Last month, Medtronic Inc. announced that the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) would be closing their Foreign Corrupt Practices Act (FCPA) investigations of the medical device-maker without pursuing any charges or an enforcement action. Like most declinations, there is little information regarding what factors the government considered in deciding it would not pursue any action. Looking across a number of recent cases and pronouncements, however, companies can identify certain factors which undoubtedly will play a role in determining whether a company will weather an FCPA or anti-bribery investigation without facing any further government action.
Once a company has identified a potential corruption issue, investigated it, and determined that it must make a voluntary disclosure to the government, the next question that immediately arises is whether the company can do anything more to avoid criminal charges or an enforcement action. Obviously, the best outcome for a company is that the government determines there has been no violation of the law. Short of that, there are certain steps a company can take to increase the likelihood that the government pursues the least punitive route possible; ideally, a declination, or at the very least a Non-Prosecution Agreement (NPA) or a Deferred Prosecution Agreement (DPA).
The DOJ and the SEC will consider a number of factors in determining the disposition of an FCPA case. Speaking generally, the DOJ will apply the Principles of Federal Prosecution of Business Organizations codified in the department’s charging guidelines, while the SEC will apply considerations as outlined in its 2001 Seaboard Report. The principles are very similar, and both allow room for companies to take steps after identifying a problem to mitigate the potential punitive burden. The guidance in last year’s Resource Guide to the U.S. Foreign Corrupt Practices Act, jointly issued by the DOJ and the SEC, underscores these principles with brief examples of declinations sharing certain similar themes.
In particular, there are a number of factors the government will consider in making a declination decision which depend entirely on how a company reacts after the illicit activity has been discovered. Such post-discovery factors include:
- The time between the company’s identifying the illicit payments and the company’s taking appropriate actions to correct them – this may include how quickly the company stopped the payments; whether the company maintained the contracts and/or made restitution with respect to the tainted relationship; whether, in the case of a third-party agent, the company terminated the relationship with the agent; how quickly the company investigated the potentially problematic activity; and how quickly the company contacted U.S. and local authorities
- Personnel actions taken by the company after identifying the problem, including discipline, termination, or retraining of relevant employees and agents; and reorganization to ensure better oversight of individuals, departments, or business units involved in potentially corrupt payments
- Steps taken by the company to identify any related or similar misconduct
- Full cooperation with the government investigation, including access to investigative material and documents, and timely responsiveness to specific government inquiries
- Remedial measures taken to prevent future violations, such as enhancements to existing compliance programs, new procedures and process improvements, increased training, and the adoption of new requirements for third-party agents
These factors are largely mirrored in the recent guidance from the U.K.’s Serious Fraud Office (SFO) for the use of DPAs. According to the draft Code of Practice announced recently by the SFO and Crown Prosecution Service, prosecutors will determine whether a DPA is an appropriate resolution to any alleged criminal conduct by applying a two-stage test. First, the prosecution must evaluate a number of evidentiary factors to determine the viability of a potential corruption case. Second, the prosecution must determine whether a DPA is in the public interest. In the public interest stage of the test, the government will consider elements similar to the DOJ and SEC’s factors described above. Just as in DOJ and SEC investigations, there is room for companies to take actions after the illicit activity has been discovered to mitigate the potential government response. These actions include whether management has taken a “genuinely proactive approach” to addressing the issue, the degree to which the company has made a prompt and full report to the government, and whether the company has taken any other remedial actions.
In spite of any company’s best efforts to prevent corruption and ensure integrity from their employees and partners, issues arise and misconduct occurs. Once a problem has been identified, though, there is still much a company can do to put itself in the best possible light to receive a less punitive resolution. Companies which take corruption allegations seriously and react promptly are in the best possible position to argue that they have identified the issue, addressed it effectively, and no further government involvement is required.