Today, I end my exploration of recent Foreign Corrupt Practices Act (FCPA) enforcement actions (and one UK Bribery Act enforcement issue), which have occurred since the enactment of the Department of Justice (DOJ) Pilot Program in April. These three enforcement actions, which resulted in the companies receiving a Declination to Prosecute from the DOJ. Proving once again that I am never gonna give you up, never gonna let you down; I want to look a these Declinations to see what information they can provide to the compliance practitioner to assist them in guiding their own response should their company find itself embroiled in a FCPA investigation and attendant enforcement action.
The enforcement actions involved Nortek Corporation (Nortek), Akamai Technologies, Inc. (Akamai), and Johnson Controls, Inc. (JCI). Nortek and Akamai received Non-prosecution Agreements (NPAs) from the Securities and Exchange Commission (SEC) and Declinations to Prosecute (Declinations) from the DOJ. JCI received a civil Cease and Desist Order from the SEC and Declination from the DOJ. One other matter was resolved with the DOJ via a NPA, that being Analogic Corporation. I will discuss this matter separately below.
The Declination Letters
The letters issued by the DOJ did not provide a plethora of detail. The Akamai and Nortek Declination letters were identical with the exception of the different corporate names. In relevant part they stated, “we have reached this conclusion … based on a number of factors, including but not limited to the fact that Nortek’s internal audit function identified the misconduct, Nortek’s prompt voluntary self-disclosure, the thorough investigation undertaken by the Company, its fulsome cooperation in this matter (including by identifying all individuals involved in or responsible for the misconduct and by providing all facts relating to that misconduct to the Department) and its agreement to continue to cooperate in any ongoing investigations of individuals, the steps that the Company has taken to enhance its compliance program and its internal accounting controls, the Company’s full remediation”. It went on to add that the company had agreed to profit disgorgement.
The JCI letter, stated, “We have reached this decision based on a number of factors, including but not limited to: the voluntary self-disclosure of the matter by JCI; the thorough investigation undertaken by the Company; the Company’s full cooperation in this matter (including its provision of all known relevant facts about the individuals involved in or responsible for the misconduct) and its agreement to continue to cooperate in any ongoing investigations of individuals; the steps that the Company has taken and continues to take to enhance its compliance program and its internal accounting controls; the Company’s full remediation”. As with the Nortek and Akamai the JCI letter also noted the company had agreed to disgorge its profits.
About the only difference I can ascertain in the letters is that Nortek and Akamai provide “fulsome” cooperation, and JCI provided “full” cooperation. Yet, the overall point of these Declinations seems to be the cooperation was very substantial.
Contrast the triple declination language with the NPA, which Analogic received, specifically noted the company’s lack of full cooperation. It stated, “the Company did not receive full cooperation credit because, in the view of the Offices, the Company’s cooperation subsequent to its self-disclosure did not include disclosure of all relevant facts that it learned during the course of its internal investigation; specifically, the Company did not disclose information that was known to the Company and Analogic about the identities of a number of the state-owned entity end-users of the Company’s products, and about certain statements given by employees in the course of the internal investigation;”
Box Score Summary of Declinations
|Self-Disclosure||Cooperation During Investigation||Remediation||Profit Disgorgement|
|Akamai||Yes – before completing internal investigation||1. Sharing investigation;
2. Identify and present relevant documents;
3. Timely updates;
4. Updates on remedial measures;
5. Translating documents; and
6. Making witnesses available
|1. Termination of culpable employees;
2. Revision of internal audit testing and protocol;
3. Strengthening of policies;
4. Creation of Compliance Committee;
5. Institution of mandatory compliance training; and
6. Modify auditing schedule to risk based approach
|Nortek||Yes||1. Sharing investigation
2. Timely updates
3. Segregation and organization of documents
4. Translation of documents
5. Making witnesses available
6. Conducting Risk Assessment
|1. Due diligence program for 3rd parties;
2. Strengthen compliance policies;
3. Enhance compliance function, name CCO;
4. Institution of mandatory compliance training; and
5. Enhance travel and expense controls in China
|JCI||Yes – one month after it received a second anonymous complaint||1. Real time updates, interview summaries and all requested documents;
2. Yates binders including hot docs, interview summaries, chronologies and emails;
3. Preservation of evidence.
|1. Termination of culpable employees;
2. Suspension of culpable 3rd parties;
3. Incorporation of culpable China office into existing corp structure;
4. Enhanced integrity testing and auditing, including random audits; and
5 Random testing of transactions
All parties admitted to facts, which could have formed the basis of a criminal FCPA enforcement action brought by the DOJ, yet they all received Declinations. While it would certainly have been more helpful to have a full release of information by the DOJ, to assist the compliance practitioner in understanding the totality of the facts considered, these three Declinations may well mark a new starting point in criminal FCPA enforcement going forward. Since at least 2014, with the Parker Drilling and Hewlett-Packard FCPA enforcement actions, the DOJ has provided significant credit to companies who thoroughly cooperated and provided extensive remediation during the pendency of their enforcement actions. With the Pilot Program implementation, these shifts are now official DOJ policy.
One other point unrelated to the Pilot Program discussion is the length of time that the Akamai and Nortek matters were concluded. It was less than 18 months for both. This short time frame for a resolution is certainly a welcome development and shows that if a company comes forward quickly, is efficient in its investigation and proactive in its remediation, it can benefit with lower overall investigation and remediation costs as well.
All of the above are most welcome for any compliance practitioner. The DOJ Pilot Program has come out of the box with some solid wins for the companies involved, the DOJ and the greater compliance community. If this pattern continues, it will allow the DOJ to focus its resources in driving home the message that it is doing compliance that will not only work to keep a company out of trouble but will also get a company out of trouble.
The three Declinations, since the start of the Pilot Program may well mark a new starting point in criminal FCPA enforcement going forward.Click to tweet
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© Thomas R. Fox, 2016