Welcome to the first issue of Baker McKenzie’s Aerospace & Defense Compliance Bullet.  This post will highlight significant compliance developments relevant to companies in the Aerospace & Defense (“A&D”) industry and offer practical guidance with respect to business operations in various regions.

In this issue, we provide an update on what we know so far about the Trump administration’s approach to enforcing the US Foreign Corrupt Practices Act (“FCPA”), and the implications for companies in the A&D industry.  The FCPA is enforced criminally by the US Department of Justice (“DOJ”), and civilly by the US Securities and Exchange Commission (“SEC”).  To date, neither the DOJ nor the SEC has initiated or resolved an FCPA enforcement action against a company since inauguration day on January 20, 2017.  In the absence of enforcement actions, we are left to interpret the public statements by the enforcement authorities.  So far these statements suggest that FCPA enforcement will continue in some fashion, but the exact details of the Trump administration’s approach remain unknown.  The two primary public statements available for interpretation are the DOJ’s announcement of its intent to extend the DOJ FCPA Pilot Program, and the DOJ’s publication of its Compliance Program Evaluation Guidance.

In This Issue
DOJ Extends Its FCPA Pilot Program
DOJ Publishes Evaluation Guidance For Compliance Programs
Implications For A&D Companies

DOJ Extends Its FCPA Pilot Program

The DOJ’s one-year FCPA Pilot Program went into effect in April 2016.  The Pilot Program was designed to provide greater transparency as to the credit that a company can expect to receive in a DOJ FCPA enforcement action if it voluntarily discloses, fully cooperates and appropriately remediates.  A company that satisfies all three criteria may be eligible for a declination of criminal prosecution.  Even if there is no declination, a company that meets these criteria may be eligible for up to a 50% reduction off of the bottom of the US Sentencing Guidelines fine range, whereas a company that cooperates and remediates, but does not voluntarily disclose, is capped at a 25% discount.  In all events, companies will be required to disgorge the ill-gotten gains from the misconduct, if any exist.[1]

The initial one-year period for the Pilot Program was to end on April 5, 2017.  On March 10, 2017, Acting Assistant Attorney General Kenneth Blanco announced in a speech that the Pilot Program will continue for some period of time after that date.  Blanco explained that the DOJ will evaluate the Pilot Program’s “utility and efficacy” to determine “whether to extend it, and what revisions, if any, we should make to it,” and that “[t]he program will continue in full force until we reach a final decision on those issues.”  Blanco emphasized that “[t]he Criminal Division remains committed to doing its part by vigorously investigating and prosecuting international crime when it violates US laws.”

Blanco’s comments reinforced what Deputy Assistant Attorney General Trevor McFadden said in a speech on February 16, 2017: “the FCPA has been and remains an important tool in this country’s fight against corruption.  As Attorney General Sessions recently emphasized in his confirmation hearing and written responses, the Department of Justice does not make the law, but it is responsible for enforcing the law, and we will continue to do so. Attorney General Sessions explicitly noted his commitment to enforcing the FCPA, and to prosecuting fraud and corruption more generally.”

The DOJ that reviews and evaluates the Pilot Program will be very different from the agency that created it.  But the agency’s statements set forth above  suggest that, while the DOJ may modify its approach to FCPA enforcement, aggressive enforcement is not likely to end under the new administration.

[1] For an analysis of the results of the first six months of the DOJ FCPA Pilot Program, click here.


DOJ Publishes Evaluation Guidance For Compliance Programs

The notion that the DOJ will continue to aggressively prosecute FCPA violations was further supported when the DOJ, on February 8, 2017, published on its website its latest guidance outlining DOJ expectations for effective corporate compliance programs.  The Evaluation of Corporate Compliance Programs (“Evaluation Guidance”) sets forth 11 categories of questions that the DOJ may ask of companies that come before it in a corporate crime investigation.  These 11 categories correspond to the 10 Hallmarks of Effective Compliance Programs that the DOJ included in its 2012 FCPA Guide, plus one category called Analysis and Remediation of Underlying Misconduct.  The FCPA Guide Hallmarks include topics that are unique to anti-corruption compliance, such as Third Party Management, suggesting that the DOJ anticipates future corporate FCPA enforcement actions.

The questions in the Evaluation Guidance reflect the input of Hui Chen, the compliance counsel hired by the DOJ in November 2015.  Since Ms. Chen was hired, Baker McKenzie has met with her on several occasions in connection with the negotiation of corporate FCPA resolutions, and she has asked questions similar to those in the Evaluation Guidance.  For the most part, the Evaluation Guidance repeats prior guidance as to the issues in which the DOJ is interested.  However, it also sets forth in writing for the first time several compliance program topics that, with the retention of Ms. Chen, are of interest to the DOJ, and thus to all companies that may come before the DOJ.

The new topics largely reflect Ms. Chen’s prior positions as corporate compliance officer, and represent her efforts to get “under the skin” of a company’s compliance program to determine whether it really is working.  Going forward, for example, a company that comes before the DOJ can expect to answer questions on the following topics about the company’s compliance function:

  • Not just “tone at the top,” but also “conduct at the top and middle” – concrete actions that company leaders have taken to demonstrate leadership in the company’s compliance efforts.
  • Compliance expertise on the company’s board of directors.
  • Comparison of the compliance function with other strategic functions in the company in terms of stature, compensation, rank/title, resources and access to key decision-makers.
  • Turnover rate for compliance personnel.
  • Whether compliance personnel have the appropriate experience and qualifications for their roles.
  • Whether requests for compliance resources have been denied, and if so, why.
  • If the company has out-sourced any aspect of its compliance function, the rationale for the decision, and the company’s efforts to determine the effectiveness of the out-sourced process.

Implications For A&D Companies

In our experience, the compliance programs of A&D companies vary substantially.  Some A&D companies, especially large US-based defense contractors, have well-developed programs because they have been complying with the US government’s demands for decades.  Other companies have programs that are less robust.  Regardless of where on the spectrum your company falls, we recommend that you give strong consideration to the compliance topics set forth in the Evaluation Guidance.  The DOJ is now asking companies that come before it questions about their compliance programs that have not been asked in previous years.  In addition, it is likely that rigorous FCPA enforcement will continue.  All A&D companies that are subject to FCPA jurisdiction – and that is virtually all A&D companies around the world – should take heed.

Furthermore, the Evaluation Guidance provides a framework for compliance program best practices, both in the United States and globally across an increasing number of jurisdictions in which the enforcement of corporate anti-corruption violations has become a priority.  The Guidance aligns and is consistent with the Five Essential Elements of Corporate Compliance[2] that Baker McKenzie employs when assessing, designing, enhancing and defending corporate compliance programs on behalf of companies in all industries, including the A&D industry, and it highlights key focus areas that companies with operations across the globe may use when implementing and benchmarking their corporate compliance programs.[3]

[2]  For more information on Baker & McKenzie’s Five Essential Elements of Corporate Compliance, please click here.
[3]  A more detailed discussion of the Evaluation Guidance is set forth in a February 2017 Client Alert that can be accessed here.


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