DOJ launches pilot program for FCPA cases

On April 5, 2016, the US Department of Justice (“DOJ”) announced a new Foreign Corrupt Practices Act (“FCPA”) enforcement pilot program with the goal of motivating companies to voluntarily self-disclose FCPA-related violations, to fully cooperate with the DOJ during investigations, and to promote greater accountability for individuals and corporations who violate the FCPA and related laws. Under the program, a company that: (1) voluntarily self-discloses a suspected violation; (2) fully cooperates with the DOJ on all aspects of the investigation throughout the process; and (3) implements the appropriate remedial measures, can earn up to a 50% reduction from the bottom of the US Sentencing Guidelines (“USSG”) fine range. Additionally, a company that meets the program’s requirements will generally not be required to appoint a monitor. The program is in effect as of April 5, 2016 and will run for one year and applies only to the DOJ’s Fraud Section, not individual U.S. Attorney’s Offices. After the year, the DOJ will assess how successful the pilot program was, whether it should be continued, and if so, whether there should be any changes to the program.

Satisfying all of the elements of the pilot program is no easy task – many of the requirements are onerous. Moreover, there is no guarantee that the DOJ will afford the maximum cooperation credit even if a company complies with all of the elements.

The launching of this pilot program comes against the backdrop of significant debate about the benefits of self-disclosing potential FCPA violations to the DOJ. While DOJ has consistently stated that it rewards self-reporting and cooperation, there has been a lack of clarity and predictability concerning the tangible benefits of doing so. Andrew Weissmann, Chief of the DOJ Fraud Section, which oversees and manages FCPA investigations and prosecutions, said that this pilot program “draws a clear distinction between credit that you can be eligible for voluntary self-disclosure as opposed to companies that may decide to wait to see if they get caught, and then cooperate.” His comments suggest that the DOJ is attempting to create objective incentives for companies to self-report potential FCPA violations, to fully cooperate in any resulting investigation, and to implement appropriate remedial measures.

Voluntary self-disclosure

The DOJ has long espoused that voluntary self-disclosure of suspected violations of anti-corruption laws could encourage prosecutors to resolve a potential violation through a Deferred Prosecution Agreement (“DPA”), Non-Prosecution Agreement (“NPA”), or even a declination. A voluntary self-disclosure must:  (1) qualify under the USSG as occurring “prior to an imminent threat of disclosure or government investigation”;1 (2) be made “within a reasonably prompt time after becoming aware of the offense,” with the burden being on the company to show timeliness; and (3) include all relevant facts known to it about the violation, including the involvement of individuals. The DOJ will not consider a disclosure as being voluntary if the company was required to make the disclosure by law, agreement or contract.

Full cooperation

Many of the pilot program’s requirements for full cooperation are not surprising, such as the need to preserve, collect and disclose relevant documents, and to provide the DOJ with timely updates. Not all of the requirements, however, are so straightforward. For example, full cooperation entails, among other things: 

• Identifying opportunities for the DOJ to obtain relevant evidence that is not in the company’s possession and that the DOJ does not otherwise know about;
• Providing all facts relevant to potential criminal conduct by all third-parties, including high level officers and employees and other companies;
• Making available company officers and employees who may possess relevant information for DOJ interviews, including those employees located overseas and former employees (subject to the individuals’ Fifth Amendment rights);
• Disclosing overseas documents, the location of the documents, and who found the documents;
• Facilitating third parties to produce documents and witness from foreign jurisdictions; and
• When required, providing translations of relevant documents in a foreign language.

If the company believes that it is impossible to comply with any of the pilot program’s requirements, such as the existence of conflicting foreign laws, the company has the burden of proving that impossibility. The DOJ will “closely evaluate the validity” of any such claims.

Timely and appropriate remediation

If a company meets the first two requirements, then the DOJ will assess the remedial measures that the company took. While some aspects of what the DOJ expects in a compliance program have been addressed in prior FCPA settlements, the pilot program provides some additional guidance on certain specific issues. When assessing a company’s remedial measures and its compliance program, the DOJ will attempt to determine whether:

• The company has dedicated sufficient resources to compliance functions.
• Compliance personnel have sufficient experience to identify potential risks.
• The company promotes and compensates compliance personnel similarly to other employees.
• The compliance function has sufficient independence.
• The company appropriately disciplined employees who are involved in misconduct, and whether employee compensation is affected by (a) disciplinary infractions and (b) failure to adequately supervise employees.

Benefits of program

A company that meets each of the three requirements (voluntary self-disclosure, cooperation, remediation) may receive a 50% reduction from the bottom of the Sentencing Guidelines fine range and may not be required to appoint an independent monitor. Further, even if a company does not meet the requirements for voluntarily self-disclosure, but nevertheless fully cooperates and adopts appropriate and timely remediation, the company can still qualify for up to a 25% reduction from the bottom of the Sentencing Guidelines range.

Points of note

While the DOJ has for years asserted that there are benefits to self-disclosure, cooperation, and appropriate remediation, the pilot program now attempts to quantify such benefits. However, even though the program may set forth potential benefits, the DOJ still retains significant discretion in determining whether a company has satisfied the numerous onerous elements of the pilot program and how much credit to award. In determining whether to attempt to take advantage of the pilot program, companies must consider several variables, including:

• Whether a company truly receives a benefit: As the pilot program makes clear, the DOJ still has broad discretion in providing the benefits noted above. If a company meets the standards laid out by the pilot program, along with the standards already set forth in the U.S. Attorney’s Manual and the Yates Memorandum,2 then the DOJ “may accord up to a 50% reduction” in fines and the DOJ “generally should not require appointment of a monitor.” While a welcome step in the right direction, the pilot program does not provide objective certainty. Thus, any company attempting to enter the program is still facing an uncertain resolution.
• Qualifying for “voluntary self-disclosure”: The program makes clear that a self-disclosure must be made before there is an imminent threat of disclosure or government investigation and reasonably promptly after the company becomes aware of the potential offense. Thus, voluntary self-disclosure must be “timely,” but the DOJ does not describe how it will evaluate timeliness. Timeliness is likely to run counter to completing an internal review. As a result, to preserve the ability to qualify for the benefits of the pilot program, a company likely will have to self-report before being able to fully evaluate whether it has the ability or willingness to comply with the numerous remaining requirements of the program. This requires a company to undertake a delicate balancing act of conducting an internal investigation without waiving its ability to enter the pilot program.
• Sharing of information about individuals and third parties: As emphasized by last year’s Yates Memorandum, the DOJ’s stated focus is on individual prosecutions as well as corporate resolutions. The pilot program continues this theme by emphasizing this point again (in fact, it is the first bullet in the discussion of what constitutes cooperation and is repeated multiple throughout the document). Additionally, cooperation requires a company not only to share information about third parties, but to facilitate the production of documents and witnesses from third parties. A company may not have complete information about third parties and, as a practical matter, may not have the ability to convince foreign persons and entities to voluntarily submit to requests from the DOJ. To meet these requirements, a company may have to expend significant resources and time to conduct a thorough internal investigation and ensure that its reporting to the DOJ is complete and comprehensive.
• Data privacy concerns: Cooperation also requires providing documents and information that reside outside of the United States. However, such documents and information may be subject to various non-US data privacy and/or employment laws. The guidance makes clear that if a company wants to assert data privacy laws as a defense to production, then the company bears the burden to show that disclosure is prohibited and that there is no available legal basis to provide the documents. Indeed, in her comments at the Compliance Week Conference in Washington, D.C., on May 19, 2015, Assistant Attorney General Leslie Caldwell suggested that the DOJ is growing frustrated with the perceived “unfounded reliance [on foreign data privacy] laws to justify withholding requested information.” This will likely require a company to engage local counsel that can properly advise on these laws, adding additional expense and time.
• Expanded assessment of compliance program and personnel: The pilot program provides DOJ with the ability to make numerous subjective assessments regarding a company’s compliance program and personnel. For example, DOJ will review the resources dedicated to the compliance program, the quality and experience of the compliance personnel, the independence of the compliance function, and how the compliance personnel are compensated and promoted. Companies address each of these issues uniquely and often in quite different ways. By relying on the DOJ to consistently and accurately assess these subjective issues, the pilot program effectively provides the DOJ a seat at the table when the company must make these business decisions. For example, companies operating principally outside of the United States, in less developed and developing regulatory jurisdictions, may find the compliance-related guidelines of the pilot program for “timely and appropriate remediation” to be challenging, particularly the expectations concerning qualifications, independence, culture and compensation. Against a backdrop of cost-containment in certain sectors, companies may find it difficult to resource and finance compliance programs to meet these expectations.
• International considerations: In common with its US counterparts, the UK Serious Fraud Office (“SFO”), also seeks to promote self-reporting, to encourage co-operation and to ensure that individuals are held to account. While the policy goals are aligned, the mechanisms available to UK and other international authorities are less developed in a number of ways. In February 2014, and following lengthy consultation (and criticism of the UK’s record on bringing corporates to account), a DPA framework was added to the armoury of UK prosecutors. Only recently, in December 2015, the SFO entered into its first DPA, with Standard Bank.3  Other jurisdictions including Australia and Canada are now considering the introduction of similar frameworks to facilitate enforcement against corporates. Given the current level of cooperation between US authorities and their international counterparts, including discussions relating to fines and sanctions acceptable to overseas regulators, companies operating internationally and seeking to take advantage of the DOJ’s pilot program will need to consider the potential impact in other jurisdictions and seek to coordinate its cooperation with regulators globally.