Can’t We Just Be Friends? DOJ Incentivizes Corporations (Again) To Become Its Allies

In the wake of DOJ’s touted reenergized enforcement of the Foreign Corruption Practices Act, the new year began with DOJ dangling perhaps its largest carrot yet to lure corporations worldwide to assist DOJ in investigating them and their employees – not limited to the FCPA arena. DOJ’s latest Corporate Enforcement Policy aims to give more companies additional reasons to disclose misconduct by using increased incentives and opportunities to coax corporations once excluded from the program or lacking prior motivation to cooperate. As part of its continuing evolution designed at fulfilling its promise to “vigorously enforce” foreign bribery cases after a lackluster first two years, the Biden administration is building upon the so-called “Monaco Memo” and other DOJ officials’ public pronouncements. Assistant Attorney General Kenneth A. Polite Jr. offered remarks on January 17, 2023, at Georgetown University’s Law Center, self-described as “the first significant changes to the Criminal Division’s Corporate Enforcement Policy since 2017” and expanded the policy to all corporate misconduct, dropping FCPA from the Policy’s name. Softening the tone of DOJ communications over the last two years, AAG Polite offered companies “new, significant, and concrete incentives to self-disclose misconduct,” calling upon corporations to become DOJ’s “allies in [its] fight against crime” since DOJ “could never completely identify and address [corporate] criminality without corporations . . . coming forward and reporting the conduct of these wrongdoers.”

AAG Polite announced three principal expansions to the policy: DOJ may exercise its discretion and decline to prosecute corporations despite aggravating factors; if DOJ proceeds with prosecution, companies, including recidivists, might receive an increased penalty reduction; and even if a company does not voluntarily self-disclose misconduct, DOJ may recommend a larger fine reduction. Will AAG Polite’s latest plea be enough to entice more corporations to seek out and voluntarily disclose corporate misconduct? Corporations likely will require a bit more guidance before making a decision. In the meantime, no reasonable general counsel, corporate officer, or corporate board should ignore the remarks; AAG Polite warned that DOJ intends to bring more corporate enforcement efforts in 2023 which will proceed with enhanced scrutiny of companies’ cooperation and compliance programs.

Third Time’s the Charm?

History suggests DOJ’s message is not being ignored. AAG Polite’s remarks provide at least the third recent revision of the Policy. The current Corporate Enforcement Policy is an outgrowth of the “FCPA Pilot Program” announced in April 2016, intended to encourage companies’ cooperation to enhance the DOJ’s enforcement against corporate misconduct by offering that prosecutors would “consider a declination of prosecution” if companies met three conditions: voluntarily disclose FCPA-related misconduct, fully cooperate (disclosure of all relevant information) with the investigation, and remediate compliance programs. If the government pursued criminal prosecution, a company could receive a reduction in fines and generally not be appointed an outside monitor. During the 18-month period the Program was in effect, DOJ’s FCPA Unit received 30 voluntary disclosures from corporations, compared to 18 disclosures during the prior 18-month period, and DOJ issued seven declinations. The DOJ concluded that the Program “proved to be a step forward in fighting corporate crime,” but recognized improvements were warranted to coax more corporations to come forward.

DOJ’s second attempt and so-called “improvements” came in November 2018 in remarks by Deputy Attorney General Rod Rosenstein who made the Pilot Program permanent and announced the new FCPA Corporate Enforcement Policy. The new FCPA Policy enhanced the benefits available to a company that satisfies all conditions – instead of prosecutors “considering” declination, the new policy provided a “presumption” of a declination. The FCPA Policy also took a firmer stance regarding reductions in fines and the appointment of a monitor, and detailed specific criteria warranting credit for each of the three conditions. The principles of the Policy were incorporated into the Justice Manual at Section 9-47.120. By clarifying and increasing potential incentives for self-disclosure, DOJ hoped to alter companies’ disclosure calculus and encourage more to come forward. Judging by DOJ’s public list of declinations, that did not necessarily happen. Despite the increased incentives, since the FCPA Policy formally took effect in November 2018, DOJ has issued a mere six declinations, and the percentage of companies that self-report has significantly dropped, as well as has the overall number of corporate criminal prosecutions.

Each year since, DOJ has issued additional guidance on the FCPA Policy, signaling that DOJ had hoped more companies would have responded to existing incentives. Last September, in the so-called “Monaco Memo,” Deputy Attorney General Lisa O. Monaco laid out additional guidance on DOJ’s intent to strengthen corporate enforcement and DOJ’s expectation of cooperation, offering companies “a combination of carrots and sticks,” i.e., “a mix of incentives and deterrence.” The Memo laid out that as long as no aggravating circumstances were present, companies reasonably could expect DOJ not to seek a guilty plea if they complied with the three conditions. Aggravating factors include executive management’s involvement in the misconduct, a significant profit from the misconduct, the pervasiveness of such conduct, and any recidivism. That same month AAG Polite doubled down on DOJ’s prioritization of enhanced scrutiny on the actions of individual bad corporate actors and reaffirmed that DOJ will hold corporations accountable if they lack sufficient compliance programs. He emphasized the need for data-driven investigative activity to keep up with the ever-evolving schemes of corporate bad actors. Perhaps recognizing the less than impressive results of the past, AAG Polite’s latest remarks in January 2023 soften the Biden administration’s tough stance on corporate enforcement in hopes of finally gaining allyship.

More “Carrots,” Fewer “Sticks”

Branded as the “first significant changes” to FCPA Policy since 2017 and extending the Policy to all corporate misconduct (not just foreign bribery), AAG Polite’s remarks offer a broader group of companies “new, significant, and concrete incentives” to not only self-disclose, but also seek out misconduct. Companies once excluded from receiving credit, due to either aggravating circumstances or failing to meet one of the three conditions, can now receive discretionary declinations or reductions in punishment so long as they go “above and beyond the bare minimum” in cooperating. AAG Polite described these three principal changes to the Policy:

First, in a significant change from the “Monaco Memo,” the DOJ may start to offer declinations to companies despite aggravating circumstances. Under the revised Policy, although aggravating circumstances will continue to disqualify companies from a presumption of declination, DOJ may nonetheless use its discretion and decline to prosecute if the company can demonstrate three factors: self-disclosure immediately upon learning of alleged misconduct; a preexisting effective compliance program to identify the misconduct and lead to self-disclosure; and “extraordinary” cooperation with DOJ’s investigation, including “extraordinary remediation.” AAG Polite offered guidance that “extraordinary cooperation” requires companies to go “above and beyond the criteria for full cooperation” set forth in the prior Policy (including the disclosure of all relevant facts and evidence about the individuals involved in misconduct inside and outside of the company), and he emphasized that the “immediacy, consistency, degree and impact” of cooperation will play a role in DOJ’s assessment of cooperation credit.

Second, even when a criminal resolution is warranted, companies can earn discounts or recommendations of at least 50% – the previous potential maximum – and up to 75% off of the low end of the U.S. Sentencing Guidelines fine range assuming that the company has demonstrated “extraordinary cooperation and remediation.” Additionally, in these situations, DOJ generally will not require a corporate guilty plea – including for criminal recidivists – absent “multiple or particularly egregious aggravating circumstances.”

Third, the revised Policy gives companies that fail to self-disclose increased incentives to nonetheless “fully cooperate and timely and appropriately remediate.” Under these circumstances DOJ intends to recommend up to a 50% reduction off of the low end of the Guidelines – twice the maximum amount of reduction under the prior Policy – and in the case of recidivists, the reduction still will apply, but likely come off of a different starting point in the Guidelines. AAG Polite cautioned that a 50% reduction “will not be the new norm,” rather each company “starts at zero cooperation credit” and must “truly distinguish themselves and demonstrate extraordinary cooperation and remediation” to earn the full amount.

Although the tone has softened, AAG Polite warned that these new incentives do not take away from the “dire consequences” corporations face if companies fail to self-report or fully cooperate or remediate, or DOJ’s “number one goal” to hold individuals criminally culpable. Using the Glencore Ltd. case as an example, among others, AAG Polite explained that a corporation’s late and incomplete cooperation, failure to take adequate or timely disciplinary measures against personnel, or insufficient compliance programs, are continued grounds for minimal reductions in punishment. Nevertheless, AAG Polite closed out his remarks reemphasizing DOJ’s position that it is committed to incentivize companies to work with the DOJ to detect and prevent crime.

Enhanced Scrutiny Despite Scarce Guidance

AAG Polite provided that DOJ intends to bring increased enforcement efforts this year and with the increased incentives will come enhanced scrutiny of corporations’ controls to detect misconduct, compliance programs, self-disclosure, cooperation, and remediation. Responsible in-house counsel need to evaluate their company’s circumstances and understand AAG Polite’s remarks to advise their boards, management, and employees. Evaluating whether corporations should take the risk of self-disclosure once misconduct is detected, however, will not be an easy task absent further DOJ guidance or examples of real corporate resolutions under the revised Policy. The “extraordinary” standard of cooperation and remediation remains subjective and largely undefined, with AAG Polite describing the standard as “not just run of the mill, or even gold-standard cooperation, but truly extraordinary.” Additionally, AAG Polite’s emphasis on “immediate” disclosure leaves companies to ponder whether eligibility for cooperation credit requires disclosure to DOJ at the first identification of an issue or whether disclosure can be delayed until the conduct is investigated by the company. White collar practitioners will need to push DOJ for a bit more guidance because, if the significant incentives provided thus far have not done the trick, corporations (and counsel) are not likely to change their calculus in light of an undefined standard. AAG Polite hopefully will clear up some of these ambiguities and provide additional guidance in his upcoming keynote address on March 3, 2023 at the American Bar Association’s 38^th National Institute on White Collar Crime.

To read more from Robert Anello, please visit www.maglaw.com.

Emily Smit, an associate at the firm, assisted in the preparation of this blog.