Last April, as a follow-up to revelations that Wal-Mart had
allegedly covered up bribes paid by its Mexican subsidiary, the
great Corporate Counsel reporter Sue Reisinger ran a very
surprising piece. Despite the scandal engulfing Wal-Mart,
defense lawyers told Reisinger that the company may have made a
strategically smart decision not to disclose the matter to the
government. Smart? Really? Would Wal-Mart's alleged bribery have
blown up into a public relations fiasco that cried out for
governmental consequences if the company had quietly admitted
the facts to the Securities and Exchange Commission or the
Justice Department?
I figured Dodd-Frank's whistle-blower provisions would make
corporate self-reporting even more of a no-brainer, since
insiders now have not only a moral and legal incentive but also
a powerful financial motive to alert the SEC when they suspect
wrongdoing. According to BuckleySandler partner Thomas Sporkin,
who until last June was chief of the SEC's Office of Market
Intelligence, the commission receives 1.2 whistle-blower tips a
day, on average. If I were a corporate official wondering
whether to self-report, I'd assume that one of those tips was
about my company and run to the feds before they came to me.
But according to several of the most prominent SEC
enforcement advisers in Washington, w ho were speaking Thursday
at Securities Docket's Securities Enforcement Forum,
corporations should think hard about the decision to confess
their sins or handle problems internally. "You have to decide
whether the issue merits the government's involvement," said
William McLucas of Wilmer Cutler Pickering Hale and Dorr in a
follow-up phone conversation Friday. Even in an era in which
"you have to assume there are no secrets," McLucas said,
problems that fall short of systemic wrongdoing call for
judgment, not reflexive confession. "That's why you have
compliance systems and controls," he said.
William Baker of Latham & Watkins told me Friday that under
Dodd-Frank, companies have to be wary that whistle-blowers will
go to the SEC, but, like McLucas, said there is a range of
problems that can be handled effectively enough in-house that
even if the SEC launches an investigation, the agency will be
satisfied with the company's response. If, on the other hand,
the wrongdoing involves anything that would affect public
disclosures, Baker said, it must be reported. "It's a very
difficult, very nuanced decision for a company," he said.
It's also difficult for outside counsel, McLucas said at
Thursday's conference. If outside lawyers recommend that clients
throw themselves on the mercy of the government and the
government doesn't show mercy, that's not a good outcome for the
lawyers. Clients, Baker added, also have to think about the
higher cost of dealing with a government investigation rather
than handling a problem internally. In a panel on the Foreign
Corrupt Practices Act, former SEC FCPA enforcement chief Cheryl
Scarboro of Simpson Thacher & Bartlett said that while
government policy is to reward self-reporting, it's not always
clear what the benefits are. And if companies do report that
they've made illegal payments to officials in one country, added
Joseph Warin of Gibson, Dunn & Crutcher, they often find their
practices in other countries under investigation.
Government lawyers at the Securities Docket forum, however,
warned that lawyers and their clients had better be ready to
face the consequences when they decide not to report wrongdoing.
An audience member asked Jeffrey Knox of the Justice
Department's criminal division if the bar for self-reporting
FCPA violations was lower than it used to be. "We're going to
find out violations and we're going to credit self-reporters,"
Knox said. "So, yes." Assistant U.S. Attorney Deborah Connor of
Washington said that clients could already be under criminal
investigation when they decide not to come in to the government.
If that's the case, and they later say that they opted to handle
the matter internally, they must be prepared to show that
they've conducted a legitimate internal investigation.
Finally, Knox had a piece of advice for corporations that do
decide to self-report. If you're going to come in, he said,
"come all the way in." Don't try to minimize your conduct and
don't cut corners.
(Reporting by Alison Frankel)
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