Justice Department Sweetens the Deal for Honest Companies: 75% Reduction in Fines for Self-Disclosure and Cooperation

Justice Department: There’s much to unpack from Assistant Attorney General Kenneth Polite yesterday’s remarks on revisions to the Criminal Division’s Corporate Enforcement Policy.

Before we delve into the comments themselves and what they mean for compliance programs, let’s first give a brief introduction on the CEP, for the benefit of those new to this terminology.

The US Department of Justice (DOJ) has a program in place to encourage companies to self-report any misconduct they come across. This program, called the FCPA Corporate Enforcement Policy (CEP), was first announced in 2016 and was expanded in 2017.

The CEP offers companies benefits for self-reporting, cooperating with investigations, and taking steps to fix any issues they find. For example, if a company self-reports and cooperates, they may be able to avoid prosecution altogether. And even if a company is facing prosecution, the CEP may reduce the penalties they face.

The CEP also applies to companies that find misconduct during the process of buying or merging with another company. If a company finds misconduct and self-reports it, they may still be eligible for benefits under the CEP.

Examples of Successful Resolutions

The DOJ has recently had successful resolutions with companies that have self-reported misconduct and cooperated with investigations, showing that the DOJ is committed to rewarding companies that do the right thing.

The DOJ recently declined to prosecute a French aerospace company, Safran SA, because they had self-reported violations that they found during a merger. Even though the violations occurred between 1999 and 2015, the company fully cooperated with the investigation, fixed the issues and gave back any illegal gains.

Another company, Swedish-Swiss multinational ABB, also had a positive outcome even though they didn’t self-report the misconduct. They had previous violations in the past and had a compliance program in place that detected the misconduct in South Africa, and they had plans to self-report it. However, before they could do that, the media reported about the misconduct.

The Department of Justice took into consideration the company’s intent to self-report, the early detection and the extensive cooperation and remediation. As a result, ABB was able to avoid a guilty plea and entered into a deferred prosecution agreement with the Department. However, since they had previous violations and were considered a FCPA recidivist, they didn’t receive the same benefits as Safran SA.

On the Flipside

The DOJ wants to be transparent about the incentives for companies to self-report, cooperate and fix any misconduct they find. However, they want to make it clear that if a company falls short of their expectations, it could lead to serious consequences.

For example, a company called Balfour Beatty Communities did not receive any benefits under the Corporate Enforcement Policy (CEP) due to lack of voluntary self-disclosure, lackluster cooperation, failure to conduct appropriate remediation in a timely manner.

The starting point for the fine amount was determined to be between the low end and the mid-point of the applicable U.S. Sentencing Guidelines fine range, and a guilty plea was warranted due to the seriousness and pervasiveness of the conduct. The company’s compliance program was found to be inadequate at the time of the offense and at the time of the resolution, and an independent compliance monitor was imposed.

In Glencore’s case ( also featured in my earlier post, “World’s most corrupt companies“), the company didn’t get a big reduction in its fine because it didn’t cooperate well with the investigation and didn’t take proper actions against people involved in the wrongdoing.

In the Bank of Nova Scotia case, the company was given a big fine because instead of fixing the problem, their compliance team actually contributed to the bad behavior.

The DOJ emphasizes that its “default is not a declination, it’s not an NPA, and it’s not a DPA” and reminds the reader that they have secured six parent-level corporate guilty pleas during Mr. Polite’s tenure to date, in cases involving a range of conduct, from foreign bribery and bank fraud to emissions testing fraud and spoofing.

They take a nuanced but tough approach and companies must earn a declination by following the policies.

The New Justice Department Revisions to the CEP

Most importantly for compliance programs however are the new announced revisions to the Corporate Enforcement Policy, which applies to all corporate criminal matters handled by the Criminal Division, including all Foreign Corrupt Practices Act (FCPA) cases.

These revisions provide specific, additional incentives for companies to voluntarily self-disclose, cooperate with investigations, and take steps to remediate any misconduct.

Whilst companies may have been hesitant to self-disclose under the previous version of the policy, the revised policy presents a new path that incentivizes stronger compliance and cooperation. Even if there are aggravating circumstances present, prosecutors may still choose to decline prosecution if the company can demonstrate that it has met 3 specific criteria:

  • “The voluntary self-disclosure was made immediately upon the company becoming aware of the allegation of misconduct;
  • At the time of the misconduct and the disclosure, the company had an effective compliance program and system of internal accounting controls that enabled the identification of the misconduct and led to the company’s voluntary self-disclosure; and
  • The company provided extraordinary cooperation with the Department’s investigation and undertook extraordinary remediation.”

Translation: if a company has done something wrong, prosecutors may decide not to take legal action against it if the company informs the DOJ about the misconduct right away, has a solid compliance program to prevent the problem in the first place, and cooperates with the DOJ during their investigation.

These are extra steps a company can take to show they are serious about following the law and being a good corporate citizen.

But not all companies will be able to avoid legal action this way, and there are other ways for companies to get some benefits even if they don’t meet all these criteria.

This is where the DOJ sweetens the deal:  If a company reports to the DOJ about the problem, helps with the investigation, and fixes the problem, it may be able to get a discount on the fines it has to pay. The discount could be as much as 75% off the usual fine, which is a big increase from before (50%). Additionally, in most cases, the company will not have to admit guilt in court.
The new CEP revisions can also help companies that didn’t report to the Justice Department the misconduct first, but still fully cooperated and fixed the problem. In such a case, the DOJ may recommend a reduction in the fines that could be as much as 50% off the usual amount. This is twice the maximum reduction available under the old rules.
However, the company will not be getting the maximum reduction just for cooperating; the company will have to earn the reduction by showing full cooperation and appropriate remediation. It will be reserved for companies that truly go above and beyond.

What is the difference between “Extraordinary” and “Full” Cooperation according to the Justice Department?

The DOJ understands that corporations and individuals are different, but when it comes to cooperation, the way they assess it is similar.
The DOJ values things like when a company tells them about the misconduct right away, helps them get evidence they otherwise couldn’t, and cooperation that leads to results like getting responsible people convicted.
The Justice Department knows “extraordinary cooperation” when it sees it and it’s a higher level of cooperation than just the usual standard.
To get the extra credit, companies must go above and beyond what is expected. The DOJ will not tell the company how to conduct their own internal investigation, but companies often know the best ways to cooperate in a particular case. Every case is unique and will be evaluated accordingly.
Overall, the Justice Department’s message is clear: if a company admits to wrongdoing, cooperates with authorities, and takes steps to fix the problem, it will be treated more leniently. But if it doesn’t, it will face harsher consequences. The Justice Department is emphasizing it will be watching closely to make sure that companies are holding the people responsible for the misconduct accountable, no matter their position or seniority within the company.
And, it’s important that the companies come forward and work with the authorities during the investigation.

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