Hank Walther and Samir Kaushik of Jones Day discuss the increase in corporate declinations and heightened cooperation between enforcement authorities worldwide.
CCBJ: What was the most significant development in U.S. Foreign Corrupt Practices Act (FCPA) enforcement in 2018?
Hank Walther: The most notable story of 2018 was the continued increase in corporate FCPA declinations under the Trump Administration. This trend started toward the end of the Obama Administration, with the U.S. Department of Justice (DOJ) trying to respond to questions on the self-disclosure front – mainly, what incentive is there for a company to preemptively self-disclose potential misconduct? In response, in April 2016 the Obama Administration created a pilot program under which a company’s self-disclosure and cooperation could be rewarded with a declination. That pilot program was adopted and expanded in November 2017 by a new DOJ corporate enforcement policy that said that if a company voluntarily self-discloses, fully cooperates with the DOJ’s investigation, fully remediates, and disgorges any ill-gotten profits, there should be a presumption that the company will not be prosecuted by the DOJ. In fact, one DOJ official recently said that all companies that voluntary self-disclosed violations to the DOJ since this new policy was announced have received declinations.
Is there anything else that’s noteworthy about the DOJ’s November 2017 FCPA Corporate Enforcement Policy?
Samir Kaushik: The policy also stipulates that in order to qualify for a declination, no aggravating circumstances are to be associated with the conduct. Examples of aggravating circumstances include senior management involvement, significant profit, pervasive misconduct and/or recidivism. In September 2018, however, the Deputy Assistant Attorney General noted that aggravating circumstances may not necessarily preclude a declination assuming the other factors are met. And in fact, last year, the DOJ noted the existence of aggravating circumstances in two of its four public declination letters, specifically the involvement of senior management.
Notwithstanding potential incentives under the new DOJ policy, what other factors should companies consider when weighing whether to self-report?
Kaushik: While the November 2017 FCPA Corporate Enforcement Policy provides more clarity for companies deciding whether to self-report, it’s important to keep in mind that the policy is just a set of guidelines which are subject to DOJ discretion. Even if a company satisfies the conditions of the policy, a declination or even full or partial cooperation credit are far from guaranteed outcomes.
In balancing the costs and benefits of self-disclosure – and this is usually a difficult decision – companies should consider that one FCPA investigation can take several years to resolve. Also, by self-disclosing to DOJ, companies may expose themselves to additional scrutiny, such as individual enforcement actions, a parallel investigation by another U.S. regulator such as the Securities and Exchange Commission (SEC) or a foreign regulator, and/or civil litigation.
The Jones Day 2018 FCPA Year in Review notes that there was a normalization in corporate FCPA enforcement during the second year of the Trump Administration, as compared to the 49 weeks of his term in 2017. What factors led to this rebound in enforcement?
Walther: As noted in our report, at the tail end of the Obama Administration, which corresponded with the first three weeks in January 2017, there were six corporate FCPA resolutions. That’s a fair amount of activity for a three-week period. In fact, that’s sometimes the number of corporate cases that get resolved in a year. So part of the answer is that in the rush to resolve cases before the Obama Administration turned over, the DOJ resolved some of its corporate investigations. It is likely that in the absence of a change in administration, the DOJ would have resolved at least some of those cases later in 2017.
It is also important to keep in mind that there is always a delay after a new administration comes in. It takes new staff members time to get up to speed on the cases in the pipeline, and there are new discussions about what appropriate resolutions might be. For example, you might have a case that the DOJ investigated for years, and the old administration had discussions about the parameters of a potential resolution. But when the new administration’s staff comes in, they have to judge the resolution for themselves. This process happens regardless of whether it’s a Republican administration or a Democratic administration.
The last thing to be aware of is the natural ebb and flow of corporate resolutions – you don’t tend to have the same numbers of resolutions every year. There are years with a larger number of cases, years that involve higher dollar values, and years with a smaller amount of cases and/or dollars. In 2018, we saw that the number of corporate resolutions under the Trump Administration was much like the average number of annual corporate resolutions during the Obama Administration. There were concerns by some commentators that the new administration would mandate that FCPA cases should not be prosecuted – or at least not prosecuted as aggressively as under the prior administration – but that wasn’t the case in 2018. So the fact that the number of annual corporate FCPA resolutions has normalized under the Trump Administration is significant.
The overall number of DOJ enforcement actions against individuals under the Trump Administration continues to be higher than the average during the last few years of the Obama Administration. What are the factors driving this trend?
Walther: Number one, there has been a push within the Trump Administration to pursue individuals in all corporate cases, FCPA or otherwise. In November 2018, Deputy Attorney General Rod Rosenstein announced that individual accountability should be the top priority of any corporate investigation. That wasn’t really a new policy for the DOJ under the Trump Administration, but it was significant that it was announced in a public setting. What is perhaps more significant is that if you announce a policy under which corporations who violated the FCPA are eligible for a declination if they self-disclose, cooperate, and remediate, but you don’t prosecute the individuals behind the corporation’s alleged wrongdoing, you’re essentially allowing criminal conduct to go unprosecuted.
In the past, there’s been criticism of both the DOJ and the SEC for resolving significant corporate investigations for a large amount of money but not prosecuting the culpable individuals. The logic was always that companies themselves don’t commit crimes – individuals commit crimes, and you can hold companies responsible for the crimes of individuals. But a corporation doesn’t act on its own, so certain organizations criticized that approach by saying, “Well, if you’re pursuing the company but not pursuing individuals, it’s really unfair. You’re really just holding companies hostage, because most companies don’t want to go through the process of going to trial and all of the collateral consequences that come from a potential trial conviction.” Now, under the new FCPA Corporate Enforcement Policy, if you have a company that self-discloses and cooperates in the way the DOJ expects and receives a declination, the DOJ’s only available course of action is the pursuit of individuals. You can’t have a meaningful enforcement policy if you’re declining to bring corporate cases and simultaneously not prosecuting the culpable individuals.
In November 2018, the DOJ announced a revised approach to assessing corporate cooperation credit as it relates to individual liability in corporate investigations. Can you explain this change and its potential impact on future FCPA enforcement?
Kaushik: In November 2018, the DOJ modified the 2015 Yates Memo. With regard to criminal cases, the revised policy requires companies seeking cooperation credit to identify only every individual who was “substantially involved”in the misconduct. The Yates Memo, on the other hand, was more expansive. It conditioned eligibility for cooperation credit on the company’s identification of “all”individuals involved in or responsible for the misconduct.
The potential impact of this new policy on FCPA enforcement is twofold. First, it could make it easier for companies to receive cooperation credit for naming individuals, since the standard is now just “substantially involved,” rather than every individual who was involved. Second, it could lead to more efficient internal and government investigations. The process will no longer be hamstrung by a requirement that the company must identify every individual involved, however tangentially, before the DOJ has the ability to offer credit to a cooperating company.
Your report highlights three substantial multijurisdictional corruption resolutions in 2018. What trends did you notice last year with respect to multijurisdictional corporate FCPA enforcement?
Kaushik: Eight of the nine top global anti-corruption resolutions in history involving DOJ or SEC have been resolved in the last three years. In 2018 alone, U.S. regulators entered into three major anti-corruption resolutions that acknowledged cooperation from foreign authorities in 11 different jurisdictions, including Brazil, France and the United Kingdom. These settlements highlight the continuing and increasing coordinated anti-corruption enforcement among authorities in the U.S. and countries around the world. This means that companies facing U.S. investigations must also be prepared to deal with enforcement agencies in multiple other countries. In fact, last year, the head of the DOJ’s FCPA unit said that it’s now common for a DOJ FCPA investigation to involve regulators from as many as four or five other countries.
Along those lines, can you describe the DOJ’s new “no piling on” policy for corporate enforcement actions and what the implications may be for FCPA enforcement?
Kaushik: The “no piling on” policy discourages the piling on of corporate penalties from different regulators for the same misconduct. This policy formally encourages prosecutors from the DOJ to cooperate with other agencies investigating the same corporate conduct, including cooperation with regulators outside of the United States. The goal is to avoid the unnecessary imposition of duplicate or unfair penalties. Last year, the DOJ noted its application of the “no piling on” policy in connection with three FCPA investigations.
Your report notes that the DOJ had only one corporate FCPA enforcement action with an independent compliance monitor in 2018, a significant decrease from the last full year of the Obama Administration. Do you anticipate this trend to continue?
Kaushik:Under the 2017 FCPA Corporate Enforcement Policy, the DOJ announced that it will generally not require a corporate compliance monitor if a company voluntarily self-discloses, fully cooperates, and takes timely and appropriate remediation steps. It was noteworthy that while in theory this new corporate enforcement policy requires voluntary self-disclosure in order to qualify for no monitor, five companies that resolved FCPA enforcement actions with the DOJ and ended up with no monitor last year did notself-disclose their conduct, though they did cooperate and implement remedial measures. This willingness to allow companies to self-monitor, even in cases where the company did not self-disclose, is a change from the prior administration. Last October, the Assistant Attorney General in charge of the DOJ’s Criminal Division announced new guidance that said the imposition of a monitor should be the exception, not the rule. This suggests that the trend of fewer corporate monitors could continue in the future.
Given these trends, what are the key considerations for corporate counsel in multijurisdictional enforcement investigations?
Walther: The increased incidence of international anti-corruption enforcement has raised complicated jurisdictional issues that corporate counsel may not have previously faced. From the very beginning of an investigation, companies should think about how their response to that investigation may effect potential investigations in other countries around the world – even investigations that might not have been announced to the company yet. There are numerous foreign regulators that regularly communicate and coordinate with the DOJ and the SEC. There are many ways that investigations in multiple countries can be triggered, but the standards for cooperation in these countries are different, the potential punishments are different and the burden of proof that the government must meet is different, so there are many factors that go into how you respond to one sovereign investigation when you may simultaneously be facing many others. Regulators in places like Brazil, the United Kingdom and other countries in Europe are continuing to seriously investigate corruption allegations, and it’s substantially complicating the investigative decision-making processes for large companies.
Click here to view the 2018 FCPA Year in Review.
The views and opinions set forth herein are the personal views or opinions of the interviewees; they do not necessarily reflect views or opinions of the law firm with which they are associated.
Published March 5, 2019.