To those well-versed on prior DOJ FCPA policy speeches, there was little new in Caldwell’s speech (and you can assess this for yourself by visiting this subject matter tag which highlights every DOJ FCPA policy speech in the public domain over the last several years).
The only “new” item in Caldwell’s speech was her announcement that the DOJ is ”preparing to add 10 new prosecutors to the Fraud Section’s FCPA Unit, increasing its size by 50 percent.” But here again, for years the DOJ and/or FBI have been trumpeting the ever increasing persons in their respective FCPA units.
Prior to excerpting, Caldwell’s speech, a few observations about the voluntary disclosure and “secret” FCPA enforcement aspects of Caldwell’s speech.
For years, there have been whispers in the FCPA space about “secret” FCPA enforcement actions. As noted in this prior post, the 2012 FCPA Guidance seemed to confirm such whispers as the Guidance stated:
This statement only deepens the mystery surrounding apparent “secret” FCPA enforcement and the irony is that Caldwell’s statement was made in the same speech in which she stated “greater transparency benefits everyone.”
The remainder of this post excerpts Caldwell’s speech.
“I appreciate the opportunity to talk with you today about the Justice Department’s (DOJ) increasing attention to the investigation and prosecution of international corruption under the FCPA.
In 1977, when Congress enacted the FCPA, it called the “payment of bribes to influence the acts or decisions of foreign officials…unethical [and] counter to the moral experience and values of the American public.” In the investigations leading to the act’s passage, Congress uncovered more than $300 million—or nearly $1.2 billion in 2015 dollars—in bribes paid by American companies to foreign officials.
Unfortunately, in the intervening 38 years, corruption has not disappeared. In fact, as globalization increases, there is some evidence that corruption has as well. The FCPA has, however, helped bring to justice some of the largest-scale perpetrators of economic corruption, and in 2014, companies paid more than $1.5 billion in corporate FCPA penalties to DOJ alone. And that does not include payments made to other U.S. and foreign entities. Clearly, our work to uphold the “moral experience and values of the American public” remains unfinished.
As you may know, that work is led by a team of federal prosecutors in the Criminal Division’s Fraud Section. They are joined in this fight against international corruption by their colleagues in the Asset Forfeiture and Money Laundering Section—known as AFMLS—which pursues prosecutions against institutions and individuals engaged in money laundering, Bank Secrecy Act violations and sanctions violations.
AFMLS attorneys also seek the forfeiture of proceeds of high-level foreign corruption through the relatively new Kleptocracy Asset Recovery Initiative. The two units complement each other in their efforts to hold both bribe payers and bribe takers accountable for their criminal conduct.
I would like to talk with you today about our ongoing efforts to enhance the Criminal Division’s ability to root out and prosecute corruption, and also to provide increased transparency about the division’s decision-making.
During this past year, we increased our FCPA resources, including by adding three new fully-operational squads to the FBI’s International Corruption Unit that are focusing on FCPA and Kleptocracy matters. We are also preparing to add 10 new prosecutors to the Fraud Section’s FCPA Unit, increasing its size by 50 percent. These new squads and prosecutors will make a substantial difference to our ability to bring high-impact cases and greatly enhance the department’s ability to root out significant economic corruption.
In addition to increased resources directed to FCPA cases, one of my priorities in the Criminal Division has been to increase transparency regarding charging decisions in corporate prosecutions.
Greater transparency benefits everyone. The Criminal Division stands to benefit from being more transparent because it will lead to more illegal activity being uncovered and prosecuted. This is in part because if companies know the consideration 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 early, disclose wrongdoing and cooperate.
On the flip side, companies can also better evaluate the consequences they might face if they do not merit that consideration. In both ways, transparency helps achieve the deterrent purpose of the FCPA because comparatively opaque or unreasoned enforcement action can make it more difficult for companies to make their own rational decisions about how to react when they learn of a bribe.
Transparency also helps to reduce any perceived disparity, in that companies can compare themselves 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 are brought—but we are trying to be more clear about our expectations in corporate investigations and the bases for our corporate pleas and resolutions.
Let me provide some examples to illustrate this point.
Just a few months ago, the former co-CEO of PetroTiger pleaded guilty to conspiring to violate the FCPA. He joined his fellow co-CEO and the company’s former general counsel in being convicted of bribery and fraud charges after a DOJ investigation that revealed a scheme to secure a $39 million oil-services contract for PetroTiger through bribery of Colombian officials. This was serious misconduct that went to the very top of the company, and in a typical case, criminal charges for the company may well also have been appropriate.
We learned about this misconduct through voluntary disclosure by PetroTiger, however. And after that self-disclosure, the company fully cooperated with the department’s investigation of the misconduct and of the individuals responsible for it. As you likely know, the department ultimately declined to prosecute the company, or to seek any NPA (non-prosecution agreement) or DPA (deferred prosecution agreement) with it, even though we clearly could have done so.
By contrast, in December of last year—about a month after I last addressed this conference—Alstom S.A., the French power company, pleaded guilty to violating the FCPA. In fact, Alstom was sentenced just last week. Alstom admitted to its criminal conduct and agreed to pay a penalty of more than $772 million, the largest foreign bribery resolution with the Justice Department ever. In addition, Alstom’s Swiss subsidiary pleaded guilty to conspiracy to violate the anti-bribery provisions of the FCPA. Two U.S.-based subsidiaries also admitted to conspiring to violate the FCPA and entered into deferred prosecution agreements. The investigation resulted in criminal charges against five individuals, including four corporate executives, in connection with the bribery scheme. To date, four of those individuals have pleaded guilty.
Given the significant scope of the misconduct in that case—including the involvement of corporate executives—it is fair to say that the factors we look at in these cases weighed in favor of some kind of criminal disposition. And it would also be fair to point out that what was missing in those factors was any strong argument, of the type that PetroTiger was able to make, for prosecutorial consideration for Alstom’s own efforts to mitigate the misconduct. Rather, unlike PetroTiger, Alstom did not voluntarily disclose the misconduct and refused to cooperate with our investigation until years later, after we had already charged company executives.
When we talk about this kind of credit for mitigation in FCPA corruption cases, we cannot talk simply about “cooperation.” Cooperation is only one element of mitigation. In our view, a company that wishes to be eligible for the maximum mitigation credit in an FCPA case must do three things: (1) voluntarily self-disclose, (2) fully cooperate and (3) timely and appropriately remediate.
When a company voluntarily self-discloses, fully cooperates and remediates, it is eligible for a full range of consideration with respect to both charging and penalty determinations.
Of course, in some cases the scope or seriousness of the criminal activity or the company’s history will mandate a criminal resolution, but in those cases it will be even more important for the company to present the strongest possible mitigation. And companies that fail to self-disclose but nonetheless cooperate and remediate will receive some credit. But that credit for cooperation and remediation will be measurably less than it would have been had the company also self-reported.
Let me walk through now in more detail the elements of those three factors.
First, as I have said before, companies for the most part have no obligation to self-disclose criminal wrongdoing to the Justice Department. That has not changed. And we are not reliant on corporate self-reporting in the FCPA or any other context—indeed, the majority of our FCPA cases are investigated and prosecuted without a voluntary disclosure and sometimes, as in the Alstom case, without corporate cooperation.
As time passes and the world continues to shrink, we have more and more sources of information about FCPA violations, ranging from whistleblowers, to foreign law enforcement, to competitors, to current and former employees, the foreign media, and others. So if you discover an FCPA violation that you opt not to self-report, you are taking a very real risk that we will one day find out, or that we already know, and you will not be eligible for the full range of potential mitigation credit.
That said, we recognize that companies often are reluctant to self-report FCPA violations, especially when they believe that we may not otherwise learn of the misconduct. And we also recognize that FCPA investigations present challenges for us that make them different in some important ways from other types of white collar crime.
By their nature, overseas bribery schemes can be especially difficult to detect, investigate and prosecute. Individuals who violate the FCPA and relevant evidence often are located overseas—sometimes in jurisdictions with which we have limited relationships. FCPA violations often involve one or more third parties, such as resellers or agents, also located overseas. Money often moves through multiple offshore accounts, usually in the names of shell corporations. The transactions almost always are concealed in some fashion from the company’s books and records. And the company often is much better-positioned than the Justice Department to get to the bottom of things in an efficient and timely fashion.
For these reasons, voluntary self-disclosure in the FCPA context does have particular value to the department. Because of that, we want to encourage self-disclosure by making clear that, when combined with cooperation and remediation, voluntary disclosure does provide a tangible benefit.
What do I mean by voluntary self-disclosure? I mean that within a reasonably prompt time after becoming aware of an FCPA violation, the company discloses the relevant facts known to it, including all relevant facts about the individuals involved in the conduct.
To qualify, this disclosure must occur before an investigation—including a regulatory investigation by an agency such as the SEC—is underway or imminent. And disclosures that the company is already required to make by law, agreement or contract do not qualify.
Second, in line with the focus on individual accountability for corporate criminal conduct announced earlier this year by Deputy Attorney General Sally Yates, companies seeking credit must affirmatively work to identify and discover relevant information about the individuals involved through independent, thorough investigations.
Companies cannot just disclose facts relating to general corporate misconduct and withhold facts about the individuals involved. And internal investigations cannot end with a conclusion of corporate liability, while stopping short of identifying those who committed the underlying conduct.
In addition to identifying the individuals involved, full cooperation includes providing timely updates on the status of the internal investigation, making officers and employees available for interviews—to the extent that is within the company’s control—and proactive document production, especially for evidence located in foreign countries.
Some have expressed concern that we now expect companies to conduct more extensive—and expensive—investigations to obtain credit for cooperating. That is not the case. As I have said before, we are not asking companies to boil the ocean.
As always, we continue to expect investigations to be thorough and tailored to scope of the wrongdoing, and to identify the wrongdoing and the wrongdoers. We expect cooperating companies to make their best effort to uncover the facts with the goal of identifying the individuals involved. To the extent companies and their counsel are unclear about what this means, we remain willing to maintain an open dialogue about our interests and our concerns, which should help save companies from aimless and expensive investigations.
A company that does not have access to all the facts, despite its best efforts to do a thorough and timely investigation, will not be at a disadvantage. Our presumption is that the corporate entity will have access to the evidence, but if there are instances where you do not, or you are legally prohibited from handing it over, then, again, you need to explain that to us. And know that we will test the accuracy of your assertions.
We, of course, recognize that we sometimes can obtain evidence that a company cannot. We often can obtain from third parties evidence that is not available to the company. Also, we know that a company may not be able to interview former employees who refuse to cooperate in a company investigation. Those same employees may provide information to us, whether voluntarily or through compulsory process. Likewise, there are times when, for strategic reasons, we may ask that the company stand down from pursuing a particular line of inquiry. In these circumstances, the company of course will not be penalized for failing to identify facts subsequently discovered by government investigators.
Finally, remediation includes the company’s overall compliance program as well as its disciplinary efforts related to the specific wrongdoing at issue. For example, we will consider whether and how the company has disciplined the employees involved in the misconduct. We will also examine the company’s culture of compliance including an awareness among employees that any criminal conduct, including the conduct underlying the investigation, will not be tolerated.
A well-designed and fully-implemented compliance program is key. Such a program should have sufficient resources relative to the company’s size to effectively train employees on their legal obligations and to uncover misconduct in its earliest stages. Compliance personnel should be sufficiently independent so that they are free to report misconduct even when committed by high-ranking officials.
Because this area is nuanced, the Fraud Section has recently retained an experienced compliance counsel to help assess these programs. She has many years of experience in the private sector assisting global companies in different industries build and strengthen compliance controls. We look forward to her insights on issues such as whether the compliance program truly is thoughtfully designed and sufficiently resourced to address the company’s compliance risks and whether proposed remedial measures are realistic and sufficient. She also will be interacting with the compliance community to seek input about ways we can work together to advance our mutual interest in strong corporate compliance programs.
Let me reiterate: there is no requirement that a company self-disclose, fully cooperate or remediate FCPA offenses, and failure to do those things, or to do them to the standards I have described here, in and of itself, does not mean that charges will be filed against a company any more than it would with respect to an individual. But when it comes to serious, readily-provable offenses, companies seeking a more lenient disposition on the basis that they took steps to mitigate the offense after it was discovered are on notice of what the Criminal Division looks for when we consider these mitigating factors.
Just as we expect transparency from companies seeking prosecutorial consideration for mitigating an FCPA offense, we are doing our best to act in kind. 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.
In each of our corporate resolutions—be it a guilty plea, NPA or DPA—we aim to provide a detailed explanation of the key factors that led to our decision. These include a detailed recitation of the misconduct, as publicly admitted by the company and 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.
We know that the overwhelming majority of companies try to do the right thing the overwhelming majority of the time. And we applaud the efforts of corporate counsel and executives alike in establishing and enforcing FCPA compliance programs to prevent violations. I think we can all agree that the FCPA’s ultimate goal – like that of the other criminal statutes we enforce on a daily basis – is not the prosecution and punishment of individuals and companies engaged in bribery as a business practice but rather an end to corruption before it begins. I would much prefer to report lower figures in terms of FCPA prosecutions and penalties in future years if it meant less corruption were occurring.
By increasing the size of our FCPA force and by incentivizing early reporting and thorough compliance programs through increased transparency, we are making progress towards that goal. With the help of companies and their counsel, we can get there sooner. To that end, we look forward to continuing the dialogue of which this conference is a part.”