The Justice Department has written a draft policy that if adopted would result in prosecutors pursuing fewer cases against companies for allegedly bribing foreign officials to win business.
The proposal is an effort to increase the incentive for companies to be forthcoming about wrongdoing by their officials and give the business community clearer guidance on penalties under the Foreign Corrupt Practices Act (FCPA).
“Increased transparency benefits everyone,” said Leslie Caldwell, head of the Justice Department’s criminal division, in a May speech that foreshadowed the policy shift. “If companies know the benefits that likely will flow from self-reporting or cooperating with the government’s investigation, we are confident that more companies will be willing to voluntarily disclose” misconduct — including naming culpable employees.
The FCPA bars payments to foreign government officials to obtain contracts or a business advantage.
But concerns within the Justice Department that the prospective change is too lenient on firms that have violated the law have led senior officials in the criminal division to delay its issuance, according to U.S. officials who spoke on the condition of anonymity to describe internal discussions.
“It’s not a bad thing to provide companies with more transparency” on department policy, but the draft policy “lets them off the hook too easily,” said one person familiar with the matter.
The proposed policy strongly recommends that prosecutors should decline to bring charges against a company that voluntarily discloses violations of the FCPA and cooperates with the government in its investigation — including by furnishing information on employees who may have violated the law.
The Justice Department declined to comment.
Under review is the extent to which companies should be excused even for egregious misconduct because they have voluntarily disclosed it, cooperated with the investigation and taken remedial steps.
The proposal contemplates that the decision not to prosecute could be accompanied by a fine in the form of forfeiture of company profits. But in general the goal is to enhance the incentive for companies to cooperate by providing more certainty that doing so would not result in a stiff penalty or a criminal charge. Also, there would be no statement of facts that lays out the company’s misbehavior as there is now with many resolutions of FCPA investigations.
Caldwell has been speaking for some time about the need to give companies more incentive to disclose wrongdoing. She has stressed the need to hold individuals accountable and to consider the effectiveness of compliance programs in deciding whether to bring criminal charges against a company.
Caldwell also has noted that companies that do not cooperate can face severe consequences. The French power company Alstom last December pleaded guilty to violating the FCPA and agreed to pay a fine of $772 million — the largest penalty ever imposed in a foreign bribery case.
In assessing the penalty, the department considered many factors, Caldwell said, including Alstom’s failure to voluntarily disclose the misconduct, the breadth of the violations and its refusal to cooperate with the investigation.
The department in general is seeking to boost its ability to battle foreign bribery. Earlier this year, the FBI announced that, in partnership with the Justice Department’s fraud section, it established three international corruption squads, in New York City, Los Angeles and Washington.
And to complement that move, the fraud section will soon add 10 prosecutors to the FCPA unit — increasing the number of line attorneys by more than half.
Nonetheless, there are companies that now weigh the odds of getting caught if they do not come forward with knowledge of a crime. They think “why not just wait to see whether law enforcement — whether here in the U.S. or overseas — discovers the wrongdoing?” said Andrew Weissmann, chief of the fraud section, in a speech in May. “Why not stay mum and see if it gets discovered and then, if necessary, cooperate to mitigate the damage?”
He said then that the Justice Department was working on incentives to encourage candor in reporting FCPA violations. “There will be a meaningful gap between those companies that voluntarily self-disclose and those who don’t,” he said, signaling the prospective policy shift. Those who disclose, he said, “will greatly increase the odds of a declination.”
He stressed that companies would have to be forthcoming with “facts about individuals responsible for the misconduct, no matter how high their rank may be.”
The emphasis on holding individuals accountable complements a recent policy memo issued by Deputy Attorney General Sally Quillian Yates that calls for a stronger effort by the Justice Department to prosecute not only companies but their personnel for wrongdoing.
Her memo made clear that from now on, to get any credit for cooperating with department investigations, companies need to provide all relevant facts about employees involved in corporate misconduct.
“The Yates memo told companies what they need to do to get cooperation credit,” said David O’Neil, former acting assistant attorney general for the criminal division and now a partner at Debevoise & Plimpton. “This guidance would presumably tell companies what cooperation credit does for them.”
But some skeptics within the department argue that while giving companies clearer guidance is a good thing, the practical effect of the proposed policy change would be that a greater number of cases that should be pursued would be dropped.
The number of “declinations” — decisions not to prosecute — would rise. “It means that self-reporting and cooperation would be a ticket out of criminal liability for a company, even if the reported misconduct is serious and substantial,” said a second individual familiar with the draft policy.
On the flip side, the individual said, if a company does not self-disclose and a violation is discovered, it is much more likely to get charged. “It’s almost like an amnesty program,” he said. “But if you don’t take advantage of the self-reporting, it ups the stakes for companies who choose to keep quiet.”
Currently, many FCPA cases are resolved through agreements to defer prosecution with the condition that the company pay a fine — which could amount to hundreds of millions of dollars — and improve its compliance program. If after three years the Justice Department feels the company has not made adequate improvements, prosecutors may still institute the charges.
In other cases, charges are prepared but not filed, though they may be later if the company does not improve its compliance program. That is called a non-prosecution agreement and often also includes a fine.
In a small minority of cases, the department has sought guilty pleas or indictments. Those are more challenging because the evidence might not be adequate to prove that someone at the company intended to bribe a foreign official. Prosecutors are also reluctant to indict a company if doing so could put it out of business and there is evidence that the company as a whole was not culpable but that a handful of individuals acted on their own in violation of the law.