement Policy, it states “Demonstration of thorough analysis of causes of underlying conduct (i.e., a root cause analysis) and, where appropriate, remediation to address the root causes”. The language around root cause analysis was first articled in the Evaluation. Bill Steinman, writing in the FCPA Blog, said, “Of all the changes in the new policy, this is perhaps my favorite. As any ethics professional worth her or his salt will tell you, perhaps the most fundamental part of recovering from a lapse in appropriate conduct is figuring out how it happened in the first place. You can’t really move forward toward fixing a problem unless you’ve asked and until you’ve clearly answered questions like “why did this happen here?” or “what about our company made our people think this was ok?””

Mike Volkov, writing in his blog, said, “The “root cause” analysis has taken on greater significance through the years, and is an important inquiry needed to understand why financial and compliance controls were not able to detect and prevent the illegal conduct. It is a more intensive review and analysis than a risk and compliance program assessment, and is targeted to the specific facts underlying the violations.” In another blog post, he stated, “A root cause can implicate not only employee misconduct or failure to exercise proper oversight, but can extend to such issues as a company’s culture, tone-at-the-top and other issues with significant implications for the company’s operations.”

I agree with both assessments. A root cause analysis is a method to learn more about your business process and what occurred so that the controls, systems and process can be remediated. A root cause analysis allows you to determine the true cause of an incident, not one that simply hypothesizes a bad actor within a company going rogue. If you just fire someone, without changing the process, you are going to keep getting similar or the same results. Assessing blame does not help, as you want to get deeper into those root causes. The reason the entire process is named ‘root cause analysis’, is to emphasize the need to drill down below the superficial pieces of the framework to fix, and into the things that are driving the outcomes and the behaviors.

When root cause analysis is done correctly and utilized as a part of your remediation strategy going forward, it is principally there in order to develop preventive actions. A preventive action is something to prevent recurrence of the problem. You can correct with a corrective action, but the ultimate goal is to engineer out or fix the system and process so you do not have the opportunity for that flaw to occur again.

A root cause analysis can be used to strengthen the prevention prong of your best practices compliance program. Thinking of the proper manner to use a root cause analysis, to find facts and not assess blame will take your compliance program to an entirely higher level of proficiency. If the DOJ ever comes knocking you can demonstrate your adherence to new FCPA Corporate Enforcement Policy in a documented manner.

Once again for the compliance professional, the new FCPA Corporate Enforcement Policy makes the importance of a best practices compliance program even more critical. By having the first point speak to root cause analysis, it emphasizes not only the importance of the specific exercise but also the data driven approach to a best practices compliance program. It is more than simply learning from your mistakes, it is taking the information from your root cause analysis and incorporating it back into your compliance program. A compliance program is dynamic and not static. This final fact is what separates the type of analysis the DOJ puts forward from those who want a paper program to constitute a full and complete compliance defense.  

III. Compliance Expertise

What does DOJ says specifically about a compliance programs in the new Policy? The first thing is the incorporation of the 10 Hallmarks of an Effective Compliance Program through reference to the 2012 FCPA Resource Guide. Second is the language that makes clear that credit for a best practices compliance program is available for programs which are beyond simply the bare minimum under the US Sentencing Guidelines. Finally, is that language and concepts in this new Policy come from a variety of sources, including the DOJ’s 2016 FCPA Pilot Program and the 2017 Evaluation of Corporate Compliance Programs. This builds upon the 10 Hallmarks of an Effective Compliance Program. 

Implementation of an effective compliance and ethics program, the criteria for which will be periodically updated and which may vary based on the size and resources of the organization, may include:

• The company’s culture of compliance, including awareness among employees that any criminal conduct, including the conduct underlying the investigation, will not be tolerated; 

• The resources the company has dedicated to compliance;
• The quality and experience of the personnel involved in compliance, such that they can understand and identify the transactions and activities that pose a potential risk;

• The authority and independence of the compliance function and the availability of compliance expertise to the board;

• The effectiveness of the company’s risk assessment and the manner in which the company’s compliance program has been tailored based on that risk assessment;

• The compensation and promotion of the personnel involved in compliance, in view of their role, responsibilities, performance, and other appropriate factors;
• The auditing of the compliance program to assure its effectiveness; and
• The reporting structure of any compliance personnel employed or contracted by the company.

I would reorganize these into three general categories: (1) Quality and resources dedicated to the compliance function; (2) ongoing evaluation of a compliance program; and (3) company culture. 

Quality and Resources Dedicated to Compliance 

Here the DOJ has laid out the following:

1. The resources the company has dedicated to compliance;
2. The quality and experience of the personnel involved in compliance, such that they can understand and identify the transactions and activities that pose a potential risk;
3. The authority and independence of the compliance function and the availability of compliance expertise to the board;
4. The compensation and promotion of the personnel involved in compliance, in view of their role, responsibilities, performance, and other appropriate factors; and 
5. The reporting structure of any compliance personnel employed or contracted by the company.

One and the first half of 3 come from the 10 Hallmarks of an Effective Compliance Program. Points 2, the second half of 3, 4 and 5 come from the DOJ’s FCPA Pilot Program, Part 3 entitled, “Timely and Appropriate Remediation in FCPA Matters”. Clearly the DOJ is articulating that it expects true compliance professionals, who understand the way compliance interacts with and supports the business. The days of a law school trained, Chief Compliance Officer who cannot read a spreadsheet are consigned to the dustbin of non-compliance. But more than simply compliance professionalism, companies must compensate and promote compliance professionals within their organization. Simply burying someone in the compliance function of a law department because they cannot cut it will no longer suffice. 

While part of the first clause of 3 derives from the Hallmark Three of the 10 Hallmarks, which required authority and autonomy for the compliance function; there is a new requirement for compliance professional “independence”. The DOJ has not taken a position on whether a General Counsel can also be the CCO. However, this new language would seem to signal the death knell for the dual GC/CCO role. It may also signal the larger issue that the CCO should have a separate reporting line to the Board, apart from through the GC. 

There is however one new part which I am particularly gratified to see, which is “the availability of compliance expertise to the board.” I believe this is more than simply a reporting requirement, or that the CCO has a direct line to the Board. I believe this is a separate requirement for compliance expertise on the Board. I have long argued that there should be a compliance professional on a Board of Directors. You name any of the most recent corporate scandals; Wells Fargo, Uber Technologies, Volkswagen, Equifax and there was no compliance expertise on the Board. Clearly the better practice is for companies to have a seasoned compliance professional on the Board. I would also add the DOJ may soon expect there be a Compliance Committee separate and apart from the Audit Committee. 

Once again for the compliance professional, the new FCPA Corporate Enforcement Policy makes the importance of a best practices compliance program even more critical. Clearly the DOJ is focusing more on the role, expertise and how the compliance function is treated within an organization. Pay your CCO considerably less than your GC? You may now better be able to justify that discrepancy. Legal department budget of three million dollars and compliance department is $500,000; you may be starting behind the 8-ball. Finally, this document may well portend structural changes required at the Board of Directors level, including appointment of a compliance professional and creation of a Compliance Committee.  

IV. Clarification and Consolidation

James Koukios, a partner at Morrison & Foerster LLP and a former DOJ prosecutor in the FCPA unit of the Fraud Section characterized the new Policy as one of “clarification and consolidation.” I found this new Policy to be the culmination of different concepts we have seen in FCPA enforcement actions, the 2016 FCPA Pilot Program, the 2017 Evaluation of Corporate Compliance Programs and DOJ pronouncements at speeches over the past few years. It also incorporated concepts articulated in the Yates Memo from September 2015. 

I was most particularly interested in the presumption laid out in the new Policy. The language reads:

Due to the unique issues presented in FCPA matters, including their inherently international character and other factors, the FCPA Corporate Enforcement Policy is aimed at providing additional benefits to companies based on their corporate behavior once they learn of misconduct. When a company has voluntarily self-disclosed misconduct in an FCPA matter, fully cooperated, and timely and appropriately remediated, all in accordance with the standards set forth below, there will be a presumption that the company will receive a declination absent aggravating circumstances involving the seriousness of the offense or the nature of the offender. Aggravating circumstances that may warrant a criminal resolution include, but are not limited to, involvement by executive management of the company in the misconduct; a significant profit to the company from the misconduct; pervasiveness of the misconduct within the company; and criminal recidivism. [emphasis supplied]

This was the first time I could recall the DOJ saying that even with a violation of federal law, a company could start out with a presumption of receiving a declination. Koukios said that due to the unique circumstances present in FCPA cases the DOJ aimed to bring additional benefits to companies based on their corporate behavior. Further, “the presumption can be overcome if there are certain aggravating factors and those are things that you would probably recognize from other parts of the U.S. attorney’s manual like high level management involvement, corporate recidivism and other factors like that.” Koukios characterized this presumption as “a real improvement over the over the pilot program.” 

I was also interested in the process the DOJ used to develop the new Policy. Step back and consider the innovation of the Pilot Program and how it helped to formalize the process that former FCPA unit head Patrick F. Stokes had described at the 2015 ACI National FCPA Conference; where he laid out criteria for fine and penalty reductions. Stokes explained the discounts that both Parker Drilling and Hewlett-Packard (HP) received from their extensive cooperation and remediation. Obviously, there is language from the FCPA Pilot Program which was announced in April 2016. The Pilot Program put discounts in place of up to 50% for meeting the requirements and now that discount can range up to 100%.

Koukios pointed to the new category of declination with disgorgement as a solid achievement and the biggest outcome from the Pilot Program. He felt like it really benefited corporations, so they would not have to go through either a more formal Deferred Prosecution Agreement (DPA) or Non-Prosecution Agreement (NPA) process. Further, companies would have less information about their violations put out into the public record. 

From the Yates Memo, there were two areas where the new Policy pointed towards companies self-disclosing quickly, efficiently and with solid information about culpable individuals. In the introductory policy section, it states, “Any information relating to a possible violation of the FCPA should be brought immediately to the attention of the Fraud Section of the Criminal Division. Even when such information is developed during the course of an apparently unrelated investigation, the Fraud Section should be notified immediately.” In the section defining “Voluntary Disclosures” it states, “The company discloses all relevant facts known to it, including all relevant facts about all individuals involved in the violation of law.” [emphasis supplied]

Last April, at the one year anniversary of the Pilot Program, the DOJ announced it was reviewing and evaluating the Pilot Program. The new Policy came out of that process. I found this process to be an excellent example where the DOJ reviewed how it prosecuted FCPA cases, inputted data and came up with something better and stronger in the form of the new Policy. There is also language from the 2017 Evaluation of Corporate Compliance Programs, most particularly impacting the compliance practitioner and compliance profession.

V. New FCPA Enforcement Policy Ends the Compliance Defense Debate

Another effect of the new Policy is that is sounded of the death-knell, once and for all time, of the need for a compliance defense. The protocol set up by the DOJ is certainly creative and perhaps even unique in federal criminal law enforcement. The enforcement aspects, coupled with the incentives provided to corporations and the detailing of a best practices are much more comprehensive to advance compliance than any argument for a compliance defense.

In considering the new Policy, most practitioners have started with the presumption that if a company meets the requirements under the new Policy, they will receive a declination. There are a variety of factors present in FCPA enforcement actions which would lead the DOJ to make this blanket offer. As stated in the new Policy “The investigation and prosecution of particular allegations of violations of the FCPA will raise complex enforcement problems abroad as well as difficult issues of jurisdiction and statutory construction.” 

Those who advocate a compliance defense argue it will somehow drive more compliance. Of course, there has never been any evidence to back up this claim. The structural problem with the compliance defense is it is simply a paper program to give companies cover as they look the other way while their employees engage in bribery and corruption. It is designed to a be a wink-wink, nod-nod, we told you not to do it defense to companies, which would then claim any FCPA violation is only those “rogue” employees out there and a company certainly cannot be expected to control its own workforce. The compliance defense is designed neither to encourage the doing of compliance nor operationalizing compliance in a company. It is simply designed to give companies a way to argue to the DOJ it is not our responsibility while not moving forward in the fight against international bribery and corruption one iota.  

Yet perhaps the most basic misunderstanding that those advocating the compliance defense make is that there is simply a binary choice to be made: us vs. them; guilty vs. not guilty, conviction at trial vs. no conviction at trial. They fail to understand that the underpinnings of FCPA enforcement have always held a much broader view. It was true at the time of the FCPA’s enactment in 1977 and it is even more true today. The new Policy recognizes this unusual nature in the international fight against bribery and corruption. George J. Terwilliger III, writing in the FCPA Blog, said, “The new policy is grounded in the notion that companies and the government have a shared interest in securing the rule of law, which in this context includes global commercial markets freed from the influence and corrosive effects of corruption.”

This is the brilliance of the new Policy, as not only does it encourage doing compliance by mandating an operationalized compliance program. The new Policy also requires a company to do much more than simply operationalize compliance. Each component of the new Policy moves this notion forward. First there is a presumption created, not a guarantee, that a company will receive a declination. This is important for not only the aggravating factors that the Policy listed, “involvement by executive management of the company in the misconduct; a significant profit to the company from the misconduct; pervasiveness of the misconduct within the company; and criminal recidivism.” The carrot of a declination requires other steps and continuation of those steps throughout the investigation and enforcement process.

A company must voluntarily self-disclose with three requirements. It has to be (1) “prior to an imminent threat of disclosure or government investigation”. (2) The self-disclosure must be “within a reasonably prompt time after becoming aware of the offense,” which the company must demonstrate. (3) Finally, the company must disclose, “all relevant facts known to it, including all relevant facts about all individuals involved in the violation of law.” This means the company cannot wait until it is on the front page of the New York Times (NYT) or Wall Street Journal (WSJ) to then come in and report. The company cannot sit on the discovery as multiple US companies have done around their disclosures of data breaches. Finally, the new Policy continues the Yates Memo mandate that companies will have to continue to produce “Yates Binders” of information about the illegal conduct, including evidence of culpable individuals. 

A company must proactively cooperate fully with the DOJ during the pendency of the investigation. This cooperation mandates presentation of the facts, in a manner not designed to violate attorney/client privilege, together with timely updates. There must be timely document security and if a company claims it is limited on information it can get out of another country into the US, the burden is on the company to demonstrate this legal restriction and not simply hide behind a foreign law. The new Policy also requires the company to find a way to get the evidence to the US stating, “Moreover, a company should work diligently to identify all available legal bases to provide such documents.” The Policy addresses two key issues not previously addressed formally by the DOJ. The first is requiring de-confliction with the DOJs investigation or other ongoing investigations. The second is to recognize that employees have Fifth Amendment rights in internal company investigations. Finally, and perhaps most timely in light of the latest Uber revelation, requires companies to prohibit “employees from using software that generates but does not appropriately retain business records or communications”.

The new Policy formalizes the declination with disgorgement, created under the FCPA Pilot Program. This formalization also works to further the goals of anti-corruption enforcement by recognizing companies should not retain their ill-gotten gains, which is also antithetical to the concept of the compliance defense which allows retention of such gains. This is an appropriate sanction.

The new Policy furthers the goals of global anti-corruption enforcement but does it a way in which all the stakeholders involved are a part of that effort. It gives companies a very bright line to work towards, with the presumption of a full declination to follow at the end. This is a much more well-rounded approach for incentivizing not only the increased importance of compliance but also other goals of cooperation, investigations and returning monies not obtained in legitimate commerce. As Telwelliger noted, the Policy is “a welcome step in a more positive relationship between government enforcers and the vast majority of U.S. businesses that are committed to legal compliance and strong business ethics.” It is this commitment to legal compliance and strong business ethics which will drive compliance programs and the compliance profession forward, not a paper compliance defense. 

VI.  Final Thoughts

The first observation is the process the DOJ went through to come up with this new Policy. The impetus would seem to have been the expiration of the one year FCPA Pilot Program in April 2017. At the conclusion of this one year experiment, the DOJ announced it would assess the Pilot Program. It not only assessed the Pilot Program but made changes which I think make the new Policy even more effective than the Pilot Program. In addition to the enforcement aspects of increasing the discount available to companies which met the requirements of the Pilot Program down to a 100% discount, from a Pilot Program high of a 50% discount; the DOJ made the presumption companies would receive a full declination as the default response to meeting the prescripts of the new Policy. Nowhere else under federal law is there such a presumption when there is a violation of federal criminal law. 

Yet beyond the presumption of a full declination, there are additional benefits to companies which fail to disclose or have aggravating factors. Mike Volkov noted these additional benefits consisted of “a guarantee of a 50 percent discount and the probable avoidance of a corporate monitor.” Further, “In the event that a company does not qualify for a voluntary disclosure but cooperates and remediates its compliance program, the company can still earn up to a 25 percent discount from the bottom of the Sentencing Guidelines range.”

As a part of its review of the Pilot Program, the DOJ brought forward language on the expectation of a best practices compliance program, which I previously examined in some depth. There was language brought forward from both the Pilot Program and the 2017 Evaluation of Corporate Compliance Programs. Each of these additions builds upon the 10 Hallmarks of an Effective Compliance Program incorporated through reference into the new Enforcement Policy. 

These new additions to a best practices compliance program elevate both the corporate compliance function and the position of the Chief Compliance Officer in an organization. Perhaps most importantly, the DOJ made clear there must be compliance expertise on the Board, which signals that companies should now have a compliance program subject matter expert (SME) on their Board of Directors. Hopefully companies like Wells Fargo and Uber will take notice of this new DOJ expectation. Compliance department budgets will also need to be commensurately increased.  There is also now the requirement for not only a root cause analysis but the looping the information obtained during the root cause analysis back into the remediation phase of any corporate compliance program. While myself and others have argued these were DOJ requirements based on the Pilot Program and Evaluation, it is now a part of the US Attorney’s Manual, they will be given the full credence they deserve. 

Another way to consider these changes are of preservation and enhancement. The DOJ preserved the foundational compliance elements found in the 10 Hallmarks of an Effective Compliance Program and enhanced compliance programs through the incorporation of those items from the Pilot Program and Evaluation. Whichever formulation you might prefer, clearly the compliance discipline was moved forward by the DOJ with the new Policy. 

All of these new statements, consolidations of prior DOJ publicly released documents and items from other sources are now consolidated in one Policy. Certainly, this is a positive move forward for all parties involved in the process; prosecutors, companies and their counsel. Looking back at the DOJ statements from this year, it is clear how important the compliance function and compliance profession is in FCPA enforcement. In April, Attorney General Sessions said, at the Ethics & Compliance Initiative (ECI) Annual Conference, the following about compliance practitioners, “your work seeks to prevent, by building strong cultures of compliance within your companies to deter illegal and unethical conduct. We applaud those efforts. Our department would much rather have people and companies obey the law and do the right thing, so we don’t have to see them in court. Your good work makes our jobs easier, and it makes your companies and our country better. So far, so good. The E&C community is recognized for doing their job of helping companies follow their moral compass.”

Finally, the DOJ has brought everyone into the fight against bribery and corruption. Someone as thoughtful as former Deputy US Attorney General George J. Terwilliger III, writing in the FCPA Blog, said, “The new policy is grounded in the notion that companies and the government have a shared interest in securing the rule of law, which in this context includes global commercial markets freed from the influence and corrosive effects of corruption.” When you can couple such a policy under the rule of law, it is quite an achievement. It is the final concept which makes this new Policy truly unique. Compliance hats off to the DOJ for it.