fall 2017 today’s gener al counsel
Compliance
Self-Reporting FCPA Violations By Sarah Walters and Katrina Rogachevsky
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n April 2016, the Fraud Section of the U.S. Department of Justice’s Criminal Division introduced a Foreign Corrupt Practice Act (FCPA) pilot program, which was intended to be a one-year experiment to incentivize self-disclosure of potential FCPA violations. A look back at how the program was implemented provides valuable lessons for companies confronted with possible violations and the opportunity to develop best practices for responding. The program was rolled out in connection with the DOJ’s most recent
“Foreign Corrupt Practices Act Enforcement Plan and Guidance.” In addition to announcing the pilot program, the guidance detailed the DOJ’s efforts to intensify its FCPA enforcement by increasing law enforcement resources and building cooperation with foreign counterparts. The pilot program was developed to incentivize voluntary self-disclosure by laying out with particularity the rewards that come from self-disclosure, full cooperation with investigators and comprehensive remediation. Specifically, under the pilot program, if a company selfdiscloses and fully cooperates, the DOJ can decline prosecution or grant as much as a 50 percent reduction from the bottom of the fine range. By contrast, a company that cooperates but does not self-disclose can receive only up to a 25 percent reduction in the fine. In addition, the program provides that, in self-disclosure cases, a compliance monitor will not be required if an effective compliance program is in place by the time of resolution. The notion that self-disclosure, full cooperation and remediation results in a more favorable corporate resolution
is not new. However, the DOJ’s definitions of what these concepts mean and the public statements regarding likely outcomes — including a real possibility of declining prosecution — were more novel. REWARDS
The DOJ wanted the pilot program to work. FCPA investigations are complex and resource-intensive. The DOJ wants companies to self-disclose and cooperate with the investigation so that investigators can ferret out the fraud, reach resolution with the company and, where appropriate, prosecute individual wrongdoers. This is why the pilot program was put into place. Accordingly, during the first year of the program in particular, the DOJ was highly motivated to reward self-disclosures by declining prosecution. And that is exactly what happened. Between April 2016 and July 2017, nine companies reached resolutions for self-disclosed conduct; and seven of these received declinations. This represents a significant increase from the previous year when the DOJ issued only two declinations. The two companies that self-disclosed but did not receive declinations received significant discounts of 30 percent and 50 percent off the low end of the sentencing guidelines’ fine range. Disgorgement of the proceeds of the violation was a component of each of these declinations, although in four of the cases the DOJ deferred to the Securities and Exchange Commission for collection of the disgorgement payments. Notably, none of the companies that self-disclosed were required to engage a compliance monitor. Most of the companies that received declinations under the auspices of the pilot program appear to have self-reported before the program was in place. However, as the declination letters themselves make clear, the program’s existence played