The Carrot Instead of the Stick: DOJ Offers New Opportunities for Leniency

by William “Bill” C. Athanas and Andrew “Drew” A. Warth

Lost among the flurry of recent media stories was a relatively quiet but vitally important pronouncement by the Department of Justice: a policy enabling companies to avoid criminal prosecution when violations were uncovered and self-disclosed — previously limited to foreign bribery offenses — has been expanded to include all other types of corporate wrongdoing.

Proving that these were not simply abstract principles, the Department of Justice released details of its recent resolution of allegations that Barclays was involved in front-running of foreign exchange transactions. Every company, particularly those operating in regulated industries, should take heed of the implications of this development.

Under the law, a corporation can be liable for the criminal violations of an employee or agent acting (i) within the scope of his or her authority and (ii) with an intent at least in part to benefit the corporation.

Since the Supreme Court announced this rule over a century ago, countless corporations have faced criminal prosecution for a broad range of offenses. While corporate indictments occur — the prosecution of Arthur Andersen, LLP based on its role in Enron’s collapse among the most prominent recent examples — many of those cases are resolved short of indictment. Nevertheless, investigations can drag on for years and consume vast amounts of resources, as well as generate negative publicity. Moreover, they customarily involve heavy fines and other penalties, included as a means of both punishing the conduct at hand while deterring other companies from following the same path.

But while corporate criminal investigations can be lengthy and onerous, their impacts are felt not just by the corporation targeted, but also the government. Prosecutorial and investigative resources, while formidable, are not limitless — moving forward one case necessarily means passing on others.

To address these challenges, the DOJ has previously endeavored to effectuate deterrence through the carrot-and-stick method: offering benefits for companies that self-disclose violations and cooperate, and threatening redoubled punishments for those who fail on either front (or worse, both). But for years, these incentives were unguaranteed and undefined, and many doubted whether, as a matter of policy, cooperation truly increased a corporation’s ability to avoid harsh sanctions.

The DOJ recognized this skepticism, and in November 2017, announced a new policy in cases involving violations of the Foreign Corrupt Practices Act (FCPA), which prohibits payments of bribes to foreign officials. Because the revised FCPA Corporate Enforcement Policy has now effectively been broadened to apply to all offenses, it is important to understand fully its terms. As an overarching principle, that policy provides that corporations who proactively self-disclose and address FCPA violations as part of full cooperation efforts are entitled to “a presumption that the [qualifying] company will receive a declination absent aggravating circumstances.”  Those “aggravating circumstances” include executive-level involvement, recidivism and pervasive misconduct, among others.

Via letter dated February 28, 2018, the DOJ demonstrated its intent to extend the principles underlying the revised FCPA Corporate Enforcement Policy to other areas. (Click here to read the letter.)

In resolving potential criminal violations by Barclays, acting through its employees and agents, the DOJ noted the company’s “timely, voluntary self-disclosure” of the violations, its “thorough and comprehensive investigation” as part of its “full cooperation” and “the steps Barclays has taken and continues to take to enhance its compliance program.”  Barclays’ agreed to pay restitution to the victim of the conduct, and also pledged its full cooperation to the DOJ’s efforts to prosecute the individual wrongdoers who carried it out. In return, the government agreed to “close its investigation of” the conduct.

DOJ representatives, including the acting head of the Criminal Division, declared in public remarks at a recent American Bar Association conference that the Barclays resolution signaled an expansion of the principles underlying the revised FCPA Corporate Enforcement Policy.

As a means of driving that point home, the DOJ representatives invited the public to compare the outcome Barclays received to that of another front-running investigation of HSBC Holdings resolved in mid-January. HSBC failed to self-disclose and cooperate fully, and instead of a declination, faced over $100 million in fines and disgorgement.

In its announcement, the DOJ hedged in creating any obligations upon itself: government representatives made clear that it was using the FCPA policy as “nonbinding guidance,” and also made clear that local U.S. Attorney’s Offices would not be required to adhere to the same approach. But such reservations are commonplace when policies are announced, and should not be viewed as exceptions designed to swallow the rule.

The Barclays resolution, coupled with the DOJ’s remarks immediately thereafter, signal a critically important evolution in the area of corporate criminal enforcement. Any corporation, particularly financial institutions operating in the heavily regulated environment, would be wise to understand fully the motive behind the DOJ’s shift in tactics, and the measures that can be installed to take full advantage of the change if and when the opportunity arises.

Bill Athanas is a partner in Trial and Appellate group at Waller in Birmingham. Bill represents companies and individuals in all facets of government investigations, including those charged in grand jury investigations and other government enforcement actions. Drew Warth is a partner in the Trial and Appellate group at Waller in Nashville. Drew assists a wide range of corporate entities and individuals with their litigation needs, as well as with internal investigations and government investigations.