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INSIGHT: DOJ Authorizes Greater Flexibility in FCPA Investigations

Dec. 17, 2018, 3:14 PM

The Department of Justice’s Deputy Attorney General Rod J. Rosenstein recently delivered an address on government investigations, emphasizing the government’s continued dedication to holding individual wrongdoers accountable in FCPA matters. His remarks effectively loosened the requirements of the DOJ’s 2015 Yates Memo, which called on companies to provide the department with all relevant facts regarding every individual involved in corporate misconduct.

Focus on Individual Wrongdoers

In contrast to the Yates Memo’s more comprehensive approach, the new DOJ policy now permits companies to focus on “the individuals who play significant roles in setting a company on a course of criminal conduct,” along with what knowledge those people had.

Importantly, Rosenstein made it clear that corporate resolutions should not shield individual wrongdoers from the consequences of criminal actions, so the DOJ’s overall focus on individual accountability in FCPA cases remains consistent with the driving force behind the Yates Memo.

The DOJ’s retreat from the previous policy is a practical move, reflecting a commitment to what FCPA prosecutors are actually doing today, and not a seismic shift in DOJ practice. The revised guidance encourages prosecutors to be more flexible and avoid unnecessarily prolonged negotiations.

While good-faith cooperation remains necessary for corporations to receive cooperation credit, the shift in focus back to individuals who are “substantially involved in or responsible for criminal conduct” allows companies to save resources that might have gone into identifying and investigating relatively unimportant details.

This policy change was recently codified at Section 9-28.700 of the Department of Justice Manual, which has been amended to require that companies identify all relevant facts about people substantially involved in or responsible for misconduct. The amended policy simultaneously allows, however, that “there may be circumstances where, despite its best efforts to conduct a thorough investigation, a company genuinely cannot get access to certain evidence or is legally prohibited from disclosing it to the government.” Under these situations, “the company seeking cooperation will bear the burden of explaining the restrictions it is facing to the prosecutor.”

This affirms that foreign privacy laws may restrict what a company can disclose, which is particularly important in the FCPA context, where investigations are inherently international. The revised manual gives U.S. companies room to examine what information they can legally obtain—and share—from foreign-based subsidiaries.

Civil Cases

In the civil context, Rosenstein announced a more substantial change to the DOJ’s previous all-or-nothing approach to cooperation credit in FCPA cases and beyond. The new approach is graduated—and restores discretion that prosecutors traditionally exercised in determining cooperation credit.

To receive any civil cooperation credit at all, a company must identify all senior officials who engaged in wrongdoing. For maximum cooperation credit, the company must identify all individuals who were substantially involved in or responsible for wrongdoing. Finally, if a company meaningfully assists the government investigation, civil prosecutors have the discretion to provide some cooperation credit.

DOJ attorneys also have increased discretion to negotiate civil releases, with supervisory approval, for individuals who are no longer important to corporate investigations. This is a departure from the Yates Memo, which required individual prosecutions except under extraordinary circumstances.

In an effort to steward government resources, the DOJ has also restored prosecutorial ability to consider an individual’s ability to pay when determining whether to pursue a civil enforcement action. As Rosenstein recognized, civil cases are largely focused on financial recovery.

Importantly, the revised guidance does not change how a company should respond to potential FCPA violations: companies should still rigorously investigate allegations, respond to government inquiries, and timely pursue necessary remediation.

Prosecutors Afforded More Flexibility

Although the policy shift is not a full retreat from the Yates Memo, it does allow prosecutors more flexibility that ultimately could reduce the scope of investigations and the timeline for case resolution.

The expedition of criminal settlements could be good for both companies and the DOJ. By allowing companies to identify and focus on key employees who drive misconduct, the department minimizes the risk of lengthy, unnecessary fishing expeditions. Further, where companies might have previously expanded an investigation’s scope to specifically ensure that even unimportant actors were identified and reported to the DOJ, they now have permission to potentially tailor their reviews more narrowly to the consequential facts.

On civil FCPA matters, the discretion afforded to prosecutors reflects the DOJ’s direction toward more efficient resolutions that maximize the department’s financial settlements. The new flexibility on civil cooperation credit is in line with the revised FCPA policy on voluntary disclosure and cooperation credit issued late in 2017.

While the DOJ’s new approach could encourage more voluntary disclosures, companies still face uncertainty regarding the benefits of voluntary disclosure in the FCPA context. This announcement—in many ways formalizing existing DOJ practice—is therefore unlikely to substantially change companies’ approaches to voluntary disclosure.

Author Information

Reagan Demas is a partner at Baker McKenzie’s Washington, D.C., office. He has significant experience managing major legal compliance investigations for Fortune 500 companies and negotiating settlements before the Department of Justice, Securities and Exchange Commission, and other federal and state regulatory entities. He has also conducted risk assessments and due diligence in a variety of legal compliance matters for companies across industries.

Raija Churchill is an associate in Baker McKenzie’s Washington, D.C., office who focuses her practice on compliance and litigation. She works on matters arising from the Foreign Corrupt Practices Act, UK Bribery Act, and related laws worldwide, and represents multinational corporations before the Department of Justice and Securities and Exchange Commission.