The energy industry in general and the oil and gas industry in particular has been the target of at least 50 Foreign Corrupt Practices Act (FCPA) prosecutions[1] over the years—more than any other industry. Most of the cases involved the use of third-party agents who interact with officials of state-owned enterprises in high-risk countries across the globe.

DOJ and SEC enforcement actions in the energy industry continue to garner headlines, as demonstrated by these recent examples:[2]

• 2022: A European technology company entered into a deferred prosecution agreement and agreed to pay several hundred million dollars in a coordinated foreign bribery resolution with the United States (DOJ and SEC) and two other countries. Two subsidiaries entered guilty pleas. The case involved alleged bribes paid to a high-level official of a state-owned energy company in Africa for assistance with contracts, which were mischaracterized in the company’s books and records.
• 2023: A global mining and metals company paid a multimillion-dollar civil penalty to the SEC to resolve alleged books-and-records and internal controls violations stemming from a bribery scheme involving a consultant in Africa. The consultant, who was retained in 2011 purportedly to help the company retain its mining rights, attempted to make an improper payment to a government official’s reelection campaign in exchange for helping the company retain its mining rights.
• 2023: An oil and gas services provider in the Netherlands agreed to pay the SEC $8 million to resolve alleged FCPA violations for bribing officials in a central African country through a sales agent. From 2008 to 2014 the company reportedly paid commissions to a sales agent in the country when employees knew there was a high probability that the agent would use the commissions to bribe government officials. The company allegedly paid the agent approximately $5.5 million between 2008–2014, during which time it won four new contracts in the central African country.
• 2023: A US-based chemical manufacturing company avoided a criminal prosecution and agreed to pay several hundred million dollars to DOJ and SEC to resolve alleged FCPA violations involving allegations that it participated in the bribery of government officials in Asia through third-party intermediaries over a nearly eight-year period to obtain business with state-owned refineries.
• 2024: A multinational energy commodities trading company pleaded guilty to one count of conspiracy to violate the FCPA and agreed to pay several hundred million dollars in criminal penalties to resolve allegations that it paid intermediaries to corruptly obtain business with a South American national oil company as part of a broader investigation that involved US cooperation with law enforcement authorities in several countries throughout South America, Europe, and Asia; the company also agreed to resolve investigations with authorities in two other countries related to the same conduct.
• 2024: Another multinational commodities trading company pleaded guilty to conspiracy to violate the FCPA and agreed to pay over $100 million to resolve an investigation into an alleged scheme by the company to pay bribes to government officials in South America to secure business with the country’s state-owned and state-controlled oil company. DOJ noted assistance provided by law enforcement authorities in two South American countries and one in Europe in investigating relevant conduct; the company also agreed to resolve an investigation by certain South American authorities for related conduct.

As explained below, the case of the US-based chemical manufacturing company is notable because its resolution, along with other recent cases in which DOJ declined prosecution, reflects the impact of important policy changes made by DOJ in the last two years to incentivize companies to make early voluntary self-disclosures of conduct that may violate the FCPA or other federal criminal statutes, including the identities of senior management officials involved in the wrongdoing, and to claw back compensation from culpable executives as part of the company’s remediation efforts.

It is helpful to briefly review some of the most recent and significant DOJ policy changes that have occurred, which are designed to encourage companies to implement robust compliance programs and reward companies that make voluntary self-disclosures of criminal wrongdoing to DOJ before the government learns of it.

JANUARY 2023: UPDATED DOJ CORPORATE ENFORCEMENT POLICY

In January 2023, DOJ announced significant changes to the DOJ Criminal Division’s Corporate Enforcement Policy. The focus of these policy changes is to provide guidance to prosecutors on how to assess and treat corporate offenders, with a focus on incentivizing voluntary self-disclosure of wrongdoing and cooperation with DOJ investigations.

A company may still receive a declination—even if there are aggravating circumstances—if the company can demonstrate that it has met each of the following factors:

• The voluntary self-disclosure was made immediately upon the company becoming aware of the allegation of misconduct.
• At the time of the misconduct and the disclosure, the company had an effective compliance program and system of internal accounting controls that enabled the identification of the misconduct and led to the company’s voluntary self-disclosure.
• The company provided extraordinary cooperation with the DOJ’s investigation and undertook extraordinary remediation.

The updated policy increases the maximum potential reduction below the low end of the US Sentencing Guidelines fine range to up to 75% if all the above-listed factors are met and up to 50% below the low end, even in the absence of voluntary self-disclosure, if the other factors are met.

FEBRUARY 2023: DOJ VOLUNTARY SELF-DISCLOSURE POLICY

DOJ announced a new Voluntary Self-Disclosure Policy in February 2023 setting a nationwide standard for DOJ, including all US Attorney’s Offices, and defining what it means to voluntarily self-disclose, thereby providing companies greater consistency and predictability of the benefits—and consequences—of self-disclosure. The policy outlines that DOJ expects companies to meet a high bar in order to qualify as having voluntarily self-disclosed misconduct, with three key aspects:

• Voluntary disclosure. A disclosure is not voluntary if it is made based on a preexisting obligation, including a regulation, contract, or prior resolution, such as a nonprosecution or deferred prosecution agreement.
• Timely disclosure. The disclosure must be made “prior to an imminent threat of disclosure or government investigation” prior to the public disclosure of the conduct or the conduct otherwise being made known to the government and “within a reasonably prompt time after the company” becomes aware of the misconduct.
• Substantive disclosure. The disclosure “must include all relevant facts concerning the misconduct” that the company is aware of at the time. The company does not have to know all relevant facts at the time of disclosure, but it should note this when making the disclosure and provide factual updates as investigative efforts continue.

MARCH 2023: PILOT PROGRAM REGARDING COMPENSATION INCENTIVES AND CLAWBACKS

In March 2023, DOJ Deputy Attorney General Lisa Monaco announced a pilot program on compensation incentives and clawbacks during a speech at the ABA’s White Collar Crime Conference. Every corporate resolution entered into by the Criminal Division will require the resolving company to implement criteria related to compliance in its compensation and bonus system.

Under this new pilot program companies may be able to reduce criminal fines by attempting in good faith to claw back compensation from individual wrongdoers. At the outset of the resolution, the resolving company will pay the applicable fine, minus a reserved credit equaling the amount of compensation the company is attempting to claw back from culpable executives and employees.

This “good faith” attempt to claw back compensation is significant. Even if a company is unsuccessful in recouping these funds, an additional fine reduction may be warranted so long as the company has initiated the process to recoup such compensation before the time of resolution.

SEPTEMBER 2023: DOJ EMPHASIZES VOLUNTARY SELF-DISCLOSURE

DOJ’s Principal Associate Deputy Attorney General Marshall Miller gave a speech in September 2023 announcing that DOJ is “placing a new and enhanced premium on voluntary self-disclosure” and “enhanc[ing] transparency and predictability as to the requirements for a voluntary self-disclosure and the significant benefits involved” to promote consistency.

Through the revised policy, companies can better understand and predict outcomes based on their voluntary self-disclosure, even for companies with “aggravating circumstances.”[3] These remarks emphasize the importance of companies collaborating with DOJ to report misconduct and enhance compliance programs to improve internal disclosure and reporting protocols to be in the best position possible to make a voluntary self-disclosure if warranted by the circumstances.

OCTOBER 2023: DOJ MERGERS AND ACQUISITIONS SAFE HARBOR POLICY

In a speech on October 4, 2023, DAG Monaco announced DOJ’s new Safe Harbor Policy applicable to M&A transactions. The new policy allows acquiring companies to avoid DOJ charges for criminal violations of the acquired company if they

• promptly and voluntarily disclose criminal misconduct within the safe harbor period (within six months from the date of closing);
• cooperate with any subsequent investigations; and
• engage in the required timely and appropriate remediation (one year from the date of closing).

The acquired company may still be subject to restitution and/or disgorgement obligations as part of the resolution of the investigation.

DECEMBER 2023: FOREIGN EXTORTION PREVENTION ACT

The Foreign Extortion Prevention Act (FEPA), signed into law at the end of 2023, criminalizes demand-side bribery by foreign officials: the demand or acceptance of a bribe from a US citizen, company, or issuer, or anyone located within the territory of the United States, when made to obtain or retain business. Prior to FEPA, neither the FCPA nor the US domestic bribery regime penalized corruptdemandsby foreign officials upon US persons. Only offersor payments of bribes to foreign officials were crimes before FEPA. Violations of FEPA involved significant financial penalties and imprisonment.

RESOLUTION HIGHLIGHTS RECENT DOJ CORPORATE ENFORCEMENT POLICY CHANGES

In the case of the US chemical manufacturing company, the company received credit for cooperating with DOJ’s investigation, accepting responsibility for its conduct, and implementing timely and extensive remediation measures. However, DOJ found that the company’s voluntary disclosure of the conduct was not “reasonably prompt” within the meaning of the Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy and the Sentencing Guidelines.

DOJ stated that the company learned of allegations of misconduct about 16 months prior to disclosure and had gathered evidence substantiating such misconduct at least nine months prior to disclosure. The company nonetheless avoided a criminal prosecution and received a significant penalty reduction for several reasons, including that it withheld bonuses from 16 employees (totaling $763,453) and received credit under the DOJ Clawback Pilot Program, terminated 11 employees, and eliminated the use of sales agents as part of its go-to market strategy.

RECENT DECLINATIONS SHOW TANGIBLE EXAMPLES OF POTENTIAL BENEFIT OF SELF-DISCLOSURES

DOJ has issued two declinations with disgorgement, the first of which was for a US metallurgical coal producer in March 2023 and the second for a US biomedical company in November 2023. In the first, DOJ alleged that from approximately late 2016 until early 2020 certain of the its employees and agents engaged in a scheme to bribe government officials in the Middle East to obtain and retain lucrative contracts to supply coal to a state-owned and -controlled coke company. DOJ announced it was declining to press criminal charges because the company “voluntarily self-disclosed the misconduct, cooperated with the government’s investigation, and timely and appropriately remediated.”

In the case involving the biomedical company, the government alleged that between May 2018 and August 2019 certain of its subsidiary’s officers, employees, and agents paid bribes to one or more Mexican government officials, both prior to and after the company’s December 1, 2018 acquisition of the subsidiaries.

DOJ declined to pursue criminal charges against the company because (1) it timely and voluntarily self-disclosed the misconduct, which it reported to DOJ’s FCPA unit within three months of discovering the possibility of misconduct and hours after an internal investigation confirmed that misconduct had occurred; (2) it proactively cooperated and agreed to continue cooperating with any ongoing government investigations and prosecutions that might result in the future, including following the company’s divestiture of subsidiaries involved in the wrongdoing; (3) the nature and seriousness of the offense; (4) the company’s timely and appropriate remediation, including the termination of the officer engaged in the bribe scheme, withholding that officer’s bonus and other compensation, and substantially improving its compliance program and internal controls; and (5) it agreed to disgorge the costs it avoided having to pay as a result of the bribery scheme.

These two cases reflect that DOJ will decline criminal prosecution where companies are proactive when confronted with evidence of bribe payments and other criminal conduct, including by voluntarily disclosing the conduct, cooperating in the investigation by making documents and witnesses available to be interviewed, engaging in remediation, and clawing back compensation paid to individual executives who engaged in or were responsible for the criminal wrongdoing that occurred.

KEY TAKEAWAYS

DOJ has made great strides in the last two years to provide clearer guidance and greater transparency concerning the benefits available to companies that make early voluntary self-disclosures regarding FCPA and other criminal violations, and the policies have been extended to all US attorney’s offices. Disclosure decisions have always been complex, and the expansion of the DOJ’s voluntary self-disclosure policy to US attorney’s offices across the country will result in more opportunities, but also potential challenges and pitfalls to companies that are not deliberate and careful in making the self-disclosure decision.

Companies should carefully weigh and balance the benefits of doing a more thorough analysis of the facts and potential consequences before making a disclosure decision, versus the risks of waiting too long and losing substantial benefits. The analysis becomes more complex if a company’s compliance program is weak or of questionable effectiveness. And the risks and uncertainty become greater if other DOJ criminal litigating components are involved and conflicting incentives are presented. All of these considerations require the assistance of experienced FCPA external counsel.

These concerns remain especially true for companies operating in the energy industry, which has been the most frequent target of the FCPA enforcement efforts by DOJ and SEC. That focus, as reflected in recent FCPA resolutions, continues to be strong and is likely to continue unabated in the future. Companies that conduct regular compliance risk assessments and invest sufficient resources into building a robust and effective compliance program that identifies and addresses potential noncompliance at an early stage will be in a much better position to evaluate whether to make a voluntary self-disclosure to DOJ and receive the potential benefits for doing so.

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