DOJ Calls Foul On Duplicative Corporate Penalties

by Pablo Quiñones

Corporate misconduct allegations often result in investigations by multiple agencies, including foreign, federal, state, and local authorities.  Without proper coordination, companies risk being hit with duplicative penalties for the same misconduct.  Duplicative corporate penalties can be avoided, but coordinating a corporate resolution with multiple authorities is hard to navigate. 

Within the United States, federal prosecutors often have overlapping jurisdiction with other federal criminal and civil prosecutors, federal and state regulators, and local prosecutors.  In international investigations, federal prosecutors also have to cooperate with foreign authorities with overlapping jurisdiction.  All of these players can have a legitimate interest in protecting the public from economic crimes.  Regulatory competition, however, often leads government authorities to want to take the lead over other authorities.   Other times, government authorities jump from the sidelines onto the field of play when a corporate resolution is near and refuse to leave the field without a share of the penalties.  A coordinated resolution is difficult to achieve in either case.  In the end, the overlapping jurisdiction and regulatory competition can either lead to (1) each authority “piling on” their share of penalties or (2) a coordinated resolution that identifies the collective harm caused by the company’s misconduct, the appropriate penalties for that harm, and the fair allocation of the penalties among the interested government players.

During my tenure as the Chief of Strategy, Policy and Training for the Fraud Section of the Department of Justice (DOJ), the Fraud Section’s expertise in corporate investigations led us to propose a department-wide policy on coordinated corporate resolutions that mirrored our practices.  The Fraud Section’s senior management and prosecutors regularly coordinated with companies and government authorities to ensure that corporate resolutions avoided unfairly “piling on” penalties for the same misconduct.  In my view, such a policy was fair and simultaneously advanced the DOJ’s broader strategic goal to combat economic crime in, at least, two ways.  First, by encouraging cooperation among government authorities, the policy made it more likely the Fraud Section would discover new misconduct and better understand the scope of corporate misconduct in determining the appropriate resolution. Second, by encouraging cooperation with companies, the policy made it more likely that companies would voluntarily disclose misconduct to reach a fair global resolution that allowed them to obtain credit for penalties paid to other authorities.  Indeed, many companies consider the risk that government authorities will “pile on” when deciding whether it makes sense to voluntarily disclose misconduct to DOJ.

Recently, the DOJ amended the U.S. Attorney’s Manual (USAM) – the key resource manual used by all federal prosecutors in the 94 U.S. Attorney’s Offices and the numerous DOJ components in Washington, DC – to adopt a coordinated corporate resolution policy that is similar to what the Fraud Section had proposed.  On May 9, 2018, in a speech to white-collar practitioners in New York City, Deputy Attorney General Rod Rosenstein announced changes to the USAM to address the “piling on” problem.[1]   The policy requires “Department of Justice components to appropriately coordinate with one another and with other enforcement agencies in imposing multiple penalties on a company in relation to investigations of the same misconduct.”[2]  The policy’s stated aim is two-fold: first, to “enhance relationships” with U.S. and foreign law enforcement partners and, second, to “avoid[] unfair duplicative penalties.”[3] 

The policy, of course, has a much broader strategic goal to combat economic crime.  By enhancing relationships with domestic and foreign authorities, the DOJ is “better able to detect sophisticated financial fraud schemes and deploy adequate penalties and remedies.”[4]  Similarly, “[t]o reduce white collar crime, [the DOJ] need[s] to encourage companies to report suspected wrongdoing to law enforcement and to resolve liability expeditiously.”[5]  DAG Rosenstein further explained that “[c]orporate America should regard law enforcement as an ally. In turn, the government should provide incentives for companies to engage in ethical corporate behavior and to assist federal investigations.”[6]  Such a partnership between good corporate citizens and a fair DOJ, as DAG Rosenstein stated, “reduce[s] the risk of another corporate-fraud epidemic.”[7]  Indeed, one of the lessons of the last financial crisis was that: “[t]he captains of finance and public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public.”[8]   When company and public interests are aligned, systemic risks from corporate misconduct are more likely to come to light.

The new policy seeks to advance such private-public partnerships while promoting ethical corporate behavior.  Thus, among the relevant factors the DOJ will consider in determining whether duplicative penalties are warranted are “the egregiousness of a company’s misconduct,” “the risk of unwarranted delay in achieving a final resolution” and “the adequacy and timeliness of a company’s disclosures and its cooperation with the Department.” [9]   In particular, the relevant language of the USAM states that:

1-12.100 – Coordination of Corporate Resolution Penalties in Parallel and/or Joint Investigations and Proceedings Arising from the Same Misconduct

. . . .

[I]n resolving a case with a company that multiple Department components are investigating for the same misconduct, Department attorneys should coordinate with one another to avoid the unnecessary imposition of duplicative fines, penalties, and/or forfeiture against the company. Specifically, Department attorneys from each component should consider the amount and apportionment of fines, penalties, and/or forfeiture paid to the other components that are or will be resolving with the company for the same misconduct, with the goal of achieving an equitable result.

The Department should also endeavor, as appropriate, to coordinate with and consider the amount of fines, penalties, and/or forfeiture paid to other federal, state, local, or foreign enforcement authorities that are seeking to resolve a case with a company for the same misconduct.

The Department should consider all relevant factors in determining whether coordination and apportionment between Department components and with other enforcement authorities allows the interests of justice to be fully vindicated. Relevant factors may include, for instance, the egregiousness of a company’s misconduct; statutory mandates regarding penalties, fines, and/or forfeitures; the risk of unwarranted delay in achieving a final resolution; and the adequacy and timeliness of a company’s disclosures and its cooperation with the Department, separate from any such disclosures and cooperation with other relevant enforcement authorities.

This provision does not prevent Department attorneys from considering additional remedies in appropriate circumstances, such as where those remedies are designed to recover the government’s money lost due to the misconduct or to provide restitution to victims.[10]

The policy does leave some uncertainty for companies, however.  Companies that display bad indicators of good corporate citizenship could risk duplicative penalties that DOJ would deem fair under the circumstances.  For example, under the terms of the new policy, a company could be asked to pay a penalty for the same misconduct multiple times if DOJ was not satisfied with “the adequacy and timelines of a company’s disclosure and cooperation with” DOJ.   It remains to be seen how DOJ will balance the inherent unfairness of imposing duplicative penalties for the same misconduct with the consideration of other relevant factors to ensure that the penalties imposed are sufficient but not greater than necessary to deter bad corporate conduct.  Given the strategic goals of the new policy, I do not believe duplicative penalties will prevail in most cases. 

Significantly, the new policy is cross-referenced in another section of the USAM instructing prosecutors to consider civil and regulatory alternatives to criminal resolutions.  That is, the new policy could benefit companies by potentially avoiding both the payment of duplicative penalties and the imposition of criminal liability. The referenced section provides as follows:

9-28.1200 – Civil or Regulatory Alternatives

  1. General Principle: Prosecutors should consider whether non-criminal alternatives would adequately deter, punish, and rehabilitate a corporation that has engaged in wrongful conduct. In evaluating the adequacy of non-criminal alternatives to prosecution-e.g., civil or regulatory enforcement actions-the prosecutor should consider all relevant factors, including:
    1. the sanctions available under the alternative means of disposition;
    2. the likelihood that an effective sanction will be imposed; and
    3. the effect of non-criminal disposition on federal law enforcement interests.

See also USAM 1-12.100 – Coordination of Corporate Resolution Penalties in Parallel and/or Joint Investigations and Proceedings Arising from the Same Misconduct.[11]

It could take some time for prosecutors and companies to adapt to the new USAM provisions, but the sooner they do the better their chances of reaching a fair and equitable resolution of corporate misconduct.  As has been often stated, a prosecutor represents “a sovereignty whose obligation to govern impartially is as compelling as its obligation to govern at all, and whose interest . . . is not that [the government] shall win a case, but that justice shall be done. As such . . . [a prosecutor] may strike hard blows, [but he or she] is not at liberty to strike foul ones.[12]

Prosecutors who unfairly “pile on” penalties are striking foul blows and the DOJ and companies stand ready to call them on it.

[1] Deputy Attorney General Rod Rosenstein Delivers Remarks to the New York City Bar on White Collar Crime Institute (May 9, 2018), available at https://www.justice.gov/opa/speech/deputy-attorney-general-rod-rosenstein-delivers-remarks-new-york-city-bar-white-collar (“DAG May 9th Remarks”).

[2] DAG May 9th Remarks at 2.

[3] Id.

[4] DAG May 9th Remarks at 3.

[5] Id.

[6] DAG May 9th Remarks at 5.

[7] Id.

[8] The Financial Crisis Inquiry Commission, The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States at xvii (Official Govt. Ed. Jan. 2011).

[9] United States Attorney’s Manual, Section 1-12.100 – Coordination of Corporate Resolution Penalties in Parallel and/or Joint Investigations and Proceedings Arising from the Same Misconduct (May 2018), available here: https://www.justice.gov/usam/usam-1-12000-coordination-parallel-criminal-civil-regulatory-and-administrative-proceedings#1-12.100.

[10] Id.

[11] USAM, Section 9-28.1200 – Civil or Regulatory Alternatives (May 2018), available here: https://www.justice.gov/usam/usam-9-28000-principles-federal-prosecution-business-organizations#9-28.1200.

[12] United States v. Berger, 298 U.S. 78, 88 (1935).

Pablo Quiñones is the Executive Director of the Program on Corporate Compliance and Enforcement (PCCE) at NYU School of Law.  Previously, he has served as the Chief of Strategy, Policy and Training for the DOJ’s Criminal Fraud Section in Washington, DC; an Assistant United States Attorney in the Southern District of New York; and a litigation partner of a global law firm representing companies and individuals in government enforcement actions.

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