Recent DOJ Memo on Corporate Criminal Enforcement Highlights Critical Considerations for Employers | Venable LLP

On September 15, 2022, the Department of Justice (DOJ) released a long-anticipated memo announcing changes to its corporate criminal enforcement policies (Memo). The Memo contains helpful guidance for employers, outlining critical considerations for minimizing liability and protecting employers from potential government investigations of alleged corporate criminal activity. Specifically, the DOJ notes that prosecutors would consider the remediation employers have undertaken to address the root causes of any prior employee misconduct, including employee discipline, compensation clawback provisions, and compliance program upgrades, including prohibiting employees from using certain third-party messaging applications.

Major Considerations for Employers

  1. Timely Voluntary Self-Disclosure: The DOJ emphasized in the Memo that, absent the presence of aggravating factors, it will not seek a guilty plea where an employer has voluntarily self-disclosed, fully cooperated with prosecutors, and appropriately remediated in a timely manner criminal conduct by employees or other company agents. Such disclosure should not just be cursory and must be prompt. The DOJ stressed that companies seeking full cooperation credit must produce on a “timely basis all relevant and non-privileged facts and evidence about individual misconduct.” Prosecutors will have the discretion to reduce or eliminate any such cooperation credit in the event an employer engages in undue or intentional delay in the production of information or documents.

The DOJ further explained that employers seeking cooperation credit ultimately “bear the burden of ensuring that documents are produced in a timely manner to prosecutors.” Timeliness will be assessed based on factors such as when the underlying conduct occurred and when it was reported to the authorities. The DOJ will also consider the applicable statute of limitations, the availability of documentary evidence and testimony, and other factors relevant to the government’s ability to bring charges against culpable individuals. As a result, it is imperative for employers to train their employees on the importance of, and procedures for, reporting to management any potential corporate criminal activity by other employees. This will allow the employer to assess whether the circumstances call for a voluntary disclosure to the DOJ.

  1. Internal Compliance Efforts: Employers should also consider regularly reviewing and auditing their internal policies and/or compliance program to ensure that the company can effectively detect and deter individual criminal activity. The Memo notes that, in evaluating employers’ compliance programs, prosecutors will consider, among other elements, how employers measure and identify compliance risk; how they monitor payment and vendor systems for suspicious transactions; how they make disciplinary decisions within the human resources process; and how senior leaders have, through their words and actions, encouraged or discouraged compliance. An employer’s compliance program should be narrowly tailored to the company’s circumstances, based on a risk assessment considering the business’s industry, geographic footprint, business model, and other factors that relate to likely risks of criminal violations.
  2. Document Preservation and Third-Party Messaging Platforms: The DOJ indicated that it would look unfavorably on employers that permit their employees to use third-party messaging platforms for business purposes when doing so would inhibit the employer’s ability to collect and produce documents relevant to a DOJ investigation. Information on these types of third-party apps often cannot be easily monitored by the employer and may be subject to an automatic deletion function, encryption, or other potential barriers to the collection and production of documents. These features, the DOJ noted, leave the door open for criminal misuse. Indeed, the DOJ explicitly stated:

all corporations with robust compliance programs should have effective policies governing the use of personal devices and third-party messaging platforms for corporate communications, should provide clear training to employees about such policies, and should enforce such policies when violations are identified

In light of this guidance, employers are encouraged to review their policies governing electronic communications by employees for business purposes, as well as any employee training regarding these policies.

  1. Clawback Provisions and Financial Incentives: The DOJ indicated that it would look favorably on employers that include a clawback provision in their compensation package agreements requiring an employee to return any relevant compensation to the employer if the employee is found by the employer to have engaged in corporate criminal activity. The DOJ explained that it has plans to reward companies that develop, implement, and neutrally enforce such compensation clawback policies, particularly in agreements with executives. Thus, employers should review the language in their employment and other compensation agreements and consider including a well-drafted clawback provision. However, employers that choose to implement such provisions would be wise to consider the implications under applicable state and local law, which, depending on the jurisdiction, may impose restrictions on or even prohibit clawback provisions. These laws may even include significant potential penalties for employers.

Relatedly, the DOJ encourages policies rewarding executives and employees who promote compliance within the organization, such as through compliance metrics and benchmarks in compensation calculations and performance reviews.

* The authors would like to thank Sienna Heard, a Law Clerk in Venable’s Washington, DC office, for her assistance in writing this article.