DOJ significantly revises corporate enforcement policy | Reed Smith

[co-author: Courtney Fisher]

On January 17, 2023, the U.S. Department of Justice (DOJ) Criminal Division (DOJ) announced important revisions to its Corporate Enforcement and Voluntary Self-Disclosure Policy (CEP) designed to incentivize corporations to self-disclose and cooperate with law enforcement. Among other things, the revisions: (1) significantly enlarge the potential reductions in penalties for companies that self-report and cooperate; (2) provide companies that voluntarily self-disclose and cooperate a presumption that they will receive a declination; and (3) permit so-called recidivist corporations to potentially receive a declination if they exhibit extraordinary cooperation. The announcement expands upon a September 2022 speech given by Deputy Attorney General Lisa O. Monaco, which emphasized the importance of self-disclosure and cooperation discussed in our prior client alert. These revisions represent the most significant changes to the CEP since its adoption in 2017.

Presumption of a declination

The CEP now states that, when a company has voluntarily self-disclosed, fully cooperated, and timely and appropriately remediated, there will be a presumption that the company will receive a declination (i.e., a decision not to prosecute), absent aggravating circumstances.

Aggravating circumstances that may instead warrant a criminal resolution include: executive management’s involvement in the misconduct, significant profit to the company resulting from the misconduct, the pervasiveness of the misconduct within the company, or criminal recidivism. Additionally, to qualify for a declination, a company must pay all disgorgement, forfeiture, or restitution where ordered.

Other factors that may justify a declination

Even where a company does not qualify for a presumed declination, the DOJ may nonetheless determine that a declination is warranted under the revised CEP if all the following factors are present: (1) the company voluntarily and immediately discloses the misconduct; (2) the company has an effective compliance program and system of internal accounting controls in place that enabled the detection of the misconduct; and (3) the company provides “extraordinary cooperation” to the DOJ and subsequently remediates. Importantly, this means that even companies deemed recidivists can still qualify for a declination under the new CEP.

The DOJ noted it will assess what is “extraordinary” by analyzing the “immediacy, consistency, degree, and impact” of the cooperation provided. For example, companies would need to allow the DOJ to access evidence that it could not otherwise obtain, including individuals’ electronic devices and recorded conversations, and provide “cooperation that produces results,” such as trial testimony or information leading to additional convictions. The CEP reinforces the DOJ’s earlier guidance that companies are expected to preserve, collect, and disclose business communications in order to receive cooperation credit (see our prior client alert discussing these updates in detail).

Impact of voluntary self-disclosure and timely cooperation on potential fines

The DOJ also altered the requirements for fine reductions in cases where a criminal resolution is warranted. When a first-time offending company has voluntarily self-disclosed, fully cooperated, and timely and appropriately remediated in a case where a criminal resolution is warranted, the DOJ will recommend at least a 50% and up to a 75% reduction off the low end of the Federal Sentencing Guidelines fine range.

For first-time offending companies that do not voluntarily self-disclose, but still fully cooperate and timely and appropriately remediate, the DOJ will recommend up to a 50% reduction off the low end of the guidelines fine range. For companies deemed recidivists, the same reductions apply but the reductions will generally not be from the low end of the guidelines range. These revisions represent significant further reductions to those previously available to companies under the CEP.

Additionally, the revised CEP states that the DOJ will generally not require a corporate guilty plea absent particularly egregious circumstances, nor the appointment of a corporate monitor if the company has demonstrated that it has an effective compliance program.

Credit for M&A due diligence

Finally, the revised CEP provides leniency for companies that discover misconduct via thorough due diligence during or following a merger or acquisition. The DOJ stated that a declination will be presumed where a company involved in a merger or acquisition uncovers misconduct through timely due diligence or through post-acquisition audits or compliance integration efforts, and voluntarily discloses the conduct and implements an effective compliance program at the merged or acquired entity.

A comparative angle – the United Kingdom

While there are distinct differences between the two systems, the approach that the UK Serious Fraud Office (SFO) already takes in offering incentives for voluntary disclosure, cooperation, and remediation is similar to that set out by the DOJ in the CEP. The SFO is the UK’s specialist prosecuting authority tackling serious or complex fraud and bribery cases. Prosecutors can offer deferred prosecution agreements (DPA), which resolve allegations of certain types of corporate criminal behavior without prosecution or trial, similar to a declination, DPA, or non-prosecution agreement in the United States. Under a DPA, the corporation can agree to disgorge any gains and pay additional penalties. It promises good future behavior, including, often, assisting prosecutors with investigating others.

The SFO’s 2019 Guidance on Corporate Co-operation is also relatively similar to the DOJ’s CEP. In particular:

(i) Both enforcement agencies require cooperation that goes above and beyond what the law requires. Like the DOJ, the SFO requires identification of suspected wrongdoing and criminal conduct, self-disclosure within a reasonable time of the suspicions coming to light, and preserving and promptly providing available evidence.

(ii) The nature and extent of a company’s cooperation is one of many factors that both enforcement agencies will take into consideration when determining an appropriate resolution.

(iii) Similar to the DOJ, the SFO also requires companies seeking cooperation credit to provide witness accounts that are accompanied by recordings, notes, or transcripts, and identify a witness competent to speak to the contents of each interview.

There have been 12 DPAs in the UK to date. While self-reporting has not been a prerequisite in each case, a high level of cooperation was seen in all cases. Fines and other penalties have been discounted by as much as 50% where there has been a high level of cooperation. See Sarclad Ltd (2016), Rolls Royce (2017), Serco Geofrapfix Ltd (2019), Airbus SE (2020), or Airline Services Ltd (2020). Further, it is worthwhile to note that even delayed cooperation (i.e., an early guilty plea at court) can attract as much as one third of a discount off any sentence. In short, it pays to cooperate in the UK.

Will these changes result in more voluntary self-disclosures?

The recent CEP changes evidence the DOJ’s continued commitment to its “number one goal” of holding those who are criminally culpable accountable, regardless of seniority. According to Assistant Attorney General Kenneth A. Polite, Jr., “the policy is sending an undeniable message: come forward, cooperate, and remediate.”

Assistant Attorney General Polite stated further that the changes to the CEP represent the DOJ’s “commitment to rewarding companies that do the right thing when learning about possible misconduct,” but warned that “failing to self-report, failing to fully cooperate, failing to remediate, can lead to dire consequences.” In making these changes to the CEP, the DOJ appears to be providing the proverbial “carrot” to incentivize companies to self-report and cooperate, complementing the more traditional “stick” approach to punishing criminal conduct.

It remains to be seen how the CEP changes will operate in practice. Regardless, companies looking to cooperate should watch closely how the DOJ defines and rewards “extraordinary cooperation” and “immediate” disclosures moving forward. It is also imperative that companies grappling with how best to handle disclosures of criminal conduct consider the broader regulatory landscape in doing so. Specifically, companies facing parallel or cross-border investigations and proceedings as a result of the misconduct should consider how best to approach other regulatory agencies and foreign authorities, which do not necessarily share the same degree of leniency as the DOJ.

Client Alert 2023-021