New Sweeteners for Disclosure, Cooperation

The U.S. Justice Department is amending its Corporate Enforcement Policy, offering more incentives for companies to self-disclose misconduct even if their cases involve aggravating factors that might tempt those companies to keep quiet.

Companies in that predicament might still be able to secure a declination to prosecute from the Justice Department if they (1) self-disclose the misconduct immediately; (2) already have an effective compliance program in place; and (3) provide an “extraordinary” level of cooperation and remediation. 

So said assistant attorney general Kenneth Polite on Tuesday afternoon, during a speech he delivered at Georgetown Law School. His remarks about aggravating circumstances were part of a larger vision for fighting corporate crime that he sketched out, where the department will be even more rewarding for companies that invest in corporate compliance programs and try to do the right thing — and, conversely, be even more punitive against companies that don’t.

“This incentive is directed squarely at companies that take compliance and good corporate citizenship seriously,” Polite said.

The Justice Department’s Corporate Enforcement Policy, first unveiled in 2017, had previously stated that a company could avoid prosecution for corporate misconduct if the company self-disclosed the issue, cooperated fully with the Justice Department’s investigation, and remediated the underlying control problems that gave rise to the misconduct; and if there were no other aggravating factors involved in the case. Those factors might include senior management’s participation in the misconduct, pervasive misconduct within the company, or significant profit to the company from its misdeeds.

We’ve seen plenty of declinations to prosecute since then, but even Polite conceded that for companies whose cases do include aggravating factors, some executives (read: weenies in legal) could still argue that the wiser course might be to cover up the misconduct and hope prosecutors never find out. Today’s policy changes are meant to tilt that calculus back toward disclosure, cooperation, and stronger compliance programs. 

‘Aggravating Factors’ and Other Details

First let’s go through precisely what Polite said again. If a company has a misconduct issue that includes aggravating factors, prosecutors may still decide that a declination is the appropriate resolution if the company can demonstrate: 

• The voluntary self-disclosure was made immediately upon the company becoming aware of the allegation of misconduct;
• At the time of the misconduct and the disclosure, the company had an effective compliance program and system of internal accounting controls that allowed the identification of the misconduct and led to the company’s self-disclosure; and
• The company provided extraordinary cooperation with the Justice Department’s investigation and undertook extraordinary remediation.

This doesn’t mean that a company with aggravating factors will always secure a declination if it meets the three above factors, Polite said. A company might hit all three marks, but still deserve some sort of punishment. 

In those cases, Polite said, the Criminal Division will support a reduction in monetary penalties of at least 50 percent, and as much as 75 percent, off the low end of the range dictated by the U.S. Sentencing Guidelines. Criminal recidivist companies will not be eligible for that discount, although prosecutors will have discretion to support a reduction in penalties to a maximum of 50 percent off the Guidelines’ range.

One other sweetener for companies that don’t secure a declination: they’ll still likely be able to avoid a corporate guilty plea (including criminal recidivists), “absent multiple or particularly egregious aggravating circumstances,” whatever that might mean in practice.

What ‘Extraordinary Cooperation’ Means

We also have Polite’s directive that companies with aggravating factors must provide “extraordinary cooperation” if they want a declination. How does that differ from the Justice Department’s previous standard of providing “full” cooperation?

Polite was rather cagey on this point. He began by saying the criteria for extraordinary cooperation in the corporate context aren’t that much different from the criteria one might use to evaluate individuals:

In assessing the quality of a cooperator’s assistance, we value: when an individual begins to cooperate immediately, and consistently tells the truth; individuals who allow us to obtain evidence we otherwise couldn’t get, like quickly obtaining and imaging their electronic devices, or having recorded conversations; cooperation that produces results, like testifying at a trial or providing information that leads to additional convictions.

OK, but isn’t that what companies are doing already to win credit for “full” cooperation? Polite kinda sorta addressed that too, although it reads more like a game of dodgeball to me:

In many ways, we know “extraordinary cooperation” when we see it, and the differences between “full” and “extraordinary” cooperation are perhaps more in degree than kind.  To receive credit for extraordinary cooperation, companies must go above and beyond the criteria for full cooperation set in our policies — not just run of the mill, or even gold-standard cooperation, but truly extraordinary.  

Then, finally, Polite dropped the big hint: “At the same time, the government will not affirmatively direct a company’s internal investigation, if it chooses to do one, and companies are often well positioned to know the steps they can take to best cooperate in a particular given case.”

Ah, there it is — the department is trying to cover its 5th Amendment behind, before a federal judge decides that these cooperation policies really turn a company’s in-house investigations team into an extension of the Justice Department. I’ve heard rumblings about exactly that concern lately. So perhaps Polite’s talk about extraordinary cooperation is partly an attempt to avoid a ruling that could hobble the Criminal Division.

We can (and will) have follow-up discussion about the new Corporate Enforcement Policy in days and weeks to come. This is enough for today, except for one closing point from Polite.

“The policy is sending an undeniable message: come forward, cooperate, and remediate,” he said. “Our number one goal in this area, as we have repeatedly emphasized, is individual accountability. And we can hold accountable those who are criminally culpable — no matter their seniority — when companies come forward and cooperate with our investigation.”

That’s the message you want to convey to your legal team, your CEO, and the board.