Deputy Attorney General Rod Rosenstein’s announcement of a permanent expansion of the Department of Justice Foreign Corrupt Practices Act “Pilot Program” is good news for companies that repeatedly faced the dilemma of whether or not to investigate and disclose FCPA issues discovered internally.
The new policy is grounded in the notion that companies and the government have a shared interest in securing the rule of law, which in this context includes global commercial markets freed from the influence and corrosive effects of corruption.
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.
But from an enforcement policy perspective — to what end? Several years ago advocating for FCPA reform legislation before the House Judiciary Committee I testified:
It makes no sense to me to engage in criminal prosecution of a company that operates a state of the art compliance program and that investigates, corrects and self-reports non-compliant circumstances that do arise…. But doubt as to the precise benefits of voluntary disclosure under existing enforcement policy produces uncertainties. Such uncertainty could be replaced with a bright line providing that companies acting responsibly on the terms which I have outlined would have a safe harbor from criminal liability even where a violation arose despite their best efforts.
If the object of FCPA enforcement is to help level the global playing field for fair competition, then the more disclosure of corrupt practices that can be had the better. If a company is paying bribes to a government official — which is what the FCPA sanctions — then the sunshine of disclosure will help curb the appetite of such foreign officials because the odds of disclosure of — and sanctions for — their misdeeds increase as well.
The new policy is that bright line by basically giving companies that find, fix and disclose a pass. But before companies rush headlong to the disclosure window, a look at the fine print of the DOJ policy announcement is worthwhile. Several reservations are worth noting.
First, it is clear that while corporations may escape criminal prosecution, culpable individuals are not covered by the policy and can expect to be investigated and prosecuted.
Second, voluntary disclosure and remediation do not guarantee that a company will not be prosecuted criminally, but rather the policy has a presumption of a declination of prosecution.
Third, the policy creates an expectation that a company that is aware of or suspects FCPA violations will come forward with evidence to show them 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.
Fourth, 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.
Finally, 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.
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 U.S. 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.
George J. Terwilliger III, pictured above, is the head of McGuireWoods Strategic Risk and Crisis Management Practice and formerly served as Deputy Attorney General of the United States.