The Department of Justice’s Pilot Program awards credit and even a pass to companies that go the extra mile after finding evidence of corruption

This year is sure to be one for the books for Foreign Corrupt Practices Act (FCPA) enforcement. By the end of June, there were more FCPA enforcement actions in 2016 than in all of 2015, and it doesn't appear that things will be slowing down anytime soon. The Fed's aggressive campaign against bribery and corruption rolls on.

Yet this surge in FCPA cases isn't even the most significant development in corruption enforcement so far this year. The single most important development is the announcement of the Justice Department's Pilot Program for FCPA enforcement, which provides some relief for companies that meet high standards for cooperating with regulators during investigations.

The Pilot Program, announced the first week of April, laid out how companies can receive significant credit in FCPA enforcement actions. The Justice Department provided four general requirements for a company to receive up to 50 percent discount from the lowest end of the penalty range under the U.S. Sentencing Guidelines. To receive this discount, companies must (1) self-disclose potential FCPA violations, (2) fully cooperate during the investigation, (3) extensively remediate its compliance program, and (4) disgorge any profits the company may have received for conduct that is considered in violation of the FCPA.

bribery imageIn practice, the Pilot Program has actually proved beneficial to companies, as the Justice Department has issued four declinations to prosecute under it, even in cases where evidence supported enforcement actions. All of these companies—Key Energy, Akamai Technologies, Nortek, and Johnson Controls—settled with the Securities and Exchange Commission (SEC) on a civil basis.

The Declination Letters

Gleaning insights for the details of the four cases, however, isn't easy. Key Energy didn't disclose the terms of its declination and the Justice Department did not issue a letter providing any detail as to why it granted it. The only information can be found on an SEC press release noting the settlement of the case. For the other three companies, the letters issued by the DoJ didn't provide much detail.

The Akamai and Nortek declination letters were identical with the exception of the different corporate names. In relevant part they stated, "we have reached this conclusion ... based on a number of factors, including but not limited to the fact that Nortek's internal audit function identified the misconduct, Nortek's prompt voluntary self-disclosure, the thorough investigation undertaken by the company, its fulsome cooperation in this matter (including by identifying all individuals involved in or responsible for the misconduct and by providing all facts relating to that misconduct to the Department), and its agreement to continue to cooperate in any ongoing investigations of individuals, the steps that the company has taken to enhance its compliance program and its internal accounting controls, the company's full remediation." It went on to add that the company had agreed to disgorge profits earned from the questionable behavior.

The JCI letter announcing the declination was no more detailed. "We have reached this decision based on a number of factors, including but not limited to: the voluntary self-disclosure of the matter by JCI; the thorough investigation undertaken by the company; the company's full cooperation in this matter (including its provision of all known relevant facts about the individuals involved in or responsible for the misconduct), and its agreement to continue to cooperate in any ongoing investigations of individuals; the steps that the company has taken and continues to take to enhance its compliance program and its internal accounting controls; and the company's full remediation." As with the Nortek and Akamai the JCI letter also noted the company had agreed to disgorge its profits.

About the only difference I can ascertain in the letters is that Nortek and Akamai provide "fulsome" cooperation, and JCI provided "full" cooperation. Yet, the overall point of these declinations seems to be the cooperation was very substantial.

Contrast the triple declination language with the NPA, which Analogic received, specifically noting the company's lack of full cooperation. It stated, "the company did not receive full cooperation credit because, in the view of the Offices, the company's cooperation subsequent to its self-disclosure did not include disclosure of all relevant facts that it learned during the course of its internal investigation; specifically, the company did not disclose information that was known to the company and Analogic about the identities of a number of the state-owned entity end-users of the company's products, and about certain statements given by employees in the course of the internal investigation;"

All parties admitted to facts, which could have formed the basis of a criminal FCPA enforcement action brought by the DoJ, yet they all received declinations. While it would certainly have been more helpful to have a full release of information by the DoJ, to assist the compliance practitioner in understanding the totality of the facts considered, these three declinations may well mark a new starting point in criminal FCPA enforcement going forward.

Official Policy

Since at least 2014, with the Parker Drilling and Hewlett-Packard FCPA enforcement actions, the DoJ has provided significant credit to companies that thoroughly cooperated and provided extensive remediation during the pendency of their enforcement actions. With the Pilot Program implementation, these shifts are now official DoJ policy.

One other point unrelated to the Pilot Program discussion is the length of time that the Akamai and Nortek matters were concluded. It was less than 18 months for both. This short time frame for a resolution is certainly a welcome development and shows that if a company comes forward quickly, is efficient in its investigation, and is proactive in its remediation, it can benefit with lower overall investigation and remediation costs as well.

2016 may well turn out to be a seminal year in FCPA enforcement. The DoJ Pilot Program has come out of the box with some solid wins for the companies involved, the DoJ and the greater compliance community. If this pattern continues, it will allow the DoJ to focus its resources in driving home the message that it is doing compliance that will not only work to keep a company out of trouble but will also get a company out of trouble.

Box Score Summary of Declinations

Pilot Program

Factor

Self-Disclosure

Cooperation During Investigation

Remediation

Profit Disgorge-ment

Akamai

Yes – before completing internal investigation

  1. Sharing investigation;

2. Identify and present relevant documents;

3. Timely updates;

4. Updates on remedial measures;

5. Translating documents; and

6. Making witnesses available

1. Termination of culpable employees;

2. Revision of internal audit testing and protocol;

3. Strengthening of policies;

4. Creation of Compliance Committee;

5. Institution of mandatory compliance training; and

6. Modify auditing schedule to risk based approach

Yes

Nortek

Yes

  1. Sharing investigation

2. Timely updates

3. Segregation and organization of documents

4. Translation of documents

5. Making witnesses available

6. Conducting Risk Assessment

1. Due diligence program for 3rd parties;

2. Strengthen compliance policies;

3. Enhance compliance function, name CCO;

4. Institution of mandatory compliance training; and

5. Enhance travel and expense controls in China

Yes

JCI

Yes – one month after it received a second anonymous complaint

1. Real time updates, interview summaries and all requested documents;

2. Yates binders including hot docs, interview summaries, chronologies and emails;

3. Preservation of evidence.

1. Termination of culpable employees;

2. Suspension of culpable 3rd parties;

3. Incorporation of culpable China office into existing corp structure;

4. Enhanced integrity testing and auditing, including random audits; and

5. Random testing of transactions

Yes

Key Energy

No

  1. Real time updates during investigation;
  2. Translated documents;
  3. Cooperation with staff
  4. Hired new CCO;
  5. Suspended payments to 3rd parties pending review;
  6. Instituted DD on worldwide basis;
  7. Established enhanced internal controls around payments to 3rd parties
  8. Implemented new business opportunity protocol;
  9. Installed new Comptrollers in Colombia and Mexico;
  10. In-person training and visits by CCO to int’l locations;
  11. Updated Code of Conduct; FCPA policies and procedures, hiring procedures and screening; and
  12. Wound down of all markets outside US
 

Yes 

 


Thomas Fox has practiced law in Houston for 30 years. He is now an independent consultant, assisting companies with FCPA and compliance issues. He is also editor of the award winning FCPA compliance and ethics blog and podcast, “The FCPA Compliance and Ethics Report.”