On March 6, 2019, the U.S. Commodity Futures Trading Commission (“CFTC”) Enforcement Division released an advisory (the “Advisory”) on self-reporting and cooperation for violations of the Commodity Exchange Act (“CEA”) that involve foreign corrupt practices.[1] The Advisory lays out guidelines for companies or individuals “not registered (or required to be registered) with the CFTC” to receive significant cooperation credit for voluntarily and timely disclosing CEA violations involving foreign corrupt practices.[2] Indeed, where such disclosure is followed by “full cooperation and appropriate remediation” and other measures, the Division of Enforcement will extend a presumption that no civil monetary penalties be imposed.[3] Moreover, while registrants—which are subject to “independent reporting obligations”—will not benefit from such a presumption, cooperation may still garner “substantial reduction in the civil monetary penalty.”[4]
The Advisory is the latest signal of the CFTC’s efforts over the last two years to more clearly define the benefits of voluntary cooperation with the Agency.[5] This may indicate that the CFTC is taking an increased interest in corruption cases related to the commodities or swaps markets.
Background
The Advisory follows other recent enforcement advisories released by the CFTC in January and September 2017 (together, the “2017 Advisories”) discussing the CFTC’s cooperation program.[6]
The CFTC’s January 2017 Advisories
On January 19, 2017, the CFTC Enforcement Division issued two new advisories “outlining the factors the [Division] will consider in evaluating cooperation by individuals and companies in the agency’s investigations and enforcement actions.”[7] In the January 2017 advisories, the Enforcement Division listed a number of factors it may consider when deciding whether a company had cooperated with the CFTC and the value of that cooperation, including whether a company offered material assistance, timeliness, and quality of cooperation offered.[8]
If a company or individual is found to be cooperative, rewards “range from the [Enforcement Division] recommending no enforcement action to recommending reduced charges or sanctions in connection with enforcement actions.”[9] The Enforcement Division considers these recommendations and the awarding of cooperation credits “on a discretionary basis.”[10]
The CFTC’s September 2017 Advisory
The September 25, 2017 advisory clarified that if a company “self-reports, fully cooperates, and remediates, the Division will recommend that the Commission consider a substantial reduction from the otherwise applicable civil monetary penalty.”[11] While the most significant penalty reductions are reserved for companies that (1) fully cooperate with the CFTC’s investigation, (2) remediate compliance and control deficiencies, and (3) self-report wrongdoing, the advisory noted that the Enforcement Division may recommend a company receive a reduced penalty even if that company only meets these first two requirements and fails to self-report wrongdoing.[12]
This advisory provided more detail on the requirements for receiving full cooperation credit, which include: (1) voluntary disclosure to the CFTC, including “all relevant facts known to the company” and made both “prior to an imminent threat of exposure” and “within a reasonably prompt time after the company . . . becomes aware of the misconduct;” (2) full cooperation and adherence to the January 2017 advisories; and (3) both “[t]imely and appropriate remediation of flaws in compliance and control programs[.]”[13] If each of these requirements is satisfied, then the CFTC Enforcement Division “will recommend the most substantial reduction in the civil monetary penalty that otherwise would be applicable.”[14] In “extraordinary circumstances,” this may even result in a declination of prosecution; but in all instances, disgorgement of profits resulting from violations will be required.[15]
The Advisory
On March 6, 2019, the CFTC Enforcement Division announced its most recent advisory on “Self Reporting and Cooperation for CEA Violations Involving Foreign Corrupt Practices” (the “Advisory”).[16] The Advisory builds on the foundation of its 2017 predecessors and is meant to “further incentivize . . . companies to self-report misconduct [and] cooperate fully in CFTC investigations and enforcement actions[.]”[17] The Advisory seeks to target foreign corrupt practices “that can undermine our domestic markets;” CFTC Enforcement Director James McDonald provided examples of this misconduct, such as bribes used “to secure business in connection with regulated activities like trading, advising, or dealing in swaps or derivatives,” or corrupt practices “used to manipulate benchmarks that serve as the basis for related derivatives contracts.”[18] McDonald added that while this type of behavior may also violate the Foreign Corrupt Practices Act (“FCPA”), pursuant to which the Department of Justice (“DOJ”) or U.S. Securities and Exchange Commission (“SEC”) would take charge of related prosecution, the CFTC will “work closely with [these] enforcement partners to ensure that any investigations are properly coordinated and are appropriately aimed at identifying and eliminating any gaps in [its] investigative and regulatory frameworks.”[19]
Per the Advisory, individuals and entities “not registered (or required to be registered) with the CFTC” will receive a “presumption that [the Enforcement Division] will recommend to the Commission a resolution with no civil monetary penalty, absent aggravating factors” if they (i) “timely and voluntarily disclose” violations of the CEA “involving foreign corrupt practices,” (ii) fully cooperate with the CFTC, (iii) undertake “appropriate remediation” as described in the prior advisories, and (iv) disgorge all unlawful profits.[20] Aggravating factors that would foreclose a presumption of no penalty include involvement of “executive or senior level management” in the wrongdoing, “the misconduct was pervasive within the company,” or the company or individual was recidivist.[21]
The presumption of no penalty would not be applied to CFTC registrants, however.[22] Companies registered with the CFTC have “existing, independent reporting obligations to the Commission requiring them, among other things, to report any material noncompliance issues under the CEA, which would include any foreign corrupt practices that violate the CEA.”[23] Still, CFTC registrants that “timely and voluntarily self-report misconduct, fully cooperate, and appropriately remediate will receive a recommended [substantial penalty reduction] as set forth in the [2017 Advisories.]”[24]
The CFTC Enforcement Advisory Compared to the DOJ FCPA Corporate Enforcement Policy
The Advisory formalizes at the CFTC an approach that is consistent with how other authorities are approaching foreign corruption issues, for example, the Department of Justice (“DOJ”).[25] The DOJ has a policy, first adopted in November 2017 then expanded in March 2018,[26] which sets forth the requirements companies must satisfy to obtain “Credit for Voluntary Self-Disclosure, Full Cooperation, and Timely and Appropriate Remediation in FCPA Matters,” as well as limited credit in other instances.[27]
Overall, the Advisory—and the 2017 Advisories it incorporates by reference—is substantially similar to this DOJ FCPA[28] Corporate Enforcement Policy.[29] The 2017 and March 2019 Advisories generally share several noteworthy similarities with the DOJ program:
- Definition of Voluntary Self-Disclosure: The DOJ cooperation program includes the same three requirements as the CFTC advisories for what constitutes voluntary disclosure.[30]
- Aggravating Circumstances: The DOJ cooperation program includes the same aggravating factors included in the Advisory, plus “significant profit” to the company resulting from misconduct.[31]
- Required Payments: A company is required to pay “all disgorgement, forfeiture, and/or restitution resulting from the misconduct at issue” both under the Advisory and DOJ cooperation program.[32]
- Reduced Penalty or Limited Credit: Similar to the CFTC advisories, the DOJ cooperation program may award more limited cooperation credit when a company fully cooperates and undertakes the required remediation measures, but fails to voluntarily self-disclose wrongdoing.[33]
Key Takeaways
Companies are increasingly incentivized not only to cooperate with enforcement agencies and remediate wrongdoing to the fullest extent possible, but also to fully, voluntarily, and promptly self-report misconduct in financial markets.[34] The CFTC Enforcement Division continues its trend of issuing advisories intended to motivate companies to ensure full compliance with the law.[35] It is likely this trend will continue if not strengthen, as supported by recent statements made by both CFTC Enforcement Director James McDonald and Assistant Attorney General of the DOJ Criminal Division Brian A. Benczkowski:[36] McDonald noted that the Advisory “reflects the enhanced coordination between the CFTC and our law enforcement partners like the Department of Justice,”[37] and Benczkowski said the Criminal Division looks forward “to working in parallel with the CFTC in cases involving foreign corrupt practices, as well as others.”[38]
[1] CFTC, Release No. 7884-19, CFTC Division of Enforcement Issues Advisory on Violations of the Commodity Exchange Act Involving Foreign Corrupt Practices (Mar. 6, 2019), https://www.cftc.gov/PressRoom/PressReleases/7884-19 (hereinafter “March 2019 Press Release”); Div. of Enf’t, CFTC, Advisory on Self Reporting & Cooperation for CEA Violations Involving Foreign Corrupt Practices, https://www.cftc.gov/sites/default/files/2019-03/enfadvisoryselfreporting030619.pdf (hereinafter “March 2019 Advisory”).
[2] March 2019 Advisory.
[3] Id.
[4] Id. (internal citation omitted).
[5] March 2019 Advisory; for previous Cleary Gottlieb publications describing previous related CFTC advisories, see Jennifer Kennedy Park, Breon S. Peace, CFTC’s Demanding New Cooperation Guidelines For Companies and Individuals, Cleary Gottlieb (Jan. 24, 2017), https://www.clearygottlieb.com/news-and-insights/publication-listing/cftcs-demanding-new-cooperation-guidelines-for-companies-and-individuals; Nowell D. Bamberger, Robin M. Bergen, Alexander Janghorbani, Jennifer Kennedy Park, Breon S. Peace, CFTC Announces New Enforcement Strategy Focused on Self Reporting, Cleary Gottlieb (Sept. 26, 2017), https://www.clearygottlieb.com/news-and-insights/publication-listing/cftc-announces-new-enforcement-strategy-focused-on-self-reporting-9-26-17.
[6] March 2019 Advisory.
[7] CFTC, Release No. 7518-17, CFTC’s Enforcement Division Issues New Advisories on Cooperation (Jan. 19, 2017), https://www.cftc.gov/PressRoom/PressReleases/pr7518-17.
[8] Div. of Enf’t, CFTC, Cooperation Factors in Enf’t Div. Sanction Recommendations for Companies, https://www.cftc.gov/sites/default/files/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfadvisorycompanies011917.pdf (hereinafter, “January 2017 Company Advisory”) at 2-3.
[9] Id. at 1-2.
[10] Id. at 2.
[11] Div. of Enf’t, CFTC, Updated Advisory on Self Reporting & Full Cooperation, https://www.cftc.gov/sites/default/files/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfadvisoryselfreporting0917.pdf (hereinafter “September 2017 Advisory”); Speech of James McDonald, Director of the Div. of Enf’t Commodity Futures Trading Comm’n Regarding Perspectives on Enf’t: Self-Reporting and Cooperation at the CFTC (Sept. 25, 2017), https://www.cftc.gov/PressRoom/SpeechesTestimony/opamcdonald092517.
[12] September 2017 Advisory at 2.
[13] Id. at 2-3.
[14] Id.
[15] Id. at 3.
[16] March 2019 Advisory; March 2019 Press Release. The CFTC can bring enforcement actions when foreign corrupt practices “might constitute fraud, manipulation, false reporting, or [other] types of violations under the CEA.” Remarks of CFTC Director of Enf’t James McDonald at the ABA National Institute on White Collar Crime (Mar. 6, 2019), https://www.cftc.gov/PressRoom/SpeechesTestimony/opamcdonald2 (hereinafter “March 2019 Remarks”).
[17] March 2019 Press Release.
[18] March 2019 Remarks; see also Ropes & Gray, CFTC Expands Enforcement Focus to Foreign Corrupt Practices (Mar. 8, 2019), https://www.jdsupra.com/legalnews/cftc-expands-enforcement-focus-to-28724/.
[19] March 2019 Remarks.
[20] March 2019 Advisory.
[21] Id.
[22] March 2019 Advisory n.1.
[23] Id.
[24] Id.
[25] United States Attorneys’ Manual § 9-47.120, FCPA Corporate Enforcement Policy, https://www.justice.gov/criminal-fraud/file/838416/download (hereinafter “DOJ FCPA Policy”).
[26] See Nowell D. Bamberger, Phillip L. Hurst, Jonathan S. Kolodner, Garrett D. Shinn, DOJ Announces Expansion of Approach Encouraging Self Reporting and Cooperation, Cleary Gottlieb (Mar. 5, 2018), https://www.clearyenforcementwatch.com/2018/03/doj-announces-expansion-approach-encouraging-self-reporting-cooperation/ (hereinafter “March 2018 CGSH Blog”).
[27] DOJ FCPA Policy.
[28] The “FCPA” is the Foreign Corrupt Practices Act, 15 U.S.C. §§ 78dd-1, et seq., https://www.justice.gov/criminal-fraud/foreign-corrupt-practices-act.
[29] For a previous client alert memo regarding the DOJ FCPA Enforcement Policy, see March 2018 CGSH Blog.
[30] DOJ FCPA Policy (internal citations omitted); March 2019 Advisory; September 2017 Advisory.
[31] DOJ FCPA Policy; March 2019 Advisory.
[32] DOJ FCPA Policy; March 2019 Advisory.
[33] DOJ FCPA Policy; March 2019 Advisory; September 2017 Advisory.
[34] DOJ FCPA Policy; March 2019 Advisory; September 2017 Advisory.
[35] March 2019 Remarks.
[36] March 2019 Press Release.
[37] Id.
[38] Id.