- DOJ continues to focus on corporate self-disclosure and remediation, individual accountability, and international cooperation on corruption matters.
- DOJ is putting new emphasis on the use of compensation system incentives and the threat of clawbacks to encourage compliance efforts by individual employees
- International efforts to improve whistleblower protections and increase beneficial ownership transparency continued to gain momentum
U.S. Policy Developments
Since the fall of 2022, DOJ has made several policy pronouncements in connection with its efforts to combat corporate crime. While it remains to be seen how these policies will ultimately affect DOJ’s anti-corruption enforcement efforts, the policy pronouncements expand upon, and fill in the contours of, DOJ’s prior policy commitments—particularly regarding the tangible benefits DOJ states are available to companies that voluntarily disclose misconduct.
DOJ’s Updated Corporate Enforcement Memo. On September 22, 2022, Deputy Attorney General Lisa Monaco issued a memorandum providing additional guidance on how prosecutors should ensure individual and corporate accountability with the goal of promoting consistency in corporate criminal enforcement across DOJ. The memorandum reiterates that individual accountability remains a top priority for DOJ, and that companies must disclose all relevant, non-privileged facts about individual misconduct in a timely manner to receive cooperation credit. The memorandum also emphasizes that prosecutors must consider the full range of a company’s prior misconduct when determining the appropriate resolution. Not surprisingly, successive non-prosecution or deferred prosecution agreements for repeat corporate offenders are generally disfavored, especially where the matters at issue involve similar types of misconduct; the same personnel, officers, or executives; or the same entities. The memo also provides guidance on when compliance monitors are appropriate. Further, the memo notes that prosecutors may consider whether the company has compensation systems that encourage compliance and reporting, and whether the company has effective policies and procedures regarding the use of personal devices and third-party messaging platforms, in determining the terms of a resolution with DOJ.
Revisions to Corporate Enforcement Policy (CEP). As we have written previously, Assistant Attorney General Kenneth Polite announced revisions to the CEP on January 17, 2023, The revisions expand upon DOJs existing policy by more clearly identifying the tangible benefits available to companies that voluntarily self-disclose misconduct. The revisions provide that even when aggravating circumstances exist, such as the engagement of management personnel in the misconduct or where the corporation received significant profits from the misconduct, prosecutors may decline prosecution if: the corporation voluntarily disclosed the misconduct immediately upon its awareness of such misconduct; the company had an effective compliance program in place; and the corporation provided “extraordinary” cooperation with DOJ. The revisions also provide that companies can receive tangible benefits for self-disclosure even in cases where DOJ has determined that a criminal resolution is warranted. Where a corporation has fully cooperated and appropriately remediated, DOJ may recommend a 50% to 75% reduction off of the low end of the sentencing guideline range (though generally not when the corporation is a “criminal recidivist”). Notably, the revisions specifically call out the benefits of self-disclosure in the mergers and acquisitions context. Where the acquiror uncovers misconduct of the target company, discloses such misconduct, rapidly remediates, and establishes an effective compliance program, there will be a presumption of declination.
Deputy AG’s Remarks on “Inspiring a Culture of Compliance” and Announcement of a Compensation Claw Back Pilot Program. Looking forward, on March 2, 2023, Deputy AG Lisa Monaco delivered remarks regarding DOJ’s ongoing efforts at combating corporate crime. Deputy AG Monaco announced the launch of the Pilot Program on Compensation Incentives and Clawbacks which consists of two parts. First, all corporate resolutions will now require the resolving company to develop compliance-promoting criteria within its compensation and bonus system. This feature has been encouraged in recent years; now mandatory, companies will have to be sure to incorporate this into their remediation plans in any negotiation with DOJ. Second, DOJ will provide fine reductions to companies who attempt to claw back compensation from corporate wrongdoers. In concept, resolving companies would pay applicable fines minus a reserved credit equaling the amount the company is attempting to get back. If the company succeeds, it will keep the clawback money and does not need to pay what it recovered. Further, if a company attempts to clawback money in good faith but is unsuccessful, it is still eligible for a fine reduction. In any specific situation, clawback efforts may face a number of practical challenges, including de-confliction concerns between DOJ’s investigation and prosecution efforts on the one hand, and a company’s civil litigation efforts on the other. It will also require companies to carefully navigate the intersection with their indemnification obligations.
DOJ Issues Opinion Procedure Release Concerning Payments Made Under Duress. On January 21, 2022, DOJ issued a rare opinion procedure release – the first one since 2020, and only the second one since 2014. The specific facts at issue were unique – the Request sought guidance as to whether a payment to officials of Country A to release a captive ship and crew would trigger an enforcement action under the FCPA’s anti-bribery provisions. DOJ determined that the threat of imminent and serious physical harm to the captain and crew was sufficient reason to conclude that the payment would not be made with “corrupt intent.” In addition, DOJ considered that because the Requestor did not have any anticipated future business with Country A, it was not motivated by “obtaining or retaining business,” notwithstanding that the payment apparently would secure the release of the vessel as well. The Opinion is not binding on parties other than the Requestor and does not address whether the payment would violate other laws (such as those of Country A). This Opinion is noteworthy for two reasons. First, the Opinion shows that the procedure can be an effective mechanism to receive guidance from DOJ, and when exigent circumstances warrant, a company can obtain guidance quickly. In this instance, DOJ issued a preliminary opinion only one day after receiving the request given the circumstances. The Opinion also demonstrates DOJ’s willingness to consider true duress situations with care, and its focus on the “business purpose” motivating the payment in assessing liability under the FCPA. In this instance, the imminent safety threat, coupled with a practical assessment of the inability to rely on any other mechanism to secure the safety and freedom of the individuals in light of the circumstances presented by Country A, made the proposed payment “readily distinguishable from other situations in which a company is threatened with severe economic or financial consequences in the absence of a payment,” including situations where payment is demanded “as a price for gaining entry into a market or to obtain a contract.” This Opinion helps expand on DOJ’s guidance regarding “true duress” situations, and provides some encouragement favoring swift and transparent consultation.
FCPA Enforcement Trends
Overall, the number of enforcement actions concluded in 2022 by DOJ and the SEC remained relatively flat compared to enforcement in 2021. Enforcement in 2021 and 2022 remained lower than the 10-year average beginning in 2013, and considerably lower than enforcement between 2016 and 2020. Looking forward, recognizing that FCPA investigations can take years to develop, we expect the number of enforcement resolutions to increase as the pipeline of investigations continues to fill.
Despite identifying the prosecution of individual wrongdoers to be a top priority for years, the number of enforcement actions against individuals has declined since 2016. DOJ criminally charged 14 individuals in 2022, though only four were charged with substantive offenses under the FCPA (as opposed to related charges such as money laundering). Over the past several years, few individual prosecutions have resulted directly from corporate voluntary disclosures, but that trend may begin to change as cases in the pipeline begin to be brought.
United States v. Hoskins: As we have previously written, the Second Circuit’s decision in United States v. Hoskins could make it more difficult for DOJ to prosecute non-U.S. individuals under the FCPA. Lawrence Hoskins was charged and convicted for his alleged involvement in a scheme to bribe Indonesian government officials to secure a contract for a company’s (Alstom) U.S. subsidiary (Alstom Power, Inc.). The Second Circuit held that the government had failed to establish that Hoskins, a U.K national, was sufficiently under the control of the U.S. subsidiary to have acted as its “agent” and so fell outside the reach of the FCPA. However, one judge on the panel issued a dissent which adopted a broader definition of agency, giving some indication that other courts may rule differently than the Hoskins majority.
United States v. Ng Chong Hwa: A jury convicted Roger Ng, a former Managing Director of The Goldman Sachs Group Inc., of conspiracy to commit bribery, circumventing internal accounting controls, and money laundering involving Malaysia’s state-owned investment fund. The case is noteworthy given it is one of the highest profile instances of a conviction for conspiracy to violate the internal accounting controls provision of the FCPA. That provision allows for prosecution of individuals who “knowingly circumvent or knowingly fail to implement a system of internal accounting controls.” Mr. Ng’s conviction may signal DOJ’s willingness to use the provision to go after corporate employees who they may not have enough evidence to charge with bribery, but who helped create or took advantage of an environment where internal controls systems were ineffective.
Business Entity Enforcement
While few, there were several notable enforcement actions in 2022 against business entities.
- United States v. UOP LLC d/b/a Honeywell UOP: UOP LLC agreed to pay more than $160 million to resolve parallel investigations by authorities in both the U.S. and Brazil. Both DOJ and the SEC noted Honeywell’s remediation efforts as part of its rationale for providing offsets or credits of approximately $40 million and $39 million, respectively. Honeywell’s remediation efforts included strengthening its compliance program, terminating employees directly involved in the misconduct and demoting those employees with supervisory responsibilities over the offending employees, improving financial controls over third parties, and enhancing employee training regarding anti-corruption, controls, and other compliance issues.
- Stericlyce: Stericycle, an international waste management company headquartered in Illinois, agreed to pay more than $84 million to resolve parallel investigations by authorities in the U.S. and Brazil, and the SEC, related to bribery of public officials in Brazil, Mexico and Argentina. Stericycle entered into a 3 year Deferred Prosecution Agreement (“DPA”), and was charged by criminal information with conspiracy to violate the anti-bribery and recordkeeping provisions of the FCPA. DOJ highlighted the nature, seriousness, and pervasiveness of the offense, coupled with Stericycle’s failure to voluntarily and timely disclose the conduct that triggered the investigation, as key factors that were balanced against Stericycle’s cooperation with the investigation, leading to the resolution. Significantly, despite Stericycle’s extensive remedial measures, DOJ required imposition of an independent compliance monitor for two years because the company had not fully implemented or tested its enhanced compliance program.
- ABB: ABB, the Swiss based global technology company – an FCPA recidivist — agreed to enter into a three year DPA and to pay over $315 million to resolve an FCPA investigation stemming from the bribery of a high ranking official at South Africa’s state-owned energy company in connection with a power plant construction project. DOJ’s resolution was in coordination with the SEC, which together imposed over $147 million in penalties and disgorgement, and with authorities in South Africa, Switzerland and Germany. Both DOJ and the SEC announced that they would credit substantial portions of ABB’s payments to those foreign jurisdictions against the amounts owed to the U.S. authorities. DOJ noted that the resolution balanced the seriousness of the misconduct and ABB’s history of multiple prior FCPA violations against, among other factors, ABB’s extraordinary cooperation and extensive remediation.
- GOL Linhas Aereas Inteligentes S.A.: GOL agreed to pay more than $150 million (reduced to about $45 million based on an assessment of GOL’s inability to pay) to resolve civil and criminal DOJ, SEC and Brazilian investigations arising out of the payment of several million dollars in bribes to certain Brazilian legislators to secure the passage of favorable tax laws. GOL’s extensive remediation efforts, including completely revamping its internal compliance program, coupled with its documented inability to pay, were key factors in the resolution.
- Oracle Corporation: Oracle agreed to pay more than $23 million to resolve charges of violating the anti-bribery, books and records, and internal accounting provisions of the FCPA—paying $8 million in disgorgement and a $15 million penalty. The SEC accepted Oracle’s offer of settlement partly on the basis that Oracle had cooperated by sharing facts from its own internal investigations, volunteered translations of key documents, and facilitated SEC requests to interview current and former employees of Oracle’s foreign subsidiaries. Further, the SEC credited 12 distinct aspects of Oracle’s remediation program, ranging from terminating employees involved in the misconduct to enhancing training and communications provided to employees and third parties regarding anti-corruption and internal controls.
In addition, the DOJ announced two declinations of prosecution in 2022, demonstrating its commitment to the aspects of its Corporate Enforcement Policy that provide some protection to a responsible acquirer in the M&A context and that reward voluntary disclosure and remediation.
- Safran S.A. (Declination): DOJ determined that two Safran subsidiaries paid millions in bribes to a Chinese business consultant who was a relative of a senior Chinese government official to obtain government contracts. DOJ declined to prosecute Safran because the misconduct occurred before Safran acquired the subsidiaries, Safran detected the misconduct in post-acquisition diligence and promptly and voluntarily disclosed it, and Safran fully remediated, including agreeing to disgorge illicit profits from those contracts. DOJ credited Safran’s willingness to resolve a parallel German investigation, and specifically noted with approval Safran’s termination of one remaining employee who was involved in the misconduct and it’s withholding of deferred compensation owed to a former employee involved in the misconduct.
- Jardine Lloyd Thompson (JLT) Group Holdings Ltd. (Declination): DOJ determined that a Jardine employee and agents of its subsidiary paid about $3 million in bribes to secure contracts with the Ecuadorian state-owned surety company which provided profits of over $29 million. Jardine voluntarily disclosed the misconduct, fully cooperated in the investigation, separated from the involved employees and intermediaries, enhanced its compliance program and agreed to disgorge the entire $29 million in profits. In light of this, DOJ declined to prosecute Jardine, and agreed to credit payments that it made to the UK’s Serious Fraud Office to resolve a parallel investigation.
Anti-Corruption Efforts on the Global Stage
As can be seen from several of the DOJ’s enforcement actions described above, anti-corruption enforcement is increasingly globalized, with law enforcement agencies cooperating on an international scale leading to substantial corporate resolutions. In addition, the international infrastructure supporting anti-corruption efforts continues to expand. Here are a few highlights:
Passed in March 2022 and effective October 2022, the French Whistleblower Protection Law (or “Loi Waserman”) as France’s part in an EU-wide effort to expand whistleblower protections. The definition of “whistleblower” under French law changed, with the whistleblower now having to act “without direct financial consideration and in good faith” rather than “disinterestedly and in good faith.” Importantly, the protection of whistleblowers now extends to individuals or entities that facilitated the whistleblower’s reporting. The law now also allows whistleblowers to report wrongdoing to a “competent external authority or to the Defender of Rights [an agency charged with defending individual rights]” without having to file an internal report.
At this point, more than two-thirds of the members of the European Union have adopted whistleblower protections laws to implement the groundbreaking 2019 EU Directive on the protection of persons who report breaches of EU law. In the past few months, similar initiatives have become law in Belgium, Ireland, Finland, Greece, the Netherlands and Spain, among others. However, whistleblower protection efforts in two of the largest EU member states, Italy and Germany, have been delayed, and those states should expect to face increasing pressure to move forward with adopting in the coming year.
The Economic Crime (Transparency and Enforcement) Act of 2022. The Act was passed by the U.K. Parliament largely in response to the 2022 Russian invasion of Ukraine targeting Russian oligarchs and their assets in the UK. The Act requires any overseas entity owning land in the UK to identify their beneficial owners (according to specific requirements) and register them. The Act also strengthens the Unexplained Wealth Order (UWO) regime, which allows law enforcement to apply for a court order requiring entities and individuals to explain their interest in property and how they obtained it. The Act expand the category of persons subject to a UWO, to include responsible officers” (such as directors) of an entity that owns property. In addition, the Act allows for the granting of an UWO based upon a showing that there are “reasonable grounds for suspecting that the property has been obtained through unlawful conduct.” Previously, a court needed to be satisfied that there are “reasonable grounds for suspecting that the known sources of someone’s lawful income would be insufficient to obtain the property.”
Increasing the ability to identify beneficial ownership has long been viewed as a critical tool in combatting corruption. Calls to increase transparency have continued to gain momentum since the 2016 “Panama Papers” revelations, with many international anti-corruption organizations such as Transparency International leading the chorus. In 2021 the Financial Action Task Force (FATF) issued comprehensive international standards to increase transparency. And in October 2022 the International Monetary Fund’s Legal Department published a guide to assist countries in effectively implementing the FATF standards. Many countries are considering new laws in this area, and continued global developments will add to the due diligence and screening tools available for use in effective anti-corruption compliance programs.
Implementing Lessons Learned From a Review of the Serious Fraud Office’s (SFO) Handling of the Unaoil Bribery Case. Former High Court judge Sir David Calvert-Smith was commissioned to review the SFO’s previous efforts to investigate and prosecute the Unaoil bribery case. The review found a number of procedural and substantive shortcomings, and made 11 detailed recommendations. The SFO adopted the recommendations, and is now working to implement specific changes to its investigative process to provide greater supervision, particularly in the handling of sensitive cases, resolving internal conflicts, and providing an effective mechanism for raising internal concerns of misconduct.