Promises of leniency: whether companies should self-disclose violations of the Foreign Corrupt Practices Act.

• Author: Marberg, Sarah

ABSTRACT

Over the last ten years, the Department of Justice (DOJ) has prosecuted an increasing number of Foreign Corrupt Practices Act (FCPA) violations, imposing larger and larger penalties. In fiscal year 2010, the Criminal Division of the DOJ imposed $1 billion in penalties as a result of violations of the FCPA, the largest in FCPA enforcement history.

Most FCPA enforcement actions are brought against corporations for conduct that American law enforcement agencies have difficulty detecting because it occurs outside of the United States. As a result, the DOJ encourages companies to voluntarily disclose FCPA violations, claiming that it will take a more lenient approach to FCPA prosecutions that are self-reported and reward "disclosure and genuine cooperation."

Despite these promises, practitioners and academics have questioned whether a company that voluntarily discloses a potential FCPA violation actually receives a lesser fine than a company whose illegal conduct is discovered by a government investigation. With the likelihood of detection by the DOJ very low and the costs of disclosure very high, these questions have led to suggestions that companies are better off keeping mum. This Note argues that the available evidence about previous FCPA settlements suggests that companies are likely rewarded for their candor and cooperation.

TABLE OF CONTENTS I. INTRODUCTION II. BACKGROUND A. Foreign Corrupt Practices Act: Elements of the Offense 1. Anti-Bribery Provision 2. Books and Records and Internal Control Provisions B. Enforcement of the FCPA 1. Vehicles for Enforcement: Non-Prosecution Agreements, Deferred Prosecution Agreements, and Plea Agreements 2. Penalties in the Statute 3. Guidance from the Sentencing Guidelines 4. Ever-Increasing Enforcement C. Sleeping with the Enemy: Cooperation in Corporate FCPA Prosecutions 1. DOJ Policy Regarding Self-Disclosure 2. DOJ Promises Regarding Self-Disclosure 3. Recent Controversies About Whether to Self-Disclose III. DOJ ENFORCEMENT ACTIONS, 2002-2011 A. Methodology B. Findings IV. TRENDS AND TAKEAWAYS A. Patterns in Settlements and Penalties B. Case Studies 1. Panalpina, Inc. and Five Oil Services Companies: The Early Bird Gets the Worm 2. Control Components, Inc.: Criminals Among Us 3. Innospec, Inc.: The Economy Has Got You Down V. CONCLUSION I. INTRODUCTION

41. In or about August 2002, an employee of the Subcontractor ... delivered a pilot's briefcase containing one million U.S. dollars in one hundred dollar bills to the [Nigerian National Petroleum Company (NNPC)] Official at a hotel in Abuja, Nigeria, for the benefit of a political party in Nigeria.

43. In or about April 2003, an employee of the Subcontractor ... delivered a vehicle containing Nigerian currency valued at approximately $333,333 to the hotel of the NNPC Official in Abuja, Nigeria, for the benefit of a political party in Nigeria.

46. Between on or about April 1, 2002, and on or about January 12, 2004, employees, agents, and co-conspirators of Snamprogetti willfully aided, abetted, counseled, commanded, induced, procured, and caused the commission of FCPA violations by KBR ... by aiding and abetting KBR in causing wire transfers of $39.8 million ... intending that the money would be used, in whole or in part, to pay bribes to Nigerian government officials. (1)

On July 7, 2010, Snamprogetti Netherlands B.V., a Dutch engineering, procurement, and construction (EPC) company, admitted in a deferred prosecution agreement filed in U.S. federal district court that it had violated the Foreign Corrupt Practices Act (FCPA) by causing the pilot's briefcase and the vehicle filled with money to be delivered to a Nigerian government official. (2) For nearly ten years, Snamprogetti had conspired with three other EPC companies to bribe Nigerian officials in order to obtain contracts--worth more than $6 billion--to build liquefied natural gas facilities on Bonny Island, Nigeria. (3) As a result of this conduct, Snamprogetti and the three other companies agreed to pay hundreds of millions of dollars in criminal penalties. (4)

In the world of white-collar crime prosecution, stories and settlement agreements like Snamprogetti's are not rare. (5) The FCPA prohibits a company or individual from bribing a foreign government official to influence an official act, induce unlawful action, or obtain or retain business. (6) The number of FCPA cases prosecuted by the Department of Justice (DOJ) has been increasing over the past ten years, as have the size of the criminal penalties levied against violators. (7) In fiscal year 2010, the Criminal Division of the DOJ imposed $1 billion in penalties as a result of violations of the FCPA. (8) This was the largest in FCPA enforcement history and half of the total penalties secured as a result of all enforcement actions led by the Criminal Division that year. (9)

Most FCPA enforcement actions are brought against corporations for conduct that occurs outside of the United States. (10) This conduct is often difficult for American law enforcement agencies to detect, and as a result, the DOJ encourages companies to voluntarily disclose the discovery of potential FCPA violations. (11) The DOJ claims to take a more lenient approach to FCPA prosecutions when the conduct is self-reported and to reward "disclosure and genuine cooperation." (12) The DOJ, however, has not issued standards or policies that specifically address how voluntary disclosure will be treated during the sentencing process. (13)

Despite these promises, practitioners and academics have questioned whether a company that voluntarily discloses a potential FCPA violation actually receives a lesser fine than a company whose illegal conduct is discovered by a government investigation. (14) Moreover, self-disclosure can cost a company more than just a civil or criminal penalty. The FCPA is often considered a cash cow for Big Law firms, and disclosure--by the company or otherwise--can result in significant legal expenses for outside counsel, wide-ranging internal investigations, and new compliance programs. (15) The low likelihood of being caught coupled with the significant secondary expenses and the perception that self-disclosure does not meaningfully decrease criminal penalties has led to the suggestion that companies are better off cleaning shop and keeping mum about potential FCPA problems. (16)

This Note addresses the question of whether companies that voluntarily disclose potential FCPA violations are treated more leniently by the DOJ than companies that do not. This question matters to companies not only because the answer will impact their financial interests, but also because collateral consequences often accompany the disclosure of illegal conduct. (17) This question also matters to prosecutors because if violators no longer believe it is in their interest to disclose FCPA violations, fewer companies will come forward, making it harder to enforce the FCPA.

Specifically, this Note addresses the question of whether voluntary disclosure leads to more lenient treatment by aggregating the publicly available data about corporate FCPA prosecutions resolved by the DOJ between 2002 and 2011 and then identifying emerging trends and discussing relevant case studies. Part II provides background information about the FCPA, describing the agreements used by the DOJ to resolve FCPA cases and explaining how FCPA fines are determined. Part II also describes the DOJ's policy regarding voluntary disclosure in FCPA cases. Part III details the methods used to aggregate data about FCPA settlements, as well as the limitations of those methods, and presents the relevant data. Part IV qualitatively describes the data and identifies emerging trends and presents three case studies. While the question of whether voluntary disclosure leads to more lenient treatment cannot be answered definitively by the information presented here, the emerging trends and case studies this Note identifies suggest that failing to disclose forecloses the possibility of receiving the most lenient treatment.

2. BACKGROUND

   Passed in the wake of the Watergate scandal, Congress enacted the Foreign Corrupt Practices Act (FCPA) in 1977 to stop the bribery of foreign officials and "to restore public confidence in the integrity of the American business system." (18) As the result of a Securities and Exchange Commission (SEC) investigation in the 1970s, over four hundred American companies ultimately admitted to making these types of payments, which totaled over $300 million. (19) Congress responded by passing the FCPA, which makes it unlawful to pay bribes to foreign government officials to obtain or retain business. (20)

   1. Foreign Corrupt Practices Act: Elements of the Offense

      The FCPA consists of two sets of provisions: the anti-bribery provisions and the books and records and internal control provisions. (21) While violations of the anti-bribery provisions are more commonly enforced, the DOJ has increased its use of the books and records provisions in the last ten years. (22)

      1. Anti-Bribery Provision

      The anti-bribery provision prohibits those subject to the statute from "corruptly paying or offering 'any thing of value' to a 'foreign official' in order to 'obtain or retain business.'" (23) The FCPA applies to both U.S. and foreign companies and nationals, and the DOJ regularly prosecutes both for violating the statute. (24) The FCPA does not define "anything of value," the legislative history does not provide a clear definition of this element, (25) and the DOJ has not provided formal guidance. (26) However, DOJ enforcement actions provide facts about the "things of value" at issue in those cases. Those things of value have ranged from payments that were under $100 but were numerous and frequent to payments of millions of dollars. (27) In addition, things of value have also ranged from cash-filled briefcases and vehicles (28) to travel expenses that were not...