Editor’s Note: The NYU School of Law Program on Corporate Compliance and Enforcement (PCCE) is following the recently announced changes to the Corporate Enforcement Policy of the U.S. Department of Justice’s (DOJ’s) Criminal Division. In this post, several former federal prosecutors provide their reactions.
Top row from left to right: Andrew Weissmann, Glen McGorty, Rebecca Ricigliano, and Steven Feldman
Bottom row from left to right: Lara Burke, Robertson Park, and Kristy Greenberg
Changes to DOJ Policy Do Not Tackle All Disincentives to Self-Disclosure
DOJ’s revised corporate enforcement policy is by and large a helpful continuation of the FCPA pilot program initiated in 2016— an effort to provide more certainty, consistency, and guidance to organizational wrongdoers and DOJ prosecutors. The new tweaks’ main aim is to encourage self-disclosure even by companies that believe that there are aggravating circumstances that will be held against them by DOJ under its corporate policy.
The policy, however, is clearly a reflection of a phenomenon that private defense counsel know all too well: many companies simply do not self-report – believing that is unlikely they will be caught and the benefits of the policy do not outweigh the certainty of the pain that will be engendered by self-disclosure (from DOJ, other regulators who may “pile on,” civil litigants, etc.).
The Department thus still needs to tackle these other disincentives to self-disclosure, such as more coordination as to penalties all regulators may inflict. The Department may also seek to explore implementing guidance on the “stick” side of the equation: examining whether and when to increase fines and impose a monitor where there is no self-disclosure. If the stick side is not increased, one wonders if the DOJ policy is going to eventually lead to a replica of the Antitrust leniency policy, which provides enormous incentive to self-disclose, but at the cost of significant inequities.
Andrew Weissmann is a Professor of the Practice at NYU School of Law. Previously, he served as a federal prosecutor in the U.S. Attorney’s Office for the Eastern District of New York (EDNY); Director of the Enron Task Force, General Counsel of the Federal Bureau of Investigation; Chief of the DOJ’s Fraud Section; and lead prosecutor in Robert S. Mueller’s Special Counsel’s Office.
DOJ Further Incentivizes Companies to “Do the Right Thing” With Changes to Corporate Enforcement Policy
by Glen G. McGorty and Rebecca Monck Ricigliano
On January 17, 2023, Kenneth A. Polite, Jr, Assistant Attorney General for the Department of Justice (DOJ)’s Criminal Division, delivered a speech at Georgetown Law School announcing the first significant changes to the Criminal Division’s Corporate Enforcement Policy (“CEP”) since 2017. The changes answer the call of Deputy Attorney General Lisa Monaco and provide companies with new and concrete incentives to self-disclose wrongdoing and meaningfully cooperate with DOJ investigations. Most notably, DOJ is offering both a new path to avoid prosecution, and, in cases where a criminal resolution is warranted, the opportunity to obtain as much as 75% off the low end of the U.S. Sentencing Guidelines fine range. The revisions also include incentives for companies that do not voluntarily self-disclose, but still fully cooperate and remediate—even these companies can obtain a 50% reduction in fines.
As has been the trend over the past several years, the changes to the CEP announced by AAG Polite demonstrate DOJ’s continued efforts to incentivize self-reporting and cooperation by companies in DOJ investigations, but also reinforces DOJ’s desire for companies to invest in compliance. While DOJ has long rewarded companies for implementing robust compliance practices and self-reporting, these new changes provide even more incentives to come forward, cooperate, and remediate. Indeed, the revised CEP’s message is that companies who take compliance and cooperation seriously—before, during, and after a DOJ investigation—have a real opportunity for a better outcome. In light of these changes, companies should closely examine the systems they have in place to detect and prevent misconduct, including employee discipline and incentives for good behavior, and to consider the added benefits of self-reporting.
Glen G. McGorty and Rebecca Monck Ricigliano are Partners at Crowell & Moring LLP. Previously, Mr. McGorty was a federal prosecutor at the U.S. Attorney’s Office for the Southern District of New York (SDNY) and at the DOJ. Ms. Ricigliano was also a federal prosecutor at the SDNY and later the First Assistant Attorney General of New Jersey. Lisa Umans, Rebecca Baskin, and LaTonya Sims also contributed to this article.
Policy Changes Increase Focus on Individuals
by Steven D. Feldman and Lara N. Burke
Formalizing the extension of the FCPA policy and the presumption of declination to all corporate criminal matters handled by the Criminal Division is a positive step for companies. But corporations considering self-reporting now must weigh the advantage of a presumptive declination letter against fueling the unpleasant possibility of seeing its employees — the individuals potentially involved in the underlying conduct — become the focus of a years-long criminal investigation. Unlike the DOJ Antitrust Division Leniency Policy, the FPCA policy makes no provision for individual leniency as a result of voluntary corporate self-disclosure. This new policy increases the pressure on the corporate entity to protect itself from liability by sacrificing its people.
For entities seeking certainty and closure regarding potential criminal liability, the presumption that companies will receive declination letters in exchange for cooperation is significant. However, it is important for companies to recognize that a declination with respect to corporate liability does not mean that a corporation’s resources will not still be strained and attention diverted by a continuing investigation into potential individual employee misconduct. Even with this new presumption of declination, companies will still need to carefully analyze whether it is better to internally address potential issues without self-reporting to DOJ, with the risk that carries; or take the risk of informing DOJ of corporate and individual employee misconduct, and open the door to an intrusive and burdensome DOJ investigation of its personnel.
Steven D. Feldman is a Partner and Lara N. Burke is an Associate at Stradley Ronon Stevens & Young, LLP. Previously, Mr. Feldman was a federal prosecutor at the SDNY.
New Policy Creates Ambiguities Around the Meaning of “Extraordinary Cooperation”
The revisions to the Department of Justice’s Corporate enforcement policy struck two somewhat discordant notes. The primary one is helpful to corporate client’s considering voluntary disclosure after discovery of potential misconduct, even where aggravating circumstances may exist. But the second one may work at cross purposes to the first.
The expanded opportunities for declinations and reduced penalties are helpful and specific. They provide increased clarity for corporations in assessing the consequences of their misconduct for their own internal purposes as well as transparency with shareholders or other stakeholders. Business thrives on knowing what to expect. In particular, the opportunity to pursue a declination, even in circumstances where the traditional aggravating factors may be present, could well encourage more beneficial voluntary disclosures. The natural tendency of business to protect senior leadership has likely discouraged voluntary disclosure in certain circumstances, to the potential detriment of the business. The new policy may help this change.
But even with these helpful new policy incentives, there remains a potentially troubling variable, and it is well summed up in Assistant Attorney General (AAG) Kenneth A. Polite, Jr.’s speech announcing the policy and expectations around cooperation. Specifically, he addressed the level of required disclosure and cooperation to earn consideration for a declination even where aggravating circumstances exist. He said, “What is extraordinary cooperation: I’ll note some concepts—immediacy, consistency, degree, and impact—that apply to cooperation by both individuals and corporations, which will help to inform our approach to assessing what is ‘extraordinary’…In many ways, we know ‘extraordinary cooperation’ when we see it, and the differences between ‘full’ and ‘extraordinary’ cooperation are perhaps more in degree than kind.” This leaves much to the discretion of the individual prosecutor, a variable that is hard to configure.
Robertson Park is a Partner at Davis Wright Tremaine LLP. Previously, he was a federal prosecutor and supervisor at the DOJ’s Frauds Section.
Policy Changes Still Present Obstacles for Firms
Companies may face substantial challenges in meeting the revised CEP’s rigorous requirements to receive a declination. First, it may be difficult for companies to make an immediate voluntary self-disclosure upon becoming aware of a misconduct allegation. Before reporting a misconduct allegation to DOJ, it is important for companies to conduct an investigation to gain a basic understanding of the relevant facts and evidence and determine if the allegation is frivolous. In addition, companies should consult with counsel to evaluate their potential criminal exposure and available defenses, as well as analyze the costs and benefits of voluntary self-disclosure. Companies would benefit from more information about DOJ’s expectations for the timing of immediate disclosures in order to assess whether they could reasonably make disclosures on DOJ’s timeline consistent with their business needs.
Second, it may be hard for a company to show that its compliance program was effective at the time of the misconduct and disclosure, particularly where aggravating circumstances are present.
Finally, the requirement that a company provide “extraordinary” cooperation and remediation appears to set a considerable bar to obtaining a declination. AAG Polite remarked that to receive credit for extraordinary cooperation, companies “must go above and beyond the criteria for full cooperation set in [DOJ’s] policies—not just run of the mill, or even gold-standard cooperation, but truly extraordinary.” Although AAG Polite advised that prosecutors would consider the immediacy, consistency, degree and impact of cooperation to distinguish between “extraordinary” and “full” cooperation, it is unclear how prosecutors will make distinctions based on those considerations in practice.
In sum, although the revised CEP is designed to present a path for companies seeking the possibility of a declination in the face of aggravating factors, its tough requirements may present serious obstacles to such an outcome. Without the real possibility of a declination, companies may be less inclined to voluntarily self-disclose misconduct allegations. Additional guidance from DOJ to clarify the practical applications of the revised CEP would be helpful to companies facing decisions on voluntary self-disclosures.
Kristy J. Greenberg is a Partner at Hogan Lovells US LLP and is a former Deputy Chief of the Criminal Division at the SDNY.
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