On October 29, 2020, the US Commodity Futures Trading Commission’s (CFTC) Division of Enforcement (Division) issued additional guidance to Division staff for considering what recommendations to make in CFTC enforcement orders regarding a person’s cooperation, self-reporting and remediation.1 The guidance, which builds on the cooperation advisories issued by the Division in 2017, expressly does not change how the Division calculates a reduction of penalties. Rather, it attempts to formally sort respondents into four categories defined by the quality of the respondent’s cooperation and to publicly describe which category a particular respondent is in. While falling somewhat short of complete transparency as to how a company’s cooperation will affect the calculation of a penalty, the new guidance provides some additional information about how the Division evaluates a respondent’s cooperation.
Promulgation of the new guidance is a continuation of recent efforts by the CFTC and other regulatory agencies to encourage corporations to cooperate with law enforcement in exchange for leniency and more predictable outcomes in enforcement matters. The CFTC started on this path in 2017 with two advisories establishing four categories of factors the Division may consider when deciding if an individual or a corporation warrants cooperation credit at the conclusion of an investigation.2 Those categories are (1) the value of the cooperation to the CFTC’s investigations or enforcement actions, (2) the value of the cooperation to the CFTC’s broader law enforcement interests, (3) the company’s culpability and culture and (4) any uncooperative conduct.
Despite the CFTC’s efforts to clearly define cooperation, the advisories still left companies in the dark with respect to exactly how the CFTC would evaluate those factors in determining an appropriate penalty. In contrast, the Department of Justice (DOJ) began encouraging cooperation by providing more predictable outcomes in 2016 via the Corporate Enforcement Policy (CEP).3 Unlike the CFTC’s advisories, the CEP created a presumption that the DOJ will issue a declination to any company that (1) voluntarily self-discloses misconduct, (2) fully cooperates and (3) timely and appropriately remediates violative conduct. Although the CEP was originally focused on violations involving the Foreign Corrupt Practices Act (FCPA), in 2018, the DOJ announced that it was extending it to other areas of criminal enforcement beyond the FCPA.4
The CFTC’s most recent advisory represents a similar step toward the kind of clarity offered by the DOJ. It effectively rates the quality of an entity’s cooperation by assigning it one of four designations. Each designation determines the precise language the CFTC will add to an enforcement order. Though the new guidance still fails to clearly identify the precise benefits of cooperation, it does formalize how self-reporting, cooperation or remediation will be described in CFTC orders. Such consistency may help increase the level of predictability of CFTC decisions going forward.
The first category described in the Guidance is reserved for entities that do not self-report, cooperate or remediate. In such an instance, the Division “will not recommend that the Commission’s enforcement order publicly recognize self-reporting, cooperation, or remediation.” However, the absence of such language is not necessarily an indication that the respondent was uncooperative or obstructive. “Rather, it merely indicates that the respondent did not materially advance the Division’s investigation or otherwise [meet] the factors set out in the Advisories.”
This language is consistent with the growing expectation among many regulators for proactive cooperation in enforcement matters. Indeed, one of the critical elements of the DOJ’s CEP is the requirement that corporations “cooperate proactively and disclose all relevant facts and evidence to the government on a timely basis, even when not specifically asked to do so by the government.”5 The CFTC set a similar standard in their 2017 advisories, stating that “companies will be viewed favorably if they conduct good-faith internal investigations aimed at identifying all responsible individuals and produce full reports of any such investigations to the division.”6
The expectation for proactive cooperation is further reflected in each of the additional categories specified in the guidance, which are ordered by increasing levels of cooperation. The second category is for entities that do not self-report and whose cooperation and/or remediation fail to earn a penalty discount because their cooperation did not “materially assist the Division’s investigation.” Here, the CFTC makes it clear that merely complying with legal requests is not enough to earn a penalty discount. As with the CEP, the CFTC clearly requires more proactive engagement to earn significant credit in the penalty phase. In this instance, the guidance provides this language to be included in the enforcement order:
In accepting Respondent’s offer, the Commission recognizes the cooperation of [name of Respondent] with the Division of Enforcement’s investigation of this matter. The Commission also acknowledges Respondent’s representations concerning its remediation in connection with this matter.
The third category is reserved for persons or entities that did not self-report but whose cooperation and/or remediation did “materially advance the Division’s investigation in accordance with the Advisories, and/or [the company] engaged in substantial remediation to address the misconduct ...” Here again, the CFTC emphasizes its expectation for proactive cooperation through material advancement of an investigation. In this instance, the order will include this language:
In accepting Respondent’s Offer, the Commission recognizes the substantial cooperation of [name of respondent] with the Division of Enforcement’s investigation of this matter. The Commission also acknowledges Respondent’s representations concerning its remediation in connection with this matter. The Commission’s recognition of Respondent’s substantial cooperation and appropriate remediation is further reflected in the form of a reduced penalty.
The fourth, and final, category is reserved for persons that have self-reported and “substantially cooperated in a manner that materially advanced the Division’s investigation, and remediated in accordance with the Advisories.” The guidance adds that the entity will be afforded the “most significant” penalty reduction, though there is no indication of how such a calculation would be made. In this instance, the order will include this language:
In accepting Respondent’s Offer, the Commission recognizes the self-reporting and substantial cooperation of [name of Respondent] in connection with the Division’s investigation of this matter. The Commission also acknowledges Respondent’s representations concerning its remediation in connection with this matter. The Commission’s recognition of Respondent’s self-reporting, substantial cooperation, and appropriate remediation is further reflected in the form of a substantially reduced penalty.
By formally categorizing the quality of a respondent’s cooperation, the CFTC’s new guidance provides a degree of transparency around the agency’s evaluation of cooperation, which continues a trend of encouraging companies to voluntarily self-disclose infractions and to take proactive steps to cooperate and/or remediate by offering the potential for leniency in the enforcement process. Though the guidance potentially opens the doors for disagreements over what constitutes material assistance, the benchmarks set by the CFTC have the potential to provide respondents with greater clarity when attempting to measure the impact of settling an enforcement action.
1 See CFTC, “Recognizing Cooperation, Self-Reporting and Remediation in Commission Enforcement Orders” (PDF: 102 KB) (Oct. 29, 2020)
2 See CFTC, “Enforcement Advisory: Cooperation Factors in Enforcement Division Sanction Recommendations for Individuals” (PDF: 279 KB) (Jan. 19, 2017); CFTC, “Enforcement Advisory: Cooperation Factors in Enforcement Division Sanction Recommendations for Companies” (PDF: 291 KB) (Jan. 19, 2017); CFTC, “Enforcement Advisory: Updated Advisory on Self Reporting and Full Cooperation” (PDF: 242 KB) (Sept. 25, 2017)
3 Press Release, DOJ, Criminal Division Launches New FCPA Pilot Program (Apr. 5, 2016), https://www.justice.gov/archives/opa/blog/criminal-division-launches-new-fcpa-pilot-program
4 Press Release, DOJ, Deputy Assistant Attorney General Matthew S. Miner Remarks at the American Conference Institute 9th Global Forum on Anti-Corruption Compliance in High Risk Markets (July 25, 2018), https://www.justice.gov/opa/pr/deputy-assistant-attorney-general-matthew-s-miner-remarks-american-conference-institute-9th
5 FCPA Corporate Enforcement Policy, US Department of Justice Criminal Division (2017), https://www.justice.gov/criminal-fraud/file/838416/download