DOJ to emphasize individual accountability, prior misconduct in corporate crime probes

In a speech Thursday at New York University’s law school, Deputy Attorney General Lisa Monaco laid out the results of the DOJ’s “top-to-bottom review” of its corporate enforcement efforts geared “to further strengthen how we prioritize and prosecute corporate crime.”

“Taken together, the policies we’re announcing today make clear that we won’t accept business as usual,” she said. “With a combination of carrots and sticks—with a mix of incentives and deterrence—we’re giving general counsels and chief compliance officers the tools they need to make a business case for responsible corporate behavior. In short, we’re empowering companies to do the right thing—and empowering our prosecutors to hold accountable those that don’t.”

Monaco previously previewed the DOJ’s priorities regarding corporate crime in an October 2021 speech. She said the DOJ has requested $250 million from Congress to fund its related initiatives in 2023.

Monaco said the agency’s renewed focus on corporate crime will make individual accountability its No. 1 priority. A firm’s historical misconduct will be a bigger factor in both the vitality of enforcement actions and whether to consider implementing an independent compliance monitorship, particularly for repeat offenders, she said. Monaco said every DOJ department will codify exactly what voluntary self-disclosure of violations means for corporations, so firms can understand the disclosure process and its potential benefits. Lastly, Monaco said the DOJ will encourage firms “to reflect corporate values in their compensation systems” by using both deterrence—holding individuals financially responsible for their misconduct—and incentives “to reward compliance-promoting behavior.”

Individual accountability

The DOJ will prioritize “going after individuals who commit and profit from corporate crime,” Monaco said, and “do more and move faster” to prosecute individuals responsible for wrongdoing.

For companies, this means delay tactics and withholding key evidence as part of a strategy to mitigate damage or investigate issues internally will have more serious consequences when settlement talks ensue.

“Going forward, undue or intentional delay in producing information or documents—particularly those that show individual culpability—will result in the reduction or denial of cooperation credit,” Monaco said. “Gamesmanship with disclosures and productions will not be tolerated.”

If a company discovers “hot documents or evidence” during an investigation, its first reaction should be to notify prosecutors, Monaco said. This builds on prior guidance that corporations “must provide all relevant, nonprivileged facts about individual misconduct to receive any cooperation credit,” she said.

The DOJ will also work to bring warranted criminal charges against individuals concurrently with negotiations on a resolution against a corporation. If the case against the corporation must be completed first, prosecutors must have an investigative plan and timeline for any relevant individual prosecutions.

In an online analysis, three partners and an associate at law firm Morgan Lewis reacted to the DOJ’s renewed emphasis on individual accountability.

“While these changes do not represent a dramatic policy shift, they do signal even more aggressive—and faster—individual prosecutions,” the blog post said. “Significantly, this requires companies to engage counsel early to quickly evaluate misconduct, determine the breadth and speed of a disclosure, and ensure that the companies’ interests are protected.”

Prior misconduct

Monaco indicated in October 2021 the DOJ would begin taking a more holistic view of a company’s prior misconduct, placing particular weight on punishing repeat offenders and being less likely to offer deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs) to recidivist corporations.

“With a combination of carrots and sticks—with a mix of incentives and deterrence—we’re giving general counsels and chief compliance officers the tools they need to make a business case for responsible corporate behavior. In short, we’re empowering companies to do the right thing—and empowering our prosecutors to hold accountable those that don’t.”

Lisa Monaco, Deputy Attorney General, Department of Justice

Not all prior misconduct will be treated equally, however. Misconduct that occurred in the United States will be given more weight by the DOJ, as will misconduct involving the same personnel or management. Companies with relevant prior misconduct should not expect to receive another DPA or NPA.

“If any corporation still thinks criminal resolutions can be priced in as the cost of doing business, we have a message—times have changed,” Monaco said Thursday.

Companies operating in highly regulated environments will be judged against the conduct of their industry peers, she said, to determine if their conduct is an outlier. The DOJ will not seek to hold firms accountable for the actions of companies they acquire, particularly if their strong compliance culture is implemented with the acquisition.

Dated misconduct—defined as occurring 10 years or more for criminal resolutions, five years or more for civil—will be given less weight, Monaco said.

The nature and circumstances of prior misconduct will be considered as well, she said, particularly if it “shared the same root causes as the present misconduct.

“Some facts might indicate broader weaknesses in the compliance culture or practices, such as wrongdoing that occurred under the same management team or executive leadership. Other facts might provide important mitigating context.”

Assistant Attorney General Kenneth Polite Jr., himself a former chief compliance officer, said Friday in a speech before the University of Texas Law School that when determining bringing charges, the DOJ’s Criminal Division will consider as aggravating factors ”involvement by executive management of the company in the misconduct, significant profit to the company from the misconduct, or pervasive or egregious misconduct.”

Voluntary self-disclosure

The DOJ has long offered incentives to companies that disclose violations, cooperate with an investigation, and implement remedial measures to prevent future violations. Now, every DOJ department that pursues corporate crime investigations will have a program that incentivizes voluntary self-disclosure, with the process and benefits laid out in clear terms.

Absent aggravating factors, the DOJ will not seek a guilty plea when a company has voluntarily self-disclosed misconduct, cooperated with the investigation, and remediated misconduct, Monaco said.

“Simply put, the math is easy: voluntary self-disclosure can save a company hundreds of millions of dollars in fines, penalties, and costs,” she said. “It can avoid reputational harms that arise from pleading guilty. And it can reduce the risk of collateral consequences like suspension and debarment in relevant industries.”

In his speech, Polite said even companies with a history of violations have incentives to voluntarily disclose new wrongdoing, assuming no aggravating factors are present.

“Why? Because it could make all the difference between a DPA and a guilty plea resolution,” he said, “assuming that the company has also cooperated and timely and appropriately remediated the criminal conduct.”

Independent compliance monitors

The DOJ will release new guidance for prosecutors on identifying, selecting, and successful oversight regarding monitors. “[A]ll monitor selections will be made pursuant to a documented selection process that operates transparently and consistently,” Monaco said.

Corporate monitorships will be tailored to a company’s misconduct and compliance deficiencies, she said, and the DOJ is committed to keeping monitorships on track and on budget. Monaco noted the DOJ is not a regulator, “nor do we aspire to be.”

Compensation

The DOJ will encourage companies to implement compensation initiatives “strengthened and sharpened” by compliance to discourage wrongdoing and reward compliant behavior.

Deterrence initiatives might include clawbacks or escrowing of compensation, Monaco said. “On the incentive side, companies are building compensation systems that use affirmative metrics and benchmarks to reward compliance-promoting behavior,” she said.

When assessing a company’s compliance program, the DOJ will consider “whether its compensation systems reward compliance and impose financial sanctions on employees, executives, or directors whose direct or supervisory actions or omissions contributed to criminal conduct,” she said. The agency will also watch whether companies under investigation impose financial punishments on employees who break the law, shifting “the burden of corporate financial penalties away from shareholders—who frequently play no role in misconduct—onto those more directly responsible.”