The Foreign Corrupt Practices Act—the first law to outlaw bribing foreign officials—has two main prohibitions. The anti-bribery provisions prohibit the offering or payment of anything of value to foreign officials to influence their acts or decisions for the purposes of obtaining or retaining business. 15 U.S.C. §§78dd-1, 78dd-2, 78dd-3. The accounting provisions require that “issuers” (companies listed on a U.S. exchange or required to file reports with the SEC) keep records which “in reasonable detail” accurately and fairly reflect transactions and also maintain a system of internal accounting controls sufficient to provide “reasonable assurances” that transactions are authorized and recorded properly. 15 U.S.C. §78m(b)(2).
With respect to FCPA enforcement, the Trump Administration has followed in its predecessor’s footsteps by mandating voluntary self-disclosure of violations to obtain leniency in prosecution and sentencing. Beginning in April 2016, the Department of Justice started a “Pilot Program” to incentivize companies to voluntarily self-disclose FCPA violations and cooperate with the government. See DOJ, The Fraud Section’s Foreign Corrupt Practice Act Enforcement Plan and Guidance (April 5, 2016). In November 2017, Deputy Attorney General Rod Rosenstein announced a new FCPA Corporate Enforcement Policy that adopts the Pilot Program’s emphasis on voluntary self-disclosure, cooperation and remediation. Specifically, when a company has voluntarily self-disclosed, cooperated, and remediated, it will receive a declination of prosecution absent certain aggravating factors, including involvement of high-level executives in the misconduct, a significant profit to the company from the misconduct, or the pervasiveness of the misconduct in the company. If criminal proceedings are warranted, the government will recommend a 50 percent reduction off the low end of the Sentencing Guidelines’ fine range (except in the case of a recidivist company) and will not require the company to obtain a monitor, as long as the company has implemented an effective compliance program. In the absence of voluntary self-disclosure, and even assuming that the company has cooperated and appropriately remediated, the DOJ will only recommend a 25 percent reduction from the low end of the Guidelines’ fine range. See DOJ, FCPA Corporate Enforcement Policy.
And self-disclosure is paying off. For example, in 2017, the DOJ declined to prosecute Linde North America and Linde Gas North America (collectively, Linde) and certain of their subsidiaries under the FCPA. The DOJ found that Linde, via a subsidiary, made corrupt payments to high-level officials at a state-owned and controlled entity in the Republic of Georgia. The DOJ declined prosecution based on Linde’s timely and voluntary self-disclosure; its thorough and proactive investigation; its full cooperation; its agreement to disgorge the profits received from the improper conduct; the steps it took to enhance its compliance program and internal controls; and its full remediation, including disciplinary action. Letter from DOJ to Steptoe & Johnson (June 16, 2017).
But self-disclosure has to be quick for a declination. For example, also in 2017, Keppel Offshore & Marine, a Singapore company and its wholly-owned U.S. subsidiary, Keppel Offshore & Marine USA, agreed to pay approximately $422 million to resolve charges in the United States, Brazil, and Singapore arising from a scheme to pay bribes to Brazilian officials. The subsidiary and a former member of its legal department plead guilty to conspiracy to violate the FCPA, while the parent company entered into a deferred prosecution agreement pursuant to which it agreed to implement internal controls and cooperate with the DOJ. The DOJ noted that the companies received credit for their cooperation and remedial measures, which was reflected in a criminal penalty that was a 25 percent reduction off the bottom of the applicable Guidelines’ fine range. Press Release, Keppel Offshore & Marine Ltd. And U.S. Based Subsidiary Agree to Pay $42 Million in Global Penalties to Resolve Foreign Bribery Case (Dec. 22, 2017). But there was no credit for voluntary self-disclosure because:
[A]lthough [the company] notified the Fraud section about publicly-reported allegations in Brazil prior to the Fraud Section and the Office contacting the Company, the Fraud Section and the Office were already aware of the allegations.
United States v. Keppel Offshore & Marine, Case No. 17-cr-697, Deferred Prosecution Agreement, ¶ 4(a) (emphasis added); see also United States v. Keppel Offshore & Marine USA, Case No. 17-698, Plea Agreement, ¶ 2(b).
The government has enormous resources—both domestically and internationally—from which to glean information about potential violations. In a speech on Nov. 9, 2017, then-Acting Assistant Attorney General Kenneth A. Blanco highlighted the international cooperation that led to a number of high-profile FCPA prosecutions, including the prosecution of Odebrecht, one of the world’s largest construction companies. The United States worked with Brazil and Switzerland to obtain the largest global fine ever imposed in a corruption case and, as AAG Blanco noted, they “assisted one another in gathering evidence and building the case.” Acting Assistant Attorney General Kenneth A. Blanco Delivers Remarks at Foreign Corrupt Practices Act/Organization for Economic Cooperation and Development Anniversary Conference at the NYU School of Law (Nov. 9, 2017).
Another reason for quick self-disclosure is the risk of whistleblowers. The SEC, which has civil enforcement authority over the FCPA with respect to issuers, has a whistleblower program where individuals who voluntarily provide it with original information relating to the violation of securities laws (which include the FCPA) can obtain a portion of a successful recovery. And the importance of whistleblowers to the government is illustrated by recoveries under the False Claims Act, which provides a portion of any recovery to whistleblowers who initiate actions on behalf of the government for fraud. In 2017, the government recovered $3.4 billion as a result of whistleblower lawsuits under the False Claims Act and paid out $392 million to whistleblowers. Press Release, Justice Department Recovers Over $3.7 Billion from False Claims Act Cases in Fiscal Year 2017.
But beyond the monetary rewards, many employees may still “blow the whistle.” A survey of False Claims Act whistleblowers found that their motivations “coalesced around four non-mutually exclusive themes: integrity, altruism or public safety, justice, and self-preservation.” Aaron S. Kesselheim, et al., “Whistle-Blowers’ Experiences in Fraud Litigation against Pharmaceutical Companies,” The New England Journal of Medicine (May 13, 2010). When monetary incentives are combined with ethical dilemmas and concerns over liability, there is a significant risk that a company employee will disclose misconduct to the government before the company has the chance to do so.
Where time is of the essence, the traditional model of internal investigations cannot survive. While engaging outside counsel is necessary, reviewing scores of documents, conducting witness interviews, and coming up with a deliberative strategy to disclose misconduct will risk missing out on self-disclosure benefits. Internal investigations will have to become streamlined, and companies will have to consider disclosing potentially improper conduct even before reaching a definitive conclusion as to its illegality. Indeed, the true internal investigation may come after self-disclosure and pursuant to the directive of the government, as the company works with the government to identify the misconduct and the culpable individuals. For example, in the Keppel prosecution, the government gave Keppel credit for its “substantial cooperation” with the government, which included
[C]onducting a thorough internal investigation, meeting the Fraud Section’s and the Office’s requests promptly, proactively identifying issues and facts that would likely be of interest to the Fraud Section and the Office, making regular factual presentations to the Fraud Section and the Office, agreeing to make foreign-based employees available for interviews in the United States, producing documents to the Fraud Section and the Office from foreign countries … and collecting, analyzing, and organizing voluminous evidence and information for the Fraud Section and the Office.
KOM Deferred Prosecution Agreement, ¶ 4(b).
But, while internal investigations may decrease in importance, companies must ensure that potential misconduct gets to their attention quickly so that they can self-disclose. Strong compliance programs are important in this regard, and companies should also consider incentivizing internal whistleblowers to report misconduct.
Encouraging a whistle-blowing culture, where employees feel safe and appreciated for disclosing what they believe to be improper conduct, is key. Fear of being ridiculed, ignored, or being subject to adverse actions chills many employees from coming forward with their concerns. But an environment where disclosure is rewarded (whether suspicions are validated or not) via a bonus, recognition, or even increased responsibility, may mean the difference between self-disclosing in time or missing out on those benefits.
Simply, quick self-disclosure is imperative. Companies that wait to discover potential misconduct and then conduct a thorough and comprehensive internal investigation before taking remedial action will likely lose out on substantial benefits, including possible declination of prosecution. Getting in front of the government early—even in the absence of certainty—may reap substantial benefits. And incentivizing insiders to “whistleblow” internally could help ensure that misconduct is discovered quickly so that the option to self-disclose still exists.
Reetuparna Dutta and Michelle Merola are partners at Hodgson Russ.