On March 6, the Commodity Futures Trading Commission (CFTC) Division of Enforcement announced that it was issuing an Enforcement Advisory “on self-reporting and cooperation for violations of the Commodity Exchange Act (CEA) involving foreign corrupt practices.”
The Advisory states that it is intended “to provide further guidance regarding circumstances under the Division’s cooperation and self-reporting program in which it may recommend a resolution with no civil monetary penalty.” Previously, in January 2017, the Enforcement Division had issued two Enforcement Advisories that outlined the factors that the Division would consider “in evaluating cooperation by individuals and companies in the Division’s investigations and enforcement actions.” A third Enforcement Division Advisory in September 2017 “outlin[ed] the ways in which the Division would consider voluntary disclosures by a company or individual in the context of its broader cooperation program.” In particular, that latter Advisory specified that “[i]f the company or individual self-reports, fully cooperates, and remediates, the Division will recommend the most substantial reduction in the civil monetary penalty that otherwise would be applicable,” and explained “that, in certain circumstances, the Division may recommend a resolution with no civil monetary penalty on account of voluntary disclosure, cooperation, and remediation.”
The March 6 Advisory states that it
applies to companies and individuals not registered (or required to be registered) with the CFTC that timely and voluntarily disclose to the Division violations of the Commodity Exchange Act involving foreign corrupt practices, where the voluntary disclosure is followed by full cooperation and appropriate remediation, in accordance with the January 2017 and September 2017 Advisories. In those circumstances, the Division will apply a presumption that it will recommend to the Commission a resolution with no civil monetary penalty, absent aggravating circumstances involving the nature of the offender or the seriousness of the offense. In its evaluation of any aggravating circumstances, the Division will consider, among other things, whether: executive or senior level management of the company was involved; the misconduct was pervasive within the company; or the company or individual has previously engaged in similar misconduct.
The Advisory also states that even if the Division were to recommend a resolution without a civil monetary penalty pursuant to that Advisory,
the Division would still require payment of all disgorgement, forfeiture, and/or restitution resulting from the misconduct at issue. In addition, the Division will seek all available remedies—including, where appropriate, substantial civil monetary penalties—with respect to companies or individuals implicated in the misconduct that were not involved in submitting the voluntary disclosure.
In his public remarks announcing the new Advisory, CFTC Enforcement Director James McDonald called attention to the strong cooperation between the CFTC, the U.S. Department of Justice, and the Securities and Exchange Commission (SEC) on enforcement matters, and characterized CEA violations carried out through foreign corrupt practices as “one type of misconduct that can undermine our domestic markets.” He also stated that the new Advisory is intended to help in achieving “optimal deterrence in our markets.”
In explaining the new Advisory, McDonald also took care to state that
we will not pile onto other existing investigations. When we investigate in parallel with other enforcement authorities, we will work closely with them to avoid duplicative investigative steps. To the extent the CFTC brings an action that includes a monetary penalty, we will ensure that our penalty appropriately accounts for any imposed by any other enforcement body. And when the CFTC imposes disgorgement or restitution, we will give dollar-for-dollar credit for disgorgement or restitution payments in connection with other related actions.
Note: The new Enforcement Advisory is of immediate significance in two respects. First, it specifically aligns the CFTC’s approach to resolving cases of corporate misconduct to those of the Justice Department and the SEC in three respects: (a) by committing the CFTC, in foreign corrupt practices-related investigations, to the self-reporting-cooperation-remediation framework that underlies the Department’s Corporate Enforcement Policy and the SEC’s Cooperation Program; (b) by holding out the possibility that, like the Department’s discretion to decline prosecution per the Corporate Enforcement Policy, the CFTC could exercise its discretion in such investigations not to impose a civil monetary penalty in appropriate circumstances; and (c) by indicating its acceptance of the Department’s “piling-on” policy for corporate resolutions involving multiple enforcement and regulatory agencies.
Second, it sends a strong and clear signal to leading commodities firms that the CFTC is fully prepared to coordinate with the Justice Department in Foreign Corrupt Practices Act (FCPA)-related investigations, and to offer incentives for early and wholehearted cooperation in such investigations. The timing of this signal is not accidental. Late last year, Brazilian prosecutors publicly disclosed that they are investigating three of the world’s leading commodities firms — Vitol, Glencore, and Trafigura — for alleged bribery relating to Petrobras. Just last month, Reuters reported that the Justice Department is investigating the two top executives of Vitol in the Americas for bribery-related conduct, and that a former U.S.-based oil trader for Petrobras, Rodrigo Garcia Berkowitz, is cooperating with U.S. authorities after Brazilian authorities charged him with participating in an alleged corruption scheme involving all three firms.
Because U.S. and Brazilian prosecutors investigating FCPA and other corruption-related conduct have been closely cooperating for several years, the commodities industry can expect that the U.S. FCPA investigation – if it has not done so already – will expand to encompass all three firms. Although neither the Justice Department nor the CFTC would give any of those firms credit for self-reporting at this point, each of those firms should be weighing carefully the advantages of leniency if the firms can demonstrate full cooperation and remediation. Given the focus on alleged corruption in Brazil, the firms have only to contrast the FCPA resolutions for three Brazilian companies — Petrobras and Odebrecht, which received a 25 percent discount from the low end of the applicable U.S. Sentencing Guidelines range based on full cooperation and remediation, and Braskem, which received only a 15 percent off the low end of the applicable Guidelines range based on what the Justice Department termed “partial cooperation” – to see that delay in cooperation with the Department and the CFTC can have substantial financial and reputational consequences.
Dipping Through Geometries 