New pilot program designed to encourage self-reporting while dedicated staff increases signal higher likelihood of detection
This week’s news that prosecutors globally – including the US Department of Justice (DOJ) – have initiated probes into the Panama Papers leaks reinforces the closer scrutiny to which financial crimes and their individual perpetrators are now subject.
Last September the Yates memo announcing the DOJ’s intention to step up enforcement actions against individuals for criminal misconduct sent shock waves through the business community. On April 5 the FCPA unit of the DOJ’s Fraud Section launched a one-year pilot program aimed at providing guidance to DOJ prosecutors for corporate resolutions in FCPA cases and to further motivate companies to voluntarily self-disclose FCPA-related misconduct, cooperate fully with the Fraud Section and, where needed, remediate flaws in their controls and compliance programs.
The DOJ’s statement on April 5 confirms that the pilot program is intended to build on the Yates memo, specifically in terms of focusing on individual accountability for criminal wrongdoing. The pilot program also explains the credit available to companies that voluntarily self-disclose FCPA misconduct, fully cooperate with investigations and remediate, as opposed to disclosing information only after they’ve been caught.
Matthew Queler, a principal at Deloitte Financial Advisory Services and former assistant chief for the DOJ's FCPA unit, sees a distinction between the purposes of the pilot program and the DOJ’s ongoing self-reporting regime. ‘If you have a strong compliance program, that might help [reduce penalties in enforcement actions],’ he says.
One concern about creating a compliance defense is that, by providing a certain set of standards that need to be met, the DOJ might inadvertently encourage a race to the bottom where companies only try to meet minimum requirements in their compliance programs.
‘It’s important for companies to not just do the minimum, but to be proactive and try to evolve as the schemes evolve and do their best to prevent violations,’ Queler says. There are times when companies, because of their self-reporting, deserve to be considered for a declination, in which the DOJ decides not to pursue enforcement action, while there are other instances when it may not be appropriate to give the company a pass, he adds.
‘What the Department is trying to do here is provide more transparency and clear incentives for self-reporting. People need to remember these are complex, nuanced issues and it’s really impossible for the Department to anticipate every scenario in advance,’ Queler explains.
He calls the DOJ’s approach to cracking down on corruption a combination of carrots and sticks. While increasing incentives for self-reporting, such as streamlined investigations, which reduce investigation costs for self-reporters, the DOJ has also increased the number of fraud unit attorneys focused full-time on FCPA violation cases, added three new FBI squads of special agents focused on the FCPA fraud section and strengthened coordination with foreign counterparts. All these efforts boost the risk of detection of misconduct. ‘[The DOJ] is making sure that those who think they can get away with bribery schemes are potentially going to face severe consequences,’ Queler says.
When it comes to self-reporting, companies need to be reminded that the DOJ expects them to share all the information they have regarding violations with federal authorities, rather than on a selective basis. ‘Companies that are trying to shield senior management from accountability by only providing one slice of information are not going to be considered to be cooperating,’ Queler says.
He cites instances he’s encountered where companies investigated misconduct only at a subsidiary, without looking into whether people at the parent company were involved. ‘That’s the kind of position that will not be acceptable. The biggest challenge for some companies is to understand that if they’re going to cooperate, if they have a problem in a [foreign] country and are only going to throw the lower level employees under the bus and not look into whether senior leadership was involved [they won’t get any cooperation credit from DOJ],’ he explains.
This is particularly relevant in light of the results of PwC’s latest economic crime survey, which show a sharp rise in the percentage of internal crimes being committed by members of senior management at US firms – from 4 percent in 2014 to 18 percent in 2015 – while middle managers are now responsible for 53 percent of internal crimes. The trend for senior managers is in contrast to a decline globally to 16 percent in 2015 from 20 percent the prior year.
‘It’s willingness to look at senior individuals and ask tough questions of senior management based on what they see in email traffic,’ for example, that the DOJ is trying to encourage, Queler says.
