DOJ: Individual accountability and past misconduct in corporate criminal investigations

The Department of Justice (DOJ) recently made significant adjustments to its efforts to combat corporate crime, announcing new guidelines on personal responsibility, voluntary self-disclosure of violations, independent compliance monitors, and methods to improve and hone a company's compliance culture.

Deputy Attorney General Lisa Monaco presented the findings of the DOJ's "top-to-bottom review" of its corporate enforcement initiatives on Thursday at the law school of New York University in a speech intended to "further strengthen how we prioritize and prosecute corporate crime."

"Taken together, the policies we’re announcing today make clear that we won’t accept business as usual. With a combination of carrots and sticks—with a mix of incentives and deterrence—we’re giving general counsels and chief compliance officers the tools they need to make a business case for responsible corporate behavior. In short, we’re empowering companies to do the right thing—and empowering our prosecutors to hold accountable those that don’t," she said.

In a speech in October 2021, Monaco gave an earlier peek of the DOJ's intentions with regard to corporate crime. According to her, the DOJ has asked Congress for $250 million to support such programs in 2023.

According to Monaco, the agency's enhanced emphasis on corporate crime would give personal responsibility first priority. The severity of enforcement proceedings and whether to create an independent compliance monitorship, particularly for repeat offenders, will be more influenced by a firm's prior misbehavior, she said. In order for businesses to comprehend the disclosure process and its possible advantages, Monaco stated that every DOJ department would clarify precisely what voluntary self-disclosure of infractions implies for organizations. Last but not least, Monaco said the DOJ will use both deterrence—holding people accountable financially for their misconduct—and incentives—"to reward compliance-promoting behavior"—to urge businesses "to reflect corporate values in their compensation systems."

According to Monaco, the DOJ would "do more and move faster" to prosecute wrongdoers and give priority to "going after individuals who commit and profit from corporate crime."

This implies that for businesses, delay strategies and hiding crucial data as part of a plan to reduce losses or conduct internal investigations will have more significant repercussions when settlement negotiations start.

According to Monaco, "going forward, eundue or intentional delay in producing information or documents—particularly those that show individual culpability—will result in the reduction or denial of cooperation credit. Gamesmanship with disclosures and productions will not be tolerated."

In the event that a business comes across "hot documents or evidence" while conducting an investigation, Monaco advised notifying the authorities immediately. In order to gain any credit for collaboration, firms "must provide all relevant, nonprivileged facts about individual misconduct," she added.

Alongside talks on a settlement against a firm, the DOJ will try to file legitimate criminal charges against specific people. A schedule and investigation strategy for any applicable person prosecutions must be prepared by prosecutors if the case against the corporation must be finished first.

Three lawyers and an associate at the legal firm Morgan Lewis responded to the DOJ's enhanced focus on personal responsibility in an online study.

The blog post stated that although the modifications did not signify a significant change in policy, they did indicate "even more aggressive—and faster" individual prosecutions. "Significantly, this requires companies to engage counsel early to quickly evaluate misconduct, determine the breadth and speed of a disclosure, and ensure that the companies’ interests are protected."

Monaco indicated in October 2021 the DOJ would begin taking a more holistic view of a company’s prior misconduct, placing particular weight on punishing repeat offenders and being less likely to offer deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs) to recidivist corporations.

However, not all past misconducts will be handled similarly. The DOJ will give additional weight to misconduct involving the same management or staff as well as misconduct that took place in the United States. Companies with past misconduct that is relevant should not anticipate receiving another DPA or NPA.

Monaco said on Thursday, "If any corporation still thinks criminal resolutions can be priced in as the cost of doing business, we have a message—times have changed."

According to her, businesses operating in highly regulated settings will be evaluated against the behavior of other businesses in their sector to see if their behavior stands out. In particular, if their stringent compliance culture is introduced together with the purchase, the DOJ will not attempt to hold companies liable for the deeds of businesses they buy.

According to Monaco, dated misconduct—defined as having occurred 10 years ago or more for criminal resolutions and five years ago or more for civil resolutions—will be given less weight.

She said that previous misconduct's type and circumstances would also be taken into account, particularly if it "shared the same root causes as the present misconduct."

"Some facts might indicate broader weaknesses in the compliance culture or practices, such as wrongdoing that occurred under the same management team or executive leadership. Other facts might provide important mitigating context."

In a speech on Friday at the University of Texas School of Law, Assistant Attorney General Kenneth Polite Jr. stated that the DOJ's Criminal Division will take into account "involvement by executive management of the company in the misconduct, significant profit to the company from the misconduct, or pervasive or egregious misconduct" as aggravating factors when deciding whether to bring charges.

Companies who report infractions, assist with investigations, and put corrective measures in place to stop future breaches are rewarded by the DOJ. Now, each DOJ division that conducts corporate crime investigations will have a program that rewards voluntary self-disclosure and lays out the steps and rewards in plain language.

If a corporation has voluntarily self-disclosed misbehavior, cooperated with the inquiry, and remedied malfeasance, the DOJ will not pursue a guilty plea in the absence of aggravating circumstances, according to Monaco.

"Simply put, the math is easy: voluntary self-disclosure can save a company hundreds of millions of dollars in fines, penalties, and costs. It can avoid reputational harms that arise from pleading guilty. And it can reduce the risk of collateral consequences like suspension and debarment in relevant industries," she added.

In his address, Polite stated that, given no aggravating circumstances are present, even corporations with a history of infractions have incentives to voluntarily reveal new misbehavior.

“Why? Because it could make all the difference between a DPA and a guilty plea resolution," he added, "assuming that the company has also cooperated and timely and appropriately remediated the criminal conduct."

The DOJ will make new recommendations for prosecutors on how to find, choose, and effectively supervise monitors available soon. "[A]ll monitor selections will be made pursuant to a documented selection process that operates transparently and consistently."

She stated that the DOJ is dedicated to maintaining corporate monitorships on schedule and within budget, and that they would be customized to a company's wrongdoing and compliance issues. The DOJ is not a regulator, according to Monaco, and "nor do we aspire to be."

In order to deter misconduct and reward compliant behavior, the DOJ will encourage businesses to establish compensation efforts that have been "strengthened and sharpened" by compliance.

Initiatives for deterrence may include compensation escrowing or clawbacks, according to Monaco. Companies are developing pay plans that leverage positive metrics and benchmarks to reward conduct that promotes compliance, she added, on the incentive side.

The DOJ would take into account "whether its compensation systems reward compliance and impose financial sanctions on employees, executives, or directors whose direct or supervisory actions or omissions contributed to criminal conduct" when evaluating a company's compliance program, she added. In order to transfer "the burden of corporate financial penalties away from shareholders—who frequently play no role in misconduct—onto those more directly responsible," the agency will also monitor whether businesses under investigation penalize employees who violate the law financially.

By fLEXI tEAM