On October 28, 2021, Deputy Attorney General (Deputy AG) Lisa O. Monaco gave remarks explicitly warning companies that the US Department of Justice (DOJ) intends to increase its efforts and devote additional resources to vigorously pursuing corporate crime.^[1] The speech, which notably shifts the parameters of corporate criminal enforcement, follows similar pronouncements previously made by the Deputy AG’s predecessors, including, for example, the September 2015 Individual Accountability for Corporate Wrongdoing Memorandum issued by then-Deputy Attorney General Sally Yates (commonly known as the Yates Memorandum).^[2]

In the speech, Deputy AG Monaco described three major policy changes to the DOJ’s current enforcement approach to (i) cooperation credit and individual accountability, (ii) repeat offenders, and (iii) the selection and use of corporate compliance monitors. She also cautioned that the three major policy changes “are only the first steps” to reinforce the DOJ’s commitment to combatting corporate crime, and she announced the formation of a Corporate Crime Advisory Group within the DOJ to focus on these and other key issues.

Change #1: The Yates Memorandum standard for corporate cooperation credit has been restored.

During the speech, the Deputy AG reiterated that individual accountability for criminal conduct is “unambiguously this department’s first priority.” She further indicated that the DOJ is urging prosecutors “to be bold” and to not let “the fear of losing” difficult cases dissuade them from pursuing criminal conduct. This may be a nod to the complex legal questions that recently have arisen in and presented significant challenges in individual prosecutions.^[3] Despite these difficulties, the DOJ is strongly encouraging prosecutors to pursue individuals engaged in criminal conduct, including by bringing cases against corporate executives.

To support those efforts, the DOJ is restoring the standard for cooperation credit set forth in the Yates Memorandum. The Yates Memorandum required companies to identify and provide all relevant facts regarding “all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority” in order to qualify for cooperation credit. However, in November 2018, the DOJ changed course and loosened that standard, allowing companies to qualify for cooperation credit even if they only identified and provided information regarding individuals they deemed to be substantially involved in or responsible for the misconduct.

Now, the DOJ is reverting to the standard set forth in the Yates Memorandum and again is requiring companies to identify and provide all non-privileged information for all individuals involved in the misconduct in order to be eligible for cooperation credit. According to Deputy AG Monaco, the “substantially involved” standard was confusing in practice, and the DOJ is “often better situated” than the company being investigated to determine what information would be helpful.

Change #2: Repeat offenders will face a tougher battle.

The Deputy AG was unequivocal in her condemnation of companies with “a documented history of repeated corporate wrongdoing.” She noted that between 10% and 20% of significant corporate resolutions involve repeat offenders. Deputy AG Monaco expressed concern that companies may view fines for corporate crime as simply a cost of doing business, even though non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs) are intended to “give a break to corporations in exchange for their promise to fix what ails them.” She criticized companies that have entered into NPAs or DPAs that “take advantage of the pre-trial diversion by going on to continue to commit crimes, particularly if they then compound their wrongdoing by knowingly hiding it from the government,” calling such behavior “outrageous.”

As a result, the DOJ is considering whether NPAs and DPAs are even appropriate for repeat offenders. In addition, Deputy AG Monaco announced new guidance (which amends the DOJ’s Principles of Federal Prosecution of Business Organizations) directing prosecutors “to consider the full criminal, civil and regulatory record of any company when deciding what resolution is appropriate for a company that is the subject or target of a criminal investigation.” Prosecutors will now be required to consider all prior misconduct as potentially relevant, irrespective of whether it involved similar conduct, as well as misconduct pursued by other countries’ regulators.

Change #3: Corporate compliance monitors are back in style.

The selection and use of corporate monitors has been the subject of criticism for several years. In October 2018, the DOJ issued the Selection of Monitors in Criminal Division Matters Memorandum (commonly known as the Benczkowski Memorandum),^[4] which instructed the DOJ to engage in a cost/benefit analysis when determining whether to impose a corporate monitor and emphasized the high costs and business disruptions associated with monitorships. At a time when approximately one in three corporate resolutions involved a corporate monitor, the Benczkowski Memorandum and other statements suggested that the DOJ would hesitate to impose a monitor if the corporation had engaged in (or made efforts to) self-remediate.^[5]

This week, the Deputy AG struck a completely different tone, explicitly rescinding prior DOJ guidance that “suggested that monitorships are disfavored or are the exception.” While acknowledging the costs of enforcement actions on shareholders and other stakeholders, the Deputy AG emphasized that the DOJ’s mandate is “to incentivize responsible corporate citizenship, a culture of compliance and a sense of accountability. So, the department will not hesitate to take action when necessary to combat corporate wrongdoing.”

Deputy AG Monaco also announced that the DOJ would study the corporate monitor selection process. As set forth in the Benczkowski Memorandum, the current process involves the company submitting three qualified monitor candidates for the DOJ’s consideration. While the DOJ ultimately selects the monitor, the company is allowed to identify its preference among the three proposed options. The DOJ is now reviewing how it selects corporate monitors, “including whether to standardize our selection process across the divisions and offices,” and the DOJ will choose monitors “in a fashion that eliminates even the perception of favoritism.”

Takeaways

The Deputy AG’s speech signaled a significant change in the DOJ’s approach to corporate crime enforcement. Normally, these alerts offer own our insights into a development—however, as the Deputy AG helpfully summarized what the DOJ considers to be the key “five points” of the speech, we think it is important to use these as our starting point:

• Companies should review their compliance programs and ensure that they effectively monitor and remediate identified misconduct – “or else it’s going to cost them down the line.” This speech serves as a blunt reminder of the importance of regularly evaluating the effectiveness of a company’s compliance program and should light a fire for those companies that may not currently be devoting significant resources to compliance.
• The DOJ will consider a company’s entire criminal, civil, and regulatory history – “not just a sliver of that record” – when conducting investigations and determining whether and what type of resolution is appropriate. Companies that have been the subject of any investigation or regulatory or enforcement actions should prepare to address any prior history when negotiating a resolution.
• To be eligible for cooperation credit, companies must identify all individuals involved in misconduct and no longer can selectively provide information related to individuals that the company deems to be “substantially involved” in the misconduct. We note that, by the DOJ reinstating the Yates Memorandum standard and re-emphasizing the need to identify all individuals involved, the tension for directors and officers deciding whether to self-report has again increased.^[6]
• Companies negotiating resolutions should keep in mind that any guidance suggesting that monitors are disfavored has been rescinded – “there is no default presumption against corporate monitors.”
• Perhaps the most important takeaway, however, is Deputy AG Monaco’s statement that: “Looking to the future, this is a start – and not the end – of this administration’s actions to better combat corporate crime.” Companies should monitor additional developments foreshadowed by the Deputy AG’s remarks.

[View source.]