It could be said that reports of the death of the Foreign Corrupt Practices Act (FCPA) have been greatly exaggerated. In particular, 2018 saw continued vigour in FCPA enforcement against companies and individuals, with more than 30 individuals prosecuted and close to $3 billion in fines and penalties assessed against 16 companies by the Department of Justice (DOJ) and the Security and Exchange Commission (SEC). The DOJ in particular continued to ring the clarion call for cooperation and sought to provide some measure of certainty, consistency and coordination regarding the incentives offered to companies that provide voluntary disclosures.
This article discusses each of the new policy initiatives announced by the DOJ in 2018, how the DOJ implemented these policies and what lies ahead in 2019.
Much of the coordination came through the centralisation of guidance memoranda into what is now known as the Justice Manual. More than 65 years ago, President Truman's Attorney General Herbert Brownell created the Executive Office for United States Attorneys (EOUSA).(1) Among other duties, the EOUSA publishes the US Attorneys' Manual, which provides internal guidance for US attorneys' offices and other DOJ organisational units concerned with litigation.(2) In 2019, for the first time in 20 years, the Justice Manual, as it is now known, was comprehensively revised and renamed. As Deputy Attorney General Rod Rosenstein put it:
This was truly a Department-wide effort, involving hundreds of employees collaborating from many different Department components. To mark this significant undertaking, and to emphasize that the Manual applies beyond the United States Attorneys' Offices, we have renamed it the Justice Manual. Though the name has changed, the Manual will continue as a valuable means of improving efficiency, promoting consistency, and ensuring that applicable Department policies remain readily available to all employees as they carry out the Department's vital mission.
The previous versions of the manual were sorely in need of a rewrite. By 2017 much of the manual no longer reflected current law or department practice. In the DOJ's view, this diminished the manual's effectiveness as an internal department resource and reduced its value as a source of transparency and accountability for the public. To bring the manual up to date, DOJ attorneys undertook a year-long, top-to-bottom review. The DOJ's goals were to identify redundancies, clarify ambiguities, eliminate surplus language and update the manual to reflect current law and practice.
Some specific changes include expanding the principles of federal prosecution to incorporate current charging and sentencing policies and adding new policies on religious liberty litigation, third-party settlement payments and disclosure of foreign influence operations. Other policy changes, more directly relevant to FCPA enforcement, are explored below. Although these policies are discussed in the FCPA context, they apply more broadly to the DOJ's enforcement decisions under other statutes.
FCPA Corporate Enforcement Policy
In November 2017 the DOJ formalised the FCPA Pilot Programme by adopting the FCPA Corporate Enforcement Policy and incorporating it into the manual. Under the FCPA Corporate Enforcement Policy, a company receives a presumption of declination of criminal prosecution and 50% off the low end of the guidelines range if:
- the voluntary disclosure qualifies under US Sentencing Guidelines § 8C2.5(g)(1) as occurring "prior to an imminent threat of disclosure or government investigation";
- the company discloses the conduct to the DOJ "within a reasonably prompt time after becoming aware of the offense", with the burden being on the company to demonstrate timeliness; and
- the company discloses all relevant facts known to it, including all relevant facts about all individuals involved in the violation of law.
The SEC has not yet agreed to this policy and retains its own discretion on how to proceed. The SEC used its discretion to enter into numerous settlements on books and records violations in 2018.
The FCPA Enforcement Policy also outlines the necessary steps for cooperation. First, companies must disclose in a timely manner all facts relevant to the wrongdoing at issue. This disclosure must include:
- all relevant facts gathered during a company's independent investigation;
- the attribution of facts to specific sources where such attribution does not violate attorney-client privilege, rather than a general narrative of the facts;
- timely updates on a company's internal investigation, including, but not limited to, rolling disclosures of information;
- all facts relating to the involvement of the company's officers, employees or agents; and
- all facts known or that become known to the company regarding potential criminal conduct by all third-party companies (including their officers, employees or agents).
Second, cooperation must be proactive, rather than reactive. Proactive cooperation means that the company timely discloses facts that are relevant to the investigation, even when not specifically asked to do so. In addition, where the company is or should be aware of opportunities for the DOJ to obtain relevant evidence not in the company's possession and not otherwise known to the DOJ, it must identify those opportunities to the DOJ.
Third, cooperation means that the company must ensure the timely preservation, collection and disclosure of relevant documents and information relating to their origin. These steps must include:
- disclosure of overseas documents, the locations in which such documents were found and who found them;
- facilitation of third-party production of documents; and
- where requested and appropriate, provision of translations of relevant documents in foreign languages.
If a company contends that there are legal impediments to transferring data (eg, blocking statutes or data protection laws), it must provide the legal basis and seek alternative means by which to disclose the information.
Fourth, the DOJ may request additional cooperation at its discretion. Where requested, the company must de-conflict witness interviews and other investigative steps that it intends to take as part of its internal investigation with steps that the DOJ intends to take as part of its investigation. This means that the company may need to wait to action certain steps in order to allow the DOJ to conduct its own investigative steps. In addition, the company may need to make any officers and employees who possess relevant information available for DOJ interviews. Where appropriate and possible, these interviews may include officers, employees and agents located overseas, as well as former officers and employees (subject to the individuals' Fifth Amendment rights). Further, where possible, companies may be asked to facilitate third-party witness interviews.
The FCPA Enforcement Policy also restates the factors that the DOJ uses to evaluate the effectiveness of corporate compliance programmes, including:
- the company's culture of compliance;
- the resources that the company has dedicated to compliance;
- the quality and experience of the compliance personnel;
- the authority and independence of the compliance function and its reporting relationship with management and the board of directors;
- the effectiveness of the company's risk assessment programme;
- the compensation and promotion of compliance personnel; and
- the auditing of the compliance function to ensure its effectiveness.
The FCPA Enforcement Policy also points to appropriate discipline of employees, appropriate retention of business records and any additional steps that demonstrate the seriousness with which the company takes the misconduct at issue.
The DOJ issued four declination letters under the FCPA Corporate Enforcement Policy in 2018 in In re: Dun & Bradstreet Corporation (23 April 2018), In re: Guralp Systems Limited (20 August 2018), In re: Insurance Corporation of Barbados Limited (23 August 2018) and In re Polycom, Inc (20 December 2018). The detail in each of the declination letters is limited, but each letter clarifies that the DOJ believed that there was sufficient evidence of a violation of the FCPA's anti-bribery or books and records clauses. The DOJ based the declinations on a number of common factors, including:
- the fact that the company had identified the misconduct;
- the company's prompt voluntary self-disclosure;
- the thorough investigation undertaken by the company;
- the company's full cooperation, including identifying all individuals involved in or responsible for the misconduct, providing the DOJ with all of the facts relating to that misconduct, making current and former employees available for interviews and translating foreign language documents into English;
- the enhancement of the company's compliance programme and its internal accounting controls;
- the company's full remediation, including disciplining individuals involved in the misconduct; and
- disgorgement of profits to the DOJ or the SEC.
The DOJ also issued at least 14 other declinations that were reported in the companies' public filings, including to Teradata Corporation and Centrais Elétricas Brasileiras SA.
Of course, the DOJ retains enforcement discretion under the policy; a company may still face criminal prosecution if aggravating circumstances are present:
aggravating circumstances that may warrant a criminal resolution include, but are not limited to, involvement by executive management of the company in the misconduct; a significant profit to the company from the misconduct; pervasiveness of the misconduct within the company; and criminal recidivism.
Moreover, the decision to grant cooperation credit is not binary. Even if a company does not meet all of the policy's requirements, it still may get 25% off the low end of the guidelines for cooperating. For example, the DOJ entered into a number of non-prosecution agreements, including In re Credit Suisse, In re Legg Mason and In re Petróleo Brasileiro SA, and deferred prosecution agreements and plea agreements, including United States v Panasonics Avionics Corporation, United States v Societe Generale and United States v Transport Logistics, where it found cooperation to be good but less than perfect. In those cases, the DOJ reduced the criminal fine to 25% or less – even where aggravating circumstances were present.
On 9 May 2018 the DOJ announced its Anti-piling On Policy in an attempt to address concerns that parallel enforcement may punish a company more than once for the same conduct. As foreign law enforcement authorities become more vigorous in pursuing anti-corruption violations that occur within their own borders, there has been an increasing concern that a company can find itself paying several times to several different authorities without a true global settlement. The DOJ has sought to address this concern with the Anti-piling On Policy.
The new policy has four key features. First, federal criminal enforcement authority should not be used against a company for purposes unrelated to the investigation and prosecution of a possible crime. "We should not employ the threat of criminal prosecution solely to persuade a company to pay a larger settlement in a civil case", Rosenstein said in announcing it. Second, DOJ lawyers and groups in different departments or offices are "to coordinate with one another, and achieve an overall equitable result". That might mean crediting and apportioning financial penalties, fines and forfeitures to avoid disproportionate punishment. Third, when possible, prosecutors should coordinate with other federal, state, local and foreign enforcement authorities that are working to resolve a case with a company for the same misconduct. Fourth, prosecutors can evaluate the following factors to determine whether or when multiple penalties "serve the interests of justice in a particular case":
- the egregiousness of the wrongdoing;
- any statutory mandates regarding penalties;
- the risk of delay in finalising a resolution; and
- the adequacy and timeliness of a company's disclosures and cooperation with the DOJ.
In the FCPA context, the Anti-piling On Policy saw some application in In Re Petróleo Brasileiro SA, the resolution of the long-running Petrobras bribery scandal that sent shock waves across Brazil and most of Latin America. Although some observers noted that Petrobras deftly raised its sovereign immunity as an obstacle to the DOJ's jurisdiction, the DOJ and the SEC each took only 10% of the overall $853 million settlement, the rest of which went to the Brazilian government to establish an anti-corruption fund. Brazil's 80% share of the settlement recognised that country's extensive cooperation with the United States and its relentless pursuit of individuals in its own country. The DOJ also pointed to Petrobras' $2.95 billion shareholder class-action settlement as a vindication of American depositary receipt holders' interests.
Similarly, Société Générale SA and its wholly owned subsidiary, SGA Société Générale Acceptance NV, entered into settlements with the DOJ consistent with the Anti-piling On Policy. The French companies resolved multiple issues when they agreed to pay a combined total penalty of more than $860 million to resolve charges with criminal authorities in the United States and France, including $585 million relating to a multi-year scheme to pay bribes to officials in Libya and $275 million for violations arising from its manipulation of the London InterBank Offered Rate. SGA Société Générale Acceptance NV pleaded guilty in the Eastern District of New York in connection with the resolution of the foreign bribery case. Société Générale reached a settlement with the Parquet National Financier (PNF) in Paris relating to the Libya corruption scheme. The DOJ credited $292,776,444 that Société Générale paid to the PNF under its agreement, equal to 50% of the total criminal penalty otherwise payable to the United States. As pointedly noted in the DOJ's press release, the case is the first coordinated resolution with French authorities in a foreign bribery case.
Policy for Selection of Monitors in Criminal Cases
On 11 October 2018 newly confirmed Assistant Attorney General for the Criminal Division Brian Benczkowski released the new Policy for the Selection of Monitors in Criminal Cases. This policy applies to the selection of monitors in all types of criminal case, not just FCPA matters. It is believed that the effect of this new policy will be to reduce the frequency in which monitors are appointed to oversee companies' compliance programmes and to control the scope of their duties when they are appointed. Although acknowledging that corporate monitors can be appropriate in the right cases, the DOJ must evaluate the potential benefits of a monitor, including factors such as:
- whether the misconduct at issue involved the exploitation of weak internal financial controls or an inadequate compliance system;
- how pervasive and high up the misconduct reached;
- what improvements the company has made in its compliance and internal control systems; and
- whether the company has tested the enhancements to demonstrate that they would prevent or detect similar misconduct in the future.
The DOJ can also consider changes in leadership as a positive enhancement of compliance and internal control systems.
The new policy establishes a standing committee of supervisory officials within the Criminal Division to consider monitor candidates and the mechanisms by which to nominate them and establish their qualifications and experience. Monitor candidates must certify in writing that they have notified any clients other matters with the relevant DOJ section and that they have either obtained a waiver from those clients or withdrawn from representing them. Records of the selection process are to be retained in the case file by the attorneys handling the process.
On 29 November 2018 the DOJ announced that it was updating what had become known as the Yates Memo, which set out the requirement that companies wishing to receive cooperation credit provide full and complete information about any culpable individuals (for further details please see "DOJ aims for good, not perfect: review of updated corporate cooperation policy"). As to criminal cases, Rosenstein enumerated the following factors to consider.
First, he pointed to deterrence theory, a favourite theme of his when discussing enforcement policy. As Rosenstein put it, "[i]ndividual prosecutions are the best way to deter crime, and companies wishing to receive cooperation credit must provide the goods". Because the most effective deterrent to corporate criminal misconduct is identifying and punishing the people who committed the crimes. As a result, the DOJ revised its policy to clarify that absent extraordinary circumstances, a corporate resolution should not protect individuals from criminal liability. In addition, the revised policy also clarifies that any company seeking cooperation credit in criminal cases must identify every individual who was substantially involved in or responsible for the criminal conduct.
Although the term 'substantially' is not defined by the DOJ, use of the term is an effort to provide some relief and rationality to corporate internal investigations. Companies that wish to receive credit for their internal investigations should focus on who authorised the criminal conduct and what they knew, not every conceivable person who was involved. In response to concerns raised about the inefficiency of requiring companies to identify every employee involved regardless of relative culpability, the DOJ has now elucidated that investigations should not be delayed merely to collect information about individuals whose involvement was not substantial and who are unlikely to be prosecuted. Instead, the DOJ wants companies to focus on the individuals who played a significant role in setting the company on a course of criminal conduct by authorising the misconduct – and what they knew about it.
The DOJ has also injected some much-needed realism into the process of resolving corporate criminal investigations. When the government alleges violations that involve activities throughout a company over a long period, the DOJ has recognised that it is impractical to require the company to identify every employee who played any role in the conduct. Those issues may be even more challenging when the company and the DOJ want to resolve the matter even though they disagree about the scope of the misconduct. In all situations, companies can and should discuss the reasonable limits of internal investigations with the DOJ if they want cooperation credit.
Again, the DOJ retains discretion to decide whether cooperation is done in good faith. Companies that want to cooperate in exchange for credit are encouraged to have full and frank discussions with prosecutors about how to gather the relevant facts. If DOJ finds that a company is not operating in good faith to identify individuals who were substantially involved in or responsible for wrongdoing, the DOJ will warn that it will not award any cooperation credit.
It is clear that 2018 was a busy year for policy pronouncements. So, what lies ahead in 2019? These policies have important ramifications for companies well beyond enforcement. For example, the DOJ has been actively promoting the concept that these policies should come into consideration for mergers and acquisitions, and that companies can even consider seeking guidance from the DOJ if compliance issues arise in a merger transaction. Companies should pay careful attention to these policies and ensure that their compliance programmes meet the elements that the policies outline. It is likely that there will be more corporate resolutions without charges or deferred prosecution agreements, as the FCPA Corporate Enforcement Policy gains more traction. DOJ's intent seems to be that the measure of predictability that the Policy provides to corporate boards and management, as well as the hope of right-sizing investigations, should mean that more companies will voluntarily disclose conduct if they believe they meet the Policy's criteria.
Fewer corporate resolutions will mean less business for external corporate compliance monitors. The DOJ's policy provides that monitors should be used only when there is a potential benefit. This administration's belief – which may become more firmly held with the confirmation of Attorney General-designate William Barr – that companies should operate free of government interference will mean that fewer FCPA settlements involve the appointment of a monitor reporting to the DOJ.
However, compliance monitors may see more popularity in other jurisdictions. It is likely that 2019 will bring continued – and expanded – activity and cooperation with non-US jurisdictions, and these new and sophisticated enforcement authorities will continue to customise investigations and enforcement for their own jurisdictions. As more countries add laws for administrative, civil and criminal liability and significant penalties for anti-corruption offences committed by corporate entities, the DOJ appears to be seeking to incentivise other countries to increase their enforcement by greater penalty sharing with those countries. The DOJ will continue to be respectful of countries that are developing transparent and vigorous judiciaries, while asserting itself where it may feel that the home country is not up to the task.
Some of that assertiveness will come in the form of increased prosecution of individuals. The DOJ's view of deterrence has always included the real threat of punishment – and nothing achieves that end like putting people on jail. Those people will be on both the supply side and the demand side of the bribery economy, as the DOJ pursues both the foreign officials who take bribes and the businesspeople who pay them.
That also means that there will be a broader array of charges brought in anti-corruption cases, including Travel Act, money laundering and wire fraud counts in conjunction with FCPA indictments. The political overlay to DOJ prosecutions is likely to continue as the administration uses sanction laws to carry out its foreign policy priorities and punish those who trade or facilitate transactions with enemy states. As Meng Wazhou, the chief financial officer for Huawei Technologies recently learned, that can make international travel a risky proposition.
2019 should be an interesting year!
For further information on this topic please contact Peter S Spivack or Lillian S Hardy at Hogan Lovells US LLP by telephone (+1 202 637 5600) or email ([email protected] or [email protected]). The Hogan Lovells US LLP website can be accessed at www.hoganlovells.com.
Endnotes
(1) Attorney General Order 8-53 (6 April 1953).
Shelita Stewart, deputy general counsel at Comcast Corp, also assisted in the preparation of this article.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
