Contrary to some expectations, the Trump Administration Department of Justice imposed record penalties under the U.S. Foreign Corrupt Practices Act from 2017 through 2020. But in each of those years, fewer and fewer new FCPA investigations were initiated. We expect the Biden Administration to continue the trend of increasing FCPA enforcement settlement values, while also increasing the pace of initiating new FCPA investigations. Anticorruption matters present some of the most severe threats to a company’s organizational integrity. Understanding the changing enforcement culture is an important component to addressing those threats.

Record FCPA penalties 2017-2020, despite a personal anti-FCPA view at the top. Analysis of historical enforcement data shows that FCPA settlements did not slow down under the Trump Administration, when looking at dollar value. By our count, six of the top 10 FCPA settlements in history were completed on President Trump’s watch, accounting for over $7 billion in fines, penalties, and disgorgements. And 2020 just became the biggest year in FCPA history, measured by penalties.

This record stands somewhat in contrast to the personal views voiced by President Trump regarding the law. The President reportedly criticized the FCPA in 2017,  speculating about the negative effect the law has on U.S. companies. And White House Economic Advisor Larry Kudlow reportedly said in January 2020 that the administration was “looking at” making changes to the law because of complaints from the U.S. business community about antibribery enforcement.

The Trump DOJ and SEC initiated fewer cases than previous administrations. We do not expect the Trump Administration to engineer any substantive change to the FCPA before January 20, 2021. But by one very important measure, the Trump Administration’s DOJ and Securities and Exchange Commission did slow down FCPA enforcement: each year since 2016, fewer FCPA investigations were initiated than in the year before. We have no information on whether the slowdown was an actual reflection of the President’s personal skepticism of the law, or mere coincidence.

5 reasons the Biden Administration will step up FCPA enforcemen

1. The new playbook is the old playbook

The playbook for prosecutors, formerly known as the U.S. Attorneys’ Manual, got a makeover in the Trump Administration. It is now known as the Justice Manual.

The most famous page of that playbook is the 2015 Yates Memorandum which, in 2015, essentially required that corporations identify all individuals involved in any aspect of alleged misconduct, regardless of their status or seniority, in order for the corporation to receive any credit for its cooperation with the government. At one time, President Trump’s then-Deputy Attorney General Rod Rosenstein suggested that the DOJ might change the approach outlined in the Yates memo. But the principles and procedures favoring individual prosecutions remain materially unchanged in the current Justice Manual. This means that the focus on individual prosecution is still DOJ policy, and we expect it to remain so in the Biden Administration.

2. Re-populating the rank and file

The Trump Administration was many things, but a magnet for lawyers it was not. According to one study, DOJ ranked 15th out of 16 cabinet departments in filling critical personnel positions, with only 45% of “key positions” filled as of November 2020, roughly 9/10 of the way through the term.

The Biden Administration is likely to act aggressively to reverse that trend. The President-Elect’s transition teams are bristling with DC legal talent. We expect strong moves to re-populate key DOJ offices such as the Criminal Division’s Fraud Section, which has exclusive authority over FCPA cases.

3. Young prosecutors see the FCPA as good hunting

The Fraud Section has always attracted smart, professional, ambitious prosecutors. The culture of the Section, in our experience, has always tended that way. And a major FCPA settlement is a very good way to make a mark. With a new crop of FCPA prosecutors occupying the Bond Building, we expect a new round of mark-making.

4. Economic downturn

The COVID-19 recession is a perfect storm of misfortune. Any economic downturn creates multiple incentives for fraud. FCPA cases spiked in 2001 and 2007-2009, correlating with the two most recent recessions. And we expect the trend to be magnified in the current one. International trade flows are disrupted, profit targets are under pressure, industries are consolidating, and corrupt officials always have a hand outstretched for a bribe.

5. Sector sweeps

Back in the Obama days, DOJ and SEC were known for the concept of “industry sweeps,” in which an FCPA investigation of one company would lead to series of cases in the same industry sector and then to adjacent sectors. Some former Fraud Section attorneys have downplayed the concept of industry sweeps as a strategy. But there are good reasons for pursuing corruption sector-by-sector, even if it is unintentional. As prosecutors learn about a new industry they tend to learn the common patterns of bribery and other wrongdoing. And settlements have clustered by industry year after year as a result. We are arguably in the middle of sector sweeps of healthcare, aerospace and defense, and financial services now. We expect those trends to continue.

Get ready for the enforcement surge. For all these reasons, we consider 2021 to be likely to be another record year for FCPA enforcement, and we expect the trends toward greater enforcement to accelerate. Steps organizations can take now to address the threat of corruption include the following:

1. Assess the changing culture of enforcement in the DOJ and the Securities and Exchange Commission
2. Pressure test your compliance procedures by performing a legal pre-mortem
3. Consider upgrades to your risk-based compliance program
4. Update your training
5. Make sure your internal investigations teams are ready

At the Global Investigations Review Annual Meeting in New York on September 21, 2023, Principal Associate Deputy Attorney General Marshall Miller (“Miller”) delivered remarks that provide an invaluable glimpse into the Department of Justice’s (“DOJ’s”) current and forthcoming priorities and initiatives on corporate criminal enforcement. Miller’s remarks shed light on various key areas of DOJ’s enforcement focus, including DOJ’s continued encouragement of voluntary self-disclosure and increasing attention towards safeguarding national security interests. Miller also emphasized DOJ’s commitment to consistency, predictability and transparency in its corporate enforcement work with an aim that such commitment will help companies better predict outcomes for certain criminal violations and implement robust compliance programs to prevent criminal prosecution.

Emphasis on Voluntary Self-Disclosure

DOJ continues to prioritize incentivizing companies to self-disclose criminal misconduct. Indeed as Miller put it, DOJ “is placing a new and enhanced premium on voluntary self-disclosure.” In line with this effort and to promote consistent application, earlier this year on February 22^nd, DOJ announced its new single voluntary self-disclosure (“VSD”) policy adopted by and effective across all 94 U.S. Attorneys’ Offices.[1]

Through its new VSD policy, DOJ also now defines precise requirements for a company to obtain a presumption of a declination by self-reporting. This is even available for companies with, what Miller called, “aggravating circumstances.” Miller highlighted Corsa Coal Corporation (“Corsa”) as an example of DOJ making good on its VSD policy. Corsa received a declination despite engaging in bribery to secure $143 million in coal contracts an Egyptian state-owned company. Corsa’s timely and voluntary self-disclosure, cooperation, remediation, and disgorgement of profits played a crucial role in its favorable outcome. Miller noted, “because [Corsa] stepped up and owned it, it received a declination,” highlighting a lesson for all companies seeking a declination from the DOJ. Companies hoping for a declination with the DOJ should heed that self-reporting is not the end all be all, but rather only the first step in the process; meaningful cooperation (including providing helpful information about the individual wrongdoers involved) and investing in an effective compliance program to detect and fix misconduct must also be demonstrated. 

DOJ intends for the VSD policy to provide clearer requirements for self-reporting and benefits for companies who take advantage of the policy and timely self-report. DOJ reports seeing early significant returns on this new policy with many companies self-disclosing, resulting in investigations.[2] However, as DOJ admits, a full assessment of the effectiveness of the VSD Policy is still premature. Only time will tell how successful and lenient the policy will be for corporations looking to earn credit by self-disclosing. The calculus of voluntary disclosure may have shifted, but it is still too early to tell whether the shift is material for companies facing that difficult decision.

Self-Disclosure in Mergers & Acquisitions (M&A)

A DOJ self-disclosure policy within the M&A context is in the works. Miller noted that the DOJ understands the importance of not discouraging companies with strong compliance programs from acquiring companies with histories of misconduct, especially when the acquiring companies engaged in careful pre-acquisition and post-acquisition due diligence and remediation of such misconduct. Currently, the Criminal Division’s Corporate Enforcement Policy offers the possibility of a declination for misconduct discovered during the pre- or post-acquisition due diligence. This development is particularly potentially significant for private equity firms – serial acquirers of companies. Such firms may do well to enhance their due diligence programs, depending, of course, on the policy’s final terms.

Miller referenced a December 2022 declination for Safran SA, an acquiring company that voluntarily self-disclosed bribery misconduct of its acquired companies, cooperated and remediated the misconduct. That company secured a declination with disgorgement. DOJ anticipates extending this approach across the board for M&A transactions, with an emphasis on the “critical importance of the compliance function having a prominent seat at the table in evaluating and de-risking M&A decisions.” Forthcoming guidance from Deputy Attorney General Monaco regarding voluntary self-disclosure in the M&A space will be provided in the near future. Such guidance will likely underscore the importance of early detection and reporting of misconduct prior to formal acquisition or closing, and an evaluation of the strength of acquiring companies’ compliance programs.

Dire Consequences for Companies Breaching Prior Resolution Agreements

Companies with prior resolution agreements should carefully comply with their obligations under such agreements. Miller stressed that DOJ will not hesitate to hold a company accountable with severe penalties for breaching the terms an agreement resolving criminal charges (e.g., deferred prosecution agreements, non-prosecution agreements, corporate probation terms, etc.). In fact, Miller stated that requiring a guilty plea after such breaches is now DOJ’s standard policy. DOJ’s stringent approach with severe penalties will also be applied to all resolution agreements, including breaches of civil settlement agreements and violations CFIUS mitigation agreements or orders.

Incentivizing Good Corporate Citizenship Through Compensation

To enhance compliance, the DOJ expects (especially when evaluating the strength of a compliance program) companies to implement a compensation system that effectively promotes good behavior and deters wrongdoings. To this end, Deputy Attorney General Monaco directed the DOJ’s Criminal Division earlier this year on March 15^th to launch a two-part pilot program on compensation incentives and clawbacks.

Under this pilot program, all corporate resolutions with the Criminal Division will require that companies include “compliance-promoting criteria within its compensation and bonus system.” Such criteria can include prohibitions on bonuses for personnel who fail to satisfy compliance performance requirements, incentives linked to commitment to compliance processes and promotion thereof, and disciplinary measures that claw back bonuses or compensation to employees who engage in legal misconduct or fail in their managerial oversight to report or prevent such misconduct.

With respect to clawbacks specifically, the pilot program also provides an incentive for companies to claw back or withhold compensation from wrongdoers. Companies can now reduce potential criminal penalties if they make a good faith attempt to claw back compensation even if they are ultimately unsuccessful. Citing this as a double benefit for companies, Miller noted the program will allow companies to reduce the same dollar amount from the applicable fine for the misconduct by the amount they claw back from the wrongdoers. Companies “get to keep the money it recoups from the wrongdoer, and [they] get to subtract that amount off [their] fine.” 

Companies that cannot claw back monies at the time of resolution will have to pay the applicable fine, but will have a reserved credit equaling the amount they attempted to claw back from the wrongdoer. If successful in their clawback efforts, the reserved credit will be released to the company. But, even if unsuccessful, DOJ will credit the good faith attempt by releasing to the company up to 25% of the sought amount. 

Importantly, Miller specified that companies should have an active clawback policy that is “regularly deployed.” The DOJ will not take kindly to superficial or paper clawback policies that have no real bite to its bark and will view such policies as “no better than having no policy at all.” Companies should also regularly review their clawback policies and employment agreements to ensure they promote compliance long before such companies discover any wrongdoings. 

Dedication to Combatting National Security Compliance Failures

Miller focused the latter half of his remarks on how corporate enforcement actions tied to national security risks are now taking center stage for DOJ, which has detected an increasing number of cases implicating national security across industries with many cases involving sophisticated money laundering, cryptocrime, technology theft, and sanctions and export evasion, and terrorism crimes. To combat this growing threat, DOJ has dedicated significant resources, including hiring new prosecutors (25 to the National Security Division and 6 to the Bank Integrity Unit), expanding units focused on national security-related economic crimes (e.g., violations of the Money Laundering Control Act, the Bank Secrecy Act, and economic and trade sanctions programs) and forming the Disruptive Technology Strike Force to “target illicit actors, harden technology supply chains, and protect critical technological assets from acquisition by [United States’] adversaries.”

DOJ’s charged focus on national security is a signal for companies to ensure that their compliance protocols have updated and robust measures to mitigate national security risks. Certainly, any company that operates in high-risk regions controlled by autocracies must make national security compliance its highest priority. DOJ warns that all companies should carefully look over all their transactions operating in dangerous parts of the world and conduct diligence to safeguard against national security violations (e.g., money-laundering monies to support terrorism, using subsidiaries to conduct illicit business in North Korea in support of its nuclear weapons program, skirting export controls to funnel military technologies to United States adversaries, etc.).

Takeaways

By sharing its latest corporate criminal enforcement priorities, Miller stressed DOJ’s commitment to fostering a consistent, transparent and predictable enforcement environment that encourages companies not only to detect, deter, and report corporate misconduct but also to collaborate with DOJ in addressing evolving corporate crimes impacting national security. Companies should heed Miller’s remarks, and revisit their compliance programs with legal counsel to enhance measures geared towards promoting corporate responsibility and good citizenship. This includes refining company internal disclosure and reporting protocols, structuring compensation and bonus systems to optimize compliance, and implementing effective mechanisms to detect and prevent national security risk.

FOOTNOTES

[1] The VCD Policy is further discussed in detail in https://www.corporatesecuritieslawblog.com/2023/02/corporate-voluntary-self-disclosure-of-criminal-activity-more-of-the-same-or-a-real-sea-change/

[2] Additional analysis of the DOJ’s latest corporation resolutions can be found in https://www.law360.com/articles/1719945/self-disclosure-lessons-from-exemplary-corp-resolutions

Investigations are stressful for an organization’s leadership. But what is often overlooked is that they are stressful for an organization’s employees as well. The need-to-know nature of internal investigations usually restricts knowledge of the investigation’s character, scope, and potential consequences to a relatively small circle of senior management. But the employees who fall within the scope of the investigation will often know little about what’s going on, which can generate anxiety, impair morale, and create tensions in the workplace, further leading to negative repercussions for the organization that persist long after the investigation has been closed.

For most employees, their first awareness of an investigation is either through receipt of a litigation hold notice or an instruction to meet with the organization’s counsel. The employee will likely have received only a thumbnail summary of the nature of the investigation, which can leave the employee with more questions than the organization is able to answer, increasing workplace stress and anxiety. Interviews typically begin with an UpJohn warning—fa notice to the employee that the lawyer about to question them is not their lawyer and that anything they say can and may be used against them. Again, stress. The interview may cause the employee to question whether the organization suspects them of wrongdoing. The employee may question the conduct or integrity of their peers or supervisors.

After the interview, the employee returns to the workplace knowing, or at least suspecting, that counsel also interviewed their coworkers and wondering what they said. But, of course, counsel has instructed the employee not to discuss the subject matter of the interview with anyone. In other words, the investigation becomes the elephant in the office. In the absence of information, human nature will lead employees to fill in the blanks with what they know or believe they know. This very human tendency often leads the employees to conclude the worst. The resulting anxiety can damage morale and reduce productivity. Some employees may even choose to leave for a competitor.

What can be done to mitigate these collateral consequences of an investigation? One approach is to conduct a closeout debrief. A closeout debrief can serve to bring closure for employees, relieve anxiety, and restore trust in the organization. The concept is quite simple. The debrief occurs after counsel is comfortable that they have determined the facts, but before the investigation is formally closed. The debrief affords counsel and opportunity to review and confirm or correct information the employee provided. As such, it is a privileged communication. But it also provides an opportunity to inform the employee that the investigation is at or nearing its conclusion, express the organization’s appreciation for the witness’s assistance, and answer questions or provide assurances the organization was unable to offer earlier in the investigation.

This is not to say that counsel should share the entirety of their investigative findings. There may in fact be very little factual information that can be shared with employees. But even where little or no factual information can be shared, it can be tremendously reassuring to an employee to learn the investigation has been concluded, their cooperation was helpful and appreciated, and they are not at risk. Even where the investigation reveals misconduct that warrants terminating one or more employees, or other corrective action, the closeout debrief can be an opportunity to reassure employees who are not at risk of termination. A benefit of bringing closure to an investigation for employees is freeing them from the “sword of Damocles” that an ongoing investigation can feel like and allow them to breathe a sigh of relief.

The decision whether to conduct a closeout debrief and what to disclose is highly fact-specific. A close-out debrief will not be appropriate or feasible in every case or for all interviewed employees. But in our experience when conducted under the right circumstances and in the right way, the closeout debrief can help restore employee trust in the organization and in one another, relieve anxiety, restore morale, and increase productivity. It can also help reduce the risk that an employee will turn into a public whistleblower. In one case, for example, we were able to reassure the employee whose complaint had triggered a broad investigation, that contrary to her fear that she would be retaliated against, the organization agreed that she was right to raise her complaint and appreciated her willingness to do so. We could almost see the stress and tension drain from her.

The closeout debrief can also provide an opportunity to address operational weaknesses that contributed to the problem or create a risk of future problems. Lack of communication or weak management can create the conditions that cause employees to misinterpret company actions and intentions. We have seen erroneous allegations of misconduct arise from lack of communication or trust among employees or between employees and supervisors. The closeout process can provide an opportunity to address those underlying problems and implement measures to prevent them from recurring.

In sum, for CLOs, CCOs, and experienced senior management, internal investigations are simply a sad reality of corporate life. But for employees, an investigation can be a traumatic one-time event, which can undermine the quality of the employee’s work experience and burden the organization’s operations. Although the needs of an investigation require that the organization limit the information it discloses during the course of an investigation, the closeout debrief can afford an opportunity to restore the trust between it and its employees and reaffirm to them the organization’s values and commitment to compliance.