Voluntary Disclosures, through the Eyes of FCPA Enforcement

This article was republished with permission from FCPAméricas Blog, for which Matteson Ellis is founder, editor and regular contributor.

When James Cole, Deputy Attorney General of the United States, gave his keynote address at ACI’s 30^th International Conference on the FCPA, he dedicated an inordinate amount of time to the issue of self disclosures of FCPA violations. “We at the Department are committed to demonstrating the benefits to your working cooperatively with us,” he said. “We want to work with you and we will continue our efforts to provide tangible benefits to reward you for doing so.”

It is true. With self disclosures often comes more lenient treatment by authorities, including benefits like declinations, penalties below what the U.S. Sentencing Guidelines otherwise call for, non-prosecution agreements or no requirement of a government-appointed monitor.

What else did FCPA enforcement officials from the DOJ and SEC say about disclosures?

When should a disclosure be made? The SEC’s Charles Cain said that most disclosures that come in are “a bit down the road,” suggesting that companies generally decide to disclose when their investigations have progressed enough to where the nature and scope of conduct is understood. Mr. Cain added that it is common for companies to think they have their arms around an issue only to discover that they have a much bigger issue once they look further into it. Because of this, he questions whether there is an advantage to waiting. “A lot of work is going to happen irrespective of when you come in, so there is an advantage to coming in earlier than later so enforcement can work with companies.” He added that self reporting and cooperation are intertwined: “the moment you self disclose is the moment you can start earning cooperation credit.” Because of this, he said, if a company is thinking about self disclosing, the sooner the better.

How large does the issue have to be to consider self-disclosure? Mr. Cain said that if a company has a relatively small problem within an otherwise robust compliance environment, he would be surprised to hear about it. “The further you get from that, the more I’d expect.” Mr. Cain added that the materiality of the issue in a company’s financials is irrelevant to the analysis. Jason Jones, the Assistant Chief of the DOJ’s FCPA unit, echoed this view, explaining that materiality has nothing to do with whether or not a company has committed a crime. Mr. Jones also described how companies can be “serial disclosers” – when certain companies build up enough credibility in the eyes of enforcement agencies, they regularly report issues and are then given room to handle them on their own, with little enforcement interference. Mr. Jones added that if a company knows there is a whistleblower in the picture, “the odds of this blowing up in your face are pretty certain. We’d be surprised if you do not disclose.”

What do companies risk from not disclosing? Mr. Jones said that companies that choose not to disclose are taking a calculated risk that enforcement will find out. He called this “a gamble,” since a whistleblower, a wiretap, a foreign government, another government agency or a competitor could all be sources of disclosing the matter. He also said that the downsides to not disclosing are real: “The odds are, we are going to make it hurt a little bit.” He explained that, by not disclosing, companies are making the real decision not to avail themselves of the “first in the door” benefit.  He explained that the ones that get caught red-handed are the ones that are more likely to face resolutions at the parent level, with guilty pleas.

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