New FCPA Self-Reporting Pilot Program Formalizes Rewards but Relies on Discretionary Implementation

Assistant Attorney General Leslie R. Caldwell announced the release of the Fraud Section’s new pilot program as part of the Department’s ongoing enhancement of its FCPA enforcement strategy, which includes the intensification of the Department’s investigative and prosecutorial efforts by substantially increasing its FCPA law enforcement resources, as well as the strengthening of its coordination with foreign law enforcement. The new program, hailed by the Department as increasing transparency regarding its FCPA enforcement strategy, is designed to promote greater accountability for individuals and companies potentially exposed to criminal enforcement by motivating companies to voluntarily self-disclose FCPA-related misconduct, fully cooperate with the Fraud Section and, where appropriate, remediate flaws in their controls and compliance programs in return for mitigation credit. However, while the new pilot program is a significant step towards the creation of a publicly articulated benefits and rewards regime for self-reporting FCPA violations, its onerous “proactive disclosure” requirement and discretionary rewards protocol raise important questions about whether the program will actually succeed in encouraging self-disclosure.

Pilot Program Eligibility

To be eligible for any mitigation credit, companies must voluntary self-disclose FCPA violations.

In evaluating self-disclosure under the pilot program, the Fraud Section will make a careful assessment of the circumstances of the disclosure. Indeed, according to the Department, a company’s disclosure pursuant to the pilot program must be truly voluntary. Thus, self-reporting that is required by law, agreement or contract would not suffice for the purpose of receiving credit under the pilot program. In addition, the disclosure must occur prior to an imminent threat of disclosure or government investigation and be within a reasonably prompt time after the company learns of the FCPA violation. Finally, mirroring the language of the Yates Memorandum, the new pilot program provides that a company that intends to qualify for the program’s mitigation credit must disclose all relevant facts about individuals involved in the FCPA violation.

Full cooperation requires disclosure of facts, preservation of documents and availability for government interviews.

Consistent with the Department’s guidance as set forth in the Yates Memorandum, a company may be eligible for the pilot program’s benefits only if it timely discloses all relevant facts, including all facts related to involvement in the criminal activity by the company’s officers, employees or agents. However, full cooperation under the pilot program also requires proactive disclosure, including the identification of relevant evidence not in the company’s possession or overseas, document preservation and disclosure, translation of documents when requested, availability of officers and employees for interviews, and full disclosure of facts gathered during the company’s independent investigation on a rolling basis, among other things. The pilot program also specifically requires the “facilitation” of “third-party production of documents and witnesses from foreign jurisdictions,” although neither “facilitation” nor “third-parties” are defined, leaving numerous questions unanswered as to the expectations of cooperation. This burdensome disclosure requirement places significant demands on companies in terms of locating and translating documents not readily available or even in their possession, and ignores the rights of current and former employees by requiring their attendance at government interviews. The pilot program further assumes control over third-parties when such control simply may not exist.

Timely and appropriate remediation is required for mitigation credit.

According to the Department, eligibility under the new pilot program further depends on whether the company undertook timely and appropriate remediation measures such as implementing an effective compliance and ethics program, disciplining employees responsible for misconduct—and possibly those who failed to supervise the responsible employees—and taking any additional remedial measures necessary to identify future risks and reduce the repetition of misconduct. For instance, the Fraud Section will evaluate the independence of the compliance function, the quality and experience of the compliance personnel, the reporting structure of compliance personnel within the company, the auditing of the compliance program to assure effectiveness, and whether the company has established a culture of compliance. In addition, the Department will expect a company to recognize the seriousness of the misconduct and accept responsibility for it.

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