DOJ’s Expectations for Voluntary Disclosure and Cooperation: In Loco Parentis for Corporations?

by Lee G. Dunst

We are now almost one year in since the DOJ announced with much fanfare its repackaged approach to corporate cooperation in the Yates memo in September 2015, followed months later with the much-ballyhooed release of the FCPA Pilot Program in April 2016.  These highly publicized pronouncements reinforced the perception of DOJ’s focus on proactive corporate cooperation and voluntary disclosure with the enticement of the alleged benefits for companies.  At the same time, DOJ clearly has been engaged in a deliberate effort to tout the apparent benefits of corporate cooperation with its very public announcements in spring/summer 2016 of declinations of prosecutions in some circumstances (for example, Akamai, Johnson Controls and Nortek) and reduced penalties in other cases (such as Analogic/BK Medical), citing voluntary disclosures and cooperation as one of the primary reasons for leniency.  Simultaneously, senior DOJ officials on the speaking circuit point out time and again that the lack of proactive cooperation will result in reduced benefits (or maybe no benefit at all) when it comes to resolution of significant matters.  For example, DOJ officials repeatedly cite to the 2014 Alstom FCPA matter as the apparent textbook example of insufficient cooperation by a company and the negative impact that this had when the DOJ resolved that case.

The finger-wagging of DOJ officials at the uncooperative (or insufficiently cooperative) corporation raises the stakes for companies, senior management, boards of directors and even outside law firms – none of whom wanted to branded by the DOJ with the Scarlet Letter of being “uncooperative” or lose the possible benefits of reduced (or even no) criminal sanction.  Not to be overly dramatic, but it is not a reach to say that the DOJ’s perceived tone about the “uncooperative” corporation reminds one of  the infamous “Walk of Atonement” in “Games of Thrones” with uncooperative corporations humiliated publicly with the proverbial chant of “shame, shame, shame,” as they enter into corporate resolutions with DOJ and then face the gauntlet of commentators who opine critically on companies that fall short of the DOJ’s expectations.

When I discuss cooperation and voluntary disclosure issues with many of my sophisticated clients, they chafe at the DOJ’s expectations in this current super-charged enforcement environment.  Some of my clients view the DOJ’s approach to voluntary disclosure and cooperation as taking the decision-making process out of the hands of reasonable company management.  I have had senior in-house counsel tell me that they are “adults” who have decades of experience making tough calls every day and, as a result, reasonably believe that they can make decisions on voluntary disclosure and cooperation on their own without being told what to do by DOJ.

The mindset behind the Yates memo and the FCPA Pilot Program is well-intentioned and serves an important policy purpose.  They obviously provide needed guidance to corporate management, boards of directors and practitioners regarding the rules of the road for cooperation and voluntary disclosure.  There is no doubt that these recent DOJ pronouncements have been helpful in setting forth these general parameters and enhancing transparency surrounding the DOJ’s evaluation of cooperation when it comes to charging decisions.

However, the DOJ’s constant drumbeat on corporate cooperation, combined with the abject fear of many companies, senior executives and directors to be deemed “uncooperative,” may have the unintended result of eviscerating the “adult” judgment of some companies (and even infantilizing the corporate mindset on this point).  The question for many risk adverse managers and directors is why even try to make the “hard” decision about whether to voluntarily disclose or not, when you can just take the “easy” route and tell DOJ everything at the outset, regardless of the facts and circumstances (or what you actually even know at the early stages of an investigation), and then just place your blind faith in the DOJ under the Yates memo and the FCPA Pilot Program and hope that you will be treated fairly and granted the “benefits” of voluntary disclosure and cooperation.

The decision surrounding voluntary disclosure is simply not that crystal clear in all situations and there is a fair amount of grey in reaching this judgment.  There are undoubtedly many circumstances where early and prompt voluntary disclosure to DOJ is absolutely appropriate and the right call to be made by management.  On the other hand, there are other situations where the underlying facts are not so clear (or the conduct at issue is considered de minimis by company management) that the reasonable decision from a corporate perspective is to fully remediate the situation and choose not to self-disclose to DOJ.  For companies making the reasonable and appropriate judgment not to self-disclose, it is critical of course that the investigation be well-documented, as well as the subsequent remediation process, and that the records of such investigation and remediation be retained.

In many ways, the real test of the Yates memo and the FCPA Pilot Program has yet to come.  For my clients who are making the decision whether or not to self-disclose to DOJ, I always caution them that I cannot predict how DOJ will respond down the road if the company has conducted a thorough review, implemented reasonable remediation and then has decided not to self-disclose – and then in the future the DOJ learns about the issue at hand.  Notwithstanding the DOJ’s recent pronouncements, this remains uncharted territory for companies and practitioners when a company has made a reasonable and rational decision not to self-disclose and the DOJ later second-guesses that judgment.  While the DOJ’s recent releases about the benefits of voluntary disclosure and cooperation do provide helpful guidance, the true test under the current enforcement regime will come when DOJ is faced with the company that did not self-disclose initially (and made a rational decision in choosing not do so) but later cooperates fully with the DOJ investigation.  Under those circumstances, the benefits of cooperation should not be eliminated (or even dramatically reduced) for a company that exercised reasonable judgment in addressing whether or not to self-disclose, even if the DOJ later disagrees with that decision.  How the DOJ approaches charging decisions on that fact pattern in the future will be critical for management, directors and outside counsel addressing the self-disclosure and cooperation question.

Lee G. Dunst is a partner in the New York office of Gibson, Dunn & Crutcher LLP.  He is a former Assistant United States Attorney for the Eastern District of  New York and currently specializes in FCPA and accounting fraud cases.


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