Justice Dept. Unveils Big Compliance Shifts

The Justice Department unveiled numerous policy changes Thursday to toughen its enforcement of corporate misconduct, including a more expansive review of corporations’ prior misconduct when deciding current cases, higher expectations for cooperation during investigations, and more liberal use of compliance monitors.

The moves were announced by deputy attorney general Lisa Monaco, who delivered the news while speaking at the American Bar Association’s annual conference on white-collar crime. The policy shifts represent a retreat from the easy-on-crime approach of the Trump Administration, and could quickly lead to significant changes in how corporate compliance functions deal with the Justice Department.

Foremost, the department will now consider all a company’s prior misconduct when considering how to settle a current case — civil, criminal, and regulatory actions; whether or not that prior misconduct is similar to whatever issue put your company on the frying pan today.

“That record of misconduct speaks directly to a company’s overall commitment to compliance programs and the appropriate culture to disincentivize criminal activity,” Monaco said. “ Going forward, prosecutors will be directed 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.”

Even better, when Monaco offered more specific detail of what she wants to see, she used FCPA misconduct as the example:

A prosecutor in the FCPA unit needs to take a department-wide view of misconduct: Has this company run afoul of the Tax Division, the Environment and Natural Resources Division, the money laundering sections, the U.S. Attorney’s Offices, and so on? He or she also needs to weigh what has happened outside the department — whether this company was prosecuted by another country or state, or whether this company has a history of running afoul of regulators. Some prior instances of misconduct may ultimately prove to have less significance, but prosecutors need to start by assuming all prior misconduct is potentially relevant.

Did that get everyone’s attention? Because we have a lot more.

Review of DPAs and NPAs for Repeat Offenders

Monaco also said that the department will reconsider whether to offer deferred- and non-prosecution agreements to repeat corporate offenders. Roughly 10 to 20 percent of all corporate criminal resolutions involve repeat offenders, she said, “so we need to consider whether and how to differently account for companies that become the focus of repeated DOJ investigations.”

To be clear, Monaco did not say she was ending the use of DPAs and NPAs for repeat corporate offenders; a policy shift like that would probably give corporate legal departments a coronary. Rather, she wants to study the issue and assess whether the easy opportunity for DPAs and NPAs leads companies to take good conduct less seriously.

“Some have questioned whether pretrial diversion is appropriate for any company who has benefited previously from such an arrangement,” Monaco said. “Does the opportunity to receive multiple NPAs and DPAs instill a sense among corporations that these resolutions and the attendant fines are just the cost of doing business? Are there other approaches that can promote cultural and institutional changes that will have a greater impact on deterring misconduct? These are some of the questions we will be studying in the coming months.”

Full disclosure: I am one of those people who have questioned whether such pretrial diversions are appropriate. 

For example, one of the criteria in the FCPA Corporate Enforcement Policy says that a company will be eligible for a declination to prosecute if it has an effective compliance program at the time of resolution. Fair enough — but what happens if a company that goes through the Corporate Enforcement Policy violates the FCPA again? Doesn’t that mean it didn’t maintain that effective compliance program? Shouldn’t that failure disqualify the company from a second pass? 

Mostly, however, compliance officers should consider these two points from Monaco taken together: that she wants prosecutors to consider the totality of a company’s prior misconduct; and she is reviewing the wisdom of granting DPAs and NPAs to habitual offenders — offenders of any misconduct, mind you; where prior tax and antitrust shenanigans could leave you barred from a deferred-prosecution deal for FCPA violations. That could be a big mess. 

Unless there were some middle ground, such as…

More Extensive Use of Corporate Monitors

Monaco expressly rescinded Trump Administration guidance from 2018 that had curbed the use of external compliance monitors, and all but promised that compliance monitors will be used more often as part of DPAs, NPAs, and other corporate resolutions in the future:

To the extent that prior Justice Department guidance suggested that monitorships are disfavored or are the exception, I am rescinding that guidance. Instead, I am making clear that the department is free to require the imposition of independent monitors whenever it is appropriate to do so in order to satisfy our prosecutors that a company is living up to its compliance and disclosure obligations under the DPA or NPA.

This does make sense when you think about it: corporate criminal indictments will still be very provocative acts from the Justice Department, likely to draw fierce resistance and prolonged defense work from the corporation in question. That isn’t ideal for either side. So if Monaco wants a tool at prosecutors’ disposal that is stronger than a DPA or NPA, but also not quite as draconian as an indictment — compliance monitors fit that description. 

(In fact, for the record, Tom Fox and I predicted more liberal use of compliance monitors several weeks ago on our Compliance Into the Weeds podcast.) 

And while we’re on the subject of reversing Trump Administration policies, Monaco reinstated the Yates Memo from the Obama Administration, which required companies to disclose all non-privileged information about all individuals involved in corporate misconduct if the company wants to win cooperation credit. 

During the Former Guy’s tenure, the Justice Department weakened the Yates Memo to seek information only on those persons who were “substantially involved or responsible.” Now we’re back to the more demanding standard. 

A Plug for Compliance Programs!

And for whatever it’s worth, Monaco also stressed that companies should have compliance programs up and running, long before any particular issue might drive your board to create one. Her words:

A company can fulfill its fiduciary duty to shareholders and maintain a commitment to compliance and lawfulness. In fact, companies serve their shareholders when they proactively put in place compliance functions and spend resources anticipating problems. They do so both by avoiding regulatory actions in the first place and receiving credit from the government. Conversely, we will ensure the absence of such programs inevitably proves a costly omission for companies who end up the focus of department investigations.

That sounds to me like the department will want to see a functioning, effective compliance program at the time of the offense, not at the time of resolution. Which should, by Monaco’s logic, be able to find and offer evidence for all individuals involved in the wrongdoing. Those will be the table stakes for a company hoping to secure cooperation credit.

Quite the point for compliance officers to ponder as you prepare budget proposals for 2022. Here’s hoping you haven’t locked in those numbers yet, because they might need to be higher.