FCPA Enforcement 2.0: A carrot and stick approach

in Advisory, 22.04.2016

After an impressive (monetary wise) 2014 FCPA (Foreign Corrupt Practices Act) enforcement year, with the climax in the Alstom guilty plea which put  the company second on the top 10 list of all FCPA enforcement actions, we have seen a rather slow 2015. Last year, 11 companies paid around USD 133 million, while the year before ten companies paid a striking USD 1.6 billion to resolve FCPA cases.

So what is in for 2016?

The stick

Some might have thought that, after 2015, the FCPA enforcement would lose the pace. However, at the latest after the Vimpelcom’s USD 795 million resolution with the Dutch and US authorities this February, along with  the FCPA enforcement actions against another seven companies, it turned out to be a wishful thinking! We have seen almost the same number of enforcement actions in the first quarter of this year compared to the entire 2015 (8 vs. 11), and still have nine month to go with further big cases are already waiting in line.

Moreover, the United States Department of Justice (DOJ) has announced that it is increasing the FCPA unit of the Criminal Division’s Fraud Section by 50%, adding ten prosecutors, while the FBI already had established three new squads devoted to the FCPA (in New York, Los Angeles and DC).  Also, the DOJ clearly states that it is intensifying its coordination with its foreign counterparts.

The carrot

To every stick there is a carrot; and the DOJ is no exception to this simple principle. On 5 April 2016, the Fraud Section of the DOJ Criminal Division published “The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance”. It is a one-year FCPA enforcement pilot program effective as of 5 April 2016 and is applicable to all FCPA matters handled by the Fraud Section. In essence, the pilot program outlines three criteria. It encourages companies to:

  • voluntarily self-disclose FCPA violations;
  • fully cooperate with the DOJ; and
  • apply timely and appropriate remediation of FCPA matters.

If a company has met all the above criteria to the full satisfaction of the Fraud Section and if a criminal resolution is warranted, the company qualifies for the whole range of potential mitigation credits. The Fraud Section may agree on a reduction of up to 50 percent of the bottom end of the U.S. Sentencing Guidelines fine range. Further, if a company has, in the view of the Fraud Section, implemented an effective compliance program, generally the appointment of an independent corporate monitor is not required. The Fraud Section might, if the conditions as set forth above are met, consider stopping prosecution (however, it has to be noted that a disgorgement of all profits resulted from the FCPA misconduct is still required).

This concept is not totally new. The DOJ had already in the past granted reductions below the lower end of the Sentencing Guidelines fine range to companies which complied with the criteria mentioned before. However, this has not yet been a part of its written framework.

Of course, the avoidance of an independent corporate monitor and a reduction of up to 50% of the fine must sound very tempting to companies. However, this luxury is not easily achievable. So, let’s have a brief look at the three criteria in more detail.

Voluntary Self-Disclosure is highly encouraged by the DOJ.  This is supported by the fact that, if this does not happen, the Fraud Section might agree only on a maximum reduction of 25% of the bottom end of the U.S. Sentencing Guidelines fine range; even if the other two criteria have been met (remember, the maximum reduction is 50%). A voluntary self-disclosure has to occur “prior to an imminent threat of disclosure or government investigation and has to be made “within reasonable prompt time after becoming aware of the offense”. Furthermore, companies need to disclose all known relevant facts surrounding the FCPA violation, including but not limited to the individuals involved. Companies have to note that a disclosure (which is required by law, agreements or other means) does not qualify as a self-disclosure under this pilot program.

The Fraud Section lists various items which have to be met to receive credits for a Full Cooperation. In summary, it is requested that a company proactively communicates with the Fraud Section, including disclosure of all relevant facts (e.g. gained during the company’s internal investigation) on a timely basis; preservation, collection and disclosure of all relevant documents and information, etc. The Fraud Section may also consider it a Failure of full cooperation, if a company only begins to fully cooperate in a later stage of an investigation. Important to note is that the Fraud Section clearly takes into account size of the company during evaluation of the outlined criteria (e.g. it does not expect a small company to do an extensive investigation in the same timeframe as it would expect from a Fortune 100 company).

To receive credit for Timely and Appropriate Remediation in FCPA Matters, the company must first cooperate with the Fraud Section. If this is not the case, the company can not expect to receive credits for the remediation; it is just too late in the process! Subject to these criteria is, among other, the proper and effective implementation of a compliance and ethics program as well as the appropriate action against employees who committed misconduct (“Zero Tolerance”). The interesting part here is that the Fraud Section will closely work with the Section’s newly appointed Compliance Counsel, appointed in November 2015. Therefore it can be expected that this area is looked at, at least partially, by a highly skilled compliance professional.

It is safe to expect that we will see an increase in FCPA enforcements in the coming years. Consider the facts that the Fraud Section will increase the headcount of the FCPA unit by 50% and further focus on coordinating its efforts with the foreign counterparts, and all of this coupled with the FBI introducing its own FCPA squads. We also anticipate that more companies will attempt to benefit from the new program in order to receive significant monetary and otherwise credit; which will ultimately lead to a shift in mindset of companies – “don’t get caught attitude” to a proactive cooperation with the law enforcement.

The Fraud Section of the DOJ Criminal Division published “The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance”, which can be found here.

 

 

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