Some compliance commentators continue to complain about the dearth of information coming out of the Justice Department about enforcement of the Foreign Corrupt Practices Act.

It hasn’t been completely silent, however. The recent declination provided to Layne Christensen Co., for example, continues what I believe to be a trend of significant communications to the compliance community as to what a company needs to do if it finds itself in FCPA hot water. Moreover, while the company agreed to a Securities and Exchange Commission cease and desist order, which required payments of fines, penalties, and disgorgement of a little over $5 million, the more important sum is what the company did not pay.

Self-Reporting

While the Justice Department does not keep statistics on companies that self-report, the SEC reported that, “About a third of the Securities and Exchange Commission’s FCPA cases in recent years have come from companies that self-report,” an agency spokesman told the Wall Street Journal. F. Joseph Warin, a partner at Gibson Dunn and Crutcher, added that, “Companies devote an enormous effort analyzing whether to self-report.” One of the areas to evaluate is whether the government will find out about the conduct. Beyond this initial threshold, Warin said, “Companies also consider the scope of any potential bribery issues” such as were they systemic or simply limited to a few low-level employees; if so reporting them to the government may not be warranted, he said.

One of the clear difficulties that companies face in making this decision is to try to quantify the benefits. The problem with any such analysis is that self-disclosure is only one part of one factor in the culpability score in the U.S. Sentencing Guidelines. According to the Guidelines: “The organization, prior to imminent threat of disclosure or government investigation and within a reasonably prompt time after becoming aware of the offense, reported the offense to appropriate governmental authorities, fully cooperated in the investigation, and clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct.” Meeting all three criteria can only lead to a -5 reduction under the Sentencing Guidelines. With that in mind, it’s hard to weight the costs and benefits. Some gripe that it amounts to a guessing game.

Clearly the Justice Department would like companies to self-disclose. James Koukios, senior deputy chief at the Justice Department criminal fraud section, told the Journal that voluntary disclosure “is a huge factor in deciding if and how to prosecute a company.” One factor not quantified might be the credibility a company can potentially obtain through self-disclosure, and most of the compliance bar who negotiate with the Justice Department will tell you this is a factor not to be discounted. One FCPA defense bar expert has suggested that self-disclosure occur when there is credible evidence that a violation has taken place.

Cooperation and Remediation

There is certainly more, however, than simply self-disclosing to obtaining a declination from the Justice Department. The Sentencing Guidelines spell out that there must be cooperation during the pendency of the investigation and remediation. Both were present in the Layne Christensen matter. In fact, the company and its outside counsel took several steps to demonstrate cooperation.  The first was the thoroughness of the internal investigation performed by outside counsel, Stinson Leonard Street, headed by partner Russ Berland. The Stinson investigative team, for example, made several on-site visits to numerous company locations in Africa and Australia, where the alleged misconduct occurred or relevant information was kept. This included the Democratic Republic of Congo, Burkina Faso, Mali, Tanzania, and Zambia and Perth. The investigation team at the completion of the investigation had obtained 47 hard drives and 22 mobile devices and had combed through over two million documents.

The clear message from these enforcement actions is that no matter how bad things are, a company can make a come back. In H-P’s case, it resulted in dramatic decrease in its financial penalty. In the case of Layne Christensen, it resulted in a Justice Department decision not to prosecute the company.

Equally important was Layne Christensen’s cooperation with the Justice Department during the process. According to Berland, “The idea was to approach the government with the mindset, ‘this is your area. We’ll take whatever direction you give us on how this is done.’ At every step, we not only cooperated with the government’s requests, but tried to anticipate what they might need.” But it was more than simply performing the investigation and then turning it over to the Justice Department, wrapped up and concluded. The company made sure that the Justice Department was aware of the investigation process and the reasons for the steps taken, and it provided real-time updates to the Justice Department during the process.

This cooperation went a long way.  “In the end, it served us very well,” Berland concluded. What were these financial benefits to Layne Christensen? Based on the Justice Department’s decision to close its investigation, Layne reduced its previous accrual for resolution of the matter from $10.4 million to $5.1 million.

H-P’s Good Fortune

Earlier this year, the Justice Department concluded an FCPA enforcement action with Hewlett-Packard. To say that H-P received a superior result is more than an understatement, given the conduct the company engaged in, that being three separate bribery schemes in three different countries. Additionally, H-P did not self-disclose the matter. Instead, the Justice Department and SEC opened investigations after the Wall Street Journal broke the story that German authorities had arrested H-P employees from its German subsidiary.

Even with its conduct and failure to self-close, H-P received a Justice Department fine of approximately $58 million where the Sentencing Guidelines provided a range from a low of $87 million to a high of $174 million. How did H-P achieve this stunning result? The only public comment came through a Justice Department press release, which stated: “Court filings acknowledge H-P Co.’s extensive cooperation with the department, including conducting a robust internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, and organizing voluminous evidence for the department. Court filings also acknowledge the extensive anticorruption remedial efforts undertaken by H-P Co., including taking appropriate disciplinary action against culpable employees, and enhancing H-P Co.’s internal accounting, reporting, and compliance functions.”

Unfortunately there has been no public comment by H-P or its outside counsel as to the steps it took to achieve this result. But from the Justice Department release it is clear that H-P engaged in several steps that led to the stunning result. First there was extensive cooperation by H-P during the investigation. This included the type of robust investigation engaged in by counsel for Layne Christensen but also making witnesses in a wide variety of countries available for interviews. Also, the time frame of the H-P bribery schemes reached back into the late 1990s, so the document retrieval and retention was a very massive effort.

There was also extensive remediation by H-P in two areas. The first was that the company apparently took concrete steps and appropriately disciplined those H-P employees who engaged in the illegal activities. H-P also significantly upgraded its internal controls, reporting, and compliance functions; all of which had systemic failures or were completely bypassed by the violators. All indications point to a truly massive upgrading of the H-P compliance program to achieve the result.

The clear message from these enforcement actions is that no matter how bad things are, a company can make a come back. In H-P’s case, it resulted in dramatic decrease in its financial penalty. In the case of Layne Christensen, it resulted in a Justice Department decision not to prosecute the company. In the FCPA universe, it does not get much better than that.

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