Bolstering cross border enforcement through the US DOJ’s policy to address “piling on”

The last few years has seen a conspicuous rise in fraud and corruption cases across the globe. Governments and regulators alike have indicated that the commitment to combat growing corporate misconduct should be improved which would augur well for businesses worldwide. This further led to the introduction of numerous regulations, establishing enforcement agencies and actively prosecuting organizations that have been allegedly involved in unethical behaviour or misconduct.

Most regulators, including the US Department of Justice (DOJ) have been fairly successful in driving and implementing applicable legislations and the amount of penalties has seen a rise. However, a key challenge faced by (errant) organizations in case of a violation has been the duplication of fines by multiple enforcement authorities for the same misconduct. One of the reasons for this could be lack of cross border co-ordination and information sharing between the enforcement authorities. Typically, there is a higher incidence of such cases in heavily regulated industries (compared to the others) as they tend to be accountable to more than one enforcement body.

Enhancing cross border co-ordination through DOJ’s “piling on” policy

On May 9, 2018, the Deputy Attorney General of the US DOJ, Rod Rosenstein announced a new “Policy on Coordination of Corporate Resolution Penalties” to address the issue of “piling on” faced by organizations. “Piling on” refers to the unnecessary accumulation of penalties arising from multiple regulatory bodies, both domestic as well as foreign for the same misconduct. One of the key objectives of the policy is to strengthen cross border co-operation between nations during investigation and prosecution of foreign bribery cases.

 

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The policy is expected to guide the DOJ’s actions but there are aspects that require additional consideration. For instance, it warns potential violators that co-operation with other authorities cannot be seen as a substitute for co-operating with the DOJ. Further, the DOJ will not give leeway to organizations that approach them only after making insufficient disclosures to get lenient penalties from other agencies. They have also specified that they will not hesitate to undertake multiple enforcement actions, if necessary. Lastly, the policy highlights that global investigations should consider every regulator’s objectives and expectations before announcing the final outcome of a case.

The four basic principles outlined in the new policy are:

While the principles of the policy were formalized recently, it has already been applied in few cases prior to the actual announcement. These have already set somewhat a precedent for inter-agency co-ordination and show a certain degree of “fairness” with organizations benefiting during probes. Post the announcement, the DOJ collaborated with foreign enforcement agencies and levied limited penalties on two international banks, considering actions already taken by other enforcement authorities.

India too has showcased active involvement in cross border information sharing over the years. In the last 10 years, SEBI has signed about eight bilateral MOUs with different countries such as Pakistan, Russia, Dubai, Argentina, Bangladesh etc. Additionally, SEBI has ratified the Automatic Exchange of Information by Switzerland on suspected black money transactions.

From an organizational standpoint, there should be ample focus on building robust anti-fraud and governance policies, regular assessment of compliance frameworks, enhancing standards of business ethics, monitoring performance and conducting due diligence of third parties to mitigate risks and possible violations.

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