In our recent report, Trends and Developments in Anti-Corruption Enforcement, we analyze major anti-corruption resolutions in 2014 and look ahead to what we expect in 2015.
As we explain in our report (pdf) (in Chinese here), 2014 was a year in which the benefits of voluntary disclosure and cooperating in U.S. government investigations — and the downside risks of failing to do so — came into sharper relief. On one end of the spectrum, DOJ pointed to settlements with Alstom S.A. and Marubeni Corporation as cautionary tales of the severe consequences a company can face it if fails to cooperate. In our report, we attempt to quantify those consequences, at least in terms of the increased criminal fines.
Alternative calculations under the U.S. Sentencing Guidelines suggest that Alstom could have received a 69% reduction in its criminal fine — a $530 million discount — had it received credit for voluntary disclosure and cooperation. Similarly, with credit for voluntary disclosure and cooperation, Marubeni could have saved more than $66 million, a 75% reduction in its criminal fine.
On the other end of the spectrum, DOJ and the SEC emphasized the benefits that companies such as PetroTiger, Bio-Rad Laboratories, and Layne Christensen Company realized from voluntary disclosure and cooperation. As we point out in the report, the SEC’s efforts to quantify these benefits in terms of discounts to civil penalties is a particularly welcome development.
We can expect more of the same in 2015, with SEC Enforcement Director Andrew Ceresney recently highlighting the SEC’s decision not to impose a civil penalty on Goodyear in its settlement relating to allegedly improper payments in Kenya and Angola.
Yet the voluntary disclosure calculus remains a difficult one. In many cases, companies may find voluntary disclosure an unattractive option because the incremental monetary loss (excluding investigative costs) between not disclosing ($0) and disclosing (in Alstom’s case, potentially $236.8 million) can be so much greater than the incremental monetary loss between making a voluntary disclosure and not making one but still cooperating fully in the government’s investigation. (In Alstom’s case, cooperating alone would have yielded a presumed resolution of $378.9 million.)
Beyond this calculus, companies must of course consider a host of potential collateral consequences flowing from voluntary disclosure, including shareholder lawsuits, suspension and debarment risk, and — now more than ever — parallel foreign enforcement actions.
As we explain in the report, the steady increase in cross-border enforcement has the potential to significantly ratchet up the stakes in the voluntary disclosure calculus. Cross-border anti-corruption enforcement is here to stay, with cooperation among enforcement authorities becoming the new normal. Thus, companies considering voluntary disclosure in the United States must prepare for the possibility that information provided to DOJ and the SEC will be shared with their counterparts in foreign jurisdictions.
These issues and other highlights from 2014 are discussed at length in our report, including:
- The increased emphasis from DOJ on the need for companies to provide evidence of individual culpability to earn full cooperation credit
- The ramp-up in anti-corruption enforcement in Brazil, China, and the European Union
- The SEC’s increased use of administrative proceedings for FCPA resolutions, and
- Enforcement actions against small- and medium-sized companies, demonstrating how regulators’ expectations regarding compliance programs continue to evolve.
Ben Haley and Jennifer Saperstein are special counsel and senior associate in Covington & Burling’s Washington, DC office. They specialize in anti-corruption investigations and compliance and can be contacted at [email protected] and [email protected].