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By Patrick Egan and Ryan T. Becker
Patrick J. Egan, a partner at Fox Rothschild LLP, has more than 25 years of experience representing businesses, executives, professionals and other individuals in federal white-collar criminal defense matters and parallel civil actions. He can be reached at firstname.lastname@example.org.
Ryan T. Becker, an associate at Fox Rothschild LLP, advises clients in connection with federal investigations and commercial litigation matters and provides strategic counsel to businesses and individuals involved in civil and criminal proceedings, including violations of the Foreign Corrupt Practices Act. He can be reached at email@example.com.
On April 5, 2016, the U.S. Department of Justice (DOJ) announced a significant increase in its efforts to enforce the Foreign Corrupt Practices Act (FCPA). The DOJ's three-step plan increases personnel dedicated to investigating FCPA violations, fosters international cooperation and coordination in ongoing investigations, and further incentivizes companies to self-disclose FCPA issues.
The FCPA broadly prohibits U.S. businesses and persons from making payments to foreign officials in order to receive or retain business. After being sparingly used since it was signed into law in 1977, the past decade has shown that the DOJ and the Securities and Exchange Commission, which share enforcement responsibility for the law, have made FCPA enforcement a top priority. The government's efforts have led to large civil and criminal penalties for FCPA violations that should put all companies and their employees on notice that they need to carefully monitor their foreign operations for compliance. In an April 5 memorandum from Andrew Weissmann (the “April 5 DOJ Guidance”), Chief of the DOJ Criminal Division's Fraud Section, the DOJ specifically outlined its increased enforcement plan that will likely result in even more FCPA investigations and prosecutions—of both companies and individuals—in the future.
The DOJ's three-step enhanced enforcement plan is squarely aimed at ensuring a more robust targeting of potential misconduct covered by the law. The April 5 DOJ Guidance also strongly encourages a company's voluntary self-disclosure of FCPA violations, and clearly delineates what a company will have to do in order to obtain cooperation credit from the DOJ.
First, in a move the DOJ characterized as the “most important step in combatting FCPA violations,” the DOJ is significantly increasing the amount of personnel dedicated to investigating and enforcing the FCPA. The DOJ's Fraud Section is adding 10 more prosecutors to its FCPA unit, increasing its law enforcement resources there by 50 percent. The Federal Bureau of Investigation is also increasing its dedicated FCPA resources with the addition of three new dedicated squads of special agents. According to the DOJ, the new personnel should “send a message to wrongdoers that FCPA violations that might have gone uncovered in the past are now more likely to come to light.”
Second, the DOJ is stepping up its coordination with foreign law enforcement agencies in order to more effectively fight corruption on a global basis. The DOJ and its foreign counterparts are more effectively sharing leads and information and making it easier to share access to documents and witnesses across its borders.
Third, the DOJ announced a one-year pilot program designed to incentivize companies to self-report FCPA violations and fully cooperate with the department in order to become eligible for increased cooperation credit. This mitigation credit will only be available for companies that voluntarily self-disclose, fully cooperate in the specific manner the DOJ identifies in the April 5 DOJ Guidance, take appropriate remediation steps, and disgorge all profits resulting from the violations. At the end of the one-year period, the DOJ will evaluate whether to extend the life of the program, and whether to modify its terms in light of the lessons learned during the year.
In order to understand what the DOJ is now going to accept when it comes to cooperation with an FCPA investigation, it is important to understand the renewed focus the DOJ has placed on holding individuals accountable for corporate wrongdoing as reflected in a Sept. 9, 2015, memo from Deputy Attorney General Sally Quillian Yates (the “Yates Memo”). The Yates Memo is referenced numerous times throughout the DOJ's April 5 Guidance and therefore plays an integral part in the implementation of the pilot program.
Recognizing that a corporation does not act on its own but only through individuals, the Yates Memo makes clear that holding individuals involved in corporate wrongdoing accountable for their conduct is and should always be a main focus of DOJ attorneys in any criminal or civil investigation. The Yates Memo announces six steps the DOJ enacted in order to increase its efforts to hold individuals accountable:
The Yates Memo is a clear direction that the DOJ will be focused on bringing more cases against individuals, and companies facing the prospect of an FCPA investigation will have to act accordingly.
The April 5 DOJ Guidance sets forth how the DOJ will define what counts as a voluntary self-disclosure for purposes of a company's participation in the pilot program, with a particular focus on the circumstances surrounding a disclosure. First, a disclosure a company is required to make—whether by operation of law or contract, for example—does not count. Second, the DOJ requires that the disclosure be made: (1) prior to an imminent threat of disclosure or government investigation; (2) “within a reasonably prompt time after becoming aware of the offense”; and (3) in a way that ensures the company discloses all of the relevant facts it knows, including all facts related to individuals involved in the violation.
The April 5 DOJ Guidance explains that the Principles of Federal Prosecution of Business Organizations set forth in the U.S. Attorneys' Manual and the U.S. Sentencing Guidelines already provide that companies can get credit for self-disclosure, cooperation, and the installation of timely and effective remediation measures in the wake of discovering an FCPA violation. The pilot program, however, gives even more credit to companies that meet its established criteria.
In order to get full cooperation credit under the pilot program, the April 5 DOJ Guidance sets forth a series of additional cooperation steps a company must take:
The April 5 DOJ Guidance underscores that cooperation is case-specific and not all investigations are created equal—a small company is not expected to conduct as expansive of an investigation as a Fortune 100 company. An “appropriately tailored” investigation is what will typically receive full cooperation credit. Moreover, the DOJ reiterated that nothing in the April 5 DOJ Guidance or the Yates Memo requires waiver of the attorney-client privilege.
While acknowledging that “remediation can be difficult to ascertain and highly case specific,” the April 5 DOJ Guidance sets forth the benchmarks it will require a company to meet in order to get full credit under the pilot program:
If a company voluntarily self-discloses, fully cooperates, and takes timely and appropriate remediation steps, then it is eligible for full credit under the pilot program and can obtain additional reductions beyond any fine reduction set forth in the Sentencing Guidelines. In cases where criminal prosecution is being considered, the DOJ may give up to a 50 percent reduction off the bottom of the fine range established in the Sentencing Guidelines, and the company should be able to avoid having a monitor appointed as long as there is an effective compliance program in place. Critically, the DOJ will also consider declining to prosecute the company if it satisfies the above criteria.
The April 5 DOJ Guidance emphasizes the great weight the DOJ puts on voluntary disclosure by noting that a company that does not voluntarily disclose FCPA misconduct but later fully cooperates and timely remediates is available for substantially lower cooperation credit—the DOJ may only give the company at most a 25 percent reduction from the bottom of the Sentencing Guidelines range.
The release of the April 5 DOJ Guidance provides companies with valuable insight into DOJ charging decisions and what it expects companies to do when they uncover potential FCPA misconduct. Here are some key takeaways business leaders and in-house counsel should consider in managing FCPA risks:
FCPA enforcement efforts are here to stay, and in fact, the DOJ, now more than ever, is actively monitoring the marketplace to root out corruption. Putting in place systems to stop an FCPA problem before it starts is key to ensuring that while increased DOJ enforcement may trap other companies, your company will avoid the type of investigation and civil or criminal penalty that could cripple a business.
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