The US Department of Justice (DOJ) continues to enhance its tougher-on-corporate-crime policy stance as first announced by Deputy Attorney General Lisa Monaco in 2021. In remarks on March 7 and March 8, DAG Monaco and Acting Assistant Attorney General Nicole Argentieri announced new financial rewards to whistleblowers, enhanced penalties for fraud involving misuse of artificial intelligence (AI), revisions to DOJ’s corporate compliance program guidance to assess AI use, and the continued evolution of the voluntary self-disclosure program.

These significant updates to DOJ’s corporate criminal enforcement policies were announced during speeches at the American Bar Association White Collar Crime conference in San Francisco.

In this LawFlash, the Morgan Lewis white collar litigation and government investigations team discusses the most significant points from Monaco’s and Argentieri’s speeches and the corresponding revised policies.

FINANCIAL AWARDS TO WHISTLEBLOWERS

Most significantly, Monaco announced that DOJ would offer financial awards to whistleblowers, complementing and filling in the gaps of “the patchwork quilt” of existing whistleblower compensation programs operated by the US Securities and Exchange Commission (SEC), Internal Revenue Service, and Financial Crimes Enforcement Network, as well as False Claims Act qui tam procedures.

The program was further outlined by Argentieri with the following key takeaways:

• In order to be eligible for whistleblower compensation, the information provided must be original, nonpublic, and truthful and not already known to the government, and the whistleblower must be the “first in the door” providing the information, incentivizing prompt disclosure of potential misconduct to DOJ.
• The whistleblower cannot have participated in the wrongdoing disclosed.
• The whistleblower will be eligible for a recovery only after victims are first compensated for their loss.
• The program, similar to the SEC and Commodity Futures Trading Commission programs that limit rewards to cases in which the agency orders sanctions of $1 million or more, will have a monetary threshold to focus DOJ resources on the “most significant cases.”

Examples of where this expanded whistleblower compensation program would apply include alleged Foreign Corrupt Practices Act violations by nonpublic companies that are outside the jurisdiction of the SEC and public corruption cases in the United States.

A potentially troubling development, this expanded whistleblower compensation program will result in the only circumstances where a witness in a criminal case will have a direct interest (financial or otherwise) in the outcome of the case. Following a 90-day policy sprint to gather information and engage with various stakeholders, a formal policy will be implemented later in 2024.

OTHER CONTINUED CHANGES TO POLICY ON CORPORATE CRIMINAL ENFORCEMENT

In a speech at the American Bar Association’s annual White Collar Crime Conference in October 2021, DAG Monaco signaled a more aggressive enforcement approach to corporate crime. Since that speech, Monaco has announced continued changes to DOJ’s policies on corporate crime, including an increased emphasis on individual accountability, more widespread use of corporate monitors, voluntary self-disclosures, harsher penalties for recidivists, “clawbacks” of compensation given to individual corporate wrongdoers, and a focus on corporate investment in compliance.

This more aggressive stance has been noticeable in the years since Monaco’s 2021 announcement. DOJ has announced several large corporate resolutions, including against multinational companies. Many of these resolutions involved felony guilty pleas and massive fines and, in many cases, DOJ has sought to impose independent compliance monitors. DOJ has also brought a number of individual prosecutions related to corporate crime, including the conviction of the CEOs of the world’s two largest cryptocurrency platforms and dozens of other executives across a range of industries.

In Monaco’s speech, she explained that DOJ has been reviewing the evolution of the corporate compliance pronouncements made over the last few years and is implementing several additional changes to help further DOJ’s tough-on-white-collar-crime approach.

Penalties for Misuse of Artificial Intelligence

Following on comments by Attorney General Merrick Garland at the American Bar Association Conference on March 6, 2024 highlighting the growing risks of AI-driven crime, and the February 22, 2024 announcement of Jonathan Mayer as DOJ’s first Chief Science and Technology Advisor and Chief Artificial Intelligence Officer, Monaco announced that DOJ would be pursuing enhanced penalties for fraud involving the misuse of AI, including potential sentencing enhancements under the federal Sentencing Guidelines.

Revision to Justice Manual Guidance to Include Consideration of AI

The Principles of Federal Prosecution of Business Organizations set forth in the Justice Manual describe specific factors that prosecutors should consider when conducting an investigation of a corporation, determining whether to bring charges, and negotiating resolutions. Among these factors is “the adequacy and effectiveness of the corporation’s compliance program at the time of the offense, as well as at the time of a charging decision.”

In Monaco’s speech, she outlined that for the first time DOJ will revise the Evaluation of Corporate Compliance Programs guidance to include provisions instructing prosecutors to assess the effectiveness of a company’s compliance program to mitigate the risks of the misuse of AI.

Evaluation of Self-Disclosure Programs

Monaco also announced that DOJ will be evaluating the results of pilot programs implemented by the US Attorneys’ Offices in the Southern District of New York and Northern District of California to reward certain culpable individuals with nonprosecution agreements where they voluntarily self-disclose their criminal conduct and cooperate against more culpable persons. Following the evaluation of these programs, DOJ will decide on next steps for potential voluntary self-disclosure programs for individuals who voluntarily self-disclose criminal conduct and seek the benefits of self-disclosure.

The Southern District of New York pilot program, announced in February 2024, outlines certain requirements that must be met for individuals to earn nonprosecution agreements:

• The misconduct must not have been previously made public and was not already known to DOJ.
• The disclosure was voluntary and not in response to a government inquiry or reporting obligation and was made prior to imminent threat of disclosure or government investigation.
• The individual provides “substantial assistance in the investigation and prosecution of one or more equally or more culpable persons” and fully cooperates with the investigation and prosecution.
• The individual “truthfully and completely discloses all criminal conduct in which the individual has participated and of which the individual is aware.”
• The individual is not an elected official, an official or agent of a federal investigative or law enforcement agency, or a chief executive officer or chief financial officer of a public or private company.
• The individual has not engaged in certain violent crimes or crimes implicating national security or foreign affairs and does not have a prior felony conviction or conviction of any kind for conduct involving fraud or dishonesty.

The program also allows for prosecutorial discretion when some of these criteria are not met for certain corporate crimes involving fraud or corporate control failures or criminal conduct concerning bribery or fraud relating to public funds. All individuals receiving a nonprosecution agreement under the program would be required to forfeit any proceeds from the individual’s criminal misconduct.

US Attorney for the Northern District of California Ismail Ramsey announced at the ABA White Collar Crime conference that his office would be launching a similar program soon.

M&A Transaction Safe Harbor Only Applies to Arm’s-Length Transactions

On October 4, 2023, Monaco announced a new Safe Harbor Policy impacting mergers and acquisitions. Through the policy, acquiring companies can avoid DOJ charges if they voluntarily disclose misconduct of the acquired company to DOJ. In Monaco’s speech at the ABA White Collar Crime conference, she announced that the benefits of self-disclosure only apply to “bona fide arm’s-length transactions.”

We recently addressed in an October 12, 2023 LawFlash the criteria for companies to qualify under DOJ’s M&A Safe Harbor Policy, which provides for a “presumption of declination” where a company discloses discovered misconduct within six months, cooperates, and remediates the misconduct within 12 months.

Implications

DOJ’s message to corporations is clear: come forward as soon as misconduct occurs or risk whistleblower disclosure, enact compliance controls on the use of AI or face consequences, and continue to invest in compliance and an improved culture.

In terms of practical steps, companies should strongly consider doing the following:

• Invest in compliance and culture. DOJ continues to encourage companies to develop a healthy compliance culture. Companies that devote appropriate resources to building up a comprehensive, risk-based compliance program prevent, detect, and remediate issues more effectively and are less likely to be subject to harsh penalties or corporate monitors if problems arise.
• Evaluate the use of AI and implement appropriate controls. DOJ has shown an intense focus on the risks of AI and the potential for misuse. Companies should take stock of the use of rapidly developing AI tools and implement appropriate compliance programs to limit the potential for misuse and fraud.
• Work with counsel to develop a protocol for evaluating allegations of misconduct for potential disclosure to DOJ. Decisions about what to disclose and when are complex. It will be critical for companies to have an established protocol and team in place to facilitate making a timely decision on disclosure as DOJ’s policies around voluntary disclosure evolve.
• Conduct prompt due diligence on acquired entities and quickly remediate any potential compliance issues.
• If faced with an enforcement action, consult with experienced counsel as early as possible. DOJ’s eagerness for companies to identify individual wrongdoers and produce inculpatory documents raises significant and thorny questions related to document review, privilege, and waiver.

Additional Resources

DAG Monaco’s full keynote address at the American Bar Association’s 39th Annual White Collar Institute can be viewed here.

[View source.]