Constituent policy

Carrots and Sticks: DOJ Announces Policy Change on Corporate Crime | Akerman LLP

On September 15, US Deputy Assistant General (“DAG”) Lisa Monaco announced new changes to US Department of Justice (“DOJ”) policy during a speech on corporate criminal law enforcement. at New York University School of Law in New York.

In October 2021, the DAG Monaco announced that the DOJ would create a Corporate Crime Advisory Group comprised of DOJ experts, whose purpose would be to conduct a top-down review of DOJ enforcement policies and strategies. . As a result of this review, DAG Monaco announced further changes to DOJ policy on prosecuting corporate crimes. She said the new policies make it clear that the U.S. government will not accept “business as usual” with respect to violations committed by U.S. companies as well as international companies under U.S. jurisdiction. Notably, she pointed out that the DOJ would be implementing its new policies using a combination of “carrots and sticks” — using a mixture of incentives and disincentives — to encourage business compliance.

The need for speed: individual responsibility

Monaco stressed that the DOJ’s top priority is individual accountability, which means employees of offending companies, even senior executives, can and will be held accountable for companies’ violations of US law. This suggests that the number of lawsuits against corporations in which no individual is held liable may soon be significantly reduced.

Additionally, Monaco acknowledged that prosecution data reflected an overall decline in criminal prosecutions over the past decade, and promised that the DOJ would empower its prosecutors to “do more and act faster.” including providing resources to facilitate the DOJ’s ability to expedite and increase investigations of those involved. in corporate misconduct.

The DOJ will do this by raising the bar for non-compliant companies when it comes to voluntary disclosure and cooperation. The Department will require cooperating companies to submit material evidence more quickly than before, which will no doubt put even more pressure on companies to ensure they have effective compliance programs in place and the ability to actively monitor high-risk activities and transactions.

The DOJ will now require companies to notify the US government as soon as they discover key documents or evidence related to potential misconduct. DAG Monaco noted that companies and their counsel often engage in “manipulation” and delay the release of critical documents and information while conducting internal investigations and considering mitigation strategies. She said the DOJ will now focus on speed and penalize companies that unduly or intentionally delay providing documents and information to the government — particularly when the information suggests individual culpability at any level. Specifically, when the DOJ finds that companies fail to meet these heightened requirements, the Department will reduce or outright deny approval of cooperative credit which can significantly reduce penalties and fines.

The DOJ hopes these new guidelines will push prosecutors and companies to feel the pressure to be “on the clock” and result in expedited investigations, especially as they suggest individual wrongdoing exists. . Overall, these new guidelines establish new and strengthened requirements for the timing of investigations and clarify DOJ priorities.

History Matters: Repeat Corporate Offenders

Monaco noted that the most popular topic of discussion within the Corporate Crime Advisory Group was the DOJ’s ongoing commitment to consider the entire criminal, civil and regulatory record of any business when deciding on the appropriate resolution. of an investigation.

Monaco has unveiled new guidelines on how the DOJ will assess a corporate actor’s compliance history. She said “not all instances of prior misconduct are created equal.” In light of this, the DOJ will consider US criminal history as most important, as well as prior wrongdoing involving the same personnel or management as the current misconduct. The DOJ will give “less weight” to older conduct that occurred in the past (more than 10 years ago for criminal resolutions, and more than five years ago for civil or regulatory resolutions) under a leadership and a different executive direction.

The DOJ will also, as is the practice, examine the nature and circumstances of the prior misconduct and focus on whether the same root causes or compliance failures are involved, or whether the wrongdoing occurred under the supervision of the same persons or under the same management. teams. The DOJ will assess each company and any past wrongdoing in the context of its industry, size, and sophistication. For example, if a company operates in a heavily regulated industry, its history will be compared to peer companies that are in the same situation.

Monaco emphasized that the DOJ does not wish to discourage or halt acquisition activity, particularly when such acquisitions result in improved internal compliance structures and overall compliance cultures. Going forward, the DOJ will not treat companies with strong compliance records as repeat offenders if they have acquired a company with a history of compliance issues or other corporate misconduct, as long as the company acquirer quickly resolves these issues through post-acquisition due diligence and compliance assessments.

In addition, the DOJ will adopt a policy that disfavors multiple non-prosecution or deferred prosecution agreements with the same companies. Monaco has suggested that before a prosecution team is allowed to submit a bid, DOJ management will carefully review the case to ensure greater consistency within the Department regarding repeat offenders. Monaco joked that companies cannot just assume they are entitled to a non-prosecution or deferred prosecution agreement, “especially when they are frequent travellers”.

Moving Forward: Voluntary Self-Disclosure and Investing in Compliance

DAG Monaco said the DOJ is committed to providing incentives to companies that come forward and voluntarily disclose misconduct to the US government. It’s not a new concept; The DOJ has always had an informal policy in place in which it considers self-disclosure to be an indication that a company has designed and implemented effective policies and procedures that foster a culture of compliance and encourage detection and detection. reporting faults.

What’s new is that for the first time ever, every element within the DOJ that prosecutes corporate crimes will adopt a formal, documented policy that encourages voluntary self-disclosure. These policies must provide “clear expectations about what self-disclosure entails” and must “identify the concrete benefits that a company that self-discloses can expect.” This imperative creates greater urgency for companies to consider how and when to address potential self-disclosure issues with outside counsel – the sooner the better.

Monaco said common principles will apply to these policies across all components of the DOJ. “Absent aggravating factors, the Department will not seek a guilty plea where a company has willfully disclosed, cooperated and cured wrongdoing.” The DOJ also won’t require an independent compliance monitor if a company implements and tests an effective compliance program to account for its failures. This is a significant policy change, as independent compliance monitors typically cost companies hundreds of thousands or even millions of dollars.

Monaco said the DOJ’s “goal is simple: reward companies whose historical investments in compliance enable voluntary self-disclosure and inspire other companies to make the same investments in the future.” This is a strong signal for all businesses to constantly reassess and update existing compliance programs. And for companies that have yet to have a robust compliance program in place, this is a clear directive that now is the time to commit the time and resources to investing in such a program. By taking preventive measures, companies can protect themselves from significant financial and reputational harm, and can also reduce the risk of consequences such as secondary sanctions (SDN designation), as well as suspension and exclusion in certain sectors.

The DOJ has had success with its corporate voluntary disclosure programs, particularly within the Criminal Division for violations of the Foreign Corrupt Practices Act (“FCPA”), as well as the National Security Division for export control and sanctions violations. Given the current international political climate, these cross-border issues where the United States can often assert jurisdiction over foreign corporations are of the utmost importance. In sum, it is wise, in terms of value proposition, for companies to invest in compliance. Ultimately, if a company becomes involved in a government investigation, a strong compliance program and voluntary disclosure will yield significant benefits, most likely resulting in a more favorable resolution compared to companies that do not have such procedures in place. measures.

Money Talks: Clawbacks and Financial Incentives for Individuals

Finally, DAG Monaco announced a policy change whereby the DOJ will now take into consideration, when evaluating a company’s compliance program, whether the company’s “compensation systems reward compliance and impose penalties to employees, officers or directors whose direct or supervisory actions or omissions have contributed to criminal conduct.” Importantly, the DOJ will assess both what companies say publicly (including in press releases or public statements as well as regulatory filings), as well as what companies actually do when they learn of a fault that can be attributed in any way to an employee, manager, or executive. Monaco said it had instructed the DOJ’s criminal division to develop new guidelines by the end of the year on how to reward companies that implement and execute compensation or recovery recoveries. other agreements of this type. The DOJ’s objective with respect to this policy is to shift the burden of corporate financial sanctions from shareholders who bear no responsibility for misconduct to corporate actors who are directly responsible for compliance failures. and the resulting misconduct.

Conclusion

These new policies will impact how in-house counsel, outside counsel, and companies approach investigations. The calculation to reach a resolution under the most favorable conditions must include the consideration of these new directives to avoid unjustified or avoidable sanctions.