One of the most important FCPA-related decisions for companies is whether to disclose a potential FCPA violation to the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). Ramifications of the decision include hefty fines, remedial steps across the entire company and possibly being required to hire an independent monitor for several years to watch over a company’s entire business operations.
No one can doubt that the engine fueling DOJ’s record fine collections for FCPA violations is the voluntary disclosure process. Yet the voluntary disclosure process remains shrouded in mystery and some have suggested that they have been subjected to varying policies and results. This is not a good development for the administration of justice. The process requires effective and fair enforcement through the consistent application of policies and results.
These are not new issues in the criminal enforcement world. Criminal defendants face a similar decision everyday in the justice system. To assist in this process, prosecutors and defense counsel try to provide some guidance. In some districts, the US Attorney’s Office has adopted rules for guideline calculations so that defendants know the potential risks and benefits, including specific formulas for cooperation.
These same issues come up in the FCPA context. However, because of the relatively recent aggressive enforcement efforts, policies and standards are unclear, and there is not as much guidance on potential benefits. For example, how much of a “discount” can a company expect by voluntarily disclosing an FCPA violation? How much is the company’s cooperation worth?
The decision to disclose involves an important calculation. One the one side: What is the scope and extent of the violation? Is it systematic across the organization or isolated to a particular country or office? How significant is the violation in the scheme of the overall business? What would be the likely punishment for such violation(s)?
On the other side: What is the risk that such conduct will be discovered by the government? Unlike many other crimes, the likelihood that the US government will detect foreign bribery activity is low. There is not a line of victims or readily apparent harms. Auditors can sometimes discover questionable entries and potential bribery conduct, but financial accounting standards generally are ineffective because of the focus on “material” transactions. To the extent forensic accountants become part of a standard operating procedure for companies, more and more companies may start to discover potential illegal bribes.
Even without accounting audits, there are significant risks that a disgruntled employee, a whistleblower or a competitor may raise complaints that a company is engaging in illegal bribery activity. Most of the significant FCPA cases have been started through a whistleblower or disgruntled employee. That risk will be even greater if the SEC Whistleblower Bounty program is ever implemented.
There is an alternative course that companies should consider. It involves an overhaul of a company’s compliance effort. First, the company needs to design and implement an enhanced compliance program. Second, if the company discovers any significant bribery risks during the implementation of the enhanced compliance program, it should investigate, flesh them out and remedy the problems as quickly as possible. Third, the company needs to document the steps it took to fix the problem.
In the event that a disgruntled employee reports the issue to the government, the company should walk into the Justice Department, explain how the violations were discovered while implementing an enhanced compliance program and how remedies were implemented to make sure the problem does not occur again. In this situation, the dynamic of the Justice Department meeting should change.
While companies continue to struggle with this issue, it bears repeating: The Justice Department and the SEC need to adopt and disseminate standards and policies governing the voluntary disclosure process. The absence of such standards is unfair, breeds disparate treatment of similarly situated companies and undermines the fair administration of justice.
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