Recent DOJ Prosecution Declination Supports Its Promise of Leniency for Self-Reporting Violations Even When “Bags of Money” are Involved
A recurring question of general counsel and chief compliance officers is whether their proactive investments in compliance programs, voluntary self-disclosure of issues, and cooperation will be meaningfully rewarded. For too many years, enforcement agencies provided vocal encouragement in speeches but would not commit themselves in their policies or provide meaningful rewards in resolutions. Starting with the FCPA Pilot Program, the Department of Justice (“DOJ”) began making more concrete commitments, but prudent companies have been watching case resolutions very carefully to see if enforcers will follow through. The most probative evidence of true policy commitment are the resolutions in cases where the facts are most egregious and prosecutorial restraint is more difficult. In a number of cases in the past two years, the DOJ has exercised that restraint as a reward for disclosure, cooperation, and compliance program investments. A declination resolution this month has provided another important marker of whether companies can have confidence in DOJ’s stated policy even in the face of historically challenging facts.
On August 6, 2020, the DOJ issued a clean declination letter to World Acceptance Corporation (“WAC”), a South Carolina-based consumer loan company, but explicitly withheld protection against prosecution of individuals.1 WAC agreed to pay $21.7 million to the Securities and Exchange Commission (“SEC”) in disgorgement, prejudgment interest, and civil penalties.2 WAC faced allegations of widespread bribery stemming from actions of its Mexican subsidiary as well as senior executives retaliating against internal compliance personnel.
WAC reflects the type of egregious conduct that historically would have resulted in criminal charges against the company. From at least December 2010 to June 2017, executives of WAC’s former wholly owned subsidiary, WAC Mexico, allegedly paid about $4.1 million in bribes to Mexican government officials and union officials to obtain and retain customers for its business of offering small loans to state and federal government employees.3 WAC Mexico hired third-party intermediaries to assist in making ongoing bribe payments by depositing money into bank accounts of friends of Mexican officials and even flying to various municipalities with large bags of cash to pay officials directly.4
Among the facts that could have previously undermined a declination, in October 2015, the Vice President of Internal Audit raised compliance concerns regarding the lack of internal auditing controls at WAC Mexico, and was summarily fired by WAC’s CEO at the time. The CEO combined the audit and compliance functions into one department under a new VP and pressured that VP to become more “bare-bones” and reduce staffing.5 In November 2016, this new VP of internal audit and compliance voiced concerns, but the then-CEO terminated her as well.6
In March 2017, these bribery allegations came to light leading WAC’s management and its independent audit firm to report on its Form 10-K material weaknesses in WAC’s Internal Control over Financial Reporting. WAC promptly undertook measures to fully cooperate with the U.S. government investigation, such as facilitating witnesses traveling from Mexico to the U.S. for interviews. WAC further conducted far-reaching remedial efforts by terminating the senior vice president of WAC Mexico, and WAC’s CEO and general counsel. Lastly, WAC divested itself of its Mexican subsidiary effective July 1, 2018.7
The DOJ declined to prosecute based on an assessment of factors such as: (1) WAC’s voluntary and prompt self-disclosure of misconduct, (2) WAC’s proactive cooperation, (3) the nature and seriousness of the offense, (4) WAC’s full remediation, including WAC’s implementation of FCPA training, termination of involved executives and severing of third-party relationships in Mexico, and (5) WAC’s decision to disgorge its ill-gotten gains to the SEC.8
The DOJ’s decision to decline prosecution of WAC, even in the face of flagrant violations of the FCPA involving bribery by senior management, demonstrates the DOJ’s commitment to decline prosecution where violators are forthright and proactive in their cooperation. This approach was outlined in 2018 by then-Assistant Attorney General Matthew Miner, when he stated that companies are eligible for a declination of prosecution if they promptly report misconduct, fully cooperate with the Department, and enact effective remedial measures, subject to disgorgement of ill-gotten gains.9 The WAC case provides another important data point as to whether the DOJ takes this commitment seriously. Although the DOJ has previously declined to prosecute, even where bribery involving senior management was involved, the WAC case appears to be the first such declination where managers blatantly paid bribes with “bags of cash” and senior executives frustrated attempts at internal gatekeeping and retaliated against compliance managers.
The question of whether to pursue a voluntary disclosure of a detected issue in a particular circumstance is very situation specific. Companies need to consider the likely response of not only the DOJ, but also the SEC and other domestic and foreign enforcement agencies that are not all aligned with DOJ policy. However, it must be recognized that the DOJ has demonstrated good execution discipline over the past two years in aligning its resolutions with its stated policy to meaningfully reward companies who self-disclose, cooperate and/or make significant proactive and responsive compliance investments.
1 See Letter from Robert Zink, Chief, Fraud Sec., Crim. Div., U.S. Dep’t of Justice. to Mark E. Schamel et al., Womble Bond Dickinson LLP, (Aug. 5, 2020), available at https://www.justice.gov/criminal-fraud/file/1301826/download.
2 Order Instituting Cease-and-Desist Proceedings, Exchange Act Release No. 89489, 1-2 (Aug. 6, 2020), available at https://www.sec.gov/litigation/admin/2020/34-89489.pdf.
8 See Letter from Robert Zink to Mark E. Schamel, supra note 1.
9 Press Release, U.S. Dep’t of Justice, Deputy Assistant Attorney General Matthew S. Miner Remarks at the American Conference Institute 9th Global Forum on Anti-Corruption Compliance in High Risk Markets (July 25, 2018), available at https://www.justice.gov/opa/pr/deputy-assistant-attorney-general-matthew-s-miner-remarks-american-conference-institute-9th.
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.