Charles E. Duross, James M. Koukios, and Lauren A. Navarro
FCPA + Anti-Corruption, Investigations + White Collar Defense, and Mergers + Acquisitions
On March 8, 2019, DOJ announced that it had made revisions to its November 2017 FCPA Corporate Enforcement Policy (“the Policy”). The revised Policy includes a number of changes, but most notably softens DOJ’s prohibition on the use of ephemeral messaging systems. The revised Policy also clarifies the parameters of de-confliction and makes explicit the fact that companies undergoing mergers and acquisitions can avail themselves of the Policy if they uncover wrongdoing at the target entity. In general, the revised Policy is a positive development that illustrates DOJ’s efforts to respond to challenges posed by the practical application of its policies.
FCPA Corporate Enforcement Policy
In November 2017, Deputy Attorney General Rod Rosenstein announced a new FCPA Corporate Enforcement Policy (the “Policy”) that superseded the FCPA Pilot Program announced in April 2016. The Policy was incorporated into the United States Attorneys’ Manual (USAM), now referred to as the Justice Manual (JM), the internal DOJ document that sets forth policies and guidance for federal prosecutors. The Policy largely replicated elements of its precursor, the Pilot Program, but with some key modifications, including a “presumption that [a] company will receive a declination” when it voluntarily self-discloses, fully cooperates, and timely and appropriately remediates (absent aggravating circumstances). One of the most controversial aspects of the Policy was its suggestion that a company would receive full credit for remediation only “if [it] prohibit[ed] employees from using software that generates but does not appropriately retain business records or communications.”
DOJ Signals Changes to the Policy
On March 8, 2019, Assistant Attorney General (AAG) Brian A. Benczkowski signaled at the annual ABA White Collar Crime Conference that there would be changes to the Policy. Emphasizing that it was critical for DOJ to periodically take stock of its policies, AAG Benczkowski said DOJ “need[s] to ensure that our policies are clear, comprehensive, and up to date.” He went on to explain how “ensuring that our policies provide the right message and the right mix of incentives involves an ongoing process of refinement and reassessment.” To that end, he indicated that the Department was in the process of updating the Policy to “bring it in line with current practice.” These remarks seemed to suggest that DOJ had received feedback from the public about the practical application of the original Policy and had taken that feedback under advisement in issuing the revisions.
The Revised FCPA Corporate Enforcement Policy
On the same day as AAG’s Benczkowski’s speech, DOJ revised the Policy. Below we discuss what we believe to be the key revisions.
One of the more significant changes to the Policy relates to the instant-messaging and communications provision. The change removes the prohibition against ephemeral messaging systems and instead asks companies seeking credit under the Policy to focus on ways to ensure that employee communications are retained for future collection in a potential investigation. Specifically, the original Policy required that companies seeking remediation credit “prohibit employees from using software that generates but does not appropriately retain business records or communications.” Under the revised Policy, companies are directed to “implement appropriate guidance and controls on the use of personal communications and ephemeral messaging platforms that undermine the company’s ability to appropriately retain business records or communications or otherwise comply with the company’s document retention policies or legal obligations.”
This change is a positive development and comes in the wake of pushback (and frustration) from the business community and defense bar. The original blanket prohibition was seen by many as failing to reflect business realities in many parts of the world where ephemeral messaging systems such as WhatsApp and WeChat are staples of business communications. Indeed, this provision in the original Policy was the one that we heard the most about — clients and members of the business community alike repeatedly expressed concern about how to comply with the Policy while at the same time keeping up with ongoing business demands and the changing ways in which employees (particularly at large multinational corporations) interact with one another in a fast-paced and global business environment. The revised Policy affords companies some flexibility in crafting a compliance environment that makes sense from an as-applied perspective by giving them the opportunity to choose the technology and controls that work best for their business.
Under the revised Policy (and in keeping with the prior version of the Policy), DOJ reiterated that a company seeking full credit for cooperation must, where requested and appropriate, de-conflict witness interviews and other investigative steps that it intends to take as part of its internal investigation with the steps that DOJ intends to take as part of its investigation. The revised Policy, however, includes a clarifying footnote that states that, although DOJ may request that a company refrain from taking specific actions for a limited period of time for de-confliction purposes, it will not take any steps to affirmatively direct a company’s internal investigation efforts. The Policy as revised tries to strike a better balance between the occasional need for de-confliction while also highlighting that prosecutors should not be running the corporate internal investigation.
Mergers and Acquisitions
In a July 2018 speech, DOJ Criminal Division Deputy Assistant Attorney General (DAAG) Matt Miner emphasized that the Policy applies in the M&A context. In particular, Miner “ma[d]e clear that we intend to apply the principles contained in the FCPA Corporate Enforcement Policy to successor companies that uncover wrongdoing in connection with mergers and acquisitions and thereafter disclose that wrongdoing and provide cooperation, consistent with the terms of the Policy.” (See our July 2018 Top 10 International Anti-Corruption Developments for more on the DAAG’s speech.)
The revised Policy incorporates Miner’s comments, making clear that companies undergoing mergers or acquisitions can rely on the Policy if they find, through M&A due diligence or post-acquisition integration efforts, that there was misconduct at the target company. Specifically, the revised Policy states that if the company voluntarily self-discloses and otherwise takes action consistent with the Policy, there will be the presumption of a declination in accordance with and subject to the other requirements in the Policy. This added language underscores DOJ’s recognition of the potential benefits of corporate mergers and acquisitions — particularly when the acquiring entity has a robust compliance program and intends to implement that program at the merged or acquired entity. The revised Policy also contains a footnote that explains how, in appropriate cases, an acquiring company that discloses misconduct may be eligible for a declination even if aggravating circumstances existed as to the acquired entity.
These revisions seem focused on deterring any chilling effect on corporate mergers and acquisitions for companies looking to avoid acquiring an entity that could have legacy FCPA issues. Indeed, in his ABA speech, AAG Benczkowski explained that DOJ “want[s] law-abiding companies with strong compliance cultures to be willing to make these kinds of acquisitions. Put another way, we don’t want the good corporate actors to cede the field to higher-risk entities that may only perpetuate illegal conduct.”
The revised Policy also relaxed the requirement that companies must provide information on all employees “involved” in the misconduct. Under the revised Policy, companies need only disclose information about any individuals “substantially involved” in the wrongdoing. This revision is in line with the November 2018 change that softened language in the 2015 Yates Memorandum on prosecuting individuals involved in corporate wrongdoing. (See our November 2018 Top 10 International Anti-Corruption Developments for more on these revisions to the Yates Memorandum.) The revised Policy also makes clear that it sets forth the terms required in order for a company to receive maximum credit for full cooperation, whereas the provisions in the Principles of Federal Prosecution of Business Organizations (JM Section 9-28.000) set forth the threshold criteria for receiving any cooperation credit. The revised Policy also clarified that credit under the Policy will never be predicated upon waiver of the attorney-client privilege.
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