Earlier this year, the US Department of Justice announced a one-year pilot program under which US corporations could mitigate their own liability for violations of the Foreign Corrupt Practices Act (FCPA) by voluntarily self-disclosing FCPA violations within their organization, in addition to fully cooperating with DOJ investigations and taking steps to remediate any misconduct. Skeptics, however, wondered if and when evidence that voluntary self-disclosure was impacting FCPA prosecutions would ever come to light.
The DOJ’s decision not to pursue charges against Johnson Controls, a global conglomerate which produces among other things, automotive parts and large scale HVAC components, may be the bellwether that everyone has been waiting for.
On July 11, 2016, the US Securities and Exchange Commission imposed $14 million in sanctions and served Johnson Controls with a cease-and-desist order regarding certain practices in China. The SEC alleged a scheme in which 16 Johnson Controls employees (including high-level executives of its Chinese subsidiary) created inflated and sham purchase orders and then used the money paid toward these purchase orders to bribe Chinese officials.
Significantly for those watching the DOJ pilot program, while SEC imposed penalties, the DOJ issued a declination letter and closed its investigation without bringing charges against Johnson Controls. The declination letter specifically cited the the DOJ pilot program as part of its basis for not pursuing charges. Further, the declination letter explained the factors leading to its decision, including: Johnson Control’s voluntary self-disclosure of of the matter, the company’s extensive investigation, its cooperation in the investigation, and its remedial steps such as terminating all the individuals involved.
If the pilot program is extended, and voluntary self-disclosure is the new cost of admission to meaningful mitigation of corporate liability for FCPA violations, then internal monitoring, auditing, and investigation of such activities are more valuable than ever. Further, training employees to identify potential FCPA violations and creating mechanisms through which they can report suspicious conduct internally is also critical because it gives the company an opportunity to investigate and self-disclose, ideally, before the conduct has become a target of US authorities.