Proper Planning and Swift Action Can Help Employers Avoid Foreign Corrupt Practices Act Prosecution

While the Department of Justice (DOJ) has initiated at least two new Foreign Corrupt Practices Act (FCPA) enforcement actions against U.S. companies, it has also announced several decisions not to prosecute—most recently involving a U.S. biotech firm and its subsidiaries. The November 16, 2023, declination letter is instructive for companies concerned about protecting themselves against the consequences of employees who take it upon themselves to flout internal anti-bribery policies.

In the biotech matter, the DOJ found evidence that employees of a former subsidiary of the company bribed Mexican government officials before and after the company’s acquisition of the subsidiary in 2018. The company’s post-acquisition due diligence revealed a $14,000 bribe to secure a wastewater discharge permit. Following an internal investigation and voluntary disclosure, the company ultimately was required to disgorge $406,505 (equivalent to the costs it avoided by way of the bribe).

Under a three-year pilot program announced this past spring, the DOJ’s decision not to prosecute was based in large part on the company’s proactive remedial action:  it conducted a timely investigation, disclosed to the DOJ within three months of discovering the violation, swiftly fired the employee who authorized the payments, and took other proactive steps to improve its compliance program and internal controls.

Also critical to the DOJ’s declination decision was the company’s decision to withhold the employee’s bonus and other compensation. This illustrates an important intersection of employment law and FCPA compliance. Specifically, earlier this year, the DOJ issued its updated guidance on Evaluation of Corporate Compliance Programs.  The guidance emphasizes that linking compensation to compliance – particularly by retaining the right to withhold or claw back payments to employees involved in violations such as bribery – can result in a reduction of penalties equivalent to the amount of the clawback. Moreover, even unsuccessful clawback efforts can reduce the amount of penalties.

Companies should consider reviewing whether their policies comport with the new DOJ guidance. Implementing an effective clawback policy is no simple task, but an important first step is to include clear provisions in an employment agreement.  Companies will also need to consider local laws in any jurisdiction where their employees reside, including privacy protections, blocking statutes, and dismissal protections. Whether a possible violation is revealed by a whistleblower, internal financial controls, or otherwise, with proactive planning, a business will be much better positioned to act quickly, thus laying the groundwork for a favorable resolution in the unfortunate event a violation is discovered.