Justice Department Launches FCPA Self-Reporting Pilot Program, Daily Business Review

Reprinted with permission from the July 6, 2016 edition of Daily Business Review© 2016 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 - reprints@alm.com.

The U.S. Department of Justice, through its Yates memo issued last September, detailed the DOJ's all-or-nothing position on corporate cooperation credit and the prosecution of individual corporate wrongdoers.

Although the memo largely codified what had long been DOJ practice in Foreign Corrupt Practices Act cases, it was near universally regarded by defense counsel and companies as creating a chilling effect on self-disclosures in FCPA cases. Indeed, there has been a growing perception that voluntary disclosures have slowed significantly due to a lack of transparency and consistency with regard to the purported benefits of self-disclosure.

On April 5, the DOJ made a dramatic policy announcement intended to thaw that chilling effect. Through its Foreign Corrupt Practices Act enforcement plan and guidance, the DOJ announced a one-year FCPA pilot program encouraging companies to self-report violations.

Under the program, companies will provide extensive cooperation in exchange for mitigation credit in the form of reduced penalties, ranging from reductions in fines to declinations and the potential avoidance of a compliance monitor.

The credit will be based on three essential factors: voluntary disclosure, full cooperation and remediation. In cases in which the three factors are met but a criminal resolution is nonetheless warranted, the mitigation credit can include "up to a 50 percent reduction off the bottom end of the sentencing guidelines fine range, if a fine is sought," and the avoidance of a third-party compliance monitor.

Moreover, in appropriate cases, where the factors are fully satisfied, the DOJ "will consider a declination of prosecution."

Self-Disclosure

A company must voluntarily disclose an FCPA violation to the DOJ's fraud section in order to be eligible for full mitigation credit. First, the disclosure must be truly voluntary — a disclosure that the "company is required to make by law, agreement or contract" would not constitute voluntary self-disclosure for purposes of this pilot.

Second, the disclosure must occur "prior to an imminent threat of disclosure or government investigation" and be "within a reasonably prompt time after becoming aware of the offense" with the burden on the discloser to demonstrate timeliness.

Third, the disclosure must include "all relevant facts known to [the company], including all relevant facts about the individuals involved in any FCPA violation."

Full Cooperation

The DOJ guidance also sets forth requirements for companies seeking cooperation credit under the pilot program that can be distilled into the following categories:

• Timely disclosure of relevant facts: This includes "all facts related to involvement in the criminal activity by the corporation's officers, employees or agents" and "potential criminal conduct" by all third parties. In addition, disclosures must include "all relevant facts gathered during a company's independent investigation."
• Preservation and disclosure of documents: All relevant documents — as well as "information related to their provenance" — are expected to be collected, preserved and disclosed. This includes overseas and third-party documents and important details about those records, such as their location and the individuals who discovered them.
• Making individuals available for interviews: This applies to current and former "company officers and employees who possess relevant information," regardless of where they are located.
• Conducting transparent and coordinated internal investigations: Companies must provide timely updates about their internal investigations and, where requested, ensure that such investigations do not conflict with those being conducted by the government.

Remediation

The following generally will be required for companies to receive remediation credit:

• Implementation of an independent and effective compliance program: This is defined to include a culture of compliance; sufficient compliance resources and appropriately trained and compensated compliance personnel; and effective risk assessment, reporting and auditing functions.
• Accepting responsibility for misconduct: This includes disciplining employees and those with oversight of the responsible individuals as well as implementing reforms to identify and reduce the risk of similar violations.

In any declination of prosecution based on these factors, prosecutors will balance the importance of encouraging disclosure against the seriousness of the offense. This assessment will depend on involvement of executive management, the magnitude of the ill-gotten gains in relation to company revenue and any history of noncompliance including prior resolutions with the DOJ within the past five years.

Whether the new FCPA pilot program is effective at thawing the chilling effect of Yates and encouraging self-disclosures will likely depend on how fairly and transparently the DOJ is perceived to be applying its guidance criteria to companies hoping for mitigation credit. Companies and defense counsel will be paying close attention to the details of forthcoming resolutions that fall within the FCPA pilot program.