Minding the Compliance Gap in an Evolving FCPA Landscape
Every day corporate entities and individuals in some parts of the world provide payments to foreign officials in exchange for business favors. While it may be a common feature of business in these places, this kind of activity is illegal under the Foreign Corrupt Practices Act (FCPA), which criminalizes various acts of bribery and related accounting fraud. The consequences for failing to comply with the FCPA are severe, and ensuring compliance can be especially difficult for start-up or relatively young companies growing rapidly and expanding into foreign markets before they can institute robust compliance systems.
Since the Department of Justice announced its FCPA pilot program on April 5th, there’s been a great deal of discussion of what it means for companies dealing with FCPA issues. The DOJ is increasing its efforts to detect and prosecute individuals (individual accountability has been a larger focus since the Yates Memo was released in September 2015) and companies for committing violations of the FCPA. It plans to do this in three ways:
- substantially increasing FCPA law enforcement resources by adding 10 more prosecutors to the DOJ Fraud Section (a 50% increase) and adding three new squads of special agents to the FBI to investigate FCPA violations,
- strengthening its collaboration with foreign law enforcement counterparts, and
- introducing a one-year FCPA enforcement pilot program that encourages voluntary self-disclosure of violations, full cooperation with the Fraud Section, and, where appropriate, remediate flawed internal controls and compliance programs.
Among other things, the pilot program requires the timely and voluntary self-disclosure of all relevant facts about the individuals involved in the wrongdoing and the disgorgement of all profits made from the FCPA violations. Importantly, no waiver of the attorney-client privilege or work product protection is required. The prize for meeting these requirements is up to a 50% reduction off the bottom end of the Sentencing Guidelines fine range, no appointment of a monitor if an effective compliance program is implemented, and, in some cases, a declination of prosecution.
How does all of this affect companies in Silicon Valley and elsewhere facing potential FCPA compliance issues? The short answer is that we still don’t know. Assistant U.S. Attorney General Leslie Caldwell gave some thoughts on these issues in a recent interview. She said the goal of the pilot program is to “get at the vast amount of information that we know exists about FCPA violations by giving companies a more concrete incentive to self-report.” Self-reporting by companies has declined in the past 6-7 years, as they have increasingly opted to conduct internal investigations into FCPA violations, put them on the shelf, and hope the government doesn’t come knocking, rather than self-report up front. She noted that Silicon Valley companies are particularly vulnerable to FCPA issues: “The SEC office out here [in the Northern District of California] has a dedicated FCPA group, which most offices don’t. Part of that is a recognition that the Northern District is the home of Silicon Valley, which has a lot of companies that operate in a lot of challenging parts of the world where [corruption] is a problem.”
It remains to be seen whether the Pilot Program will entice companies to self-report FCPA violations. AUSA Caldwell says it’s too soon to know. We’ll be paying close attention to these issues and how they may impact our clients.