This week I have been exploring the implications of the Department of Justice (DOJ) announcement last week of a new program Pilot Program around Foreign Corrupt Practices Act (FPCA) enforcement, together with the document, entitled “The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance” (herein “The Guidance”), more fully laying out the specifics of this Pilot Program and providing more background and information for the compliance practitioner. I visited with Arnold & Porter LLP partner Stephen Martin on this exploration and today I conclude this series by looking at what is the impact for the compliance practitioner.
The FCPA commentariat has had several different views of this new Pilot Program. The FCPA Professor has said the Pilot Program is nothing new and renewed his call for a compliance defense, Billy Jacobsen, writing in the FCPA Blog, called the Pilot Program a “swing and a miss” and Mike Volkov said the Pilot Program is a “mixed bag”. My conclusion is different from all of these commentators. I find the Pilot Program to have provided solid, tangible benefits for the Chief Compliance Officer (CCO) or compliance practitioner around the issue of whether or not to self-disclose, coupled with more and additional information about the DOJ expectations for a best practices compliance program.
There are two new categories of credit that companies can receive. These categories are not new but they are identified in writing so that a CCO or compliance practitioner can point to them when having a conversation with a Board of Directors or senior management about the tangible benefits of self-disclosure. As stated in the Guidance, a company can receive up to a 25% reduction off the bottom guideline of the US Sentencing Guidelines fine range if it cooperates and engages in appropriate remediation. A company can receive up to a 50% reduction off the bottom end of the Sentencing Guidelines and will generally not have to sustain a corporate monitor if it self-discloses, cooperates and fully remediates. This means that self-disclosure can lead to a 25% discount greater than no self-disclosure.
As Stephen Martin said, “The question you always get from the general counsel, from the CEO, from the Board of Directors is how do we know we will get credit and what does that credit really look like?” He went on to say, “That was always a tough discussion with the senior manager and the Board of Directors because they look at publicly are these huge fines, huge investigation expenses and they don’t really understand or see the fact that a number of cases are declined for prosecution or really never really go forward. You only see the ones that the wealthy settlements that are out there in the fines. It had been a very tough discussion to have with the senior manager and Board of Directors.” Now you can point directly to this Guidance and tell them “you get a reduction fine up to fifty percent off of the bottom level from the Sentencing Guidelines and not require the appointment of a monitor. It’s a very clear statement from the Department of Justice as to what does it mean to self disclose,” cooperate and remediate.
Yet there is another reason why I think this potential discount is so powerful – you will get double discount credit for engaging in the same conduct. Recall that this Guidance supplements but does not supplant the Sentencing Guidelines. Under those Sentencing Guidelines, there is a reduction in the Culpability Score of up to -5 for self-disclosure, full cooperation and demonstration of responsibility. A company will receive an additional discount of 25% or 50% for engaging in the same activities, in addition to remediation.
Martin believes that these numbers will not only make it easier to speak to a Board and senior management but it will also make it easier for those bodies to grasp the tangible benefits they are receiving by engaging in such conduct. More importantly, he said that it speaks to that long sought metric of what is the return on investment for compliance. Martin stated, “The reality is if you are doing compliance the right way inside of a company and your working on strategic business initiatives and your working with the management and the business immediately. What you are really trying to do is help the company be pro-active, help it understand and reduce it’s risk profile and maximize profitability and if you are doing your job the compliance officers in that fashion you are not a cross netter you are actually a real benefit to the business. Sometimes that is hard to understand, executives when they are looking at budgets and costs. This then ultimately gives a very clear message if you invest in your compliance program, you have an effective compliance program it’s going to protect the business… Those are very clear signals about why this is a great return on investments”.
I also think the Guidance points out the growing importance of the compliance function in a company and the growing need for professionalism among compliance practitioners. This is first time I have heard the DOJ talk about the “quality and experience” of a company’s compliance personnel. Clearly this means that a corporate legal department cannot simply assign an Associate General Counsel to be a CCO. They must have real compliance skills, beyond simply learning the law. Compliance is a much different discipline than a corporate legal department and while a solid legal training and grounding in the law is a start, it is only a start.
The other trend I see at play is the direction of Leslie R. Caldwell and Andrew Weissmann. They have both called for greater clarity and greater transparency in the FCPA enforcement process. They have both worked assiduously to make this the DOJ policy, which I think the Pilot Program and Guidance are a part of going forward. Yet the incentives laid out in the Guidance also support the DOJ focus stated in the Yates Memo, that being to go after individuals who have violated the FCPA. I recognize the proof will be in the pudding but prosecutions move more slowly so it may be some time going forward before there is a dramatic uptick in individual prosecutions under the FCPA.
Yet the Yates Memo (focused on all white collar prosecutions, not simply FCPA) incentivizes corporations to turn over individuals and prosecutors to go after individuals. The now doubled sized of the DOJ’s FCPA unit and three new FBI investigative teams add some real resources and they will not be sitting around doing nothing. The Guidance reinforces the incentives companies have to investigate individuals and name names to the DOJ.
The DOJ Pilot Program to provide tangible benefits for the compliance practitioner in self-disclosure and DOJ expectations of best practices.Click to tweet
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© Thomas R. Fox, 2016