DOJ’s New Corporate Enforcement Policies Target Individuals and Incentivize Self-Disclosure

On September 15, 2022, Deputy Attorney General Lisa Monaco announced significant changes to the U.S. Department of Justice’s (DOJ) approach to corporate criminal enforcement, including revised policies and an accompanying memorandum with directives to DOJ components (collectively, the Monaco Memo). These changes follow from the Corporate Crime Advisory Group convened in connection with the Biden Administration’s corporate criminal enforcement strategy unveiled last fall. 

These changes build on the Biden Admiration’s pledges to increase corporate criminal enforcement, after a decade-long decline in corporate prosecutions. Although it remains unclear whether DOJ will have the added enforcement resources needed to make good on its commitment, the changes have implications for corporations and corporate compliance programs. Key implications include that:

• Compensation systems will come under heightened scrutiny;
• Companies should reevaluate how they respond to complaints and alleged misconduct;
• The benefits of a “wait and see” approach to compliance may be waning; and
• Due diligence remains critical.

We summarize the new policies and the key implications below.

Individual Accountability

Deputy Attorney General Monaco reiterated that DOJ’s “first priority in corporate criminal matters is to hold accountable the individuals” involved in corporate wrongdoing. Since the 2015 Yates Memorandum, DOJ has required corporations to disclose relevant, non-privileged facts about individual misconduct in order to obtain cooperation credit. However, Monaco expressed concern that corporations were engaged in strategic delay in disclosing information, slowing down prosecutions of individuals. To encourage speed in disclosures, the new policy provides that cooperation credit will only be awarded to corporations if they timely produce all relevant facts. Monaco specified that a company’s “first reaction” to discovery of hot documents or evidence “should be to notify the prosecutors” and that not doing so could risk a reduction or denial of cooperation credit.

Voluntary Self-Disclosure

DOJ has long sought to encourage corporations to voluntarily self-disclose misconduct to DOJ before it is publicly reported or otherwise known to DOJ, largely through policies adopted by certain DOJ components. Under the Monaco Memo, every DOJ component will be required to adopt a formal, documented policy explaining the benefits provided for voluntary self-disclosure. Although DOJ components will have some latitude, every policy will be required to include two important incentives: first, that DOJ will not seek a guilty plea when a company has voluntarily self-disclosed and engaged in appropriate remediation; and second, DOJ will not require an independent compliance monitor if the company has implemented and tested an effective compliance program.

Corporate Compensation and Communications

The Monaco Memo also requires prosecutors to consider two additional factors in their evaluation of compliance programs, beyond those set forth in prior guidance from the DOJ Criminal Division.

The first new factor DOJ will assess is whether a company’s compensation systems reward compliance and penalize criminal conduct, such as by using clawback provisions or other contractual language that allows a company to reduce an executive’s compensation in the event of misconduct. Importantly, prosecutors will be required to examine whether the system is actually followed in practice.

The second new factor DOJ will assess is how a company approaches the issue of employees’ use of personal devices and third-party messaging applications for business-related communications. Prosecutors will inquire whether the company was able to preserve and produce all communications relevant to its investigation. To the extent employees’ communications are unavailable, prosecutors will look to understand why in assessing a corporation’s cooperation as well as the effectiveness of its compliance program.

Independent Compliance Monitors

Last fall, Deputy Attorney General Monaco announced DOJ would require the use of an independent monitor more frequently as part of corporate resolutions. The Monaco Memo attempts to clarify the issue by providing a list of non-exhaustive factors used to evaluate whether to impose a monitorship. Although some of these factors have been in use for some time — such as whether the corporation voluntarily disclosed the underlying misconduct or whether the misconduct was pervasive — the Monaco Memo also asks whether the misconduct involved an exploitation of an inadequate compliance program and whether the corporation faces any unique compliance challenges.

History of Misconduct

One of the potentially significant changes announced last fall was a direction that prosecutors consider the entirety of a company’s history of misconduct when making charging and resolution decisions. (DOJ previously tended to assess a company’s history of similar misconduct.) The Monaco Memo clarifies that, in evaluating corporate history, DOJ will give significant weight to United States criminal resolutions as well as any prior wrongdoing involving the same personnel at issue. The Monaco Memo makes it clear that less weight will be given to older criminal and civil resolutions (little weight given to criminal resolutions occurring more than 10 years before and civil resolutions more than five years old). Addressing concerns about misconduct by acquired entities, the Monaco Memo contemplates an undefined “grace period” for acquired entities with poor compliance history but still requires the acquiring company to deploy a remediation plan in a timely manner after the deal closes.

これらの変更がもたらす影響

 The policy changes in the Monaco Memo carry a number of potential implications for the private sector:

• Compensation systems will come under heightened scrutiny. The Monaco Memo seeks to have corporations self-police by using compensation to both punish and reward. Companies should evaluate how effectively their compensation systems promote compliance. This reevaluation may overlap with boards’ compensation and audit committees as well as a company’s ESG efforts. This issue warrants close monitoring, as Deputy Attorney General Monaco pledged that more guidance is coming.
• Companies should reevaluate how they respond to complaints and alleged misconduct. DOJ has raised the stakes for how companies address allegations of wrongdoing by now requiring companies disclose information quickly — in addition to thoroughly — in order to obtain full cooperation credit. In Deputy Attorney General Monaco’s words, “prosecutors and corporate counsel alike” should “feel they are ‘on the clock’ to expedite investigations.” Companies should reassess their practices for investigating allegations to ensure key findings are escalated quickly to decision makers, to preserve the potential of seeking full cooperation credit.
• The benefits of a “wait and see” approach to compliance may be waning. As we have previously observed, some corporations may take a “wait and see” approach, given the overall trend of declining corporate enforcement. That approach may come with higher risks, however, as the Monaco Memo’s new directives increase the bar for obtaining cooperation credit. Corporations that place a high value on compliance will likely use this announcement to improve the focus and resources devoted to compliance.
• Due diligence remains critical. Corporations considering proposed transactions or acquisitions may need to consider increased due diligence into the target entity’s compliance policies and investigate prior or existing misconduct. While there is still an undefined “grace period” for acquisitions of entities with poor compliance history, a remediation plan must be implemented and completed in a timely manner post-transaction.

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