DOJ Announces More Corporate Enforcement Policies Coordinating Its Attack on Corporate Malfeasance
On the heels of its revised Corporate Enforcement Policy announced in January 2023, the Department of Justice (“DOJ”) announced more policies aimed at prosecuting and deterring corporate misconduct. In late February and early March 2023, the DOJ publicized a new Voluntary Self-Disclosure Policy applicable to all U.S. Attorney’s Offices, a Pilot Program Regarding Compensation Incentives and Clawbacks, and revisions to its Evaluation of Corporate Compliance Programs guidance memo. Together, these policies reveal a sharpened focus on enforcement priorities addressing corporate crime and provide important insight for companies to consider as they implement compliance programs and respond to discoveries of misconduct or wrongdoing by and in the company.
On March 2, 2023, Deputy Attorney General Lisa Monaco announced the U.S. Attorneys’ Offices Voluntary Disclosure Policy, which mirrors but does not wholly replicate the voluntary disclosure provisions of the revised DOJ Corporate Enforcement Policy. “By adopting one policy for all U.S. Attorneys’ Offices,” the new policy is designed to “eliminat[e] geographic disparities and uncertainties.” “[A]bsent aggravating factors, no department component will seek a guilty plea where a company has voluntarily self-disclosed, cooperated and remediated the misconduct.”
In the same speech, DAG Monaco also announced a Pilot Program aimed at driving compliance-promoting behavior at companies by focusing on the personal financial ramifications of compliance or malfeasance on company executives. According to DAG Monaco, “Companies should ensure that executives and employees are personally invested in promoting compliance. And nothing grabs attention or demands personal investment like having skin in the game, through direct and tangible financial incentives.” The Pilot Program is a three-year initiative applicable to all corporate matters handled by the DOJ’s Criminal Division; it is not specifically applicable to matters handled by various U.S. Attorney’s Offices, although the Criminal Division and a U.S. Attorney’s Office often handle corporate criminal investigations jointly.
On March 3, 2023, Assistant Attorney General for the Criminal Division, Kenneth A. Polite, Jr., announced revisions to the Evaluation of Corporate Compliance Programs (“ECCP”) memo, including two significant changes. First, the updated ECCP memo addresses personal devices and communications via messaging applications (e.g., Telegram, Signal, WhatsApp). In particular, the DOJ “will consider how policies governing these messaging applications should be tailored to the corporation’s risk profile and specific business needs and ensure that, as appropriate, business-related electronic data and communications can be preserved and accessed.” Second, in conjunction with the compliance and compensation Pilot Program, the DOJ “will consider more closely compensation structures and consequence management when evaluating compliance programs under the revised ECCP.”
Voluntary Self-Disclosure Policy
According to the Voluntary Self-Disclosure Policy, “Crediting voluntary self-disclosure of misconduct by companies helps incentivize self-reporting and ensure individual accountability for misconduct.” The memo first describes the standards or requirements a company must meet to constitute a voluntary self-disclosure and, second, identifies the benefits to a company that meets the standards.
The following are the standards that must be met:
- Voluntary: Voluntary Self-Disclosures (“VSDs”) must be “voluntary.” A disclosure will not be deemed a VSD where there is a pre-existing obligation to disclose.
- Timing: A VSD must be made to the U.S. Attorney’s Office (“USAO”) prior to an imminent threat of disclosure or government investigation; prior to the misconduct being publicly disclosed or otherwise known to the government; and within a reasonably prompt time after the company has become aware of the misconduct, with the burden on the company to demonstrate timeliness.
- Substance of the Disclosure: A VSD must include all relevant facts concerning the misconduct that are known to the company at the time of the disclosure.
Importantly, “[d]ecisions about whether a disclosure constitutes a VSD will be made by the USAO based on a careful assessment of the circumstances of the disclosure on a case-by-case basis and at the sole discretion of the USAO.” The memo further states, “Even if companies believe the government may already be aware of the misconduct through other means, companies are encouraged to make disclosures to the Department. Prompt self-disclosures to the government will be considered favorably, even if they do not satisfy all the VSD criteria.”
There are two main benefits to the VSD program. First, absent aggravating factors, the USAO will not seek a guilty plea where a company has (a) voluntarily self-disclosed in accordance with the required criteria; (b) fully cooperated; and (c) timely and appropriately remediated the criminal conduct. Aggravating factors include misconduct that poses a grave threat to national security, public health, or the environment; is deeply pervasive throughout the company; or involved current executive management of the company. Appropriate remediation “must include, but is not necessarily limited to, the company agreeing to pay all disgorgement, forfeiture, and restitution resulting from the misconduct at issue.” Notably, the USAO Voluntary Self-Disclosure Policy, unlike the revised Corporate Enforcement Policy, does not include a presumption of declination of prosecution. Instead, a U.S. Attorney’s Office may seek a Deferred Prosecution Agreement (“DPA”) or a Non-Prosecution Agreement (“NPA”). The second benefit to the VSD program is that the U.S. Attorney’s Office may choose not to impose a criminal penalty or, if it does so, may impose a penalty up to 50% below the low end of the U.S. Sentencing Guidelines fine range.
Pilot Program Regarding Compensation Incentives and Clawbacks
There are two main components to the Pilot Program Regarding Compensation Incentives and Clawbacks. First, every corporate resolution entered into by the Criminal Division shall include a requirement that the resolving company implement compliance criteria in its compensation and bonus system, which may include:
- a prohibition on bonuses for employees who do not satisfy compliance performance requirements;
- disciplinary measures for employees who violate applicable law and others who both (a) had supervisory authority over the employee(s) or business area involved in the misconduct; and (b) knew of, or were willfully blind to, the misconduct; and
- incentives for employees who demonstrate full commitment to compliance processes.
Second, companies may receive fine reductions if they seek to claw back compensation from corporate wrongdoers. Specifically, companies can receive a reduction of 100% of any such compensation that is recouped during the period of resolution. However, this fine reduction does not affect any applicable restitution, forfeiture, disgorgement, or other agreed-upon payment by the company itself. If a company makes a good faith effort to recoup such compensation but is not successful, the company may still receive a reduction of up to 25% of the amount of compensation the company attempted to claw back.
Revised Evaluation of Corporate Compliance Program
The Revised ECCP is, by its terms, guidance, rather than a requirement. However, the revised ECCP is designed to assist prosecutors to determine whether, and to what extent, the corporation’s compliance program was effective at the time of the offense and, in light of that, whether the company should be charged. Accordingly, companies should strongly consider revising their compliance programs in line with this guidance.
The Revised ECCP also includes significant discussion regarding company communications and the use of messaging platforms by company employees. Specifically, prosecutors should consider a corporation’s policies and procedures governing the use of personal devices (i.e., Bring Your Own Device policies), communications platforms, and messaging applications to ensure that, as appropriate and to the greatest extent possible, business-related electronic data and communications are accessible and subject to preservation by the company. According to Assistant Attorney General Polite, if a company has not produced communications from third-party applications such as messaging applications, prosecutors will inquire further as to why a company cannot, or will not, produce such communications.
The Revised ECCP also includes a discussion of “Compensation Structures and Consequence Management,” focusing on whether the company’s compensation structure clearly and effectively imposes financial penalties for misconduct, in order to deter risky behavior and foster a culture of compliance. Compensation programs can also reward and promote good behavior, and the revised ECCP asks prosecutors to examine whether a company has made working on compliance a means of career advancement, offered opportunities for managers and employees to serve as a compliance “champion,” or made compliance a significant metric for management bonuses.
Implications of the New Policies
Similar to the revised Corporate Enforcement Policy memo, these new policies begin with the premise that there is criminal misconduct. However, the question of whether corporate misconduct, including the personal misconduct of individual executives and employees, is criminal is often unclear in complex, white-collar investigations. Learned legal minds may and often do reasonably disagree on whether there was a crime. A lengthy internal investigation and substantial legal analysis by the company’s attorneys may be necessary to differentiate between intentional misconduct and a negligent mistake or series of mistakes.
In order for a company to reap the benefits of the VSD program, it must report in a “reasonably prompt” timeframe. This is not a term capable of clear definition and must therefore depend on the facts of the matter. Hopefully, the DOJ understands that self-reporting (and the decision to do so) may first require a significant investigation and analysis of complex issues. While in her remarks, DAG Monaco encouraged companies to err on the side of earlier disclosure, a company must also consider the risks of doing so based on incomplete information.
Additionally, according to the memo, VSDs only occur when the disclosure of misconduct is made voluntarily and without a pre-existing obligation. This requirement may prevent companies in heavily regulated industries that have mandatory self-reporting obligations, such as healthcare companies, from reaping the benefits of the program.
The Pilot Program Regarding Compensation Incentives and Clawbacks does not include exemptions for when other applicable laws, such as labor and employment laws, conflict with the policy, and it remains to be seen how the DOJ will address such issues. For example, if the individual wrongdoer has not been charged and convicted with criminal conduct, the company may be prevented by contract or corporate by-laws from clawing back compensation.
The ECCP’s revisions related to messaging apps and personal device polices may conflict with data privacy laws.
Notwithstanding the unanswered questions, these new and updated DOJ pronouncements signal increased and stricter focus on corporate criminal enforcement and measures to promote good corporate citizenship.
- Aaron M. Danzig