Karen E. Woody: Declinations with disgorgement make me queasy. Here's why
Thursday, September 7, 2017 at 9:08AM
Karen E. Woody in Declinations, Disgorgement, Enforcement Policy, Pilot Program

As readers of the FCPA Blog are aware, the Pilot Program requires voluntary self-disclosure and cooperation with the government in order to be eligible for a declination from the DOJ.

Since the Pilot Program's inception, three public companies have disgorged profits to the Securities and Exchange Commission in return for a declination from the DOJ.

In September 2016, however, the DOJ announced that it was providing two different private companies with declinations regarding potential FCPA liability, but required that the two companies disgorge their profits to the Department of Treasury.

These cases represented the first “declinations with disgorgement” that had ever been granted by the DOJ in FCPA enforcement.

Within the past few months, the DOJ has awarded declinations with disgorgement to another two private companies.

What makes these dispositions so novel? After all, disgorgement extracted by the SEC is par for the course in FCPA enforcement. Disgorgement demanded by the DOJ, however, is not, and the implications of issuing “declinations” with the requirement of “disgorgement” are alarming.

To the cynical observer, these declination with disgorgement cases are the equivalent of a corporation “buying” a declination in a corruption case, with the disgorgement amount representing merely the cost of doing international business.

Seen from another point of view, however, these dispositions could be viewed as examples of governmental extortion; meaning, if these “disgorgement” amounts are not paid, the government will threaten continued investigation and possible prosecution. 

Either of these scenarios compromises the integrity of the investigation and the legitimacy of the disposition.

The stated goal of the Pilot Program is to promote greater accountability for individuals and companies involved in FCPA-related misconduct. While intending to incentivize other companies to self-disclose in order to get a coveted declination from the government, these declination with disgorgement cases instead distort the traditional understandings of critical legal terms.

Specifically, these dispositions represent a bastardization of the term “declination,” as well as the term “disgorgement.” In other words, a “declination with disgorgement” is an inherently oxymoronic statement. What is occurring in these dispositions involves neither a declination nor disgorgement. The result, while attractive to companies seeking declinations, as well as government regulators demanding disgorgement, creates confusion around defined legal terms for lawmakers, regulators, companies, and other stakeholders.

Given the fact that this summer brought another two declinations with disgorgement from the DOJ Criminal Division under the Pilot Program, it seems this new type of disposition may be here to stay. But the ramifications of these dispositions may be that public and investor confidence in both corporate and government integrity is undermined, which is particularly ironic given that these cases deal with corruption investigations.

*     *     *

For a more detailed analysis of declinations with disgorgement, see ssrn here.

_______

Karen E. Woody, pictured above, is an Assistant Professor of Business Law and Ethics at Indiana University Kelley School of Business.

Article originally appeared on The FCPA Blog (http://www.fcpablog.com/).
See website for complete article licensing information.