The Difficulty of Defining a Declination: An Update on the DOJ’s Pilot Program

by Bruce E. YannettAndrew M. Levine and Philip Rohlik

On September 29, 2016, the U.S. Department of Justice (“DOJ”) issued two letters “closing its investigations” into alleged violations of the U.S. Foreign Corrupt Practices Act by HMT LLC, a Texas based manufacturer, supplier and servicer of above ground liquid storage tanks, (the “HMT Declination”)[1] and NCH Corporation, a Texas based industrial supply and maintenance corporation (the “NCH Declination).[2]  Unlike in the three earlier “declinations” the DOJ issued since the start of its FCPA Enforcement “Pilot Program,”[3] the companies here (HMT and NCH) are not issuers, so there were no parallel Securities and Exchange Commission (“SEC”) enforcement actions.  Each declination also includes what are described as findings of the DOJ’s investigation underlying violations of the FCPA and a requirement that each company pay “disgorgement” to the U.S. Treasury.  The HMT and NCH declinations therefore raise the question of whether and to what extent the Pilot Program, in addition to offering guidance on how to receive a declination, has altered the meaning of what a declination ordinarily will be.  Specifically, under what circumstances can a company receive a declination without the DOJ publicizing its “findings” and the company paying disgorgement (i.e., a “clean” declination)?

These questions should be considered in light of the recent but pre-Pilot Program declination granted to Harris Corporation[4] (which also included a SEC declination)[5] for which there was a parallel SEC enforcement action against former Harris employee Jun Ping Zhang (the “Zhang Order”) on September 13, 2016.[6]

The HMT and NCH Declinations

Both the HMT and NCH Declinations are approximately two pages in length and begin with the typical wording of a declination, that the DOJ is “closing its investigation of your client . . . concerning violations of the Foreign Corrupt Practices Act.”[7]  Thereafter, each declination appears to follow a novel course in stating that “[o]ur investigation found” or “[t]he Department’s investigation found” particular wrongdoing:  that HMT employees and agents “paid . . . bribes”[8] in Venezuela and China, and NCH’s Chinese subsidiary “illegally provided things of value” in China.[9]  Each of the letters continues with specific factual findings.

Between 2002 and 2011, HMT allegedly retained a sales agent in Venezuela to promote sales to Petroleos de Venezuela, S.A. (“PDVSA”).  The agent allegedly would provide PDVSA with inflated quotations for HMT materials, and the difference between the price quoted to PDVSA and the price quoted to the agent would be remitted to the agent as commissions and contracting fees from HMT’s bank account in Texas.  In turn, the agent allegedly would use part of the excess funds to pay bribes in Venezuela.[10]  The HMT Declination goes on to allege that one HMT regional manager in Texas was “explicitly told” of the bribery scheme, while another was “provided with information . . . sufficient to notify him that the Venezuelan agent was paying [] bribes[.]”[11]  Similarly, in China, between 1999 and 2011, HMT’s Chinese subsidiary allegedly engaged a distributor that “illegally paid bribes” to Chinese government officials at state-owned enterprises.[12]  As with the conduct in Venezuela, a U.S. citizen regional manager received emails “sufficient to provide notice that bribes were being paid . . . .”[13]  According to the HMT Declination, the total amount of alleged bribes paid was “approximately $500,000.”[14]

The NCH Declination alleges that NCH’s Chinese subsidiary “illegally provided things of value worth approximately $44,545 to Chinese government officials” between 2011 and 2013.[15]  These things of value were cash, gifts, meals, and entertainment recorded by the Chinese subsidiary as “customer maintenance fees,” “customer cooperation fees,” and “cash to customer,” and were reviewed by a U.S.-based executive.[16]  NCH also allegedly paid $12,000 for several employees of a government customer to take a ten-day trip to North American, only a half-day of which was business related, after being advised that the trip might violate the FCPA.[17]

Each declination letter then lists six factors supporting the declinations: (1) voluntary self-disclosure; (2) “thorough and comprehensive” internal investigation; (3) full cooperation (including the disclosure of all relevant facts about the individuals involved); (4) agreement to disgorge profits from the allegedly improper conduct; (5) compliance program and internal controls enhancement; and (6) “full remediation.”[18]  HMT agreed to disgorge $2,719,412, and NCH agreed to disgorge $335,342 to the U.S. Treasury within ten days of the date of the declination letter.[19]

Declinations or Informal NPAs?

Prior to the Pilot Program, the DOJ did not commonly publicize declinations.  However, the DOJ’s “Declinations” page on its website[20] now includes five “declinations:” Nortek, Akamai, JCI, HMT and NCH.  It is worth noting that all of these declinations involved self-disclosure prior to the announcement of the Pilot Program and are therefore declinations applying the policy set out in the Pilot Program rather than, strictly speaking, declinations rewarding self-reporting since the DOJ announced the Pilot Program.  Nonetheless, differences between the resolutions with HMT and NCH, on the one hand, and the other three listed matters, on the other hand, raise the question of what the DOJ means by “declination.”

The HMT and NCH Declinations differ from the three prior declinations in two ways.  First, the HMT and NCH Declinations explicitly include factual assertions (summaries of what the DOJ’s “investigation found”) that arguably would establish a violation of the FCPA, including its jurisdictional predicate (i.e., some U.S. nexus), statements missing from the publicly available information in the Nortek, Akamai, and JCI enforcement actions.[21]  Second, both the HMT and NCH Declinations require disgorgement, a precondition for a declination as addressed in a footnote in the DOJ’s memo announcing the Pilot Program.[22]  While these two aspects were (arguably) unnecessary in the earlier “declinations,” as both a statement of facts and disgorgement were present in the parallel SEC actions, their inclusion in the HMT and NCH Declinations raises questions about the benefits of a declination and the difference between a declination and a non-prosecution agreement.

When assessing FCPA risks and the potential consequences of a FCPA violation, there are at least five factors that a company should consider: (1) the risk of a criminal charge or civil complaint; (2) possible fines or disgorgement to be paid as a result of an enforcement action; (3) the investigative costs of lost productivity and legal and professional fees associated with cooperation with an investigation (which can be greater than any fine or disgorgement); (4) reputational damage ensuing from FCPA allegations; and (5) the potential for the collateral consequences of debarment or lawsuits by competitors arising from an enforcement action.  As with an NPA, by including allegations and disgorgement, the HMT and NCH Declinations expose the companies to the costs associated with factors two to four and, in the case of HMT, the allegations in the declination include the name of the recipient, arguably providing a starting point for the costs associated with the fifth factor.

It is certainly significant that neither HMT nor NCH was required to accept the factual assertions in the Declinations.  In addition, as an assistant chief of the Fraud Section recently pointed out, [23] the recent HMT and NCH declinations (unlike traditional NPAs) included neither requirements of ongoing reporting or cooperation nor the threat of future prosecution in the case of a breach.  However, given the Pilot Program’s design to encourage self-reporting and cooperation, the lack of formal obligations to do so may be somewhat superfluous.  The benefits of a Pilot Program declination are therefore muted by the requirement to pay disgorgement, the reputational damage from published allegations, and the related potential for collateral consequences, as well as the reality of the Pilot Program’s baseline encouragement of self-reporting and cooperation.

The Pilot Program therefore appears to have created a dilemma for the DOJ.  By providing somewhat detailed allegations relating to a declination, the DOJ laudably has answered the calls of commentators and practitioners for more transparency with regard to what can merit a declination, information which, over time, could become useful to companies doing business in high-risk jurisdictions.  At the same time, the greater transparency arguably makes declinations, and therefore self-reporting, less advantageous to companies that uncover wrongdoing by their employees, certainly relative to a clean declination in the traditional sense.

A Traditional Declination – Harris Corporation

Shortly before the HMT and NCH Declinations, an earlier declination came to light involving Harris Corporation (“Harris”).  On September 13, 2016, the SEC released a Cease-and-Desist Order (the “Zhang Order” or the “Order”)[24] against Jun Ping Zhang (“Zhang”), a U.S. citizen and the former CEO of Harris Corporation’s Chinese subsidiary Hunan CareFx Information Technology, LLC (“CareFx China”).  Without admitting or denying the findings, Zhang accepted a cease-and-desist order prohibiting him from any future violations of Sections 30A, 13(b)(2)(A), and 13(b)(5) of the Exchange Act, and Exchange Act Rule 13b2-1, as well as payment of a $46,000 civil penalty.[25]

Zhang is described as a United States citizen and resident, though the Zhang Order does not specify whether he was based in China or the United States during the relevant period.  The allegations against Zhang are commonplace in relation to China-related enforcement actions, mainly alleging that Zhang approved, or was involved in approving, relatively small value gifts, meals, and entertainment to hospital directors and other Chinese healthcare professions (for example vacation travel, a replacement computer and camera, iPhones, gift cards, and cash).[26]

Harris’s role is more interesting from the point of view of companies engaging in acquisitions.  Although the Zhang Order explicitly states that Zhang and those working under him “caused Harris to violate” the books and records provisions,”[27] it appears that most of the activity took place before Harris acquired CareFX China, which represented a tiny percentage (less than 0.1%) of Harris’s global operations.[28]  Indeed, the order specifically states that Zhang hid[29] the activity from Harris and failed to disclose it during Harris’s pre-acquisition due diligence.[30]  After acquiring CareFX China, Harris conducted FCPA trainings and conducted an FCPA audit, discovering the illicit conduct within a “few months”[31] and thereafter remediating, and selling part of and ultimately closing the business.

Several months prior to the Zhang Order, Harris disclosed on its 10-Q for the period ending April 1, 2016 (prior to the April 5, 2016 announcement of the Pilot Program) that the DOJ had:

determined not to take any action against [Harris Corp.] related to this matter.  The DOJ further advised us that its decision was based on its overall view of the evidence as to our level of acquisition due diligence, our voluntary disclosure to the DOJ and SEC, our remediation efforts and our cooperation throughout the investigation, which is continuing.[32]

Harris did not disclose that it was required to pay any disgorgement to the U.S. Treasury, and the declination is not listed on the DOJ’s declinations page on its website.  In its announcement of its cease and desist order against Zhang, the SEC also declined to bring any action against Harris, noting “the company’s efforts at self-policing that led to the discovery of [Zhang’s] misconduct shortly after the acquisition, prompt self-reporting, thorough remediation, and exemplary cooperation with the SEC.[33]

The allegations against Zhang are not materially different from the allegations against unnamed employees in the NCH Declination, and yet Harris, unlike NCH, was not subject to a disgorgement remedy (even by the SEC).  There are at least four possible explanations for this distinction.  First, the Harris declination occurred before the Pilot Program required disgorgement as a precondition for a declination, suggesting that a company finding itself in Harris’s position might be required to disgorge profits in the future.  Second, the Harris declination (without disgorgement) is specific to the acquisition context, suggesting that a similar outcome still could be available to companies following the DOJ’s advice set forth in Opinion Release 14-02 (and elsewhere).[34]  Third, Harris involved an individual enforcement action (albeit a SEC action), thereby advancing the goals of the DOJ’s Yates Memorandum and the Pilot Program, such that the DOJ may not have viewed a disgorgement remedy as necessary.  Fourth, irrespective of the acquisition context and individual enforcement action, the circumstances surrounding Harris’s conduct were different than NCH’s meriting a different outcome.

As always, the decision whether or not to self-report possible misconduct to the DOJ is a fact-intensive one and requires careful consideration.  Companies considering self-reporting under the Pilot Program would benefit from examining closely these recent DOJ declinations and their surrounding circumstances, whether such conduct involves gifts, meals, and entertainment expenses in China or similar conduct elsewhere.


[1] Letter from Lorinda Laryea to Steven A. Tyrrell, Re: HMT LLC, (Sept. 29, 2016) (“HMT Declination”) (PDF: 159 KB).

[2] Letter from Laura N. Perkins to Paul E. Coggins, Re: NCH Corporation, (Sept. 29, 2016) (“NCH Declination”) (PDF: 153 KB).

[3] See Andrew M. Levine, Bruce E. Yannett and Philip Rohlik, “Early Thoughts on the DOJ’s Pilot Program, the Continued Breadth of the Accounting Provisions, and Possible Implications for Self-Reporting (PDF: 1,485 KB),” FCPA Update, Vol. 7, No. 12 (July 2016).

[4] Harris Corporation, Form 10-Q for the Quarter Ended April 1, 2016 at 19 (filed May 4, 2016).

[5] Securities and Exchange Comm’n, “SEC Charges Former Information Technology Executive with FCPA Violations; Former Employer Not Charged Due to Cooperation with the SEC,” Administrative Proceeding File No. 34-78825 (PDF: 21 KB), see also SEC Enforcement Actions: FCPA Cases.

[6] In the matter of Jun Ping Zhang, Order Instituting Cease-and-Desist Proceedings, Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and Desist Order, Securities Exchange Act of 1934 Rel. No. 78825 (PDF: 110 KB) (Sept. 13, 2016).

[7] HMT Declination (PDF: 159 KB) at 1; NCH Declination at 1.

[8] The term “bribery” was also used in the JCI, Nortek, and Akamai “declinations.”

[9] HMT Declination (PDF: 159 KB) at 1; NCH Declination (PDF: 153 KB) at 1.

[10] HMT Declination at 1.

[11] Id. at 2.

[12] Id.

[13] Id.

[14] Id. at 1.

[15] NCH Declination (PDF: 153 KB) at 1.

[16] Id.

[17] Id.

[18] HMT Declination at 2; NCH Declination (PDF: 153 KB) at 2.

[19] HMT Declination at 2; NCH Declination (PDF: 153 KB) at 2.

[20] U.S. Department of Justice, Declinations, (last updated Sept. 29, 2016).

[21] See Levine et al., “Early Thoughts on the DOJ’s Pilot Program (PDF: 1,485 KB),” supra note 3 (noting the lack of a jurisdictional predicate).  In a recent Q&A, an assistant chief of the Fraud Section described a case with insufficient evidence to proceed or no jurisdictional predicate as a “traditional declination,” while stating that a declination under the Pilot Program could involve “otherwise sufficient evidence to proceed and . . . evidence in the jurisdiction.”  See Marieke Brejer, “DOJ prosecutor: FCPA Pilot Programme generating more voluntary disclosures,” Global Investigations Review (Oct. 26, 2016) (Q&A with Assistant Chief of the Fraud Section Leo Tsao).

[22] U.S. Department of Justice, Criminal Division, “The Fraud Section’s Foreign Corrupt Practice Act Enforcement Plan and Guidance (PDF: 51 KB),” at 9 n.6.

[23] Marieke Brejer, “DOJ prosecutor: FCPA Pilot Programme generating more voluntary disclosures,” supra n. 21.

[24] Zhang Order, supra note 6.

[25] Id. at 7.

[26] Id. at ¶¶ 12-17.

[27] Id. at ¶ 26.

[28] Id. at ¶ 4.

[29] Id. at ¶ 9.

[30] Id. at ¶ 10.

[31] Id.

[32] Harris Corporation, Form 10-Q, supra note 4.

[33] Securities and Exchange Comm’n, Administrative Proceeding File No. 34-78825 (PDF: 110 KB), supra note 5.

[34] U.S. Department of Justice, Opinion Release 14-02 (Nov. 7, 2014) (PDF: 32 KB).

Bruce E. Yannett and Andrew M. Levine are partners in the New York office.  Philip Rohlik is a counsel in the Shanghai office.  The authors may be reached at,, and  Full contact details for each author are available at


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