Coordination of Corporate Resolution Penalties Is Unlikely to Address the “Piling On” Problem in FCPA Prosecutions

Multinational companies that pay bribes may find themselves subject to prosecution by multiple jurisdictions. Some countries, including many in Europe, apply a double jeopardy bar (known there as ne bis in idem) that prevents one country from prosecuting an entity that has already been prosecuted elsewhere. Other countries, however—including the United States—have no such bar. US prosecutors may pursue those suspected of violating the Foreign Corrupt Practices Act (FCPA) even if the targets already have been, or are being, prosecuted in another country for the same bribe payments. Is this a problem? Some say no: the possibility of multiple prosecutions by different sovereigns might create a healthy “race to the top” and stronger deterrence. On the other hand, however, we might worry that multiple prosecutions risk over-punishing, thereby over-deterring risky but socially valuable conduct (like expanding into high-risk foreign markets). Companies also will not be sure when a matter is finally settled. In addition, there seems something arrogant about the US giving itself the power to evaluate whether a criminal prosecution in another country was adequate.

The US Department of Justice (DOJ), long a defender of its right to judge for itself whether to bring a parallel or follow-on prosecution in FCPA cases, recently signaled greater sympathy with those who take the latter side in this debate. Earlier this year, the DOJ unveiled a new policy meant to eliminate “unfair duplicative penalties” on corporate wrongdoers, including those participating in foreign bribery, and set out a number of factors that the DOJ can use to evaluate whether imposing multiple penalties serves “the interests of justice.” Describing the impetus for the policy update, Deputy Attorney General Rod Rosenstein echoed common complaints from the corporate community about how the “piling on” of multiple penalties for the same misconduct, from different regulatory and enforcement agencies, deprives the company and its stakeholders of the “the benefits of certainty and finality ordinarily available through a full and final settlement.”

It’s not clear, though, whether—at least with respect to FCPA cases—the new policy differs much from the approach that the DOJ’s FCPA Unit has been taking to joint and parallel investigations for many years. While formalizing the approach may seem to provide some relief to corporations, the new policy actually does little to address the “piling on” problem in the foreign bribery context: Continue reading

Guest Post: There’s Nothing (Legally) New About “Declinations” Under the DOJ’s Corporate Enforcement Policy

Today’s guest post is from Professor Karen Woody, at Indiana University’s Kelley School of Business:

Last year, the US Department of Justice (DOJ) announced a new “Corporate Enforcement Policy” (CEP) that would apply to Foreign Corrupt Practices Act (FCPA) cases, among others. A key feature of the CEP was the offer of leniency—in the form of a “declination”—so long as the company met certain conditions, including voluntary disclosure of the violation, full cooperation, and disgorgement of any ill-gotten gains from the unlawful conduct. While the basic contours of the DOJ’s new policy are reasonably clear, the use of the term “declination” has created some confusion and uncertainty. Is a “declination” merely a decision not to prosecute? Is it something more? Does it depend?

This confusion is illustrated by Maddie McMahon’s post last month, in which she argued that declinations granted pursuant to the CEP are indeed a “new” kind of enforcement action, distinct from a simple decision not to prosecute. And the DOJ has to some extent fostered that understanding: As Maggie points out, the CEP itself states (somewhat enigmatically), “if a case would have been declined in the absence of such circumstances [of compliance with the CEP], it is not a declination pursuant to the Policy,” which seems to imply that there still may be DOJ declinations, in addition to distinct declinations “pursuant to the CEP.” But in fact the CEP does not create a new mechanism for resolving FCPA cases (or other corporate enforcement actions). What it does do (confusingly and unhelpfully) is use the same term—“declination”—to describe two distinct, but familiar well-established, types of resolution.

To see this, it is critical to distinguish two types of cases for which the DOJ might issue a “declination” pursuant to the CEP: (1) unilateral declinations, where any required disgorgement is made in a separate settlement with the Securities and Exchange Commission (SEC); and (2) “declinations with disgorgement,” in which the SEC lacks jurisdiction and the disgorgement required to qualify for a “declination” under the CEP is made as part of an agreement between the company and the DOJ. Continue reading

Defining Declinations: A New Enforcement Action

In recent years, the US Department of Justice (DOJ) has, with increasing frequency, been resolving alleged violations of the Foreign Corrupt Practices Act (FCPA) with formal declinations (that is, a statement that the DOJ will not prosecute the corporation). Indeed, the possibility of resolution through declination is a centerpiece of the DOJ’s new Corporate Enforcement Policy (CEP). Under the new policy, the DOJ will presumptively grant a declination to a corporation implicated in potential FCPA violations, so long as the corporation voluntarily reports the possible FCPA violations to the government, agrees to implement internal remediation measures, and disgorges any ill-gotten gains. (When that last condition applies, the resolution is a “declination with disgorgement.”)

But what exactly is a “declination”? One would think that the answer would be straightforward, but it turns out to not to be so easy. Typically, declinations have been thought of in the negative, meaning what they are not: prosecutions. Generally, U.S. prosecutors have the discretion to decide whether to bring an enforcement action against a party that may have violated the law. If the DOJ decides that it is not in the interest of justice or otherwise worthwhile to pursue a given case, then the DOJ has “declined” to prosecute. However, in the FCPA context (and possibly other contexts as well), a formal “declination” should be thought of as something more than simply a decision not to prosecute. And that distinction turns out to have practical consequences for the types of penalties a formal “declination” can legally support.

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Brazil: A Model for International Cooperation in Foreign Bribery Prosecutions

Much ink has been spilled celebrating the extraordinary crackdown on corruption in Brazil over the past few years (including on this blog). Headlined by the massive Operation Car Wash (Portuguese: Lava Jato)—in which officials received nearly $3 billion in bribes to overcharge Petrobras, Brazil’s state-controlled oil company, for construction and service work—high-profile corruption investigations have swept through Brazil, threatening to upend its reputation as a bastion for unchecked graft. Although corruption in Brazil remains a serious problem, the extensive investigations have worked to elevate the nation as an inspiration for countries looking to address their own corrupt political systems and hoping to become “the next Brazil.”

In addition to the headline-grabbing investigations targeting the upper echelons of the Brazilian government, Brazilian authorities have also worked closely with U.S. authorities investigating bribery activity in Brazil, leading to significant penalties both under Brazilian law and under the U.S. Foreign Corrupt Practices Act (FCPA). This is a significant development, because it demonstrates the possibility for close collaboration on cross-border bribery cases between a developed country (usually on the “supply side” of transnational bribery cases) and a developing country (on the “demand side”). Commentators have complained that too often supply-side enforcers like the United States take an outsized role in transnational bribery cases, with the countries where the bribery takes place doing too little. Other commentators have cautioned that an increase in prosecutions by other countries, in the absence of some sort of global coordination mechanism, may lead to races to prosecution or to over-enforcement. China’s nearly $500 million fine of British pharmaceutical giant GlaxoSmithKline in 2014 for bribing Chinese doctors and hospitals was emblematic of these fears, providing an example of an aggressive, unilateral approach to demand-side enforcement – while putting DOJ in the unfamiliar position of pursuing FCPA violations as a cop late to the scene.

Through its recent enforcement actions, Brazil has provided a different model. While there have been successful joint enforcement actions in the past—such as the Siemens case—the recent series of coordinated U.S.-Brazil actions exhibit how developed and developing countries can work together in anti-bribery enforcement, sharing in the investigative responsibilities, negotiations with companies, and even the financial returns.

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Why DOJ’s New FCPA Corporate Enforcement Policy May Be a Step Backwards

At the end of last year, the U.S. Department of Justice announced a new Corporate Enforcement Policy to guide prosecutors charged with overseeing Foreign Corrupt Practices Act (FCPA) violations. This new policy codifies, and builds on, the DOJ’s FCPA Pilot Program, which had been in place since mid-2016. Under the Pilot Program, the DOJ announced that it would consider mitigated penalties for companies that voluntarily disclosed FCPA violations, fully cooperated with the government investigation, and agreed to remediation measures. Those mitigated penalties included a reduction in penalties by 50% below the low end of the U.S. Sentencing Guidelines range, or in some cases outright declination of prosecution.

The new Corporate Enforcement Policy goes further, stating that when a company voluntarily self-discloses an FCPA violation, fully cooperates, and adopts timely and appropriate remediation measures (including disgorgement of any gains from the violation), there is a presumption that the DOJ will offer the company a declination, absent aggravating circumstances (such as a particularly severe offense). This presumption of a declination is stronger than the Pilot Program, which only said that the DOJ would “consider” a declination. Additionally, while Pilot Program gave prosecutors the discretion to reduce requested fines, the new policy directs prosecutors to ask for lower fines as long as companies meet the requirements noted above. The new policy also gives favorable terms even to companies that do not voluntarily disclose misconduct, so long as they later fully cooperate and implement a remediation program. For these companies, the DOJ will recommend a sentence reduction of up to 25% off of the low end of the U.S. Sentencing Guidelines. (The DOJ also recently announced that it’s expanding this beyond the FCPA, applying it also to crimes such as securities fraud.)

One way to understand the new FCPA Corporate Enforcement Policy is as a response to concerns that the U.S. government’s traditional approach to enforcing the FCPA has over-emphasized corporate settlements at the expense of prosecuting individual wrongdoers. In that sense the new policy, and the Pilot Program before it, can be seen as consistent with the Yates Memo, which declared that the DOJ would focus more on individual liability. A related but distinct justification for the new Corporate Enforcement Policy is the idea that it will improve overall FCPA enforcement by encouraging more voluntary self-disclosures. The rationale is that there are likely a large number of low-level corporate bribery cases that companies learn about but don’t report, for fear of the expected penalties. The DOJ would prefer that companies disclose these transgressions, and the Department appears to have concluded that the benefits of encouraging such disclosures outweighs concerns about reducing punishments for FCPA violations. Indeed, in justifying the new enforcement policy, U.S. Deputy Attorney General Rod Rosenstein emphasized that under the Pilot Program, the number of voluntary disclosures during the program doubled to 30.

These justifications for the new policy at first seem plausible, but they suffer from an important flaw: They overlook the impact of DOJ’s enforcement posture on corporate culture. The new policy may increase incentives for voluntary self-disclosure and post hoc remediation, but at the same time the new policy weakens incentives for companies to actively work to promote a pro-integrity corporate culture. For that reason, the new policy may end up worsening overall foreign bribery activity, even if both corporate self-disclosures and prosecutions of individuals increase.

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US Anticorruption Policy in a Trump Administration Revisited: An Evaluation of Last Year’s Doom-and-Gloom Predictions

Almost exactly one year ago, the day after the U.S. presidential election, I published a deeply pessimistic post about the likely future of U.S. anticorruption policy under a Trump presidency. As I acknowledged at the time, “the consequences of a Trump presidency are potentially so dire for such a broad range of issues–from health care to climate change to national security to immigration to the preservation of the fundamental ideals of the United States as an open and tolerant constitutional democracy–that even thinking about the implications of a Trump presidency for something as narrow and specific as anticorruption policy seems almost comically trivial.” That statement is, alas, still true. But what about the impact on anticorruption specifically? In my post last year, I made a bunch of predictions about the likely impact of a Trump presidency on corruption, anticorruption, and related issues. What did I get right and where did I go wrong?

This may seem a bit self-indulgent, but I think it’s often useful to go back and assess one’s own forecasts, not only in the interests of accountability and self-criticism, but also because examining where we got things right and, more importantly, where we went wrong can help us do a better job in the future. Of course, one difficulty in assessing my own predictions is that many of them concerned longer-term effects that we can’t really assess after one year (really 9+ months). And in some cases the predictions concern things that it’s hard to assess objectively. But it’s still a useful exercise. So, here goes: Continue reading

Declinations-with-Disgorgement in FCPA Cases Don’t Worry Me: Here’s Why

Among those who follow Foreign Corrupt Practices Act (FCPA) enforcement practices, there’s been a spate of commentary on a few recent cases in which the Department of Justice (DOJ) has resolved FCPA cases with a formal decision not to prosecute (a “declination”) that includes, as one of the reasons for (and conditions of) the declination, the target company’s agreement to disgorge to the U.S. Treasury the profits associated with the (allegedly) unlawful conduct. Disgorgement is a civil remedy rather than a criminal penalty (as the U.S. Supreme Court recently emphasized); it is often employed by the Securities and Exchange Commission (SEC), which has civil FCPA enforcement authority over issuers on U.S. exchanges. Until recently, however, the DOJ – which has civil FCPA enforcement authority with respect to non-issuers, and criminal enforcement authority in all FCPA matters – had not sought disgorgement very often, and the recent “declination-with-disgorgement” resolutions appear to be something new, at least in the FCPA context.

Not everyone is happy with this development. Last week, for example, Professor Karen Woody posted an interesting commentary over at the FCPA Blog (based on a longer academic paper) on why the emergence of declinations-with-disgorgement in FCPA cases is an “alarming” development that makes her “queasy.” Professor Woody is an astute and knowledgeable FCPA commentator, and I’m hesitant to disagree with her—especially since I’m not really an FCPA specialist in the way that she is—but I’m having trouble working up a comparable level of alarm. Indeed, my knee-jerk reaction is to view the declination-with-disgorgement as a useful mechanism, one that would often be the most appropriate one to employ to resolve FCPA violations by a company that is not subject to SEC jurisdiction, and eliminating this mechanism might force the DOJ to employ a worse alternative.

Let me start by laying out the affirmative case for declinations-with-disgorgement, and then I’ll turn to Professor Woody’s concerns. Continue reading