The energy industry in general and the oil and gas industry in particular has been the target of at least 50 Foreign Corrupt Practices Act (FCPA) prosecutions[1] over the years—more than any other industry. Most of the cases involved the use of third-party agents who interact with officials of state-owned enterprises in high-risk countries across the globe.
DOJ and SEC enforcement actions in the energy industry continue to garner headlines, as demonstrated by these recent examples:[2]
As explained below, the case of the US-based chemical manufacturing company is notable because its resolution, along with other recent cases in which DOJ declined prosecution, reflects the impact of important policy changes made by DOJ in the last two years to incentivize companies to make early voluntary self-disclosures of conduct that may violate the FCPA or other federal criminal statutes, including the identities of senior management officials involved in the wrongdoing, and to claw back compensation from culpable executives as part of the company’s remediation efforts.
It is helpful to briefly review some of the most recent and significant DOJ policy changes that have occurred, which are designed to encourage companies to implement robust compliance programs and reward companies that make voluntary self-disclosures of criminal wrongdoing to DOJ before the government learns of it.
In January 2023, DOJ announced significant changes to the DOJ Criminal Division’s Corporate Enforcement Policy. The focus of these policy changes is to provide guidance to prosecutors on how to assess and treat corporate offenders, with a focus on incentivizing voluntary self-disclosure of wrongdoing and cooperation with DOJ investigations.
A company may still receive a declination—even if there are aggravating circumstances—if the company can demonstrate that it has met each of the following factors:
The updated policy increases the maximum potential reduction below the low end of the US Sentencing Guidelines fine range to up to 75% if all the above-listed factors are met and up to 50% below the low end, even in the absence of voluntary self-disclosure, if the other factors are met.
DOJ announced a new Voluntary Self-Disclosure Policy in February 2023 setting a nationwide standard for DOJ, including all US Attorney’s Offices, and defining what it means to voluntarily self-disclose, thereby providing companies greater consistency and predictability of the benefits—and consequences—of self-disclosure. The policy outlines that DOJ expects companies to meet a high bar in order to qualify as having voluntarily self-disclosed misconduct, with three key aspects:
In March 2023, DOJ Deputy Attorney General Lisa Monaco announced a pilot program on compensation incentives and clawbacks during a speech at the ABA’s White Collar Crime Conference. Every corporate resolution entered into by the Criminal Division will require the resolving company to implement criteria related to compliance in its compensation and bonus system.
Under this new pilot program companies may be able to reduce criminal fines by attempting in good faith to claw back compensation from individual wrongdoers. At the outset of the resolution, the resolving company will pay the applicable fine, minus a reserved credit equaling the amount of compensation the company is attempting to claw back from culpable executives and employees.
This “good faith” attempt to claw back compensation is significant. Even if a company is unsuccessful in recouping these funds, an additional fine reduction may be warranted so long as the company has initiated the process to recoup such compensation before the time of resolution.
DOJ’s Principal Associate Deputy Attorney General Marshall Miller gave a speech in September 2023 announcing that DOJ is “placing a new and enhanced premium on voluntary self-disclosure” and “enhanc[ing] transparency and predictability as to the requirements for a voluntary self-disclosure and the significant benefits involved” to promote consistency.
Through the revised policy, companies can better understand and predict outcomes based on their voluntary self-disclosure, even for companies with “aggravating circumstances.”[3] These remarks emphasize the importance of companies collaborating with DOJ to report misconduct and enhance compliance programs to improve internal disclosure and reporting protocols to be in the best position possible to make a voluntary self-disclosure if warranted by the circumstances.
In a speech on October 4, 2023, DAG Monaco announced DOJ’s new Safe Harbor Policy applicable to M&A transactions. The new policy allows acquiring companies to avoid DOJ charges for criminal violations of the acquired company if they
The acquired company may still be subject to restitution and/or disgorgement obligations as part of the resolution of the investigation.
The Foreign Extortion Prevention Act (FEPA), signed into law at the end of 2023, criminalizes demand-side bribery by foreign officials: the demand or acceptance of a bribe from a US citizen, company, or issuer, or anyone located within the territory of the United States, when made to obtain or retain business. Prior to FEPA, neither the FCPA nor the US domestic bribery regime penalized corruptdemandsby foreign officials upon US persons. Only offersor payments of bribes to foreign officials were crimes before FEPA. Violations of FEPA involved significant financial penalties and imprisonment.
In the case of the US chemical manufacturing company, the company received credit for cooperating with DOJ’s investigation, accepting responsibility for its conduct, and implementing timely and extensive remediation measures. However, DOJ found that the company’s voluntary disclosure of the conduct was not “reasonably prompt” within the meaning of the Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy and the Sentencing Guidelines.
DOJ stated that the company learned of allegations of misconduct about 16 months prior to disclosure and had gathered evidence substantiating such misconduct at least nine months prior to disclosure. The company nonetheless avoided a criminal prosecution and received a significant penalty reduction for several reasons, including that it withheld bonuses from 16 employees (totaling $763,453) and received credit under the DOJ Clawback Pilot Program, terminated 11 employees, and eliminated the use of sales agents as part of its go-to market strategy.
DOJ has issued two declinations with disgorgement, the first of which was for a US metallurgical coal producer in March 2023 and the second for a US biomedical company in November 2023. In the first, DOJ alleged that from approximately late 2016 until early 2020 certain of the its employees and agents engaged in a scheme to bribe government officials in the Middle East to obtain and retain lucrative contracts to supply coal to a state-owned and -controlled coke company. DOJ announced it was declining to press criminal charges because the company “voluntarily self-disclosed the misconduct, cooperated with the government’s investigation, and timely and appropriately remediated.”
In the case involving the biomedical company, the government alleged that between May 2018 and August 2019 certain of its subsidiary’s officers, employees, and agents paid bribes to one or more Mexican government officials, both prior to and after the company’s December 1, 2018 acquisition of the subsidiaries.
DOJ declined to pursue criminal charges against the company because (1) it timely and voluntarily self-disclosed the misconduct, which it reported to DOJ’s FCPA unit within three months of discovering the possibility of misconduct and hours after an internal investigation confirmed that misconduct had occurred; (2) it proactively cooperated and agreed to continue cooperating with any ongoing government investigations and prosecutions that might result in the future, including following the company’s divestiture of subsidiaries involved in the wrongdoing; (3) the nature and seriousness of the offense; (4) the company’s timely and appropriate remediation, including the termination of the officer engaged in the bribe scheme, withholding that officer’s bonus and other compensation, and substantially improving its compliance program and internal controls; and (5) it agreed to disgorge the costs it avoided having to pay as a result of the bribery scheme.
These two cases reflect that DOJ will decline criminal prosecution where companies are proactive when confronted with evidence of bribe payments and other criminal conduct, including by voluntarily disclosing the conduct, cooperating in the investigation by making documents and witnesses available to be interviewed, engaging in remediation, and clawing back compensation paid to individual executives who engaged in or were responsible for the criminal wrongdoing that occurred.
DOJ has made great strides in the last two years to provide clearer guidance and greater transparency concerning the benefits available to companies that make early voluntary self-disclosures regarding FCPA and other criminal violations, and the policies have been extended to all US attorney’s offices. Disclosure decisions have always been complex, and the expansion of the DOJ’s voluntary self-disclosure policy to US attorney’s offices across the country will result in more opportunities, but also potential challenges and pitfalls to companies that are not deliberate and careful in making the self-disclosure decision.
Companies should carefully weigh and balance the benefits of doing a more thorough analysis of the facts and potential consequences before making a disclosure decision, versus the risks of waiting too long and losing substantial benefits. The analysis becomes more complex if a company’s compliance program is weak or of questionable effectiveness. And the risks and uncertainty become greater if other DOJ criminal litigating components are involved and conflicting incentives are presented. All of these considerations require the assistance of experienced FCPA external counsel.
These concerns remain especially true for companies operating in the energy industry, which has been the most frequent target of the FCPA enforcement efforts by DOJ and SEC. That focus, as reflected in recent FCPA resolutions, continues to be strong and is likely to continue unabated in the future. Companies that conduct regular compliance risk assessments and invest sufficient resources into building a robust and effective compliance program that identifies and addresses potential noncompliance at an early stage will be in a much better position to evaluate whether to make a voluntary self-disclosure to DOJ and receive the potential benefits for doing so.
[1] The FCPA has two basic components: (1) antibribery provisions, which criminalize the payment of bribes, directly or indirectly, to foreign government officials for the purpose of gaining preferential treatment; and (2) accounting provisions, which impose strict recordkeeping and internal control requirements on all companies subject to the SEC’s jurisdiction. Violations of the FCPA, which are jointly enforced by the SEC and DOJ, carry potentially severe criminal and civil penalties.
[2] All of the cases summarized in this article can be found in the Stanford Law School database and in DOJ and SEC press announcements.
[3] Aggravating factors include misconduct that (1) “poses a grave threat to national security, public health, or the environment”; (2) “is deeply pervasive throughout the company”; or (3) “involved current executive management of the company.”