The level of Foreign Corrupt Practices Act (FCPA) enforcement activity in the first year of the Biden Administration was the lowest in a decade.

But former federal FCPA chief Daniel Kahn says – don’t read too much into that.

Kahn is now a partner at Davis Polk in Washington, D.C.

“There’s inherent variability in corporate enforcement so it’s always unwise to read too much into numbers in a given year,” Kahn said.

“There are a number of reasons that make it unsurprising that this was a down year, including that new administrations often scrutinize cases in the pipeline, resolutions are increasingly being coordinated with multiple foreign authorities, as well as the ongoing pandemic, all of which could lead to a delay in the announcement of corporate resolutions,” Kahn said. “But given the pipeline of cases, as well as repeated statements by Department of Justice and SEC officials about their commitment to fighting corruption and additional resources they are devoting to it, I think you will see a lot of resolutions announced in 2022. Officials have also stressed the importance of prosecuting individuals, and this year was on par with previous years in terms of the number of charges and convictions.”

Given the pipeline of cases, you project an increase in resolutions in 2022. How do we know what is in the pipeline?

“Department officials have been talking about a robust pipeline,” Kahn told Corporate Crime Reporter in an interview earlier this month. “In addition, you can look at cases where companies have made public filings. You can look at cases where there will be pleas by employees of the company, but the company hasn’t yet entered into a resolution. Those are all signals that there is a pipeline of cases.”

Is there any evidence that corporations over the past five years or so are not self-reporting as much as they were prior to that?

“While I was at the Department of Justice, I didn’t see that. I saw that voluntary disclosures were on par with previous years. Voluntary disclosure is always a tough decision for companies. The Department of Justice has done several things to try and encourage it. They have implemented a corporate enforcement policy to provide incentives to companies to self-disclose. It creates a presumption of a declination if the company self-discloses, fully cooperates and fully remediates.”

“But even if the Department is creating a presumption of a declination, there still may be other investigations by other authorities who don’t make those same assurances or presumptions. There may be years long investigations which are disruptive to the business. There may be civil lawsuits that result from disclosure, even if the company gets a declination. It’s always a tough balancing act for a company. The company will be balancing those downsides against the likelihood that the government may find out about the misconduct if the company doesn’t disclose. And so maybe it’s better to clean up the misconduct, be prepared to fully cooperate if the Department comes knocking.”

“That is always a tough dilemma. While I was there, we saw a steady stream of voluntary disclosures by companies. And I have no reason to believe that has stopped. All of that being said, one thing that will impact whether a company voluntarily discloses is what comes out of this Corporate Crime Advisory Group that the Deputy Attorney General announced at her October 2021 speech. Any new policies could sway a company to disclose or not disclose. That depends on where the incentives are set.”

In that speech, Lisa Monaco used the term corporate crime eight times. Prior to that, Justice Department officials were reluctant to use it. They would refer to white-collar crime, corporate wrongdoing, but rarely corporate crime. By using the term, does it signal anything?

“Certainly the fact that the Deputy Attorney General is giving that kind of speech focusing on corporate crime and corporate enforcement is sending a signal on the priorities of this Department of Justice.” 

“They have made it very clear with the speeches they have given and the messages coming out of the Department. Since then, the resolutions that have taken place after the speech show that they are taking corporate enforcement very seriously.”

The use of deferred and non prosecution agreements has increased dramatically in recent years. It is the mode of operation at the Justice Department when it comes to corporate crime enforcement. Will it continue into the Biden administration? Or do you see tougher sanctions, including forcing guilty pleas?

“The messaging and the tone coming out of the speech in October suggests that there is going to be a closer look as to whether or not a case should be resolved with a guilty plea. That said, deferred prosecution agreements are not necessarily being used more frequently in the recent past as compared to what happened under the Obama administration or the Bush administration. For a long time now they have been an important corporate enforcement tool.”

“Deferred and non prosecution agreements offer an additional form of resolution that enables the government to appropriately reward certain types of good corporate behavior.” 

“Look at a company that has done everything right – they have voluntarily self-disclosed, they have fully cooperated and they have fully remediated. Then compare that to a company that has done none of those things. It would be easy to say – we are going to give the first company a declination and the second company should plead guilty.” 

“But let’s take a third company. And assume these companies are engaged in the exact same misconduct. The third company didn’t voluntarily self-disclose, but did fully cooperate and did remediate. If you aren’t using a deferred prosecution agreement or a non prosecution agreement, you have only this on/off switch where you aren’t distinguishing between companies. If you give that third company a declination, you are not appropriately incentivizing voluntary self-disclosure. On the other hand, if you give that company a guilty plea, you are not encouraging cooperation and remediation.”

“Then you have to add in the other variables. How egregious was the misconduct? Did the company have a pre-existing compliance program? How high-level was the misconduct? How pervasive was it? You add all of those factors in and it becomes increasingly useful to have multiple ways to address those factors.”

There have been cases where the company didn’t self-disclose, didn’t cooperate at first and didn’t remediate at first. And they still got a deferred prosecution agreement. Why would that be happening?

“I wouldn’t be able to put my finger on that type of case. Usually, if a company has done those things and the conduct was significant enough to warrant a guilty plea, they would get a guilty plea. You also have to consider how egregious the conduct was. If the conduct was on the fence in the first place and the company didn’t voluntarily self-disclose, it doesn’t necessarily mean that that conduct would warrant a guilty plea. The government might conclude that a deferred prosecution agreement might be enough given the nature and seriousness of the misconduct.”

[For the complete q/a transcript of the Interview with Daniel Kahn, see 36 Corporate Crime Reporter (5), January 31, 2022, print edition only.]