Podcast: Risk Management: Impact of Revised FCPA Policy on International Risk Management Programs
In this podcast, the second in a two-part series, litigation & enforcement partners Mimi Yang and Ryan Rohlfsen continue our analysis of the revised Foreign Corrupt Practices Act (FCPA) Enforcement Policy. Whereas the first part discussed what companies need to know about meeting the U.S. Department of Justice’s standards for an effective compliance and ethics program, this podcast focuses on what it means for companies’ international risk management programs. The podcast covers:
- Practical considerations for getting full remediation credits
- The risks involved with self-reporting, including anti-corruption enforcement by foreign authorities and the Securities Enforcement Commission (SEC)
- The potential reputational consequences of voluntary disclosure
Transcript (Chinese translation):
Mimi Yang: Hello, and welcome to our podcast series on risk mitigation and management. My name is Mimi Yang and I am a Hong Kong-based partner in Ropes & Gray's litigation and enforcement practice. Today, we will be continuing our discussion on DOJ’s revised FCPA Corporate Enforcement Policy. Joining me again for this second installment is my colleague Ryan Rohlfsen, a litigation and enforcement partner based in Chicago and Washington, D.C. Ryan is a former U.S. federal prosecutor who served in the FCPA Unit of the DOJ. Ryan, last time we discussed the similarities and differences between the Revised Policy and the original Pilot Program. For today’s discussion, I think a lot of our listeners would probably want to hear some practical advice, and to understand basically what the Revised Policy means for their international risk management program going forward. So, what are the issues you think that companies should consider in this context?
Ryan Rohlfsen: Well, I think there's a few things to think about. I mean, obviously this is providing more, you know, to paraphrase, kind of money where their mouth is in terms of the DOJ saying that if companies make the decision to self-disclose a matter, they will have more certainty in terms of the likely range of outcomes, and I think we've largely seen that in the cases. Obviously there's a bit of a cart before the horse or chicken or egg issue is that there is, at least in the U.S., no requirement for companies or individuals to self-report crimes. So you could always say the Department would never find out about an issue, you know, so that may or may not impact how it gets resolved. What the Department's trying to say is, "Look, you know, we hear about a lot of things. There's a number of avenues where they could, in fact, be reported – be it from competitor reports to the Department, whistleblowers be it internal or external." Obviously Dodd-Frank provides for some bounty hunter whistleblower activity, so there's a whole bunch of different avenues that the Department might hear about, and so it does ratchet up the pressure a little bit for companies to think about how they should approach their compliance program as well as, you know, if they do have an issue, how they treat it and whether or not they go self-report to the Justice Department and other authorities.
I think as a preliminary matter, though, the Revised Policy really would not have changed, you know, radically, if you had a case under the Pilot Program versus the Revised Policy. Our analysis of the cases that have been resolved in the last two years would've primarily had the same resolution whether it be under the Pilot Program or the Revised Policy. And largely that's been driven by the fact that a number of cases, the cases that had declinations under the Pilot Program, were all largely self-disclosure cases, full cooperation, full remediation, and there was no hint of, you know, serious “aggravating factors.” And that's the 800-pound gorilla in the room at the end of the day under both the Pilot Program and the Revised Policy is that “aggravating factors” that are listed, you know, provide a very, very wide array of discretion for the prosecutors in terms of what that exactly means. And I think we'll have to watch for cases to come out of the next year or two to determine what the parameters are for “aggravating factors.” That said, the Revised Policy does limit the DOJ discretion with respect to how much credit is available. It's mandating they give at least 25% off the bottom under the guidelines and as high as 50% off the bottom under the guidelines. Those things will give some certainty to companies in terms of cost and the likely penalties, even when there is a known scenario of a possible criminal conduct. And while this is clearly the goal, the uncertainty will continue to weigh against the company who doesn't self-disclose to the DOJ until, again, we've had enough time to take a look at the cases, to come out and see, you know, is the DOJ sticking to the guidance, or is the definition of “aggravating factors,” you know, becoming so broad that really the exception is the rule.
Mimi Yang: Thanks, Ryan. Other than the decision to self-disclose and determining the existence of aggravating factors, what other issues should companies consider from the standpoint of the Revised Policy?
Ryan Rohlfsen: One other thing, I think, that is important for companies to consider, and this statement in the Revised Policy at least from, I think, a lot of people's perspective came from left field – it was not anticipated, which was that the DOJ basically said that in order for companies to have full remediation credit, the DOJ is actually expecting them to have a program in place whereby they're technically capable, of retaining business records, and that would include prohibiting employees from using software that generates messages that are not retained by the company's enterprise software. So to put that in a more practical, more sort of user-friendly terms is, you know, if employees are using Snapchat or WhatsApp or WeChat to communicate for business on their devices, their company devices, whether it's company-issued or as probably is much more prevalent, bring your own device (BYOD), if a company does not have systems in place to prevent using, you know, instant messages, messages that are deleted and not archived on the system, or like Snapchat messages that automatically do so, they would not be entitled to full remediation credit under the Policy. So although we've not seen a case since revised program addressing this issue, that may present a number of, I think, practical and technical challenges to companies in order to totally comply with this program if the DOJ continues to push on that as a requirement. Because that's obviously something I don't think we've seen generally speaking with a lot of companies worldwide, particularly those with BYOD devices that completely, you know, locked out an employee's ability to use messaging software that is not archived on the system. And, in fact, obviously many of these systems are designed so they're not technically capable of being archived on the system.
Mimi Yang: That’s a really good point, Ryan, since the ability to retain messages on these instant messaging platforms may not have been an obvious consideration for companies under the previous Pilot Program. What other considerations do you think companies should be careful not to overlook?
Ryan Rohlfsen: You know, the other thing that I think companies need to consider, Mimi, in looking at this is even if you're to self-report a matter and you believe it's going to be fully investigated, you fully cooperate with the U.S. Department of Justice, you fully remediate, that, of course, only binds the U.S. Department of Justice. That doesn't bind the U.S. Securities and Exchange Commission, the SEC, which is charged with civilly enforcing the FCPA, nor does it bind other foreign authorities. We've seen a number of jurisdictions in the last few years that have been very active in anti-corruption enforcement, you know, the UK, the Netherlands, Brazil, and of course even the Chinese authorities have been very aggressive in terms of anti-corruption enforcement at the greatest levels. Simply because you self-disclose to the DOJ and obtain even a declination, that doesn't mean you're not going get an inquiry at least from these other authorities. Now, of course, companies can take that declination to the other authorities, work with them to say, you know, "Look, we've paid a penalty here. Or we've done all these things and even the Department of Justice has concluded that we should not be punished. So you should follow what they've done as well." But there's obviously no guarantees in that, and you could end up basically opening a can of worms that you hadn't expected. The other issue, I think, really is in terms of the civil exposure. There have been a couple cases recently and notably one that's still pending with respect to the company called General Cable that was found to have waived work-product protection, attorney work-product protection, over notes and supporting memoranda relied upon by counsel when making oral presentations to the SEC when those documents were later requested in a separate SEC case against General Cable's former executives. So in other words, when companies are going in, they're trying to fully cooperate, the SEC and DOJ are saying, "Look, we're not going to ask for privileged documents, but, you know, you need to give us the facts. You need to tell us what happened." And companies are doing that. At least some courts are saying, "You know what? When you're doing that, you're kind of waiving any sort of angle not only of facts but also of privileged materials." Now whether or not these cases ultimately are upheld in appeal and totally bear out in that direction remains to be seen. But it's certainly a risk that when you do present material to the SEC and DOJ in the U.S., that may risk opening those materials up to civil litigants and other proceedings. And I think lastly, you know, obviously, that there's going be some reputational consequences. If there's an issue that comes up, a company looks into it, they investigate, you know, they address the issue, they determine the issue, they address it and fully remediate, you know, there's considerations for the full impact of self-disclosure beyond simple resolution with the DOJ. They may need to consider, you know, reputational consequences, other lawsuits and such that might impact their ability to go forward in their business and impact their business at a much higher-level.
Mimi Yang: Thanks very much, Ryan. I think being lawyers we can probably talk about this for quite a bit longer, but unfortunately that's all the time we have. Thanks, everyone, for listening. Please tune in to our other podcasts on topics related to risk mitigation and management. You can find them on our website at www.ropesgray.com. And, of course, if we can help you navigate any of these challenges, please do not hesitate to get in touch.