DOJ’s New Corporate Enforcement Policies Emphasize Effective Corporate Compliance Programs and Ethical Corporate Culture

On March 2, 2023, the Department of Justice (DOJ) reemphasized a continuing DOJ priority: tackling corporate crime. In separate speeches at the American Bar Association’s 38th Annual National Institute on White Collar Crime, Deputy Attorney General Lisa Monaco  (DAG Monaco) and Assistant Attorney General Kenneth A. Polite, Jr.  (AAG Polite) announced three (3) updated Criminal Division policies and resource allocations aimed at combatting corporate crime:

1. Pilot Program Regarding Compensation Incentives and Clawbacks (Clawback Program);
2. Evaluation of Corporate Compliance Programs (ECCP); and
3. Memorandum on Selection of Monitors.

These policies are the next wave in the DOJ’s continuing effort to prevent corporate crime by fostering effective corporate compliance programs. In September 2022, DAG Monaco issued a memorandum (the “Monaco Memo”) that directed the DOJ to more aggressively battle corporate crime, incentivize self-disclosure, and encourage robust corporate compliance programs and ethical corporate culture. Since the beginning of 2023, the Criminal Division has revamped its Corporate Enforcement Policy (CEP) and the DOJ has announced the United States Attorneys’ Offices’ Voluntary Self-Disclosure Policy (VSD) to provide guidance for federal prosecutors, defense attorneys, and their clients, in assessing the likely outcomes of corporate criminal misconduct.

Corporate Compliance Policies, Procedures, and Culture

The Monaco Memo requires that federal prosecutors consider the effectiveness of a company’s compliance program and its corporate culture when considering a corporation’s potential resolution with the DOJ. Indeed, the memorandum directed the Criminal Division to draft new guidance regarding how to incentivize the use of compensation structures to prevent individual wrongdoing. The Monaco Memo also required companies to begin addressing policies and procedures governing the use of personal devices as well as various communication platforms and messaging applications. Lastly, the Monaco Memo indicated the manner and method for the selection of compliance monitors would be streamlined.

In announcing the Clawback Program, ECCP, and Memorandum of Selection of Monitors, the Criminal Division is putting the Monaco Memo’s directives into effect. Companies should carefully evaluate their corporate compliance programs in light of these recent developments.

Clawback Program

The Clawback Program, which takes effect on March 15, 2023, will be a three-year initiative applicable to all corporate matters handled by the Criminal Division. The program reflects a belief that compensation systems which clearly and effectively impose financial penalties for misconduct foster a culture of compliance and deter risky behavior. The Clawback Program is designed to reward companies implementing these compensation systems and will now require companies to implement such criteria into their policies when entering into a criminal resolution with the Criminal Division.

Compliance Enhancements

When entering into any corporate criminal resolution, a company will be required to implement compliance-promoting criteria in its compensation and bonus system and to report to the Criminal Division about such implementation during the term of any resolution. Compensation system criteria may include:

• Prohibiting bonuses for employees who do not satisfy compliance performance requirements;
• Disciplinary measures for employees who violate applicable law and who both:
  
  • Had supervisory authority over the employee(s) or business area engaged in the misconduct; and
  • Knew of, or were willfully blind to, the misconduct.
• Incentivizing employees who demonstrate full commitment to compliance processes.

Federal prosecutors will maintain discretion in determining the requirements based on the facts and circumstances of any given investigation. Companies with existing compensation programs will be afforded due consideration.

Deferred Fine Reduction

Companies that fully cooperate with the Criminal Division’s investigation and timely and appropriately remediate the misconduct may receive an additional fine reduction if the company has implemented a program to recoup, or clawback, compensation from culpable employees and uses that program.

To accommodate the process required to recoup such compensation, at the time of resolution, the company will be required to pay the full amount of the otherwise applicable fine (Original Fine) less 100% of the amount of compensation the company is attempting to claw back (Possible Clawback Reduction).  At the conclusion of the resolution term, if the company has not recouped the full amount of compensation it sought to claw back, the company will be required to pay the Possible Clawback Reduction minus 100% of the compensation actually recovered. 

The Clawback Program acknowledges that clawbacks can be difficult to implement, and provides that companies that are unsuccessful in a clawback pursuit, if executed in good faith, could still render the company eligible for a fine reduction of up to 25% of the amount of compensation the company attempted to clawback.

Evaluation of Corporate Compliance Programs

In an effort to make expectations clearer to the public and companies, the Criminal Division announced that DOJ has updated their ECCP. The ECCP is the manual that federal prosecutors use when evaluating a company’s corporate compliance program in the specific context of a criminal investigation.

The two prominent revisions to the ECCP relate to prosecutors’: (1) consideration of a corporation’s use of personal devices as well as various communications platforms, including those offering ephemeral messaging; and (2) consideration of compensation structures and consequence management when evaluating compliance programs. 

Personal Devices and Third-Party Messaging Applications

 The ECCP will address how policies governing these messaging applications should be tailored to the corporation’s risk profile and specific business needs and ensure that, as appropriate, business-related electronic data and communications can be preserved and accessed. The Criminal Division will also consider how companies communicate the policies to employees, and whether they enforce them on a consistent basis.

Under this revised policy, companies will be required to disclose their retention policies regarding electronic communications, including those maintained by third-party messaging applications. The Criminal Division will actively inquire into the company’s relationship with the third-party provider and access to requested information. Answers to these inquiries may affect the company’s ability to resolve corporate crime absent criminal liability.

Compensation Structure

As discussed above, compensation structures that clearly and effectively: (1) impose financial penalties for misconduct, and (2) promote or reward employees for developing or improving a compliance program, will be important factors federal prosecutors will weigh when determining the effectiveness of a compliance program.

While the revisions focus on two aspects of corporate compliance programs, the Criminal Division will continue to assess a corporate compliance program’s effectiveness through a multitude of factors contained in the ECCP.

Memorandum on Selection of Monitors

The final of the three announcements by the Criminal Division was the release of a revised Memorandum on Selection of Monitors. Consistent with DAG Monaco’s direction, the revisions to the Memorandum emphasize the importance of an effective corporate compliance program and the benefits that a company can receive when it self-reports misconduct to the Criminal Division.

For example, when determining whether the imposition of a monitor is necessary, the Criminal Division will consider whether, at the time of resolution, the company had instituted and tested a compliance program that would likely detect and prevent similar misconduct in the future. Likewise, the Criminal Division will consider whether the company voluntarily disclosed the misconduct. The Memorandum also directs prosecutors to consider, among other things, how pervasive the conduct was across the organization, whether it was long-lasting, if management was involved, and what steps the company took to remediate the misconduct.

As the Memorandum summarized, “where a corporation’s compliance program and controls are demonstrated to be tested, effective, adequately resourced, and fully implemented at the time of a resolution, a monitor might not be necessary.”

Takeaways

This latest phase of DOJ’s overhaul of its corporate enforcement policies is yet another indication of that the DOJ is serious about incentivizing cooperation and the imposition of an effective corporate compliance program and ethical corporate culture.

Companies should analyze and revise their compliance programs to develop a compensation structure that fosters corporate compliance through financial penalties for misconduct and rewards for good corporate conduct. Incentivizing an ethical corporate culture could result in reduced penalties if a company ultimately comes under scrutiny by the Criminal Division.

Companies should also review policies regarding use of technology (including third-party messenger applications) and should assess its ability to access data and communications. The Criminal Division’s policies and recent revisions indicate that a company’s lack of knowledge in its technological applications and devices will not be looked upon favorably.

Buchanan’s white-collar crime and corporate compliance practice groups are available to help review and revise corporate compliance programs and answer any questions regarding the Criminal Division’s revised corporate enforcement policies.