Declinations Beyond the FCPA: What Corporate Counsel Needs to Know about the Latest DOJ Announcement

3 min

Senior Department of Justice (DOJ) officials announced Thursday that the declination of prosecution principles embodied in the FCPA Corporate Enforcement Policy may be applied to other white collar corporate criminal matters as well. The announcement, made by the acting head of the DOJ's Criminal Division, John P. Cronan, and chief of the Securities and Financial Fraud Unit, Benjamin Singer, is the latest development in a trend – DOJ expects businesses to act as allies in the fight against criminal activity. Corporate counsel should be cautious before chasing this carrot, however – unlike the FCPA Corporate Enforcement Policy, which is controlling upon the DOJ and U.S. Attorneys nationwide, this latest expansion is not a new policy but a "new practice," serving only as nonbinding guidance for prosecutors of the DOJ Securities and Financial Fraud Unit in Washington, DC.

The FCPA Corporate Enforcement Policy states that companies that (1) voluntarily self-disclose criminal conduct, (2) fully cooperate in the government's investigation of the wrongdoing, and (3) take prompt remedial action will be given a presumptive declination of prosecution. Previously this guidance, which is set forth in the U.S. Attorneys' Manual, applied only to violations of the Foreign Corrupt Practice Act. Under the new practice of DOJ's Securities and Financial Fraud Unit, companies that meet these criteria of voluntary self-disclosure, full cooperation, and prompt remedial action may obtain a favorable resolution resulting in a declination of prosecution. Singer explained that the expansion of the declination trend outside of the international corruption space was intended in part to increase self-reporting of misconduct. "The idea was maybe we can take some of those same principles that led to a little bit more self-reporting recently in the FCPA space to securities and financial fraud," he said, noting that the latter areas did not have the same levels of self-disclosure as FCPA violations do. Furthermore, as Cronan noted, DOJ is not in the "business of over-punishing corporate misconduct" but rather is in the business of obtaining appropriate and fair resolutions.

Cronan and Singer explained the new initiative in the context of DOJ's recently announced declination of prosecution of Barclays for illegal front-running. "The approach we took toward the illegal front-running would have been very different if Barclays had not voluntarily self-disclosed, cooperated and remediated," Cronan said. The DOJ officials compared the Barclays declination to the recent HSBC Holdings resolution over similar front-running allegations. "HSBC did not self-disclose," Singer explained. "We found out about it by interviewing their employees, so that's not good." HSBC was hit with a $100 million penalty and a deferred prosecution agreement. Under the Barclays declination, the bank will pay only $12.9 million in restitution and disgorgement. Furthermore, under this new practice, DOJ will publish the declination letter, which Singer explained is called a "declination and disgorgement" letter.

Despite this optimistic development for companies looking to disclose wrongdoing discovered within their organizations, corporate counsel must keep in mind that this is not a binding policy. Singer said the new approach will be adhered to by his Securities and Financial Fraud Unit in Washington, but it isn't binding on prosecutors across the country. While this news should give companies some confidence when self-reporting criminal wrongdoing to Main Justice, counsel should tread lightly before turning over investigation reports to individual U.S. Attorneys' offices in other jurisdictions. Only time will tell whether this "new practice" becomes "policy" across all DOJ components.