Carrots and Sticks – DOJ’s Latest Guidance on Corporate Prosecutions
DOJ’s Latest Guidance on Individual Accountability, Corporate Responsibility, and Effective Compliance Programs
On September 15, 2022, Lisa Monaco, Deputy Attorney General, gave a highly anticipated speech at the New York University School of Law in which she outlined several new policies and guidance of the U.S. Department of Justice (DOJ) related to corporate prosecutions. On the same date, a new DOJ memorandum entitled “Further Revisions to Corporate Criminal Enforcement Policies Following Discussions with Corporate Crime Advisory Group” was released (a copy can be found here).
In her introduction, Lisa Monaco highlighted that following her announcement in October 2021 on the DOJ’s more rigorous enforcement activities, there have been numerous discussions with various stakeholders and that – as announced before – a ‘Corporate Crime Advisory Group’ has been established.
Content-wise, the Deputy Attorney General essentially addressed in her speech the five key areas of the DOJ’s new policies (which can also be found structured accordingly in the new memo):
- individual accountability,
- history of misconduct,
- voluntary self-disclosures,
- independent compliance monitors, and
- corporate culture / evaluation of compliance programs.
The overall aim in all of this being to encourage and empower companies “to do the right thing” and to empower prosecutors to hold those companies accountable that don’t.
Individual Accountability
First and foremost, Lisa Monaco highlighted the department’s top priority for corporate criminal enforcement: individual accountability. Referring to cases in which the disclosure of relevant documents was delayed (e.g., for strategic reasons) and thus made prosecution of individuals more difficult, Monaco urged cooperating companies to provide evidence of individual wrongdoing faster (“speed is of the essence“). She emphasized that contradictory behavior would have consequences, including the reduction or denial of cooperation credit. She also stated that prosecutors should either bring charges against individuals prior or at the same time as entering a resolution against a corporation, or at least have an investigation plan on individuals ready at the time of the corporate resolution. The intention clearly is to prevent the protracted prosecution of individuals following the conviction of companies, as has sometimes been the case in the past.
History of Misconduct
Reacting to severe criticism and discussion that have been raised on the approach announced last year, the Deputy Attorney General highlighted some additional guidance on the evaluation and consideration of companies’ historical misconduct, especially in cases of repeat offenders (which according to her account for 10-20% of the cases).
She noted that not all instances of prior misconduct are considered equal. According to her, the most important criteria that need to be taken into consideration when evaluating a corporation’s history of misconduct would be criminal resolutions in the USA as well as involvement of the same personnel and/or management in current misconduct. However, she also emphasized that “dated” misconducted should weigh less than current conduct and finally concretized them on the basis of the discussion. Other factors that will play a role in the evaluations are the nature and circumstances of the prior misconduct, including the root-cause, and the industry in which a corporation operates. In addition, she stated that companies may still acquire companies with a history of misconduct as long as the problems are sufficiently mitigated post-closing.
Voluntary Self-Disclosures
In the third part of her speech, Lisa Monaco addressed the Department’s policy on voluntary self-disclosures, which – according to her – is already successfully applied in other agencies such as the Antitrust Division or National Security Division. Here, the Deputy Attorney General emphasized that each department division which prosecute corporate crime must create such a policy if one does not already exist. She also noted that “predictability” would be essential for corporation: companies need to have clear expectations on the requirements for self-disclosures as well as on the benefits which come with it. This, in turn, would make it easier for CCOs or GCs to convince management of a voluntary self-disclosure as “a good business decision“.
Independent Compliance Monitors
To counter long lasting criticisms, the Deputy Attorney General announced additional guidance on the selection of compliance monitors. On the one hand, this new guidance addresses prosecutors on how to identify the need for a compliance monitor and how to select a monitor. Secondly, the guidance contains specifics in order to make the monitor selection process more transparent and consistent. Accordingly, the new enforcement memo provides a non-exhaustive list of 10 factors that prosecutors should consider when evaluating whether a compliance monitor is appropriate.
In this respect it is noteworthy that the mere existence of a compliance program in companies will be assumed and considered not sufficient to avoid a monitor. Rather, a corporation needs to demonstrate that at the time of the resolution its compliance program and internal controls have adequately been tested for effectiveness. However, the Deputy Attorney General pointed out that in future the scope of monitorships shall be tailored to the actual needs in light of the misconduct and related compliance deficiencies.
Corporate Culture as Fundament of Compliance Programs
Finally, Lisa Monaco emphasized the importance of a strong corporate culture. Even though compliance functions have been strengthened in many cases, she highlighted a strong corporate compliance culture as a crucial cornerstone in avoiding misconduct.
According to new policy requirements, a key building block in this respect is an appropriately designed compensation system, which many companies have already implemented in order to foster this culture. Such compensation systems should have a double-edged structure: on the one hand, incentives to reward compliance efforts, and on the other hand, deterrents to punish misconduct, for example through clawblack provisions. To that extent, the new memo contains supplemental, detailed guidance and metrics for prosecutors when evaluating a compliance program in order to determine whether a company has compensation structures that promote compliance. The Deputy Attorney General also announced that she has asked the Criminal Division to develop further guidance by the end of 2022 on the reward that corporations can expect when their compensation structures employ clawblack or similar arrangements.
The Bottom Line
Overall, Lisa Monaco underpinned two expectations that DOJ will be placing on companies in the future and that will play a significant role in criminal proceedings:
(i) invest in compliance, and
(ii) step up when misconduct occurs.
Only if corporations took these expectations seriously, they could expect leniency.
With this, the Monaco speech and new enforcement policies show that the air is getting thinner – paper programs, lip services, and select compliance measures that are not seriously meant or only half-heartedly implemented, will no longer be sufficient to escape penalties and subsequent monitorships in the future.
Avoid getting on the slippery slope here! We are more than happy to share our long-lasting experience in dealing with U.S. enforcement authorities and their expectations as regards compliance and corporate culture. We support you in your considerations, testing, and further development of compliances measures with a view to establishing effective and also “defense-proof” compliance management systems. Please contact us!