The First FCPA Pilot Program Declinations: Initial Returns and Unanswered Questions

by Anouck Giovanola and Justin Spiegel

On April 5, 2016, the Department of Justice’s Fraud Section announced a new Foreign Corrupt Practices Act (“FCPA”) enforcement pilot program (the “Pilot Program”) designed to “promote greater accountability for individuals and companies that engage in corporate crime by motivating companies to voluntarily self-disclose FCPA-related misconduct, fully cooperate with the Fraud Section, and, where appropriate, remediate flaws in their controls and compliance programs.”[1]  The memorandum announcing the Pilot Program sets forth four prerequisites for corporations seeking to obtain credit under the program—voluntary self-disclosure of the misconduct, full cooperation with the investigation, timely and appropriate remediation, and disgorgement of all profits related to the violation—and describes the additional cooperation credit available to companies under the terms of the Pilot Program.

First, if a company meets all four of these requirements, under the terms of the Pilot Program the company “qualifies for the full range of potential mitigation credit,” including up to a 50% reduction off the low end of the Sentencing Guidelines fine range, a decision not to appoint a monitor, and, possibly, a declination.  Where the corporation fully cooperates and properly remediates, but does not self-disclose its misconduct, it is entitled to “markedly less” credit, including, at most, a 25% reduction off the low end of the Sentencing Guidelines range.  It thus appears that under the terms of the Pilot Program, the Fraud Section will typically only consider a declination in instances of self-disclosure, regardless of the corporation’s other cooperation or remediation efforts.

The Pilot Program has now been in place for almost three months, and the Fraud Section recently issued its first two declinations pursuant to the program.

First, on June 3, 2016, the Fraud Section informed Nortek, Inc. (“Nortek”) that it had closed its investigation into FCPA violations by the company.  From 2009 to 2014, several employees at a Chinese subsidiary made more than 400 payments totaling over $290,000 to local officials.[2]  Nortek began an internal investigation into the matter in 2014, and, in January 2015, self-disclosed the conduct to both the DOJ and SEC.  Nortek subsequently cooperated with both agencies, and took a number of remedial measures, including terminating culpable employees, strengthening anti-corruption policies, creating a Compliance Committee, and mandating training on anti-corruption policies for employees.

Similarly, on June 6, 2016, the Fraud Section informed Akamai Technologies, Inc. (“Akamai”) of its decision to close an FCPA investigation.  As with Nortek, a Chinese subsidiary had paid $40,000 in bribes to Chinese government officials.  Akamai discovered the violations in December 2014, began an internal investigation, and self-disclosed the misconduct to the DOJ and SEC in February 2015.[3]  In addition to cooperating with the DOJ and SEC investigations, Akamai also engaged in a number of remedial actions, including implementing due diligence processes for partners in China, strengthening anti-corruption policies, naming a Chief Compliance Officer, and providing mandatory training to employees.

Both declination letters explicitly referenced the new Pilot Program, the companies’ self-disclosure, “fulsome cooperation,” remedial steps, and the companies’ agreements to disgorge to the SEC the full amount determined by the SEC were cited as the basis for the declinations.

The Nortek and Akamai declinations demonstrate for the first time the benefits that can accrue to a corporation for self-disclosure under the Pilot Program.  Both corporations engaged in substantial misconduct in violation of the FCPA, but by fulfilling the explicit declination prerequisites set forth in the Pilot Program—full cooperation, remediation, disgorgement of profits, and self-disclosure that occurred shortly after discovery of the violation—each avoided criminal consequences for that misconduct.[4]

The declinations, however, still leave a number of questions about the impact of the Pilot Program unanswered.  First, although Nortek and Akamai were able to take advantage of the Pilot Program, both Nortek and Akamai self-disclosed their FCPA violations long before the program was announced.  Accordingly, the decisions by those entities to self-disclose offers little insight as to whether new explicit requirements for obtaining a declination have changed the behavior of corporations who discover criminal misconduct—and thus, it remains uncertain whether the Pilot Program is achieving its intended goal of encouraging self-disclosure.

Second, from the limited information that is available about the two declinations, it is not yet clear whether the Pilot Program’s focus on self-disclosure represents a meaningful new DOJ policy, or simply reiteration of a principle that had always been in place.  Self-disclosure is, after all, explicitly referenced as a consideration in the Principles of Federal Prosecution of Business Organizations (the so-called “Filip Factors”)[5], and even prior to the announcement of the Pilot Program, the DOJ had made clear the connection between self-disclosure and declinations.   For example, in early 2015, the DOJ touted its decision not to bring charges against PetroTiger Ltd. for FCPA violations,[6] publicly acknowledging that the decision was based largely on the company’s self-disclosure.[7]  The DOJ’s historically strong emphasis on self-disclosure and consideration of it as a major factor relevant to charging decisions suggests that the Nortek and Akamai outcomes may have been the same even prior to the Pilot Program.

Lastly, still uncertain is what the Pilot Program means for corporations that do not self-disclose.  The FCPA Guidance states that the Fraud Section will “consider a declination of prosecution” in cases of self-disclosure, thus implying that self-disclosure is necessary to obtain a declination. The Guidance however, does not expressly bar declinations absent self-disclosure.[8]  Moreover, although the Pilot Program limits the Sentencing Guidelines fine range reduction for those corporations that fail to self-disclose to 25%, the Pilot Program is not clear on how the ultimate decision about the type of resolution is to be made (i.e. whether resolve the matter through an NPA, DPA, or guilty plea), nor is it clear how the Pilot Program is meant to interact with the also-applicable guidance set forth in the Filip Factors in determining that resolution.  Accordingly, as useful as these first declinations under the Pilot Program are in demonstrating how the program works in practice, the first set of non-declinations under the program will be equally—if not more—important in assessing what the program means in practice going forward.

Footnotes

[1] U.S. Dep’t of Justice, “The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance” (Apr. 5, 2016) (“FCPA Guidance”).

[2] These facts are available in a statement of facts accompanying a non-prosecution agreement that Nortek entered with the SEC simultaneously with the DOJ’s declination.  See Norteck Non-Prosecution Agreement (PDF: 1,063 KB).

[3] These facts are available in a statement of facts accompanying a non-prosecution agreement that Akamai entered with the SEC simultaneously with the DOJ’s declination.  See Akamai Non-Prosecution Agreement (PDF: 852 KB).

[4] It is worth noting that, although this post focuses primarily on the interplay between self-disclosure and declinations under the Pilot Program, the other three factors identified as prerequisites to a declination—cooperation, remediation, and disgorgement—appear to be no less important to DOJ.  Notably, DOJ recently announced a non-prosecution agreement—rather than a declination—with a company that did self-disclose, but which failed to fully cooperate after disclosing the misconduct.  See BK Medical ApS Non-Prosecution Agreement (PDF: 996 KB).

[5] U.S. Attorneys’ Manual § 9-28.700.

[6] See Press Release, Dep’t of Justice, Former Chief Executive Officer of Oil Services Company Pleads Guilty to Foreign Bribery Charge (June 15, 2015).

[7] See, e.g., Dep’t of Justice, Assistant Attorney General Leslie R. Caldwell Delivers Remarks at the New York City Bar Association’s Fourth Annual White Collar Crime Institute (May 12, 2015).

[8] FCPA Guidance.

Anouck Giovanola is a partner in Jenner & Block’s Litigation Department and a member of the White Collar Defense and Criminal Investigations Practice.  Justin Spiegel is an associate in the firm’s Litigation Department.

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