In a move that follows long-standing complaints from the corporate community and the FCPA defense bar concerning the government’s vague assurances of “cooperation credit” in FCPA resolutions for self-reporting companies, on April 5, 2016, DOJ officials announced a new one-year FCPA “pilot program” with a Guidance that outlines a concrete set of standards defining what constitutes cooperation and what credit companies can expect to earn for that cooperation. Rumors of the program first emerged in late 2015, amid DOJ officials acknowledging a desire to motivate companies to voluntarily self-disclose FCPA-related misconduct, to fully cooperate with the DOJ’s Fraud Section and to remediate flaws in their controls and compliance programs.
Also, in announcing the pilot program, the DOJ stated that it is intensifying its investigative and prosecutorial efforts by substantially increasing its FCPA law enforcement resources. These new resources include an additional 10 prosecutors to augment the ranks of the Fraud Section by over 50%, as well as support from three new squads of FBI special agents devoted to FCPA investigations and prosecutions. At the same time, the DOJ noted an increase in coordination with its foreign counterparts to prosecute bribery schemes and referenced a host of recent enforcement actions as the fruits of such efforts.
Companies that discover potential FCPA violations often wrestle with the decision of whether to proactively self-disclose the conduct to the DOJ. Given the frequently voiced concern that the benefits of self-disclosure are not clear to companies—particularly given the lack of details generally made available to the public in FCPA settlement resolutions—one of the stated goals of the DOJ’s pilot program is to provide greater transparency about what the Department requires from companies seeking credit for voluntarily self-disclosing misconduct and the credit that is available for such cooperation.
The Guidance clarifies three principal requirements for receiving mitigation credit under the pilot program, including: (1) voluntary self-disclosure of criminality; (2) full cooperation; and (3) remediation by business organizations. The Guidance also explains the credit that the Fraud Section may provide to companies who meet these requirements, including a 50% reduction in applicable fines and possibly a declination of prosecution.
A summary of the key provisions of the Guidance is provided below.
Requirements to Qualify for Mitigation Credit
The Guidance provides specific criteria for each of the requirements to receive mitigation credit.
The first requirement is voluntary self-disclosure of the FCPA violation. To satisfy this requirement, the disclosure must occur within a “reasonably prompt” time after the company becomes aware of the offense. The burden is on the company to demonstrate timeliness. The disclosure must also include all relevant facts known to the company, including information about the individuals involved in any FCPA violation. Disclosures that are required by law do not qualify as “voluntary” disclosures nor do disclosures that occur after the company becomes aware of the imminent threat of disclosure through a third party or government investigation.
The second requirement is full cooperation with the Fraud Section. The Guidance places particular emphasis on “proactive” cooperation and complete information. For example, entities seeking cooperation credit must provide complete information about the relevant conduct of officers, employees and agents, as well as facts known about third-party companies and individuals. To receive cooperation credit, a company must also preserve, collect and disclose relevant documents and information uncovered through its investigatory efforts, including overseas documents unless disclosure is impossible due to foreign data privacy laws. Similarly, upon request of the DOJ, companies must make officers and employees available for interviews, including employees located outside the United States, unless foreign laws prohibit them from doing so. However, the Guidance reiterates that waiver of the attorney-client privilege or work product protections is not required in order to be eligible for full cooperation credit.
In general, the Guidance suggests that cooperation will be assessed on a case by case basis. Companies can earn cooperation credit by conducting an appropriately tailored investigation, which the DOJ acknowledges might vary in scope and speed depending on factors such as the size of the company. The Guidance encourages companies to consult with Fraud Section attorneys in determining the scope of such investigations.
Timely and Appropriate Remediation
The third requirement to receiving mitigation credit under the pilot program is implementing an effective compliance and ethics program. The Guidance notes that the Fraud Section’s Compliance Counsel is assisting in an effort to refine benchmarks for assessing compliance programs and evaluating an organization’s remediation efforts. While the evaluation of a company’s compliance program will vary based on the size and resources of the organization, the Guidance sets forth a number of factors that will be considered. The first factor—whether the company has established a “culture of compliance”—is a standard that is well-engrained in the vernacular of many organizations’ compliance programs. The DOJ will also assess the resources a company dedicates to compliance, including the quality and experience of compliance personnel, how compliance personnel are compensated, the independence of the compliance function and the reporting structure of compliance personnel within the company. Additional factors the DOJ may use to assess compliance programs include whether the company has performed a risk assessment and whether the compliance program has undergone an audit to assess its effectiveness.
Finally, the DOJ will consider whether a company has engaged in appropriate discipline of any employees identified as being responsible for the misconduct and whether a company has taken additional steps demonstrating a recognition of the seriousness of the misconduct, such as implementing measures to reduce the risk of repetition of such misconduct.
Credit Under the Pilot Program
The Guidance states that benefits for companies that successfully qualify under all three of the criteria for receiving mitigation credit can receive (1) up to a 50% reduction off the low-end of applicable Sentencing Guidelines fines (if a fine is sought); (2) potentially no appointment of a corporate monitor; and (3) declination of prosecution by the Fraud Section, in appropriate cases. With respect to the declination decision, the Guidance states that Fraud Section prosecutors must consider the seriousness of the offense, including whether executive management was involved and whether significant profits were garnered by the misconduct, and the compliance history of the company, including whether the company entered into a resolution with the DOJ within the past five years.
The DOJ also recognizes that there will be companies that cannot fully comply with all three criteria for receiving mitigation credit. Even in such cases, “limited credit” may be available for companies who do not self-disclose but nonetheless cooperate with the DOJ and remediate the misconduct. But where a company fails to self-disclose, the Guidance states that the Fraud Section will accord at most a 25% reduction off the bottom of applicable Sentencing Guideline fines.
Benefits of the Pilot Program
The Guidance does not break new ground in the factors the DOJ considers when assessing cooperation credit for companies that self-disclose FCPA violations. Indeed, the Resource Guide to the FCPA jointly released by the DOJ and SEC in 2012 lists nine factors the DOJ considers in determining whether to charge a corporation and in negotiating plea or other agreements. Among the nine factors set forth in the FCPA Resource Guide are the following:
- The corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents;
- The existence and effectiveness of the corporation’s pre-existing compliance program; and
- The corporation’s remedial actions, including any efforts to implement an effective corporate compliance program or improve an existing one, replace responsible management, discipline or terminate wrongdoers, pay restitution and cooperate with the relevant government agencies.
While these factors may not be new, the new Guidance does provide a detailed framework for companies seeking mitigation credit under the FCPA pilot program. Moreover, the details the Guidance sets forth on the specific benefits available to companies that qualify for mitigation credit is a welcome clarification for companies grappling with a self-disclosure decision and seeking clarity as to whether doing so will translate into tangible benefits. Of course, the Guidance still affords considerable discretion for prosecutors to determine the timeliness and completeness of a company’s cooperation, as well as the ultimate resolution of an FCPA violation. For example, while the Guidance addresses factors for a declination decision, it does not provide similar details about factors influencing whether prosecutors will offer a company a deferred and non-prosecution agreement, both of which have become commonplace settlement tools for FCPA violations.
In the meantime, given the heightened attention and resources the DOJ is providing to FCPA matters, the Guidance provides another helpful reference point for companies to assess the effectiveness of their compliance programs, as well as their preparedness to respond to potential FCPA violations should they occur. And while companies facing a disclosure decision may want to take a wait-and-see approach as to how the Guidance plays out, the DOJ has time on its side. The pilot program is currently being offered for one year only, and then the DOJ will reassess whether the program will continue going forward.
© 2016 Perkins Coie LLP