DOJ Introduces Self-Reporting Incentives for Foreign Bribes

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By Dana A. Elfin

April 5 — The Justice Department announced April 5 that it's beginning a one-year pilot program to encourage companies, including health-care companies that sell products abroad, to self-report violations of the Foreign Corrupt Practices Act.

The FCPA, which covers companies that list their securities in the U.S., prohibits offering or paying bribes to foreign government officials at any level of government. The DOJ enforces the statute along with the Securities and Exchange Commission.

The new program is designed to incentivize companies to “come to us earlier than they do now,” Assistant Attorney General Leslie Caldwell, who heads DOJ's Criminal Division, said in a conference call with reporters. Currently, she said, many FCPA violations never even come to the government's attention .

The pilot program's incentives for companies who self-disclose before they're caught include significantly lower penalties of as much as 50 percent below the federal sentencing guidelines for criminal cases, avoiding appointment of a corporate monitor or even the DOJ declining to prosecute the self-reported violation, DOJ officials said.

The guidelines make a “clear distinction between voluntary self-disclosure versus companies that may decide they want to wait until after they're caught and then cooperate,” Andrew Weissmann, chief of the fraud section at the DOJ's Criminal Division, said.

“If a company opts not to self-report, the pilot program makes it clear that the outcome will be significantly different and significantly more severe than if it had self-reported,” Caldwell said.

The DOJ predicts the increased FCPA resources will increase the number of prosecutions.

The DOJ said it will assess the pilot program after a year. It also announced that it was beefing up its resources in the FCPA area, including hiring 10 new prosecutors devoted solely to foreign corruption cases and adding three new squads in the overseas corruption area at the Federal Bureau of Investigation. “Given our increased resources, we will increase the number of prosecutions” in the FCPA area, Caldwell predicted.

Attorney Tim Purdon, a former U.S. attorney, told Bloomberg BNA, “More agents and more prosecutors mean more cases.” Purdon, with the firm of Robins Kaplan in Bismarck, N.D., and a former U.S. attorney for North Dakota, said, “There is no question that this is not business as usual. The key fact here is the dedication of new resources in the form of a 50 percent increase in the number of prosecutors” and the establishment of three new FBI squads devoted to FCPA investigations.

The plan sets forth “a clear DOJ leadership direction to work with foreign counterparts and mutually share information, including documents and witnesses,” attorney Katie McDermott, of Morgan, Lewis & Bockius LLP's Washington office, told Bloomberg BNA in an April 5 e-mail.

“If this direction is successful, it will assure expedited investigations but also potentially more complicated settlements that will involve many stakeholders, not simply DOJ,” she said, adding that many countries have their own anti-bribery statutes that will be affected in parallel investigations. McDermott is a former DOJ official.

Focus on Life Sciences

For life sciences companies, the DOJ's new guidance and increased transparency in the self-disclosure area will help them better navigate the often murky FCPA waters, health-care fraud attorneys told Bloomberg BNA.

“The pilot program is a positive step by having a publicly articulated benefit,” Kirk Ogrosky, with Arnold & Porter LLP in Washington and a former DOJ official, told Bloomberg BNA April 5.

McDermott said the new plan provides “a very clear and thought-out strategy of providing incentives for voluntary self-disclosure if defined mandates are met, including requiring companies to arrange interviews of its officers and employees here and abroad.”

Guidance is likely welcome because the government has already been scrutinizing pharmaceutical and medical device companies for FCPA violations and other potential corruption in connection with the sales and marketing of their products overseas, particularly in emerging markets.

“This is a high-risk area for pharmaceutical and device companies, particularly those who operate [in countries] where the risk is higher,” Stephen G. Sozio, of Jones Day in Cleveland, told Bloomberg BNA in an April 5 telephone call.

“There was a real question in the mind of industry and in the mind of those who advise industry clients in terms of whether there was a discernible benefit from self-disclosure,” Sozio, a former DOJ official, said. “This makes clear there is a discernible benefit.”

“Because this is a risk for them, any program that the government comes up with that formalizes the benefit of self-disclosure and makes it transparent as to what benefit can be obtained and what is expected to obtain that benefit is a good thing for the industry,” he added.

Jacqueline Wolff of Manatt, Phelps & Phillips LLP's New York office and a former DOJ official, told Bloomberg BNA April 5 that the DOJ's goal of “providing greater transparency on charging decisions for companies is laudable.”

But Wolff said some of the program's aspects could actually lead to fewer companies self-disclosing.

These aspects include capping how much penalties can be reduced by, adding restrictions on overseas interviews of employees and requiring companies to prove that “overseas” legal restrictions prevent them from completing some of the required tasks under the program.

“Time will tell,” Wolff said.

Attorney Advises Caution

But Ogrosky advised companies to look before they leap because prosecutors and agents still have wide discretion in FCPA cases. “Even with the newly announced pilot program, I would caution against running to DOJ without a complete understanding of the issues,” he said.

“While a 50 percent decrease in the penalty coupled with no monitor is promising, the decision to disclose still requires stepping into an arena where a company subjects itself to the discretion of the prosecutor and agents handing the matter,” he said.

“While it seems intuitive that those who self-disclose would receive better treatment, the fact remains that there is a remarkable amount of variability in the justice system,” Ogrosky said. “Everyone should understand how DOJ has treated those who self-disclosed versus those who did not, and current public information makes it difficult to assess.”

“Factors such as the completeness of the disclosure, the level of required follow-up, and the seriousness of the underlying conduct will still take center stage,” Ogrosky said. “Without full transparency, the program may not have the desired impact.”

Corporate Self-Policing Inadequate?

Meanwhile, Robert Weissman, president of the Washington-based consumer group Public Citizen, criticized the new program as a “step back.”

Corporate self-policing has a dismal track record, Weissman told Bloomberg BNA in an April 5 telephone interview. “The premise of the DOJ's pilot program is ‘If you come clean, we won't prosecute you on the premise that you won't break the law in the future,'” he said. “Yet they do it anyway, all the time.”

In the pharmaceutical industry, he said, the industry's business and pricing models create “the climate for corruption. As that model is exported overseas, there's a lot of reason to anticipate more pervasive bribery.”

“To the extent companies are looking at emerging markets as areas for their growth potential, there's good reason to be worried about unethical behavior as they try to expand and gain market share,” he added.

“We need more enforcement and tougher penalties, not less enforcement and weaker penalties,” Weissman said.

McDermott was more hopeful about the program. She said that DOJ's new FCPA plan mirrors a successful 1997 Health Care Fraud Program that required agency coordination of remedies and information and enhanced resources for investigations, and included incentives for voluntary self-disclosure and government guidance on compliance and anti-fraud prevention.

This model has been successful for the government’s health-care fraud enforcement priorities, McDermott said. The DOJ is likely “expecting similar success on an international scale, especially with self-disclosures, for FCPA enforcement,” she added.

To contact the reporter on this story: Dana A. Elfin in Washington at delfin@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com

For More Information

DOJ's enforcement plan and guidance is available at https://www.justice.gov/opa/file/838386/download.

A DOJ blog post about the program is at https://www.justice.gov/opa/blog/criminal-division-launches-new-fcpa-pilot-program.