Netherlands: Companies That Self-Disclose May Get Mitigation Credit Under New DOJ Pilot

The U.S. Department of Justice recently announced an enhanced strategy for enforcement under the Foreign Corrupt Practices Act. One of the three steps in this strategy – the most relevant to companies – includes a one-year pilot starting on 5 April 2016. Under the pilot companies receive mitigation credit if they: voluntarily self-disclose FCPA-related misconduct, fully cooperate with the DOJ, and timely and appropriately remediate. Depending on the level of self-disclosure and cooperation, the credit could include up to a 50% reduction in criminal fines, avoidance of a compliance monitor and, potentially, non-prosecution. This pilot plan is published seven months after the Yates memo and is explicitly limited to the DOJ's FCPA Unit. It is possible that other sections of the DOJ or even other agencies may look to the pilot to measure corporate cooperation.

The Foreign Corrupt Practices Act Enforcement Plan and Guidance sets out the DOJ's enhanced FCPA strategy to promote greater accountability for individuals and companies that engage in corporate crime.

The DOJ sets out three steps in achieving the new enforcement stategy:

  • increase the FCPA law enforcement resources by 50%
  • intensify the international approach in combating an "international criminal problem"
  • implement a pilot self-disclosure programme as of 5 April 2016

Under the pilot, the DOJ will offer mitigation credit to companies that voluntarily self-disclose FCPA related misconduct, fully cooperate with a criminal investigation, and timely and appropriately remediate.

In evaluating "voluntary self-disclosure," the DOJ will assess whether the disclosure was truly voluntary for the purposes of the pilot: it should not already have been required by law, agreement, or contract. The company is also required to disclose "prior to an imminent threat of disclosure or government investigation" and "within a reasonably prompt time after becoming aware of the offense." The burden is on the company to demonstrate timeliness. Notably, all relevant facts must be disclosed, including facts about the individuals involved in the wrongdoing.

"Full cooperation" under the pilot means active cooperation, extending to the disclosure of all relevant facts, even where not requested by the government, and the identification of opportunities for the government to obtain evidence that is not in the company's possession. The disclosure must also cover facts about third-party companies and individuals, as well as interviews of company officers and employees, when requested. Once the threshold requirements of the Yates Memo are met, the DOJ will assess the scope and timing of cooperation on a case-by-case basis, with consideration of factors such as the size of the company and scope of the matter.

Finally, "timely and appropriate remediation" entails an obligation to implement an effective compliance programme and to impose disciplinary measures on the employees responsible for the wrongdoing, possibly extending to those with oversight responsibilities. Other steps include demonstrating that the misconduct has been acknowledged, accepting responsibility for it, and implementing measures to identify future risks.

Of the three requirements, full cooperation and remediation are key, as no credit will be available in their absence. A company that has not voluntarily disclosed its FCPA misconduct may still be eligible for limited credit if it later fully cooperates and appropriately remediates. The limited credit is a maximum 25% reduction off the bottom of the Sentencing Guidelines fine range. If, on the other hand, a company voluntarily self-discloses in addition to fully cooperating and remediating, it may receive up to a 50% reduction, and generally will not be required to appoint a monitor, provided that the company implements an effective compliance programme. Depending on a consideration of countervailing interests, the DOJ may also consider not prosecuting.

While the DOJ has historically provided a reduction in penalties to companies that self-disclose and cooperate, the new strategy appears to have been motivated, at least in part, by calls for more transparency on the requirements and tangible benefits of self-disclosure.

Moreover, to be eligible for credit, even a company that meets the credit criteria will be required to disgorge all profits resulting from the FCPA violation. The credit is granted above and beyond any fine reduction provided for under the Sentencing Guidelines, and as such the requirements are more exacting than those required under the Guidelines.

Consistent with the DOJ's interest in holding individuals accountable for FCPA violations as highlighted in the Yates Memorandum published seven months ago (see In context of 14 October 2015), Assistant Attorney General Leslie R. Caldwell has predicted that the programme will lead to "more prosecutions of individuals responsible for those crimes." Because the DOJ plans to maintain focus on responsible individuals, the credit is only available to companies, not individuals.

The new strategy only applies to prosecution by the DOJ's FCPA Unit, whereas the Yates Memo had broader applicability. As such, companies should be aware that the SEC may still pursue sanctions regardless of the outcome of the DOJ resolution, and it may be advisable to also engage the SEC early in the self-disclosure process to limit the risk of sanctions. Similarly, the pilot programme may have ripple effects onto other sections within the DOJ, other agencies, and local enforcers, acting as a point of reference in measuring corporate cooperation in investigations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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