Peter Leasure: Predicting the benefits of voluntary disclosure with statistical analysis 
Tuesday, April 3, 2018 at 7:28AM
Peter Leasure in Cooperation, Self Reporting, statistical analysis, voluntary disclosure

Studies that use statistical analysis to examine various FCPA outcomes are becoming more common. In one such paper entitled “Punishing the Penitent: Disproportionate Fines in Recent FCPA Enforcements and Suggested Improvements,” the author attempted to determine whether companies who voluntarily disclosed FCPA transgressions received a benefit in their fine calculation.

Despite repeated government promises of leniency for voluntary disclosure, the results of that study indicated that companies who voluntarily disclosed received more than twice the amount of fines than those who did not.

However, a recent article entitled “Embracing Fragility in Our Data: A Cautionary Example from Research on the FCPA and Voluntary Disclosuredemonstrated that this previous study possessed several methodological flaws. The errors included sample selection bias, model misspecification, omitted variable bias, and the failure to include confidence intervals (a method used to produce conservative ranges for values rather than singular point estimates).

Because of these flaws, the conclusions drawn in this previous study were deemed unreliable. The critique showed that even the previous study’s title was a misstatement as it was impossible to definitively conclude that the fines were disproportionate for voluntarily disclosing companies once routine and recommended confidence intervals were included.  

So what do we currently know about the benefits of voluntary disclosure?

A new paper in the Journal of Financial Crime revisited this question and presented some very interesting findings. This paper addressed previous limitations by adding several important variables, using a census approach where all FCPA cases would be analyzed rather than just a sample, and utilizing conservative estimates with confidence intervals. New control variables included prior FCPA infractions, industry type, foreign official nationality, prosecuting agency, method of case resolution, whether a compliance monitor was appointed, whether individuals were also prosecuted, whether the company was placed on probation, whether the company was prosecuted in a foreign jurisdiction, and whether the company was headquartered in the United States.

The findings of this new study indicated that voluntarily disclosing companies do in fact receive a statistically significant benefit from voluntary disclosure when the bribe is under a certain amount. The study showed that voluntarily disclosing companies paid approximately $11,000,000 (with a +/- range of about $5,000,000) in total fines and companies that did not voluntarily disclose paid approximately $32,500,000 (with a +/- range of about $15,000,000) in total fines when the bribe was $1,000,000 or less.

Results further indicated that the benefit of voluntary disclosure in terms of fine calculation continues until a company pays or promises to pay a bribe of approximately $17,000,000, though the benefit reduces as the bribe amount climbs.

While these are intriguing findings, they are certainly not without limitations. The available data at that time was sparse, and resulted in several observations being dropped due to missing information. However, efforts are being made to improve both the quality and availability of data on FCPA cases. Further, it is certainly possible (and recommended) that researchers could conceptualize additional variables that influence a company’s total fine. Therefore, future researchers should continue to apply a variety of methodological and statistical approaches to answer FCPA-related questions.

Finally, errors in previous papers should not be used as evidence against using statistical analysis in FCPA research. On the contrary, such papers demonstrate the absolute necessity for those of us in this field to seek a better understanding of statistics. Only with that better understanding can we make full use of this powerful tool.

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Peter Leasure (J.D.), pictured above, is a current Ph.D. candidate at the University of South Carolina, Department of Criminology and Criminal Justice.

Article originally appeared on The FCPA Blog (http://www.fcpablog.com/).
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