Corporations may be more likely to self-report if the Department of Justice announces that the firms with significant misconduct can only get a declination or non prosecution agreement if they self-report.

Jennifer Arlen

That’s the take of NYU Law Professor Jennifer Arlen in a recent article titled Assessing the Fraud Section’s FCPA Pilot Program.

“The U.S. Department of Justice (DOJ) recently launched a new pilot program designed to encourage more corporations to voluntarily report their own violations of the Foreign Corrupt Practices Act (FCPA), but the program does not go far enough to achieve its goals,” Arlen writes.

“The pilot program is the first time that the DOJ has offered specific benefits to corporations that self-report that are unavailable to firms that fail to disclose detected wrongdoing and cooperate only when caught. This is an important reform. Yet closer examination reveals that the benefits detailed in the pilot program are not sufficient to lead corporations to disclose significant wrongdoing that will otherwise likely remain hidden. A company that reports its own significant wrongdoing generally guarantees that it will be punished for a crime that could otherwise go undetected. To achieve its aims, the FCPA Unit must adopt an enforcement practice that widens the gulf between firms that disclose their crimes and those that remain silent but later cooperate to equal or exceed the increased risk of detection and sanction caused by self-reporting.”

Arlen says that “corporations’ expected criminal settlements are neither reliably nor sufficiently better if they self-report than if they keep quiet and later cooperate.”

“Corporations that detect wrongdoing are often well-advised to remain silent, remediate, and fully cooperate only if the government detects the crime,” Arlen says. “Corporate self-reporting FCPA violations have fallen steadily since 2010.”

Arlen concludes that “corporations would be more inclined to voluntarily report if informed that corporations which detect and fail to self-report are presumptively ineligible for a deferred prosecution agreement unless two conditions are met.”

“First, the firm provides cooperation sufficient to ensure conviction of the most senior people responsible for the crime,” she writes. “Second, the firm is presumptively subject to a monitor. If the FCPA Unit uses these and other tools at its disposal, it could ensure that firms want to come clean. In turn, employees would be much less tempted to bribe in a world in which their employers are likely to detect and report them.”