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31 May 2016

The US Department of Justice’s FCPA Pilot Programme

As part of its ‘enhanced enforcement strategy’, the US Department of Justice (DOJ) recently announced a one-year pilot programme to encourage companies to voluntarily self-disclose misconduct under the US Foreign and Corrupt Practices Act (FCPA) of overseas bribery of a foreign official. The Enforcement Plan and Guidance (the ‘Guidance’) issued by the Fraud section of the DOJ on 5 April 2016[1] also outlines an additional framework to support this strategy, such as increasing the resources at the investigative and prosecutorial stage and an intention to work more closely with foreign law enforcement to investigate corruption matters.

The pilot programme, a measure which has received much critical attention, has been implemented to promote the disclosure of conduct that may have gone undiscovered. It also seeks to provide greater transparency around the requirements to obtain cooperation credit and the resulting benefits of that cooperation. Companies that self-disclose on violations will be eligible for a wide range of incentives including the DOJ declining to prosecute.

Despite being presented in these terms, does the pilot actually offer less risk, more reward for a corporate? Faced with a difficult decision on whether to self-report potential misconduct, is this always a wise route to follow and what are the potential ramifications beyond the US border?

‘More prosecutions of the individuals responsible for those crimes’[2]

An increased emphasis on individual accountability has long been the focus of prosecutors in the US and in the UK[3]. In this regard, the Guidance simply reflects existing practice and incorporates the standards for individual liability and prosecution, as set out in the Yates Memo published in September 2015[4]. However, whilst the DOJ remains extremely keen to hold individuals accountable for misconduct, the Guidance represents a rare attempt to clarify and quantify the potential rewards to companies for providing information allowing it to do so.  To obtain credit under the pilot programme, a company must demonstrate:

  • Voluntary self-disclosure of the criminal conduct within a ‘reasonably prompt time’, after becoming aware of the offence and ‘prior to an imminent threat of disclosure or government investigation,’ and outside of any other duty to make such a disclosure. No specific guidance is offered on what constitutes ‘reasonably prompt’, other than that the burden falls on the company to establish timelines;
  • Proactive cooperation with the DOJ including, amongst others, (1) disclosure of all relevant facts, (2) provision of timely updates on the company’s internal investigation, (3) making employees available for DOJ interviews, and (4) disclosure of overseas evidence; and
  • Timely and appropriate remediation including implementation of an effective compliance and ethics programme, discipline of responsible employees, and other efforts to reduce the risks of similar misconduct repeating itself in the future.

More risk, less reward?

Whilst undoubtedly a step in the right direction to greater transparency and clarity in the self-disclosure process, the qualifying requirements set out above constitute high hurdles for a company to clear before it is eligible to benefit under the pilot programme.  Companies that do manage to overcome these hurdles, i.e. voluntarily disclose improper conduct to the Fraud Section’s FCPA Unit, fully cooperate as outlined briefly above and/or otherwise comply with the stringent requirements of the pilot programme may receive up to a 50% reduction off the bottom of the U.S. Sentencing Guidelines fine range and generally will not be required to retain an independent compliance monitor [emphasis added].  Companies that do not voluntarily disclose improper conduct, but that do ‘fully cooperate’ and ‘timely and appropriately remediate,’ will be accorded ‘at most a 25% reduction off the bottom of the Sentencing Guidelines fine range.’ Moreover, the DOJ has also made it clear that, as part of fulfilling these requirements, the company will be required to disgorge to the U.S Government all profits resulting from the violation. This may also be the case where a decision not to prosecute is made.

The UK DPA regime

In line with its US counterpart, the Serious Fraud Office (“SFO”) also seeks to promote self-reporting, to encourage cooperation and to ensure that individuals are held accountable. Whilst the US introduced Deferred Prosecution Agreements in 1992, as a mechanism to deal with corporate (and individual) wrongdoing, the SFO have only had DPAs available in their armoury since February 2014. The UK’s first, and currently only, DPA entered into with Standard Bank in December 2015 is instructive in light of the DOJ’s document. In that case, the court attached ‘considerable weight’ to the fact that Standard Bank immediately reported itself to the authorities and adopted a genuinely proactive approach to the matter. Furthermore, the judge indicated that the weight given to a company’s self-report depended on the ‘totality of information’ provided. Standard Bank had conducted a detailed internal investigation that had been sanctioned by the SFO and reported its findings. The Statement of Facts published alongside the judgment was ‘substantially reliant’ upon information provided voluntarily by Standard Bank. In this context, the pilot programme may not be as groundbreaking as first thought to be, but simply expands on current SFO thinking.

Moreover, whilst it certainly appears that prosecutors on both sides of the Atlantic share common policy goals, the mechanisms and resources available in the UK are arguably nowhere near as developed as in the US. Firstly it is the SFO’s policy not to ‘give any advice on the likely outcome of a self-report until the completion of that process’. Although each case should be considered on its own particular facts, a balance should be maintained between flexibility and a corporate’s request for clarity of consequences in the event of a self-report. Secondly and perhaps critically for a corporate, the incentives for self-disclosing in the UK are not remotely as generous as those proposed by the DOJ in its pilot programme. For example, corporates who self-report in circumstances where a resolution is appropriate by way of a DPA can only expect a one third discount in financial penalty in the UK – the equivalent to the discount offered if a corporate chooses to plead guilty at the earliest opportunity.

Over the years, critics both in the UK and US have debated the benefits of making a self-report, where matters often result in lengthy and costly investigations coupled with no certainty that self-reporting will avoid a prosecution. Although the UK does not have a similarly developed body of law and practice, the success of the DOJ pilot over the next 12 months and beyond will be monitored with some interest to determine if similar steps should be taken here.

[1] The Guidance can be accessed here: https://www.justice.gov/opa/file/838386/download

[2] Criminal Division Launches New FCPA Pilot Program, Courtesy of Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division (April 5, 2016), available at  https://www.justice.gov/opa/blog/criminal-division-launches-newfcpa-pilot-program

[3] See for example, the introduction of the Senior Managers Regime in the financial sector by the FCA.

[4] https://www.justice.gov/dag/file/769036/download

This article was originally published in Criminal Law & Justice Weekly, behind a registration wall.

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