DOJ Announces Policy Changes and Additional Resources Focused on White-Collar Enforcement
The Situation: Following recent statements by senior officials with the United States Department of Justice ("DOJ") that the DOJ plans to strengthen white-collar enforcement, the Deputy Attorney General published a Memorandum on October 28, 2021, titled "Corporate Crime Advisory Group and Initial Revisions to Corporate Criminal Enforcement Policies."
The Result: The Memorandum announced three policy changes: (i) DOJ prosecutors must consider a company's entire domestic and foreign criminal, civil, and regulatory history when making resolution decisions; (ii) a company must provide all information concerning all individuals involved in corporate misconduct to qualify for cooperation credit; and (iii) DOJ prosecutors should consider the use of monitorships in corporate criminal resolutions, whenever appropriate. It also announced the formation of an Advisory Group to analyze the DOJ's approach to corporate criminal enforcement topics.
Looking Ahead: While time will tell how much of an impact these developments will have on enforcement practices and activity, they make clear that combatting corporate misconduct is a top DOJ priority. As such, companies should consider the implications of Deputy Attorney General's Memorandum in the context of other regulatory developments in the United States and elsewhere, and should also review their compliance policies and procedures to ensure they are adequate to prevent, detect, investigate, and remediate areas of noncompliance and misconduct.
In the first 10 months of the Biden administration, senior DOJ officials have signaled a renewed focus on corporate criminal and civil enforcement against companies and individuals.
The administration has begun to reveal its corporate enforcement priorities through a series of recent speeches by DOJ officials, prioritization of corporate enforcement resources, and elevation by the White House of anti-corruption efforts to a national security interest. Most recently, on October 28, 2021, DOJ Deputy Attorney General Lisa Monaco delivered a speech and issued a Memorandum that announced revisions to DOJ policy related to charging decisions, qualification for cooperation credit, and use of monitorships in corporate criminal resolutions. The revisions will be incorporated into DOJ's policy manual (referred to as the Justice Manual), and apply to all pending and future DOJ investigations. The Memorandum is part of a broader Biden administration initiative to strengthen the DOJ's approach to corporate and individual white-collar enforcement. Companies can prepare for ramped up enforcement by ensuring that their compliance policies, procedures, and other internal controls are appropriately designed and effectively operate to prevent, detect, investigate, and remediate any potential issues as they arise. In so doing, companies should of course also account for other (and sometimes differing) domestic and international regulatory requirements and standards, including legal provisions relating to triggers, if any, for corporate criminal liability and official guidance relating to the implementation and updating of corporate compliance programs.
Heightened Focus on Criminal and Civil Enforcement Against Companies and Individuals
The Biden administration has made clear that it intends to aggressively pursue corporate and individual white-collar enforcement through a variety of tools and measures. On October 5, 2021, the Principal Associate Deputy Attorney General John Carlin announced that the DOJ has "started to redouble the [DOJ's] commitment to white-collar enforcement." In addition to the changes announced in Deputy Attorney General Monaco's Memorandum, the Federal Bureau of Investigation ("FBI") recently added a permanent squad of agents for the Fraud Section of the DOJ's Criminal Division. This group will assist with the prosecution of Foreign Corrupt Practices Act ("FCPA"), financial fraud, and health care fraud cases. Deputy Attorney General Monaco remarked that "this team model has a proven track record and is one [the DOJ has] used in numerous high-profile cases." The DOJ is also refining its use of data analytics and developing new investigative tools (e.g., artificial intelligence) to identify and prosecute corporate criminal conduct.
The DOJ continues to prioritize coordination with other U.S. regulators and foreign authorities to investigate and prosecute crimes. Indeed, particularly for multinational corporations and their personnel, the risk of being targeted in criminal investigations undertaken by law enforcement authorities in one or more countries is higher now than it has ever been. This risk is only heightened by the fact that countries across the globe are increasingly working together to investigate and prosecute corporate crime—the DOJ has been at the very heart of this trend toward greater cross-border coordination and cooperation. Just in the past six years, the DOJ, together with the Securities and Exchange Commission, publicly acknowledged the assistance of regulators from more than 55 countries and territories in connection with dozens of FCPA enforcement actions. This unprecedented level of cross-border coordination is expected to continue under the Biden administration.
DOJ Policy Changes Concerning Cooperation and Relevant Conduct
Deputy Attorney General Monaco's Memorandum implements many of the corporate enforcement goals outlined by senior DOJ officials in recent speeches and, in certain respects, represents a return to policies previously in place at the DOJ:
1. Consideration of a Company's Entire Criminal, Civil, and Regulatory History
When determining criminal charges and resolution options for a company under investigation, the Memorandum directs DOJ prosecutors to consider the company's full domestic and foreign criminal, civil, and regulatory record. DOJ guidance previously in effect stated that prosecutors may consider a corporation's history of similar conduct. Moving forward, prosecutors are directed to evaluate a company's entire history of misconduct, whether or not that misconduct is similar to the conduct at issue in a particular investigation. The Memorandum does not explain how a prosecutor is to weigh prior unrelated misconduct, but it indicates that additional guidance will be provided in revisions to the Justice Manual. For companies operating in highly regulated industries that often find themselves subject to scrutiny from multiple regulators and enforcement authorities, this change could result in resolutions with DOJ involving harsher terms and larger fines.
2. Mandatory Disclosure of Relevant Non-Privileged Information About All Individuals to Qualify for Cooperation Credit
In October, a senior DOJ Criminal Division official emphasized that the prosecution of culpable individuals is the Division's "top priority." In pursuit of this priority, Deputy Attorney General Monaco's Memorandum revives the requirement from the DOJ's 2015 "Yates Memorandum" that for a company to receive any consideration for cooperation credit, it must disclose to the DOJ "all relevant [non-privileged] facts about individual misconduct, regardless of their position, status or seniority." This reverses the prior administration's November 2018 change to the Justice Manual that required cooperating companies to disclose information related to only those individuals "substantially involved" in the misconduct to qualify for any cooperation credit. In reverting to the Yates Memorandum's approach, the Deputy Attorney General noted that the 2018 update requiring disclosure of facts about only substantially involved individuals "ignores the fact that individuals with a peripheral involvement in misconduct may nonetheless have important information to provide to agents and prosecutors."
Since at least 1999 (well before the Yates Memorandum), the DOJ has required that cooperating companies disclose all relevant, non-privileged facts to the DOJ to qualify for full cooperation credit. Given this, the Memorandum's return to this approach will be familiar territory. Indeed, many companies that cooperate today already seek to provide relevant facts about all individuals essentially to the same extent as the updated DOJ policy will require. It is unclear whether this change alone will lead to an increase in individual prosecutions because developing proof beyond a reasonable doubt of criminal wrongdoing by corporate employees in white-collar cases is often challenging and will remain so. For cooperating companies, this standard may increase the costs and resources required to cooperate with the DOJ policy as compared to the past several years, due to the need to identify, analyze, and disclose more non-privileged information.
3. Imposition of Corporate Monitors When Appropriate
Deputy Attorney General Monaco's Memorandum also revises a prior DOJ approach to determining when to require an independent monitor as part of a corporate criminal resolution. The Memorandum "revises, supplements, and, in part, supersedes Part A" of the Criminal Division October 2018 memorandum, which acknowledged that monitors can be an effective tool but instructed prosecutors that "the imposition of a monitor will not be necessary in many corporate criminal resolutions." The Deputy Attorney General explained that under this 2018 memorandum, there is "no default presumption against corporate monitors." Instead, prosecutors are supposed to determine whether a monitor is appropriate based on the "facts and circumstances of each case." Under the Deputy Attorney General's new guidance, prosecutors are to consider imposing a monitorship if a company's compliance program and controls are untested, ineffective, inadequately resourced, or not fully implemented at the time of the corporate resolution.
The October 2018 guidance on monitorships had a notable effect, substantially reducing the number of monitors imposed on companies in connection with DOJ resolutions. For example, while this guidance was in effect, monitors were imposed in less than 10% of FCPA corporate enforcement actions compared to about 20% between January 2016 and September 2018. While it is not clear whether the new policy pronouncement will lead to an increase in corporate monitors, and whether the monitorship numbers will be similar to those before 2018, it is yet another reminder that a company's compliance program should be tested, effective, adequately resourced, fully implemented, and periodically updated.
4. Formation of Corporate Crime Advisory Group
In her Memorandum, Deputy Attorney General Monaco also announced the creation of a "Corporate Crime Advisory Group" with a "broad mandate" to analyze the DOJ's approach to various enforcement topics, including benchmarks to measure cooperation credit, the appropriateness of non-prosecution agreements ("NPAs") and deferred prosecution agreements ("DPAs") to resolve cases with companies that are repeat offenders, the selection of monitors, and how the DOJ can invest in new technologies.
Implications In Response to these Enforcement Priorities and Policy Changes
Whether the Biden administration's enforcement priorities and policy pronouncements will lead to an increase in corporate enforcement activity, challenges for companies in obtaining cooperation credit, corporate monitorships, and individual prosecutions remains to be seen. But some of the new policies have the potential to further complicate the already very difficult processes for companies to conduct internal investigations and interact with the DOJ to resolve corporate cases. Below are some considerations to keep in mind.
1. Investigations May Last Longer and Be More Burdensome for Companies
The DOJ's planned "surge" in corporate enforcement resources, including the new FBI unit embedded within the Fraud Section, will undoubtedly result in the DOJ paying more attention to corporate activity and the conduct of individual corporate employees and agents.
For companies under investigation and cooperating with the government, full cooperation credit may be more difficult to obtain than during the past few years. The DOJ's focus on individual accountability and its requirement to disclose all individuals involved in misconduct—not just those "substantially" involved–will likely give the DOJ even more latitude to determine whether a company fully cooperated and cause cooperating companies not only to dig deeper at various stages of an internal investigation, but also consider whether to analyze and provide more information to the government. For companies, the decision whether to voluntarily disclose misconduct and otherwise cooperate with a DOJ investigation is typically complex; this aspect of Deputy Attorney General Monaco's Memorandum may inject even more complexity into such decision-making process and result in few self-disclosures.
2. Corporate Resolutions May Become More Difficult to Achieve and More Costly for Companies
The DOJ's consideration of a broader range of prior corporate misconduct and its establishment of higher standards for corporate cooperation, coupled with its review of whether NPAs and DPAs are appropriate for recidivist companies, may lead to larger resolutions with more onerous terms, including monitorships. The DOJ has also indicated it will seek stiffer punishment for those companies that violate the terms of an operative NPA or DPA; indeed, two companies have recently announced that the DOJ believes they breached their respective agreements.
3. Review Existing Compliance & Ethics Programs and Internal Controls
The tone and tenor of today's DOJ give every indication that the agency fully intends to get tough on corporate crime, perhaps to unprecedented levels. The appetite to investigate and prosecute corporate misconduct is shared by other federal agencies, as well as state authorities, within the United States and, increasingly, by counterparts across the world. Companies are well advised to understand and timely adapt to the current enforcement environment and the risks it presents. In particular, companies should review their compliance and ethics programs and internal controls to ensure they have adequate measures to prevent, monitor for, and remediate potential noncompliance or misconduct. Specifically, companies should ensure their risk-assessment process, policies, internal investigation procedures, data preservation protocols, monitoring tools, and employee discipline procedures are up to date and continuously improving. Effective compliance and ethics programs can help companies avoid enforcement actions in the first place and mitigate the exposure to penalties and other consequences of an enforcement action in the event one is pursued.
Three Key Takeaways
- The DOJ's October 28, 2021, Memorandum and recent statements by senior DOJ officials signal a renewed emphasis on corporate and individual criminal enforcement.
- Companies facing pending or future investigations should: (i) understand the DOJ will review their whole domestic and foreign criminal, civil and regulatory record—not just a portion thereof; (ii) recognize that DOJ will call on them to identify all individuals involved in the misconduct at issue—not just those substantially involved—and provide all non-privileged information about those individuals' involvement in order to qualify for cooperation credit; (iii) understand there is no default presumption against corporate monitors and that decisions about a monitor will be determined by the facts and circumstances of each case, including the effectiveness of the company's corporate compliance program; and (iv) expect more time-consuming and lengthier investigations, and the likelihood that resolutions may become more difficult and more costly to achieve.
- Companies should review their compliance and ethics programs and internal controls to ensure they adequately assess, monitor for, and remediate noncompliance and misconduct. Effective compliance and ethics programs help proactively avoid enforcement actions and allow the company to mitigate the exposure to penalties and other consequences of a DOJ enforcement action.