Despite Criticism, DOJ’s New Policy On Internal Investigations Could Be a Good Thing

by NAVEX Global
Contact

While naysayers believe the Department Of Justice's (DOJ’s) memo is going to result in major complications and headaches for companies experiencing government investigations, ethical companies are unlikely to be affected much at all.

The DOJ made waves in the compliance world earlier this month when it issued a policy memo, Individual Accountability for Corporate Wrongdoing, detailing its new six-pronged approach to corporate investigations and prosecutions. In its announcement, the DOJ essentially said if companies under investigation want consideration for cooperating with the government, they will be required to hand over all the facts gathered from their internal investigations—including the names of all individuals involved, regardless of their status.

The memo left some legal experts scratching their heads. For example, in a recent Compliance Week article, some white-collar defense attorneys pointed to a range of potential negative consequences.

Yet, it seems possible that many E&C professionals and corporate investigators are more likely to read the policy memo and think, “This makes sense to me.”

After all, the whole point of E&C efforts is to minimize—and ideally eliminate—violations of policy and the law. Companies truly committed to this goal will already be trying to identify wrongdoers. If employees have acted in a way that would cause the DOJ to sue or prosecute them individually, ethical companies will have little reason to protect them—and likely will have already fired them anyway.

DOJ Makes Bold Move for Positive Change

Under the current system, government investigations often result in big dollar penalties, but no charges against individuals. In such cases, the government gets its money and can claim it’s been tough on wrongdoing; the shareholders are content because the damage is manageable and short lived; and the individual wrongdoers (including corporate executives who may have known of the behaviors but did not act to prevent them) get to keep their jobs.

While the current system basically keeps everyone involved happy, it does not sufficiently disincentivize violating the law for corporate gain—and corporate wrongdoing persists. But the new policy suggests that the DOJ recognizes more is needed to truly alter the behaviors of the wrongdoers and to more effectively combat corporate malfeasance. The new policy also appears to be a response to the ongoing criticism that the DOJ and SEC merely go after headline-generating financial penalties but leave offending corporate leaders in place.

Good Corporate Citizens Need Not Worry

Some defense attorneys suggest that the new DOJ policy will result in “a tremendous chilling effect” on companies and their internal investigations.  But is this really true?

Think about it: For there to be a chilling effect (for companies to perceive a conflict between sharing internally developed evidence and the corporate good), companies would have to want to protect wrongdoers from government lawsuits. As a result, the “chilling effect” will only impact those companies that either have evidence of wrongdoing by individuals or expect that they will uncover it as part of an investigation—and they also would be inclined to shield those who may have violated the law from government action.

On the other hand, if organizations do not feel the need to protect wrongdoers, then they will be comfortable sharing internally developed evidence with the government either (a) so that appropriate legal action can be taken against the individuals involved (which is both the right thing to do and reinforces that the company takes violations of the law seriously) or (b) to show that no one actually violated the law.

In other words, organizations with cultures of ethics and compliance have little to be concerned about with regard to the new policy.

Ethical organizations jump into action when problems arise — investigating wrongdoing and those responsible for it and, when the misconduct is serious, removing proven wrongdoers from the organization. These companies know that if wrongdoing goes unpunished internally, it not only raises the risk of the misconduct reoccurring, but it also implicitly sends the message to the rest of the organization that the company tolerates bad behavior. For them, acting promptly and effectively against wrongdoers is essential to reinforcing a culture of doing the right thing.

“Organizations with cultures of ethics and compliance have little to be concerned about with regard to the new policy.”

Arguably, an organization might be reluctant to share internal evidence when the evidence is inconclusive but indicates, to some degree, that a senior leader may have violated the law. In such cases, the organization may want to shield the individual from the cost—and the organization from the disruption—that a government lawsuit would entail. In the past, companies were not always required to share all internal evidence on individual actors in order to get cooperation credit. Now they will be. 

But even in these circumstances, it would seem that full cooperation with the government is in an ethical organization’s overall, long-term best interest. Not only will they get cooperation credit, but the threat of facing government action gives senior leaders an even greater incentive to make sure their behavior fully complies with policy and the law—exactly the behaviors an ethical organization wants.

And if an executive balks at joining a company that might turn over evidence of potential wrongdoing, the executive is implicitly stating that he or she may take actions that could violate the law. Is this really a leader a company should want? If so, is it putting short-term profits ahead of doing the right thing?

A Practical Result of the DOJ Changes

In many ways, the issue boils down to defining the organization’s interests. The “chilling effect” argument suggests that the organization’s interests are represented by the interests of the leaders who might, theoretically, be implicated in wrongdoing and thus be subject to personal civil lawsuits or criminal prosecution. But they shouldn’t be. While some senior leaders may view the company’s interests and their individual interests as one and the same thing, the interests of the company are, in fact quite distinct. The stakeholders of most organizations are much broader than just senior leaders and executives, including, at a minimum, shareholders and employees.

For years, the debate has been brewing around who within organizations should “own” E&C responsibilities. Oftentimes those responsibilities land in the general counsel’s office. But many believe E&C should be removed from that reporting line so that an internal corporate investigator or compliance professional can independently assess the facts during internal investigations—without potentially feeling pressure to develop findings that will help protect the organization from liability. Because the interests of the organization are distinct from those of leaders who may wish to steer an investigation’s findings so that they are less harmful.

Final Takeaways

The implications of the DOJ memo may, ultimately, cause organizations to restructure the way they conduct and oversee internal investigations of alleged serious misconduct. The DOJ’s new policy may help organizations — including their boards of directors—to focus more acutely on ensuring that the camaraderie among senior leaders does not influence the outcome of an investigation or lead to efforts to protect those involved in (or even aware of) serious violations of policy or of the law. 

In other words, the new DOJ may prompt some companies to ensure that their corporate investigators are truly neutral and acting on behalf of the company, not just some of its leaders.

For some organizations, the path to investigatory independence will be to restructure to whom their internal investigators report—and maybe to establish board oversight of any investigation involving allegations of serious violations of the law.

While the naysayers believe the DOJ’s memo is going to result in major complications and headaches for companies experiencing government investigations, the reality is, ethical companies are unlikely to be affected much at all. Indeed, for those focused on protecting an organization by preventing violations of the law by its employees, the DOJ’s new policy is likely to be viewed as a positive step toward effecting real change and combating corporate wrongdoing more successfully.

Written by:

NAVEX Global
Contact
more
less

NAVEX Global on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.