The Trade-Off Between Inducing Corporate Self-Disclosure and Full Cooperation

In discussions of appropriate sanctions for corporations that engage in bribery, much of the conversation focuses on the appropriate penalty reduction for firms that self-disclose violations, cooperate with authorities, or both. Self-disclosure and cooperation are often lumped together, but they’re not the same: Plenty of targets of bribery investigations, for example, did not voluntarily disclose the potential violation, but cooperated with the authorities once the investigation was underway.

This gives rise to a problem that is both serious and seemingly obvious, but that somewhat surprisingly is hardly ever discussed.

The problem goes like this: Enforcement authorities want to encourage self-disclosure, and they want to encourage full cooperation with the investigation; they would like to do so (1) by reducing the sanction for firms that voluntarily disclose relative to those that don’t, and (2) by reducing the sanction for firms that fully cooperate relative to those that don’t. But if the minimum and maximum penalties are fixed (say, by statute or department policy or other considerations), and the penalty reductions necessary to induce self-disclosure and full cooperation, respectively, are large enough (cumulatively greater than the difference between the maximum and minimum feasible sanction), then adjusting sanctions to encourage self-disclosure may discourage full cooperation, and vice versa.

It’s easiest to see this with a very simple numerical example: Continue reading