The SEC and DOJ have long encouraged corporates to voluntarily disclose possible violations of the law. And both the SEC and DOJ offer lesser sanctions – even amnesty in certain cases – for corporates that timely self report suspected violations. Both the DOJ and the SEC stress that the key to receiving credit for self reporting is promptness. Corporates are expected to timely report potential violations identified through internal reporting or compliance programs or an internal investigation.
In its oft-cited ‘Seaboard Factors’, for example (see Exchange Act Release No. 44969 (2001)), the SEC includes self reporting in a list of factors it will consider in determining whether to pursue an enforcement action and/or the amount or extent of sanctions it will impose in any settlement. For example, earlier this year when the SEC entered into its first-ever deferred prosecution agreement (related to a ‘foreign bribery scheme’ carried out by employees at Tenaris S.A.), the Commission lauded ‘[t]he company’s immediate self-reporting’ as a key consideration in its decision to settle with the company.
The DOJ has long been in the business of encouraging corporates to self report. Since the Federal Sentencing Guidelines first implemented guidelines specifically directed at organizations in 1991, accommodations have been made for companies that voluntarily disclosure potential criminal violations. The DOJ has reiterated its fondness for voluntary disclosures on several occasions, most notably, perhaps, in its 2006 McNulty Memorandum. And the Justice Department has weighed in on the topic as recently as November 2010, when it released amendments to the Federal Sentencing Guidelines that make clear ‘the Department of Justice has a well-established amnesty program for organizations that self-report [offenses]’.
It should be noted that, generally speaking, there is no requirement in the US for corporates to report FCPA violations or other instances of known fraud or corruption. (However, a reporting requirement may arise in certain circumsances, for example, under Sarbanes-Oxley.) Yet, the system of incentivizing voluntary disclosure through the promise of lesser sanctions has worked wonderfully well for the SEC and DOJ.
Self-reporting is, arguably, the area where the UK appears most likely to adopt the US model. The best evidence of this trend comes, perhaps, from the SFO itself, which has publicly encouraged organisations to self-report problems relating to fraud or corruption. In 2009, the SFO published their ‘Approach to Dealing with Overseas Corruption’, which calls on corporates to self report known cases of corruption. ‘[T]he benefit’, according to the SFO, ‘will be the prospect (in appropriate cases) of a civil rather than a criminal outcome as well as the opportunity to manage, with [the regulator], the issues and any publicity proactively’.
This guidance includes several noteworthy aspects, including a catalog of limited circumstances in which a corporate can obtain an ‘opinion letter’ from the SFO regarding some potential violation. (The DOJ provide a similar ‘Opinion Procedure’ through which corporates can obtain an opinion from the US Attorney General as to whether specific conduct conforms with the DOJ’s enforcement policies). The guidance also enumerates several factors the SFO will consider in determining the terms of any settlement agreement. (Similarly, both the SEC and the DOJ have opined on the factors they will consider in determining the scope and amount of any settlement agreement.)
Finally, in an area where the SFO depart from the SEC and DOJ approach, the guidance makes clear that the SFO will likely make use of their criminal prosecution and confiscation powers in cases where corporates decline to self report instances of known corruption. If the SFO learn of a violation from a source other than the corporate, it will ‘assume … the corporate has chosen not to self-report. The chances of a criminal investigation leading to a prosecution [in those cases] are therefore high’.
The SFO continue to promote the self reporting route, offering the following advice on their website: ‘Early reporting of the fraud or corruption to us will benefit your organisation because’: (i) the SFO ‘will consider the full range of options for dealing with your case, including criminal and civil alternatives’; (ii) ‘coming forward to discuss your concerns with [the SFO] will be treated sensitively’; (iii) ‘you can discuss with [the SFO] about the possibility of conducting and internal investigation in a discreet way (to lessen the impact on your business)’; and, (iv) ‘there may be greater opportunities to secure evidence that will result in a successful outcome for both [the SFO] and your company against fraud or corruption’.
The MOJ, for its part, is also keen on encouraging self-reporting. In its Guidance on the 2010 Bribery Act, for example, the MOJ explains:
The application of bribery prevention procedures by commercial organisations is of significant interest to those investigating bribery and is relevant if an organisation wishes to report an incident of bribery to the prosecution authorities – for example to the Serious Fraud Office (SFO) which operates a policy in England and Wales and Northern Ireland of co-operation with commercial organisations that self-refer incidents of bribery (see ‘Approach of the SFO to dealing with overseas corruption’ on the SFO website). The commercial organisation’s willingness to co-operate with an investigation under the Bribery Act and to make a full disclosure will also be taken into account in any decision as to whether it is appropriate to commence criminal proceedings.
Whether the US and UK self reporting cultures will come to mirror one another remains to be seen. But it appears the groundwork has been laid for similar environment. In light of the broad reach of the FCPA and Bribery Act, corporates would be well advised to consider the particular benefits of voluntary disclosures in either jurisdiction.
The McGuireWoods Guest Bloggers are Robert Plotkin, a partner based in McGuireWoods LLP’s Washington and New York offices and head of the firm’s SEC Enforcement Defense group, and Kurt E. Wolfe, an associate based in McGuireWoods LLP’s Washington office and a member of the firm’s Government, Regulatory and Criminal Investigations department.