Deputy Attorney General Lisa Monaco on September 15 announced significant updates to the US Department of Justice’s corporate criminal enforcement policies during a speech at New York University Law School. Monaco’s speech coincided with the release of revised policies—the result of a year-long review by senior DOJ officials—intended to give effect to the tougher-on-corporate-crime approach Monaco announced in 2021 and detail incentives for corporations and business entities to voluntarily self-disclose potential wrongdoing.
In this LawFlash, the Morgan Lewis white collar litigation and government investigations team discusses the most significant points from Monaco’s speech and the corresponding revised policies.
DOJ ADVISORY GROUP
In a speech at the American Bar Association’s annual White Collar Crime Conference in October 2021, Monaco signaled a more aggressive enforcement approach to corporate crime. Key changes announced then included an increased emphasis on individual accountability and more widespread use of corporate monitors. Monaco also announced that DOJ would convene an advisory group to review and propose revisions to DOJ’s other corporate criminal enforcement policies.
This more aggressive stance has been noticeable in the year since Monaco’s 2021 announcement. DOJ has announced several large corporate resolutions, including against multinational companies. Many of these resolutions involved felony guilty pleas and massive fines, and in many cases, DOJ has sought to impose independent compliance monitors. DOJ has also brought a number of individual prosecutions related to corporate crime, several of which it litigated at trial.
As DOJ ramped up enforcement, Monaco’s advisory group evaluated the necessity of changing existing policies to support its more aggressive approach. According to Monaco, one of the advisory group’s first priorities was to evaluate how to address companies with a documented history of repeated wrongdoing. The advisory group was also tasked with considering the criteria for when companies can resolve misconduct through a deferred prosecution agreement (DPA) or non-prosecution agreement (NPA), the criteria and process for selecting compliance monitors, and the use of technology in DOJ investigations.
The advisory group solicited feedback from a variety of outside sources such as defense lawyers—including lawyers from Morgan Lewis—as well as ethicists, academics, activists, lawyers, executives, and compliance officers, to help usher in the changes.
CHANGES TO POLICY ON CORPORATE CRIMINAL ENFORCEMENT
Nearly one year later, and a mere three days after Glenn Leon took over as chief of the Criminal Division’s Fraud Section, which has emerged in the last decade as DOJ’s leader on corporate criminal enforcement, Monaco announced the advisory group’s findings and DOJ’s revisions to its corporate criminal enforcement policies and practices. The changes, billed by DOJ as one of the most comprehensive overhauls of corporate enforcement in years, build on existing policies in an attempt to further DOJ’s current tough-on-white-collar-crime approach.
Key highlights include the following:
Monaco described individual accountability as DOJ’s “top priority” and said that it is committed to “do more and move faster.” To that end, Monaco announced changes designed to “speed up the clock” on individual prosecutions. Under the policy announced by former Deputy Attorney General (DAG) Sally Yates in 2015, and relaxed under the prior administration, companies seeking cooperation credit were required to completely disclose to DOJ all relevant facts about individual misconduct.
Monaco announced on September 15 a new policy that incorporates the Yates memo’s message while placing additional emphasis on the speed of disclosure by requiring cooperating companies to come forward more quickly with evidence of individual wrongdoing. Monaco said that when a company discovers a “hot” document or email that points to individual criminal culpability, it should immediately produce it to DOJ. According to Monaco, failure to quickly turn over evidence implicating individuals—even to complete an internal investigation—or “gamesmanship” with the timing of document productions, will result in the reduction or denial of cooperation credit. Monaco also stated that DOJ will not sign DPAs or NPAs with companies until it has either commenced any relevant individual prosecutions or has developed a full investigative plan and timeline for doing so.
While these changes do not represent a dramatic policy shift, they do signal even more aggressive—and faster—individual prosecutions. Significantly, this requires companies to engage counsel early to quickly evaluate misconduct, determine the breadth and speed of a disclosure, and ensure that the companies’ interests are protected.
Monaco built on her 2021 announcement that DOJ would take a more holistic view of a company’s record of prior misconduct, reiterating that repeat offenders would not be tolerated and that DOJ would consider all of a company’s prior misconduct when assessing potential resolutions.
Monaco further clarified that not all misconduct would be treated equally. Going forward, DOJ will afford the most weight to criminal resolutions in the United States, and wrongdoing involving the same personnel, root causes, or types of misconduct. Dated conduct—which Monaco defined as criminal violations that are more than 10 years old or civil/regulatory violations that are more than five years old—will be afforded less weight. DOJ will also consider the nature and circumstances of the prior misconduct, and assess it in comparison to similarly situated companies. For example, the regulatory history of a company operating in a highly regulated industry will be compared to similar companies within that industry.
In addition, DOJ is taking a tougher stance on DPAs and NPAs for recidivists. Monaco said that DOJ would disfavor successive NPAs and DPAs, requiring DAG approval before a recidivist corporation could obtain either type of resolution.
Significantly, Monaco announced that DOJ did not want to discourage companies from acquiring entities with a history of compliance problems if the acquisition results in the enhancement of the compliance program. This suggests that while DOJ will hold acquiring companies responsible for the misconduct of purchased entities, acquirers will earn significant goodwill if they voluntarily self-disclose criminal conduct and meaningfully improve corporate compliance.
Reiterating years of DOJ guidance, Monaco strongly encouraged companies to voluntarily self-disclose any misconduct. Monaco described voluntary self-disclosure as evidence of a healthy compliance culture. Citing the Foreign Corrupt Practices Act’s (FCPA’s) Corporate Enforcement Policy and the Antitrust Division’s leniency program as models, Monaco noted that every DOJ component engaged in corporate enforcement will implement a program to incentive voluntary disclosures.
Absent aggravating factors, DOJ will not seek a guilty plea for misconduct that is voluntarily disclosed and remediated. Further, DOJ will not seek a monitor so long as a remedial compliance program has been implemented and tested by the time of the resolution. Time will tell how these new component-level programs develop; Monaco did not promise the same level of leniency in the future that the FCPA and Antitrust programs have offered cooperating companies.
Monaco announced that DOJ would release new guidance for prosecutors about how to identify the need for an independent compliance monitor, how to select a monitor, and how to oversee the monitor’s work to increase the likelihood of success. Monaco stated that DOJ will also ensure that corporate monitorships are tailored to the misconduct and compliance deficiencies of the resolving companies, and that that DOJ was committed to monitoring the monitors, ensuring that the work remained in scope and on budget.
Monaco noted that DOJ’s evaluations of corporate compliance programs will take into account whether “compensation systems reward compliance and impose financial sanctions on employees, executives, or directors whose direct or supervisory actions or omissions contributed to criminal conduct.”
Although DOJ has been stressing this issue for some time, Monaco’s announcement was the strongest and most formal articulation of the principle that a healthy corporate culture is tied to the company’s compensation model. Going forward, DOJ will require companies to show how they are linking compensation to compliance, including by “clawing back” compensation or perks given to individual wrongdoers.
Importantly, Monaco noted that DOJ will consider not just what the policies say, but what companies actually do. In other words, DOJ will look at a company’s history of actually clawing back compensation consistent with its policies. Monaco stressed that companies must employ clawback provisions or devise other ways to hold financially accountable individuals who contribute to criminal misconduct. This could pose labor and employment related issues for corporations and may present additional complications for corporations with an international footprint.
DOJ’s message to corporations is clear: invest in compliance and an improved culture, come forward as soon as misconduct occurs, and turn over information or documents that show individual culpability.
In terms of practical steps, companies should strongly consider doing the following:
- Invest in compliance and culture. DOJ emphasized that the changes were meant to encourage companies to develop a healthy compliance culture. Companies that devote appropriate resources to building up a comprehensive, risk-based compliance program prevent, detect, and remediate issues more effectively, and are less likely to be subject to harsh penalties or corporate monitors if problems arise.
- Work with counsel to develop a protocol for evaluating allegations of misconduct for potential disclosure to DOJ. Notwithstanding DOJ’s enthusiasm for voluntary self-disclosures, decisions about what to disclose and when are complex. It will be critical—particularly given DOJ’s emphasis on “moving faster”—for companies to have an established protocol and team in place to facilitate making a timely decision on disclosure.
- Conduct prompt due diligence on acquired entities and quickly remediate any potential compliance issues.
- If faced with an enforcement action, consult with experienced counsel as early as possible. DOJ’s eagerness for companies to identify individual wrongdoers and produce inculpatory documents raises significant and thorny questions related to document review, privilege, and waiver.