- within Corporate/Commercial Law topic(s)
- in United States
Key Takeaways
- The U.S. Attorney's Office for the Southern District of New York (SDNY or the Office) has formally adopted a written Corporate Enforcement and Voluntary Self-Disclosure Program for Financial Crimes, effective Feb. 24.
- Companies that promptly self-report qualifying financial misconduct, fully cooperate, remediate harm and make restitution can expect a conditional declination within two to three weeks, no criminal fines or forfeiture and no corporate monitor.
- Companies that learn of misconduct and choose not to self-report face a strong presumption against declination and an increased likelihood of adverse outcomes.
Background
On Feb. 24, SDNY announced its updated Corporate Enforcement and Voluntary Self-Disclosure Program for Financial Crimes. The updated policy follows remarks by U.S. Attorney for SDNY Jay Clayton previewing the "big carrot" of fast-tracked corporate declinations at the Securities Enforcement Conference earlier this month. The program applies to fraud and financial misconduct affecting market integrity and is consistent with the Department of Justice's (DOJ) broader corporate enforcement framework while reflecting SDNY's distinct emphasis on speed, certainty and accountability.
The stated purpose of the program is to encourage early detection and cessation of misconduct, promote restitution to victims and provide companies with clarity regarding the consequences of voluntary disclosure. At the same time, the policy makes explicit that companies that choose not to self-report in the face of misconduct do so at substantial risk.
Scope of Covered Misconduct
The program applies to a broad range of financial crimes, specifically:
- Fraud by a company or a corporate officer, director or employee
- Fraud in connection with securities, commodities or digital asset offerings
- False statements to auditors or federal financial regulators
- Willful violations of core federal securities and commodities statutes that undermine market integrity or harm customers, competitors or market participants.
The definition of "fraud" under the policy is expansive and encompasses "all manner of intentionally deceptive conduct," including insider trading, spoofing, embezzlement, misappropriation and market manipulation.
Eligibility Requirements for a Declination
Unlike earlier SDNY self-disclosure policies, this policy applies only to companies, not to individuals. To be eligible for a declination under the program, a company must satisfy several threshold requirements.
Timely and Voluntary Disclosure. First, the company must timely and voluntarily self-disclose misconduct. Disclosure must occur before the company learns of a government investigation and before it receives a subpoena or document request from law enforcement or a regulator. Knowledge of a whistleblower complaint, media reporting on the alleged illegal activity or a prior self-report to another agency does not automatically disqualify a company from taking advantage of this program. However, the policy still places an emphasis on speed and notes that a "[d]elay in making a disclosure, especially where strategic or self-serving, may disqualify a company under this program even if the company has not completed its own investigation of the circumstances." (Emphasis added.) Companies that choose to self-report must provide substantive and specific information, including "all known facts" about the misconduct.
Full Cooperation. Second, the company must commit to full cooperation. This includes but is not limited to providing complete nonprivileged factual information; identifying the individuals involved in the wrongdoing; sharing the results of internal investigations; producing relevant documents and specifically identifying materials relevant to individual culpability or illegal activity; preserving records across all platforms, including ephemeral messaging applications; and making witnesses available for interviews and testimony, subject to individual rights.
The cooperation obligations contain an ongoing requirement to report any credible evidence or allegations of additional criminal conduct by the company or its employees for a period of three years. However, the policy specifically states that companies will not be required to employ a monitor as part of any resolution with SDNY.
Commitment to Remediation. Third, the company must commit to remediation, which may include enhancing compliance programs and disciplining or removing individuals involved in misconduct. Notably, the new policy does not require companies to fully remediate in the first instance. Rather, a cooperating company need only commit to remediation in order to receive a conditional declination, and then it must take steps to remediate harm before a final declination can be issued.
Restitution. Fourth, the company must commit to making full restitution to injured parties as defined by federal law. SDNY will credit restitution paid through regulatory resolutions, such as settlements with the Securities and Exchange Commission (SEC). Cooperating companies will not face additional civil monetary penalties from SDNY; under the new policy, SDNY will not seek criminal fines or forfeiture if the company "makes reasonable best efforts to provide prompt and full restitution to all injured parties."
Fast-Track Conditional Declinations
For companies that satisfy these eligibility criteria, SDNY offers a defined and expedited resolution process. Shortly after a qualifying self-report – typically within two to three weeks –the Office will issue a conditional declination letter stating its intent to decline prosecution, provided the company fulfills its cooperation, remediation, restitution and reporting obligations.
Once those obligations are satisfied, SDNY will issue a final declination notice and close the matter without criminal charges. Importantly, the Office will not seek criminal fines or forfeiture when restitution is made and will not impose a corporate monitor as part of the resolution.
Declinations apply only to companies, not to individuals, underscoring SDNY's stated goal of holding culpable individuals accountable even when companies receive leniency.
Aggravating Circumstances and Disqualifiers
The policy identifies limited aggravating circumstances that render a company ineligible for a declination, including conduct involving terrorism, sanctions evasion, foreign corruption, trafficking, cartel activity, forced labor or physical violence.
Notably, SDNY expressly states that the seriousness of the offense, the pervasiveness of misconduct, the involvement of senior leadership or prior criminal adjudications do not, standing alone, disqualify a company from eligibility. This reflects SDNY's view that early voluntary disclosure and remediation can outweigh even significant misconduct within the program's scope.
The 'Big Stick': Presumptions for Nondisclosure
The policy also formalizes the consequences of silence. Where a company learns of illegal activity and elects not to self-report, SDNY will treat that decision as weighing heavily against any future request for declination. If misconduct later comes to light and the corporate actors are found criminally liable, there will be a presumption that an appropriate resolution will involve a guilty plea, a deferred prosecution agreement or a non-prosecution agreement accompanied by restitution, forfeiture and a monetary penalty.
In short, nondisclosure is not a neutral strategic choice – it is an explicit enforcement risk that can materially worsen outcomes.
SDNY's Model Declination
With the announcement of the new policy, SDNY also released a model declination letter, which provides valuable insight into the practical and legal consequences of accepting a conditional declination. Most notably, the letter makes explicit that a conditional declination is revocable. If the Office determines that a company provided false, incomplete or misleading information; failed to cooperate fully; or otherwise breached its obligations, SDNY may rescind both a conditional and a final declination and pursue criminal charges. In that event, the company bears the burden of proving its eligibility for declination, and SDNY retains sole discretion to determine whether a breach has occurred. Although companies are afforded an opportunity to respond in writing before a declination is revoked, the letter underscores that declination is not a safe harbor if cooperation falters.
The model letter also highlights several structural and transactional implications that companies should consider early. Declinations apply only to the company – not to individuals – and provide no protection for future misconduct. Statements made to SDNY in connection with the self-report and cooperation may be used against the company if the declination is withdrawn, and the statute of limitations is tolled during the pendency of the conditional declination. In addition, companies contemplating mergers, sales or other changes in corporate form must bind successors to the declination's obligations and provide advance notice to SDNY or risk the transaction being deemed a breach. Together, these provisions show that SDNY views declination not as a passive resolution but as an ongoing enforceable commitment that can affect governance, disclosures and strategic transactions long after the initial self-report.
Practical Considerations for Companies and Executives
For corporate leaders, SDNY's policy underscores the importance of early detection, rapid escalation and disciplined internal investigations. Companies seeking to avail themselves of the program must be prepared to assess potential misconduct quickly and make disclosure decisions before regulators initiate inquiries.
The policy also reinforces SDNY's focus on individual accountability. Declinations apply only to companies, not to officers, directors or employees, and executives should expect scrutiny of both actions and inaction once misconduct is identified.
Companies operating in financial markets should ensure that compliance programs, reporting channels, document-retention practices and investigation protocols are aligned with the expectations set forth in SDNY's new framework. Investments in strong compliance governance and readiness to engage transparently with law enforcement can meaningfully influence outcomes if issues arise.
Companies also must remain alert to risks that arise beyond their own conduct. Where a business partner, intermediary or counterparty is engaged in misconduct, companies may find themselves drawn into a government investigation under aiding and abetting or conspiracy theories, even absent direct participation in the underlying wrongdoing. As a result, SDNY's framework underscores the importance of robust diligence, ongoing monitoring and escalation mechanisms for third-party relationships. Companies operating in high-risk areas should be prepared to examine and pressure test those relationships proactively before potential misconduct by others becomes an enforcement problem of their own.
The BakerHostetler White Collar, Investigations and Securities Enforcement and Litigation team is composed of dozens of experienced individuals, including attorneys who have served in the DOJ and at the SEC. Our attorneys include three former U.S. attorneys, former assistant U.S. attorneys and unit chiefs, and partners who have served in the SEC's Division of Enforcement and the SEC's Office of the General Counsel. Our team has extensive experience in defending regulatory investigations and litigation and in providing compliance counseling. Please feel free to contact any of our experienced professionals if you have questions about this alert.
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