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The DOJ lists eight conditions (maybe nine) for Safran’s declination with disgorgement

Last month, French firm Safran S.A. received the DOJ’s 16th declination with disgorgement. Remember how declinations with disgorgement came into being?

In late 2017, the DOJ made permanent its so-called Pilot Program, which promised to reward FCPA offenders for voluntarily disclosing compliance lapses, cooperating with the feds, and disgorging ill-gotten gains. The DOJ eventually set out all potential conditions for declinations with disgorgement in the Justice Manual (the handbook for prosecutors) at sections 9-47.120 and 9-28.300.

In Safran’s case, employees and agents of a U.S. subsidiary called Monogram Systems committed FCPA violations. Monogram and its German subsidiary EVAC GmbH paid millions of dollars to a China-based business consultant who was a close relative of a then-senior Chinese government official. In exchange, Monogram won train lavatory contracts with the Chinese government. The FCPA offenses occurred before Safran acquired Monogram.

In its December 21 letter to Safran’s U.S. counsel, the DOJ lists the conditions for Safran’s declination with disgorgement. The list includes eight numbered items, plus one more.

(l) Safran’s timely and voluntary self-disclosure of the misconduct. The Justice Manual at 9-47.120 (FCPA Corporate Enforcement Policy) says self-disclosure must occur “prior to an imminent threat of disclosure or government investigation.” Also, a company must disclose the conduct to the DOJ “within a reasonably prompt time after becoming aware of the offense.” The burden is on the company to demonstrate timeliness, and the DOJ won’t consider self-disclosure timely unless a company discloses “all relevant facts known to it at the time of the disclosure, including as to any individuals substantially involved in or responsible for the misconduct at issue.”

(2) Safran’s full and proactive cooperation (including its provision of all known relevant facts about the misconduct) and its agreement to continue cooperating in any ongoing government investigations. “Full and proactive cooperation,” according to the Justice Manual, means disclosing all relevant facts gathered during a company’s independent investigation, with attribution to specific sources unless that would violate the attorney-client privilege. The DOJ doesn’t want a general narrative and requires “rolling disclosures” of all relevant facts whenever discovered, including facts about the company’s current or former officers, employees, agents, and third parties involved in any potential criminal activity. If a company thinks foreign privacy laws or blocking statutes prevent the disclosure of any documents, it must first seek a legal basis to disclose them. If legal disclosure isn’t possible, the company has the burden of proving why not. Cooperation also means making available for interviews current and former company officers, employees, and agents with relevant information (subject to their Fifth Amendment rights).

(3) The nature and seriousness of the offense. The Justice Manual at 9-28.400 instructs prosecutors to consider “the risk of harm to the public from the criminal misconduct” and  how the corporate conduct “intersects with federal economic, tax, and criminal law enforcement policies.” That’s vague language. But in general, it means before awarding a declination with disgorgement to an FCPA offender, the DOJ will consider whether the company might be prosecuted because of tax, antitrust, or trade violations, environmental crimes, or under national security laws, among others.

(4) Safran’s timely and full remediation, including termination of a remaining employee involved in the misconduct, withholding the deferred compensation of another employee involved in the misconduct who had previously left the company, and efforts to enhance its anti-corruption training and compliance program. The DOJ credited Safran’s remediation and described it. According to the Justice Manual, remediation can also mean performing a root cause analysis to find and fix problems, dedicating more resources to compliance, restructuring the compliance department to make sure it’s independent and has access to the board, creating an effective risk management function, paying compliance personnel enough and promoting those who deserve it, and auditing the program for effectiveness. “Appropriate” records retention policies can be part of remediation, along with protecting “personal communications and ephemeral messaging platforms” from destruction.

(5) The fact that Safran was the successor-in-interest to its acquired subsidiaries Monogram and EVAC and that the misconduct had ceased pre-acquisition. The FCPA Resource Guide says, “As a general legal matter, when a company merges with or acquires another company, the successor company assumes the predecessor company’s liabilities.” However, the feds sometimes soften the application of successor liability, either by prosecuting the acquired company and not the acquiring company or — as in Safran’s case — by declining to take action against a company that “voluntarily disclosed and remediated conduct and cooperated . . . in the merger and acquisition context.”

(6) Safran’s identification of the misconduct through post-acquisition due diligence, which Safran voluntarily disclosed to the DOJ. When robust pre-acquisition due diligence isn’t possible, the DOJ and SEC say in the FCPA Resource Guide that they will “look to the timeliness and thoroughness of the acquiring company’s post-acquisition due diligence and compliance integration efforts.”

(7) The fact that Safran agrees to and will disgorge the full amount of Monogram’s ill-gotten gains. The Justice Manual at 9-47.120 says, “To qualify for the FCPA Corporate Enforcement Policy, the company is required to pay all disgorgement, forfeiture, and/or restitution resulting from the misconduct at issue.” Safran agreed to disgorge $17.9 million in profits.

(8) That Safran intends to accept responsibility and resolve liability of its German subsidiary EVAC in connection with an ongoing investigation by German authorities. Accepting responsibility is part of remediation. It falls under a final catch-all at 9-47.120 of the Justice Manual: “Any additional steps that demonstrate recognition of the seriousness of the company’s misconduct, acceptance of responsibility for it, and the implementation of measures to reduce the risk of repetition of such misconduct, including measures to identify future risks.”

The DOJ added one more un-numbered condition.

Safran’s agreement to fully cooperate in the ongoing investigation as determined in the DOJ’s sole discretion. Even though the DOJ already requires Safran’s continuing cooperation in item (2) above, it repeats the requirement here, so it must be important. And notice: the twice-mentioned cooperation requirement doesn’t come with an expiration date.

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