Overview
Building on last year’s October 2021 announcement regarding the Department of Justice’s (DOJ) corporate criminal enforcement policies, on September 15th Deputy Attorney General (DAG) Lisa Monaco issued another closely watched memorandum on the subject. The lengthy 15-page memo, issued to prosecutors and entitled “Further Revisions to Corporate Criminal Enforcement Policies Following Discussions with Corporate Crime Advisory Group,” announces key clarifications and updates to the enforcement practices and policies that were broadly laid out close to a year ago. The changes, as now fleshed out, could have far-reaching implications for corporate legal and compliance departments. Below is a summary of key points from the memo and their relevance to companies’ compliance programs, internal investigations processes, and dealings with the Department of Justice if the company finds itself under scrutiny.
DOJ: “We Need to Do More and Move Faster”
The memo underscores the DOJ’s “number one priority” of prosecuting and punishing individual wrongdoers. As DAG Monaco explained, “Whether wrongdoers are on the trading floor or in the C-suite, we will hold those who break the law accountable, regardless of their position, status, or seniority.” And, DAG Monaco expects to bring wrongdoers to justice more quickly: “Speed is of the essence.”
While the DOJ’s stated focus on prosecuting individuals is not new, DAG Monaco’s most recent memo is remarkable for its increased and explicit emphasis on the ways in which a company that is seeking credit for cooperation from DOJ will be expected to affirmatively assist the DOJ in accomplishing that goal, and in a timely manner. Companies providing information that is both complete enough and provided promptly enough to assist the DOJ in successfully identifying, investigating, and prosecuting individual wrongdoers, will benefit. Companies that the DOJ concludes have dragged their feet in terms of promptness, or have not been complete in providing information, risk costly consequences if the company’s goal is obtaining cooperation credit.
Timely Self-Disclosure and Cooperation
In the DOJ’s view, one of the most concrete forms of assistance a corporation can provide is early and thorough self-reporting of wrongdoing. The September memo confirms that companies that timely disclose internal wrongdoing to the DOJ will “benefit.” When coupled with compliance and remediation, and “[a]bsent aggravating factors,” (1) the DOJ will not seek a guilty plea from a self-reporting company; and (2) the DOJ will not require the imposition of an independent compliance monitor.
Importantly, while some DOJ enforcement units (including the FCPA Criminal Division, the Antitrust Division, the National Security Division, and the Environment & Natural Resources Division) already have policies in place that address expectations for corporate voluntary disclosure, not all departments do. The memo now directs each and every “Department of Justice component” to develop a formal written policy on corporate voluntary self-disclosure.
In addition, the memo stresses that only timely self-disclosures, without “undue delay or intentional delay,” will earn a corporation full credit. The memo specifically ties the evaluation of a company’s timeliness in providing information to the DOJ’s emphasis on the goal of prosecuting individual wrongdoers, observing that delay by a company in providing relevant information to the DOJ can result in an “expiration of statues of limitations, the dissipation of corroborating evidence, and other factors that inhibit individual accountability.” Then, in addition, the memo imposes two new requirements on prosecutors that are designed to buttress this goal. First, the memo requires that, “in connection with every corporate resolution, Department prosecutors must specifically assess whether the corporation provided cooperation in a timely fashion.” Second, the memo directs that prosecutors “must strive to complete investigations into individuals – and seek any warranted individual criminal charges – prior to or simultaneously with the entry of a resolution against the corporation.”
Data Collection
The DOJ memo also seeks to incentivize companies to put in place policies and procedures that will permit the collection and retention of data. The memo addresses the kinds of information that sometimes elude law enforcement. Specifically, the memo discusses employees’ personal devices and third-party messaging platforms, the use of which creates information and data that can be challenging to identify, collect, and review. While offering no guidance on how to solve the thorny problem of locating and collecting data stored on personal devices and communications that have passed through encrypting applications (and without suggesting a ban on such devices and platforms), the DOJ instead leaves it to companies to solve the problem. Should they solve it, corporations stand to benefit if the information turns out to be useful to DOJ investigators. If they do not collect and disclose the information, corporations risk losing full credit from the DOJ despite otherwise significant efforts at cooperation.
Similarly, the DOJ seeks to encourage companies to disclose relevant information from foreign jurisdictions. If that information cannot be produced, the company bears the burden to establish why, and provide reasonable alternatives for the DOJ to obtain the facts.
Compensation Structures
The memo also builds on the DOJ’s prior policy pronouncements encouraging companies to design and maintain robust compliance programs. While DAG Monaco’s September memo explains that having an effective compliance program and ethical corporate culture does not by itself serve as a defense to corporate criminality, it may lend itself to a favorable corporate resolution. When a company finds itself in the crosshairs of a DOJ investigation, prosecutors will evaluate the adequacy and effectiveness of its compliance programs, both at the time of the offense and at the time of charging decisions. Prosecutors will favorably consider the existence of a compliance program that “is well designed, adequately resourced, empowered to function effectively, and working in practice.”
In the September memo, the DOJ specifically addresses companies’ compensation structures as a compliance tool, encouraging companies to implement executive compensation models that have both incentives to encourage good behavior and deterrents to discourage wrongdoing. On the latter point, the DOJ’s memo announces for the first time that it will evaluate a company’s compensation structure favorably if it includes punitive provisions, including compensation escrow and clawback provisions.
Independent Compliance Monitors
While DAG Monaco’s September memo offers a potential road map to companies to try to avoid the imposition of a compliance monitor, it also provides clarification as to the factors that will lead the DOJ to conclude that imposition of a monitorship is warranted. Consistent with the October 2021 memo, which expressly rescinded DOJ guidance during the prior administration suggesting that monitorships are disfavored, the September memo notes that the decision will be case-specific and that the DOJ views monitorships not only as “necessary” but also as having “potential benefits” depending on the circumstances. In deciding whether to impose a monitor, the DOJ will consider many factors, including: whether the misconduct was satisfactorily self-disclosed; whether at all times there was an effectively utilized compliance program to detect and prevent similar future misconduct; whether the criminal conduct was pervasive or whether it was approved or ignored by senior management; and whether adequate investigative or remedial steps were taken.
Corporate Misconduct History
The memo also tackles how, and to what extent, a company’s prior history of resolutions involving corporate misconduct will impact current resolutions. Significantly, the memo provides detailed guidance as to how the DOJ will implement its announcement in the October memo that prosecutors’ consideration of a company’s prior misconduct will not be limited to similar misconduct, but instead can include consideration of any prior criminal, civil, or regulatory resolution, as well as from any jurisdiction domestic or foreign. This is a notable move away from prior DOJ policy that heavily focused on the similarity of prior misconduct, and the additional, more detailed guidance was much needed given the expansive scope of the current approach.
The memo does recognize that not all prior misconduct is equally relevant or probative. Prosecutors will give more or less weight to a company’s history based on various factors, including the time that has elapsed since the prior misconduct, the nature of the prior resolution, and the conduct at issue in the prior resolution. The memo moreover sets forth specific parameters, such as the notion that prior misconduct that was more than five years ago should be afforded lesser weight, absent specific countervailing circumstances that give such matters continuing relevance.
Additionally, the guidance acknowledges that the level of regulation to which a company is subject is a relevant factor in determining how much weight to place on a company’s prior history: “Corporations operate in varying regulatory and other environments, and prosecutors should be mindful when comparing corporate track records to ensure that any comparison is apt. For example, if a corporation operates in a highly regulated industry, a corporation’s history of regulatory compliance or shortcomings should likely be compared to that of similarly situated companies in the industry.” Certain industries or sectors are more highly regulated than others and thus more prone to rule violations. The guidance directs prosecutors to take this into account in order to determine if the company is an outlier. This is a critical point and one that counsel representing companies in highly regulated industries–such as insurance, transportation, and energy–should be prepared to demonstrate when advocating for their clients before the DOJ.
The DOJ also will consider whether prior misconduct predated an acquisition of the company. If an entity currently under investigation was acquired by a new company after the misconduct, the integration of that acquired entity into an “effective, well-designed compliance program at the acquiring company” will count in the company’s favor despite its history of wrongdoing.
Finally, consistent with the overall tenor of the current guidance, the September memo is clear that the DOJ will be disinclined to enter into successive deferred or non-prosecution settlements with a company. Where a company has already obtained this type of resolution in a criminal matter, the DOJ will be less inclined to afford that type of settlement to the company in a subsequent matter. Essentially, this policy reinforces that the DOJ views these types of settlements as opportunities for a company to reform, and that companies must seize those opportunities.
Key Takeaways
In its pronouncements over the last year, the DOJ has signaled increased enforcement actions in the coming future. A careful reading of its memos provides useful guidance on how companies can best position themselves to operate and respond in the current enforcement environment. One thing is clear: barebones cooperation and rudimentary compliance programs are not enough. The burden and costs of cooperation have risen, and so too have the potential consequences for failing to fully comply. Companies need to familiarize themselves with the DOJ’s high expectations for cooperation, or risk costly and damaging consequences. Compliance and legal departments should be ready to conduct thorough and swift internal investigations even before DOJ involvement. They should implement new, and strengthen existing, compliance measures, including practices that address data collection/retention and compensation structures. And they should familiarize themselves with the factors that will help achieve the most favorable resolution possible if the company’s conduct comes under scrutiny by the DOJ.
