Government Regulators Reiterate Benefits of Voluntary Self-Reporting of Violations
Perhaps in response to growing skepticism of the purported benefits of self-disclosure, multiple high-level United States government officials have recently reiterated what they contend are the benefits for corporate defendants of self-reporting legal and regulatory violations. The officials emphasized that voluntary self-disclosure can result in reduced criminal penalties and, among other things, less onerous monitoring requirements. The officials also took pains to note that failing to self-report could result in higher fines and penalties, though they did not point to specific empirical evidence to back up their assertions.
First, at an April 29, 2016, discussion at the Practising Law Institute (“PLI”) in New York, a panel featuring Securities and Exchange Commission (“SEC”) Enforcement Director Andrew Ceresney, Department of Justice (“DOJ”) Fraud Section Chief Andrew Weissmann, and Commodity Futures Trading Commission (“CFTC”) Enforcement Director Aitan Goelman addressed self-reporting.
Weissmann touted the purported formalization of self-reporting benefits, now available through the DOJ’s Foreign Corrupt Practices Act (“FCPA”) pilot program, which the DOJ launched as a one-year experiment on April 5, 2016. Under that program, according to the DOJ, companies can get cooperation credit for self-reporting and taking remedial steps to halt illegal conduct and prevent future recurrence.
Specifically, under the terms of the program, companies who self-report and cooperate are less likely to be required to retain an independent monitor, while companies who do not self-report can face tougher penalties than they otherwise would. While the pilot program purportedly aimed to be transparent about how much credit a company can expect based on its level of cooperation, it in fact did little to clarify what sort of cooperation is required, and still gives the Department significant latitude to deny cooperation credit to companies that self-report and cooperate. Director Ceresney sought to highlight how certain companies have avoided monetary penalties by cooperating with SEC investigations, while Goelman emphasized that CFTC attempts to make more generous offers to companies that self-report and cooperate.
Second, at a second PLI seminar held on May 2, 2016, Daniel Kahn, the interim head of the DOJ’s FCPA unit, reportedly stressed that self-disclosure is important to more than just reduction of criminal penalties. For example, Kahn said that the DOJ may consider a company’s decision to self-report when it is analyzing the adequacy of the company’s compliance program and efforts, as a decision to self-report may impact the DOJ’s determination of the level of commitment by the company’s management to the compliance program in question. Kahn took pains to note that a failure to self-report does not necessarily represent a strike against the adequacy of a compliance program, but the fact that he tied the two together is a good reminder that the DOJ will at times use individual judgment calls with which it disagrees to draw broader adverse inferences against a company.
The statements from Weissmann, Ceresney, Goelman, and Kahn are hardly ushering in a new approach toward cooperation from the government. Indeed, the comments are part of a continuing effort to encourage self-reporting. But the fact that such high-level regulators each appear so focused on the topic at present suggests that they may be concerned that corporations and the defense bar still have not accepted the purported benefits of self-reporting.