DOJ Updates Policies on Corporate Ethics and Compliance

Last week, Deputy Attorney General Lisa O. Monaco delivered remarks on corporate criminal enforcement, announcing revisions to DOJ’s policies for addressing corporate ethics and compliance matters. These changes reflect an increased focus on holding individuals accountable for corporate wrongdoing, guidance on handling corporate recidivism, further transparency regarding the appropriateness and necessity of monitorships; incentives for voluntary self-disclosure of misconduct; and a recognition of compensation related incentives to garner a corporate culture of compliance.

The Deputy Attorney General’s statements come amid a continuing development of DOJ’s corporate enforcement policies and practices over the past few years. In 2021, DOJ announced three immediate changes to its policies and practices intended to strengthen its ability to hold individuals and corporations responsible for criminal conduct. First, it restored prior guidance making clear that to be eligible for any cooperation credit, companies must provide the department with all non-privileged information about individuals involved in or responsible for the misconduct at issue, regardless of their position, status, or seniority. Second, it issued new guidance to prosecutors regarding what historical misconduct needs to be evaluated when considering corporate resolutions, directing that prosecutors can and should consider the full range of prior misconduct, not just a narrower subset of similar misconduct. Third, it rescinded any guidance that suggested monitorships were disfavored or the exception, instead clarifying that the department is free to require the imposition of independent monitors whenever appropriate.

DOJ’s most recent revisions build upon these 2021 changes and then some.

On individual accountability, DOJ reiterated that going after individuals who commit and profit from corporate crime is its top priority. In order to facilitate this, DOJ intends to require cooperating companies to come forward voluntarily with important evidence more quickly and regardless of whether DOJ has yet issued a request that would call for the production of such evidence. As the Deputy Attorney General put it, “speed is of the essence.” To that end, under the newly announced revisions, undue or intentional delay in producing information or documents – and particularly those that show individual culpability – will result in a reduction or flat denial of cooperation credit. Moreover, Department prosecutors are now instructed to complete investigations and seek warranted criminal charges against individuals simultaneously, or even before, entering a resolution against the company.

On historical misconduct, in response to feedback submitted following the DOJ’s 2021 policy changes, DOJ provided additional guidance and insight as to how it will evaluate such histories. Specifically, when weighing prior misconduct, the most significant type of prior misconduct going forward will be criminal resolutions within the United States as well as prior wrongdoing involving either the same personnel or management as the current misconduct. DOJ will also consider the nature and circumstance of the prior misconduct, including whether there is any overlap with the present misconduct. On the other hand, dated misconduct – i.e. resolutions that occurred more than 10 years prior to the conduct under investigation – will be accorded less weight. DOJ further clarified that it will not treat companies with a proven track record of compliance that acquire companies with compliance deficiencies as recidivists, in an effort to avoid discouraging acquisitions that result in reformed and improved compliance structures. Finally, there will be no “frequent flyers” when it comes to multiple non-prosecution or deferred prosecution agreements with the same company; success agreements of this nature will be disfavored.

On compliance monitors, DOJ seeks to reduce suspicion and confusion about monitors with a call for more transparency. Its new guidance reflects how to identify the need for a monitor and how to select the monitor where needed. DOJ has put forth a list of ten non-exhaustive factors to evaluate the necessity and potential benefits of a monitor, including the following:

  1. Whether the corporation voluntarily self-disclosed the underlying misconduct in a manner that satisfies the particular DOJ component’s self-disclosure policy;
  2. Whether, at the time of the resolution and after a thorough risk assessment, the corporation has implemented an effective compliance program and sufficient internal controls to detect and prevent similar misconduct in the future;
  3. Whether, at the time of the resolution, the corporation has adequately tested its compliance program and internal controls to demonstrate that they would likely detect and prevent similar misconduct in the future;
  4. Whether the underlying criminal conduct was long-lasting or pervasive across the business organization or was approved, facilitated, or ignored by senior management, executives, or directors (including by means of a corporate culture that tolerated risky behavior or misconduct, or did not encourage open discussion and reporting of possible risks and concerns);
  5. Whether the underlying criminal conduct involved the exploitation of an inadequate compliance program or system of internal controls;
  6. Whether the underlying criminal conduct involved active participation of compliance personnel or the failure of compliance personnel to appropriately escalate or respond to red flags;
  7. Whether the corporation took adequate investigative or remedial measures to address the underlying criminal conduct, including, where appropriate, the termination of business relationships and practices that contributed to the criminal conduct, and discipline or termination of personnel involved, including with respect to those with supervisory, management, or oversight responsibilities for the misconduct;
  8. Whether, at the time of the resolution, the corporation’ s risk profile has substantially changed, such that the risk of recurrence of the misconduct is minimal or nonexistent;
  9. Whether the corporation faces any unique risks or compliance challenges, including with respect to the particular region or business sector in which the corporation operates or the nature of the corporation’s customers; and
  10. Whether and to what extent the corporation is subject to oversight from industry regulators or a monitor imposed by another domestic or foreign enforcement authority or regulator.

And it has emphasized that in selecting a monitor, transparency within that process is of the outmost importance.

Relatedly, the new guidance calls for DOJ supervision of any monitorship and Department prosecutors are now expected to receive regular updates verifying that the monitor is staying on task (i.e. that the monitorship is tailored to the misconduct and related compliance deficiencies) and on budget.

Finally, DOJ’s newest revisions raise the topics of voluntary self-disclosure and corporate culture. As to voluntary self-disclosure, DOJ is seeking to provide incentives to companies that voluntarily self-disclose misconduct to the government. For the first time, each department within DOJ must have a formal and documented program designed to incentivize self-disclosure. These programs must have two common features: (1) they must commit to not seeking a guilty plea when a company has voluntarily self-disclosed, cooperated, and remediated misconduct; and (2) they must not require an independent compliance monitor if, at the time of resolution, the company has implemented and tested and effective compliance program.

And with respect to corporate culture, prosecutors will now consider compensation systems intended to help enforce compliance initiatives when evaluating a company’s compliance program. In recent years, companies have employed clawback provisions, the escrowing of compensation, and other strategies to hold financially accountable individuals responsible who contribute to the misconduct as a means of deterrence. In recognition of these efforts, DOJ will determine whether such provisions exist and whether they are enforced. We can expect further guidance in the coming months on how DOJ will reward corporations who employ such deterrence measures.

The revisions outlined above stem from the work of the Corporate Crime Advisory Group, a group of DOJ experts who were tasked with a top-to-bottom review of DOJ’s corporate enforcement efforts.

The Deputy Attorney General’s remarks and memorandum reflecting announced revisions can be found here.

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