On November 29, 2017, Deputy Attorney General Rod Rosenstein announced a new U.S. Department of Justice (DOJ) enforcement policy guiding when business entities subject to the Foreign Corrupt Practices Act (FCPA) can avoid criminal charges for conduct violative of the FCPA. See United States Attorney’s Manual (USAM) Insert § 9-47.120. Most significantly, the policy includes a presumption that the government will decline to prosecute business organizations that meet the DOJ’s standards of "voluntary self-disclosure," "full cooperation," and "timely and appropriate remediation." This presumption will be overcome if "aggravating circumstances" exist involving the seriousness of the offense or the nature of the offender. If the DOJ determines that aggravating circumstances do exist warranting criminal prosecution for a company that nevertheless has voluntarily disclosed the wrongdoing, fully cooperated, and timely and appropriately remediated, the new policy (a) requires the government to recommend to the sentencing judge a 50 percent reduction off the low-end of the U.S. Sentencing Guidelines fine range (except in the case of a criminal recidivist) and (b) generally will not require the appointment of an independent monitor if the company has implemented an effective compliance program. The policy further provides that if a company did not voluntarily disclose its misconduct to the DOJ but later fully cooperated and timely and appropriately remediated the misconduct, the government will recommend a 25 percent reduction off the low-end of the Guidelines fine range.

Additional details follow.

• The FCPA Pilot Program Provided the Context for the New Policy.

  • On April 5, 2016, the DOJ announced an FCPA pilot program designed to test whether formalizing the DOJ’s practice of rewarding voluntary disclosure, cooperation, and remediation with penalty reductions would incentivize business organizations to voluntarily disclose corporate wrongdoing. This empirically proved to be true, as the FCPA Unit at the DOJ received 30 voluntary disclosures during the 18-month pilot program compared to 18 during the previous 18-month period. In many ways, the new policy is very similar to the pilot program in that the pilot program gave organizations the possibility of avoiding an FCPA prosecution if they self-reported the misconduct, cooperated, and remediated. Unlike the new policy, however, the pilot program (a) did not contain the presumption for a declination if the company took those steps, (b) required a company to accede to the DOJ’s de-confliction requests (e.g., asking the company’s legal team to hold off interviewing certain individuals and letting the government go first) without limit; and (c) rejected cooperation credit for disclosures that were otherwise required by law.

• Voluntary Self-Disclosure Under the New Policy.

  • Definition: The new policy defines voluntary self-disclosure as follows: the disclosure (a) must occur prior to an imminent threat of disclosure or government investigation, (b) must occur within a reasonably prompt time after the company becomes aware of the offense, and (c) must include all relevant facts the company knows, including all relevant facts about all individuals involved in violating the law.

  • Comment: The self-disclosure must truly be voluntary. For example, it cannot be in reaction to a whistleblower threatening to go public. Moreover, the policy explicitly places the burden of proving timeliness of the disclosure on the company, meaning that the company will need to reveal when it first became aware of the conduct and make the disclosure within a reasonable period thereafter. The new policy appears to indicate that the FCPA unit determines whether the company made the disclosure within a reasonable period of time after learning of the misconduct. Indeed, Deputy Attorney General Rosenstein indicated as much in announcing the new policy, observing that prosecutors will still enjoy discretion in how they prosecute FCPA cases. Thus, there could be situations where a company must face the decision whether to make a disclosure before it has completed a full investigation, meaning that a company could potentially make a disclosure only to learn later that aggravating circumstances exist that would disqualify the company from receiving a declination. This could create tension between a director or officer, on the one hand, who wants to know all of the facts and legal implications before deciding whether to self-report, and a government attorney, on the other hand, who expects a disclosure not long after the company learns of an issue. Finally, the new policy mirrors the requirements set forth in the Yates Memorandum that the self-disclosure include all relevant facts about individuals involved in the violation.

• Full Cooperation Under the New Policy.

  • Principles of Federal Prosecution of Business Organizations: The new policy specifically incorporates the provisions contained in the Principles of Federal Prosecution of Business Organization ("the Principles") set forth in the USAM, see USAM § 9-28.000, as a requirement of full cooperation. Under those Principles, the company must identify all individuals involved in the misconduct at issue, regardless of position, status, or seniority, and disclose to the DOJ all facts relating to the misconduct. Notably, the company is not required to waive the attorney-client privilege or attorney work product protection.

• Full Cooperation Definition in the New Policy:

  • In addition to the Principles, the new policy defines full cooperation in FCPA matters as requiring:

• • disclosure on a timely basis of all facts relevant to the misconduct at issue, including all facts gathered during an internal investigation

  • attribution of facts to specific sources rather than providing only a general narrative of the facts

  • providing timely updates on a company’s internal investigation, including making rolling disclosures of information to the DOJ

  • disclosure of all facts related to involvement in the criminal activity by the company’s officers, employees, or agents; and all facts related to potential criminal conduct by third parties (including their officers, employees, or agents) if known or that become known to the company

  • proactive rather than reactive cooperation – meaning disclosure of facts and evidence to the DOJ on a timely basis, even when not specifically asked to do so by the government

  • timely preservation, collection, and disclosure of relevant documents, including documents located overseas

  • refraining from interviewing witnesses (including the company’s own employees) where requested to do so by the government (i.e., de-confliction)

  • making available for interview by the government current officers, employees, and agents; and where appropriate and possible former officers, employees, and agents, and officers, employees, and agents located overseas

  • facilitating the production of third-party witnesses where possible.

  • Comment: With respect to de-confliction, the new policy states that the prosecutor’s request of the company to stand down from interviewing witnesses and letting the government go first must be for "a limited period of time and will be narrowly tailored to a legitimate investigative purpose. " The new policy also anticipates a company’s claim that its financial condition impairs its ability to cooperate more fully. In those circumstances, the new policy places the burden on the company to provide factual support for such an assertion. Moreover, the new policy explains that the DOJ will closely evaluate the validity of a company’s claim of impossibility and take that into consideration when determining whether a company has fully cooperated.

As noted previously, the benefits of a declination under the new policy only extend to situations where no aggravating circumstances are present. The new policy provides a non-exhaustive list of what may constitute aggravating circumstances: (a) the involvement of the company’s executive management in the wrongdoing, (b) the company making a significant profit from the misconduct, (c) the pervasiveness of the misconduct within the company, and (d) criminal recidivism.

• Timely and Appropriate Remediation Under the New Policy.

  • Definition: The new policy defines Timely and Appropriate Remediation as including: (a) the company engaging in a root-cause analysis of the criminal conduct and taking steps to address the cause(s); (b) implementing an effective compliance and ethics program; (c) disciplining the employees who engaged in the misconduct and their supervisors, or employees who failed in overseeing the employees who committed the underlying criminal conduct; and (d) retaining business records and prohibiting the destruction or deletion of business records.

  • Comment: To receive credit under the new policy, a company cannot merely spot the misconduct and disclose it to the government. Instead, the company must also demonstrate that it has fixed the problem. Indeed, the policy states as much: "In order for a company to receive full credit for remediation and avail itself of the benefits of the FCPA Corporate Enforcement Policy, the company must have effectively remediated at the time of the resolution."

  • With respect to implementing an effective compliance and ethics program, the new policy provides a non-exhaustive set of criteria for such a program. The criteria include:

    • The company’s culture of compliance, including awareness among employees that any criminal conduct, including the conduct underlying the investigation, will not be tolerated

    • The resources the company has dedicated to compliance

    • The quality and experience of the personnel involved in compliance so that they can understand and identify the transaction and activities that pose a potential risk

    • The authority and independence of the compliance function and the availability of compliance expertise to the board

    • The effectiveness of the company’s risk assessment and the manner in which the company’s compliance program has been tailored to conform to that risk assessment

    • The compensation and promotion of compliance personnel, in view of their role, responsibilities, performance, and other appropriate factors

    • The auditing of the compliance program to assure its effectiveness

    • The reporting structure of any compliance personnel employed or contracted by the company.

  • With respect to retention of business records, the new policy makes clear that companies cannot use "software that generates but does not appropriately retain business records or communications." Thus, a company would be wise to prohibit its employees from using text messaging and the like to conduct company business given the easy spoliation of such business records.

  • Finally, in order to qualify for credit under the new policy, the company will also be required to pay all disgorgement, forfeiture, and/or restitution resulting from the misconduct at issue. This can be satisfied by a parallel resolution with a relevant regulator (e.g., the United States Securities and Exchange Commission). In the absence of such a parallel regulatory action, the company will likely have to demonstrate that it has satisfactorily disgorged its benefit from the misconduct, forfeited its windfall, and/or made restitution for the violations. 

  • Aggravating Circumstances

• As noted previously, the benefits of a declination under the new policy only extend to situations where no aggravating circumstances are present. The new policy provides a non-exhaustive list of what may constitute aggravating circumstances: (a) the involvement of the company’s executive management in the wrongdoing, (b) the company making a significant profit from the misconduct, (c) the pervasiveness of the misconduct within the company, and (d) criminal recidivism.