U.S. DOJ Unveils Broad New Corporate Criminal Enforcement Policy Updates
In a major speech by Deputy Attorney General Lisa O. Monaco, the U.S. Department of Justice (“DOJ”) announced significant updates to its corporate criminal enforcement policies, including requiring greater cooperation during investigations and enhanced expectations for compliance and oversight. As the Biden Administration and DOJ continue to focus on corporate crime, corporate officers should pay special attention to these changes.
On September 15, 2022, Monaco unveiled broad revisions to DOJ corporate criminal enforcement policies during a speech at NYU Law School’s Program on Corporate Compliance and Enforcement. At the same time, the DOJ published a memorandum (the “Memo”) detailing these changes, many of which stem from discussions of the DOJ’s Corporate Crime Advisory Group.
Corporate officers should take careful note of the policies outlined by Monaco and the corresponding Memo. They follow on earlier changes announced by Attorney General Merrick Garland, Assistant Attorney General Kenneth Polite, Jr., and Monaco which emphasize harsher penalties, increased expectations for receiving cooperation credit, and greater compliance oversight by senior corporate officers. (You can read Linklaters’ coverage of those speeches here and here.) The underlying message in this line of speeches is clear: the DOJ will continue its crackdown on corporate crime by incentivizing strong compliance programs and extensive cooperation during investigations.
New Guidance, Policies, Incentives, and Disincentives
Monaco’s changes fall into five categories, and highlight how the DOJ is prioritizing and prosecuting corporate crime:
Monaco referred to individual accountability as “the Department’s number one priority.” “Whether wrongdoers are on the trading floor or in the C-suite,” she continued “we will hold those who break the law accountable, regardless of their position, status, or seniority.”
To improve prosecutions rates and timing, Monaco announced that undue or intentional delay in producing information or documents will result in the reduction or denial of cooperation credit for individual defendants. Further, she advised that production of evidence that is “most relevant for assessing individual culpability” should be prioritized. She also stressed that companies which discover important documents or evidence should speedily notify prosecutors.
Additionally, Monaco announced a policy of pursuing investigations and bringing charges against individuals prior to, or at the same time as, entering a resolution against the offender’s company in an effort to speed up individual accountability. As she explained, “[s]ometimes the back-and-forth of resolving with a company can bog down individual prosecutions.”
Both these policies are designed to push prosecutors and corporate counsel alike to “feel they are ‘on the clock’” in expediting investigations, guaranteeing a more break-neck pace in investigations and prosecutions of corporate officials.
History of Misconduct
In a previous speech last October, Monaco announced a policy of evaluating a company’s full criminal, civil, and regulatory record when determining an appropriate resolution to reduce corporate recidivism. In her speech last week, she provided additional guidance as to what this will look in practice, including that:
- “[N]ot all instances of prior misconduct are created equal” and that criminal resolutions in the United States and prior wrongdoing involving the same personnel or management will be afforded the greatest weight, while “dated” conduct—or criminal misconduct conduct greater than ten years or civil/regulatory misconduct greater than five years—will be given less weight.
- The DOJ will consider the “nature and circumstances of the prior misconduct” including whether it shared the same root causes as the present misconduct. Specifically, Monaco highlighted that prior misconduct indicating broader weaknesses in the compliance culture or practices will be judged more harshly, while companies that operate in highly regulated industries will be evaluated against their peers to determine if prior regulatory violations are common, or relatively minor.
- Companies that acquire subsidiaries with a history of compliance issues will not be treated as recidivists, so long as the acquiring company works to promptly and properly addressed problems post-acquisition.
- The DOJ will disfavor multiple, successive non-prosecution or deferred prosecution agreements with the same company.
Monaco stressed that “the clearest path for a company to avoid a guilty plea or an indictment is voluntary self-disclosure” and, thus, that the DOJ would be putting in place policies to incentivize self-disclosure. This includes requiring each DOJ component charged with prosecuting corporate crime to put in place a voluntary disclosure policy. Such policies will provide clear expectations of what self-disclosure should entail and will identify the concrete benefits that a self-disclosing company can expect. Further, Monaco announced that (absent aggravating factors) the DOJ will not seek a guilty plea or require an independent compliance monitor when a company has voluntarily self-disclosed, cooperated, and remediated misconduct, including by implementing an effective compliance program.
Independent Compliance Monitors
Another topic revisited from earlier speeches was the DOJ’s use of independent compliance monitors as part of settlement agreements to prevent recidivism. Monaco added further guidance on the DOJ’s expectations, including:
- Criteria for identifying the need for monitors and selection and oversight of monitors.
- Establishment of a documented monitor selection process to promote transparency and consistency.
- Policies for continued review of monitorships to ensure that the scope is tailored to the alleged misconduct and that monitors provide regular updates to keep on task and on budget.
Finally, Monaco announced several initiatives to encourage corporations to adopt a culture that “rejects wrongdoing for the sake of profit.” She stressed that “resourcing a compliance department is not enough.” Specifically, Monaco encouraged the use of clawback provisions, the escrowing of compensation, and other means of holding individuals who contribute to criminal misconduct financially accountable. She also encouraged building compensation systems that reward compliance-promoting behavior through affirmative metrics and benchmarks.
Conversely, the DOJ will now discourage certain practices, such as the use of non-disclosure or non-disparagement provisions in compensation or severance agreements that prevent the public disclosure of criminal misconduct by the company or its employees.
Overall, the DOJ’s message is clear: build strong compliance programs, incentivize good behavior, discourage bad behavior, cooperate early and thoroughly, and don’t repeat past mistakes. At the same time, raising the standards for what the DOJ expects companies to disclose during an investigation could discourage self-reporting. Other key take-aways from the new guidance include:
- Timing matters: for certain of the new policies, the DOJ stressed that timing itself is a factor to consider. For example, the DOJ announced that if disclosures of individual misconduct come too long after the alleged misconduct, the information could become stale, leading to no cooperation credit for the disclosure.
- Cooperation must be extensive and foreign data privacy laws are no excuse: the Memo makes clear that “cooperation takes many forms and is calculated differently based on the degree to which a corporation cooperates with the government’s investigation.” While recognizing that data privacy laws, blocking statutes, or other restrictions imposed by foreign law may complicate cooperation, the DOJ will expect the cooperating company to bear the burden of identifying reasonable alternatives for providing the requested facts and evidence.
- Personal devices, company business: In addition to compensation structures, the Memo identifies the use of personal devices and third-party applications to conduct company business as a factor for prosecutors to consider when evaluating a company’s compliance program. According to the DOJ, the use of personal devices or third-party platforms that encrypt messages inhibits corporations’ ability to monitor devices for misconduct. Thus, companies likely face significant consequences if they do not have policies prohibiting the conduct of business on personal devices or third-party platforms, or who do not properly monitor such behavior.
Corporate officers should take heed of the DOJ’s messages and start now in implementing the measures outlined in Monaco’s speech and accompanying Memo.