10.1 To co-operate or not to co-operate?
After a company learns that a government authority has begun an investigation into it, the company must decide whether to co-operate. That decision is laden with numerous considerations, and a decision either way involves many potential benefits, drawbacks and implications.
10.1.1 Defining co-operation: the Filip Factors, Yates Memorandum, Seaboard Factors and Sentencing Guidelines
The standards that guide the US Department of Justice’s (DOJ) civil and criminal prosecution of companies are set out in the United States Attorneys’ Manual’s (USAM) Principles of Federal Prosecution of Business Organizations. That section of the USAM lists 10 factors – often called the ‘Filip Factors’, named after former Deputy Attorney General Mark Filip – that DOJ attorneys consider in determining whether to charge a company. These factors include the company’s ‘willingness to cooperate in the investigation’ and its ‘efforts . . . to cooperate with the relevant government agencies’. In other words, whether and the extent to which a company co-operates with the government directly affects the DOJ’s leniency considerations.
The potential benefits of co-operation are palpable. The USAM explains that ‘[c]ooperation is a mitigating factor, by which a corporation . . . can gain credit in a case that otherwise is appropriate for indictment and prosecution.’ Such credit can lead to reduced charges and penalties, or avoidance of charges altogether.
Although the USAM does not formally define ‘co-operation’, it identifies how a company can be eligible for co-operation credit. Of utmost importance, ‘the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the Department all facts relating to that misconduct.’ These relevant facts include how and when the alleged misconduct occurred, who promoted or approved it, and who was responsible for committing it.
Previously, companies could become eligible for co-operation credit by voluntarily disclosing misconduct even without identifying the individuals engaged in the wrongdoing or their specific misconduct. Although such efforts would not garner full credit, the partial credit companies received could be enough to avoid charges.
This changed in September 2015, when Sally Yates, then Deputy Attorney General, announced a ‘substantial shift’ from the DOJ’s prior practice through the issuance of a DOJ-wide memorandum regarding ‘Individual Accountability for Corporate Wrongdoing’. The ‘Yates Memorandum’ states that ‘[i]n order for a company to receive any consideration for cooperation under the [Filip Factors], the company must completely disclose to the Department all relevant facts about individual misconduct.’ In other words, ‘[c]ompanies cannot pick and choose what facts to disclose . . . the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the Department all facts relating to that misconduct’ to be eligible for any co-operation credit. Though individual responsibility has always been a priority for the DOJ, the Yates Memorandum has more keenly focused prosecutorial efforts against responsible individuals. Moreover, it makes clear that no co-operation credit will be given if a company ‘declines to learn’ and share all relevant information available to it regarding individual misconduct.
The principles articulated in the Yates Memorandum have not been changed, although there are efforts to ‘streamline it, clarify it, and codify it’ under the Trump administration. The former Attorney General, Jefferson B Sessions III, made clear that ‘[t]he Department of Justice will continue to emphasize the importance of holding individuals accountable for corporate misconduct.’ Specifically with regard to co-operation, the Attorney General noted that the DOJ, in making charging decisions, ‘will continue to take into account whether companies . . . cooperate and self-disclose their wrongdoing.’
Co-operation can take many forms, including producing relevant documents, making employees available for interviews, proffering findings from internal investigations, and assisting in the analysis and synthesising of potentially voluminous evidence. Of course, under the Yates Memorandum, corporations must also attempt to identify all culpable individuals, timely produce all relevant information about individual misconduct and agree to continued co-operation even after resolving any charges against the company. The amount of credit earned will depend on the proactive nature of the co-operation, and the diligence, thoroughness and speed of any internal investigation. But the USAM also reiterates existing DOJ policy that waiver of attorney–client privilege or work-product protection is not required for credit so long as the relevant facts concerning misconduct are disclosed. Even so, this policy shift raises substantial issues about the extent to which the privilege or work-product protection can be preserved while satisfying the DOJ’s demand for all relevant information.
Paradoxically, in practice, the Yates Memorandum may make it harder for the DOJ to pursue individuals, since the policy may impede companies’ ability to identify the source of any misconduct. Given that companies must identify culpable individuals to receive any co-operation credit, the interests of employees with relevant information may not be aligned with those of the company. Whereas before, employees might have been willing to identify themselves or others as perpetrators of wrongdoing in return for assurances that the company will not name them to authorities, now the company must turn over any employees allegedly engaged in misconduct. This policy may affect workplace morale and loyalty if employees believe that their company will likely hand them over to authorities at the first sign of trouble. This is especially true if, pursuant to Upjohn Co v. United States, employees are advised during interviews by company counsel that anything inculpatory the employees reveal could be disclosed to the DOJ. As a result, employees may be less willing to reveal misconduct, potentially diminishing the effectiveness of compliance and self-disclosure programmes, even as companies now carry greater responsibility to ferret out and report wrongdoing. As James Cole, Yates’s predecessor at the DOJ, has noted: ‘When you play it out, [the Yates Memorandum] is not necessarily better for the government and it’s certainly not better for corporations and counsel.’
Despite this greater responsibility on the part of companies to make ‘extensive efforts’ in their internal investigations, the DOJ will often conduct its own parallel investigation ‘to pressure test’ a company’s efforts, and if the DOJ concludes through its own investigation that the internal investigation’s efforts ‘spread corporate talking points rather than secure facts related to individual culpability the company will pay a price when they ask for cooperation credit.’ Any attempt to co-operate and seek credit should be taken on diligently and with the full commitment of all involved.
Like the DOJ, the US Securities and Exchange Commission (SEC) also offers corporate co-operation credit. In October 2001, the SEC issued a report of investigation and statement – popularly called the ‘Seaboard Report’ after the company that was the subject of the report and whose co-operation in an SEC investigation led to its not being charged – articulating a framework for evaluating co-operation and determining whether, and to what extent, companies should receive leniency. The SEC considers four ‘Seaboard factors’ in determining the appropriate amount of credit: (1) self-policing, (2) self-reporting, (3) remediation and (4) co-operation. To the SEC, co-operation entails ‘providing the Commission staff with all information relevant to the underlying violations and the company’s remedial efforts.’ As with the DOJ’s Filip Factors, co-operation is but one consideration among others that the SEC considers in determining the appropriate disposition in a case, and it echoes the DOJ’s requirement of providing the agency with all facts relevant to the alleged misconduct. Depending on the extent to which the company meets the Seaboard factors, it may be eligible to receive a co-operation agreement, deferred prosecution agreement or non-prosecution agreement.
Finally, the US Sentencing Guidelines, which set forth recommended sentencing ranges for federal offences, also provide credit for companies that co-operate with authorities, in the form of recommended reductions in monetary penalties. A business that has ‘fully cooperated in the investigation and clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct’ can receive a partial reduction; a company that has self-reported within a reasonable time after becoming aware of misconduct, but before the government learns of it or has begun investigating, and that has fully co-operated in the investigation can potentially eliminate all penalties. The penalties avoided in exchange for co-operation can be significant.
The Sentencing Guidelines make clear, however, that ‘cooperation must be both timely and thorough’: to be timely, the company must co-operate as soon as it is notified of an investigation, and to be thorough, the company must disclose ‘all pertinent information’ sufficient for authorities to identify the nature and extent of the offence, and the responsible individuals.
While he was in office, former Attorney General Sessions revised the DOJ’s charging and sentencing policy, and directed federal prosecutors to ‘charge and pursue the most serious, readily provable offense,’ which ‘[b]y definition . . . are those that carry the most substantial guidelines sentence, including mandatory minimum sentences.’ Any exception to the policy must be approved by a United States Attorney or Assistant Attorney General (or his or her designate) and the reasons documented. The policy notes that ‘[i]n most cases, recommending a sentence within the advisory guideline range will be appropriate,’ but departures and variances must also be approved and the reasons documented. Whereas previous policy emphasised that charging decisions ‘must always be made in the context of “an individualized assessment of the extent to which particular charges fit the specific circumstances of the case . . . and due consideration should be given to the defendant’s substantial assistance in an investigation or prosecution,”’ the new policy makes no mention of these factors. It remains to be seen how this policy revision will affect corporate investigations, but, as with the Yates Memorandum, this change may make it harder for the DOJ to pursue wrongdoing and secure co-operation from companies and individuals by dramatically increasing the stakes of self-disclosure and co-operation.
Cutting against this recent trend in favour of aggressive enforcement is a new DOJ policy against ‘piling on’. On 9 May 2018, Deputy Attorney General Rod Rosenstein announced changes in the coordination of corporate resolution penalties. Rosenstein stated that the government should ‘discourage disproportionate enforcement of laws by multiple authorities’. Through amendments to the USAM, the DOJ now expressly discourages the ‘piling on’ of penalties relating to the same misconduct by ‘instructing [DOJ] components to appropriately coordinate with one another and with other enforcement agencies in imposing’ any penalties. Rosenstein focused on the concept of ‘fairness’ and acknowledged that ‘piling on’ can deprive a corporation of certainty and finality, as well as negatively affect employees, investors and customers. In determining whether the policy should apply to particular misconduct, the DOJ will consider the ‘egregiousness of the wrongdoing; statutory mandates regarding penalties; the risk of delay in finalizing a resolution; and the adequacy and timeliness of a company’s disclosures and cooperation with the Department.’
In reaching a resolution, the DOJ now considers ‘the totality of fines, penalties, and/or forfeiture imposed by’ all enforcement agencies and regulators to achieve a just and fair result. Rosenstein highlighted four key features of the new policy. First, the policy reinforces that the federal government should not use its criminal enforcement authority ‘for purposes unrelated to the investigation and prosecution of a possible crime’. For example, the government should not threaten ‘criminal prosecution solely to persuade a company to pay a larger settlement in a civil case.’ Second, the policy directs DOJ officials to coordinate among themselves to ‘achieve an overall equitable result’. Rosenstein specified that such coordination ‘may include crediting and apportionment of financial penalties, fines, and forfeitures’. Third, the policy instructs DOJ attorneys ‘to coordinate with other federal, state, local, and foreign enforcement authorities seeking to resolve a case with a company for the same misconduct’. Finally, the policy identifies factors that the DOJ may use to determine ‘whether multiple penalties serve the interests of justice’, such as ‘egregiousness of the wrongdoing; statutory mandates regarding penalties; the risk of delay in finalizing a resolution; and the adequacy and timeliness of a company’s disclosures and cooperation’. The policy largely reflects pre-existing DOJ practice in certain areas, including FCPA enforcement, where the DOJ routinely coordinates resolutions with the SEC and, increasingly, participates in cross-border resolutions by, among other things, crediting a company’s foreign penalties in calculating the US criminal fine. But the policy’s formalisation is encouraging insofar as the DOJ will avoid unduly harsh and duplicative fines and attempt to achieve more efficient and just penalties.
10.1.2 Vicarious liability
In the United States, in accordance with traditional principles of respondeat superior, a company is generally liable for the acts of its agents, including its employees, officers and directors, if such acts were undertaken within the scope of their employment and intended, at least in part, to benefit the company. Companies may also be liable for the conduct of certain affiliates, business partners and third parties acting on the company’s behalf. Importantly, when a company merges with or acquires another company, as a general matter, the successor company assumes its predecessor company’s civil and criminal liability.
In principle, the DOJ has made clear that the respondeat superior standard ought not to impose strict liability on companies for an individual’s behaviour. The USAM states that ‘it may not be appropriate to impose liability upon a corporation, particularly one with a robust compliance program in place, under a strict respondeat superior theory for the single isolated act of a rogue employee. . . . [A] prosecutor should exercise sound discretion in evaluating the pervasiveness of wrongdoing within a corporation.’
In practice, however, US authorities have made sweeping assertions of liability under respondeat superior and other theories of corporate responsibility, such as the so-called Park or collective-knowledge doctrines. Indeed, in some instances, the government has pursued investigations against, and has imposed significant penalties on, corporations for the behaviour of their affiliates or agents without asserting that the parent company authorised, directed or controlled the corrupt conduct, nor that it even had knowledge of such conduct.
10.1.3 Status of the parties involved in the investigation
A company’s status in an investigation is one of the critical considerations in determining whether it should co-operate with enforcement authorities and, if so, the proper nature and degree of such co-operation. There are four statuses of persons (companies and individuals) that enforcement authorities typically request co-operation from: victim, witness, subject and target.
Victims are ordinarily those who have been harmed by the conduct being investigated and face little, if any, legal exposure.
Witnesses are those who may have information that enforcement authorities believe might be relevant to establishing facts regarding the alleged misconduct or implicating particular individuals or entities. Witnesses are seldom exposed to liability arising from their testimony, but an important exception applies for issues of perjury or obstruction of justice if a witness knowingly provides incorrect information during an investigation.
Subjects comprise the first status that may involve a significant risk of being implicated. The subject of an investigation is ‘a person whose conduct is within the scope of [a] grand jury’s investigation’. Typically falling somewhere between a target and a witness, a subject is someone or some entity that enforcement authorities are unwilling to rule out as potentially culpable, even if the authorities have not yet decided as much.
The fourth status corresponds to targets. Designation as a target provides a clear warning of a company or individual’s legal exposure. Under the USAM, a target is ‘a person as to whom the prosecutor or the grand jury has substantial evidence linking him or her to the commission of a crime and who, in the judgment of the prosecutor, is a putative defendant.’
Each status triggers different initial concerns regarding the potential exposure and relative burdens of co-operation. The status can help companies or individuals anticipate the extent to, and manner in which, they co-operate, taking into account the various theories of corporate or vicarious liability that may create legal exposure. For instance, while it is generally advisable for victims or witnesses to do so as well, companies or individuals that are subjects or targets of investigations should always seek the advice of counsel before co-operating with, or speaking to, enforcement authorities.
Importantly, while these statuses may inform the decision of whether to co-operate, they do not provide legal protection to their holders – a seemingly innocent status such as that of victim or witness is not determinative with regard to possible liability for misconduct. There is little, for instance, to preclude an enforcement authority from using a company’s statements offered in a witness capacity against the company in a future prosecution should additional evidence uncover misconduct by that company that shifts its status from witness to subject.
In addition to the issue of potential liability, there can be other significant costs to co-operation. Co-operation may be burdensome for both corporate witnesses and victims, as it may entail production of confidential documents, making employees available for interviews or as witnesses in potentially lengthy legal proceedings. Once a complaint is brought to the attention of the authorities, control over the course of the investigation and resulting litigation is largely lost. Similarly, co-operation by a victim may lead to negative publicity. For example, the victim of a fraud by another company – if it co-operates and testifies to its victimisation – may be viewed as having inadequate internal controls or auditing, harming its reputation with customers and investors. Furthermore, a company that is otherwise a victim of wrongdoing might nevertheless be subject to shareholder lawsuits if there is an allegation that the harm suffered by the company was due to management or board negligence.
For these reasons, regardless of their perceived status, companies should consult with counsel to assess whether co-operation is in their best interest and, if so, how to go about it. In the case of witnesses in particular, counsel should determine whether a limited internal investigation should be conducted to ensure that co-operation will not result in disclosure of incriminating or otherwise sensitive or embarrassing information.
10.1.4 Key benefits and drawbacks to co-operation
Co-operation frequently entails significant resource expenditures for companies, and though co-operation has real benefits, these must be balanced against its demands, as well the possibility that the government may not unearth sufficient evidence to establish misconduct without the company’s co-operation.
10.1.4.1 Reduced or no charges and penalties
The single most compelling reason that companies (and individuals) co-operate with the government is to obtain leniency, namely, to reduce or escape entirely potential charges and penalties. At least one study has found that co-operating with the government results in lower penalties. And companies that do not co-operate have received significantly harsher treatment by enforcement authorities.
Equally important, co-operation that results in reduced or no charges may also avoid the collateral consequences of an adjudged violation. Collateral consequences from admitting to wrongdoing, such as administrative bars or suspension from public procurement programmes, can be especially damaging in certain industries – such as healthcare, defence and construction – in which government contracts may account for a significant portion of a company’s revenues. For example, federal procurement rules provide for debarment or suspension of a company from contracting with the US government upon a conviction of or a civil judgment for a number of offences, including bribery, or any offence ‘indicating a lack of business integrity or business honesty. . . .’ Moreover, federal disbarment or suspension may trigger a cascade of similar consequences at the state or local, and international, levels, and can lead to follow-on private litigation. Successful co-operation can therefore help companies avoid these possible domino effects.
10.1.4.2 Shaping the government’s investigation
Co-operation affords the company greater control over any investigation into its alleged misconduct. As an initial matter, the enforcement agency may be inclined to delay or forgo its own investigation in favour of an internal investigation if the company credibly conducts a thorough internal investigation and fully reports its findings to the agency. But even if the agency conducts its own separate investigation, through co-operation, the corporation can more easily learn what the agency has discovered, shape the way the agency views evidence as part of an ongoing dialogue, and develop a rapport with investigators. This affords the company greater certainty about and influence over the government’s investigation and any subsequent negotiation to resolve the allegations. The company effectively becomes a participant in the investigation, hopefully allowing it to have meaningful input into the speed and extent of the process, as well as to shape its resolution.
Conversely, declining to co-operate may increase uncertainty and render the company unable to influence the government’s investigation and, ultimately, charges. Deciding against co-operation creates information asymmetry with the agency because the corporation has more limited insight into whom or what the agency is actually investigating, or the scope of any such investigation. By co-operating, however, the company is also placing itself at the mercy of the government: the company cannot selectively disclose or hide certain information because, once detected, the company loses credibility and may even face obstruction of justice charges, undermining efforts to achieve a favourable resolution. A company that opts to self-report a potential violation effectively has committed itself to a path of robust co-operation, on an extended timeline that may require it to agree to the lengthy tolling of applicable statutes of limitation.
10.1.4.3 Financial cost
Co-operation – with an attendant internal investigation that is thorough, whose results are reported to the government – may result in less investigation on the government’s part, potentially saving costs and penalties for a company over the long term. Under the Yates Memorandum, a company must conduct some level of internal investigation if it wishes to receive any co-operation credit. Because a company is generally better placed to quickly identify the source of any alleged misconduct, conducting a targeted internal investigation will likely be more cost-efficient than refusing to co-operate, which could result in the government’s engaging in an unfocused fishing expedition. Furthermore, if the company is performing poorly financially, co-operation, coupled with an ‘inability to pay’ argument, can increase the government’s willingness to minimise fines, avoiding putting the company out of business.
But the financial costs of co-operation can often be substantial. Co-operation will require proactive internal investigations, and the DOJ’s heavy focus on individual culpability may also require earlier involvement of separate counsel for individual employees and officers, whose fees may need to be indemnified by the corporation. In addition, as former Deputy Attorney General Yates explained,
a company should not assume that its cooperation ends as soon as it settles its case with the government. . . . [C]orporate plea agreements and settlement agreements will include a provision that requires the companies to continue providing relevant information to the government about any individuals implicated in the wrongdoing. A company’s failure to continue cooperating against individuals will be considered a material breach of the agreement and grounds for revocation or stipulated penalties.’
In other words, a co-operating company has effectively committed itself to being at the government’s disposal for an indeterminate period and for whatever needs it may have, including for separate but derivative investigations.
10.1.4.4 Disruption to business
Any government investigation is likely to be disruptive to a company’s operations and can even affect its share price. Working under the glare of an investigation can cause severe and prolonged uncertainty, especially if high-ranking executives are targets. Investigations can also be damaging for public relations, and failure to co-operate may lead to loss of investor and consumer confidence. This issue is especially significant for companies that particularly rely on customers’ trust for business success. Despite an ongoing investigation, taking a co-operative posture may mitigate public relations or market impacts by conveying a strong message that the company has a corporate culture of compliance, does not tolerate misconduct, and plays by the rules.
Of course, refusing to co-operate with the government is unlikely to avoid the business disruption of an investigation. The USAM does make it clear that ‘the decision not to co-operate by a corporation . . . is not itself evidence of misconduct at least where the lack of cooperation does not involve criminal misconduct or demonstrate consciousness of guilt.’ But if a company is unwilling to assist the government, the government is likely to use its subpoena power anyway. The pall of the investigation would remain, but employees, investors and the public may speculate about why the company refuses to co-operate, potentially causing uncertainty about the company’s culpability and the ramifications of the investigation. Refusing to co-operate may also increase the likelihood of talent fleeing the company because of the insecurity of employees’ positions, as well as potential decreases in morale and productivity.
10.1.4.5 Exposure to civil litigation
Co-operation and any attendant admission of wrongdoing may expose the company, directors and officers to the risk of follow-on civil litigation. First, because a company must reveal all facts concerning misconduct to the government, co-operation may result in disclosure and a general waiver of otherwise privileged information. Second, depending on the particular circumstances, even after co-operation, a company may still need to accept lesser charges or admit to certain facts as a condition to settlement.
Co-operating companies thus become exposed to follow-on actions because plaintiffs – whether through class actions or derivative actions – can piggyback on the findings from government investigations and company admissions. In certain types of cases, for example antitrust cases that provide for treble civil damages and joint and several liability, the cost of co-operating and admitting any facts or guilt may greatly outweigh any benefits from reduced fines. Indeed, given the proliferation of cross-border investigations, the costs of co-operation are magnified by the likelihood of liability across multiple jurisdictions, both from penalties imposed by regulators and from separate private litigation in those jurisdictions. In other words, it may make financial sense to refuse to co-operate, deny liability and hold on to the possibility that the company may be absolved at trial.
10.2 Authority programmes to encourage and reward co-operation
10.2.1 The antitrust leniency programme
A number of US agencies have special policies with regard to co-operation and self-disclosure. A notable example is the DOJ Antitrust Division’s corporate leniency programme, under which a company that engaged in cartel conduct that is the first to self-report and fully co-operate with the DOJ’s investigation will receive full leniency and avoid any charges against it and any co-operating employees, assuming other criteria are met. Additionally, leniency applicants are only liable for actual damages in follow-on civil litigation instead of the usual treble damages and joint-and-several liability imposed under the antitrust laws. The programme has been immensely successful, in large part because it has unambiguous benefits and requirements, and gives assurances to any potential applicants. Indeed, Antitrust Division officials have attributed the programme’s success to the transparency and predictability of its implementation. Recent changes to policy guidelines, however, have created some uncertainty about which current and former employees of leniency applicants may be included in a grant of leniency, thereby potentially undermining the effectiveness of the programme.
10.2.2 The FCPA Pilot Program and Corporate Enforcement Policy
In the same spirit, in April 2016, the DOJ announced a new pilot programme for Foreign Corrupt Practices Act (FCPA) enforcement. While the original programme was designed to last only one year, in November 2017 – after a brief extension – Deputy Attorney General Rosenstein announced that the programme would become permanent and incorporated into the USAM as the FCPA Corporate Enforcement Policy. The aim of the programme was – and that of the new policy is – to encourage companies to voluntarily self-disclose potential FCPA violations, increase co-operation with the DOJ, and remediate flaws in the companies’ internal controls and compliance programmes.
To be eligible for credit under the Corporate Enforcement Policy, a company must satisfy three elements. First, the company must voluntarily report all relevant facts regarding the misconduct ‘within a reasonably prompt time after becoming aware’ of the offence and ‘prior to any imminent threat of disclosure or government investigation.’ Second, the company must offer ‘full cooperation’, which includes, among other things, disclosing all relevant facts and the identity of the individuals involved (as per the Yates Memorandum), and providing timely updates on the results of the internal investigation. Third, the company must undertake timely and appropriate remediation, including through implementation of an ethics and compliance programme and discipline of employees responsible for the misconduct. If a company meets all three requirements and disgorges all profits received from the alleged violation, it may receive up to a 50 per cent reduction off the applicable minimum fines under the Sentencing Guidelines, no monitor may need to be appointed if an effective compliance programme has been implemented, and the DOJ will consider a declination of prosecution. For companies that fully co-operate and effectively remediate but failed to self-disclose the violation voluntarily, the maximum credit will be up to 25 per cent.
Notably, the Corporate Enforcement Policy does not provide the same degree of certainty regarding the benefits of co-operation as other programmes, such as the antitrust leniency programme. In Rosenstein’s own words, ‘[t]he new policy does not provide a guarantee’ and ‘cannot eliminate all uncertainty’. For instance, the Corporate Enforcement Policy provides that companies that meet all criteria will receive a recommendation of a 50 per cent ‘reduction off the low end of the U.S. Sentencing Guidelines . . . fine range, except in the case of a criminal recidivist’. Likewise, there is only a ‘presumption that the company will receive a declination absent aggravating circumstances’. By contrast, full co-operation in the antitrust realm for the first to self-report participation in a conspiracy will generally result in full leniency and avoidance of all charges.
To date, the DOJ has announced 10 declinations since the FCPA Pilot Program began. In one such declination involving Nortek, Inc, the DOJ noted that it had ‘closed [its] inquiry into this matter. . . . despite the bribery by employees of the Company’s subsidiary in China’. In outlining the reasons for its declination, the DOJ highlighted ‘the fact that Nortek’s internal audit function identified the misconduct, Nortek’s prompt voluntary self-disclosure, the thorough investigation undertaken by the Company, its fulsome cooperation in this matter (including by identifying all individuals involved in or responsible for the misconduct and by providing all facts relating to that misconduct to the Department) and its agreement to continue to cooperate in any ongoing investigation of individuals . . . .’ The DOJ also highlighted ‘the steps that the Company has taken to enhance its compliance program and its internal accounting controls, [and] the Company’s full remediation (including terminating the employment of all five individuals involved in the China misconduct, which included two high-level executives of the China subsidiary) . . . .’ Finally, the DOJ noted that Nortek ‘will be disgorging to the SEC the full amount of disgorgement as determined by the SEC.’
On 1 March 2018, the DOJ’s Criminal Division announced that it would use the FCPA Corporate Enforcement Policy as non-binding guidance in criminal cases outside the FCPA context. In announcing this policy change, then Acting Assistant Attorney General John Cronan and then Chief of the Securities and Financial Fraud unit, Benjamin Singer, touted the example of a recent settlement with Barclays PLC in which they applied the principles of the Policy. As the DOJ explained, Barclays self-reported that, ‘through its employees and agents, [it had] misappropriated confidential information provided to Barclays by HP [Hewlett-Packard Company] in regard to FX options and spot transactions, and deceived HP about the nature of its trading, in violation of duties to HP’. The DOJ noted that, among other things, Barclays made a ‘timely, voluntary self-disclosure’, conducted a ‘thorough and comprehensive investigation’, offered its ‘full cooperation’, including providing ‘all known relevant facts about the individuals involved in or responsible for the misconduct’, made enhancements to its compliance programme, and fully remediated the issues. As a result, the DOJ declined to prosecute Barclays, although the bank had to pay approximately US$12.9 million in restitution to HP and disgorgement of its profits from the alleged scheme. Singer contrasted the settlement with HSBC Holdings PLC, which paid approximately US$101.5 million in penalties and disgorgement after a similar front-running investigation. According to Singer, HSBC failed to self-report the misconduct and, at least initially, did not fully co-operate with the DOJ.
The FCPA Corporate Enforcement Policy has since been extended to the M&A context. On 25 July 2018, Matthew Miner, Deputy Assistant Attorney General in charge of the DOJ’s Fraud Section, announced that the Policy would now apply to successor companies that uncover wrongdoing in connection with mergers and acquisitions and thereafter disclose that wrongdoing and provide co-operation. Miner noted that ‘in some instances an acquiring company has limited access to a target company’s data and records, perhaps even more so when the target company is in a high risk jurisdiction.’ Therefore, ‘if an acquiring company unearths wrongdoing subsequent to the acquisition,’ the DOJ will ‘reward them, accordingly for stepping up, being transparent, and reporting and remediating the problems they inherited.’
10.3 Special challenges with cross-border investigations
A noteworthy trend with regard to large-scale investigations of corporate wrongdoing is the significant increase in coordination between law enforcement authorities across different jurisdictions. This co-operation has traditionally occurred through a variety of formal channels such as mutual legal assistance treaties, memoranda of understanding, or subject-specific agreements between countries. Yet, these formal channels are by no means the exclusive method of collaboration between governments. International enforcement authorities are increasingly sharing relevant information with their foreign counterparts through more informal channels of communication. Governments are not only sharing leads on potential misconduct, they are also sharing investigative strategies, offering each other wider access to individuals and evidence within their borders, and coordinating their enforcement efforts.
Indeed, governments are touting this collaboration. As the then Joint Head of Bribery and Corruption at the United Kingdom’s Serious Fraud Office noted: ‘[W]e have excellent links with our US colleagues so are very likely to hear about anything that touches our jurisdiction that emerges from that route too.’ Similarly, a former DOJ official explained: ‘[W]e are capitalizing on the cooperative relationships we have developed with foreign prosecutors, law enforcement and regulatory agencies to better access evidence and individuals located overseas. Even more significantly, we have dramatically increased our coordination with foreign partners when they are looking at similar or overlapping criminal conduct – so that when we engage in parallel investigations, they complement, rather than compete with, each other.’ One manifestation of the level of co-operation between the DOJ and its UK counterparts is the recent detailing of a DOJ prosecutor to the UK’s Financial Conduct Authority and Serious Fraud Office.
One of the key advantages of informal co-operation from the enforcement authorities’ perspective is that they can dispense with costly and burdensome bureaucratic processes, such as letters rogatory, which typically require involvement of various ministries and courts. At the same time, this growth in informal co-operation between international authorities poses an additional challenge to companies that may be considering whether to co-operate with authorities: depending on their confidentiality policies, co-operation in one country may mean unwittingly sharing information with authorities elsewhere, though authorities may nevertheless have to grapple with their ability to use such information depending on any legal limitations with respect to their admissibility before an adjudicatory body.
Companies under investigation in one country for conduct that has a reasonable nexus to another should evaluate whether to co-operate, and if appropriate, co-operate, on the understanding that the relevant governments may be sharing information or coordinating their investigations, even covertly. Proceeding under this assumption should trigger several precautionary steps. To begin, companies should assess the confidentiality policies in, and level of co-operation (formal or informal) between, the relevant jurisdictions with regard to investigating misconduct. Then companies must keep in mind that waiver of privilege in response to one government’s inquiry may result in waiver regarding the same subject matter in an investigation by another. Moreover, companies should consider whether certain foreign regulators may be more interested in related but not identical issues than their counterparts. It may be, for instance, that whereas a particular regulator is interested in the bribery component of particular conduct, another is more interested in the competition aspect. Importantly, companies should be aware of the differing investigative timelines and burdens of co-operation across various jurisdictions to the extent these may increase the total cost or legal exposure from co-operation. For these reasons, companies should calibrate their co-operation accordingly.
The increase in multi-jurisdictional investigations and international law enforcement collaboration suggests that companies should consider retaining local counsel in each jurisdiction where they know or suspect that regulators are likely to share information and could coordinate their respective investigations. Companies should also retain global counsel with experience in multi-jurisdictional investigations to coordinate with the various local counsel, and ensure a consistent, coherent defence that does not create additional exposure abroad or as to other sets of issues.
10.4 Other options besides co-operation
Companies that decide not to co-operate will very likely forgo the leniency that enforcement authorities typically offer co-operating entities. Yet, there may be circumstances in which co-operation is not likely to prevent prosecution or significantly reduce the applicable penalty. Indeed, the DOJ has made clear that ‘[t]he government may charge even the most cooperative corporation . . . if . . . the prosecutor determines that a charge is required in the interests of justice. Put differently, even the most sincere and thorough effort to cooperate cannot necessarily absolve a corporation that has . . . engaged in an egregious, orchestrated, and widespread fraud.’
In those instances where the prospect of co-operation appears fruitless or when co-operation and the attendant consequences effectively may threaten the viability of the company, the best strategy may be not to co-operate. Declining to co-operate may also curb other adverse consequences of co-operation, such as the possibility of debarment, suspension or exclusion, and the risk of follow-on private litigation. Where the allegations are particularly egregious but the company vehemently denies them, refusing to co-operate and forcing the government to prove its case in court can preserve employee morale and secure the benefit of the doubt from customers and investors.
If a company opts not to co-operate, it retains a few options with regard to the ongoing investigation and possible prosecution.
First, the company may request a meeting with enforcement authorities to explain why particular conduct is outside their jurisdiction, or why the allegations, even if true, do not amount to a violation of law. This may require sharing some information, but is well short of full co-operation.
Second, depending on the particular circumstances, if the enforcement authorities were to pursue charges, the putative defendant could challenge the jurisdiction of the court or regulator to address the matter. Indeed, a number of defendants charged with FCPA violations have successfully mounted such challenges.
Third, and finally, companies may always contest the charges on their merits – by providing alternative explanations of the relevant facts or challenging the adequacy of the evidence. One particularly dramatic example is the DOJ’s prosecution of FedEx Corporation for purportedly conspiring to ship illegal prescription drugs for online pharmacies. Two years after the indictment was filed, FedEx refused to settle the charges and went to trial – and the DOJ voluntarily dismissed its charges just four days into what should have been a seven-week trial, apparently owing to insufficient evidence. In contrast, a number of other companies facing similar charges settled for various large sums: United Parcel Service said it ‘made a business decision’ to end the government investigation by making a US$40 million forfeiture payment, and Google, Walgreens Company and CVS Caremark Corporation have paid fines up to US$500 million.
Similarly, in 2014, the DOJ charged Pacific Gas and Electric Company (PG&E) with 12 criminal counts arising out of the investigation that followed a 2010 gas pipeline explosion that killed eight people and caused substantial property damage. PG&E refused to plead guilty, and in August 2016, the trial jury returned a guilty verdict as to half of the charges, subjecting the company to a potential fine of US$3 million – far less than the US$562 million in penalties sought by the DOJ at the start of the trial.
1 F Joseph Warin and Winston Y Chan are partners, and Pedro G Soto and Kevin Yeh are associates, at Gibson, Dunn & Crutcher LLP.
2 U.S. Dep’t of Justice, United States Attorneys’ Manual (USAM) § 9-28.300.
3 USAM § 9-28.700.
5 USAM § 9-28.720.
6 Sally Quillian Yates, Deputy Att’y Gen., U.S. Dep’t of Justice, Remarks at New York University School of Law Announcing New Policy on Individual Liability in Matters of Corporate Wrongdoing (10 September 2015), available at https://www.justice.gov/opa/speech/deputy-
7 Memorandum from the Deputy Att’y Gen. to the U.S. Dep’t of Justice (9 September 2015), available at https://www.justice.gov/dag/file/769036/download.
8 Id. at 3 (original emphasis).
9 Id.; see also Marshall L. Miller, Principal Deputy Ass’t Att’y Gen., Crim. Div., U.S. Dep’t of Justice, Remarks before Global Investigations Review conference (17 September 2014), available at https://www.justice.gov/opa/speech/remarks-principal-deputy-assistant-attorney-general-
criminal-division-marshall-l-miller (‘Voluntary disclosure of corporate misconduct does not constitute true cooperation, if the company avoids identifying the individuals who are criminally responsible. Even the identification of culpable individuals is not true cooperation, if the company fails to locate and provide facts and evidence at their disposal that implicate those individuals.’).
10 Kelly Swanson, ‘DOJ looking to clarify Yates Memo ambiguities’, Global Investigations Review (27 February 2018), available at https://globalinvestigationsreview.com/article/jac/1166160/doj-looking-to-clarify-yates-memo-ambiguities.
11 Jefferson B. Sessions III, Att’y Gen., U.S. Dep’t of Justice, Remarks as prepared for delivery at Ethics and Compliance Initiative Annual Conference (24 April 2017), available at
13 Upjohn Co. v. United States, 449 U.S. 383 (1981).
14 Former deputy AG James Cole says DOJ’s new white-collar crime policy is ‘impractical’, Am. Bar Ass’n (November 2015), available at www.americanbar.org/news/abanews/aba-news-archives/2015/11/former_deputy_agjam.html.
15 Miller, above at footnote 9.
16 Enforcement Cooperation Program, U.S. Securities & Exch. Comm’n (20 September 2016), available at https://www.sec.gov/spotlight/enforcement-cooperation-initiative.shtml.
18 U.S.S.G. § 8C2.5(g)(2). There is no reduction, however, for a company that co-operates but does not accept its responsibility for criminal conduct.
19 U.S.S.G. § 8C2.5 application note 13.
20 Memorandum from the Att’y Gen. for All Federal Prosecutors (10 May 2017), available at
23 Memorandum from the Att’y Gen. to All Federal Prosecutors (19 May 2010), available at
24 Rod J. Rosenstein, Deputy Att’y Gen., U.S. Dep’t of Justice, Remarks to the New York City Bar White Collar Crime Institute (9 May 2018), available at https://www.justice.gov/opa/speech/deputy-attorney-general-rod-rosenstein-delivers-remarks-new-york-city-bar-white-collar.
25 Memorandum from the Deputy Att’y Gen. to the U.S. Dep’t of Justice (9 May 2018), available at https://www.justice.gov/opa/speech/file/1061186/download (Rosenstein Memorandum); USAM §§ 1-12.100, 9-28.1200.
26 Rosenstein, above at note 24.
28 Rosenstein Memorandum, above at note 25.
29 Rosenstein, above at note 24.
35 See, e.g., Standard Oil Co. v. United States, 307 F.2d 120, 127 (5th Cir. 1962).
36 USAM § 9-28.500.
37 Under the Park doctrine, which has generally been applied only in cases involving the U.S. Federal Food, Drug, and Cosmetic Act (FDCA), the government may charge a company official for alleged violations of the FDCA without having to prove that the official participated in or was even aware of the alleged violations if the official was in a position of authority to prevent or correct them but failed to do so. See United States v. Park, 421 U.S. 658, 671–72 (1975). Under the ‘collective knowledge’ doctrine, some courts have held that a company’s knowledge is the totality of what all of its employees knew within the scope of their employment – so the knowledge of one employee, or the combined knowledge of multiple employees, can be imputed to the entire company. See United States v. Bank of New England, 821 F.2d 844, 855 (1st Cir. 1987).
38 USAM § 9-11.151.
40 See USAM § 9-28.720 (‘If there is insufficient evidence to warrant indictment, after appropriate investigation has been completed, . . . then the corporation should not be indicted, irrespective of whether it has earned cooperation credit.’).
41 See, e.g., Alan Crawford, Research Shows It Pays To Cooperate With Financial Investigations, Impact (June 2014), available at http://pac.org/wp-content/uploads/Impact_06_2014.pdf. For instance, the Dutch telecommunications company VimpelCom Ltd paid US$460 million to the DOJ to settle alleged FCPA violations, instead of the suggested guideline range of US$836 million to US$1.67 billion, due to the company’s full co-operation with the DOJ. U.S. Dep’t of Justice, ‘VimpelCom Limited and Unitel LLC Enter into Global Foreign Bribery Resolution of More Than $795 Million; United States Seeks $850 Million Forfeiture in Corrupt Proceeds of Bribery Scheme’, Press Release (18 February 2016), available at https://www.justice.gov/opa/pr/vimpelcom-limited-and-unitel-llc-enter-global-foreign-bribery-resolution-more-795-million. Similarly, the DOJ gave American software company PTC Inc. partial co-operation credit for disclosing all known relevant facts regarding alleged FCPA violations by its employees, but did not extend it full credit because ‘at the time of its initial disclosure, [PTC] failed to disclose relevant facts that it had learned.’ U.S. Dep’t of Justice, ‘PTC Inc. Subsidiaries Agree to Pay More Than $14 Million to Resolve Foreign Bribery Charges’, Press Release (16 February 2016), available at https://www.justice.gov/opa/pr/ptc-inc-subsidiaries-agree-pay-more-14-million-resolve-foreign-
42 For instance, French power and transportation company Alstom S.A. was sentenced in 2015 to pay a criminal fine in excess of $772 million for FCPA violations. The DOJ noted that the sentence – which was then the largest criminal fine ever imposed in an FCPA case – ‘reflects a number of factors, including: Alstom’s failure to voluntarily disclose the misconduct . . . [and] Alstom’s refusal to fully cooperate with the department’s investigation for several years . . . .’ U.S. Dep’t of Justice, ‘Alstom Sentenced to Pay $772 Million Criminal Fine to Resolve Foreign Bribery Charges’, Press Release (13 November 2015), available at https://www.justice.gov/opa/pr/alstom-sentenced-pay-772-million-criminal-fine-resolve-foreign-bribery-charges.
43 2 C.F.R. § 180.800 (2005).
44 See, e.g., Mass. Gen. Laws Ann. ch. 29, § 29F(c)(2) (‘Notwithstanding any other provision of this section, any contractor debarred or suspended by any agency of the United States shall by reason of such debarment or suspension be simultaneously debarred or suspended under this section, with respect to non-federally aided contracts; the secretary or the commissioner may determine in writing that special circumstances exist which justify contracting with the affected contractor.’); Md. Code Ann., State Fin. & Proc. § 16-203(c) (‘A person may be debarred from entering into a contract with the State if the person, an officer, partner, controlling stockholder or principal of that person, or any other person substantially involved in that person’s contracting activities has been debarred from federal contracts under the Federal Acquisition Regulations, as provided in 48 C.F.R. Chapter 1.’); 62 Pa. Cons. Stat. Ann. § 531(b)(9) (‘Debarment by any agency or department of the Federal Government or by any other state.’); N.J. Admin. Code § 17:19- 4.3(a)(2) (‘Where an agency of government, other than the DPMC, has imposed debarment upon a firm or an individual, the DPMC may also impose a similar debarment without affording an opportunity for a hearing . . . .’).
45 See, e.g., The World Bank, Guidelines: Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers § 1.16 (January 2011), available at http://documents.worldbank.org/curated/en/634571468152711050/pdf/586680BR0procu0IC0dislosed010170110.pdf (explaining the World Bank’s disbarment guidelines).
46 U.S.S.G. § 8C3.3.
47 Yates, above at footnote 6.
48 See, e.g., USAM § 9-28.700 (‘a protracted government investigation . . . could disrupt the corporation’s business operations or even depress its stock price’).
50 Frequently Asked Questions About the Antitrust Division’s Leniency Program and Model Leniency Letters (26 January 2017), available at https://www.justice.gov/atr/page/file/926521/download.
51 Scott D. Hammond, Deputy Ass’t Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, Cracking Cartels with Leniency Programs (18 October 2005), available at https://www.justice.gov/atr/speech/cracking-cartels-leniency-programs.
52 Ron Knox, Former DOJ officials worry about US leniency changes, Global Competition Review (29 March 2017), available at https://globalcompetitionreview.com/article/usa/1138710/former-doj-officials-worry-about-us-leniency-changes.
53 U.S. Dep’t of Justice, The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance (5 April 2016), at 2.
54 Rod J. Rosenstein, Deputy Att’y Gen., U.S. Dep’t of Justice, Remarks at the 34th International Conference on the Foreign Corrupt Practices Act (29 November 2017), available at
international-conference-foreign; see also USAM § 9-47.120.
55 USAM § 9-47.120.
56 Id. (quoting U.S.S.G. § 8C2.5(g)(1)).
60 Id. (‘there will be a presumption that the company will receive a declination absent aggravating circumstances involving the seriousness of the offense or the nature of the offender’).
62 Rosenstein, above at footnote 54.
63 USAM § 9-47.120.
65 As of 8 November 2018, the DOJ had reported declinations in relation to: Nortek, Inc., Akamai Technologies, Inc., Johnson Controls, Inc., HMT LLC, NCH Corporation, Linde North America Inc., CDM Smith, Inc.; Dun & Bradstreet Corporation; Guralp Systems Limited; and Insurance Corporation of Barbados Limited. See Declinations, U.S. Dep’t of Justice, available at
https://www.justice.gov/criminal-fraud/pilot-program/declinations (last accessed 8 November 2018).
66 Letter from Daniel Kahn, Deputy Chief, Fraud Section, Crim. Div., U.S. Dep’t of Justice to Luke Cadigan (3 June 2016), available at https://www.justice.gov/criminal-fraud/file/865406/download.
70 Remarks by John Cronan, Acting Ass’t Att’y Gen., Crim. Div., U.S. Dep’t of Justice, and Benjamin Singer, Chief, Securities and Financial Fraud Unit, Fraud Section, Crim. Div., U.S. Dep’t of Justice, at the American Bar Association’s 32nd Annual National Institute on White Collar Crime (1 March 2018).
71 See Letter from Benjamin D. Singer, Chief, Securities and Financial Fraud Unit, Fraud Section, Crim. Div., U.S. Dep’t of Justice, to Alexander J. Willscher & Joel S. Green, Counsel for Barclays PLC (28 February 2018), available at https://www.justice.gov/criminal-fraud/file/1039791/download.
73 Matthew S. Miner, Deputy Ass’t Att’y Gen., Fraud Section, Crim. Div., U.S. Dep’t of Justice, Remarks at the American Conference Institute 9th Global Forum on Anti-Corruption Compliance in High Risk Markets (25 July 2018), available at https://www.justice.gov/opa/pr/deputy-assistant-attorney-general-matthew-s-miner-remarks-american-conference-institute-9th.
76 See, e.g., U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Enforcement Guidelines for International Operations § 4.2 (April 1995), available at https://www.justice.gov/atr/antitrust-
enforcement-guidelines-international-operations; American Bar Association, International Antitrust Cooperation Handbook 37 (2004) (discussing antitrust co-operation agreements between the United States and other countries).
77 See, e.g., Miller, above at footnote 9. See also U.S. Dep’t of Justice, The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance (5 April 2016) (‘The Department is strengthening its coordination with foreign counterparts in the effort to hold corrupt individuals and companies accountable. Law enforcement around the globe has increasingly been working collaboratively . . . . We are sharing leads with our international law enforcement counterparts, and they are sharing them with us. We are also coordinating to more effectively share documents and witnesses.’)
78 Ben Morgan, Joint Head of Bribery and Corruption, Serious Fraud Office, Remarks at the Annual Anti Bribery & Corruption Forum (19 October 2015).
79 Miller, above at footnote 9. See also Jeremy P. Evans & Andrew R. Booth, What Price Cooperation? The Ever Increasing Cost of Global Antitrust Cases, Bloomberg Law Reports 2 (2010), available at https://www.paulhastings.com/docs/default-source/PDFs/1772.pdf. (‘Enforcement agencies cooperate with one another and admissions, testimony, and documents produced to one will be shared across borders.’)
80 Trevor N. McFadden, Acting Principal Deputy Ass’t Att’y Gen., Crim. Div., U.S. Dep’t of Justice, Remarks as prepared for delivery at American Conference Institute’s 7th Brazil Summit on Anti-Corruption (24 May 2017), available at https://www.justice.gov/opa/speech/acting-principal-
81 See, e.g., United States v. Allen, 864 F.3d 63, 101 (2d Cir. 2017). (‘The Fifth Amendment’s prohibition on the use of compelled testimony in American criminal proceedings applies even when a foreign sovereign has compelled the testimony.’)
82 USAM § 9-28.720.
83 See, e.g., United States v. Sidorenko, 102 F. Supp. 3d 1124 (N.D. Cal. 2015); U.S. S.E.C. v. Sharef, 924 F. Supp. 2d. 539 (S.D.N.Y. 2013).
84 Dan Levine & David Ingram, U.S. prosecutors launch review of failed FedEx drug case, Reuters (15 July 2016), available at www.reuters.com/article/us-fedex-doj-idUSKCN0ZV0GO; FedEx stresses record of co-operating with feds in lawsuit, Bloomberg News (15 May 2015); Thomas Catan, Google Forks Over Settlement On Rx Ads, Wall St. J. (25 August 2011), available at
85 Richard Gonzales, Utility Giant PG&E Convicted of Violating Gas Pipeline Safety Laws, NPR (9 August 2016), available at www.npr.org/sections/thetwo-way/2016/08/09/489401025/utility-giant-pg-e-convicted-of-violating-gas-pipeline-safety-laws. At sentencing, the court imposed on PG&E the maximum fine of US$3 million, five years of probation, submission to a corporate compliance and ethics monitorship, 10,000 hours of community service, and the requirement to spend up to US$3 million to inform the public about PG&E’s misconduct in print and television advertisements. Press Release, U.S. Dep’t of Justice, ‘PG&E Ordered To Develop Compliance And Ethics Program As Part Of Its Sentence For Engaging In Criminal Conduct’ (26 January 2017), available at https://www.justice.gov/usao-ndca/pr/pge-ordered-develop-compliance-and-ethics-