The Department of Justice is sending a clear message to companies when it comes to corporate crime: invest in strong compliance structures and culture and come forward quickly with information about misconduct—or suffer the consequences.
In a continuation of the DOJ's efforts to aggressively combat corporate crime, Deputy Attorney General Lisa Monaca announced in a speech on Thursday a "combination of carrots and sticks" to encourage companies to prevent misconduct and to report it when it does happen. Monaco detailed guidance for prosecutors targeting repeat offenders, policies to speed up prosecutions, a new DOJ policy with "concrete and positive consequences" for self-reported misconduct, guidance on compliance monitors and how the department plans to promote compliance with rewards for holding individual wrongdoers with financial penalties and clawback provisions.
"In short, we're empowering companies to do the right thing—and empowering our prosecutors to hold accountable those that don't," Monaco said.
The enhancements to the DOJ's corporate crime enforcement policies come after Monaco announced late last year a more aggressive focus on white collar crime. Then, the deputy attorney general spoke about a greater emphasis on individual accountability regardless of position or status, an increase in corporate compliance monitors and the formation of an advisory group to recommend revisions to the department's corporate criminal enforcement policies.
Thursday's announcement was a long-awaited update to those measures and the results of the advisory group.
Individual Accountability and Expediting Prosecutions
Holding individual wrongdoers accountable is the DOJ's "top priority for corporate criminal enforcement," according to Monaco. Despite several notable trial wins in the headlines over the last year, Monaco noted data indicating a decline in overall corporate prosecutions in the last decade. Now, the DOJ will expedite prosecutions by putting pressure on companies and their counsel who may delay disclosures or release of documents while they conduct their own internal investigations or attempt preemptive damage control.
If companies slow walk information providing documents or information, it could result in a reduction or denial of cooperation credit, Monaco said. This follows prior guidance that corporations are required to provide all relevant, nonprivileged information about individual misconduct to receive any credit for cooperation with prosecutors.
"If a cooperating company discovers hot documents or evidence, its first reaction should be to notify the prosecutors," Monaco said.
Monaco also said DOJ prosecutors should focus on completing investigations and seeking appropriate criminal charges before entering any resolution agreements with a corporation unless they develop a full investigative plan of any remaining work and a timeline to complete it. While not a seismic shift in DOJ policy, it does incentivize corporations to contend with speedier investigations by quickly evaluating individual misconduct and disclosing any information it has to avoid losing cooperation leverage.
Between 10% and 20% of large corporate criminal resolutions have involved repeat offenders, according to Monaco. That fact has led the DOJ to focus heavily on a company's prior history of misconduct when considering potential resolutions, although "not all instances of prior misconduct are created equal," the deputy attorney general said.
The DOJ will focus most heavily on criminal resolutions in the United States as well as repeat criminal behavior involving the same personnel or management. "Dated conduct" will be given less weight, such as violations from more than 10 years prior to a current investigation or civil and regulatory resolutions from more than five years prior. Specific circumstances of prior misconduct will also be considered, such as if the company is in a highly regulated industry.
To avoid discouraging mergers that could result in greater compliance, Monaco also said prosecutors will not treat corporations with relatively clean histories as recidivists if they acquire companies with a history of misconduct, "so long as those problems are promptly and properly addressed post-acquisition." The DOJ will also apply more scrutiny to non-prosecution and deferred prosecution agreements for repeat offenders.
"Companies cannot assume that they are entitled to an NPA or a DPA, particularly when they are frequent flyers," Monaco said. "We will not shy away from bringing charges or requiring guilty pleas where facts and circumstances require. If any corporation still thinks criminal resolutions can be priced in as the cost of doing business, we have a message—times have changed."
Voluntary Self-Disclosure and Compliance Monitors
The DOJ wants companies to come forward if they discover misconduct in their ranks. Referencing years of guidance, Monaco said the department wants to reward companies who significantly invest in compliance to enable self-disclosure and to encourage other companies to do the same.
Building on the successes of the criminal division's voluntary disclosure program for FCPA violations and the antitrust division's leniency program, Monaco said for the first time ever that every division that prosecutes corporate crime will have incentive programs for voluntary self-disclosure. She also announced prosecutors will not seek guilty pleas when a company self-discloses and cooperates as well as remediates misconduct. The DOJ also won't require independent compliance monitors for cooperating companies if they have implemented an effective compliance program by the time a resolution is on the table.
"Simply put, the math is easy: voluntary self-disclosure can save a company hundreds of millions of dollars in fines, penalties, and costs," Monaco said. "It can avoid reputational harms that arise from pleading guilty. And it can reduce the risk of collateral consequences like suspension and debarment in relevant industries."
In response to calls for more transparency, Monaco announced new guidance to avoid suspicion over how prosecutors identify the need for and select independent compliance monitors and how they oversee their work. All monitors will be selected based on a documented process and the scope of all monitorships will be tailored to the specific misconduct and compliance deficiencies at hand. Companies will also receive regular updates to verify monitors "stay on task and on budget."
Compensation Clawback Provisions
In a nod to the strength of corporate culture, Monaco said the DOJ wants to reward companies with strong compliance departments and that focus on rejecting wrongdoing "for the sake of profit." Federal prosecutors will consider clawback provisions and financial penalties for individual misconduct when evaluating a company's compliance program, including whether the company follows through with imposing those penalties.
The DOJ's criminal division will develop further guidance by the end of the year on how to reward companies that actually claw back compensation from an individual who engages in misconduct or employ similar financial penalties.
Companies should consider the following practical steps in light of the DOJ's new policies and goals on corporate crime:
- Review compliance programs and invest in measures that bolster a strong compliance culture: increase detection measures, formalize penalties for inappropriate risk-taking and other misconduct, and include remediation and disclosure measures for when misconduct does arise.
- Engage counsel when allegations arise or when facing an enforcement action to evaluate potential damage and best next steps for self-disclosure in light of the DOJ's focus on speedy prosecutions.
- In a merger or acquisition, quickly conduct due diligence and prepare as necessary to maintain a positive compliance reputation when interacting with the DOJ.
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