In an unlikely “about-face” from years of prior practice, the U.S. Department of Justice and the Securities and Exchange Commission recently publicly cautioned companies against unnecessarily prolonging or expanding internal bribery investigations. The statements, coming from the head of the DOJ’s Criminal Division and the SEC’s enforcement chief, were made at PLI’s FCPA and International Anti-Corruption Conference in New York. The DOJ’s Leslie Caldwell said that some companies’ “overly broad and needlessly costly investigations” had actually impeded the DOJ’s efforts. Andrew Ceresney from the SEC emphasized that the size and scope of an internal investigation were up to the company. Caldwell underscored these points in a subsequent appearance, opining that a good internal investigation should determine the scope of the matter at hand, as well as the compliance or cultural shortfalls that led to the problem. For many defense attorneys and corporate counsel, these statements may provoke a sense of whiplash — after all, anti-bribery internal investigations are typically driven by efforts to show that the company is being fully cooperative and transparent with the government, which at times led counsel on a world tour of wherever improper payments or benefits might be uncovered. Indeed, these high-level pronouncements from the government suggest a change in strategy and thinking, perhaps in reaction to frustrations inside and outside the government with the length and expense of recent high-profile corruption investigations. There are good reasons for this new emphasis on efficient internal investigations over exhaustive ones. The DOJ and SEC are intent on increasing their prosecutions of individuals responsible for corporate misconduct. Notably, the DOJ has two Foreign Corrupt Practices Act trials scheduled for corporate executives this year, the first such trials in three years. Quick internal investigations are likely to make it easier for the government to focus on the investigation and prosecution of individuals; whereas drawn-out investigations allow memories to fade, statutes of limitations to run, and evidence to dissipate. Additionally, individuals fight. Therefore, with the increased prosecution of individuals, FCPA prosecutors must be more careful on the facts and the law as they build their case, and they are forced to engage in motion practice and prepare for trial. This leaves them with less time to manage global mega-investigations and push those cases through to settlement. Faster and more efficient corporate internal investigations will allow the government to move its corporate docket more quickly. Unquestionably, the DOJ and SEC are also responding to criticism about the costs and pace of FCPA investigations. Lengthy investigations prolong uncertainties regarding a corporation’s economic outlook and can result in fees and related costs that outpace the ultimate fines the corporations face. Recent high-profile FCPA investigations have reportedly cost hundreds of millions of dollars in professional fees, even before any fines have been negotiated. The American business community has long sought to blunt the FCPA on the grounds that it puts U.S. businesses at a competitive disadvantage in developing markets. The time and cost of FCPA investigations only serve to bolster that argument. Therefore, the government must show that its aggressive enforcement actions produce results and not just legal bills. Finally, the government may not be as reliant on corporate internal investigations as it once was. The SEC’s Dodd-Frank whistleblower program, started in 2011, now brings in several thousand tips each year, about 150 of which are FCPA related. The DOJ increasingly cooperates with foreign authorities on FCPA investigations, sharing and receiving tips and evidence that would have been unavailable to it in the past. And, the FBI recently relaunched a dedicated FCPA unit that will enhance the government’s abilities to conduct its own investigations. Regardless of the government’s reasoning, however, corporations and their counsel should take the regulators at their word, and conduct narrowly tailored investigations designed to get quickly to the heart of the problem. This approach will save time and money. To that end, an appropriately scaled investigation should be guided by the following principles:
- Focus on the pertinent allegations and do not expand the investigation without a clear need to do so. For instance, an allegation regarding bribes being paid by a multi-national company in one country would not automatically justify expansion of the investigation into other countries. Similarly, misconduct in one corporate division or subsidiary does not, without more, necessitate investigations into other divisions and subsidiaries. Review beyond the initial scope should be grounded in a clear evidentiary nexus with the original scope, such as the discovery of payments or suspect emails in another part of the company or involving a different geographic region.
- When cooperating with the government, only expand the investigation when explicitly requested to do so. The company and its counsel should prepare a clear investigation plan with a limited scope, which should be shared with the government to get initial buy-in. As the investigation progresses, the scope should only be broadened at the specific request of the government. If an expansion seems unwarranted under the circumstances, counsel should push back and consider escalating the issue within the agency if necessary, noting the inevitable costs and delay that will be caused by the expansion.
- Set clear timelines and only incrementally toll the statute of limitations. In most investigations, both the company and the government will have vested interests in wrapping up an investigation as soon as possible. The company will be under pressure from shareholders and its board to end uncertainty, limit costs, and avoid the spread of the investigation. The government attorneys are also often under pressure from supervisors to finish the job, charge culpable individuals if possible, and move on to the next case. Why then do investigations tend to linger, with the average foreign bribery investigation lasting more than seven years? This is in part due to layers of bureaucracy and review involved at the government agencies. Delays can also be exacerbated by a hope on both sides that protracting negotiations will lead to a more favorable outcome. Nonetheless, in most cases, companies will be better served by completing internal investigations and, if necessary, negotiating a settlement as quickly as possible. Whatever incremental benefits may be derived from protracted negotiations are frequently offset by investigation and defense costs, the potential for new issues to emerge, prolonged uncertainty in the marketplace, and distraction within management. To help protect against this, companies engaged in ongoing cooperation with the government should set realistic but aggressive timelines for the investigation, and seek buy-in from the regulators at the outset. One way of enforcing this timeline is to agree only to short, incremental tolling of the statute of limitations. Even if the investigation and negotiations take longer than originally anticipated — and they often do — by setting a clear schedule at the outset and only agreeing to limited continuances beyond that, the company can help keep the investigation from lumbering along indefinitely.
- Broad remediation efforts should not become de facto retrospective investigations. A standard aspect of modern FCPA investigations is remedial efforts, including the review and enhancement of the corporation’s existing compliance policies and procedures. Such measures are welcomed, indeed often expected, by the DOJ and SEC and are a logical and appropriate response to the discovery of misconduct within an area of the company. However, corporations should be careful to keep the focus on forward-looking compliance measures rather than allowing the remediation effort to turn into a comprehensive, retrospective investigation of other compliance failures.
Admittedly, there can be good reasons for seeking to ensure that an investigation and any settlement negotiations are all-encompassing. No company wants to put one FCPA matter behind it only to learn of similar allegations in another subsidiary or division. But it will be the rare case in which the corporation is best served at the outset by conducting an exhaustive investigation beyond the issue at hand — with all of the attendant costs and potential for additional legal exposure — rather than narrowly tailoring an investigation to address known concerns and to prevent new violations by forward-looking compliance enhancements. It is very easy to expand the scope of an investigation once it has begun; it is almost impossible to narrow it. So take the government at its word, keep the scope in check. This article was first published on Law360, New York (June 9, 2015, 10:34 AM ET)
