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Amid Questions about the Benefits of Self-Disclosure and Cooperation, DOJ Proclaims that Pilot Program May Lead to “Significantly Different Outcome” in FCPA Investigations

V&E Foreign Corrupt Practices Act Update E-communication, April 7, 2016

By Amy L. Riella, Jessica S. Mussallem, and Jane Y. Lee

On April 5, 2016, in a nine-page document titled “The Fraud Section’s Foreign Corrupt Practices Enforcement Plan and Guidance” (hereinafter, “The Guidance”), the Department of Justice (DOJ) at once touted its enhanced prosecution and law enforcement capabilities for more effective enforcement of violations of the U.S. Foreign Corrupt Practices Act (FCPA), and announced a one-year pilot program designed to encourage companies to self-report and cooperate with investigations in exchange for the possibility of reduced fines and declinations above and beyond those available through the U.S. Sentencing Guidelines. The Guidance sets forth three steps being taken by the DOJ to enhance its FCPA enforcement capabilities and to motivate companies to self-disclose FCPA wrongdoing, cooperate with investigations launched by the Fraud Section, and remediate flaws in controls and compliance programs.

The first step involves the enhancement of the Department’s dedicated FCPA resources, while the second steps involves DOJ’s increased coordination with foreign law enforcement authorities, including sharing information such as leads, witnesses, and documents. These measures are hardly new. In November of last year, in remarks before the American Conference Institute’s 32nd Annual International Conference on the FCPA, Assistant Attorney General Leslie R. Caldwell announced that the DOJ was prepared to dedicate additional resources to FCPA prosecution, including doubling the number of FCPA Unit prosecutors. In addition, three new squads of agents were added to the Federal Bureau of Investigation’s International Corruption Unit. Caldwell explained that these additional resources will “make a substantial difference to our ability to bring high-impact cases and greatly enhance the department’s ability to root out significant economic corruption.”1 DOJ efforts towards increased cooperation with foreign law enforcement have already resulted in a number of high-profile global enforcement resolutions, including last year’s enforcement actions against Petrotiger’s two co-founders and former general counsel in which the DOJ acknowledged the receipt of significant assistance from Colombian enforcement authorities and agencies.

What is new is DOJ’s third step, a newly created pilot program intended to encourage companies to self-report potential FCPA violations and to voluntarily cooperate with the Department — a measure which stands in stark contrast to the dedication of significant resources to allow the DOJ and FBI to ferret out potential FCPA violations. The Guidance is intended to provide greater transparency on the DOJ’s expectations for companies seeking credit for self-disclosure, cooperation, and remediating any issues.

The pilot program allows companies that report early and cooperate with the DOJ’s investigation to receive up to a 50 percent reduction off the low end of the U.S. Sentencing Guidelines fine range. Such credit is in addition to any fine reduction available under the Sentencing Guidelines. Cooperating companies may also avoid the appointment of a monitor, so long as the company has implemented an effective compliance program at the time of resolution. Despite the possibility of reduced fines, the pilot program does not shield companies from having to disgorge profits resulting from FCPA violations.

In order to qualify for cooperation credit, however, companies must meet the DOJ’s stringent criteria. First, companies must voluntarily self-report a criminal violation of the FCPA within a reasonable period after discovering the wrongdoing. The Guidance does not provide a concrete period of time for self-reporting, stating instead that the burden is on the disclosing company to “demonstrate timeliness.” Rather than set out more clear guidelines, the Guidance provides that the Fraud Section will carefully assess the circumstances of the disclosure, withholding credit for any disclosure that a company is required to make by law, agreement, or contract.

In making any voluntary disclosure, companies are required to report all known relevant facts, including those related to the corporation’s officers, employees or agents. Building on DOJ initiative to hold individuals responsible for corporate wrongdoing, announced on September 9, 2015, in the now-famous “Yates Memorandum”, the pilot program conditions cooperation credit on companies disclosing all relevant facts about individuals involved in misconduct. The Guidance emphasizes the Department is looking for “[p]roactive cooperation, rather than reactive,” and will expect cooperating companies to provide timely updates about internal investigations, disclose relevant information and documents and making officers and employees available for interviews by the DOJ, including documents and individuals located overseas.

Finally, the Guidance provides that companies must make appropriate and timely remediation efforts, such as the implementation of a compliance and ethics program, the discipline of employees responsible for misconduct, and any additional steps that show the company’s recognition of the gravity of the wrongdoing, to secure additional mitigation credit. Buoyed by the Fraud Section’s hiring of Hui Chen as a full-time Compliance Counsel in November 2015, this final measure is intended to allow the Fraud Section to more effectively assess the effectiveness of a company’s remediation efforts. The Guidance cautions, however, that a company must cooperate with any DOJ investigation in order to receive credit for remediation efforts; remediation steps alone are insufficient to merit credit.

The Guidance includes a varying scale of cooperation credit depending on the circumstances of a company’s disclosure. Companies that do not voluntarily disclose FCPA violations, but later decide to cooperate, will qualify for limited credit if they make timely and appropriate remediation. Such credit will be significantly less than that afforded to companies that self-disclose. In some instances, the DOJ will consider a declination of prosecution, depending on several factors, such as the seriousness of the offense, whether the company’s executives have been involved in the wrongdoing, the history of non-compliance, and whether the company has had a prior resolution with the DOJ within the past five years.

The pilot program, which began on April 5, 2016, is intended to last one-year and applies to all FCPA matters being handled by the Fraud Section. DOJ will decide whether to extend or modify the program after the one year period, but the Guidance will continue to apply to companies that voluntarily self-disclose and cooperate during the one-year period, even if the program is not extended.

What This Means for You

The newly announced Guidance continues what has been a resounding DOJ drum beat proclaiming the vigor and significant resources with which the Fraud Section will pursue potential FCPA violators, and sends a message on the Department’s commitment to prosecute individuals who violate the FCPA. Although how the criteria for cooperation contained in the pilot program will be applied remains to be seen, the Guidance at a minimum signals the DOJ’s effort to provide greater transparency in its charging decisions by attempting to standardizing the benefits of cooperation and the criteria needed to receive them. As the pilot program is applied in the next year, we hope to gain a better and more consistent understanding of how the Department views circumstances surrounding a company’s decision to self-report and the scope and nature of its cooperation, and how the pilot program criteria will be applied in future enforcement.

For more information, please contact Vinson & Elkins lawyers Amy Riella or Jessica Mussallem. Visit our website to learn more about V&E's FCPA & Global Anti-Corruption and Government Investigations and White Collar Criminal Defense practices. 

1 Press Release, U.S. Department of Justice, Assistant Attorney General Leslie R. Caldwell Speaks at American Bar Association’s 30th Annual National Institute on White Collar Crime (Mar. 4, 2016), https://www.justice.gov/opa/speech/assistant-attorney-general-leslie-r-caldwell-speaks-american-bar-association-s-30th

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.