Key Takeaways

• Speaking before the American Bar Association’s 38th National Institute on White Collar Crime last week, Deputy Attorney General Lisa Monaco and Assistant Attorney General Kenneth Polite emphasized the Department of Justice’s (the DOJ or Department) continued focus on fighting corporate crime.
• Monaco and Polite focused on the DOJ’s new policies and guidance concerning corporate compensation systems, the use of personal devices and third-party messaging platforms, and criteria for selecting monitors.
• They also covered the Department’s recent Voluntary Self-Disclosure Policy, additional resource commitments, and focus on individual accountability. 

Background

Monaco’s and Polite’s remarks, and the DOJ’s new policies and guidance, come amid the Department’s increasingly tough on corporate crime approach and emphasis on rewarding companies that have effective compliance programs (and penalizing those that do not). Just this past September, Monaco issued a Department-wide memorandum (the Monaco Memo) that significantly revised the DOJ’s corporate criminal enforcement policies and procedures, including by putting a renewed focus on individual accountability and placing stricter requirements on corporate cooperation credit (focusing on the importance of prompt self-disclosure). The memo also announced the first-ever Department-wide guidance on evaluating a corporation’s compensation plans and instructed the Criminal Division “to develop further guidance by the end of the year on how to reward corporations that develop and apply compensation clawback policies.” The Monaco Memo also noted that “prosecutors should consider whether the corporation has implemented effective policies and procedures governing the use of personal devices and third-party messaging platforms to ensure that business-related electronic data and communications are preserved” and instructed the Criminal Division to further study this issue and incorporate the results of that study into the next edition of its Evaluation of Corporate Compliance Programs (ECCP), which prosecutors use to make corporate charging decisions.   

In January, Polite announced additional significant changes to the Criminal Division’s corporate enforcement policies, which focused on increased incentives for companies that voluntarily self-disclose misconduct, fully cooperate, and timely and appropriately remediate, including a presumption of declination and, even if a company does not receive a declination, a possible reduction of financial penalties of up to 75 percent. Last month, the Department announced a new Voluntary Self-Disclosure Policy, setting a nationwide standard for U.S. Attorney’s Offices throughout the country. Echoing the focus on prompt disclosures in the Monaco Memo, under the new policy, a self-disclosure will be considered timely only if the company self-reports within a “reasonably prompt time period” after becoming aware of the misconduct and prior “to an imminent threat of disclosure or government investigation” and the misconduct being publicly disclosed.

Criminal Division’s Updated Policies Concerning Compensation Systems

At the conference, Monaco provided an update on the DOJ’s “work to cement a firm foundation for corporate criminal enforcement and reward investments in corporate compliance.” One key announcement was the Department’s launch of the first-ever Pilot Program on Compensation Incentives and Clawbacks.

The pilot program, which is effective March 15, and applies to all corporate matters handled by the Criminal Division, has two components. First, every corporate resolution entered into by the Criminal Division will now include a requirement that the resolving company develop compliance-promoting criteria within its compensation system. Such criteria must (1) prohibit bonuses for employees who do not satisfy compliance performance requirements, (2) discipline employees who violate applicable law, and discipline those who both had supervisory authority over the wrongdoing employee or the business area engaged in the misconduct and knew of, or were willfully blind to, the misconduct, and (3) incentivize employees who demonstrate full commitment to compliance.

Second, the pilot program offers fine reductions to companies that fully cooperate, timely and appropriately remediate, and seek to claw back compensation from corporate wrongdoers in appropriate cases. At the time of the resolution, companies will be required to pay the full amount of the otherwise applicable fine, less 100 percent of the amount of compensation the company is attempting to claw back. At the conclusion of the resolution term, if the company has not recouped the full amount of the compensation it attempted to claw back, the company will be required to pay the difference, less up to 25 percent of the unrecouped amount if prosecutors determine that the company sought the clawback in good faith.

In addition to the pilot program, Polite announced significant revisions to the ECCP to consider how a company’s compensation and consequence management systems contribute to the presence — or lack — of an effective compliance program. When making corporate charging decisions, prosecutors will now evaluate, among other things:

• Whether companies maintain policies and contract provisions for recoupment or reduction of compensation due to compliance violations or misconduct, enforce such policies and provisions, and have “put employees on notice that they will not benefit from any potential fruits of misconduct.” 
• Whether companies provide positive incentives that “can drive compliance,” including making compliance a means of career advancement and a significant metric for management bonuses.
• The types of disciplinary actions available to management when it seeks to enforce compliance policies; how transparent the company has been with the design and implementation of its disciplinary process, including whether actual reasons for executive discipline and separation are communicated to employees; and who determines the compensation, discipline and promotion of compliance personnel or others within the organization who have a role in the disciplinary process.
• The metrics companies employ to ensure effective and consistent consequence management of compliance violations in practice, including any insights that can be gleaned from the company’s management of its hotline.

ECCP Revisions Concerning Use of Personal Devices, Communications Platforms and Messaging Applications

Polite announced that, under the revised ECCP, prosecutors will also now consider a company’s policies and procedures governing the use of personal devices, communications platforms and messaging applications, including those offering ephemeral messaging. These policies “should be tailored to the corporation’s risk profile and specific business needs and ensure that, as appropriate, business-related electronic data and communications can be preserved and accessed.” Prosecutors will evaluate, among other things: 

• The types of electronic communications channels employees use to conduct business, the mechanisms a company uses to manage and preserve information contained within such communication channels, and how the company manages security and exercises control over such communications channels.
• For companies that have “bring your own device” programs, the policies governing preservation of and access to corporate data and communications stored on personal devices — including data contained within messaging platforms. 
• Whether the use of personal devices or messaging applications has impaired the organization’s compliance program or its ability to conduct internal investigations or respond to requests from prosecutors or civil enforcement or regulatory agencies.

Polite appeared particularly focused on the access prosecutors have to communications stored on third-party messaging applications. Polite said that, during an investigation, prosecutors will “ask about the company’s ability to access such communications, whether they are stored on corporate devices or servers, as well as applicable privacy and local laws,” and that a “company’s answers – or lack of answers – may very well affect the offer it receives to resolve criminal liability.”  

Revised Memorandum on the Selection of Monitors in Criminal Division Matters

During the conference, Polite also announced revisions to monitor selection criteria and procedures. The memorandum issued by the DOJ sets forth 10 non-exhaustive factors prosecutors will use when assessing the necessity and potential benefits of a monitor in connection with a criminal resolution. The factors make clear that prosecutors will continue to consider whether the misconduct occurred under different leadership or within a compliance environment that no longer exists within the company. Under such circumstances, prosecutors will evaluate whether the changes in corporate culture and/or leadership are adequate to safeguard against a recurrence of misconduct. Prosecutors will also consider whether the company took adequate remedial measures, including, where appropriate, the termination of business relationships and practices that contributed to the misconduct.  

The memorandum notes that, generally, the Criminal Division will favor imposing a monitor where there is a demonstrated need for, and clear benefit to be derived from, a monitorship. According to the memorandum, “where a corporation’s compliance program and controls are untested, ineffective, inadequately resourced, or not fully implemented at the time of a resolution,” the Department should consider imposing a monitorship. On the other hand, “where a corporation’s compliance program and controls are demonstrated to be tested, effective, adequately resourced, and fully implemented at the time of a resolution,” the Department may not need to impose a monitor.

The memorandum also includes what deferred prosecution agreements, non-prosecution agreements and plea agreements that require the retention of a monitor should contain and details on the process for monitor selection.

Voluntary Self-Disclosure Policy

Monaco and Polite also discussed the DOJ’s recent Voluntary Self-Disclosure Policy and that “absent aggravating factors, the Department will not seek a guilty plea from corporations that self-disclose, cooperate and remediate.”

But both Monaco and Polite emphasized that in order to reap the benefits under the new policy, timing is key. Monaco wanted “every general counsel, every executive and board member to take this message to heart: where your company discovers criminal misconduct, the pathway to the best resolution will involve prompt voluntary self-disclosure to the Department of Justice.” Polite reminded companies that criminal consequences “will be far more severe for those companies that sit back and wait for us to come knocking.”

Polite also emphasized that the Department’s self-disclosure and cooperation expectations still apply after a company enters into a resolution with the Department. According to Polite, a resolution is not the end of an inquiry, but merely “the start of a new path with a focus on cooperation and compliance.” Polite said that the DOJ is “committed to the follow-through and to holding companies to the letter of our agreements,” and companies can expect severe consequences if they fail to live up to their obligations. 

Resource Commitments to Corporate Criminal Enforcement

Monaco also described the DOJ’s efforts to expand the resources available to prosecutors to address the evolution of corporate crime and referenced last year’s formation of the National Cryptocurrency Enforcement Team and the FBI’s Virtual Asset Unit as examples.

Monaco announced “a similar surge of resources to address a troubling trend: the intersection of corporate crime and national security.” Monaco stated that the Department was focused on prosecutions related to payments made to terrorist organizations and sanctions and export control enforcement since Russia’s invasion of Ukraine.

This resource surge will include significant restructuring and resource commitments within the DOJ’s National Security Division, including the addition of more than 25 new prosecutors, and a first-ever chief counsel for corporate enforcement who will investigate and prosecute sanctions evasion, export control violations and similar economic crimes. Monaco also noted that the DOJ will be making a substantial investment in the Criminal Division’s Money Laundering and Asset Recovery Section’s Bank Integrity Unit, which prosecutes global financial institutions for sanctions violations.

Individual Accountability

Finally, Monaco stated that individual accountability “will always remain the most important priority in corporate enforcement.” Monaco cited recent high-profile prosecutions and the fact that the Criminal Division’s Fraud Section has secured more individual convictions at trial last year than in any of the previous five years as demonstrating the Department’s zealous pursuit of “corporate crime in any industry” and commitment to holding “wrongdoers accountable, no matter how prominent or powerful they are.”

Conclusion

According to Monaco, the DOJ’s new policies are intended to empower general counsel and compliance officers to make the case to company management and boards that investment in compliance programs “is money well spent.” Polite urged companies to “[c]raft and implement effective compliance programs that can detect misconduct,” “[p]ush to create a culture of compliance,” and “[e]mpower ethical employees.”

Companies would be well advised to review their compliance programs to ensure that current procedures are sufficient to effectively detect and prevent misconduct. Due to the Department’s continued emphasis on prompt self-reporting, it is critical that if alleged misconduct is discovered, companies have a robust internal investigation plan in place in order to determine on an expedited basis whether to self-disclose to maximize cooperation credit in any government investigation. The Department’s revised criteria for the imposition of monitorships provides another strong incentive for ensuring that compliance programs and controls are tested, effective, adequately resourced and fully implemented.

Additionally, companies should review the Criminal Division’s new policies on compensation systems and assess the impact on their existing compensation structures. Companies should also reassess their information governance and technology policies and procedures in light of the DOJ’s revisions to the ECCP related to personal devices, communications platforms and messaging applications.

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