Weighing the risks of self-reporting a bribery violation, or hiding it, has always been a thorny issue for companies.
And that’s the dilemma at the heart of the U.S. Justice Department’s pilot program for violations of the Foreign Corrupt Practices Act. While the one-year program has made companies a little more trusting of prosecutors, the decision to self-report a foreign bribe is no less gut-wrenching, according to FCPA lawyers.
The Justice Department is mulling whether to continue the pilot program or to modify it. Most lawyers who have participated in the program said it should be continued, but with more clarity for companies.
DOJ introduced the program in April 2016, saying it would provide prosecutors and corporations a clearer understanding of what the government offers a company that voluntarily discloses its wrongdoing, fully cooperates with an investigation and institutes remedial compliance measures.
The top prize is a letter from DOJ saying it is declining to prosecute the crime.
Earlier this month, Kenneth Blanco, acting assistant attorney general for the DOJ Criminal Division, told participants at the ABA National Institute on White Collar Crime that the department would extend the program to evaluate how well it worked, and whether it should be modified.
To assess the program, this publication talked with three FCPA defense attorneys, one prosecuting attorney and an in-house counsel who each took part in pilot program cases this past year. Except for the in-house counsel, none of the participants would discuss the specific case they worked on. The Justice Department declined to comment for this story.
The attorneys unanimously supported continuing the program, although several defense lawyers argued that certain changes would give companies even more clarity as they confront questions about whether to disclose misconduct to prosecutors.
The pilot program’s guidance “does help to create some parameters,” said Jay Holtmeier, who co-leads the FCPA and anti-corruption group in the New York office of Wilmer Cutler Pickering Hale and Dorr. “But the biggest question—whether the Justice Department will decline or not—really is not defined in the program.”
That means a company could voluntarily disclose its violation, and DOJ could still decide to prosecute it, he said.
Holtmeier represented Johnson Controls Inc. (now Johnson Controls International), which was one of five companies that received a declination letter last year, according to the DOJ pilot program’s website.
“I think the department in good faith has tried to articulate factors that are more measurable and transparent than previously,” said Holtmeier, a former federal prosecutor in Manhattan. But he said some factors still need to be fine-tuned, such as knowing how much discount the company will receive off the penalty range, or how a disgorgement amount is decided.
Greater transparency and a higher level of certainty also were recommendations from Patrick Pericak, now senior managing director with business advisor FTI Consulting in Washington. Pericak is a former DOJ lawyer who was involved in the first pilot program case—the department declined prosecution against Nortek Inc., a Providence company that manufactures building products.
“I think the department is reluctant to lock itself in too much,” Pericak said. “And companies will never be in a position to have 100 percent certainty. But I think there will be greater certainty as time goes on, if the program is continued.”
Facing off against Pericak in the Nortek case was Luke Cadigan, a Cooley partner in Boston who formerly worked at K&L Gates. “A lot of people are calling for more clarity,” Cadigan said. “But I think over time as you have more resolutions [DOJ] will start to make clear what circumstances will lead to what resolutions. More cases will bring more clarity.”
Aaron Ahola, deputy general counsel and chief compliance officer for Akamai Technologies Inc., said his company didn’t have to struggle with the self-disclosure question when it entered the program last year. Akamai, like the other four companies that secured declination letters from DOJ, was chosen for the program because it had already self-disclosed its foreign-bribery problem before the pilot program began.
Ahola led his company, a content delivery network and cloud services provider based in Cambridge, Massachusetts, through the negotiations that ended with the declination letter in June.
“In our experience no modifications are needed,” Ahola said. “The factors we felt were important—self-reporting, thoroughly investigating, fully cooperating, taking ownership of the problem—were taken into account. So it was as positive an experience as can be under the circumstances.”
So has the pilot program achieved its goal and increased the number of companies willing to self-disclose FCPA violations over the past year? DOJ won’t say at this point.
Ryan Rohlfsen, a former FCPA prosecutor and now a defense attorney at Ropes & Gray in Boston, worked with Ahola as an outside counsel on the Akamai case. He said the “jury is still out” on the pilot program.
DOJ is “meeting a lot of its goals in terms of starting the discussion with the community on what is the calculus for self-disclosure, and adding some degree of predictability,” Rohlfsen said.
“They will measure over time if they are seeing a greater number of self-disclosures,” he continued. “That will take more time to gather adequate data and see patterns. In short, it is a work in progress, and it will be interesting to watch over the next year or so.”