Justice Memo Calls for Absolute Cooperation
A newly issued Department of Justice memorandum changes policy for providing “cooperation credit,” that is, a reduction in penalty for cooperating with Justice’s investigation of corporate wrongdoing. Contractors facing an investigation must know this new policy and its potential consequences.
The memorandum, “Individual Accountability for Corporate Wrongdoing,” signed by Deputy Attorney General Sally Quillian Yates (found at http://www.justice.gov/dag/file/769036/download), prescribed six key steps for U.S. attorneys to take when investigating corporate civil or criminal wrongdoing. Of these six steps, the first — relating to cooperation credit — seems most likely to have immediate and significant effects on the risks faced by stability operations contractors.
This first step states that “in order to qualify for any cooperation credit, corporations must provide to the department all relevant facts relating to the individuals responsible for the misconduct.” This new policy likely will decrease the odds that businesses will benefit from disclosing misconduct.
Prior to the Yates memo, corporations received sentence credit based on how cooperative they were with the government’s investigation and enforcement actions. The new policy replaces this sliding scale with an all-or-nothing proposition whereby some as yet unspecified individual at an unspecified juncture in the investigation will decide whether the corporation provided all relevant facts, the prerequisite for any sentencing credit.
It remains to be seen how this new policy will be applied. However, the cooperation with an investigation — or lack thereof — is a key factor in the severity of the corporate penalty for FCPA violations. A review of some recent cases is illustrative.
On Dec. 22, Justice announced that a French power and transportation company had pleaded guilty to a two-count criminal indictment for falsifying books and records and failing to maintain adequate internal controls as the FCPA requires. The announcement outlined an extensive campaign of bribing officials in several countries over several years and repeatedly noted the company’s lack of cooperation, which was again highlighted in the plea agreement. It also stated that the company “failed to voluntarily disclose the conduct even though it was aware of related misconduct at … a U.S. subsidiary” and that it “initially failed to cooperate with the department’s investigation … and [a]pproximately one year into the investigation, [it] provided limited cooperation, but still did not fully cooperate.” The criminal penalty assessed was $772 million.
Aside from the sheer size of this penalty, its resolution is notable because Justice very openly punished the company more severely because of the way it learned about its misconduct. The press release announcing the plea deal stated that, “We encourage companies to maintain robust compliance programs, to voluntarily disclose and eradicate misconduct when it is detected, and to cooperate in the government’s investigation. But we will not wait for companies to act responsibly. With cooperation or without it, the department will identify criminal activity at corporations and investigate the conduct ourselves, using all of our resources, employing every law enforcement tool and considering all possible actions, including charges against both corporations and individuals.”
In contrast, a more recent case resolved in January involved a company that cooperated. This case involved allegations that a corporate employee sought to bribe a Qatari government official. Here, the company entered into a deferred prosecution agreement whereby the company, without admitting to violating the FCPA, agreed to pay a $375,000 penalty and a little more than $3 million for disgorgement and interest. Justice’s announcement and the resolution documents reflect that the company discovered the misconduct itself, took immediate remedial actions, self-reported and cooperated extensively with the government. Moreover, it is reported that Justice closed its investigation of the company with no criminal charges.
The facts of these cases are different, but the benefits of cooperating with the government are clear. The importance of cooperation in sentencing is why the new all-or-nothing policy on cooperation-related sentence credit is so important. The new “full disclosure” policy requirement of all relevant facts in order to receive any credit for cooperation introduces an element of subjectivity, and also makes it impossible for an organization to know at the outset of an FCPA investigation whether any benefit will result from disclosing and otherwise self-reporting misconduct.
Companies that disclose misconduct and materially cooperate run the risk that, at the conclusion of a multi-year investigation, Justice may seize upon a single undisclosed fact and give no credit for what was very real and substantial cooperation.
To maximize the likelihood of avoiding FCPA liability, or to minimize liability in the event of a violation, contractors must put robust compliance systems in place to detect and address red flags early. Once corruption is detected, companies should seek to minimize their FCPA exposure by thoroughly investigating the facts, so that disclosure to the government can be truly complete. Total and complete disclosure, in light of the new policy, to include what anyone might later deem a relevant fact, appears now to be an absolute imperative.
Bottom line: while the new policy creates some troublesome challenges, companies committed to fully understanding and keeping current with changes in the law and developing and vigorously implementing a robust and effective compliance program, should be able to stay on the right side of the law.
Ryan Bradel and Aaron Ralph are senior associates with the international law firm of GreenbergTraurig LLP. They specialize in international contractor disputes and investigations, government contracts litigation and advising defense contractors on legal compliance. The views expressed here are solely those of the authors.