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Andy Spalding: The Pilot Program addresses three criticisms, but raises a new one

The Pilot Program is best understood as the DOJ’s response to three distinct lines of public commentary on FCPA enforcement. The Department should be commended for responding to this commentary -- indeed, for even listening to it in the first place. And the responses have, in my view, largely been smart and fair. But it’s created a new difficulty. Fortunately, that difficulty is easily addressed.

One line of FCPA criticism was that enforcement focused too much on corporate defendants and not enough on individuals. These criticisms were framed sometimes as an issue of justice – the wrongdoers were going unpunished. Other times it was framed as a matter of deterrence -- if we really want people to take this law seriously, they must believe that they could individually be accountable. Of course, the Yates Memo -- which preceded the Pilot Program by about nine months -- most directly addressed this concern. The Pilot Program extended the Yates Memo policy by making the disclosure of all relevant facts related to individual liability a condition of the penalty reductions.

A second line of criticism concerned cooperation credit. As we discussed in the previous post the extent or even existence of actual cooperation credit was widely questioned. How much more lenient would the government actually be if we cooperated? The Pilot Program put a number on that credit, providing specific penalty reductions measured in percentage points. That’s important, even if it only formalizes what the DOJ was in practice already doing (as many practitioners seem to believe).

The third line of criticism is the most important; here, the DOJ’s answer has been a game changer.  For years companies had pled for an explicit declination policy. “Tell us what we must do to protect ourselves from liability,” they said. The DOJ had issued a small number of formal declinations over the years, particularly the much-publicized Morgan Stanley declination. But the DOJ had simply never enunciated a policy, other than the nebulous language in the 2012 Guidance. Some commentators, myself included, felt that a formal declination policy would only incentivize compliance. “Tell us what we have to do, and we’ll do it.”

In fairness, the DOJ has issued, and continues to issue, declinations without formal announcements. As the FCPA Blog has recently made clear, 13 declinations outside the Pilot Program have issued since the Program began. But there were no formal DOJ announcements; we know about them only from the defendants’ disclosures (and sometimes from parallel SEC declinations, though the SEC does not speak for the DOJ and cannot enunciate DOJ policy). More to the point, there has been no public DOJ policy guiding these declinations. We might call them clandestine declinations.

But now we have a public declination policy. The DOJ has said that to get a declination, you must voluntarily disclose, cooperate, remediate, and disgorge. (Of course, you might get a declination without doing these things, but we don’t know how or why these are awarded). And it has explicitly awarded seven declinations pursuant to this policy, with formal, public announcements.

The declination remains discretionary, which is a source of some lingering discomfort. Still, it’s the furthest the DOJ has ever gone in explaining just what a company must do if it wants a declination.

But that’s actually the weird part. There is something missing from this analysis, something missing from our public FCPA declination policy. To get at it, let me ask the following questions:

When an employee violates (or possibly violates) the FCPA, and we are determining whether the company should bear liability for that violation, what’s the first thing we should consider?  That is, what is the single most important fact bearing on whether the company shares responsibility for the employee’s misconduct (well, other than express authorization by management)?

Think about it, and we’ll discuss next post.  Or if you’d rather cut to the chase, see here.


Andy Spalding is a lecturer at the International Anti-Corruption Academy, Professor at the University of Richmond School of Law, and Senior Editor of the FCPA Blog.