Carrot and stick: why compliance pays under FCPA Pilot Programme
12 Sep 2017 3:34 am by Mark Dunn
A long-running pilot scheme
The Pilot Programme, which was introduced by the U.S. Department of Justice (DOJ) in April 2016, takes a 'carrot and stick' approach to FCPA enforcement. It incentivises companies to voluntarily self-disclose FCPA-related misconduct, and penalises those who do not. A company could receive up to a 50% reduction on the bottom of the sentencing guidelines and avoid being prosecuted if it meets several criteria: voluntary self-disclosure of the violation, full cooperation with the subsequent investigation, improvements to its compliance processes, and remediation including disciplinary action against employees involved in the misconduct. The programme has become a core part of the anti-corruption work of the DOJ and the Securities and Exchange Commission (SEC). Since the end of the first quarter of 2017, seven declinations have come from the DOJ and four from the SEC.
The pilot was only supposed to last a year, but it was extended in March 2017 to give the DOJ more time to evaluate its effectiveness. Recent speeches from senior U.S. officials suggest that the programme could be made permanent. Sandra Moser, Acting Chief of the Fraud Section at the DOJ, said in July that the DOJ had declined to prosecute several companies under the pilot, while cases pursued outside the programme had mostly resulted in guilty pleas. "This is powerful information for companies to consider when weighing carrots versus sticks," she said. Attorney General Jeff Sessions told the Ethics and Compliance Initiative Annual Conference in April: "When we make charging decisions, we will continue to take into account whether companies have good compliance programmes; whether they cooperate and self-disclose their wrongdoing; and whether they take suitable steps to remediate problems."
Increasing use of 'declinations with disgorgement'
The programme has seen the introduction of an interesting new type of resolution called 'declination with disgorgement'. This is a declination which requires a company to disgorge any profits it made from the corrupt practice. Two of the 11 declinations under the Pilot Programme since the end of the first quarter of 2017 have been declinations with disgorgement. In both of these cases, the conditions that companies had to meet were similar to previous settlements under the pilot, except for the additional requirement to disgorge profits.
In June 2017, the DOJ agreed to declinations with disgorgement with U.S. subsidiaries of the German chemical company Linde Group. Linde discovered that executives in its American units had paid bribes to officials at the state-owned National High Technology Centre in the Republic of Georgia. It reported this to the DOJ, which agreed not to prosecute Linde because it cooperated with the investigation, improved its compliance programme, remediated the issues, and disgorged nearly $8 million. Another declination with disgorgement was agreed in June with the U.S.-based engineering and construction firm CDM Smith. It gave up more than $4 million in profits gained after its Indian subsidiary bribed government officials at the National Highways Authority of India in exchange for a water project contract.
What should companies do?
Although the future of the Pilot Programme remains uncertain, it is likely that the U.S. regulators will continue to reward companies who self-report evidence of financial crime, and penalise those who do not. This reflects a global trend towards self-reporting, including the recent introduction of Deferred Prosecution Agreements in the UK and France. Implementing a robust compliance process and a company-wide culture of transparency and integrity is the most effective way for a company to reduce the likelihood of an FCPA violation taking place, and to increase the chances that its employees will report any corrupt practices. A sound compliance programme includes:
- A clear message from the C-suite that integrity in business practices is essential
- Reviews and audits of the company's business practices and compliance procedures
- Anti-corruption training for employees and third parties operating on your behalf,
- Anti-corruption provisions in contracts
- Due diligence of all third parties and enhanced due diligence investigations when the risk of bribery and corruption is high
- Ongoing monitoring of third-party entities, particularly those with links to government, as well as Politically Exposed Persons (PEPs), against sources including legal and sanctions watch lists and negative news coverage
Are there any gaps in your current compliance program that could leave you choosing between a carrot or a stick?
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