DOJ Announces Major Changes to Corporate Criminal Enforcement Policies

INTRODUCTION 

The U.S. Department of Justice ("DOJ" or "Department") continues to emphasize aggressive enforcement of white-collar crime against both companies and individuals. On September 15, 2022, Deputy Attorney General ("DAG") Lisa Monaco delivered a speech and issued a Memorandum ("Memorandum") that announced revisions to DOJ policies related to how prosecutors should handle corporate criminal cases and steps to ensure greater consistency across DOJ's enforcement components. These pronouncements are the result of a yearlong review by DOJ's Corporate Crime Advisory Group and are intended to further the Biden administration's goal of prioritizing white-collar criminal enforcement of companies and individuals. The policies set forth in the Memorandum, as well as forthcoming guidance on subjects like cooperation credit and independent corporate monitors, will be incorporated into the Justice Manual. The announcement supplements pre-existing guidelines and previous policy changes announced by the DAG in October 2021. 

While these changes build on pre-existing DOJ policies, they signal an even more aggressive approach by DOJ to corporate and individual criminal enforcement. Companies can prepare for heightened enforcement by ensuring that their compliance policies, procedures, and other internal controls are appropriately designed and effectively implemented to prevent, detect, investigate, and remediate any potential issues that may arise.

DOJ POLICY CHANGES CONCERNING VOLUNTARY SELF-DISCLOSURE, COOPERATION CREDIT, EVALUATION OF COMPLIANCE PROGRAMS, INDEPENDENT COMPLIANCE MONITORS, AND HISTORY OF MISCONDUCT 

Voluntary Self-Disclosure

Certain components of DOJ have implemented policies that provide significant incentives, in the form of varying degrees of potential leniency, for companies that voluntarily self-disclose criminal conduct. Highlighting the Criminal Division's FCPA Corporate Enforcement Policy, the Antitrust Division's leniency program, and other policies as examples, the Memorandum directs each DOJ component that prosecutes corporate crime to adopt and publicly share a policy that incentivizes voluntary disclosures, if not already implemented. The Memorandum states that these policies should require that, absent aggravating factors, the DOJ component will not seek a guilty plea where a corporation has voluntarily self-disclosed, fully cooperated, and timely and appropriately remediated the misconduct. In addition, the policies should state that DOJ will not impose an independent compliance monitor if a company voluntarily self-discloses misconduct, provided the company has an effective corporate compliance program that has been implemented and tested by the time of the resolution. 

It remains to be seen how the DOJ components will define the "aggravating factors" that would cause DOJ to require a guilty plea from a company that voluntarily self-disclosed criminal conduct, fully cooperated, and remediated. The Memorandum provides examples of aggravating circumstances, such as misconduct that poses a grave threat to national security or is deeply pervasive throughout the company. The FCPA Corporate Enforcement Policy defines aggravating circumstances that may warrant a criminal resolution despite voluntary self-disclosure to include involvement by executive management in the misconduct, a significant profit to the company from the misconduct, and criminal recidivism. Indeed, Assistant Attorney General Kenneth A. Polite delivered remarks on September 16, 2022, in which he noted that as to the Criminal Division, the aggravating factors will include, but are not limited to, "involvement by executive management of the company in the misconduct, significant profit to the company from the misconduct, or pervasive or egregious misconduct." 

Cooperation

Company's Timely Disclosure of Individual Misconduct. In 2021, the DAG revived the position set forth in DOJ's 2015 "Yates Memorandum" that for a company to receive consideration for cooperation credit, it must disclose to DOJ "all relevant [non-privileged] facts about individual misconduct," regardless of the individuals' "position, status or seniority." In her September 15 remarks, the DAG reiterated that DOJ's "number one priority is individual accountability" and added that the Department is committed to "do more and move faster" on prosecuting individuals. Reflecting this directive, DOJ's new enforcement guidelines direct prosecutors to bring individual prosecutions more quickly, and push cooperating companies to come forward with evidence regarding individual culpability "swiftly and without delay." Thus, under the new Memorandum, to be eligible for cooperation credit moving forward, companies must also timely disclose this information to DOJ. To this end, prosecutors must now consider whether a company promptly notified prosecutors of particularly relevant information once it was discovered, or if the company instead delayed disclosure in a manner that inhibited the government's investigation. It should be noted that, in remarks on the Memorandum that the Principal Associate Deputy Attorney General ("PADAG") Marshall Miller gave on September 20, 2022, Miller was even more explicit about DOJ's conception of speed, observing that "[t]he Department will expect cooperating companies to produce hot documents or evidence in real time." What "real time," "swiftly," and "without delay" may mean in particular circumstances should become more apparent through future enforcement outcomes, but in any event, undue or intentional delay on the part of a company in producing information or documents to DOJ, particularly those that may materially bear on individual culpability, may result in the reduction or denial of corporate cooperation credit.

This provision may complicate internal corporate investigations going forward, placing some amount of pressure on companies to disclose information quickly—particularly information regarding individuals. It is important that in any case where a company is seeking cooperation credit from DOJ, company counsel work diligently to assess the significance and context of any derogatory information so as to enable prompt and informed disclosures to DOJ. This new emphasis on speed will also give prosecutors yet another ground to scrutinize the nature of a company's cooperation and to determine whether and to what extent the company qualifies for cooperation credit.

Production of Non-U.S. Records. The Memorandum reinforces the longstanding principle that, for companies facing a potential DOJ prosecution, cooperation can be a mitigating factor. This is particularly true for companies that navigate issues of foreign law and record production. The Memorandum notes that where foreign law places restrictions on the production of documents located overseas, the company bears the burden of identifying these restrictions or reasonable alternatives to providing requested evidence. This is already a requirement under the FCPA Corporate Enforcement Policy, but now applies to all corporations under DOJ investigation. 

Evaluation of a Company's Compliance Program

Reflecting DOJ's continuing emphasis on corporate compliance, the Memorandum reiterates that all prosecutors must evaluate the adequacy of a company's compliance program, at both the time of the offense and the time of a charging decision, when determining the terms of a corporate resolution. Factors to consider in this evaluation are based on the Criminal Division's Evaluation of Corporate Compliance Programs guidance (updated June 2020) and include whether the program is well-designed, adequately resourced, empowered to function effectively, and working in practice. 

The Memorandum also directs prosecutors to assess additional "metrics" when evaluating a company's compliance program, namely: (i) whether a company employs compensation structures that promote compliance; (ii) whether a company uses non-disclosure agreements to inhibit public disclosure of criminal misconduct; and (iii) whether a company has implemented effective policies and procedures governing the use of personal devices and third-party messaging platforms.

Compensation Systems. In assessing whether a company's compensation system promotes compliant behavior, the Memorandum directs that prosecutors should consider whether penalties—such as compensation clawback provisions—can be levied against current or former employees, executives, or directors whose direct or supervisory actions or omissions contributed to criminal conduct. Moreover, according to the Memorandum, DOJ prosecutors should evaluate whether these measures are actually imposed in practice. Indeed, in PADAG Miller's remarks, he noted that "compensation clawback policies matter, and those policies should be deployed regularly. A paper policy not acted upon will not move the needle—it is really no better than having no policy at all." Compensation systems should allow for retroactive discipline, including partial escrowing and clawback measures, which have been noted in various DOJ resolutions in recent years. As also specified in the Memorandum, prosecutors should also assess whether there are affirmative incentives for compliance-promoting behavior. 

Non-Disparagement Agreements. DOJ prosecutors are directed to consider whether a corporation uses or has used non-disclosure or non-disparagement provisions in compensation agreements, severance agreements, or other financial arrangements so as to inhibit the public disclosure of criminal misconduct by the corporation or its employees.

Personal Devices and Third-Party Messaging Platforms. DOJ prosecutors are also directed to consider whether a company has implemented effective policies and procedures governing the use of personal devices and third-party messaging platforms, including ephemeral and encrypted messaging applications (e.g., WhatsApp and WeChat), to ensure that business-related electronic data and communications are preserved. The Memorandum explains that a company should be able to provide the government with all work-related communications, texts, messaging, and data contained on personal or company-issued phones, tablets, or other devices used by employees for business purposes. PADAG Miller elaborated on this point in his September 20 remarks, noting that "[h]owever a company chooses to address the use of personal devices or messaging platforms for business communications, the end result must be the same: companies need to prevent circumvention of compliance protocols through off-system activity, preserve all key data and communications and have the capability to promptly produce that information for government investigations." As reflected in a series of recent corporate resolutions and publicly reported investigations involving regulators, many companies in highly regulated industries, such as financial services, are already subject to these requirements. The Memorandum makes clear, however, that these record-keeping obligations will now be applied in a much broader context. Recognizing the broad sweep of this new policy, the DAG has asked the Criminal Division to study best corporate practices regarding use of personal devices and third-party messaging platforms and to incorporate that analysis into the next edition of its Evaluation of Corporate Compliance Programs guidance. 

Imposition of Corporate Monitors

Building on prior guidance issued by the Criminal Division, the Memorandum contains further guidelines intended to promote consistency, predictability, and transparency across DOJ with respect to the imposition and selection of independent corporate monitors. The Memorandum instructs each DOJ component involved in corporate criminal resolutions that does not already have a public monitor selection process to develop and publish its own process by the end of the year, or follow the selection process previously developed by the Criminal Division. 

The Memorandum also describes (i) several factors prosecutors should consider in determining whether an independent compliance monitor is needed in particular cases; (ii) the process prosecutors should follow in selecting such monitors; and (iii) how prosecutors should supervise monitors. Relevant factors include whether the company voluntarily self-disclosed the underlying misconduct, has implemented an effective compliance program that has been adequately tested at the time of the resolution, or took adequate investigative or remedial measures to address the underlying conduct. The Memorandum provides that a monitor should be selected pursuant to a publicly documented selection process in keeping with DOJ's commitment to diversity and inclusion. The monitor's responsibilities and scope of authority should be well-defined and recorded in writing, and a clear workplan should be agreed upon between the monitor and the corporation. The Memorandum also makes clear that DOJ will be "monitoring the monitors," requiring that prosecutors receive regular updates about the status of the monitorship and any issues presented.

Evaluation of a Company's History of Misconduct 

In the Memorandum, the DAG made clear that DOJ disfavors successive non-prosecution or deferred prosecution agreements ("NPAs" and "DPAs") for repeat corporate offenders. DOJ prosecutors must now seek approval from the DAG to enter into such resolutions with a company that has received an NPA or DPA in the past. As discussed in the DAG's October 2021 Memorandum, DOJ prosecutors must consider the corporation's record of past misconduct, including prior criminal, civil, and regulatory resolutions, when making corporate resolution decisions. The Memorandum clarifies that certain types of prior misconduct should be treated differently than others. Moving forward, DOJ prosecutors should assign the greatest significance to recent U.S. criminal resolutions, and to prior misconduct involving the same personnel or management. This may illustrate whether the conduct reflects broader weaknesses in a company's compliance culture or practices, such as if the conduct involved the same executive leadership or the instances of misconduct share the same root causes. Less significance should be afforded to conduct addressed by prior criminal resolutions entered into more than 10 years before the conduct currently under investigation, and civil or regulatory resolutions that were finalized more than five years before the conduct at issue. Additionally, companies should be compared to similarly situated companies in their industry, considering that industry's regulatory environment. The Memorandum provides that DOJ prosecutors should also assess whether efforts were made to remedy the prior misconduct, such as imposing employee discipline, restitution, management restructuring, and implementing compliance program upgrades.

While the Memorandum states that "nothing in [it] should disincentivize corporations that have been the subject of prior resolutions from voluntarily disclosing misconduct to the Department," the benefits for those corporations to do so in particular cases remain uncertain.