White-collar prosecutors are increasingly focusing on corporate compliance and remediation efforts over the entire lifespan of a criminal investigation. In the past, compliance and remediation have primarily played a role in criminal investigations after alleged misconduct was identified, as prosecutors sought resolution terms that would prevent its recurrence.

Recently, however, compliance and remediation have shifted from a more “back-end” consideration to one that prosecutors scrutinize at all stages of an investigation—including the stages when prosecutors examine criminal allegations and make charging decisions.

Prosecutors are not only trying to discover what happened; they are also increasingly interested in why it happened. Additionally, there is added focus on what early, decisive remedial steps a company takes when misconduct is identified. In other words, what did you do about it? This has prompted prosecutors to closely scrutinize compliance culture in which the alleged criminal misconduct took place. Moreover, some prosecutors see a nexus between a robust compliance culture and the issue of how and whether to promptly self-disclose possible criminal misconduct, a practice now being strongly encouraged by prosecutors.

Thus, the overall compliance environment in which allegedly criminal conduct arises is increasingly being scrutinized at all stages of a criminal investigation, and, consequently, compliance professionals will increasingly be finding themselves on the frontlines of any criminal defense of their company.

A real compliance culture

While existing compliance measures and remediation have always been one of several factors listed in the U.S. Attorneys’ Manual for prosecutors to consider in making charging decisions with respect to business organizations, the import of those two factors has grown considerably. Prosecutors are increasingly exploring the context in which the misconduct arose, with any conclusions ultimately becoming an aggravating or mitigating factor not just in terms of a resolution, but also in determining whether a company should be charged.

As a result, prosecutors are increasingly probing how empowered and “real” the compliance effort at a company is. Prosecutors sometimes pejoratively refer to weak compliance programs as “paper programs.” Such programs may be well-designed on “paper,” but are loosely administered or administered by compliance professionals who are not especially independent or empowered to address any issues that come to their attention.

Such programs will be closely scrutinized to determine whether they tacitly allowed the conduct at issue to occur. Prosecutors could view a weak compliance culture as evidence of intent to support the specific misconduct being investigated. If prosecutors determine that illegal conduct persisted for some time or was not detected, they may examine whether the compliance program was weak in effect or by design. They may also examine how the compliance program functioned once potential issues were identified, and to what extent compliance professionals investigated those issues. Furthermore, given how highly valued remediation is to prosecutors, detection alone is not sufficient. Prosecutors are increasingly examining whether compliance officials are sufficiently encouraged and empowered to help address an identified problem or issue.

The enhanced role that self-disclosure plays in an investigation reflects more of a shift in policy emphasis rather than a new policy. In the U.S. Attorneys’ Manual, self-disclosure, like a strong compliance program and remediation, is one of the factors prosecutors are told to weigh in deciding whether to charge a company. Prosecutors are, however, increasingly giving added weight to self-disclosure, as reflected in the FCPA Pilot Program.

At the same time, if criminal conduct slips through a robust, well-designed and well-executed compliance program, companies might be in a position to argue that a prosecutor should consider that a mitigating factor in making decisions about whether to charge and how to resolve such cases.

A prosecutor’s analysis of a company’s compliance culture can be especially challenging for a company if it is considered a recidivist. Repeated civil or criminal investigations at a company will probably invite further questions, and perhaps some additional skepticism, about its compliance culture. Of course, many prosecutors also understand that “deep-pocketed” companies may—through no fault of their own—find themselves subject to multiple whistleblower allegations, which should provide some relief from them from being tagged as true recidivists.

To help make these determinations, at least some prosecutors are turning to compliance experts.  Last November, the Department of Justice’s Criminal Fraud Section hired a compliance expert, who has extensive expertise in multiple industries.  And, as several companies can attest, that expert is involved throughout the course of a criminal investigation helping Fraud Section prosecutors make determinations about corporate compliance programs.

An emphasis on self-disclosure

If, despite a company’s best efforts, its employees or agents engage in potentially criminal misconduct, how prosecutors become aware of that misconduct can have significant consequences for the company. Corporate criminal misconduct typically comes to the attention of prosecutors in one of several ways: self-disclosure, through a whistleblower, or through some form of law enforcement-initiated investigation.

Prosecutors are increasingly pushing prompt self-disclosure. And, of course, self-disclosure is not possible without a robust compliance program and culture that encourages the identification of misconduct. Indeed, many prosecutors consider prompt self-disclosure as an extension of the “compliance cycle,” the next step after a potential issue has been detected and remediated.

In certain enforcement areas, the Justice Department has crafted significant benefits for companies that self-disclose. For example, as noted in the the agency’s Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance (commonly referred to as the FCPA Pilot Program), companies that self-disclose FCPA violations are eligible for a 50 percent fine discount off the bottom end of the Sentencing Guidelines; companies that do not self-disclose can receive only up to a 25 percent discount.

Indeed, in some cases, companies (Akami, Nortek, Johnson Controls) that self-disclosed, fully cooperated, and remediated received a criminal prosecution declination. Although these express DoJ benefits are limited to FCPA cases, there is no reason, conceptually, that the Department could not apply similar standards in non-FCPA corporate cases.

The enhanced role that self-disclosure plays in an investigation reflects more of a shift in policy emphasis rather than a new policy. In the U.S. Attorneys’ Manual, self-disclosure, like a strong compliance program and remediation, is one of the factors prosecutors are told to weigh in deciding whether to charge a company. Prosecutors are, however, increasingly giving added weight to self-disclosure, as reflected in the FCPA Pilot Program.

Self-disclosure challenges

The decision as to whether a company should self-disclose, however, is complex. While time is not on a prosecutor’s side, companies should have sufficient room to make a thoughtful decision about disclosure, rather than find themselves in a position of disclosing every possible instance of misconduct.

Indeed, whistleblower statutes, such as the qui tam provisions found in the False Claims Act, can make it difficult for companies to beat a whistleblower in disclosing an issue to law enforcement. Although whistleblowers are highly incentivized to report a suspected civil or criminal violation—regardless of the merit—companies must investigate any alleged misconduct before approaching the government.

Even if a whistleblower beats a company to disclosure, prosecutors retain, and should exercise, discretion when considering future leniency for companies that may not self-disclose, but can show that they were actively investigating the issue, remediating, and later fully cooperating with the government’s investigation.

Takeaways for compliance professionals and executives

There are several things compliance professionals should keep in mind in light of these developments:

Senior DoJ officials have been relatively transparent over the last year about what they want to see in corporate compliance programs, as has been covered in other Compliance Week articles. They mean what they say.Several have been quoted making suggestions, such as insuring that compliance personnel are independent, have adequate funding, and have effective and clear training and guidelines.

Should a company unfortunately find itself on the other end of a government investigation, it should position itself to be able to provide fact-specific evidence of a strong compliance culture, both in form and function.

Such evidence can include, for example, a visible presence/buy-in to corporate compliance efforts by senior corporate executives. Senior executive buy-in has the double benefit of enhancing the stature of the compliance program and helping to insulate executives from future culpability given that the Justice Department is paying special attention to individual corporate liability as noted in the Yates memorandum.

Additionally, companies should visibly support proactive compliance programs that encourage compliance officials to ask questions and follow up on topics as appropriate.

If a company does identify misconduct, then it needs to move as expeditiously as is prudent to assess how to address and/or reveal the conduct at issue to the government. Despite the government goal of prompt self-disclosure, companies should be able to make a strong and credible individual case for leniency if the totality of their conduct in identifying, remediating, and engaging the government on potential conduct is done in good faith.

Gejaa Gobena is the recent former head of the Department of Justice Criminal Division’s 50-attorney Health Care Fraud Unit.

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