A proposal for a United States Department of Justice Foreign Corrupt Practices Act leniency policy.

• Author: Tarun, Robert W.
• Position: Twenty-Fifth Edition of the Annual Survey of White Collar Crime

INTRODUCTION

On December 15, 2008, the Fraud Section of the United States Department of Justice ("DOJ") and the United States Securities and Exchange Commission ("SEC") announced that Siemens AG had pleaded guilty to violating the Foreign Corrupt Practices Act ("FCPA") (2) for a far-reaching and long-lasting bribery scheme of international scope, and had agreed, among other things, to pay approximately $1.6 billion in sanctions to United States and German law enforcement. (3) On February 11, 2009, the DOJ and the SEC reported that Kellogg Brown & Root LLC had pleaded guilty to violating the FCPA in a decade-long bribery scheme, and had agreed with its present and former parent companies, among other things, to pay $579 million in criminal fines and disgorged profits. (4) On March 1, 2010, the DOJ disclosed that BAE Systems plc had pleaded guilty to FCPA-related charges, and had agreed, among other things, to pay fines of approximately $400 million and $50 million to law enforcement authorities in the United States and the United Kingdom, respectively. (5) On April 1, 2010, the DOJ announced that Daimler AG and three of its subsidiaries had resolved FCPA investigations, and had agreed to pay the DOJ $93.6 million and the SEC $91.4 million. (6) Undoubtedly, the immense sanctions imposed on these four companies conveyed a message: FCPA misconduct will be punished severely. (7)

Massive penalties like those noted above may deter corporate crimes. (8) However, because of how corporations (9) respond to criminal sanctions, under some circumstances, such measures may dissuade corporations from investigating purported misconduct and reporting detected crimes. In regards to FCPA violations, corporations that must decide whether to report voluntarily bribery conduct confront considerable uncertainty as to the benefits (in the form of reduced sanctions) of self-reporting and cooperation. (10) While self-reporting corrupt payment activities results in indeterminate benefits, it does assure that law enforcement will know of the misconduct and, thus, in many instances, some sanction will be imposed. (11)

Whether a corporation should undertake a costly internal investigation, self-report its employees or agents' FCPA bribery conduct and cooperate fully with law enforcement is a highly contextual decision that is not invariably answered in the affirmative. (12) For example, if the underlying FCPA misconduct is egregious, bound to become public (such as through the federal securities laws' disclosure regime or a whistleblower's report) and subject to severe sanctions (such as debarment), then a corporate decision-making body comprised of risk-adverse individuals is significantly incentivized under the current legal sanction regime, including the Federal Sentencing Guidelines for Organizations ("Sentencing Guidelines"), (13) to self-report such misconduct and try to seize any possibility of a more lenient sentence. However, if that underlying misconduct is neither systemic nor likely to be independently detected by law enforcement, and the corporation believes that it will receive an insubstantial reduction in the sanction for self-reporting or be required to pay other costs in connection with self-reporting (such as the costs of an internal investigation or those attendant to additional inquiries from law enforcement), then a corporate decision-making body comprised of risk-neutral individuals may decide not to voluntarily report such misconduct. The more difficult self-reporting decisions involve factual scenarios between these two extreme ends of the sanctioning spectrum. (14)

Thus, situations exist in which corporations rationally and responsibly choose to remedy bribery conduct internally and not self-report misconduct. But if corporations fail to report voluntarily the FCPA violations that they detect, then society cannot realize the substantial benefits from corporations self-reporting their employees and agents' wrongdoing. (15) Significantly, inducing corporations to bring FCPA bribery conduct to the attention of law enforcement agencies saves on enforcement costs. (16) These savings are considerable in regards to FCPA investigations, which "are the most challenging of all corporate investigations because the potential misconduct is serious, many countries in which most misconduct may have occurred are distant and tolerant of corruption, interviewees are frequently hostile and indifferent to U.S. laws, and, in limited cases, there is personal risk to investigating counsel." (17) This Article therefore proposes a Fraud Section FCPA leniency policy modeled after the Antitrust Division's well-recognized Corporate Leniency Program.

To date, the Fraud Section has declined to promulgate an FCPA leniency policy on likely three grounds. First, unlike with an Antitrust Division leniency applicant, a corporation that is engaged in improper payment activity usually cannot establish a criminal agreement with another corporate entity and thereby make a criminal case against that other corporate entity for the Fraud Section. (18) Therefore, the benefit to law enforcement from a corporation's investigation and cooperation is perceived to be neither as substantial to the Fraud Section nor as great to the Antitrust Division. (19) However, corporate self-reporting of bribery conduct may enable the Fraud Section to prosecute individual wrongdoers, including employees and agents of the confessing corporation, and their co-conspirators. (20) Corporate self-reporting may also enable U.S. and foreign law enforcement to prosecute corrupt foreign government officials. (21)

Second, the Fraud Section may argue that public companies must already report improper payment activity under the federal securities laws and, in particular, the obligations imposed by the Sarbanes-Oxley Act of 2002 ("SOX"). (22) However, not all bribery conduct will be required to be disclosed. As important, multinational companies required to report under the federal securities laws may provide in many instances extraordinary cooperation leading to the exposure of international corruption that, absent corporate investigative efforts, would likely never have come to the light given the limited resources of law enforcement and international legal hurdles. Extraordinary investigation and cooperation by multinational corporations warrant extraordinary credit akin to that offered under the Antitrust Division's Corporate Leniency Program.

Third, the Fraud Section may contend that it currently treats cooperating companies with leniency by, for example: limiting the conduct, countries and/or time frames that cooperating companies need investigate; negotiating what conduct will be part of the final sentencing-line calculus; and, in limited instances, offering deferred or non-prosecution agreements. (23) Such informal leniency is not transparent or instructive to decision-making bodies of corporations that are trying to make informed decisions in the best interests of the corporations and their shareholders about the benefits of fully investigating malfeasance, and voluntarily disclosing it to and fully cooperating with law enforcement. (24)

In sum, while the typical inability of a leniency applicant to make a prosecutable FCPA case against another corporate entity, the potential obligation to disclose certain FCPA violations under the federal securities laws and the current practice of granting informal leniency may not weigh in favor of giving complete amnesty to a corporation that conducts a thorough, global investigation of potential FCPA misconduct and discloses misconduct to and fully cooperates with law enforcement, it surely does not militate against the establishment of a clear, graduated, written leniency program for FCPA violations drawn from the Antitrust Division's Corporate Leniency Program. (25) The proposed FCPA leniency policy will provide much greater clarity to corporations about the benefits and consequences of fully investigating and self-reporting FCPA violations. Finally, a U.S. anti-corruption leniency policy could become, like it has in the case of the Antitrust Division's Corporate Leniency Program, a model for other law enforcement authorities, leading to greater global coordination in combating bribery of public officials. (26)

Part I of this Article summarizes the FCPA and the sanctions imposed on corporations that, through their employees and agents, engage in bribery or corruption in violation of the FCPA. (27) Part II of this Article briefly reviews the Sherman Act and its sanctions regime that punishes cartel behavior by corporations, focusing upon the Corporate Leniency Program that the Antitrust Division has successfully created and developed. Next, Part III of this Article reviews the arguments and evidence from academics and practitioners on the decision-making process of corporations in regards to whether to self-report bribery conduct of their employees and agents. Finally, Part IV of this Article proposes an FCPA leniency policy based in substantial part on the Antitrust Division's successful Corporate Leniency Program and criteria for the DOJ to adopt in rewarding, negotiating and levying fines and other sanctions against corporate and employee violators of the FCPA anti-bribery laws.

1. A BRIEF OVERVIEW OF THE FCPA AND THE SANCTIONS IMPOSED FOR VIOLATIONS OF THE FCPA

   1. The Foreign Corrupt Practices Act

      In 1977, in the wake of its inquiry into bribery of public officials in Japan and elsewhere by U.S. corporations, Congress enacted the FCPA to prohibit and criminalize foreign bribery. (28) The FCPA's "anti-bribery" provisions expansively prohibit U.S. corporations and nationals, among other persons, from paying or giving, or offering or promising to pay or give, directly or indirectly, money or any other thing of value to any foreign government official, foreign political party or candidate for foreign political office for the...