DOJ Launches FCPA Self-Reporting Pilot Program

Practical Law Legal Update w-001-8495 (Approx. 7 pages)

DOJ Launches FCPA Self-Reporting Pilot Program

by Practical Law Commercial Transactions and Practical Law Litigation

Pilot Program Requirements

The pilot program’s guidance supplements the rules set out in the Principles of Federal Prosecution of Business Organizations from the US Attorneys’ Manual (USAM Principles) and the US Sentencing Guidelines (Guidelines). In particular, the pilot program’s guidance explains how companies can:

Voluntarily disclose FCPA-related misconduct.
Fully cooperate.
Remediate flaws in their controls and compliance programs.

Voluntary Self-Disclosure

Self-disclosure must:

Occur before a government investigation or an imminent threat of disclosure.
Occur within a reasonably prompt time after the company becomes aware of the offense.
Provide all relevant facts, including relevant facts about the individuals involved in the wrongdoing.

A disclosure that is required by law, agreement, or contract is not considered voluntary.

Full Cooperation

To be considered full cooperation, in addition to complying with the USAM Principles, and Deputy Attorney General Sally Quillian Yates’s Memorandum on Individual Accountability for Corporate Wrongdoing (Yates Memo), a company must:

Make timely disclosures of all facts relevant to the violation. These disclosures should include how the company’s officers, employees, or agents are involved. Additionally, a company must:
- proactively offer facts and evidence without waiting for specific requests, including attribution to specific sources;
- preserve, collect, and disclose relevant documents on a rolling basis, including information about their origin;
- provide timely updates on the investigation; and
- make the company’s current and former employees, including those located overseas, available for interviews.
Disclose foreign and domestic third-party involvement. The company must:
- provide relevant facts of potential criminal conduct by all third-party companies and individuals;
- disclose documents residing overseas, except where prohibited by foreign law;
- facilitate third-party production of documents and witnesses from foreign jurisdictions, except where prohibited by foreign law; and
- provide translations of relevant documents in foreign languages where requested and appropriate.

For information on the directives in the Yates Memo and implications for counsel representing a company or an individual under investigation, see Article, Expert Q&A on the DOJ’s Yates Memo.

Timely and Appropriate Remediation

While the Fraud Section’s assessment of a company’s remediation efforts remains case-specific under the pilot program, timely and appropriate remediation generally includes:

The implementation of an effective, independent, and sufficiently resourced compliance program.
Appropriate discipline for the responsible employees and a system for disciplining others.
Additional steps to reduce the risk of future misconduct.

A company must be eligible for cooperation credit to receive credit for remediation.

Mitigation Credit Under the Pilot Program

If the Fraud Section determines that a criminal resolution is warranted, a company may receive:

Partial credit without voluntary self-disclosure. A company that does not voluntarily self-disclose, but later fully cooperates and remediates, may qualify for up to a 25% reduction off the bottom end of the applicable fine range under the Guidelines.
Full credit with voluntary self-disclosure. A company that voluntarily self-discloses and also fully cooperates and remediates:
- may qualify for up to a 50% reduction off the bottom end of the applicable fine range under the Guidelines; and
- generally should not require appointment of a monitor, because it should have an effective compliance program in place by the time the matter is resolved.

It is important to note that the Guidelines already provide a reduction for self-disclosure. Therefore, the initial Guidelines fine range for a company that self-discloses is lower than had it cooperated without voluntary disclosure. As a result, the difference between the maximum reduction for full credit versus partial credit is greater than 25% under identical circumstances.

In either scenario, the Fraud Section sets the Guidelines range, which is the starting point for calculating a reduction, after some negotiation with the company. The Guidelines range is based on a number of factual issues that are often in dispute. However, the government has greater bargaining leverage due to the threat of indictment.

Alternatively, the Fraud Section may consider declining to prosecute a company that fully and voluntarily self-discloses misconduct. In determining whether declination is appropriate, the Fraud Section considers countervailing interests, including the seriousness of the offense.

To qualify for any credit, companies must disgorge all profits from the FCPA-related misconduct. While the Fraud Section will likely credit companies for disgorgement paid elsewhere, it is unlikely to credit a company for fines or penalties paid to other prosecutors or regulators.

Practical Implications

Perhaps the most significant takeaway from the pilot program’s guidance is that the DOJ has increased its FCPA unit by 50%. Specifically, the DOJ added ten prosecutors and the FBI created three new squads solely dedicated to FCPA investigations and prosecutions. The DOJ’s investment in its law enforcement resources demonstrates its commitment to detecting and prosecuting wrongdoers, and is likely to increase the number of cases it brings.

Despite the stated objectives of encouraging voluntary disclosure and increasing transparency, the pilot program and related guidance do not provide much certainty, and companies likely will struggle to decide whether to self-disclose. This is in part because:

It is unclear how the Fraud Section will execute the pilot program. The Fraud Section has considerable discretion in at least two ways. First, the Fraud Section can shape the initial Guidelines range to attain a particular fine after the reduction for voluntary disclosure or cooperation. Second, the pilot program provides that the Fraud Section may give a company “up to” either a 25% or 50% reduction. Significantly, there is no minimum reduction for self-disclosure or cooperation. Therefore, the Fraud Section retains discretion to provide a reduction anywhere from 1% to the maximum, without any guidance on how it will make this determination. Similarly, companies can take little comfort in ambiguous language indicating that companies that meet all of the pilot program’s requirements “generally” should not need a monitor, or that the Fraud Section will “consider” declining prosecution of these companies. Declinations will likely be used only in rare cases.

There is no possibility of leniency for individuals. Consistent with the emphasis on individual accountability in the Yates Memo, the pilot program requires a company to identify the employees responsible for the wrongdoing and provide supporting information. The threat of the Fraud Section prosecuting individuals with the company’s assistance may cause employees to be uncooperative, preventing the company from meeting the pilot program’s cooperation requirements.

In light of these issues, it is crucial for companies to carefully weigh the costs and benefits of disclosure against non-disclosure, including the likelihood that the Fraud Section will uncover the misconduct on its own. To best position itself to make this assessment, a company should establish a robust compliance program to both deter and identify any FCPA violations. A strong compliance program includes, for example:

A chief compliance officer with the authority necessary to execute an effective program, including:
- direct access to the board of directors; and
- unencumbered access to all company operations.
Experienced compliance personnel, who have sufficient independence to prevent and identify misconduct.
Appropriate internal controls.
A clear code of conduct and compliance policies.
Ample resources, including a separate budget for the compliance department.
Compensation for compliance personnel commensurate with their importance and the size of the company.
Regular audits of the program.
Periodic trainings.
Administration of appropriate disciplinary measures.

For more information on creating, implementing, and maintaining a robust compliance program, see Practice Note, Developing a Legal Compliance Program.

DOJ Launches FCPA Self-Reporting Pilot Program | Practical Law