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July 24, 2023

Carrot or Stick? Federal prosecutors offer CT companies incentives to disclose wrongdoing

PHOTO | CONTRIBUTED Michael J. Clark, a senior lecturer who teaches criminal justice courses at the University of New Haven and a retired FBI agent, said companies that discover misconduct should tell authorities what happened and cooperate.
By Michelle Tuccitto Sullo

Maybe you discovered one of your company’s employees offered a bribe to secure a key contract.

Or, you just learned your worker conspired with competitors to fix prices to boost profits.

Companies and their employees sometimes run afoul of the multitude of federal laws and regulations governing them.

Businesses caught by authorities have often faced severe penalties. In one of the more famous cases, German company Siemens had to pay $1.6 billion following a bribery scheme to secure international work.

Now, federal prosecutors in Connecticut and elsewhere are hoping that when companies discover criminal wrongdoing, they’ll come forward, thanks to the potential incentive of leniency.

Officials are dangling a carrot: If a company discloses and helps fix whatever transpired, the government will be more lenient. But, if a company doesn’t come forward and cooperate, the punishment could be more severe.

U.S. Attorney for Connecticut Vanessa Roberts Avery announced in February her office has implemented a new voluntary self-disclosure policy.

Vanessa Avery

Avery said the policy will serve as an incentive for companies to be honest and let the government know what transpired.

“That is our hope and the whole point of the program,” Avery said in a recent interview. “We encourage all companies who uncover wrongdoing from within to come forward, save valuable law enforcement investigative resources, and receive the benefit of being a good corporate citizen.”

Avery declined to say if any companies have taken advantage of the policy since February.

Self-reporting has proven beneficial for companies when dealing with other government agencies.

In June, for example, the U.S. Securities and Exchange Commission (SEC) announced it reached a settlement with Stanley Black & Decker Inc., after the New Britain-based tool manufacturer failed to disclose to the SEC at least $1.3 million worth of executive perks.

Stanley self-reported the issue, and the SEC did not impose a civil penalty on the company, which agreed to implement remedial measures. A former Stanley executive also had to pay a $75,000 civil penalty.

“After consideration of Stanley Black & Decker’s self-reporting, cooperation, and remediation, the SEC declined to bring charges against the company,” the SEC said in June.

Avery said her office is hoping companies will come forward about a variety of cases, including financial fraud, corruption, market manipulation, price-fixing, bribery and any cases that might impact public health and safety, or national security.

Local guidelines outlined

Companies will be credited with having made a voluntary self-disclosure if they report the misconduct in a timely fashion, prior to it being publicly reported and before any imminent threat of disclosure or government investigation.

Companies must fully cooperate with the government and remediate any criminal conduct, such as through forfeiture or financial restitution, according to Avery’s office.

In return, the U.S. Attorney’s office will not seek a guilty plea. Also, any potential fine would be significantly less, or no greater than 50% below the low end of the U.S. sentencing guidelines fine range.

Also, prosecutors will not seek to require an independent compliance monitor if a company demonstrates it has implemented and tested an effective compliance program.

In certain more serious cases, however, these benefits might not apply.

The policy identifies three aggravating factors that may prompt the U.S. Attorney’s office to still seek a guilty plea even if other requirements are met.

Those factors include if the misconduct poses a grave threat to national security, public health or the environment; is pervasive throughout the company; or involved current company executive management.

The U.S. Attorney’s office frequently handles cases involving corporate crime. In recent months, Connecticut’s U.S. Attorney’s office has announced settlements and sentences for cases involving overcharging the government for defense contracts, improper Medicare/Medicaid billing, tax evasion, defrauding investors and money laundering.

For the fiscal year ending September 30, 2022, Connecticut’s U.S. Attorney’s office reported $1.45 million in civil forfeitures and $3.8 million in criminal forfeitures, according to the U.S. Attorneys’ Annual Statistical Report.

Expert: Don't cover up wrongdoing

Michael J. Clark, a senior lecturer who teaches criminal justice courses at the University of New Haven and a retired FBI agent, said companies that discover misconduct should tell authorities what happened and cooperate.

“For example, if you find out one of your salespeople bribed someone to get work, it is in the company’s best interest to come forward and self-disclose, so the individual is charged, but the company would not be,” Clark said.

The same concept would hold true if you discover one of your subsidiaries is colluding with the competition to fix prices, he added. If a company finds out about wrongdoing and doesn’t self-disclose, it ultimately is putting itself at more risk, he said.

Clark advises that companies have vigorous compliance programs in place and hotlines to report problems. Companies need to conduct thorough internal investigations, too.

The Association of Certified Fraud Examiners (ACFE) in its 2020 “Report to the Nations,” conducted a global study and concluded that about 43% of schemes were detected via a tip, and half of those tips came from employees.

“Make (compliance) part of the company culture, and make sure you have the resources in place to contact the government if there is a problem,” Clark said.

Clark also advises educating workers to help ensure they don’t do anything wrong and put the company in peril. And he cautions companies that the worst and biggest mistake would be to try to cover up wrongdoing after learning of it.

“There is an FBI adage that you catch people when they are trying to cover up something,” Clark said. “The worst thing you can do is try to cover something up and hope it goes away.”

Mike Lowe

Attorney Michael Lowe, a former federal prosecutor and a partner with law firm Troutman Pepper, recently co-authored an article on the voluntary self-disclosure policy for the American Bar Association.

According to Lowe, there are “many unanswered questions” regarding the interpretation and implementation of the new policy, such as what “timely” disclosure means, as companies often get complaints and then typically spend time investigating them.

He foresees that any burden will fall on companies to demonstrate that their disclosure was “timely.”

“Until we see how the various U.S. Attorney’s offices interpret the new policy, we may not see much of a difference in the level of corporate self-disclosure,” Lowe said.

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