Last week at the American Bar Association’s annual National Institute on White Collar Crime in Miami, Deputy Attorney General Lisa Monaco and Assistant Attorney General Kenneth A. Polite highlighted several new facets of the Department of Justice’s (DOJ) corporate criminal enforcement policies. As previously covered, the DOJ announced on February 22, 2023, effective immediately, national policies regarding corporate voluntary self-disclosure. In addition, the presentations focused on even more recent guidance relevant to evaluating corporate compliance programs and a new pilot program to reward efforts to clawback compensation during criminal resolution.
The DOJ provided updated guidance on the Evaluation of Corporate Compliance Programs (ECCP), which details how prosecutors should evaluate a company’s policies and procedures, providing hallmarks of a well-designed, resourced, and effective compliance program. The adequacy and effectiveness of the corporation’s compliance program have been key factors considered by DOJ prosecutors when making charging decisions, determining whether to impose an independent compliance monitor, negotiating plea or other agreements, and calculating appropriate fines. The guidance clarifies that no one-size-fits-all compliance program exists, and many factors contribute to the company’s risk profile. However, the DOJ sets forth several threshold issues to be considered in all cases for companies, such as whether the company has a code of conduct that is accessible and applicable to all employees, setting forth the company’s commitment to full compliance with relevant Federal laws, and whether the policies and procedures incorporate the “culture of compliance” into day-to-day operations.
The March 2023 updates to the guidance focus on two key areas (1) compensation structures and “consequence management procedures” and (2) policies and procedures regarding the use of personal devices and third-party communication platforms. First, prosecutors may consider whether a company has incentivized compliance by designing compensation systems that defer or escrow certain compensation tied to conduct consistent with company values and policies, as well as whether those provisions are maintained and enforced. For example, some companies enforce contract provisions allowing the company to recoup previously awarded compensation if the recipient is found to have engaged in or has been responsible for corporate wrongdoing, aka clawback provisions. The guidance also provides compliance programs with positive reinforcement in compensation, such as a metric for management bonuses.
The second area of focus in the new guidance encourages prosecutors to consider the company’s policies and procedures regarding using personal devices and third-party communication platforms. Specifically, whether policies are tailored to the company’s risk profile and specific business needs to ensure that business-related electronic data and communications “as appropriate and to the greatest extent possible” are accessible and amenable to preservation by the company. Assistant Attorney General Polite warned that a company’s failure to provide such communications could impact the final resolution of a matter, which raises concerns about personal device use versus company-owned devices and specific state privacy law issues.
Additionally, as part of a three-year pilot program, the Criminal Division will (1) require, as part of a criminal resolution, that corporate compliance programs include compensation-related criteria and (2) offer fine reductions for companies that seek to clawback compensation in appropriate cases. While announcing the program, Assistant Attorney General Polite stated that the goal was “to ensure that the company uses compliance-related criteria to reward ethical behavior and punish and deter misconduct.” The fine reduction would be an additional benefit, equal to the compensation recouped within the resolution term after timely remediation and full cooperation in line with voluntary self-disclosure. Even if a company unsuccessfully attempts to clawback compensation in good faith, the DOJ will have the discretion to provide a reduction of up to 25% of the compensation sought. The DOJ Criminal Division has previously noted that a company’s timely and full remediation included withholding deferred compensation of a former employee involved in the misconduct.
What is clear from these policy updates is the DOJ’s commitment to rewarding companies that “do the right thing” when learning about possible misconduct. These new policies incentivize companies who voluntarily self-disclose, provide cooperation, and remediation. The outcome for companies that do not self-disclose or provide meaningful cooperation or remediation will drastically differ. Polite provided two examples: (1) Safran SA disclosed FCPA violations it uncovered during post-acquisition due diligence, fully disclosed, fully cooperated, ensured remediation was complete, and agreed to disgorge the ill-gotten gains of its U.S. subsidiary. As a result, the DOJ declined to prosecute; (2) unlike the previous case, Balfour Beatty Communities failed to self-disclose. According to the DOJ, its cooperation was lackluster, and it failed to conduct appropriate remediation. As a result, the company did not get any reduction to the fine under the Corporate Enforcement Policy and ended up pleading guilty to the charges. However, it remains to be seen what the DOJ will consider prompt self-disclosure and how these policies will play out given the discretion individual prosecutors maintain over cases.