Assistant Attorney General Polite’s message to companies that uncover criminal misconduct in their operations was clear: “come forward, cooperate and remediate.”
On January 17, 2023, Assistant Attorney General Kenneth A. Polite Jr. of the Justice Department’s Criminal Division announced the first significant changes to his Division’s Corporate Enforcement Policy since 2017. The changes include additional incentives for companies to promptly self-disclose internal misconduct and to fully cooperate with the DOJ’s investigation into the misconduct. Such incentives include expanding the eligibility for a declination from prosecution to companies that provide “extraordinary” cooperation and remediation even where aggravating factors are present, and increasing the level of fine reductions for companies that fully cooperate and appropriately remediate. The changes follow Deputy Attorney General Lisa Monaco’s guidance on the DOJ’s corporate criminal enforcement policy last September and signal a continuing effort to incentivize voluntary self-disclosure and robust cooperation and remediation by companies subject to DOJ criminal investigations.
The Criminal Division’s Previous Corporate Enforcement Policy and the Monaco Memo
Since 2017, the Criminal Division’s Corporate Enforcement Policy (CEP)—which applies to all corporate criminal matters handled by the Criminal Division, including all cases under the Foreign Corrupt Practices Act nationwide—has provided that if a company voluntarily self-discloses, fully cooperates, and timely and appropriately remediates, there is a presumption that the Division will decline to prosecute the company, absent certain aggravating factors involving the seriousness of the offense or the nature of the offender. Examples of aggravating factors include involvement in the misconduct by executive management, a significant profit to the company from the wrongdoing, the egregiousness or pervasiveness of the misconduct within the company, or the company’s criminal recidivism. The Criminal Division policy also has provided that if a company self-discloses but a criminal resolution is warranted, the company is eligible for reduced fines of up to 50 percent of the low end of the applicable Sentencing Guidelines range.
In her September 15, 2022, memo, Deputy Attorney General Monaco directed all Department components to review their policies on corporate voluntary self-disclosure and “to clarify the benefits of promptly coming forward to self-report, so that chief compliance officers, general counsels, and others can make the case in the boardroom that voluntary self-disclosure is a good business decision.” The Criminal Division under Assistant Attorney General Polite responded by making several significant changes to the CEP.
Changes to the Corporate Enforcement Policy
Assistant Attorney General Polite announced three significant changes to the CEP:
- Even in cases where aggravating factors (as described above) are present, although there will be no presumption of a declination, prosecutors may nonetheless determine that a declination is the appropriate outcome, under certain circumstances.
- In order for a company to be eligible for a declination in such cases, the company must demonstrate that it has met each of the following factors:
- The company voluntarily self-disclosed the misconduct immediately upon the company becoming aware of it;
- At the time of the misconduct and the disclosure, the company had an effective compliance program and system of internal accounting controls that enabled the identification of the misconduct and led to the company’s voluntary self-disclosure; and
- The company provided extraordinary cooperation with the DOJ’s investigation and undertook extraordinary remediation.
- If a company voluntarily self-discloses misconduct, fully cooperates and appropriately remediates, but a criminal resolution is still warranted, the Criminal Division:
- Will now recommend to a sentencing court at least 50 percent, and up to 75 percent, off of the low end of the Sentencing Guidelines fine range―except in the case of a criminal recidivist, in which case the reduction will generally not be from the low end of the fine range―and in all cases, prosecutors will have discretion to determine the starting point within the range. (Under the prior policy, the maximum recommendation was 50 percent.)
- In these circumstances, the Division will generally not require a corporate guilty plea—including for criminal recidivists—absent multiple or particularly egregious aggravating circumstances.
- For companies that do not voluntarily self-disclose but still fully cooperate and timely and appropriately remediate, the Division will recommend up to a 50 percent reduction off of the low end of the guidelines fine range. (The limit under the previous policy for such a company was 25 percent.). In the case of a criminal recidivist, the reduction will likely not come off the low end of the range, and in all cases prosecutors will have discretion to determine the specific percentage reduction and starting point in the range.
Factors the DOJ will consider when distinguishing between “extraordinary” and “full” cooperation under the new policy include:
- The immediacy of the cooperation;
- Whether the cooperator is consistently truthful;
- Whether the individual cooperators allow the Criminal Division to obtain evidence that it otherwise could not get (e.g., quickly obtaining and imaging their electronic devices, or having recorded conversations);
- Whether the cooperation produces results, like testifying at a trial or providing information that leads to additional convictions.
Key Takeaways from the Criminal Division’s New Policy
Assistant Attorney General Polite’s message to companies that uncover criminal misconduct in their operations was clear: “come forward, cooperate and remediate.” He emphasized that for such companies “the clearest path to avoiding a guilty plea or an indictment is voluntary self-disclosure.” As Polite pointed out, the Criminal Division does not want the presence of “aggravating factors” to deter companies from voluntarily self-reporting misconduct. But at the same time, the Division has imposed stringent requirements for companies with aggravating factors to earn a declination, including extraordinary cooperation and remediation. The line between “full” cooperation and “extraordinary” cooperation will be worked out case by case as prosecutors begin applying the new policy. But, the DOJ is making clear that the most favorable declination options are reserved for companies that distinguish themselves by demonstrating extraordinary cooperation and remediation efforts.
The Criminal Division is also increasing the incentives for self-disclosure, cooperation and remediation for companies that do not qualify for a declination by increasing the potential fine reduction from 50 percent to 75 percent off of the low end of the guidelines range if they self-disclose. And even those companies that do not self-disclose can qualify for a larger reduction than before (50 percent) if they provide full cooperation and appropriate remediation. By extending benefits to companies in several different scenarios, the Criminal Division is once again making clear that it is committed to incentivizing companies to come forward and cooperate when they identify criminal wrongdoing within their operations.
The decision of whether to voluntarily self-disclose corporate misconduct is a difficult one. A company must weigh the benefits of such a disclosure against the risk that such a disclosure entails, including the cost and disruption of complying with the ensuing DOJ investigation. As Polite points out, a functioning compliance program with effective detection mechanisms can help companies not only identify misconduct when it occurs, but also make the important decision of whether to disclose it. This is another reminder that companies should make sure they have a robust corporate compliance program so that they will be best positioned to respond to corporate misconduct if and when it occurs.
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