iThe Department of Justice’s recent criminal self-reporting policy changes are beginning to show results, according to Assistant Attorney General Kenneth Polite Jr. Speaking at the New York City Bar Association’s White Collar Conference on May 24, Polite said that prosecutors are seeing an uptick in corporate self-reporting.
DOJ’s Self-Reporting and Compliance Program Policy Changes
In September 2022, Deputy Attorney General Lisa Monaco announced that every Department component that prosecutes corporate crime would create formal, written policies incentivizing voluntary self-disclosure.[1] Following this announcement, the DOJ Criminal Division released a revised Corporate Enforcement Policy (“CEP”) in January 2023. The revised CEP strengthens the incentives for companies to self-disclose (suspected) criminal conduct by, among other things, expanding the eligibility for declinations and lowering the penalties for self-reporters.
Until recently, the CEP provided that, absent aggravating factors, a company could earn a presumption of declination if it (1) voluntarily disclosed the misconduct, (2) fully cooperated with the investigation, and (3) timely and appropriately remediated the conduct.[2] The revised CEP sweetens the deal by providing a path to declination even if aggravating factors are present.[3] In such cases, prosecutors may now choose to enter a declination if (1) the voluntary self-disclosure was made immediately after the company discovered the possible misconduct; (2) the company had an effective compliance program and misconduct detection system at the time of the disclosure; and (3) the company provided both “extraordinary” cooperation with the investigation and undertook “extraordinary” remediation.[4]
Citing the need for prosecutorial flexibility, DOJ has declined to elaborate on these heightened requirements. However, it has explained that, to qualify as 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.” In determining whether remediation has been extraordinary, DOJ said it would consider whether “the action has been comprehensive, tailored to the causes of the misconduct…, and able to prevent it from recurring.”[5]
For companies that voluntarily self-disclose, fully cooperate, and timely and appropriately remediate the misconduct, but for whom a criminal resolution is nonetheless warranted, the CEP still offers incentives to cooperate. For example, the Criminal Division will recommend 50% to 75% reductions in sentencing and fines off the low end of the sentencing guidelines and, in general, will not require a corporate guilty plea (absent aggravating factors)[6] or the appointment of a monitor.
In addition to strengthening the incentives for self-reporting, the DOJ recently revised its Evaluation of Corporate Compliance Programs (“ECCP”) policy to clarify what the agency is looking for. Speaking at the ABA’s National Institute on White Collar Crime in March 2023, Polite announced that the revised ECCP would place a greater emphasis on the use of ephemeral messaging applications and corporate compensation structures.[7] First, as to messaging applications, prosecutors will look to whether companies’ “business-related electronic data and communications can be stored or accessed.” Second, as to compensation structures, prosecutors will look at such systems to determine how they “contribute[] to the presence – or lack – of an effective compliance program.”
Polite also announced that the DOJ Criminal Division would be launching a three-year pilot program aimed at encouraging companies to use compensation as both a carrot and a stick to discourage illegal conduct. The program will require companies to include compliance-related criteria in their compensation systems as part of criminal resolutions. The program will also offer fine reductions for companies that seek to claw back compensation from individual wrongdoers.
Insights From Recent Corporate Resolutions
It will take time before we see significant numbers of corporate resolutions pursuant to the revised CEP, but, in the meantime, there are insights to be gained from recent declination letters, particularly those cited by DOJ officials in recent speeches as examples of exemplary self-reporting and compliance.
Safran[8]
Resolved just before the new CEP was formally announced, the Safran case has been named in DOJ speeches about the revised policy as an example of the benefits of voluntary self-disclosure and compensation claw backs.[9] In December 2022, DOJ issued a declination letter to global aircraft, space, and defense equipment manufacturer, Safran SA, resolving allegations that employees violated the FCPA by bribing senior Chinese government officials for train lavatory contracts. In addition to the standard factors (timely and voluntary self-disclosure, full and proactive cooperation, timely and full remediation, and disgorgement), Safran agreed to withhold deferred compensation of a former employee who had been involved in the misconduct, the factor AAG Polite highlighted in his March 2023 speech.
ABB[10]
Also resolved in December 2022, Swiss-based technology company ABB was accused of bribing a South African government official at a state-owned energy company to obtain multiple contracts. At the time of the misconduct, AAB already had two corporate resolutions (FCPA-related) and a guilty plea for bid rigging. Rather than receiving a declination, ABB entered into a three-year deferred prosecution agreement (“DPA”). AAG Polite has cited this case an example of “extraordinary” cooperation and remediation that can lead to improved outcomes for companies with aggravating factors (like criminal history).[11] Among other efforts, as part of their cooperation, the company made foreign employees available for interviews in the US and produced documents located outside the country.
Corsa Coal[12]
The first case of which we are aware that has been resolved since the revised CEP formally issued involved Pennsylvania coal mining company Corsa Coal Corporation. On March 8, 2023, DOJ issued a declination letter to Corsa Coal, which had been accused of violating the FCPA by engaging in a scheme to bribe the Egyptian government for coal contracts. In total, Corsa secured approximately $143 million in coal contracts and profited roughly $33 million. The letter explicitly cited the CEP, justifying the declination based on Corsa’s “timely and voluntary self-disclosure,” “full and proactive cooperation” (including disclosing information about individuals), the nature and seriousness of the offense, and “timely and appropriate remediation,” which included firing the wrongdoer and improving compliance and controls. After demonstrating its inability to pay the $33.7 million of ill-gotten gains, Corsa agreed to disgorge $1.2 million.
Takeaways
-
Without more concrete examples of “extraordinary” cooperation under the new CEP, the complex calculus businesses and their counsel must undertake when deciding whether to self-disclose possible criminal conduct remains fundamentally unchanged.
-
What is different and most notable is that companies with a criminal history, even repeat offenders of the same type of conduct, now have a shot at a declination, at least theoretically. Before the new CEP, which may have been off the table no matter how extraordinary the cooperation.
-
As time goes on, new declination letters will fill in some of the questions that still remain about how the CEP will actually function. That future data will help companies better predict what efforts will lead to the best outcomes in circumstances like this. In the meantime, we will continue to beat the drum of robust compliance programs, including updated and thoughtful trainings and materials tailored to your business and industry.
Patrick Amano-Dolan is a summer associate in the firm's Washington, D.C. office contributed to this article
FOOTNOTES
[3] Under the CEP, aggravating circumstances include “(1) involvement by executive management of the company in the misconduct; (2) a significant profit to the company from the misconduct; (3) egregiousness or pervasiveness of the misconduct within the company; or (4) criminal recidivism.” https://www.justice.gov/criminal-fraud/file/1562831/download
[4] https://www.justice.gov/criminal-fraud/file/1562831/download. Notably, companies with aggravating factors are not entitled to a presumption of declination. Such companies may only receive a declination if (1) they meet the requirements in the revised CEP, and (2) the prosecutor deems it appropriate.
[6] See supra n.3.
[8] https://www.justice.gov/criminal-fraud/file/1559236/download
[12] https://www.justice.gov/criminal-fraud/file/1573526/download
