The Department of Justice (DOJ) has been touting revisions to its corporate criminal enforcement policies and signaling increased action for nearly a year. Yesterday, Deputy Attorney General Lisa O. Monaco formally announced these policy changes and discussed what they mean for corporate America. These revised corporate criminal enforcement policies are largely the “carrot and sticks” approach (“a mix of incentives and deterrence”) that the DOJ announced in March (further discussed by our team in this article).
Individual accountability will continue to be the DOJ’s top priority for corporate criminal enforcement, and these investigations will be expedited. As the Deputy Attorney General noted, this commitment was not mere rhetoric. In the past year, many corporate executives were tried and convicted for numerous offenses, including commodities manipulation, bribery, and the first-ever conviction of a pharmaceutical CEO for the unlawful distribution of controlled substances.
Companies will face increased pressure as “undue or intentional delay in producing information or documents – particularly those that show individual culpability – will result in the reduction or denial of cooperation credit. Monaco further stated that gamesmanship with disclosures and productions would not be tolerated.
According to the DOJ, upon discovery of “hot documents” or other evidence, a company’s first reaction should be to notify the prosecutors. Doing so will translate to faster internal investigations and corporate responses, and this new guidance should push prosecutors and corporate counsel to feel as though they are “on the clock.” Monaco went on to say that although many companies and prosecutors already follow these principles, this guidance “sets new expectations about the sequencing of investigations and clarifies the Department’s priorities.”
History of Misconduct
Driven by the fact that a sizeable number of targets were repeat offenders, the DOJ previously announced that it would consider the full criminal, civil, and regulatory record of any company when deciding the appropriate resolution. The DOJ has announced that it will be releasing additional guidance about how such histories will be evaluated, but significantly:
- Not all instances of prior misconduct are created equal and dated conduct will generally be accorded less weight. Criminal resolutions that occurred more than 10 years before the conduct currently under investigation, and civil or regulatory resolutions that took place more than five years before the current conduct.
- The DOJ will consider the nature and circumstances of the prior misconduct, including whether it shared the same root cause(s) as the present misconduct.
- The DOJ will not treat as recidivists companies with a proven track record of compliance that acquire companies with a history of compliance problems, so long as those problems are promptly and properly addressed post-acquisition.
- DOJ will disfavor multiple, successive non-prosecution or deferred prosecution agreements with the same company.
- Companies may be required to plead guilty as opposed to a Non-Prosecution Agreement or a Deferred Prosecution Agreement, particularly when they are recidivists.
Perhaps the most significant announcement in the Deputy Attorney General’s remarks concerned voluntary self-disclosure, which the DOJ described as “the clearest path for a company to avoid a guilty plea or an indictment.” The DOJ’s goal is “to reward those companies whose historical investments in compliance enable voluntary self-disclosure and to incentivize other companies to make the same investments going forward.”
This announcement follows other DOJ voluntary self-disclosure programs, such as the Antitrust Division’s Leniency Program, the Criminal Division’s voluntary disclosure program for FCPA violations, and the National Security Division’s program for export control and sanctions violations. Forthcoming voluntary self-disclosure policies will provide clear expectations of what self-disclosure entails, as well as the concrete benefits that self-disclosing companies may anticipate.
According to Monaco, the DOJ will not seek a guilty plea when – absent any aggravating factors – a company has voluntarily self-disclosed, cooperated, and remediated misconduct. Further, the DOJ will not require an independent compliance monitor “if, at the time of resolution, it also has implemented and tested an effective compliance program.”
For the DOJ, the hope is that this will be a value proposition for corporate America, making voluntary self-disclosure an attractive option to save “hundreds of millions of dollars in fines, penalties, and costs.” Monaco also noted that these policies could reduce the risk of collateral consequences like suspension and debarment in relevant industries.
Independent Compliance Monitors
The DOJ also made three significant announcements about monitors (previously discussed by our team in this article), including:
- Forthcoming guidance for prosecutors about how to identify the need for a monitor, how to select a monitor, and how to oversee the monitor’s work to increase the likelihood of success.
- A documented selection process that describes the monitor selection process and operates transparently and consistently.
- Closer interaction between Department prosecutors and monitors to ensure that the scope of every monitorship is tailored to the misconduct and related compliance deficiencies of the resolving company, with regular updates to verify that the monitor stays on task and within budget.
The DOJ will continue to evaluate corporate culture in determining appropriate resolutions, including compensation systems and corporate reactions to misconduct.
“Going forward, when prosecutors evaluate the strength of a company’s compliance program, they will consider whether its compensation systems reward compliance and impose financial sanctions on employees, executives, or directors whose direct or supervisory actions or omissions contributed to criminal conduct. They will evaluate what companies say and what they do, including whether, after learning of misconduct, a company actually claws back compensation or otherwise imposes financial penalties.”
- Enforcement is on the Rise
The DOJ’s aggressive rhetoric on corporate enforcement has become policy: DOJ will not only target individuals, but corporations too, and all on an expedited basis. To date, there have been 42 trials against 61 defendants in 18 districts and with convictions of the president of a publicly traded medical technology company for securities and healthcare fraud, a former senior U.S. Navy employee on bribery charges, and two former director-level traders at J.P. Morgan for engaging in a widespread scheme to manipulate the precious metals markets among others.
- Compliance is in-house at DOJ
DOJ has sought significant resources for corporate criminal enforcement, including the $250 million from Congress for corporate crime initiatives next year. It is also important to note that the incoming chief of the Fraud Section in DOJ’s Criminal Division is a longtime chief compliance executive. DOJ has also established the Corporate Enforcement, Compliance, & Policy Unit (CECP) to ensure that there is in-house expertise at DOJ in compliance, monitorships, and corporate enforcement matters. Earlier this week, DOJ also hired a data analytics expert in the CECP Unit who was formerly a global compliance chief. DOJ now has a team of multiple attorneys in the CECP Unit with significant compliance and monitorship experience and are training prosecutors on how to assess companies’ compliance programs. The Deputy Attorney General also formed the Corporate Crime Advisory Group to discuss ways to enhance our efforts to combat corporate crime.
- An Increased Role for Compliance Officers
Under the new policy, general counsels and chief compliance officers should review policies and relationships with outside counsel and work with them to examine executive compensation structures, clawback and financial arrangements, and what they may mean for the future. Timing will also be critical – whether to cooperate is no longer the only question, but when it occurs will also be outcome determinative. Moreover, DOJ has implemented Compliance Officer certifications to ensure that compliance officials are empowered to create and maintain effective compliance programs. A certification by the Chief Executive Officer and the Chief Compliance Officer may now be required for all Criminal Division corporate resolutions (including guilty pleas, deferred prosecution agreements, and non-prosecution agreements), which certifies that the company’s compliance program is reasonably designed, implemented to detect and prevent violations of the law, and is functioning effectively. “These certifications are designed to give compliance officers an additional tool that enables them to raise and address compliance issues within a company or directly with the department early and clearly,” according to DOJ.
- Training & History
Companies with a history of misconduct should evaluate corporate compliance policies now to avoid problems later. This includes a company’s full criminal, civil, and regulatory record. Training sessions for compliance professionals and senior executives and a review and analysis of compliance programs, audits, and controls are a good start to help identify potential areas of concern and stave off more significant problems later.