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On February 22, 2023, the U.S. Department of Justice (DOJ) announced and implemented a new Voluntary Self-Disclosure Policy specific to the 93 United States Attorney’s Offices (USAOs) throughout the nation. Before implementing this policy, each USAO was responsible for establishing its own rules for self-disclosure, including what benefits, if any, could be conferred upon self-disclosing companies. Now, all 93 USAOs will have a uniform policy providing companies with clear guidelines regardless of jurisdiction. The issuance of this Policy is part of an ongoing effort by the DOJ to make corporate criminal prosecutions more uniform across the United States.
What Constitutes Full Self-Disclosure?
Although each USAO still must assess voluntary self-disclosures on a case-by-case basis, the Self-Disclosure Policy sets broad criteria for what constitutes full self-disclosure and what benefits such disclosure may provide (notwithstanding certain exceptions). Voluntary self-disclosures that meet the below criteria will receive “significant benefits” from the DOJ:
- Voluntary. A self-disclosure is considered “voluntary” if it is not required by any pre-existing duty placed upon the company. For example, disclosures required by regulation, contract, or prior resolution with the DOJ are not considered “voluntary” self-disclosures under the Policy.
- Timely. A self-disclosure is treated as “timely” if it is: (1) prior to an imminent threat of disclosure or government investigation; (2) before it is publicly reported or otherwise known to the DOJ; and (3) within a reasonably prompt time after becoming aware of the misconduct.
- Fulsome. A self-disclosure is fulsome if it includes all relevant facts known to the company at the time of the disclosure. In addition, the DOJ will look to see if the company took steps to quickly preserve, collect, and produce relevant information to the DOJ upon learning about the alleged wrongdoing. The DOJ also expects companies who self-disclosed to provide it with timely factual updates as it proceeds with any internal investigations.
In addition to these requirements, the DOJ also expects companies to remedy their wrongdoing. This includes the company agreeing to pay all disgorgement, forfeiture, and restitution resulting from the misconduct. If a company does not, or cannot, meet these requirements, the DOJ will nonetheless consider the self-disclosure “favorably.”
What Benefits Do Voluntary Self-Disclosures Provide?
Self-disclosure may confer certain benefits upon a disclosing company, particularly when it self-discloses and remediates its wrongdoing following the criteria above. Most notably, absent aggravating factors, the DOJ will not seek a guilty plea where companies voluntarily self-disclose, fully cooperate, and timely remediate criminal conduct. Instead, prosecutors may consider resolving the matter through other means, including (1) declination; (2) a non-prosecution agreement; or (3) a deferred prosecution agreement, among other remedies. When a company demonstrates at the time of the resolution that it has implemented and tested an effective compliance program, prosecutors are instructed not to require or impose an independent compliance monitor.
What Happens If the DOJ Finds Aggravating Factors?
Despite following these guidelines, companies may still face exposure to criminal prosecution after a voluntary self-disclosure should an aggravating factor apply. Aggravating factors include misconduct that:
(1) poses a grave threat to national security, public health, or the environment;
(2) is deeply pervasive throughout the company; or
(3) involves current executive management of the company.
While the existence of an aggravating factor may cause the DOJ to seek a guilty plea from the company for its conduct, the company will nonetheless receive benefits for its voluntary self-disclosure. Those benefits include the USAO recommending a 50 percent to 75 percent reduction off the low end of the U.S. Sentencing Guidelines’ fine range for the offense and an agreement not to appoint a (potentially costly) independent compliance monitor.
With the Self-Disclosure Policy in place, the DOJ seeks to send a clear message: those who voluntarily self-disclose wrongdoing to the DOJ are less likely to face criminal prosecution, absent any aggravating factors. Despite the Policy’s intention to be transparent about the DOJ’s requirements to obtain self-disclosure benefits, it allows USAOs considerable discretion in applying the Policy and evaluating a company’s compliance with it. Accordingly, companies should not make the decision to self-disclose wrongdoing lightly and should consult experienced counsel before doing so.
The Policy closely follows remarks Assistant Attorney General Kenneth Polite made earlier this year about the DOJ Criminal Division’s policy updates on voluntary self-disclosure. “When a company has uncovered criminal misconduct in its operations, the clearest path to avoiding a guilty plea or an indictment is voluntary self-disclosure,” said Polite.
Anything Else to Consider?
In addition to the guidance above, on March 2, 2023, Deputy Attorney General Lisa Monaco announced at the American Bar Association’s annual National Institute on White Collar Crime that the DOJ will soon require companies to implement a compensation system that promotes compliance as part of a corporate criminal resolution. Monaco also said that the DOJ would reward corporations that attempt to claw back payments to law-breaking executives and employees as part of their internal efforts to mitigate wrongdoing. Companies who attempt to clawback compensation from bad actors will not only get to keep any recouped funds but will also receive reduced assessed fines. Noting that recouping previously paid compensation can be difficult, the Deputy Attorney General assured companies, and their lawyers, that the DOJ will still discount fines for corporations that make a good faith effort to claw back compensation but are unsuccessful.
Key Takeaways
- Self-disclosures must be voluntary, timely, and fulsome to receive credit. Companies should also remediate any consequences of the alleged wrongdoing.
- Absent aggravating factors, the USAO will not seek a guilty plea where companies voluntarily self-disclose, fully cooperate with the DOJ, and timely remediate their alleged wrongdoing.
- When aggravating factors are present, companies may still receive favorable treatment for self-disclosing, including fine reductions and avoiding compliance monitoring.
What Should You Do Next?
- Become familiar with the various DOJ policies that incentivize voluntary self-disclosures, including those from the Antitrust Division, the National Security Division, and the Tax Division.
- Prepare to have compliance policies that meaningfully address executive compensation and bonus structures since this will now be a factor in corporate criminal resolutions. Consider how clawback provisions may be used and weigh their effect on recruitment and retention.
Both the Voluntary Self-Disclosure Policy and the executive compensation pilot program show that the DOJ is departing from its historical practice of allowing USAOs to decide whether, and to what extent, voluntary disclosure, and compensation clawbacks count to the benefit of companies under criminal scrutiny. These new policies intend to address disparate treatment of corporate misconduct across the country’s 93 USAOs. Whether the new policies achieve this goal remains to be seen.
