FCPA Self-Disclosure Pilot Program Continues Focus on Individual Accountability

In the modern age of global commerce, the Foreign Corrupt Practices Act (FCPA) has increasing relevance for laboratories and the diagnostics industry. Alere, a point-of-care diagnostic test maker, disclosed in a Securities and Exchange Commission Form 8-K filing that the company received a grand jury subpoena in March from the U.S. Department of Justice (DOJ) "requiring the production of documents relating to, among other things, sales, sales practices and dealings with third-parties (including distributors and foreign governmental officials) in Africa, Asia and Latin America and other matters related to the U.S. Foreign Corrupt Practices Act." There could be more such investigations in the future for the diagnostics industry. National Intelligence Report's sister publication, Laboratory Industry Report, recently highlighted the globalization of the U.S. diagnostics industry, with foreign countries seeking to gain a foothold in the U.S. market and U.S. companies taking note of foreign opportunities. (See "Inside the Lab Industry," Laboratory Industry Report, 3/17/16, p. 4).

Laboratories and diagnostics companies looking at global opportunities should be mindful of recent developments relating to enforcement of the FCPA. The FCPA has two main purposes: 1) to prevent payments to foreign government officials to obtain or retain business, or direct business to any person—i.e., bribes; and 2) to require covered corporations to maintain accurate books and records of corporate transactions and adequate internal accounting controls. The anti-bribery provision applies not just to U.S. persons but also to foreign entities who cause corrupt payment to occur within the territory of the U.S.

The DOJ is ramping up enforcement of this law, issuing a memorandum April 5, 2016, titled "The Fraud Section's Foreign Corrupt Practices Act Enforcement Plan and Guidance"—outlining three steps of "enhanced FCPA enforcement strategy."

Step one involves "intensifying its investigative and prosecutorial efforts" by adding new resources such as 10 new prosecutors for the FCPA Unit (a 50 per cent increase in that unit), and three new squads of agents focused on FCPA investigations and prosecutions. Step two involves strengthened U.S. "coordination with foreign counterparts in the effort to hold corrupt individuals and companies accountable." Such coordination includes sharing leads, documents and witnesses with foreign law enforcement entities. The third step is a one-year pilot program in the Fraud Section's FCPA Unit intended to "promote greater accountability" by encouraging self-disclosure, cooperation with Fraud Section investigations, and remediation of compliance programs.

Assistant Attorney General Leslie R. Caldwell, with the DOJ Criminal Division, explained in a statement that the pilot program promotes transparency by letting companies know what they can expect in FCPA enforcement and what penalties will result from certain conduct, and it "enable[s] companies to make more rational decisions when they learn of foreign corrupt activity by their agents and employees." The April memo makes clear: "Nothing in the Guidance is intended to suggest that the government can require business organizations to voluntarily self-disclose, cooperate, or remediate. Companies remain free to reject these options and forego the credit available under the pilot program." However, Caldwell cautioned that "[i]f a company opts not to self-disclose, it should do so understanding that in any eventual investigation that decision will result in a significantly different outcome than if the company had voluntarily disclosed the conduct to us and cooperated in our investigation."

The DOJ explained that this new guidance supplements the Principles of Federal Prosecution of Business Organizations (known as the USAM Principles)—which address whether and what type of criminal disposition against a corporation is appropriate— and the U.S. Sentencing Guidelines (USSG) which provide for reduced fines and penalties for organizations that voluntarily disclose misconduct and cooperate in investigations. The DOJ's FCPA guidance also explains when additional credit can be granted in FCPA cases beyond credit provided under the USSG. It applies to all FCPA cases in which companies self-disclose or cooperate during the pilot period—even if the case lasts after the pilot ends.

But to benefit from that credit, an organization must meet the following three requirements:

1. Voluntary self-disclosure of FCPA misconduct. The disclosure must be made before an "imminent threat of disclosure or government investigation" and within a "reasonably prompt time after becoming aware of the offense" and must include all relevant facts regarding the conduct and the individuals involved.

2. Full cooperation. This includes compliance with the Yates memo's principles requiring disclosure of facts that identify culpable officers, employees or agents of the corporation. The FCPA guidance also emphasizes the need for cooperation to be "proactive…rather than reactive"—meaning the company must disclose information that is not even asked for and must "identify opportunities for the government to obtain relevant evidence" the company doesn't have or the government doesn't know about. Note too that this requires disclosure of overseas documents unless foreign privacy law prevents such disclosure.

3. Remediation. Remediation requires appropriate discipline of employees who are identified as responsible for misconduct and implementation of an effective compliance and ethics program including: a culture of compliance, an independent compliance function, sufficient resources, involvement of experienced compliance personnel, compliance programs that match results of risk assessments, auditing of compliance programs, and compensation and promotion of compliance staff comparable to other employees. The corporation must also take any other steps necessary to demonstrate "recognition of the seriousness of the corporation's misconduct," accept responsibility and reduce risk of reoccurrence.

The credit that may be gained by satisfying voluntary self-disclosure requirements, including compliance with the Yates memo and the USAM Principles, could include up to 50 percent reduction "off the bottom end of the Sentencing Guidelines fine range" and "generally should not require the appointment of a monitor" if the company already has an effective compliance program.

Additionally, the Fraud Section's FCPA Unit may consider declination of prosecution— but, the government will also consider the seriousness of the offense, involvement of the company's executive management, significance of profit to the company from the conduct (in relation to company size), prior noncompliance, and prior resolution of a matter with the DOJ within the past five years.

An entity that fails to self-disclose but does satisfy requirements to cooperate and remediate can still receive limited credit under the pilot program. However, the guidance warns "[s]uch credit will be markedly less than that afforded to companies that do self-disclose wrongdoing." At most, that will be a 25 percent reduction from the "bottom of the Sentencing Guidelines fine range."

Takeaway: Laboratories seeking to enter the global market need to heed the DOJ's stepped-up enforcement of the FCPA. Such enforcement also re-emphasizes the government's focus on pursuing liability for culpable individuals within the corporations found to have violated the law.