Archive for the ‘Declination Decisions’ Category

Assistant AG Caldwell Regarding Exorbitant Pre-Enforcement Action Professional Fees and Expenses – “That’s Not Us, That’s The Companies” Who Are Responsible, Plus Other DOJ Musings

Thursday, May 28th, 2015

SoapboxThe war of words regarding who is to blame for exorbitant pre-enforcement action professional fees and expenses continued in recent weeks.

By way of background and as highlighted in this prior post, in April Assistant Attorney General Leslie Caldwell stated – “we do not expect companies to aimlessly boil the ocean.”

Certain FCPA lawyers disputed Caldwell’s assertion – see here and here.

Recently, Assistant AG Caldwell again shot-back stating – as noted in this Wall Street Journal Risk & Compliance post - “That’s not us. That’s the companies” who are responsible for the pre-enforcement action professional fees and expenses.

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Staying with the same topic, as noted in this recent Morgan Lewis “Lawflash,” here is what DOJ Fraud Section Chief Andrew Weissmann had to say at a recent event:

“When asked about the rising costs of Foreign Corrupt Practices Act (FCPA) investigations, Mr. Weissmann dismissed the suggestion that high investigative and defense expenses—which have cost some companies nearly half a billion dollars—are a predicate to receiving full cooperation credit. Noting some of the staggering legal fees in the hundreds of millions of dollars, Mr. Weissmann advised the audience that companies do not need to “boil the ocean” when investigating corporate misconduct. Although there may be “historical evidence” of DOJ asking companies to engage in “widespread investigations,” he assured the audience that this “is not the current Department of Justice view.”

Mr. Weissmann described a “real life example” of a multinational company that voluntarily disclosed FCPA misconduct in an unnamed foreign country by a team of individuals who also had responsibilities in three other countries. Because “there was very good reason to think that they would have engaged in the same conduct in those other countries,” Mr. Weissmann said, DOJ expected the company to investigate those countries in order to receive full cooperation credit, and the company complied. Mr. Weissmann noted that the company was neither asked nor expected to expand its investigation to the “Antarctic,” for instance, or high-risk countries (as determined by Transparency International’s Corruption Perceptions Index) where the company operated. As explained by Mr. Weissmann, “If there is an issue in one country and just speculation that the same issues could be happening elsewhere, then we should deal with the issue that is before us and come to a very quick resolution.” Investigations should be “appropriately tailored to the facts at issue,” he said, because both DOJ and the companies it investigates share the same interest in “prompt resolutions.”

As noted in this prior post, prior to becoming DOJ Fraud Section Chief, Weissmann was a vocal critic of various aspects of DOJ FCPA enforcement.  Set forth below is what Weissmann wrote in Restoring Balance: Proposed Amendments to the FCPA.

“The current FCPA enforcement environment has been costly to business. Businesses enmeshed in a fullblown FCPA investigation conducted by the U.S. government have and will continue to spend enormous sums on legal fees, forensic accounting, and other investigative costs before they are even confronted with a fine or penalty, which, as noted, can range into the tens or hundreds of millions. In fact, one noteworthy innovation in FCPA enforcement policy has been the effective outsourcing of investigations by the government to the private sector, by having companies suspected of FCPA violations shoulder the cost of uncovering such violations themselves through extensive internal investigations.

From the government’s standpoint, it is the best of both worlds. The costs of investigating FCPA violations are borne by the company and any resulting fines or penalties accrue entirely to the government. For businesses, this arrangement means having to expend significant sums on an investigation based solely on allegations of wrongdoing and, if violations are found, without any guarantee that the business will receive cooperation credit for conducting an investigation.”

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Back to Morgan Lewis’s “Lawflash” – here is what it says about other aspects of Weissmann’s recent remarks.

“Mr. Weissmann confirmed DOJ’s commitment to providing more transparency regarding cooperation credit and declinations by including greater factual details in non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs) and providing “general statistics” about declinations in a series of “anonymized examples.” Currently, because declinations are rarely, if ever, publicly announced, companies and their counsel have limited insight into how and why such determinations are made. That will change, Mr. Weissmann said, with DOJ providing the public with greater transparency about the declinations process and what companies can do to increase their chances of receiving declinations. Likewise, although DOJ’s website already contains some information about DPAs and NPAs, Mr. Weissmann assured the audience that they can expect to see more detail in the future about what exactly happened that resulted in specific dispositions to help companies assess the benefits of full cooperation.”

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Finally on the DOJ speech “beat,” Assistant AG Cadlwell recently delivered this speech to a paying audience at Compliance Week.

The topic?

“[C]orporate accountability.  How corporations should be holding themselves accountable by designing compliance programs that don’t just look good on paper but actually work.  Compliance programs that are designed to protect the company’s reputation, customers, counterparties and the public, as well as ensuring compliance with the law.”

In pertinent part, Caldwell stated:

“A corporation’s internal compliance policies and practices, and its compliance professionals, are the first lines of defense against fraud, abuse and corruption. As all of you know, there is no “one size fits all” compliance program.  Rather, effective compliance programs are those that are tailored to the unique needs, risks and structure of each business or industry. While a corporate compliance program must, by definition, address regulatory risk and the risk of potential violations of law, a strong compliance program will not stop there. A strong program also will aim to deter employee misconduct, whether or not that misconduct poses obvious regulatory risk.

While companies have for years appropriately adopted a “risk-based” approach to compliance, we have seen that corporations all too often misdirect their focus to the wrong type of risk.  We have repeatedly seen corporations target the risk of regulatory or law enforcement exposure of institutional and employee misconduct, rather than the risk of the misconduct itself. The result: compliance programs are too often behind the curve, effectively guarding against yesterday’s corporate problem but failing to identify and prevent tomorrow’s scandals.

In designing compliance programs, companies would be wise to examine all of their lines of business – including those not subject to regulation – and determine where specific risks are and how best to control or mitigate them. It is also critical that compliance programs take into account the operational realities and risks attendant to the particular company’s business, and are designed to prevent and detect particular types of misconduct likely to occur in a particular line of business.

For example, to comply with the Foreign Corrupt Practices Act (FCPA), businesses that tend to be exposed to corruption must employ different internal controls than businesses that have less exposure to corruption.

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Too often we have heard companies say that a particular course of criminal conduct took them by surprise, when a hard look at the business practices would have identified the risk.  And, far too often, we have heard companies exclaim in defense that everyone else is doing it – that others in the industry are engaged in the same misconduct.  But as you all know, an industry-wide compliance failure is not a defense to knowing and willful criminal activity.

With this principle that compliance programs should be proactive, and not merely reactive in mind, there are some general hallmarks of effective compliance programs that I’d like to share with you today.

  • A company must ensure that its senior leaders provide strong, explicit and visible support for its corporate compliance policies.Corporate management must enforce compliance policies, not tacitly encourage or pressure employees to engage in misconduct to achieve business objectives.
  • We look not just at the written policies, but to other messages otherwise conveyed to employees, including through in-person meetings, emails, telephone calls, incentives/bonuses, etc.; and will make a determination regarding whether the company meaningfully stressed compliance or, when faced with a conflict between compliance and profits, encouraged employees to choose profits.
  • Senior executives should be responsible for the implementation and oversight of compliance.Those executives should have authority to report directly to independent monitoring bodies – for example, internal auditors or the board of directors.
  • A company’s policies should be clear and in writing and should easily be understood by employees.But having written policies – even those that appear specific and comprehensive “on paper” – is not enough.
  • Compliance teams need adequate funding and access to necessary resources.And they must have an appropriate stature within the company.
  • A company should have an effective process – with sufficient resources – for investigating and documenting allegations of violations.
  • A company periodically should review its compliance policies and practices to keep it up to date with evolving risks and circumstances, including when the company merges with or acquires another company.In particular, if a U.S.-based entity merges with, acquires or is acquired by a foreign entity, all compliance policies should be reviewed and revised accordingly.
  • A company should have an effective system for confidential, internal reporting of compliance violations.
  • A company should implement mechanisms designed to enforce its policies, including incentivizing compliance and disciplining violations.
  • A company should sensitize third parties with which it interacts (for example, vendors, agents or consultants) to the company’s expectation that its partners are compliant.This means more than including boilerplate language in a contract.It means taking action – including termination of a business relationship – if a partner demonstrates a lack of respect for laws and policies.

Corporations also must ensure compliance with the laws of all the countries in which they operate.  We appreciate that this may present a major compliance challenge, as international corporations often must bridge cultural, as well as geographic, divides.  But such challenges do not justify non-compliance.

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Overall, our message is simple: we expect corporate entities to take compliance risk as seriously as they take other business-related risks.

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When a compliance program works and a company suspects or discovers potential criminal wrongdoing, a company would be wise to conduct a thorough internal investigation. While we in the Criminal Division will not tell a company how it should conduct an investigation, we evaluate the quality of a company’s internal investigation, both through our own investigation and in considering what if any charges to bring against a company.  In that regard, we have seen some “best practices” with regard to internal investigations.

Good internal investigations uncover the facts.  They don’t promote corporate talking points or whitewash the truth.  The investigation should be focused on rooting out the relevant facts, identifying and interviewing the knowledgeable actors and capturing and preserving relevant documents and other evidence.  The investigation should seek to identify responsible individuals, even if those individuals hold senior positions at the company.

It is reasonable to take resources – time and money – into account.  If an internal investigation unearths criminal conduct, the inquiry should be thorough enough to identify the relevant facts, players, documents and other evidence, and to get a sense of the pervasiveness of the misconduct. But, we do not believe that it is necessary or productive for a company to employ its internal investigators to look under every rock and pebble – particularly when a company has offices or personnel around the globe that do not appear to be involved in the misconduct at issue. In fact, doing so will cost companies much more in the end, both in fees but also because it ultimately will delay our investigation and delay resolution and closure for the company.

For example, if a multi-national corporation discovers an FCPA violation in one country, and has no basis to suspect that the misconduct is occurring elsewhere, the Criminal Division would not expect that the internal investigation would extend beyond the country in which the violation was discovered.  By contrast, if the known offenders operated in multiple countries, we would expect that the internal investigation would extend into those locations as well.

Once your company learns of potential criminal conduct and confirms it through a reasonable internal investigation, the company then must choose whether to disclose the conduct to the government, and whether to cooperate in the government’s investigation. These are the company’s choices, and very few companies have a legal obligation to disclose criminal misconduct to the department.  Likewise, there is no obligation to cooperate beyond compliance with lawful process. But if a company chooses to cooperate with the government in its investigation – particularly at an early stage – the company likely will receive significant credit for such efforts when the government is contemplating what prosecutorial action to take.

In conducting an investigation, determining whether to bring charges and negotiating plea or other agreements, federal prosecutors take into account, among other factors, the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents.  Prosecutors also consider the availability of alternative or supplemental remedies such as civil or regulatory enforcement action.

To receive cooperation credit, a company must do more than comply with subpoenas or other compulsory process.  Companies must provide a full accounting of the known facts about the conduct or events under review, and affirmatively must identify responsible individuals (and provide evidence supporting their culpability), including corporate executives and officers – and they must do so in a timely way. A company’s cooperation may be particularly helpful where the criminal conduct continued over an extended period of time, and the knowledgeable or culpable individuals and/or the relevant documents are dispersed or located abroad. Under these circumstances, cooperation includes helping to circumvent barriers to the investigation by making knowledgeable personnel available for interviews or testimony, and by producing documents and other evidence that otherwise may not be readily accessible to the government.

We recognize that some foreign data privacy laws may limit or prohibit the disclosure of certain types of data or information.  Over the years, the Criminal Division has developed an understanding of certain oft-cited data privacy laws, and we will challenge what we perceive to be unfounded reliance on these laws to justify withholding requested information.  Companies should avoid this by giving careful consideration to the government’s requests for information, refraining from making broad “knee jerk” claims that large categories of information are protected from disclosure and producing what can be disclosed.

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Corporate accountability through a strong, tailored compliance program and thorough internal investigations should be the standard for your companies.

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Corporate accountability through compliance, investigations and protections against breaches is a good practice for all of your companies.  And in the Criminal Division, I am emphasizing accountability on our side as well, particularly through our work with regulators and other law enforcement agencies, and through increased transparency about our decision-making where possible.

Many of the cases handled by the Criminal Division also involve parallel investigations or civil or enforcement actions by civil or regulatory authorities.  Even if certain misconduct could be pursued civilly or through regulatory action, criminal investigation and prosecution often is appropriate.

It is department policy that criminal prosecutors and civil attorneys coordinate with one another and with agency attorneys, to the extent permissible, to protect and advance the government’s overall interests.  Early and effective coordination is critical to ensuring the efficient use of resources and the best ultimate outcome.

We have heard concerns expressed about regulatory “piling on.”  We agree that there is the potential for unfairness when a company is asked to pay penalties and fines to different regulators and enforcement authorities based on the same set of facts.

Different law enforcement authorities have distinct and important functions.  Companies know who their regulators are, and they know that they are subjecting themselves to those regulatory schemes and the laws of the countries in which they operate.  But we are trying to address this concern and are mindful of making sure that companies are not punished unfairly.

Since becoming Assistant Attorney General, one of my priorities has been to ensure that the Criminal Division is as transparent as possible about its decision making.  While we are limited in the information we can disclose to the public about matters in which we decline to prosecute, when we file charges, secure a guilty plea or enter into a deferred prosecution or non-prosecution agreement, the Criminal Division will place in the public record detailed information explaining the rationale for the particular resolution whenever possible.

Whether we secure a guilty plea or enter into an NPA or DPA, these resolutions generally have the same key components: admissions, a detailed statement of facts, remediation and/or enhanced compliance requirements and penalties.  Depending on the facts and circumstances of a particular case, the Criminal Division also may require the imposition of a compliance monitor. Companies would be wise to study these publicly-available documents to measure their compliance or to assess their exposure.

In our view, increased transparency benefits everyone.  From the Criminal Division’s perspective, if companies know the benefits that likely will flow from self-reporting or cooperating with the government’s investigation, we are confident that more companies will be willing to voluntarily disclose identified misconduct and cooperate, including against culpable individuals. In addition, transparency takes a significant amount of the guess work out of assessing the likely benefits of cooperation, as well as the costs of refusing to cooperate or offering limited or partial assistance.

Regardless of the form of resolution, the Criminal Division is committed to enforcing compliance with its terms.  In particular, when a company that is subject to the terms of an NPA or a DPA violates the terms of the agreement, if proportional to the breach, the Criminal Division will not hesitate to tear up the agreement and prosecute the offending entity based on the admitted statement of facts. If we do so, as with the other resolutions, the Criminal Division will be transparent and include its rationale in publicly-filed documents. In addition to statements contained in public filings in cases investigated or prosecuted by the Criminal Division, our commitment to transparency also is effectuated by the participation of Criminal Division personnel in conferences such as this one.”

Issues To Consider From The Recent BHP Billiton Enforcement Action

Wednesday, May 27th, 2015

IssuesThis recent post highlighted the SEC FCPA enforcement action against BHP Billiton.

This post continues the analysis by highlighting various issues to consider from the enforcement action.

Record-Setting SEC Civil Penalty

At $25 million, the BHP Billiton enforcement action clearly did not set any records in terms of overall settlement amount. (See here for the current top ten FCPA enforcement actions in terms of overall settlement amount).

In most SEC FCPA enforcement actions, the settlement amount comprises (in any given year 95%+) of disgorgement and prejudgment interest.

However, the BHP Billiton comprised solely a $25 million civil penalty.

This is believed to be, by a large margin, the largest-ever SEC civil penalty in an FCPA enforcement action.  Number 2 on this list is believed to be against ABB in 2010 (settlement amount included a $16.5 million civil penalty).

Moreover, the BHP Billiton enforcement action is the second-largest SEC only FCPA enforcement action of all-time behind the $29 million SEC only FCPA enforcement action against Eli Lilly in 2012 (see here for the prior post). (Note: an SEC only FCPA enforcement action means an enforcement action that involved only an SEC component, not an SEC settlement amount in an enforcement action that also involved a DOJ component).

That the BHP Billiton enforcement action – a travel and entertainment action – represents the largest SEC FCPA penalty ever and the second largest SEC only FCPA enforcement action of all-time is nothing short of remarkable and further to the point that FCPA settlement amounts (and components thereof) seem to be getting bigger each year … just because.  (See here for the prior post).

The Absurdity of Just Don’t Bribe

In the minds of some, the FCPA is simple.  Just don’t bribe.

More sophisticated observers recognize the absurdity of such an absolutist position.

In short, a company can do things with customer or prospective customer x and it is generally just fine.  But when the same company does the same thing with customer or prospective customer y, the U.S. government just might call it bribery.

The BHP Billiton enforcement action highlights this dynamic.

To recap, BHP Billiton was an official sponsor of the 2008 Summer Olympics in Beijing, China.  As such, the company received priority access to tickets, hospitality suites, and accommodations for the games.  Not surprisingly, the company invited 650 people (customers, suppliers, etc.) to attend the Olympic Games with three to four day hospitality packages.

According to the SEC’s findings, approximately 75% of these invitees were not alleged “foreign officials.”  Thus no problem.

But lo and behold, approximately 25% of these people invited were alleged “foreign officials” primarily from Africa and Asia and an even smaller percentage of these invited “foreign officials” actually attended the Olympic Games.

The end result, according to the SEC, bribery.

Sure, BHP Billiton was not charged with FCPA anti-bribery violations, but does anyone seriously question whether this enforcement action was regarding anything but the alleged “foreign officials.”?

Avoiding the “D” Word

BHP Billiton was not the subject of a DOJ enforcement action.

To those who overuse the “D” word, this is yet another example of a DOJ “declination.”

However, consider this.

As a foreign issuer, the only way BHP Billiton could have been found to be in violation of the FCPA’s anti-bribery provisions is to the extent “[U.S.] mails or any means or instrumentality of interstate commerce” was used in furtherance of the alleged travel and entertainment expenditures.  The SEC’s enforcement action contained no such findings.

Sure, the DOJ also can bring criminal enforcement actions – including against foreign issuers – for willful violations of the FCPA’s books and records and internal controls provisions, but the SEC’s findings surely did not warrant such treatment.

Time-Line

Like most FCPA inquiries by the DOJ/SEC, BHP Billiton’s FCPA scrutiny followed a glacial pace.

As the company previously disclosed, it received requests for information in August 2009 from the SEC.

Thus, from start to finish it took approximately six years.

Assessing DOJ Transparency

Wednesday, April 29th, 2015

FoggyRecently Assistant Attorney General Leslie Caldwell gave this speech at an event hosted by New York University Law School’s Program on Corporate Compliance and Enforcement.

The focus of the speech, as stated by Caldwell, was “the Criminal Division’s efforts to increase transparency in its corporate prosecutions.”  It is an important topic as transparency is a fundamental tenet of the rule of law.

Caldwell’s speech was mostly forward-looking so time will tell how transparent the DOJ will be in the future including in the FCPA context.

This post assesses DOJ transparency as it relates to Foreign Corrupt Practices Act enforcement over the past several years and highlights that DOJ transparency is as foggy as the road in the picture.

When reading the below excerpts from Caldwell’s speech, you may want to keep the following points in mind.

Since 2010, the DOJ has used NPAs or DPAs to resolve approximately 85% of corporate FCPA enforcement actions. These resolution vehicles are negotiated behind closed doors in Washington, D.C. and thus are anything but transparent.

Caldwell states in her speech that “the factual statements filed with resolution documents typically include a detailed recitation of the misconduct, as publicly admitted by the company.”  However, you can judge for yourself whether the following FCPA NPAs contain “a detailed recitation of the misconduct”.

Ralph Lauren NPA (3 page statement of facts most of which identifies relevant parties);

NORDAM Group NPA (2.5 page statement of facts most of which identifies the relevant parties);

Lufthansa Technik NPA (no statement of facts relevant to the entity).

In any event, kudos to Caldwell for recognizing that “opaque” enforcement “carries little deterrent effect.”

The article “The Facade of FCPA Enforcement” highlights four pillars which contribute to the “facade” of FCPA enforcement.  One pillar highlighted was “same facts, different result.”  The article used what were substantively carbon-copy enforcement actions against Lucent Technologies and UTStarcom, which nevertheless led to materially different charges and penalties, to make the point that FCPA charging decisions are not based solely on the facts and law, but less transparent factors as well.

In any event, kudos to Caldwell for recognizing that “unreasoned” enforcement “carries little deterrent effect.”

Further to the point that FCPA charging decisions seem not to be based solely on the facts and law, but less transparent factors as well, consider the BAE enforcement action. Despite the DOJ alleging conduct that clearly implicated the FCPA’s anti-bribery provisions, BAE (a large U.S. defense contractor) was not charged with violating the FCPA.

Consider also the mysterious conclusion to James Giffen enforcement action. Giffen was criminally charged with making more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with certain oil transactions in which various American oil companies acquired valuable rights in Kazakhstan.” However, Giffen’s defense was that his actions were made with the knowledge and support of the CIA, the National Security Council, the Department of State and the White House. In 2010, the enforcement action took a sudden and mysterious turn when Giffen agreed to plead guilty to a one-paragraph superseding indictment charging a misdemeanor tax violation.  Perhaps one day the reasoning behind the sudden turn of events will become transparent.

Consider also certain subtle statements in the FCPA Guidance relevant to transparency.

Footnote 379 of the Guidance states as follows.  “Historically, DOJ had, on occasion, agreed to DPAs with companies that were not filed with the court.  That is no longer the practice of DOJ.”

Page 75 of the Guidance suggests that the DOJ has used NPAs in individual FCPA-related cases (e.g., “If an individual complies with the terms of his or her NPA, namely, truthful and complete cooperation and continued law-abiding conduct, DOJ will not pursue criminal charges.” The Guidance also states that “in circumstances where an NPA is with a company for FCPA-related offenses, it is made available to the public through DOJ’s website.” (emphasis added).  This statement suggests that when an NPA is with an individual for FCPA-related offenses, the agreement is not made public.

Indeed, as highlighted in the prior post “Secret FCPA Enforcement” there have been whispers in the FCPA bar for years about secret FCPA enforcement.  As noted in the prior post, not once, not twice, but three times I sought clarification from the DOJ of the above Guidance statements.

In each instance there was no response. So much for that transparency thing.

Indeed, a key qualifier in Caldwell’s recent speech about transparency was the following statement:  ”we [the DOJ] usually publicly announce corporate resolutions and pleas, and make the documents available on our website”) (emphasis added).

Last, but not least before turning to actual excerpts from Caldwell’s speech, is the topic of so-called DOJ declinations.  As evidence of the DOJ’s purported transparency, Caldwell states that the FCPA Guidance “has a section on declinations and provides anonymized examples of real FCPA cases in which we declined to bring a prosecution.”

However, as highlighted in the article “Grading the FCPA Guidance“ the Guidance declination examples raise more questions than answers. For instance, in three of the examples, it is not even clear based on the information provided that the FCPA was violated.  Moreover, in all the declination examples in the Guidance, the factors motivating the declination decision—such as voluntary disclosure and cooperation, effective remedial measures, small improper payments—can often be found in many instances in which FCPA enforcement actions were brought.

At last to the excerpts in Caldwell’s speech.

“One of my priorities in the Criminal Division is to increase transparency regarding charging decisions in corporate prosecutions.  I know that many corporate counsel have concerns about what they perceive as a lack of transparency in how the department decides when to bring charges, or to seek some lesser resolution.

Greater transparency benefits everyone.  The Criminal Division stands to benefit from being more transparent in part because if companies know the benefits they are likely to receive from self-reporting or cooperating in the government’s investigation, we believe they will be more likely to come in and disclose wrongdoing and cooperate.  And on the flip side, companies can better evaluate the consequences they might face if they do not receive cooperation credit.  Transparency also helps to reduce any perceived disparity, in that companies can compare themselves, as best as possible, to other similarly-situated companies engaged in similar misconduct.

There are often limits to how much we can disclose about our investigations and prosecutions—particularly for investigations in which no charges were brought—but we are trying to be more clear about our expectations for corporate cooperation and the bases for our corporate pleas and resolutions.

One of the themes of today’s program is the shaping of corporate culture.  Shaping corporate culture through deterrence is an area where the Criminal Division plays an important role.  One important purpose of criminal prosecution of corporations is the deterrence of future would-be wrongdoers.  But to achieve deterrence, the Criminal Division must transparently communicate its expectations and the consequences of corporate misconduct.  An opaque or unreasoned enforcement action carries little deterrent effect.

We recognize the productive role we can play in influencing corporate conduct, and we take seriously the effects of our enforcement actions.  Wherever possible, we try to communicate clear guidance to the corporate community through our criminal resolutions, our interactions with companies and their counsel during an investigation or prosecution and other channels such as conferences like this one.

During my first year in leading the Criminal Division, we have tried to make as clear as possible what we expect from those companies that choose to cooperate.  Put simply, if a company wants cooperation credit, we expect that company to conduct a thorough internal investigation and to turn over evidence of wrongdoing to our prosecutors in a timely and complete way.  Perhaps most critically, we expect cooperating companies to identify culpable individuals—including senior executives if they were involved—and provide the facts about their wrongdoing.

As this sophisticated audience knows, there is no “off the rack” internal investigation that can be applied to every situation at every company.  Effective investigations must be tailored to the unique misconduct at issue and the circumstances of each company.  But, there are hallmarks of all good internal investigations.  Chief among them is the identification of wrongdoers.  Prosecuting individuals, including corporate executives, for their criminal wrongdoing is a top priority for the Criminal Division.  Corporations seeking cooperation credit should conduct their internal investigations with those principles in mind.

The mere voluntary disclosure of corporate misconduct—by itself—is not enough.  All too often, corporations expect cooperation credit for voluntarily disclosing and describing the corporate entities’ misconduct, and issuing a corporate mea culpa.  True cooperation, however, requires identifying the individuals actually responsible for the misconduct—be they executives or others—and the provision of all available facts relating to that misconduct.

Investigations must also be independent and designed to uncover the facts, not to spread company talking points or whitewash the truth.  We expect that the complete facts about the wrongdoing will be provided, and in a timely way.  As we work to be transparent, we expect transparency in return.  Transparency is a two-way street, and we expect companies that are claiming to cooperate to walk the walk.

The Criminal Division, meanwhile, will conduct its own investigation.  We will pressure test a company’s internal investigation with the facts we gather on our own, and we will consider the adequacy of an internal investigation when we evaluate a company’s claim of cooperation.

Let me be clear, however, the Criminal Division does not dictate how a company should conduct an investigation.  If a company decides to conduct an internal investigation and seek cooperation credit, that company must determine how best to conduct its own internal investigation.  Although we can provide guideposts, the manner in which an internal investigation is conducted is an internal corporate decision.

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We recognize that information about the bases for our corporate guilty pleas and resolutions is an important reference point for companies that are evaluating whether to self-disclose a violation or cooperate.  Corporations may wish for a formula or definitive matrix that could be applied in this context.  But, while a rote formula might bring certainty and consistency, it would do so at the expense of the individualized justice that comes with thoughtful and nuanced prosecutorial decision-making.

For decades, the department has disclosed the factors that prosecutors must evaluate when considering corporate criminal charges and resolutions.  The corporate prosecution principles were originally adopted two decades ago—in the Holder Memo, issued when now Attorney General Holder was the Deputy Attorney General—and have been refined through the years into the current Filip Memo, otherwise known as the Principles of Prosecution of Business Organizations.

This audience is no doubt versed in the comprehensive considerations laid out in the nine Filip factors, which are publicly available on the Internet.  When applied to a particular case against a business organization, the factors could lead to charges, a deferred prosecution agreement or a non-prosecution agreement—known as DPAs and NPAs—or a declination.

Arriving at a corporate resolution requires a unique balancing of the Filip factors in each case.  But this balancing does not take place in a prosecutorial vacuum.  In virtually every instance, we invite company counsel to make a presentation regarding the application of the Filip factors in the case at hand before we make a charging decision.  Again, wherever possible, we encourage an open and transparent dialogue between the company and our prosecutors at every stage.

In each of our corporate resolutions—be it a guilty plea, NPA or DPA—we provide an explanation of the key factors that led to our decision.  The factual statements filed with resolution documents typically include a detailed recitation of the misconduct, as publicly admitted by the company.  The actual agreements outline the factors that were significant in determining the type of resolution, such as the corporation’s cooperation—if any—and remedial measures.  We usually publicly announce corporate resolutions and pleas, and make the documents available on our website.

In the future, you should expect that our resolutions will include even more detailed explanations of our considerations.  This is a priority of mine.  While these documents already provide significant insight into our thought processes, they will soon provide an even greater explanation of our analysis and conclusions.

In addition to their use as enforcement tools, our plea agreements, DPAs and NPAs provide a transparent explanation of the department’s expectations when it comes to compliance programs.  Companies seeking to measure their own compliance programs need look no further than many of the resolutions we have made publicly available.

DPAs and NPAs provide explicit roadmaps for companies to get back on track, sometimes under the watchful eye of a monitor or court.  There is perhaps no more transparent guidance to a specific corporation than the terms in a DPA or NPA, especially when we set forth remedial or compliance measures we expect.

These agreements have real teeth.  When companies subject to a NPA or DPA are required to cooperate and fail to do so, or where they engage in other criminal conduct during the term of the agreement, the Criminal Division will not hesitate to tear up a DPA or NPA and file criminal charges, where such action is appropriate and proportional to the breach.  The Criminal Division’s role is not just to set guideposts for companies that have engaged in significant misconduct, but to prosecute those corporations when they ignore those guideposts.  Just as with individuals, companies are expected to learn from their mistakes.  A company that is already subject to a DPA or NPA for violating the law should not expect the same leniency when it crosses the line again.

Over the course of my career, I have found that when it comes to affecting corporate conduct, nothing has a more powerful impact than concrete examples.  Such examples have traditionally stemmed from publicized corporate prosecutions, as it is more challenging to publicize investigations in which we decline to file charges.  The department has maintained a long-standing practice not to discuss non-public information on matters it has declined to prosecute, based in large part on concerns about the privacy rights and interests of uncharged parties.  There are serious privacy concerns inherent in publicly identifying an individual who was implicated in our criminal investigation if we eventually decide not to bring charges.  Indeed, internal department policy prohibits us from publicly identifying those individuals who have been investigated, but not charged.

Likewise, companies often strongly oppose publicity that they were under Justice Department scrutiny, even if we ultimately declined to prosecute.

The challenge we are currently working to address is how to publicize these cases while taking into consideration the legitimate concerns of the companies and individuals who were under investigation.  We are looking for ways to better inform the community about cases in which we decline to prosecute, as there is often as much to learn from a decision not to bring charges as a decision to prosecute.  We seek not just to prosecute, but to encourage and reward good corporate citizenship, and increasing transparency can play an important role in achieving that goal.

A significant example of our efforts in this regard is the Foreign Corrupt Practices Act Resource Guide published by the Criminal Division and the Securities and Exchange Commission.  The Guide has a section on declinations and provides anonymized examples of real FCPA cases in which we declined to bring a prosecution.  Although each potential case is based on its own unique circumstances and facts, the examples in the Guide provide useful insight into the circumstances of real-world declination decisions.

The Criminal Division’s FCPA website continues this effort at transparency by posting relevant enforcement actions and opinion letters.  The department responds to opinion requests concerning enforcement intent about prospective actions that might violate the anti-bribery provisions of the FCPA.  This procedure enables companies and individuals to request a determination in advance as to whether proposed conduct would constitute a violation of the FCPA.  These opinion letters are publicly available on our website.  While they are binding only on the party that makes the request, they provide significant guidance on the department’s approach to enforcing the FCPA.

Through these and other steps, the Criminal Division has prioritized increased transparency in our corporate investigations and prosecutions.  We strive to disclose more information, to the extent we can, while protecting ongoing investigations and privacy rights.  And we encourage companies to do the same—to self-disclose criminal violations and to cooperate with our investigations—or risk the consequences.”

Senate Remains Interested In FCPA Issues

Thursday, February 12th, 2015

SenateGranted it has been approximately four years since the Senate held its Foreign Corrupt Practices hearing in November 2010.  (The House followed-up with an FCPA hearing in June 2011).

FCPA reform legislation was never introduced (for potential reasons why – see this article), yet the Senate very much remains interested in FCPA issues.

The Senate Judiciary Committee recently released this document which contains Attorney General Nominee Loretta Lynch’s responses to various Senator questions.

The remainder of this post excerpts all FCPA related questions and Lynch’s answers.

As highlighted below, the Q&A’s cover the following topics:  DOJ guidance, DOJ declinations, “FCPA abuses” (as stated in a series of questions), Andrew Weissman’s FCPA reform positions prior to recently re-joining the DOJ (see here for the prior post), international cooperation, FCPA reform (including a compliance defense), and the time it takes to resolve FCPA investigations.

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FROM SENATOR GRASSLEY (R-IA)

Q: In 2012, the Department of Justice and Securities Exchange Commission (SEC) issued joint guidance detailing Foreign Corrupt Practices Act (FCPA) enforcement information and the agencies’ enforcement priorities. While the guidance clarified portions of the law and some of the agencies’ enforcement theories, many companies and individuals seeking to comply with the FCPA have asked for further, and continued, clarification. This request was expressed to Attorney General Eric Holder and Assistant Attorney General Leslie Caldwell during previous Committee hearings.

a. If confirmed, will you commit to working with companies and individuals to further improve the Guidance?

RESPONSE: If I am confirmed as Attorney General, I look forward to continuing the outreach efforts that the Department has been making with the private sector to understand their needs and concerns and, if necessary, update and/or improve the Guide.

b. Will you commit to updating the Guidance, when necessary, to reflect changes in DOJ enforcement practices?

RESPONSE: If I am confirmed as Attorney General, I look forward to continuing efforts that the Department has been making to provide meaningful guidance in the FCPA context where necessary and appropriate.

In the area of FCPA enforcement, there is little guiding case law available for compliance practitioners to rely on. However, the FCPA Guidance that was issued in 2012 took an important first step in helping practitioners understand how the enforcement agencies’ interpret the statute. The Guidance includes six anonymized examples of declinations— instances where the DOJ and SEC declined to bring FCPA-related enforcement actions in recognition of the companies’ timely voluntary disclosures, meaningful cooperation, and sophisticated compliance policies and controls. The continued publication of FCPA declinations would foster greater FCPA compliance by providing practitioners with a better understanding of how the FCPA is interpreted. If confirmed, would you support increasing DOJ transparency regarding declination decisions?

RESPONSE: As you know, the United States Attorney’s Manual provides a mechanism to allow for notification to an individual (or entity), where appropriate, that an investigation as to that individual (or entity) is being closed. If I am confirmed as Attorney General, I look forward to continuing the Department’s practice of providing meaningful guidance in the FCPA context (such as procedures to respond to opinion requests) and of actively pursuing and implementing means by which declinations and other information about the decision to prosecute, or not, can be responsibly and appropriately shared.

FROM SENATOR CRUZ (R-TX)

DOJ Foreign Corrupt Practices Act Abuses

In much the same way as civil forfeiture, critics of the FCPA note that the Department of Justice collects and retains for use (without further congressional approval or disbursal from the Treasury) fines paid in settlement of federal FCPA investigations. This ability to retain FCPA fines incentivizes not only a vigorous application of the FCPA, but also “creative” legal theories (which can lead to investigations of companies for potentially innocuous behavior). Critics of the FCPA, and the Department’s pursuit of FCPA investigations, point out that the combination of investigation and potential litigation expenses frequently drive what may be innocent companies to settle, which both cements the revenue source for the Department and prevents federal judges from having opportunities to interpret provisions of the FCPA.

Do you agree or disagree with the claim that the ability of the Department of Justice to keep and use FCPA settlement fines incentivizes application of the FCPA? If you disagree with this claim, please provide a detailed explanation as to why.

RESPONSE: I disagree with this claim, which I believe is built on a faulty premise regarding the process by which criminal fines and other financial penalties are paid and subsequently put to use. Fines for FCPA violations are not “kept” or “used” by the Department, and no such use incentivizes application of the FCPA. Rather, as with all cases, the Department considers the strength of the evidence and other long-standing policy considerations (see, e.g., United States Attorney’s Manual (USAM) 9-28.300) in determining whether to bring an FCPA prosecution.

A company convicted of an FCPA violation pays any accompanying fine not to the Department but to the relevant U.S. district court clerk’s office. Those funds are then directed to the Crime Victim Fund, which is a U.S. Treasury fund created pursuant to Title 42, United States Code, Section 10601. Funds paid into the U.S. Treasury are not available for use by the Department except through the appropriations process or by statute.

A company that settles an FCPA investigation through a non-prosecution or deferred prosecution agreement pays any accompanying financial penalty not to the Department but to the U.S. Treasury. Pursuant to Congressional authorization and strict Departmental oversight, a small percentage of these funds may be made available to the Department. More specifically, in 1993 Congress authorized the creation of a 3% working capital fund (“3% Fund”) for the Department. See Public Law 113-234, 28 C.F.R. Section 527. Three percent of penalties associated with certain financial recoveries, including through non-prosecution and deferred prosecution agreements, are paid into the 3% working capital fund. After rigorous review by the Collection Resources Allocation Board, overseen by the Justice Management Division, the Department may award funds from the 3% Fund to support certain litigation, data administration, and personnel costs.

Has your office actually tried any FCPA cases to a verdict in federal court? If the answer is yes, please provide details about these cases.

RESPONSE: The Eastern District of New York has participated in a number of significant FCPA investigations with the Fraud Section of the Criminal Division of the Department, and it continues to do so. To date, these investigations have resulted in two corporate resolutions: (1) In re Ralph Lauren, NPA, $882,000 penalty, press release at: http://www.justice.gov/opa/pr/ralph-lauren-corporation-resolves-foreign-corrupt-practices-actinvestigation-and-agrees-pay; and (2) In re Comverse Technology, Inc., NPA, $1.2 million penalty, press release: http://www.justice.gov/opa/pr/comverse-technology-inc-agrees-pay-12- million-penalty-resolve-violations-foreign-corrupt); and one guilty plea by Garth Peterson of Morgan Stanley (and a declination against Morgan Stanley) (press release: http://www.justice.gov/opa/pr/former-morgan-stanley-managing-director-pleads-guilty-roleevading-internal-controls-required). While the Department has conducted FCPA trials in many districts, the United States Attorney’s Office for the Eastern District of New York has not had an FCPA trial to date.

As you know, the Criminal Division’s Fraud Section is charged with investigating and enforcing the criminal provisions of the FCPA. Recently, Andrew Weissmann was selected to be the Chief of the Fraud Section. Mr. Weissmann is a former prosecutor and FBI general counsel. In private practice, however, Mr. Weissmann has been an outspoken critic of DOJ’s FCPA program. Specifically, in a report36 Mr. Weissmann drafted for the U.S. Chamber of Commerce’s Institute for Legal Reform, he has recommended that: (1) a compliance defense to the FCPA should be added; (2) a company’s liability should be limited for the prior actions of a company it has acquired; (3) a “willfulness” element should be added for corporate criminal liability; (4) a company’s liability should be limited for the actions of a subsidiary; and (5) the definition of “foreign official” under the FCPA should be changed.

Do you agree with any, some, or all of Weissmann’s proposals for reforming the FCPA?

RESPONSE: It is my understanding that Mr. Weissmann made these comments while in private practice and in connection with his representation of the U.S. Chamber Institute for Legal Reform (“Chamber”). It is also my understanding that, in the intervening time period, the Department has met with the Chamber, as well as other stakeholders, to engage in a healthy and productive dialogue regarding the Department’s interpretation and application of the FCPA. If confirmed as Attorney General, I would continue to foster dialogue with the Chamber and other stakeholders regarding our FCPA program.

Which of these changes (if any) do you think could be done administratively, as opposed to legislatively?

RESPONSE: I do not support the proposed changes. Several of them would be a significant departure from general principles of corporate criminal law, effectively creating unique exceptions for FCPA cases that are unwarranted, are contrary to Congress’s intent in enacting the FCPA, and would impose often insurmountable obstacles to effective enforcement of the FCPA.

In 2004, then-Deputy Attorney General (and current director of the Federal Bureau of Investigation) James Comey stated that “[the Department of Justice wants] real time enforcement, so that the public and potential white collar criminals see that misdeeds are swiftly punished.” Despite this statement, the 2014 OECD Foreign Bribery Report noted that “the average time taken (in years) to conclude foreign bribery cases has steadily increased over time, [from an average of 1.3 years in 2004] peaking at an average of 7.3 years taken to conclude the 42 cases in 2013.” Lengthy federal investigations not only place a tremendous financial burden on the targeted corporations and their shareholders, but also on taxpayers who shoulder the agency’s expenses for conducting the investigation.

Do you agree or disagree with Director Comey’s statement regarding the value of real-time law enforcement? If you disagree with this statement, please provide a detailed explanation as to why.

RESPONSE: I agree that law enforcement must move swiftly and responsibly in investigating both white collar and other criminal activity. I also agree that, for deterrence purposes, it is important to move quickly and bring charges against those individuals and companies that have engaged in criminal behavior. While the Department has been working diligently to find meaningful and reasonable ways to reduce the time white collar FCPA investigations take, the question’s reliance on the OECD Foreign Bribery Report is misplaced. As I understand it, the referenced statistic is based on an aggregate of all the OECD Working Group members’ cases, rather than isolating the time taken by the United States in its cases. Also, this statistic does not measure the length of the criminal investigation. Rather, it measures the time between the last criminal act and the sanction, increasing substantially the time measured, since the Department (or foreign law enforcement) might not learn about a potential violation until years after the last criminal act has occurred.

Given that the FCPA Unit within the Department’s Fraud Section has expanded its personnel from 2004 to today, and given that the Department receives even more international cooperation today than it did in 2004, do you agree or disagree that the Department should be witnessing reduced investigative timelines for FCPA investigations rather than increased timelines? If you disagree with this statement, please provide a detailed explanation as to why.

RESPONSE: Additional resources and cooperation are greatly appreciated and can often be key factors in expediting criminal investigations. However, they are only two of many factors that can influence the time it takes to conduct a successful investigation of any kind. Compared to other white collar investigations, the challenges associated with FCPA investigations can be much greater. Because of the nature of the offense, most of the evidence in these cases is typically located overseas. While international cooperation efforts have expanded significantly over the past ten years, the process for obtaining evidence from overseas is still time-consuming.

Before you are confirmed to serve as the next Attorney General, will you or will you not commit to dramatically reducing the timeline of FCPA-related Fraud Unit investigations, in order to reduce the financial burden on potentially innocent corporations and reduce investigation-related taxpayer expenses? If you will not commit to reducing these investigative timelines, please provide a detailed explanation as to why.

RESPONSE: Under my leadership, the Eastern District of New York has been committed to increasing the speed of its white collar investigations, including its FCPA investigations. As a result of the particular challenges of corporate and overseas investigations, however, the investigations can take a significant amount of time. While improvements in this area can be made, irresponsibly or artificially expediting an investigation solely for the sake of speed can harm the investigation and the pursuit of justice, as well as create greater harms to the targets, subjects, and witnesses in our investigations. If I am confirmed as Attorney General, you can be assured that the Department will continue to review each case on its merits and will move as expeditiously and responsibly as possible.

Often, many of the countries with corrupt officials are the same countries that harbor terrorists, that seek to undermine U.S. foreign policy, and that have rampant bid rigging and illegal cartel conduct. On the opposite side of the equation, there are an increasing number of countries that have passed new anti-bribery statutes in the hope of curbing their own internal corruption problems and spurring legitimate economic growth.

How will you marshal the criminal justice resources of the Department of Justice to enforce the FCPA in a way that helps in the fight against terrorism, cartel conduct, and international money laundering? Please provide a detailed explanation, based on your current experience as United States Attorney for the Eastern District of New York, of how you intend to tackle the problem.

RESPONSE: As the United States Attorney for the Eastern District of New York, I am well aware of the link between corruption, corrupt regimes, and transnational crime, including economic crime, human trafficking, narcotics trafficking, money laundering, and even terrorism. In addition to prosecuting foreign corruption, narcotics trafficking, money laundering, and terrorism cases, the Department works closely with its counterparts throughout the U.S. government to devise and implement robust anticorruption strategies. For example, my Office has worked closely with the intelligence community on terrorism and corruption-related matters. The Department further participates, along with colleagues in other agencies in the U.S. government, in developing anticorruption policies through various international organizations and anticorruption conventions, including the Organization for Economic Cooperation and Development’s Working Group on Bribery, the G-7, the G-20, and the U.N. Convention Against Corruption. The Department also consults with civil society organizations involved in the battle against corruption. If confirmed as the Attorney General, I would continue to ensure that fighting corruption overseas, as well as domestically, remains a top priority for the Department. I would ensure that resources are appropriately directed to enforcing U.S. laws targeting foreign corruption, recovery of assets stolen by kleptocrats, and corrupt regimes.

Given that more and more countries are enacting and enforcing anti-bribery statutes, would you agree or disagree that the FCPA ought to be amended to restrict FCPA jurisdiction to countries that do not have a prima facie anticorruption infrastructure? If you disagree with this statement, please provide a detailed explanation as to why.

RESPONSE: Such an exception would be unique under federal law. I disagree with this approach, as I believe it would do harm to the Department’s anticorruption efforts. The Department works closely with countries that are developing their own anticorruption infrastructures, and we are well aware that it can take years of persistent effort to create an effective and holistic response to corruption of domestic and foreign officials.

As a recent OECD Report on Foreign Bribery noted, enforcement of existing anticorruption statutes, particularly those targeting foreign bribery, is improving but has a long way to go to see consistent and effective enforcement even among top economies in the world.

The Department of Justice generally emphasizes the benefit of voluntary self-disclosure to, and voluntary cooperation with, FCPA investigations. Corporations are increasingly questioning the benefit, however, of rushing toward self-disclosure without demonstration of some sort of legal or cost benefit for doing so. To address this, some practitioners have suggested that the FCPA should contain a “safe harbor” from criminal prosecution for corporations that (1) have robust compliance programs, (2) self-disclose potential FCPA violations, and (3) cooperate fully with the Department’s investigation, akin to what the Antitrust Division has for cartel enforcement. (The Department would, of course, be able to continue to obtain non-criminal penalties for violations.)

Do you agree or disagree with the statement that there should be an FCPA “safe harbor provision” to help corporations that are trying to do the right thing? If you disagree with this statement, please provide a detailed explanation as to why.

RESPONSE: I do not believe a “safe harbor provision” is necessary or desirable. Both the U.S. Sentencing Guidelines and the Department of Justice already provide significant benefits for companies that have robust compliance programs, self-disclose potential FCPA violations, and cooperate fully with the Department’s investigation. Indeed, in a recent FCPA matter, the Criminal Division and the Eastern District of New York declined to prosecute Morgan Stanley based on many of those factors, among others, despite the fact that one of its Managing Directors bribed a foreign official to obtain business for and on behalf of Morgan Stanley.

If you agree with the concept of an FCPA safe harbor provision, please describe what the structure or contours of such a safe harbor provision should be, and how you would implement that provision. Please provide a detailed explanation, based on your current experience as United States Attorney for the Eastern District of New York, of how you would write and implement such a provision.

RESPONSE: The factors outlined in your question are important considerations in all FCPA cases, but I do not believe that a “safe harbor provision” is necessary or desirable.

Members of the business community, practitioners, commentators, and even members of Congress have expressed frustration with the Department of Justice’s failure to publicize declined FCPA prosecutions, even where there is public knowledge that a particular corporation is under investigation. This practice may have several negative effects, including preventing corporations from having clarity about what type of conduct is considered acceptable. Given the Department’s financial incentive to ensure robust application of the FCPA, there is concern that this refusal to publish decline-to-prosecute information is intended to protect the FCPA fine-based revenue source for the Department.

Would you agree or disagree with the statement that FCPA decline-to-prosecute decisions should be made available to the public? If you disagree with this statement, please provide a detailed explanation as to why.

RESPONSE: I agree that the Department should continue to explore ways by which it can responsibly share information while protecting the many sensitive interests that federal, criminal investigations implicate. The Department has a longstanding general practice of refraining from discussing non-public information on matters it has declined to prosecute. This practice is designed to protect ongoing investigations, privacy rights and other interests of uncharged parties, and sensitive, internal law enforcement deliberations. This practice and these considerations apply across the enforcement of all federal criminal laws.

Nevertheless, I must emphasize that the Department does pursue means by which declinations and other information about the decision to prosecute can be responsibly shared with entities or individuals under investigation, the business community, practitioners, commentators, and members of Congress. The United States Attorney’s Manual (USAM) describes situations in which a United States Attorney can exercise discretion to provide notice that an investigation is being closed. See USAM § 9-11.155. Further, in the last two years, the Department has made great efforts to provide more information and transparency in the area of the FCPA, including the publication of A Resource Guide to the U.S. Foreign Corrupt Practices Act (the “Resource Guide”). The Resource Guide, which was written by the Department and the U.S. Securities and Exchange Commission (SEC), provides the public with extensive information about the Department’s FCPA enforcement approach and priorities. It contains a section on declinations and sets out criteria prosecutors consider in declining to bring a prosecution under the FCPA. In addition, the Department responds to opinion requests concerning its enforcement intent about actions that may be perceived as violating the anti-bribery provisions of the FCPA. See Title 15, United States Code, Sections 78dd-l(e) and 78dd-2(f). These opinion letters provide significant additional insight into the Department’s enforcement views, as well as transparency for companies, individuals, and practitioners as to what is acceptable or not.

Before you are confirmed to serve as the next Attorney General, will you or will you not commit to publishing information about the FCPA cases that the Department has decided not to pursue or prosecute? If you will not commit to publishing this information, please provide a detailed explanation as to why.

RESPONSE: I will commit to continuing the Department’s practice of actively pursuing and implementing means by which declinations and other information about the decision to prosecute, or not, can be responsibly and appropriately shared. As detailed in my answer to the preceding question, the United States Attorney’s Manual already provides a mechanism to provide notice that an investigation is being closed. I also commit to continuing the Department’s recent efforts to provide more information and transparency, as it did by publishing the Resource Guide.

The Black Hole Of FCPA Enforcement

Tuesday, February 3rd, 2015

Black HoleReaders frequently contact me with good questions about recent Foreign Corrupt Practices Act enforcement actions.

Recent examples include the following.

In connection with the recent enforcement action against individuals associated with FLIR Systems Inc., will there be a corporate enforcement action?  Given that the SEC alleged that the individuals (both U.S. citizens) not only engaged in improper conduct, but also engaged in a “cover-up” as to their conduct, will there be a DOJ criminal enforcement action against the individuals?

In connection with the recent Dutch enforcement action against SBM Offshore, will there be a DOJ or SEC enforcement action? After all, the company disclosed to U.S. authorities, as well as Dutch authorities, and the company does have American Depositary Receipts traded on U.S. exchanges, a hook the DOJ and SEC have used before in bringing an enforcement action against a foreign company.

In connection with the recent Layne Christensen enforcement action – why did voluntary disclosure and cooperation result in an SEC administrative cease and desist order in that case, but a SEC NPA in another case, a SEC DPA in another case, and a SEC civil complaint in another case?

I read the same FCPA enforcement actions and other information as others, and being a professor, am predisposed to come up with some value-added answer.  Yet when it comes to FCPA enforcement, my answer is often, good question, I don’t know, there is often a black hole when it comes to FCPA enforcement.

While that is often my answer, opaque law enforcement and its resulting contradictions and inconsistencies is contrary to the rule of law.

To state the obvious, FCPA enforcement could benefit from greater transparency.  While the below reform proposal I first articulated in 2010 is not a panacea, it is a start.

When a company voluntarily discloses an FCPA internal investigation to the DOJ and/or SEC, and when the DOJ / SEC do not bring an enforcement action, in these situations it is in the public interest to require the enforcement agencies  to publicly state, in a thorough and transparent manner, the facts the company disclosed and why there was no enforcement action based on those facts.

Here is why I think the proposal makes sense and is in the public interest.

For starters, the enforcement agencies are already enthusiastic when it comes to talking about FCPA issues. Enforcement attorneys from both the DOJ and SEC are frequent participants on the FCPA conference circuit and there seems to be no other single law that is the focus of more DOJ speeches than the FCPA. Thus, there is clearly enthusiasm and ambition at the enforcement agencies when it comes to the FCPA.

Further, the enforcement agencies both have specific FCPA Units (which we are told has dozens of attorneys) and thus have the resources to accomplish this task. Combine enthusiasm and ambition with sufficient resources and personnel and the proposal certainly seems doable.

Most important, the DOJ is already used to this type of exercise. It is called the FCPA Opinion Procedure Release  a process the DOJ frequently urges those subject to the FCPA to utilize. Under the Opinion Procedure regulations, an issuer or domestic concern subject to the FCPA can voluntarily disclose prospective business conduct to the DOJ which then has an obligation to respond to the request by issuing an opinion that states whether the prospective conduct would, for purposes of the DOJ’s present enforcement policy, violate the FCPA. The DOJ’s opinions are publicly released  and the FCPA bar and the rest of FCPA Inc. often study these opinions in great detail in advising clients largely because of the general lack of substantive FCPA case law. If the DOJ is able to issue an enforcement opinion as to voluntarily disclosed prospective conduct there seems to be no principled reason why the enforcement agencies could not issue a non-enforcement opinion as to voluntarily disclosed actual conduct. Such agency opinions would seem to be more valuable to those subject to the FCPA than the FCPA Opinion Procedure Releases. If the enforcement agencies are sincere about providing guidance on the FCPA, as they presumably are, such agency opinions would seem to provide an ideal platform to accomplish such a purpose.

Requiring the enforcement agencies to disclose non-enforcement decisions after a voluntary disclosure could also inject some much needed discipline into the voluntary disclosure decision itself – a decision which seems to be reflexive in many instances any time facts suggest the FCPA may be implicated.

Notwithstanding the presence of significant conflicting incentives to do otherwise, it is hoped that FCPA counsel advises clients to disclose only if a reasonably certain legal conclusion has been reached that the conduct at issue actually violates the FCPA.  Accepting this assumption, transparency in FCPA enforcement would be enhanced if the public learned why the enforcement agencies, in the face of a voluntary disclosure, presumably disagreed with the company’s conclusion as informed by FCPA counsel. If the enforcement agencies agreed with the conclusion that the FCPA was violated, but decided not to bring an enforcement action, transparency in FCPA enforcement would similarly be enhanced if the public learned why.

A final reason in support of the proposal is that it would give companies a benefit by contributing to the mix of public information about the FCPA.  In most cases, companies spend millions of dollars investigating conduct that may implicate the FCPA and on the voluntary disclosure process. When the enforcement agencies decline an enforcement action, presumably because the FCPA was not violated, these costs are forever sunk and the company can legitimately ask why it just spent millions investigating and disclosing conduct that the DOJ  did not conclude violated the FCPA.

However, if the enforcement agencies were required to publicly justify their non-enforcement decision, the company would achieve, however small, a return on its investment and contribute to the mix of public information about the FCPA – a law which the company will remain subject to long after its voluntary disclosure and long after the enforcement agencies non-enforcement decision. Thus, the company, the company’s industry peers, and indeed all those subject to the FCPA would benefit by learning more about the DOJ/SEC’s enforcement conclusions.

Transparency, accountability, useful guidance, a return on investment.

All would be accomplished by requiring the enforcement agencies  to publicly justify a non-enforcement decision in situations where no enforcement action follows a voluntary disclosure.