DOJ Criminal Division Announces Major Change in Corporate Enforcement Policy
On March 1, 2018, the Criminal Division of the U.S. Department of Justice (“DOJ”) announced that it has expanded the scope of cases in which it will consider issuing a formal declination of criminal charges for a company that voluntarily self-discloses wrongdoing, fully cooperates and appropriately remediates. This significant policy change is intended to incentivize companies to investigate and report potential criminal conduct outside of the Foreign Corrupt Practices Act (“FCPA”) context, albeit with less certainty (at this time) regarding the outcome of that process than in the FCPA context. As we explain below, there are several key takeaways and issues to watch for as DOJ begins to apply its expanded declination policy to corporate enforcement efforts.
Recent FCPA Enforcement Policy Serves As Guidance
In announcing the new general corporate enforcement policy, DOJ explained that it would look to the recently formalized policy regarding self-reported FCPA violations (the “FCPA Policy”) as nonbinding guidance for its enforcement decisions in other contexts.
DOJ announced the FCPA Policy on November 29, 2017 and incorporated it into the U.S. Attorney’s Manual. DOJ sought to improve upon the existing FCPA Pilot Program by offering companies greater certainty and clarity regarding the outcomes of self-disclosing FCPA violations. To that end, the FCPA Policy provides that a declination is the presumption when a company self-reports, fully cooperates and remediates, provided there are not extenuating or aggravating circumstances. If a declination is not appropriate, the FCPA Policy provides that DOJ will request a 50% reduction off the low end of the sentencing guidelines for a company that fully cooperates.
Illustration: Comparing Recent Outcomes in Non-FCPA Cases
In announcing the new corporate enforcement policy, DOJ highlighted the example of its February 28, 2018 decision declining to bring charges against Barclays PLC (“Barclays”) as part of a major front-running investigation. In its formal declination letter to Barclays, DOJ noted that its decision to close its investigation without bringing charges was based on the company’s (1) timely and voluntary self-disclosure; (2) thorough and comprehensive internal investigation; (3) full cooperation, including providing all relevant facts regarding culpable individuals; (4) compliance enhancements; (5) full remediation, including paying nearly $12.9 million in restitution and disgorgement; and (6) agreement to continue to cooperate with DOJ on related investigations, among other factors.
DOJ then specifically compared the Barclays case to its resolution of another recent front-running case involving HSBC Holdings PLC (“HSBC”). Unlike Barclays, HSBC did not self-report and did not fully cooperate (including failing to timely turn over documents to DOJ). On January 18, 2018, HSBC agreed to pay a criminal penalty of $63.1 million (in addition to disgorgement) as part of a deferred prosecution agreement with DOJ. The deferred prosecution agreement will last for three years and contains onerous requirements such as annual reports to DOJ regarding remediation and compliance improvements. HSBC will be subject to prosecution if it fails to honor its commitments under the deferred prosecution agreement.
While it is premature to draw definitive conclusions regarding the application and impact of DOJ’s newly expanded declination policy, DOJ’s announcement clearly is intended to highlight numerous incentives to corporate actors. Accordingly, here are some key takeaways and issues to watch for as DOJ rolls out its new enforcement policy:
Increased importance of robust internal compliance/ethics function. With this new announcement, DOJ is seeking to add a new data point to a company’s self-reporting analysis outside the FCPA context: the potential for a declination or significant sentencing reductions. While the decision of whether or not to self-report is complex and significant, a company is not able to consider that decision without first discovering its own potentially criminal conduct early on. Regardless of whether a company ultimately decides to self-report, the early detection of wrongdoing provided by a strong compliance and ethics function allows for maximization of a company’s options, including the possibility of seeking a declination through self-reporting and cooperation, or coming to a well-reasoned and justifiable decision not to disclose.
Utilization of experienced counsel to conduct an internal investigation. As demonstrated by the Barclays declination, a comprehensive and exhaustive internal review is a critical component of a successful self-report. Utilizing experienced outside counsel to conduct such an investigation comes with a variety of benefits, including: efficient scoping and work that minimizes the impact of an investigation on ongoing corporate operations; generation of fulsome and defensible investigation results that will be well received by DOJ; guidance on proactive remedial efforts; the ability to provide accurate guidance to key decision-makers throughout the process of deciding whether to approach DOJ; and the ability to help navigate the critical but challenging process of a self-disclosure and ensuing investigation. For example, HSBC parted ways with its outside counsel after not self-reporting and then failing to cooperate with DOJ. Although HSBC later cooperated with DOJ after retaining new outside counsel, the damage was already done, and a declination was off the table.
Will more companies decide to self-report non-FCPA violations given the nonbinding framework for resolution and no presumption of obtaining a declination? As DOJ recognized in formalizing its FCPA Policy to add clarity and definitiveness to self-reporting of FCPA violations, companies are hesitant to self-report when the outcome cannot be predicted with some degree of certainty. DOJ’s decision to consider the FCPA Policy as nonbinding guidance in other contexts does seem to reintroduce some ambiguity and subjectivity into the process. Perhaps this is another trial period or “pilot program,” and DOJ will come forward with a more definitive policy in the future. In any event, DOJ has offered a noteworthy incentive to companies to self-report outside the FCPA context; it will be interesting to see whether this incentive overcomes the uncertainty of the nonbinding framework set forth to resolve such cases.