Self-Reporting to the FTC: When It Makes Sense and How to Do It

Self-Reporting to the FTC: When It Makes Sense and How to Do It

When a company discovers that it has violated Federal Trade Commission (FTC) regulations or guidelines, it may need to consider self-reporting the violations. Self-reporting can demonstrate a company’s good faith, willingness to take responsibility, and commitment to compliance. However, the decision to self-report is complex with many factors to weigh. This article provides guidance on when self-reporting makes sense and how to go about the process.

What Triggers the Need to Self-Report

There are a few common situations that typically lead companies to self-report FTC violations [1, 2]:

• Internal audit discovers regulatory violations
• Whistleblower allegations prompt investigation
• Merger and acquisition due diligence surfaces problems
• Product safety incident requires disclosures

For example, during an internal audit, a telecommunications company discovers that call center representatives violated Do Not Call regulations. Or, after receiving a whistleblower complaint, a financial services firm investigates and uncovers failures to safeguard consumer data under the FTC’s Safeguards Rule.

These types of situations typically require legal advice to assess self-reporting obligations and options.

Weighing the Pros and Cons of Self-Reporting

The decision to self-report FTC violations involves careful evaluation of multiple risks and benefits [3, 4]:

Potential Benefits

• Avoid formal FTC charges through negotiated settlement
• Reduce civil penalties based on cooperation
• Enable no-admit, no-deny settlements
• Control public narrative through proactive messaging
• Demonstrate strong ethics and compliance culture

Potential Risks

• Trigger formal FTC investigation
• Lead to additional violations uncovered
• Result in litigation if negotiations fail
• Harm reputation and investor confidence

Companies must carefully weigh these pros and cons based on the specific circumstances at hand. In some cases, self-reporting makes sense, while in others, it may be too risky. Engaging legal counsel can help inform this decision.

When Is Self-Reporting Appropriate?

Generally, self-reporting is appropriate and advisable when [5]:

• Violations are isolated, limited, and unlikely to interest FTC
• Violations resulted from negligence rather than intentional wrongdoing
• Company promptly stops violations and strengthens compliance program
• Cooperation credit would significantly reduce penalties

However, when violations are egregious, systemic, and likely to provoke FTC charges, self-reporting may be ill-advised. Companies should consult counsel to determine if self-disclosure or self-correction makes sense based on specific circumstances.

How to Self-Report to the FTC

If a company determines that self-reporting FTC violations is prudent, it should develop a comprehensive plan and process [6]. Key steps include:

1. Conduct swift, thorough internal investigation
2. Quantify full scope and impact of violations
3. Assess root causes and compliance gaps
4. Stop ongoing violations immediately
5. Preserve documents and data related to violations
6. Retain external legal counsel to interface with FTC
7. Negotiate settlement terms and conditions
8. Agree to compliance monitoring and reporting

Navigating discussions and negotiations with the FTC requires experience and competency. Skilled legal counsel plays an indispensable role throughout the process.

Key Takeaways

When faced with discoveries of FTC violations, companies must make complex, high-stakes decisions about self-reporting. Key takeaways include [7]:

• Weigh risks and benefits thoroughly before deciding
• Involve legal counsel to inform self-reporting decisions
• Act swiftly to investigate and stop ongoing violations
• Negotiate reasonable settlement terms that incentivize cooperation

While costly in the short-term, prudent self-reporting and cooperation with FTC investigations can benefit companies over the long run.

For more information and guidance on self-reporting FTC violations, check out the following additional resources:

• FTC Enforcement Guidance
• r/business community on Reddit
• Federal Trade Commission topic on Quora