DOJ announces Updates to its Corporate Enforcement Policy
The Criminal Division of the U.S. Department of Justice announces far-reaching changes to its Corporate Enforcement Policy and creates further incentives for compliance management, voluntary self-disclosures, and cooperation.
On January 17, 2023, Assistant Attorney General Kenneth Polite announced changes to the Corporate Enforcement Policy (CEP) of the Criminal Division of the U.S. Department of Justice (DOJ) in a speech. His speech focused on the expected benefits for companies that voluntarily report identified misconduct in their organization to the authorities and cooperate with official investigations.
The new CEP, titled “Corporate Enforcement and Voluntary Self-Disclosure“, comes about four months after U.S. Deputy Attorney General Lisa Monaco called on all DOJ divisions to revise their procedures for handling self-disclosures (See our blog post dated September 23, 2022). According to Polite, these are the most far-reaching revisions since 2017. The new CEP now offers companies that voluntarily report misconduct the prospect of a fine reduction of up to 75%. In addition, it is now clear that the CEP applies to all corporate criminal cases brought by the DOJ’s Criminal Division, not just FCPA cases.
The new CEP’s primary goal is to give companies more clarity and concrete incentives to disclose wrongdoing. In his speech, Polite explained that under the previous CEP, companies had often weighed up whether a voluntary self-disclosure would lead to a declination. Polite emphasized that due to this uncertainty, companies usually concluded that it might be more advantageous to conceal misconduct from the authorities in cases where aggravating factors are present.
Incentives for disclosures of misconduct despite aggravating circumstances
Given the importance of self-reporting to the DOJ’s prosecution policy, the revised CEP provides companies with significant incentives to disclose wrongdoing, even in cases that would aggravate punishment. Among other things, Polite named the following circumstances as aggravating factors:
- the involvement of management in the misconduct,
- significant profits resulting from the misconduct,
- the severity or frequency of the misconduct within the company.
Previously, the DOJ only declined to prosecute if none of these aggravating circumstances existed, the company disclosed the misconduct to the authorities, fully cooperated with the investigation, and adequately remedied the underlying causes.
The revised CEP now provides that companies may qualify for declination despite aggravating circumstances if they can prove to the DOJ that they meet the following privilege criteria:
- The company filed a voluntary self-disclosure immediately after the alleged misconduct became known.
- At the time of the misconduct and disclosure, the company had an effective compliance program and a system of internal accounting controls that enabled the misconduct to be detected and led to the company’s voluntary self-disclosure.
- The company has cooperated extraordinarily with the DOJ’s investigation and has taken extraordinary remedial action.
In his speech, Polite clarified that not all companies that meet the above criteria would qualify for a declination. However, these companies can expect a fine reduction of at least 50% and up to 75% of the lower range under the U.S. Sentencing Guidelines, except for a criminal recidivist. Compared to the previous CEP, which provided a maximum reduction of 50% in fines, the new version offers companies clear incentives to submit voluntary disclosures. If a company meets the new criteria, the DOJ will generally not require a guilty plea or the appointment of a compliance monitor to oversee the compliance program. The only exception would be in the case of multiple or dire aggravating circumstances.
Incentives to cooperate for companies that did not self-disclose
In addition to the changes to voluntary self-disclosing, the revised CEP also benefits companies that have not reported misconduct to the authorities but fully cooperate with the authorities investigation and take appropriate remedial action in a timely manner. Kenneth Polite explained that in such cases, the DOJ’s Criminal Division would recommend a reduction of up to 50% of the lower fine range under the U.S. Sentencing Guidelines, which is double the previous maximum penalty reduction of 25%.
Between full and extraordinary cooperation with the DOJ
To fully benefit from the revised CEP, the DOJ expects companies to cooperate in an “extraordinary” manner and submit a voluntary disclosure. The CEP does not define what the DOJ means by “extraordinary” cooperation. In particular, it is not clear how extraordinary cooperation in the context of a voluntary disclosure differs from “full” cooperation, which is used as a benchmark for companies that have not filed a voluntary self-disclosure. Polite explained that general factors such as the “immediacy, consistency, degree, and impact” of cooperation were used but did not define these general factors in detail. Polite drew a comparison to the collaboration with individuals involved in proceedings and stated that for the DOJ, consistent honesty, immediate cooperation, access to electronic evidence, and willingness to testify in court were particularly important. The extent to which the DOJ will take up these and possibly other factors to determine extraordinary cooperation in the corporate context remains to be seen.
Conclusion
The publication of the new CEP creates clear incentives for companies to voluntarily self-disclose identified misconduct to the authorities. This also applies explicitly in the case of aggravating circumstances, as there is now the possibility that the DOJ will refrain from prosecution. It cannot be assumed that the requirements for obtaining a 75% fine reduction will be easy to fulfill. In this context, it remains to be seen how the DOJ will further interpret the vague terms of the CEP, particularly “immediacy” and “extraordinary” cooperation, and fill them with practical examples.
However, one thing is already certain: To meet the requirements of the DOJ, a robust compliance management and internal control system are indispensable. Only companies with effective whistleblowing, control, and investigation mechanisms in place can correctly assess the adequacy and effectiveness of their compliance management system and will be able to weigh up the possibilities and advantages of self-reporting. Only a self-reflective and informed company will be able to react “immediately” and cooperate “extraordinarily” in the event of a crisis. Therefore, the amendments to the new CEP offer an excellent opportunity to initiate corresponding effectiveness reviews. Furthermore, it is advisable to establish robust processes for continuous effectiveness monitoring and testing and to set up meaningful reporting to management, the supervisory board, and the audit committee.
The new CEP does not directly apply to the German legal system and criminal enforcement practice. However, companies with effective compliance programs and internal control systems that can present them transparently and credibly to the authorities will likely have significant advantages in German criminal and administrative fine proceedings. This is supported not only by the current judgment of the German Federal Court of Justice (See our blog post dated November 29, 2022) but also by the ongoing consideration of incentives for compliance management and compliance defense in connection with the amendment of the German Corporate Sanctions Law.
We are happy to share our many years of experience dealing with U.S. law enforcement agencies and their expectations regarding compliance management systems with you. We regularly support companies in the initial introduction, ongoing review, and further development of their compliance governance and organizations, their compliance programs, and the associated internal control systems.
In case of any further questions, please do not hesitate to contact us.