DOJ Pilot Program Measures Up in First Year: The tone is cooperative, but companies are warned to self-disclose

Monday, August 7, 2017 - 22:24

The Foreign Corrupt Practices Act’s antibribery provisions affect every U.S. company that transacts business internationally. The FCPA prohibits companies from corruptly offering money (or anything of value) to foreign officials in an effort to obtain or retain business. To minimize the risk of foreign bribery, it behooves company counsel to monitor FCPA enforcement trends and to ensure that front-line personnel are in the best possible position to recognize and report violations.

Recent trends suggest that the U.S. Department of Justice and the Securities and Exchange Commission will continue to expand FCPA enforcement. This past year, the Criminal Fraud Section of the DOJ more than doubled the number of prosecutors in its FCPA unit, and the Federal Bureau of Investigation added three new squads of special agents dedicated to bribery investigations. These measures coincide with federal law enforcement’s increased coordination with their foreign counterparts and a global crackdown on corruption.

The biggest news in FCPA enforcement came in April 2016, when the DOJ announced a one-year Pilot Program designed to “promote transparency and accountability” in FCPA prosecutions. Under the Pilot Program, companies have the option of self-disclosing and remediating FCPA violations in exchange for reduced fines and penalties and even declination of criminal prosecution. To receive mitigation credit, companies must self-disclose “within a reasonably prompt time after becoming aware of the offense” and “prior to an imminent threat of disclosure or government investigation.”

The burden of demonstrating timeliness rests with the company. Prosecutors consider whether the company made a full or partial disclosure (i.e., whether it laid out all the known relevant facts, or whether it spun, embellished or withheld information in an attempt to protect itself or one of its principals). Law enforcement also expects cooperation for the duration of the investigation and any resulting prosecution.

A significant aspect of this cooperation includes launching an internal investigation and implementing a corporate compliance program (or overhauling an apparently ineffective one). Because the resources available to conduct intensive internal investigations inevitably vary, the company bears the burden to demonstrate good faith and transparency based upon its financial condition and available resources. Also, the company must disgorge all profits gained from the misconduct. (Notably, however, the U.S. Supreme Court recently ruled in Kokesh v. Securities and Exchange Commission that the penalty of disgorgement is subject to a five-year statute of limitation. While Kokesh was not an FCPA enforcement action, the ruling is arguably applicable in those cases as well. This means that the government may only require disgorgement in cases where it initiated its prosecution within five years of the date the claim accrued.)

By all accounts, the first year of this Pilot Program was a success. In November 2016, Assistant Attorney General Leslie Caldwell said that, although exact numbers could not be provided, “anecdotally, we’ve seen an uptick in the number of companies coming in to voluntarily disclose potential FCPA violations.” The DOJ is officially reporting that the Pilot Program resulted in five declinations. However, commentators have identified 15 additional FCPA cases that were resolved without enforcement in 2016 and six more cases in the first few months of 2017. Although these “unofficial” declinations may be the result of lack of evidence or jurisdiction, these numbers are nevertheless unprecedented. The reported average number of declinations in prior years was around 10.

According to communications made public by the DOJ, the five reported Pilot Program declinations involved Nortek, Inc., Akamai Technologies, Inc., Johnston Controls, Inc., HMT, LLC and NCH Corporation. Each of these cases involved bribes paid in China or, in HMT’s case, China and Venezuela. Each of the companies made complete and prompt disclosure of the illicit conduct, cooperated fully with the investigation, terminated all culpable employees (including high-level executives), severed business relationships with the responsible subsidiary or foreign business, disgorged all profits obtained from the bribes and, in the Johnson Controls case, paid a civil fine.

In March 2017, the DOJ announced that the Pilot Program would remain intact for the foreseeable future. Although the tone of the Pilot Program is cooperative, the Fraud Section has warned that “[i]f a company opts not to self-disclose, it should do so understanding that in any eventual investigation that decision will result in a significantly different outcome …”

Companies would be wise to heed this warning and take advantage of the mitigation credit available. As Acting Assistant Attorney General Kenneth Blanco recently cautioned at the ABA’s annual White Collar Crime Conference in March, considering the growing multinational efforts at combatting corruption, there is “nowhere to run, baby, nowhere to hide.”