Companies now have even greater incentives to have strong, meaningful Foreign Corrupt Practices Act compliance programmes. When Deputy Attorney General Rod Rosenstein recently announced the new enforcement policy that will guide the US Department of Justice (DOJ), he made it clear that the government wants to create incentives for companies to police themselves when it comes to bribery and corruption.
Issued on November 29 2017, the new Foreign Corrupt Practices Act Corporate Enforcement Policy outlines how companies can expect to be treated by the DOJ when they engage in certain cooperative and remedial efforts. By its own terms, the policy is "aimed at providing additional benefits to companies based on their corporate behaviour once they learn of misconduct".(1) According to Rosenstein, the new policy is designed to "reassure" companies and give "greater clarity" about the DOJ's decision-making process in Foreign Corrupt Practices Act cases, while also providing "guidance and greater certainty for companies struggling with the question of whether to make voluntary disclosures of wrongdoing".(2)
While the Corporate Enforcement Policy was announced as a new policy, most of it should look familiar – it mirrors the provisions of the Foreign Corrupt Practices Act Pilot Programme and makes them permanent policy. Announced in April 2016 as a one-year initiative, the pilot programme was intended 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".(3)
Under the pilot programme, seven companies received declinations after self-disclosing misconduct and two others entered into non-prosecution agreements following their self-disclosures. Rosenstein pointed to these and other statistics when he announced the new Corporate Enforcement Policy and its enhancements to the pilot programme, suggesting that the pilot programme had successfully rewarded those companies which had self-policed.
As with the pilot programme, the new Corporate Enforcement Policy formally applies only to DOJ enforcement of the Foreign Corrupt Practices Act through the Fraud Section and will not guide the actions of any other part of the DOJ, any US Attorney's Office or the Securities and Exchange Commission; nor will it apply to any international law enforcement agencies enforcing other anti-bribery and corruption laws. While it does not formally apply beyond this construct, the DOJ's policy sets the tone and sends a strong message in the United States and abroad. Companies with operations outside the United States (through subsidiaries, joint ventures, vendors or other third parties) or that are considering the acquisition of another entity with such operations should take this opportunity to revisit their Foreign Corrupt Practices Act compliance programme.
The new Corporate Enforcement Policy contains seven new notable developments.
Declination presumption
The most significant change under the Corporate Enforcement Policy is the presumption that, absent aggravating circumstances, a company will receive a declination (ie, a formal communication from the DOJ Fraud Section saying that it declines to prosecute or bring charges against the company) when it engages in the following cooperative behaviours:
- voluntary self-disclosure of misconduct, including all relevant facts about any individuals involved;
- full cooperation with the government's investigation; and
- timely and appropriate remediation of any misconduct.
Once these conditions have been met (according to the Corporate Enforcement Policy's specific definition of each), the DOJ has committed to a presumption of a declination that may be overcome "only if there are aggravating circumstances related to the nature and seriousness of the offense, or if the offender is a criminal recidivist".(4) A declination is the ideal outcome of any Foreign Corrupt Practices Act matter – saving the company time, money and reputation.
Recommended fine reduction If a company meets the three conditions set out above, but aggravating circumstances compel enforcement, there still will be a substantial benefit to cooperation under the new policy. Specifically, the DOJ will recommend that the company be afforded a 50% reduction of the lower end of the US Sentencing Guidelines fine range (with an exception for criminal recidivists, as discussed below). Under the pilot programme, any recommendation of reduction was optional and the specific percentage reduction was much less clear – the policy provided that the DOJ "may accord up to a 50% reduction".(5) The new policy is a clear commitment: the DOJ "will accord, or recommend to a sentencing court, a 50% reduction".(6)
Similarly, according to the new policy, companies that did not self-disclose but have cooperated fully and remediated effectively "will receive, or the Department will recommend to a sentencing court, up to a 25% reduction"; the previous policy said that the DOJ would "accord at most a 25% reduction". Under the new policy, even companies that do not self-disclose but otherwise cooperate and remediate can expect to receive at least some recommendation of a reduction, although the percentage is less definite than in the case of a criminal resolution following self-disclosure.
Avoid the monitor The DOJ's policy under the pilot programme was that a criminal resolution "generally should not" require a monitor;(7) but the new Corporate Enforcement Policy says that the DOJ "generally will not" require one.(8) While less definitive than the two provisions previously discussed, the new policy moves closer to a presumption against requiring a monitorship for a company that has "implemented an effective compliance program".(9) A company's ability to take advantage of this provision turns on the DOJ's view of whether it has an effective Foreign Corrupt Practices Act compliance programme, which will be evaluated by factors such as:
- the company's culture of compliance;
- the resources dedicated to compliance;
- the effectiveness of the company's risk assessment; and
- the authority and independence of the compliance function.(10)
In this regard, the Corporate Enforcement Policy is intended to encourage further development of Foreign Corrupt Practices Act corporate compliance programmes even before a company becomes aware of any misconduct. This remains a paramount priority for the DOJ – when announcing the new policy, Rosenstein reiterated the DOJ's position that "a company with a robust compliance program can prevent corruption and reduce the need for enforcement".(11)
Explicit exception for repeat offenders Even if the three conditions discussed above are met, the new policy makes an explicit exception for 'criminal recidivism' when it comes to the presumption of a declination and the recommended 50% fine reduction – but without specifically defining 'criminal recidivism'.(12) This phrase might derive from the pilot programme, in which the DOJ asserted that a criminal resolution – rather than a declination – might be warranted in the case of a company that met the three conditions but had "a history of non-compliance" or "a prior resolution by the company with the Department within the past five years".(13) It is unclear whether:
- the Corporate Enforcement Policy uses 'criminal recidivism' or 'criminal recidivist' to capture the same meaning as provided under the pilot programme; and
- 'criminal recidivism' includes any previous self-disclosure or can be demonstrated only by a past conviction.
As cases are resolved under the new policy, the practical meaning of these terms will become clear.
Requirement to pay up Under the Corporate Enforcement Policy, even if a company receives a declination, it must still pay "all disgorgement, forfeiture, and/or restitution resulting from the misconduct at issue";(14) whereas the pilot programme required only disgorgement of all resulting profits.(15) However, two of the declinations under the pilot programme included forfeiture or a civil penalty in addition to disgorgement. The DOJ's new policy makes clear that, even if companies avoid criminal charges, misconduct will have hefty financial consequences.
Demonstration of root cause analysis Within the definition of 'timely and appropriate remediation', the new Corporate Enforcement Policy adds a requirement that did not exist under the terms of the pilot programme: the company must demonstrate a "thorough analysis of causes of underlying conduct", also known as a root cause analysis.(16) In appropriate circumstances, the company must also show remediation that addresses the root cause of the misconduct. While in the past, experienced counsel usually covered these points during any presentation or discussion with the government, the root cause analysis is now a formal requirement of the Corporate Enforcement Policy's remediation prong.
Document retention policy required Another new factor in the definition of 'timely and appropriate remediation' is a formal document retention requirement. In order to satisfy the remediation prong, companies must engage in "appropriate retention of business records". This means "prohibiting the improper destruction or deletion of business records" and prohibiting the use of software "that generates but does not appropriately retain business records or communications". Most experienced counsel would have pointed out these policies to the government when defending a company's compliance programme. Now that the DOJ has made it a formal requirement under the Corporate Enforcement Policy, time will tell how document retention will factor into declinations and other resolutions of Foreign Corrupt Practices Act matters.
The new Foreign Corrupt Practices Act Corporate Enforcement Policy builds on the pilot programme and is far from an overhaul. On its face, the new policy is largely the same as the old. However, by its own terms and according to the DOJ leaders who crafted it, the new policy is designed to give companies more certainty about the results of voluntary and timely self-disclosure, full cooperation and timely remediation. At a minimum, companies should take the announcement as a good reason to evaluate their Foreign Corrupt Practices Act compliance programmes and ensure that they are effective.
For further information on this topic please contact Karla J Aghedo at Hogan Lovells US LLP by telephone (+1 713 632 1400) or email ([email protected]). The Hogan Lovells US LLP website can be accessed at www.hoganlovells.com.
Endnotes
(1) US Attorney's Manual, Section 9-47.120 – "Foreign Corrupt Practices Act Corporate Enforcement Policy".
(3) The Fraud Section's Foreign Corrupt Practices Act Enforcement Plan and Guidance, Fraud Section, Criminal Division of the US Department of Justice, April 5 2016, available at www.justice.gov/archives/opa/blog-entry/file/838386/download.
(4) US Attorney's Manual, Section 9-47.120 – "Foreign Corrupt Practices Act Corporate Enforcement Policy".
(5) The Fraud Section's Foreign Corrupt Practices Act Enforcement Plan and Guidance, Fraud Section, Criminal Division of the U.S. Department of Justice, April 5 2016, available at www.justice.gov/archives/opa/blog-entry/file/838386/download.
(6) US Attorney's Manual, Section 9-47.120 – "Foreign Corrupt Practices Act Corporate Enforcement Policy".
(7) The Fraud Section's Foreign Corrupt Practices Act Enforcement Plan and Guidance, Fraud Section, Criminal Division of the US Department of Justice, April 5 2016, available at www.justice.gov/archives/opa/blog-entry/file/838386/download.
(8) US Attorney's Manual, Section 9-47.120 – "Foreign Corrupt Practices Act Corporate Enforcement Policy".
(11) "Deputy Attorney General Rosenstein Delivers Remarks at the 34th International Conference on the Foreign Corrupt Practices Act", November 29 2017, available at www.justice.gov/opa/speech/deputy-attorney-general-rosenstein-delivers-remarks-34th-international-conference-foreign.
(12) US Attorney's Manual, Section 9-47.120 – "Foreign Corrupt Practices Act Corporate Enforcement Policy".
(13) The Fraud Section's Foreign Corrupt Practices Act Enforcement Plan and Guidance, Fraud Section, Criminal Division of the US Department of Justice, April 5 2016, available at www.justice.gov/archives/opa/blog-entry/file/838386/download.
(14) US Attorney's Manual, Section 9-47.120 – "Foreign Corrupt Practices Act Corporate Enforcement Policy".
(15) The Fraud Section's Foreign Corrupt Practices Act Enforcement Plan and Guidance, Fraud Section, Criminal Division of the US Department of Justice, April 5 2016, available at www.justice.gov/archives/opa/blog-entry/file/838386/download.
(16) US Attorney's Manual, Section 9-47.120 – "Foreign Corrupt Practices Act Corporate Enforcement Policy".
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