DOJ Considering Guidance on FCPA Penalties to Enhance Self-Disclosure

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The Justice Department may be revising its guidelines for prosecution of FCPA violations to encourage self-reporting by making the process more transparent, according to recent articles by the Washington Post and Financial Times. A draft of the policy strongly recommends Justice Department attorneys issue a declination to corporate criminal charges in cases where a company self-discloses a violation and fully cooperates with the government’s investigation, including providing information on culpable individuals. The proposed policy is reportedly still under review because of concerns that the guidance will let some companies off too easily.

The recently released Yates Memo encouraged prosecutors to examine all cases for the appropriateness of criminal charges against responsible individuals. It has led some to speculate that more companies will choose to forgo self-disclosure in the context of the FCPA if they must engage in an extensive investigation to discover the misconduct of every individual responsible and turn it over to the government in order to receive any cooperation credit. In cases involving foreign bribery where internal investigation costs are already high, the possibility could discourage them from coming forward in cases where the government might not otherwise discover it.

Ideally, companies would self-disclose and there would be no need for FCPA whistleblowers to report to the U.S. Government – once they report internally the company would treat them fairly, eliminate the problem and disclose externally on their own. This seems like the system that the the DOJ is working towards. If the DOJ policy works, this would decrease the number of whistleblowers that would need to come forward to the U.S. and, as a result, fewer rewards would be paid to FCPA whistleblowers. The question is whether they have to give up to much to the companies breaking the law to get them to come forward.

The alternative to corporate self-disclosure is relying more on whistleblowers. The DOJ does not have a whistleblower program to specifically compensate individuals for information about foreign bribery cases. Its primary mechanism for paying whistleblowers is through the False Claims Act, which rewards individuals for information about fraud in claims for government payouts. This is more useful in cases of health care fraud or challenging military spending.

Instead, the primary mechanism for financial incentives to FCPA whistleblowers is actually through the SEC whistleblower program. The SEC program was created pursuant to the Dodd-Frank Act and offers whistleblowers financial incentives for reporting securities fraud by public traded companies and others violating the securities laws. Since the FCPA is jointly enforced by the SEC and the DOJ, and the SEC whistleblower program provides for the payment of rewards based on related actions, reporting to the SEC under some circumstances could lead to a reward based in part on the amount penalized by the DOJ. However, because the SEC only enforces the federal securities laws, there may be cases where the SEC does not take action and the individual is thus not eligible for an award following a DOJ penalty.

The DOJ can not therefore credibly tell all businesses potentially within their purview that if they don’t self-report, a whistleblower will eventually turn them in. And even in whistleblower cases, because of the complexity and size of these investigations, the SEC and DOJ probably need the cooperation of the companies in order to conduct a truly thorough assessment of the violations and deal with translation issues. This is what the DOJ is struggling with in the creation of this policy.

Early, voluntary disclosure by companies should be encouraged. But is this the right policy to do so? We’ll have to wait to see its final terms.