Investigations and White Collar Defense

Alert: DOJ Launches New FCPA Voluntary Disclosure Pilot Program

Why it matters: After several months of promising greater transparency relating to charging decisions for corporations that voluntarily disclose potential FCPA issues, on April 5, 2016, the Department of Justice announced the launch of a one-year Foreign Corrupt Practices Act (FCPA) pilot program intended to, among other things, motivate corporations to (1) "voluntarily self-disclose," (2) "fully cooperate" and (3) "timely and appropriately remediate." DOJ also provided written descriptions of those terms and outlined the maximum mitigation credit available to a corporation that adheres to them. The announcement of the program also included a notice that additional resources were being deployed by the DOJ to prosecute FCPA cases. While the pilot program is explicitly limited to cases investigated and prosecuted by the DOJ's FCPA Unit within the Fraud Section, it is possible that other sections within the DOJ and even other agencies may point to this program to measure corporate cooperation.

Detailed discussion: On April 5, 2016, Assistant Attorney General Leslie R. Caldwell announced the launch of a one-year pilot program intended to bring "transparency and accountability" to the Fraud Section's FCPA investigations by providing written guidance "for corporate resolutions in FCPA cases." The Guidance explains "what sort of credit [corporations] can receive for self-disclosure and cooperation with an investigation [which,] in turn, enables companies to make more rational decisions when they learn of foreign corrupt activity by their agents and employees."

The Guidance memorandum detailing the new FCPA pilot program begins by setting forth the Fraud Section's "enhanced FCPA enforcement strategy."

The first "and most important" step in the DOJ's enhanced FCPA enforcement strategy is "intensifying its investigative and prosecutorial efforts by substantially increasing its FCPA law enforcement resources." Specifically, the Fraud Section's FCPA Unit is adding 10 new prosecutors, the FBI is adding "three new squads of special agents devoted to FCPA investigations and prosecutions" and the DOJ is "strengthening its coordination with foreign counterparts in the effort to hold corrupt individuals and companies accountable."

After discussing the DOJ's increased FCPA enforcement resources, the Guidance memorandum notes that the pilot program's "principal goal" is to "promote greater accountability for individuals and companies that engage in corporate crime by motivating companies to voluntarily self-disclose FCPA-related misconduct, fully cooperate with the Fraud Section, and, where appropriate, remediate flaws in their controls and compliance programs." In this regard, the Guidance memorandum states that the pilot program is meant to build on the DOJ's September 9, 2015 "Yates Memo" that relayed the DOJ's renewed emphasis on holding individual wrongdoers accountable (this was the subject of a previous newsletter alert issued by us on September 21, 2015).

The memorandum states that the Guidance applies only to the Fraud Section's FCPA Unit and "not to any other part of the Fraud Section, the Criminal Division, the United States Attorneys' Offices, any other part of the Department of Justice, or any other agency." In addition, the memorandum states that the Guidance is not meant to supplant the Principles of Federal Prosecution of Business Organizations (USAM Principles) or the United States Sentencing Guidelines (Sentencing Guidelines), which still apply, but rather to "accord additional credit in FCPA matters" for corporations that meet the stated criteria. However, it is certainly possible that other components of the DOJ might look to the pilot program for guidance in interpreting the USAM Principles or Sentencing Guidelines. Here, we briefly summarize the requirements contained in the Guidance for a disclosing corporation to be eligible for mitigation credit.

"Voluntary self-disclosure": The Guidance first makes clear that disclosure that is required pursuant to "law, agreement or contract" will not be considered to be "voluntary self-disclosure" for these purposes. In other words, when a publicly traded company must disclose information in its financials, a voluntary disclosure to the DOJ of that same information will not qualify under the program. The Guidance then provides three requirements for establishing voluntary self-disclosure: (1) the disclosure occurred "prior to an imminent threat of disclosure or government investigation"; (2) the disclosure was made "'within a reasonably prompt time after becoming aware of the offense, with the burden being on the company to demonstrate timeliness"; and (3) the corporation disclosed "all relevant facts known to it, including all relevant facts about the individuals involved in the FCPA violation." The Guidance is unclear as to whether corporations will be given a reasonable period of time to at least preliminarily investigate allegations of FCPA violations in order to make such a voluntary self-disclosure.

"Full cooperation": The Guidance acknowledges that "[c]ooperation comes in many forms" and that, in general, "the Fraud Section should assess the scope, quantity, quality, and timing of cooperation based on the circumstances of each case." However, in order to qualify for full cooperation credit, the Guidance provides that a corporation is required to do each of the following (and the burden will be on the corporation to prove why it cannot in each instance): (1) disclose on a timely basis "all facts relevant to the wrongdoing at issue," including all facts "related to involvement in the criminal activity by the corporation's officers, employees or agents" (the Yates Memo on individual accountability is specifically referenced here); (2) provide relevant information before being asked to do so by the government; (3) preserve, collect and disclose all relevant documents, including information relating to their provenance; (4) provide timely updates on the status of a corporation's own internal investigation (including "rolling disclosures" of information); (5) if requested, "de-confliction" of the corporation's internal investigation with the DOJ's investigation; (6) provide all facts relevant to potential criminal conduct by third-party individuals or companies (including such companies' officers and employees); (7) make available on request for DOJ interviews all current or former corporate officers or employees that possess relevant information, including those that are located overseas (subject to the individuals' Fifth Amendment rights); (8) disclose all relevant facts gathered during the corporation's internal investigation, including, subject to attorney-client privilege, "attribution of facts to specific sources"; (9) disclose overseas documents, including the location where found and the person who found them (where disclosure is "impossible" under foreign law, the burden of proof will be on the corporation to establish such prohibition); (10) subject to foreign law, facilitate the third-party production of documents and witnesses from foreign jurisdictions; and (11) where "requested and appropriate," provide translations of relevant documents that are in foreign languages.

The Guidance specifically provides that eligibility for full cooperation credit is not "predicated upon waiver of the attorney-client privilege or work product protection and none of the requirements above require such waiver." The Guidance also acknowledges that not all corporations will satisfy all of the requirements for full cooperation, and that a corporation's failure to meet any of the requirements (and the validity of its justifications for such failure) will be factored into the total amount of mitigation credit given, as discussed below.

"Timely and appropriate remediation": The Guidance makes clear that, for a corporation to receive credit for remediation, prosecutors in the FCPA Unit must first determine that a corporation is eligible for cooperation credit under the Sentencing Guidelines. To receive credit for timely and appropriate remediation: (1) the corporation must implement a periodically updated "effective compliance and ethics program" that includes (a) the establishment of a "culture of compliance," (b) the dedication by the corporation of sufficient resources to the compliance function, (c) the hiring of experienced and qualified compliance personnel, (d) the compliance function retaining its independence, (e) the requirement that the compliance program perform an effective risk assessment and tailor the compliance program based on that assessment, (f) a procedure for establishing how compliance personnel are compensated and promoted vis à vis other employees, (g) an audit function to ensure the compliance program's effectiveness and (h) the establishment of a reporting structure for compliance personnel within the company; (2) the corporation must establish a procedure to appropriately discipline employees identified by the corporation as responsible for misconduct; and (3) the corporation takes "any additional steps" to demonstrate "recognition of the seriousness of the corporation's misconduct, acceptance of responsibility for it, and the implementation of measures to reduce the risk of repetition of such misconduct."

The Guidance next details the maximum mitigation credit under the Sentencing Guidelines to be given to corporations under the FCPA pilot program based on their meeting the stated criteria for voluntary self-disclosure, full cooperation and timely and appropriate remediation:

If all three elements are present: If voluntary self-disclosure, full cooperation and timely and appropriate remediation are all found, the corporation will qualify for the "full range of potential mitigation credit," including (a) up to a 50% reduction off the bottom of the Sentencing Guidelines fine range, and (b) no appointment of a monitor if, at the time of resolution, the corporation has implemented an effective compliance program. In addition, FCPA Unit prosecutors will consider a declination of prosecution, although to qualify for any mitigation credit the corporation will still be required to disgorge all profits from its FCPA misconduct—a requirement under any resolution. Note that the Guidance memorandum lists various specific factors—such as executive-level involvement in the violation—that will preclude a declination even when all the other elements of the program have been met.

If there is full cooperation and timely and appropriate remediation but NO voluntary self-disclosure: The FCPA Unit will consider granting limited mitigation credit, "at most" a 25% reduction off the bottom of the Sentencing Guidelines' fine range.

The memorandum provides that, at the end of the one-year pilot program, the Fraud Section "will determine whether the Guidance will be extended in duration and whether it should be modified in light of the pilot experience."

See here to read the DOJ's 4/5/16 press release announcing the new FCPA pilot program titled "Criminal Division Launches New FCPA Pilot Program."

See here to read the 4/5/16 memorandum titled "The Fraud Section's Foreign Corrupt Practices Act Enforcement Plan and Guidance."



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