The Department of Justice announced revisions to its Corporate Enforcement Policy (“CEP”) yet again in order to promote voluntary disclosures by Companies that discover potential wrongdoing. DOJ’s latest action demonstrated its commitment to several ideas:
(1) Increasing prosecution of individual wrongdoers;
(2) Offering benefits to companies to encourage self-reporting, cooperation and remediation;
(3) Reducing the burdens on corporate shareholders from large fines and penalties that are largely funded by shareholders rather than individual wrongdoers.
The Justice Department has not provided specific data on the number of investigations initiated by voluntary disclosures, and whether the rate has been increasing or decreasing over the last ten years. Whatever trend may be occurring, the Justice Department is adjusting its Corporate Enforcement Program to provide even greater benefits.
The new changes were announced by Assistant Attorney General Polite, head of the Criminal Division, in a recent speech at Georgetown University Law School.
As a reminder, the Corporate Enforcement Policy provides that, if a company voluntarily self-discloses, fully cooperates and timely and appropriately remediates, the company will earn a presumption against prosecution unless there are aggravating circumstances present, including the seriousness of the offense or the nature of the offender (i.e., whether the offender is a recidivist). Specifically, the aggravating circumstances include involvement by executive management, a significant profit from the wrongdoing, egregiousness or pervasiveness of the misconduct, and criminal recidivism.
The CEP benefits extend the presumption of a declination to companies that discover misconduct during the merger and acquisition due diligence process, assuming that the company meets the three basic requirements of voluntary disclosure, cooperation and remediation.
If a company self-discloses but is subject to one or more aggravating circumstances, the company can only earn a maximum of 50 percent off from the low end of the Sentencing Guidelines penalty range.
As an example of the CEP benefits, AAG Polite cited the resolution of the Safran case in which the company disclosed FCPA violations in China but earned a declination and agreed to pay $34 million in disgorgement. Additionally, AAG Polite cited the ABB resolution in which ABB earned a $315 million settlement, despite the fact that it had two prior FCPA settlements, and it did not technically earn voluntary disclosure credit, but ABB did earn credit for “extraordinary” cooperation and extensive remediation.
Despite DOJ’s CEP that disfavored a deferred prosecution agreement for recidivists, ABB was able to avoid a guilty plea and earned a deferred prosecution agreement and a penalty calculated from the middle range (as opposed to the low range) of the U.S. Sentencing Guidelines. DOJ cited several factors in support of its resolution: (1) ABB’s compliance program detected the FCPA violations that occurred in South Africa and was about to meet with DOJ to disclose the conduct when a press report appeared concerning the bribery allegations; (2) ABB’s extraordinary cooperation; and (3) ABB’s commitment to enhance its corporate compliance program relying on extensive culture improvements and comprehensive controls to ensure effective operation of its ethics and compliance program.
AAG Polite recognized that companies may sometimes decide against a voluntary disclosure. Legal and compliance practitioners have urged corporate clients to weigh the pros and cons of deciding to engage in a voluntary disclosure for FCPA violations. However, AAG Polite warned “[m]ake no mistake – failing to self-report, failing to fully cooperate, failing to remediate, can lead to dire consequences.”
To reflect these realities and significant issues, AAG Polite announced the following revisions to the Criminal Division’s CEP, which apply to all criminal cases handled by the Criminal Division, including FCPA cases. The revisions are intended to create additional incentives to companies for voluntary self-disclosures, cooperation and remediation. In particular, the revisions are intended to address situations where a company may be reluctant to self-disclose because of an aggravating factor and the result that a cooperating company may not be able to earn a declination. The revisions provide a path for companies facing this choice.
Even when a company faces one or more aggravating circumstances, DOJ may nonetheless award a presumption of declination if three factors are satisfied:
(1) The voluntary disclosure was made immediately upon the company discovering the misconduct;
(2) When the company engaged in misconduct and at the time of disclosure, the company maintained an effective compliance program and system of internal accounting controls that enabled the identification of the misconduct; and
(3) The company provided extraordinary cooperation with DOJ’s investigation and implemented extraordinary remediation.
Even those companies that cannot meet these three requirements but nonetheless self-discloses, fully cooperates and appropriately remediates, and therefore will be required to enter a criminal resolution, can earn the following enhanced benefits:
- At least 50 percent and up to 75 percent off of the low end of the Sentencing Guidelines fine range (except for a criminal recidivist); and
- The company will not be required to enter a corporate guilty plea absent multiple or particularly egregious aggravating circumstances.
The new, enhanced benefits under the CEP applies to all corporate resolutions, not just situations with voluntary disclosures. The revised CEP provides prosecutors with greater flexibility and benefits to entice cooperation from corporations that discover wrongdoing.
Going forward, DOJ can offer companies that cooperate and remediate without voluntarily disclosing the conduct, up to 50 percent off from the low end of the Sentencing Guidelines range.
AAG Polite explained how DOJ distinguishes between “extraordinary cooperation,” and “full cooperation.” The distinction boils down to the concepts of “immediacy, consistency, degree and impact.” To earn credit for “extraordinary” cooperation, companies have to go above and beyond gold-standard cooperation, the elements of which are well known to the legal and compliance community.