Alert March 13, 2019

DOJ Formally Expands Corporate Enforcement Initiatives Designed to Encourage Company Disclosure & Cooperation

Summary

In its continuing efforts to encourage companies to self-report Foreign Corrupt Practices Act (FCPA) violations, the U.S. Department of Justice (DOJ) announced that it intends to formalize the application of the principles of its FCPA Corporate Enforcement Policy to successor companies that uncover wrongdoing in connection with mergers and acquisitions. As we previously analyzed in a July 2018 client alert, the DOJ has made clear that the FCPA Corporate Enforcement Policy will apply to companies that uncover corrupt conduct through due diligence in advance of an acquisition as well as to companies that learn of such conduct subsequent to an acquisition.[1] This past week, two senior DOJ officials made speeches intended to incentivize additional self-reporting of FCPA violations and provided recent examples of the benefits of such cooperation.

First, Deputy Attorney General Rod J. Rosenstein reconfirmed the DOJ’s commitment to developing initiatives to incentivize companies to self-police and self-report wrongdoing, while simultaneously making clear that the DOJ will aggressively prosecute individuals who violate the FCPA as well as companies that do not timely and fully cooperate. Likewise, Assistant Attorney General Brian A. Benczkowski indicated the FCPA Corporate Enforcement Policy in the DOJ’s Justice Manual will be updated to include the extension of the policy to mergers and acquisitions, along with other recent corporate enforcement initiatives. These continued policy statements were underscored by recent FCPA resolutions, each accompanied by a criminal prosecution of alleged offending individuals.

The Continued Evolution of the FCPA Corporate Enforcement Policy

The DOJ’s Focus on Individual Accountability Targets Individual Bad Actors and Encourages Company Cooperation

On March 7, 2019, in one of his last public speeches as Deputy Attorney General (DAG), Rod J. Rosenstein delivered a keynote address on FCPA enforcement developments: the DOJ’s focus on its individual accountability policy and continued efforts to incentivize self-reporting, self-policing, and corporate cooperation in criminal investigations. 

DAG Rosenstein highlighted the DOJ’s increased focus on prosecuting individual offenders while adopting mechanisms to encourage companies to cooperate with its investigations. He noted that last year, the DOJ charged more than 30 individual defendants in FCPA-related cases and secured convictions of 19 individuals. He also stated that a month ago, the DOJ indicted a salesman and the president of an American company for allegedly paying bribes in Venezuela, in an investigation that has led to charges against more than 20 people.

Emphasizing that “[t]he most effective deterrent to corporate criminal misconduct is identifying the people who commit crimes and sending them to prison,” the DAG stated that the focus on individual accountability is designed to “drive change” in corporate culture, and encourage more companies to implement robust and meaningful proactive compliance programs, ultimately reducing corporate crime. Recognizing that most American companies “want to do the right thing,” the DAG stated that corporate America should regard law enforcement as an “ally,” and, in turn, the DOJ should incentivize companies to assist in the DOJ’s investigations and promote ethical behavior. Accordingly, the principles of the FCPA Corporate Enforcement Policy — which emphasizes timely disclosure, full cooperation, appropriate remediation, and lasting compliance — mandates a presumption of declination in cases where companies meet these conditions.

On March 8, 2019, the Assistant Attorney General (AAG) for the DOJ’s Criminal Division, Brian A. Benczkowski, delivered remarks at the American Bar Association’s 33rd Annual National Institute on White Collar Crime. In his speech, AAG Benczkowski echoed DAG Rosenstein’s statements about the DOJ’s focus on holding individual wrongdoers accountable for white collar crime. In addition, the AAG spent a considerable amount of time during his remarks highlighting the DOJ’s current prioritization of transparency and consistency in its corporate enforcement practices. “We strive to be open books,” he said about the aggravating and mitigating factors to be considered by prosecutors in exercising discretion in cases of corporate malfeasance, to help “ensure that companies and their advisors, with better visibility into our decision making process, can make their own well-informed decisions going forward.”

To that end, the AAG noted that the FCPA Corporate Enforcement Policy is at the “forefront” of the DOJ’s efforts to communicate to the market that it will “reward companies that act responsibly upon uncovering criminal misconduct.”

The Corporate Enforcement Policy in Action

An example of those efforts toward transparency and consistency is the DOJ’s publication of 12 case declinations under the Corporate Enforcement Policy since it was put into effect, the most recent of which involved a declination of prosecution of Cognizant Technology Solutions Corporation, a publicly traded Fortune 200 company, for alleged FCPA violations.  There, it was alleged that Cognizant employees authorized bribes to Indian officials to obtain a required planning permit for the completion of an office campus, and that the company avoided millions of dollars in costs due to the misconduct. While the conduct allegedly involved certain high-level company officials (who were charged individually), the DOJ declined to bring any action against the company. AAG Benczkowski noted that this declination decision, announced in February 2019, was a direct result of the company’s full compliance with the requirements of the Corporate Enforcement Policy, including: its swift self-disclosure (within two weeks of its board’s discovery of the wrongdoing); thorough internal investigation and proactive cooperation with the DOJ; the effectiveness of the company’s pre-existing compliance program; and its full remediation and disgorgement to the DOJ and the U.S. Securities and Exchange Commission of all the cost savings from the alleged foreign bribes.

Similarly, AAG Benczkowski highlighted the DOJ’s declination of prosecution of the Insurance Corporation of Barbados Limited (ICBL) last year even though its high-level executives were allegedly involved in a scheme to pay bribes to a government official to secure insurance contracts. Like Cognizant, ICBL satisfied each of the requirements of the Corporate Enforcement Policy. According to AAG Benczkowski, both cases demonstrate that even misconduct by high-level company personnel does not preclude a declination in prosecution where the company’s actions are “otherwise exemplary.”

In contrast, last week, the DOJ resolution with Moscow-based Mobile TeleSystems (MTS) — the largest mobile telecommunications company in Russia, publicly traded on the New York Stock Exchange — underscores the DOJ’s seriousness about requiring corporate convictions when a company’s actions in response to corruption is not so exemplary. The MTS case involved a scheme to pay $865 million in bribes to a former Uzbek official to secure that official’s assistance with MTS’ entry into and maintenance of its position in the telecommunications market in Uzbekistan. The DOJ required MTS to enter into a deferred prosecution agreement (DPA), and its wholly owned Uzbek subsidiary pleaded guilty to FCPA charges in the Southern District of New York. The companies agreed to pay a penalty of $850 million, and agreed to a three-year compliance monitorship. Two individuals, including the former Uzbek official and the former CEO of another MTS subsidiary, were charged.  

In announcing the MTS resolution, the DOJ noted that its terms — including a corporate guilty plea and a DPA — reflected MTS’ lack of voluntary disclosure, reactive and insufficient cooperation, and remediation, among other things.

In an Effort to Increase Transparency and Consistency, DOJ Formalizes Corporate Enforcement Policy Application to Mergers and Acquisitions

In his remarks, AAG Benczkowski also noted that the DOJ prioritized a “refinement and reassessment” to its policies, including the Corporate Enforcement Policy, to “ensure that our policies are clear, comprehensive and up to date . . . [and] provide the right message and the right mix of incentives.” To that end, and among other things, the AAG announced that the DOJ’s extension of the principles of the Corporate Enforcement Policy to situations where criminal wrongdoing is uncovered through due diligence in the context of a merger or acquisition (or, in some instances, during post-acquisition reviews) will be permanently memorialized as written guidance to all federal prosecutors in the Corporate Enforcement Policy in the Justice Manual.  The AAG made clear that this merger and acquisition policy allows for disclosing companies to receive declinations of prosecution in appropriate cases, such as those when an acquired entity’s past leadership was involved in corruption, but has “since been purged by the acquirer.”

AAG Benczkowski stressed that the DOJ’s policy is designed to “avoid chilling acquisition activity by law-abiding companies, who might otherwise walk away from worthwhile investments due to the risk of FCPA enforcement.” “[W]e want law-abiding companies with strong compliance cultures to be willing to make these kinds of acquisitions,” he said, and added, “we don’t want the good corporate actors to cede the field to higher-risk entities that many only perpetuate illegal conduct.”  

Takeaways

Last week’s statements by the DOJ leadership regarding the utilization of the FCPA Corporate Enforcement Policy, as well as the formalization of its application to successor entities in mergers and acquisitions in its policies, mark yet another continuation of the DOJ’s efforts to incentivize swift disclosure and full cooperation by companies with its investigations. All companies — including successor entities, acquiring companies as well as investors in mergers and acquisitions — should consider these polices when adopting internal compliance programs, conducting due diligence, and addressing allegations of wrongdoing. As we emphasized previously, robust due diligence and investigation of any potential FCPA violations should be a vital part of any acquisition.

While the DOJ continues to express its intention to make its criteria and decision-making process more transparent, the uncertainty due to discretion and subjectivity cannot be removed from the process.  To address this, the DOJ has promoted its FCPA Opinion Procedure process designed to provide prospective guidance. It does not appear, however, that many (if any) companies are actually taking advantage of this Opinion Procedure. This could be due to a variety of reasons, including that it may be perceived as too slow to address fast-moving acquisitions and/or that it will not ultimately provide the certainty needed without all facts discovered at the time an opinion is sought.

In short, even though DOJ leadership has stressed that it strives to promote prosecutorial uniformity, transparency, along with fair and effective resolutions, as AAG Benczkowski conceded, “exercises of prosecutorial discretion are never formulaic.” Thus, how companies determine to resolve self-reporting issues and timing also must depend on the particular factual circumstances presented.

 


[1] As discussed in Goodwin’s July 2018 client alert, the FCPA Corporate Enforcement Policy, included in the Justice Manual, provides guidance to all federal prosecutors regarding corporate resolutions in FCPA cases, detailing the standards for what constitutes successful self-disclosure, cooperation, and remediation, and providing for a presumption of a declination when a company meets the codified conditions. It also lays out various aggravating circumstances that could overcome that presumption.