On September 15th and 16th, Deputy Attorney General Lisa Monaco (“DAG Monaco”) and Assistant Attorney General Kenneth Polite (“AAG Polite”) delivered remarks on corporate misconduct and compliance programs. These remarks contain important conclusions regarding the Department’s focus on the prosecution of individuals in corporate cases, credit for corporate self-disclosure and cooperation, evaluation of existing compliance programs in making charging decisions, and the use of monitors. Their remarks also raised questions about limits on the use of NPA/DPAs, CCO certifications in corporate settlements, as well as areas of focus for upcoming guidance.
Three Takeaways from These Remarks for GCs and CCOs:
- The Department is seeking both increased corporate disclosures, by seeking to incentivize disclosures while at the same time connecting credit for self-disclosure with providing information presumably necessary to prosecute individuals within the leadership of the organization. Thus, the Department asserts it will not seek a guilty plea when a company has voluntarily self-disclosed, cooperated, and remediated misconduct unless that disclosure reveals involvement by executive management of the company in the misconduct, significant profit to the company from the misconduct, or pervasive or egregious misconduct.
- Moreover, the inclusion and exercise of an executive compensation claw back provision was described as central to the Department’s goal of shifting the burden of corporate financial penalties from shareholders to responsible individuals. Further guidance from the Criminal Division on how prosecutors will reward corporations that adopt compensation claw back policies is expected by end of 2022. GCs and CCOs need to know that DOJ is focused not only on the inclusion of claw back provisions in executive compensation agreements, but that those claw backs are actually used in the case of misconduct.
- CCO certifications in Criminal Division corporate resolutions remains strong in the face of criticism from compliance officers. AAG Polite emphasized a continued commitment to the use of CCO certifications: “These certifications are designed to give compliance officers an additional tool that enables them to raise and address compliance issues within a company or directly with the department early and clearly.”
Overview of the Remarks
DAG Monaco’s remarks highlighted five areas where the DOJ is making changes to further strengthen its approach to corporate criminality:
- First, DAG Monaco established that “undue or intentional delay” in production of relevant documents and information, particularly about individual culpability, will now result in decrease or denial of cooperation credit. “This requirement is in addition to prior guidance that corporations must provide all relevant, non-privileged facts about individual misconduct to receive any cooperation credit.” Moreover, in her remarks she made clear that the Government expects companies to secure and produce information contained in personal smartphone, tablets, laptops, and other devices, and that the Department will consider the rigor of a company’s controls over the business use of personal devices will factor in the assessment of a company’s compliance program.
- Second, DAG Monaco outlined additional guidance in response to feedback on last year’s commitment to “consider the full criminal, civil, and regulatory record of any company when deciding the appropriate resolution” of subsequent misconduct.
- Long-past criminal violations will be accorded less weight in making charging decisions. Specifically: “[c]riminal resolutions that occurred more than 10 years before the conduct currently under investigation, and civil or regulatory resolutions that took place more than five years before the current conduct.”
- The nature and circumstances of the prior misconduct will be considered. Further, “companies with a proven track record of compliance that acquire companies with a history of compliance problems, so long as those problems are promptly and properly addressed post-acquisition” will not be treated as recidivist. As with many of these statements, it is not immediately clear what it would mean to “promptly and properly” address the history of compliance failures of an acquired business.
- The Department will now “disfavor multiple, successive non-prosecution or deferred prosecution agreements with the same company,” within ten years, requiring written approval of both the relevant US Attorney or AAG and the DAG’s office for such successive non-prosecution or deferred prosecution agreements.
- Third, DAG Monaco required that every Department component prosecuting corporate crime have a program incentivizing voluntary self-disclosure, with an emphasis on predictability. “Absent aggravating factors, the Department will not seek a guilty plea when a company has voluntarily self-disclosed, cooperated, and remediated misconduct. In addition, the Department will not require an independent compliance monitor for such a corporation if, at the time of resolution, it also has implemented and tested an effective compliance program.”
- In his remarks, AAG Polite supplemented the list of aggravating factors considered by the Criminal Division which will include but aren’t limited to “involvement by executive management of the company in the misconduct, significant profit to the company from the misconduct, or pervasive or egregious misconduct.”
- Fourth, DAG Monaco previewed the impending release of guidance for prosecutors on independent compliance monitors, requirements for documentation of monitor selection processes, and outlined DOJ’s role in monitoring scope and cost of monitors. DAG Monaco made clear that she expects prosecutors to remain engaged and to exercise oversight during the period of monitorship.
- Finally, DAG Monaco required that the Criminal Division “develop further guidance by the end of the year on how to reward corporations that employ clawback or similar arrangements.” The remarks highlight that both incentive side, structuring compensation using affirmative metrics to reward “compliance-promoting behavior,” and deterrence side, in the form of claw back or escrowing of compensation, were central to shifting corporate culture.
- AAG Polite added on the topic, “in the coming months, our team will be meeting with, among others, our agency partners and experts on executive compensation, and gathering relevant data points. Based on these inputs, the Criminal Division will then provide further guidance on how prosecutors will consider and reward corporations that develop and apply compensation claw back policies."
Lastly, in his remarks AAG Polite highlight Criminal Divisions use of CCO Certifications.
- “These certifications underscore our message to corporations: investing in and supporting effective compliance programs and internal controls systems is smart business and the department will take notice.” AAG Polite noted these certifications will be tailored to the misconduct found in a particular case. In discussing a recent corporate resolution related to commodities fraud, the CEO and CCO will be required to certify that the company’s “compliance program is reasonably designed to detect and prevent violations of the Commodities Laws . . . throughout the Company’s operations” before the end of the term.
- Responding to concerns about CCO certifications, he added, “[f]or too long, [compliance officers] have complained that compliance doesn’t have the same voice in corporate decision-making. These certifications and other resources are empowering [them] to demand that voice. A corporate leader who ignores the emphasis we are placing on compliance does so at his or her own risk.”
Last week’s remarks by DAG Monaco and AAG Polite are the latest step in a decades long process of defining and refining the Department’s approach to corporate criminal enforcement and compliance initiatives, with further policies forthcoming. However, the continued embrace of CCO certifications, clarification of aggravating factors considered in assessing cooperation credit in voluntary self-disclosures, and the articulated shift toward the expectation of claw back provisions in executive compensation agreements mark continued efforts to clarify individual accountability and foster corporate culture that supports robust compliance. Moreover, the limits on the use of DPA/NPAs may mean that cases may increasingly be resolved through guilty pleas or at trial, where the Department recognizes that its positions regarding the use of monitors, a crucial issue of concern in the resolution of a case, will be driven not as much by the Department, but by the federal judge overseeing the terms and conditions of probation.
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