The Foreign Corrupt Practices Act (“FCPA”) prohibits both United States and foreign corporations and nationals from offering or paying, or authorizing the offer or payment, of anything of value to a foreign government official in order to obtain or retain business. Moreover, the FCPA requires publicly-held United States companies to maintain books and records in reasonable detail that accurately reflect the disposition of company assets and to devise and maintain a system of internal accounting controls sufficient to reasonably assure that transactions are authorized, recorded accurately, and periodically reviewed. In short, the FCPA prohibits companies from engaging in extraterritorial corrupt practices to secure a business interest for themselves.
Effective April 5, 2016, the Department of Justice (“DOJ”) rolled out a one-year pilot program to encourage companies to self-report FCPA offenses and to cooperate with the DOJ (the “Pilot Program”). The Pilot Program builds on the requirements of the Yates Memo issued last September, which addressed prosecution on individuals. (For our previous blog post about the Yates Memo, click here.) The program, in part, appears to be driven by calls from the FCPA defense bar for increased transparency about the benefits that a company would receive for voluntarily self-disclosing potential FCPA violations. Previously, companies that voluntarily self-disclosed FCPA violations faced uncertain penalties, and this latest policy seems to recognize that lack of clarity. The Pilot Program describes three major components, labeled as “stringent requirements” to qualify for a maximum credit: (1) voluntary disclosure; (2) full cooperation; and (3) remediation.
- Voluntary Disclosure: The company must voluntarily self-disclose prior to the imminent threat of disclosure or government investigation within the meaning of U.S.S.G. § 8C2.5(g)(1), must do so “within a reasonably prompt time after becoming aware of the offense” with the burden being on the company to prove timeliness of such disclosure, and the disclosure must include all relevant facts known to it, including all relevant facts about individuals involved in any FCPA violation. Disclosures already required by law, agreement, or contract will not qualify as a voluntary self-disclosure.
- Full Cooperation: Cooperation will be considered on a case-by-case basis, but the company must first meet the “threshold requirements” of the Yates Memo. DOJ does not expect a small company to have the same ability to conduct as expansive investigation in a short period of time as a Fortune 100 Company. However, the company’s cooperation must include, among others items, disclosure on a timely basis of all facts relevant to the wrongdoing; proactive rather than reactive cooperation to the investigation; preservation, collection, and disclosure of relevant documents and information; timely updates on a company’s internal investigation; the findings of the company’s internal investigation, including an attribution of facts to specific sources rather than a general narrative; the disclosure of all known facts relevant to potential criminal conduct by individuals; and the disclosure and/or facilitation of overseas documents or witnesses, except where “impossible.” Eligibility for full cooperation credit is not predicated upon waiver of the attorney-client privilege or work product doctrine.
- Remediation: If the company obtains the credit for cooperation, then it can also obtain a credit for remediation. To receive the remediation credit, the company must implement an effective compliance program, impose appropriate discipline of employees involved in the misconduct and their supervisors, including (potentially) reduced compensation, and take any additional steps recognizing the seriousness of the misconduct.
When a company not only cooperates and remediates, but also voluntarily self-discloses misconduct, it is eligible for the full range of potential mitigation credit. As a result, companies that self-report under the Pilot Program early and cooperate can receive a credit in the form of a 50 percent reduction off the low-end of the United States Sentencing Guidelines fine range, and generally will not require appointment of a monitor. Importantly, where those same conditions are met, the Fraud Section’s FCPA Unit will consider a declination of prosecution. Companies that fail to voluntarily disclose FCPA misconduct may still receive a limited credit if they later cooperate and appropriately remediate, but the credit will be limited to “at most” a 25 percent reduction credit off the low-end of the United States Sentencing Guidelines fine range. The Pilot Program applies only FCPA claims brought by the Criminal Division’s Fraud Section and not to any other agency, division of the DOJ, or any other section of the Criminal Division. The full requirements for the Pilot Program can be found here:
The Pilot Program is now nearing the six month mark, and it is unclear whether Pilot Program is working to enhance transparency and accountability in the FCPA enforcement process or whether companies are receiving a tangible benefit for voluntarily self-reporting potential FCPA misconduct. Stay tuned to this blog over the next several weeks – we will be publishing follow-up blogs with a detailed analysis of FCPA resolutions under the Pilot Project and a framework for assessing the costs and benefits of participating in the Pilot Program.