RELATED UPDATE: DOJ Announces “Pilot Program Regarding Compensation Incentives and Clawbacks” with Significant Ramifications for Corporations Facing Criminal Investigations (March 6, 2023)
On Sept. 15, 2022, U.S. Deputy Attorney General Lisa Monaco announced important guidance and new actions from the U.S. Department of Justice (DOJ or the Department) on corporate criminal enforcement. Her remarks, delivered at the New York University School of Law, echoed those McGuireWoods covered last fall regarding DOJ’s increased focus on individual accountability and corporate policing.
In short, the remarks reveal that the Biden administration continues to take an aggressive policy stance on the investigation and prosecution of corporate crime. However, Monaco acknowledged the reality that its current enforcement numbers do not reflect that aggressive posture.
McGuireWoods advises that companies should nonetheless be on notice of DOJ’s position, and in particular, carefully consider how they can bolster their compliance practices to be best positioned if misconduct does occur. Monaco emphasized DOJ’s view that a company that employs preemptive, systemic tools, including financial incentives, to defer corporate misconduct, will be best positioned in any investigation, should misconduct occur.
Specifically, Monaco provided additional detail and clarification in five key areas:
DOJ prioritizes individual accountability in corporate investigations.
DAG Monaco reiterated the current Department leadership’s view that individual accountability for corporate officers is an important component of criminal enforcement. She described the Department’s “top priority” in corporate criminal cases as prosecuting individuals who commit and profit from corporate malfeasance. DAG Monaco acknowledged that there has been a stark decline in corporate criminal prosecutions over the last decade but emphasized that, henceforth, prosecutors will be empowered to “expedite” their investigations of individual actors. She explained that, in individual prosecutions, “speed is of the essence” and that both prosecutors and corporate counsel should feel “on the clock” to resolve investigations into culpable individuals.
DAG Monaco cited limited DOJ resources as a key reason for speed. She said corporate entities should be on notice not to delay or interfere with an investigation into any individual actor. Should a corporation engage in “undue or intentional delay in producing information or documents — particularly those that show individual culpability,” DOJ will reduce cooperation credit or deny it altogether.
The Department also intends to complete corporate criminal investigations and seek any criminal charges against individuals prior to or concurrent with any resolution against a corporation. DAG Monaco gave the caveat that, where DOJ does agree to resolve a corporate case first, the company will be expected to provide “a full investigative plan outlining the remaining work to do on the individual cases and a timeline for completing that work.”
Collectively, this guidance reflects DOJ’s policy views that personal officer liability is the best deterrent to corporate crime and that corporations should not prioritize any individual bad actor over the good of the company.
DOJ emphasizes that repeated deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs) are disfavored.
DAG Monaco also provided critical insight on DOJ’s expansive stance on corporate recidivism, recalling DOJ’s controversial commitment “to consider the full criminal, civil, and regulatory record of any company when deciding the appropriate resolution.”
She acknowledged that DOJ has received feedback on the importance of “contextualiz[ing] historical misconduct.” In defense of the Department’s position, DAG Monaco provided examples of what DOJ will deem to be “the most significant” kinds of prior misconduct: U.S.-based criminal resolutions and prior instances of wrongdoing that concern the same personnel as the current misconduct.
The recency of prior criminal conduct is also an important factor. DOJ will accord less weight to conduct that is “dated,” namely “[c]riminal resolutions that occurred more than 10 years before the conduct currently under investigation, and civil or regulatory resolutions that took place more than five years before the current conduct.” Here, DOJ appears to recognize — and embrace — the reality that older conduct does not necessarily reflect a company’s current compliance culture. But DAG Monaco emphasized that corporations must not think of criminal resolutions as a “cost of doing business.”
DAG Monaco also announced new policy on DPAs and NPAs for corporations that have previously entered into one. She said that, going forward, DOJ “will disfavor multiple, successive non-prosecution or deferred prosecution agreements with the same company.” DOJ leadership will also be required to review and approve any prosecution team’s offer of a successive DPA or NPA.
DOJ continues to promote voluntary self-disclosure.
DAG Monaco affirmed that a corporation’s voluntary self-disclosure is a positive sign that the company has “fostered a culture to detect misconduct and bring it forward.” Accordingly, DOJ is adopting an inward-looking and resource-driven approach to promoting voluntary self-disclosures and seeks to promote consistency in how they are treated.
DAG Monaco announced that, “for the first time ever, every Department component that prosecutes corporate crime will have a program that incentivizes voluntary self-disclosure.” Any DOJ component that lacks a policy on self-disclosure must draft one. These policies should provide “clear expectations” for corporations of what self-disclosure entails but must also identify and explain the benefits for self-disclosing.
Notably, DAG Monaco announced that DOJ will not seek a guilty plea where a company has voluntarily self-disclosed, cooperated, and remediated misconduct. Nor will the Department require an independent compliance monitor where a corporation, at the time of resolution, has already implemented and tested an effective compliance program. Of course, the key question is how often a corporation will be able to meet these thresholds to DOJ’s satisfaction.
The Department’s new policy on voluntary self-disclosures is a welcome development in principle. If implemented reasonably, it can increase predictability and create healthy incentives for corporate entities that encourage proactive, speedy, and informed self-disclosures.
DOJ focuses on compensation policy as a measure of corporate culture.
DAG Monaco also touted the Department’s increased focus on a corporation’s compliance programs when considering penalties for criminal conduct. Most critically, the Criminal Division will now consider a company’s compensation structure relating to misconduct and compliance in its investigative and prosecutorial decisions. Many companies have already structured compensation to incorporate compliance measures. It is clear that the Department seeks to reward this practice and to encourage others to follow suit.
Yet again, DAG Monaco described a carrot-and-stick approach that line prosecutors will consider when a company engages in misconduct. First, the Department will look favorably on companies that claw back the compensation of — or otherwise financially penalize — their employees, executives, and/or directors “whose direct or supervisory actions or omissions contributed to criminal conduct.” Such clawback arrangements, DOJ claims, alleviate the financial burden of shareholders while increasing the individual financial accountability of each wrongdoer.
But DAG Monaco made it clear that companies should not only penalize wrongdoing. Compensation programs should also affirmatively incentivize those employees who complete certain benchmarks with respect to “compliance-promoting behavior.” Without saying so expressly, the Department seems to be suggesting that companies should financially promote whistleblowing behavior among their own employees. Such measures would be in line with the Department’s commitment to financially “rewarding” companies (through reduced penalties) who voluntarily self-disclose.
DAG Monaco did not address what weight DOJ will give to a company’s decision to terminate the employment of individual wrongdoers. But the omission suggests that DOJ places less value on this common remedial step. In fact, the clawback programs DAG Monaco described may require companies to continue the employment of bad actors in order to enforce financial penalties, rather than terminating their employment altogether. This adverse incentive undermines DOJ’s stated concern about recidivist behaviors. It is also unclear how broadly the Department believes that financial responsibility for wrongdoing should extend within a company — for instance, the degree to which it applies to supervisory conduct. Further guidance on these compensation programs is expected by the end of the year and should provide additional direction on these key issues.
DOJ promises forthcoming new guidance on compliance monitors.
A common complaint in recent years has been DOJ’s lack of transparency surrounding NPAs and DPAs. While DAG Monaco did not suggest any new requirements for prosecutors to disclose such agreements, she did announce the Department’s commitment to increased transparency of corporate monitor programs, which often accompany NPAs and DPAs. In the near future, the Department will issue guidance on the selection process for monitors. The new guidance will provide prosecutors with tools to tailor each monitor’s specific instruction to oversee a company’s unique situation and misconduct. The Department further promised to improve its efforts to “monitor the monitor,” which it hopes will “increase the likelihood of success” for the resolving company.
The Biden DOJ continues to take an aggressive policy stance on the investigation and prosecution of corporate crime. But as DAG Monaco acknowledged, its current enforcement numbers do not reflect that policy. Whether that is poised to change nearly halfway through the new administration remains to be seen, but it is not unexpected for first-term administrations to put renewed emphasis on corporate accountability when headed for possible reelection battles.
When businesses do face criminal investigations involving the DOJ, these new policies will have significant effects on how they respond. The DOJ’s “need for speed” and focus on individual accountability will run up against the necessity of thorough investigations that can pinpoint wrongdoers while avoiding unfair accusations. These policy dictates also call for corporate counsel to consider carefully now what steps they should take to bolster compliance programs and to be best positioned on corporate culture if misconduct does occur. In particular, these policies place a substantial focus on a company’s preemptive, systemic efforts to ensure compensation practices support compliance while discouraging criminal conduct.
Given the Department’s intensifying focus on corporate compliance, internal policing, and individual wrongdoing, companies should consider evaluating existing compliance programs and implementing enhancements consistent with DOJ expectations. Taking these proactive steps will put companies in the best position going forward. Boards generally and compliance committees particularly may well expect such management-led initiatives.
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