Major Clawback Policy From DOJ

The Justice Department dropped several news bombs today likely to have a profound effect on corporate compliance programs, including new credits for companies that pursue clawbacks against misbehaving executives and an expansion of the department’s National Security Division to crack down on sanctions violations. 

Deputy attorney general Lisa Monaco unveiled the plans in a speech at a meeting of the American Bar Association’s white-collar crime section, happening this week in Miami. Compliance officers should brace for even more news and policy announcements from other Justice Department officials later this week, but the two big messages are that companies should (1) get more serious about compensation clawback efforts, pronto; and (2) prepare for more rigorous enforcement of sanctions violations and other misconduct that straddles corruption and national security.

Moreover, Monaco told the audience to “stay tuned” for enforcement cases in coming weeks that will demonstrate those priorities.

Let’s begin with the department’s new policies for executive compensation clawbacks. Starting today, the Justice Department will launch a pilot program to encourage companies to seek clawbacks of pay awarded to executives involved in misconduct, where the amount of money you successfully claw back will be credited as a discount on whatever monetary penalty you might incur as part of a corporate misconduct resolution — and the company gets to keep that clawed back money, too.

So for example, you might settle an FCPA case with a $100 million penalty, which includes a reserved credit of, say, $20 million your company is trying to claw back from executives involved in the scheme. If you succeed in clawing back that money, you end up paying only $80 million as a penalty and keep the recouped $20 million in company coffers. (To be clear, this is my own example based on Monaco’s description of the program. Monaco did say a full text of the department’s new policy will be released on Friday.) 

If a company makes a good-faith effort to recoup that compensation but for some reason fails to get the money, the company is still “eligible to receive a fine reduction,” Monaco said — but she didn’t specify what those eligibility criteria will be, nor how much of the original reserved credit the company might get.

“Now, Danske executives with a failing score for compliance will also fail to secure a bonus,” Monaco said.

“Our goal is simple: to shift the burden of corporate wrongdoing away from shareholders, who frequently play no role in the misconduct, onto those directly responsible,” Monaco continued. “We intend this program to encourage companies who don’t already factor compliance into compensation to retool their programs, and get ahead of the curve.” 

The clawbacks-for-credit policy is not a new idea. Assistant attorney general Kenneth Polite, head of the Criminal Division and one of Monaco’s top lieutenants, broached the idea six months ago. There are still a lot of details that need to be developed for the policy to work in practice, and the Securities and Exchange Commission has its own clawback disclosure rule that won’t make companies’ lives any easier. 

More broadly, any company going through a misconduct case with the Criminal Division will now also need to develop “compliance-promoting criteria within its compensation and bonus system.” For example, when Danske Bank settled its massive money-laundering case with the Justice Department in December, Danske Bank agreed to revise its performance review and bonus system to include criteria related to compliance.

‘Sanctions Are the New FCPA’

Monaco also talked at length about national security cases, and said the Justice Department will increase its resources dramatically to prosecute them. 

First, the department will hire 25 new prosecutors to investigate and prosecute sanctions evasion, export control violations and similar economic crimes. One of those new hires will be the first-ever chief counsel for corporate enforcement in the department’s National Security Division.

Second, the National Security Division will issue joint advisories with the Commerce and Treasury Departments — “akin to the FCPA guidance we have for years published jointly with the SEC,” Monaco said — to inform the private sector about enforcement trends and to convey the department’s expectations for national security-related compliance efforts.

The Justice Department will also make “a substantial investment” in the Bank Integrity Unit of its Money Laundering and Asset Recovery Section, Monaco said, “and these additional resources will allow it to build upon that record and be a strong partner” with the National Security Division.

We can all see where this is going. The Biden Administration has emphasized the importance of anticorruption to its national security strategy, under the logic that corrupt bureaucrats lead to corrupt governments that ultimately make horrendous geopolitical choices. (Case in point: Vladimir Putin invading Ukraine.) So the Justice Department wants to crack down on that intersection of corporate crime, dirty money, and corrupt governments that threaten the world’s security and stability.

Indeed, Monaco even said as much: “these actions demonstrate the breadth of the department’s commitment to combating corporate crime, particularly where it places our collective security at risk.” 

We’ll have much more on all this in following days. For now, compliance officers should gird their loins.