Deputy Attorney General Rod Rosenstein’s Nov. 29 announcement that the Department of Justice FCPA “Pilot Program” will be permanently expanded is good news for companies that repeatedly faced the dilemma of whether or not to investigate and disclose FCPA issues discovered internally. However, companies should be careful to read the fine print of the policy before rushing into disclosure.
The disclosure dilemma
First, a brief look at the disclosure dilemma. A company that suspects FCPA issues, especially a public company with independent board members, has a strong legal incentive to respond to such a red flag by investigating the matter. But once facts are discovered that show or at least strongly indicate potential wrongdoing, what to do next has been a more complicated decision. Voluntary disclosure to enforcement authorities often led to enforcement proceedings and/or actions that result in severe adverse consequences to companies and their shareholders. Those adverse consequences might include a prosecution, a deferred prosecution agreement or at the very least, an extensive and expensive government investigation.
The fine print
The new policy essentially gives a pass to companies that find, fix and disclose. But before companies rush headlong to the disclosure window, several reservations in the DOJ policy announcement are worth noting.
- Culpable individuals are not covered. While corporations may escape criminal prosecution, culpable individuals can expect to be investigated and prosecuted.
- Voluntary disclosure and remediation do not guarantee that a company will not be prosecuted criminally. Rather, the policy has a presumption of a declination of prosecution.
- The policy creates an expectation of full and complete cooperation. Any company that is aware of or suspects FCPA violations will be expected to come forward with evidence and cooperate fully and completely in any follow-up investigation. That means conducting an internal investigation that meets government expectations for thoroughness and competence such that proof against culpable individuals would stand up in a court of law.
- The commitment to compliance must be real. To benefit from the policy the company will have to demonstrate that its compliance commitment is real and its compliance program meets standards articulated by the government, even if scaled to the size and complexity of the business entity employing it.
- Remediation must be genuine and sufficient. A company will have to show remedial steps that are genuine and sufficient to assure the government that the conduct in question is unlikely to recur.
A sea change
Taking these conditions of participation in this voluntary disclosure program into account does nothing to diminish the tremendous value to US companies that this change in enforcement policy presents. This policy is essentially an assurance that in the almost all circumstances a company that polices its own operations effectively, diligently looks into possible FCPA violations, and discloses and remediates any that it finds, will not be prosecuted. That is a sea change in announced intentions by the Department of Justice and will tip the balance in most cases toward engaging in remediation and voluntary disclosure. The relative certainty that this policy provides should be a welcome step in a more positive relationship between government enforcers and the vast majority of US businesses that are committed to legal compliance and strong business ethics. It should also help to eliminate the trend to “gotcha” prosecutions of the past that led to outlandish penalties greatly disproportionate to the underlying conduct that they supposedly were addressing.