The 5 Critical Considerations

What to do When an Allegation of a FCPA Violation

Is Raised Within Your Company

A GRC WHITEPAPER
FROM THE NETWORK

THE 5 CRITICAL CONSIDERATIONS:

WHAT TO DO WHEN AN ALLEGATION OF A FCPA VIOLATION IS RAISED WITHIN YOUR COMPANY

A WHITEPAPER BY ROBERT APPLETON, ESQ., DAY PITNEY LLP

The reaction to corruption by both national

Corruption investigations elsewhere, especially

enforcement authorities here and abroad, as well

extraterritorial - focusing on activities beyond

as within multi-national corporations throughout

a countrys own borders - were virtually non-

the world, has changed dramatically over the past

existent. Likewise, the exchange of a benefit for a

10 years. In 2004-05, U.S. federal government

government contract, or as a gratuity/expression

FCPA investigations were at their infancy, and

of appreciation for one, in many parts of the

the DOJ and the FBI were just beginning to focus

world, was engrained in the societys culture as

heavily on significant global corruption and

well as the government institutions themselves.

foreign bribery investigations and prosecutions.

In a number of regions, a commission was

Similarly, many companies, including a number

expected to be made for a government contract,

of multi-nationals, did not have compliance

or as an expression of appreciation. Not only

departments, and the mere mention of the term

were such payments not punished, in a number of

compliance was often met by a strange look of

places the practice wasnt even considered illegal.

unfamiliarity.
In addition, there were, and still are, very few
Back in 2005, on behalf of Former Federal Reserve

extraterritorial laws addressing corruption that

Chairman Paul Volcker and the Independent

occurred beyond a countrys own borders, and

Inquiry Committee Investigation Into the Iraqi

even less efforts to enforce them. As one high

Oil for Food Programme (OFFP), I was meeting

level government official in Southeast Asia told me

regularly with national authorities from all over

in 2013, We dont investigate cases of our citizens

the world, Europe, Asia and elsewhere, who were

bribing foreign officials. Our laws do not address

focusing on corruption, including some of my

that. Its only if [the corruption] happens [here].

former colleagues at the Fraud Section at Main

On several occasions in distant lands, I came

Justice. The purpose of my efforts at the time was

across actual tables on how the profits of bribery

to refer completed OFFP corruption investigations

were to be divided through the government

and evidence of bribery and corruption schemes

hierarchy, increasing proportionally depending

involving the Government of Iraq and thousands

upon the level of seniority of the official. All of

of companies, for further enforcement actions,

this translated into a circumstance where just a

including criminal prosecution and civil forfeiture

fraction of the incidents of bribery and corruption

and asset recovery efforts. The referrals helped

were investigated, let alone successfully

lead to an increase in focus by the US Government

prosecuted.

and others on the topic of foreign bribery.

WHAT TO DO WHEN AN ALLEGATION OF A FPCA VIOLATION IS RAISED WITHIN YOUR COMPANY

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Today, circumstances have changed somewhat,

In addition, African countries are now demanding

albeit not dramatically. They have changed

a greater percentage of the fines and penalties

enough to drive a difference in the response to

being imposed by foreign authorities that

allegations of corruption. Companies engaged

prosecute cases in their territory asserting that

in commercial activity beyond their borders,

their communities are the victims of schemes,

wherever located, must take allegations of

and they should therefore join in the spoils of the

corruption and bribery, as well as their compliance

recoveries.

efforts to lessen these risks, seriously. To do

otherwise, companies risk a fate similar to that
which befell Alstom and Siemens, as well as others
that have been highly publicized, or worse. Now,
the downside risk of punishment and potential
consequence for a bribery or corruption finding
has increased exponentially, even though only
a fraction of contracts tainted by bribery are
pursued by enforcement officials. In addition,
in order to promote greater accountability,
whistleblower reward programs have formed,
and some have received the commitment of
substantial funding. As a result of enabling
legislation and agency programs, there is now at
least the potential for significant whistleblower
and insider rewards for disclosure of evidence of
corruption within corporations.

Further, fine and penalty amounts are increasing

substantially, and the SEC and DOJ have publicly
announced intentions to hold individual corporate
officials personally responsible for undertaking
as well as intentionally turning a blind eye to
corruption schemes. And last but not least,
compliance programs and compliance officers are
now an ever increasing subject of enforcement
actions. The very recent case of BHP Billiton is a
potential paradigm shift - wherein the company
agreed to pay a $25 million fine to the SEC for
alleged failures in their compliance program
and their Olympic Hospitality Program, where
no there was no actual contract procured, no
government involvement, and no quid pro quo
was proven to exist. The case represents the trend
where the pendulum has swung to a landscape

Similarly, much tougher anti-corruption

where there is much more scrutiny not only on

legislation has been passed in a number of

the acts of corruption, but the instrumentalities

important countries, including Brazil and China,

of it as well - such as gifts, hospitality, travel and

and prosecutions are on the rise. While a paltry

entertainment, and even the hiring of relatives

number of corruption cases are prosecuted in Asia

of foreign government officials as a basis for an

and Africa, much greater attention is being paid to

enforcement action.

this issue.

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While most agree that all companies must now

take allegations of corruption, improper benefits,

WHAT NOT TO DO - IGNORE

and faulty compliance, seriously, when an

What to do first depends upon the size

allegation is raised, the question what a company

and structure of your company, where it is

should do does not lend itself to an easy answer.

headquartered, and whether you are publicly

The question of if, and when, to disclose the

traded or privately held. It also depends on the

issue to the government haunts many. The goal

nature of the allegation, and what it encompasses,

of this article is to examine some important

and to whom it is directed. The first thing not

considerations for corporate leaders when such

to do though, in any case, is to bury it. Such a

an issue arises, either through a whistleblower

course could be potentially catastrophic, and, if it

hotline, a direct complaint, a routine audit, a

later become known, is a decision that may well

compliance review or some other manner. The

be considered aggravating by the government

first two considerations assume that notice of the

when penalty time rolls around. It is axiomatic

allegation has not reached the government, and

that enforcement authorities expect companies to

that a subpoena or notice that the DOJ and/or SEC,

address deficiencies in compliance, and remediate

or some other enforcement body is investigating,

weaknesses as well as failures, regardless of

has not been received. The premise is that the

whether an enforcement action ensues. If such an

issue has arisen entirely internally. If such is not

action does later arise, the failure to strengthen

the case, and notice has been achieved through

existing compliance programs, remediate the

a subpoena, search warrant, or a visit from a

deficiencies and address the complaint and/

government agent, much of the later discussion in

or failure(s) will all substantially increase fine

this piece nevertheless remains relevant.

amounts at the very least, and may lead to other

consequences.

If the matter is raised internally, you might

consider the following.

WHAT TO DO WHEN AN ALLEGATION OF A FPCA VIOLATION IS RAISED WITHIN YOUR COMPANY

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WHAT TO DO
1. Assess Whether You Have a Possible
FCPA or Similar Violation
Perhaps the first consideration when an allegation
surfaces is the question of whether the claim or
complaint possibly has merit and whether it
in fact gives rise to an FCPA or related violation.

ALSTOM

2ND Highest Fine On Record

We encourage companies to maintain robust
compliance programs, to voluntarily disclose and
eradicate misconduct when it is detected, and
to cooperate in the governments investigation.
But we will not wait for companies to act
responsibly.

- Assistant Attorney General Caldwell

In other words, is it something to worry about?

The answer whether there indeed is a problem
largely depends upon the nature of the allegation,
the evidence that is presented or discovered to

Alstoms failure to report the violations and failure

to cooperate until they received subpoenas resulted
in driving the penalty up to a $772 million fine the
second highest FCPA enforcement fine on record.

support it, the credibility of the complainant and

the claim, and jurisdictional considerations. For
purposes of this exercise, the company should

The preliminary inquiry should be thorough, and

treat the allegation has having prima facie merit,

should not cease simply because no evidence

and, if on its face a violation is present, (assuming

has been provided along with the claim. It is not

that the allegation is accepted) should be

the complainants job to produce evidence, but

assessed. Much of the time, the complaint should

the reporting system should encourage this. An

at least be preliminarily investigated.

effort should be made to identify evidence that

supports as well as evidence that undercuts

Depending upon the size of the company and the

allegation, the process should begin internally.
A smaller company, without an internal audit or
compliance function, should consider employing
the services of an outside expert (an individual or
a firm) that is credible, competent, well-versed and
experienced in the art of internal investigation, as
well as the relevant laws and regulations at issue.
Acting under the direction and supervision of a
lawyer or law firm, the results of the investigation
or forensic audit would in most cases may be
covered by the attorney client privilege. When
a law firm drives the process, the report is not

the claim, unless the complaint is patently

frivolous on its face or includes other indicia of
clear untrustworthiness. Unless the complaint
is clearly something that cannot or should
not be addressed, effort should be made to
collect all relevant information, documents and
materials. Due consideration needs to be given
to confidentiality, and any inquiry, especially a
preliminary one, should be conducted with the
utmost discretion. Formal interviews should not
be conducted at this stage, but should wait until a
full investigation is deemed necessary. Likewise,
forensic efforts should, for the most part, wait.

subject to disclosure through compulsory process.

Privilege has many benefits, not the least of which
is that it renders the report secure and while there
are exceptions, mostly undiscoverable.

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2. Assess Whether to Undertake a Deeper Internal Investigation

Depending upon the nature of the allegation, and

If there is a division of views from experienced

the evidence that supports it, sometimes a full and

professionals on whether to undertake a thorough

comprehensive internal investigation, buttressed

internal investigation, one should err on the

by forensics, is warranted. While this process

side of caution and conduct it. If done correctly,

should be done expeditiously, it should also be

there is not a lot of downside to the exercise,

accomplished comprehensively and fairly. When

other than cost. There is potentially substantial

an allegation is raised in a subsidiary or office in a

benefit, including identifying other deficiencies

country within a company that has operations in

before they become larger, and more challenging,

many other countries throughout the world, it is

problems. These exercises as well can be used as

most often not necessary to conduct the internal

an alternative and substitute to deep compliance

investigation everywhere but investigators

audits, which should be undertaken regularly

should follow the natural progression of where

nevertheless.

the evidence leads and follow the investigation of

this complaint through to its logical conclusion.
Operations in other countries should be
examined to ensure this issue has not arisen
elsewhere, but that examination most often can
be conducted under a different scale and scope.
The investigation of the allegation raised need not
be repeated everywhere (unless the focus of the
allegation is just that, a claim that the issue(s) is/
are company-wide and pervasive).

The investigation should also be thorough, using

forensic tools, and be done by experienced
professionals in this field. Remember, this is
not an audit not a review of processes, but an
investigation of the merits of an allegation. An
investigation counsel should supervise the effort
and analyze the results. An experienced white
collar lawyer is best placed to review, analyze and
assess the outcome of the investigation and the
findings.

WHAT TO DO WHEN AN ALLEGATION OF A FPCA VIOLATION IS RAISED WITHIN YOUR COMPANY

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3. Assess Internal Controls and Compliance Remediate

An allegation of corruption at a subsidiary, a

A company can get good credit for correcting

country office, a merger or acquisition target, or

compliance deficiencies that surface or come

against an official, presents a great opportunity

to light during an inquiry, and similarly, also

to review the companys compliance program

be punished for ignoring compliance when a

generally. Its also a mechanism to test the

deficiency emerges. Remediation is important,

compliance program across the companys

and an opportunity for the company to turn a

operations, to ensure that the alleged issue,

potential problem into a vehicle for credit.

deficiency or problem has not expanded to

other locations or offices, or reached other
departments. Based on a number of comments
by key government officials recently, such an
effort is expected by government enforcers to be
undertaken by companies subject to the FCPA and
other federal laws.

Behind voluntary disclosure and cooperation,

remediation is often cited as the third most
important corrective measure a company
can undertake to mitigate possible penalties.
Failure to remediate is sometimes considered
an aggravating factor, warranting increased
penalties at the time of resolution.

MARUBENI

Gamblers Remorse
Marubeni rolled the dice (by deciding not to selfreport) and suffered gamblers remorse.
- A top SEC official
In 2012, Marubeni received an $88 million fine,
increased partially by the failure to self report. The plea
agreement cites Marubenis refusal to cooperate with the
departments investigation when given the opportunity
to do so, its lack of an effective compliance and ethics
program at the time of the offense, and its failure to
timely remediate as several of the factors considered by
the department in determining the resolution.

It should be noted that remediation should not

delay the engagement with the government,
the disclosure of investigation results and the
production of the internal investigation report, in
order to ensure timely cooperation. Remediation
is a completely different exercise than
investigation, and this distinction is important. The
investigation need not be conducted throughout
the company unless it is logical to do so and
remediation efforts should be well documented as
they happen.

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4. Assess Whether to Make A Voluntarily Disclosure

The question whether to disclose a potential
violation to a previously unaware government
agency presents perhaps the greatest challenge
for many corporate leaders. To many, disclosure
is synonymous with confession, an admission
of guilt, that may result in a cascading never
ending series of punishments, debarments,
loss of reputation and business. The decision
to disclose a violation is often counter-intuitive,
despite the repeated claims by the government of
the benefit of the practice. Senior government

LAYNE CHRISTENSEN
Self-Reporting Pays Off

In addition to self-reporting the misconduct,

Layne cooperated with the SECs investigation
by providing real time reports of its investigation
findings, producing English language translations
of documents, and making foreign witnesses
available. The company also undertook a
significant remediation effort. Layne self
reported its violations, cooperated fully with the
investigation and revamped FCPA compliance
program . . . [all efforts that] were credited in
determining the appropriate remedy.

officials routinely and consistently espouse the

virtues of disclosure, including limitations on
penalties and heavy decreases on fine amounts.
Credit is often promoted as a reward for early

Layne Christensen paid effectively no fine beyond

disgorgement and interest because of the credit
received for self-reporting and extraodinary
cooperation.

and timely disclosure. Regardless, many still push

back and decline.
My analysis of the many cases over the past five

The kind of disclosure that is considered

years, including those where I have been involved,

voluntary is one that it is undertaken close to the

generally bears out that if cooperation is done

time the issue is raised, before the matter is on

correctly, and in good faith, the potential benefits

the radar screen of the enforcement authorities,

are substantial. Valuable lessons have been

and well before formal requests are made for the

learned along the way.

production of documents, witnesses and internal

investigation reports.

For instance, a couple of very important

considerations must be kept in mind first, the
disclosure must be early, before the government
becomes aware of the issue, or at least well before
you believe the government becomes aware of it.
A disclosure is not considered by the government
to be voluntary if a company willingly responds
to subpoenas by producing documents only after
being compelled to do so.

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As discussed below, the company must be willing

AVON

A Missed Opportunity

to disclose, irrespective of where the evidence

Avon missed an opportunity to correct

potential FCPA problems at its subsidiary,
resulting in years of additional misconduct that
could have been avoided.

company even executives. No exception can

leads, including into the higher levels of the

Avon management learned about potential FCPA

problems at the subsidiary through an internal
audit report in late 2005, but didnt follow up
until 2008, after the CEO received a letter from a
whistleblower.

be made. Efforts to protect senior officials, such

as in the Avon case, will lead to an increase in
penalty, rather than a decrease. It is often better
not to disclose, if a company will place significant
limitations on what it is willing to turn over.
This can actually result in a circumstance worse
than saying nothing at all, if it is viewed by the

Generally, a study of previous cases reveals that

companies receive approximately 20% reduction
from the bottom of the sentencing guideline
range for early disclosure, sometimes more if

government that the company is trying to protect

certain officials, or keep certain embarrassing,
problematic or difficult facts from them, or out of
the realm of public scrutiny.

coupled with extensive cooperation

(as discussed below), sometimes
less if other aggravating factors
are present. Voluntary disclosure,
coupled with full and timely

Efforts to protect senior officials, such as in the

Avon case, will lead to an increase in penalty,
rather than a decrease.

cooperation, generally results in the

greatest benefit, and can produce

This issue is often best considered on a case by

decreases in fine amounts of 50% or more from

case basis, but there is a good track record now

the bottom of the guideline range. But companies

from which an estimate of the degree of benefit

must go all of the way, disclosure must be

can be assessed. But many factors go into the

complete and unequivocal, and without conditions

analysis and an outside review by competent and

meaning that nothing can be held back.

experienced counsel is a must.

Disclosure includes producing the internal

When the decision is made to disclose, to

investigation report, witness summaries,

whom should the disclosure be made? If there

documents, emails, names and identification of

is jurisdiction in the United States, where there

company personnel. Any limitation imposed will

often is, the SEC and the DOJ are the options. The

undoubtedly result in lesser mitigation and less of

selection depends on the case. The DOJ principally

a penalty reduction, and even possibly a finding of

handles criminal matters and the SEC civil and

aggravation. The more that is volunteered and

administrative. However, these often overlap, and

produced, the stronger the governments view and

both have jurisdiction much of the time. Often,

recommendation of the nature and extent of the

disclosure to both is the safest play.

disclosure.

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5. Assess Whether to Fully Cooperate with a Government Investigation

Next to the question whether to disclose, the next
most difficult, but also the most important issue,
is whether to cooperate with the government
investigation that will likely follow notice to
enforcement authorities of a possible violation.
As with disclosure, the nature and extent of the
cooperation drives the amount of the reduction

BIO-RAD

Extraordinary Cooperation
This enforcement action, which reflects credit
for Bio-Rads cooperation in our investigation,
reiterates the importance of all companies
ensuring they have proper internal controls to
prevent FCPA violations.

of the fine, or, the benefit for the cooperation.

To achieve maximum benefit, and a real and
substantial reduction of the penalty amount,

Bio-Rad received a non-prosecution agreement from

the DOJ after self-disclosing and fully cooperating
with the agency.

cooperation must be full and complete. Meaning,

nothing can be withheld. Not the internal
investigation report, not summaries of internal

We have tested all of the resolutions over the

witness interviews, not the identification of lists of

past three years, and generally this trend holds,

all responsible individuals, nor emails, hard drives

with some exceptions that can be explained. Any

or files. All records, employees, including senior

reservation, or withholding, translates directly

officials and third party agents and intermediaries,

in limits on the decrease of the fine amounts.

must be made available and produced. Even

Generally, the greater the cooperation and the

delays will result in a reduction in the amount of

earlier and more complete the disclosure, the

benefit that will be offered.

greater the benefit.

However, coupled with disclosure, full cooperation

However, these decisions must be made with the

can drive a penalty substantially downward. It

advice and counsel of legal counsel that is well

can make the difference between a requirement

versed in these issues, with a deep understanding

to enter a guilty plea, or the ability to secure

of how such penalties are fashioned. A misstep

a Deferred Prosecution Agreement (DPA) or

could literally result in a difference of hundreds

Non-Prosecution Agreement (NPA) with the

of millions of dollars - or the company being

government. It can result, if full and considered

criminally charged.

extraordinary in more than a 50% reduction in

the guidelines fine see Alcoa, Goodyear Tire, HP
and a number of others. One need only compare
and contrast the Alcoa resolution with Alstom fine,
the Goodyear Tire and HP resolutions with the
fines in the Weatherford and Avon cases, to get
a sense of the difference in penalty between full

Again, the only thing possibly worse is to ignore

the issue and pray that it goes away. Such a
gamble is the ultimate roll of the dice, and a
choice where the odds get worse with every day
that passes.

cooperation and early disclosure, as against no

disclosure and what may be perceived as tardy
cooperation. In the Alcoa/Alstom cases, it meant a
difference of many hundreds of millions of dollars
- down for Alcoa, and up for Alstom.

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ABOUT THE AUTHOR

Robert Appleton, Partner at Day Pitney LLP
Robert Appleton is a Partner in the law office of Day Pitney LLP, where he
concentrates on white collar matters, government investigations, compliance,
broker/dealer securities issues and asset recovery. Robert provides strategic
counsel to broker/dealers, companies and individuals facing state, federal, DOJ
or SEC investigations and prosecutions or financial losses; advice and defense
on FCPA matters, export control-sanctions and enforcement advice; and
compliance-including compliance assessments and preparation of individual
tailored compliance programs in the areas of export control, FCPA and
securities law.
Mr. Appleton has served in many senior positions, both in the US and abroad, and led and managed
hundreds of international cross border financial fraud, securities and financial misuse investigations over
his career as a US federal prosecutor, high profile international investigator and senior global compliance
attorney.
Robert has prosecuted numerous high profile international fraud, money laundering, weapons trafficking
and terrorism cases, and twice won the prestigious Directors Award the second highest accolade in the
Department of Justice, for exemplary service in key cases. He has successfully tried more than 20 cases
before juries and briefed and argued more than 20 appeals before the Second Circuit of Appeals in New
York.
In 2006, Robert Appleton was appointed by the UN Secretary General as the first ever Chairman of the
UN Anti-Corruption Task Force (PTF), where he led corruption investigations throughout the world body
between 2006 and 2009. In 2005, Mr. Appleton was appointed by Former US Federal Reserve Chairman
Paul Volcker as his Special Counsel and then Chief Investigative Counsel to the Independent Inquiry
Committee investigation into the Iraqi Oil for Food Scandal. He was also appointed to lead the sensitive
investigation of the Secretary General and, with Reserve Chairman Volcker, deposed the Secretary
General twice. In 2010 he was selected to serve as Senior Legal and Compliance Counsel and Director
of Investigations at the Geneva based Global Fund to Fight AIDS, Tuberculosis and Malaria, where he
supervised more than 300 forensic financial investigations throughout the world, and handled many
Patriot Act, FCPA and AML matters throughout the world. Mr. Appleton served as a federal prosecutor and
then a Supervisory AUSA for more than 13 years in the US Attorneys Office in the District of Connecticut
and at the DOJ.
You can reach him via email at rappleton@daypitney.com or find him on Twitter @BobAppletonFCPA.

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