DOJ Pushes Enforcement Reforms

Here we go, compliance officers! The Justice Department has unveiled a sweeping new set of practices for enforcement against corporate misconduct, with an emphasis on taking a stern approach to repeat offenders and giving more rewards to companies that truly embrace a culture of compliance.

Deputy attorney general Lisa Monaco announced the enforcement shifts in a speech delivered Thursday. The revisions have also been embedded into Justice Department policy memo released at the same time — which will henceforth be forever known as “the Monaco Memo” like so many previous pronouncements from deputy AGs before her. 

None of this should be news to anyone paying attention. Monaco first promised an invigorated approach to corporate crime almost one year ago, hitting many of the same themes about individual accountability and recidivist corporate offenders. At that time, she announced the creation of “Corporate Crime Advisory Group” to help her develop the details of those goals. This week’s policy memo is the result of that effort.

So what are the big points for enforcement? Monaco outlined four.

First, prosecutors want faster cooperation from companies to help hold individual offenders accountable. That means turning over documents and other evidence quickly, rather than using that disclosure as a bargaining chip in settlement talks. 

“Going forward, undue or intentional delay in producing information or documents — particularly those that show individual culpability — will result in the reduction or denial of cooperation credit,” Monaco said. “Gamesmanship with disclosures and productions will not be tolerated. If a cooperating company discovers hot documents or evidence, its first reaction should be to notify the prosecutors.” 

Second, the department will take a nuanced approach to corporations’ prior history of misconduct. For example, corporate misconduct that happened in the distant past (10 years or more for criminal issues, five years or more for civil) will carry less weight than incidents of misconduct that happened more recently. 

Prosecutors will also study how those prior incidents are or aren’t similar to whatever current misconduct is under discussion. For example, does the present misconduct share the same root cause as prior misconduct? Did the wrongdoing happen under the same management team or executive leadership? Some facts, Monaco said, “might indicate broader weakness in the compliance culture or practices.” 

At the same time, Monaco said, the department does not want to spook large corporations from making acquisitions. Therefore: “We will not treat as recidivists companies with a proven track record of compliance that acquire companies with a history of compliance problems, so long as those problems are promptly and properly addressed post-acquisition.”

Third, the emphasis on voluntary self-disclosure of misconduct will continue. Every section within the Justice Department will now draft a formal policy to reward self-disclosure, Monaco said, and “these policies must provide clear expectations of what self-disclosure entails, and they must identify the concrete benefits that a self-disclosing company can expect.”

To sweeten the deal, Monaco also affirmed that in most cases, a company that meets the criteria of the department’s Corporate Enforcement Policy — voluntarily self-disclosure, cooperation, and remediation — prosecutors will not seek a guilty plea. Moreover, prosecutors will not require an independent compliance monitor either, if the company has implemented and tested an effective compliance program.

Fourth, the department wants to see companies incentivize a culture of compliance, right down to executive compensation packages and clawbacks for misconduct. 

Going forward, Monaco said, when prosecutors evaluate the effectiveness of a compliance program, “they will consider 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. They will evaluate what companies say and what they do, including whether, after learning of misconduct, a company actually claws back compensation or otherwise imposes financial penalties.”

Some Quick Enforcement Analysis

Clearly this is a lot of material for compliance professionals to digest, so we’ll have plenty of follow-up posts in coming weeks to unpack the details implications. We can start, however, by pondering a few big questions.

The big question for corporate compliance officers is whether this new enforcement posture might tip the balance of thinking in your company about whether to keep investing in corporate compliance efforts, or to take its chances with a lightweight compliance program and then defend itself as necessary in court.

For example, as I read Monaco’s remarks, I couldn’t help but think of that recent ruling by the 2nd Circuit Court of Appeals, United States v. Hoskins. The appellate court clipped the Justice Department’s ability to press FCPA cases against foreign nationals acting as “agents” for U.S. companies. The decision makes it easier for companies to defend themselves against FCPA cases in court — so we can expect the corporate defense bar to argue more vociferously now that fighting is what the company should do.

Well, might that dynamic arise in your own corporation? If it’s easier for the company to defend against FCPA enforcement, will that tempt senior management and the legal team to spend less time on compliance efforts? How would a compliance officer respond to that change in attitude?

Of course, Monaco understands that implication of the Hoskins decision. Hence she’s trying to make the rewards for investing in compliance better and the punishment for non-compliance worse. Plus, as much as we all love FCPA compliance, it’s only one among many ways that a company can get into trouble; there are plenty of other conduct risks that still make investing in compliance the sensible choice. 

But compliance officers always need to demonstrate that the investment in strong compliance programs is worth the effort, amid many circumstances that change all the time. How will this changed circumstance — the Monaco Memo — affect that calculus?

Second, compliance officers also have a pretty clear message here that executive compensation policies need to incentivize compliance and penalize misconduct. So how will that happen? How do you convey this message to the board’s compensation committee, and then work with the HR team to implement sensible, effective compensation structures? 

Plus, how will the company make a commitment to exercising clawback provisions when misconduct does happen? After all, Monaco didn’t only say prosecutors will want to see clawback policies; they want to see companies exercise those policies. You’ll have to, ya know, actually do it. What conversations will be necessary to develop that commitment? What procedures should your company have at the ready if that clawback day comes? 

That’s enough for now. If you have any thoughts or specific issues you’d like to see us explore in future posts, drop me a line at [email protected] any time.