Alerts

DOJ's Newly Revised Corporate Enforcement Policy Incentivizes Robust Compliance Programs, Cooperation and Remediation

Alerts / January 30, 2023
Key Takeaways
  • Assistant Attorney General (AAG) Kenneth Polite recently announced changes to the U.S. Department of Justice’s (DOJ or the Department) corporate enforcement policy (CEP).
  • The policy changes offer companies new incentives for self-disclosure, cooperation and remediation.
  • These revisions expand significantly on Deputy Attorney General Lisa Monaco’s remarks and memorandum in September 2022, which also emphasized the importance of cooperation and self-reporting.
Overview

On Jan. 17, AAG Polite announced “the first significant changes” to the CEP since 2017. The policy revisions will apply to all corporate criminal matters handled by the Criminal Division and offer companies “new, significant, and concrete incentives to self-disclose misconduct.” Notably, these incentives apply even to companies with aggravating circumstances, companies that do not qualify for a declination and companies that fail to self-report.

Expanded Eligibility for Declinations

Under the DOJ’s prior policy, the presence of certain aggravating factors – such as the involvement of management in the misconduct, pervasive misconduct and criminal recidivism – would disqualify companies from receiving declinations. While such companies will not qualify for a presumption of a declination, the revised CEP allows prosecutors to determine that a declination is appropriate, even where there are aggravating factors, if the company meets the following criteria:

  1. The company must have immediately made voluntary self-disclosure upon becoming aware of the alleged misconduct.
  2. The company must have had an effective compliance program and internal accounting controls, both at the time of misconduct and at the time of disclosure, which led to the identification of the misconduct and the company’s voluntary self-reporting.
  3. The company must provide “extraordinary cooperation” with the Department’s investigation and must undertake “extraordinary remediation” measures.

If all three criteria are met, a company can overcome aggravating circumstances that would have previously precluded a declination. AAG Polite explained that these revisions are intended to incentivize cooperation for companies that may have been hesitant to self-disclose under the prior policy due to the presence of aggravating factors.

Increased Credit for Self-Reporting and Cooperation

The CEP revisions also include new incentives for self-disclosures and cooperation, even where a declination is not appropriate. Companies that voluntarily self-disclose, fully cooperate, and timely and appropriately remediate but for which a criminal resolution is still warranted are now eligible for a greater reduction in fines. Prosecutors will now accord or recommend to a sentencing court “at least 50%, and up to 75% off of the low end of the U.S. Sentencing Guidelines fine range.” Criminal recidivists are also eligible for a fine reduction, although not off the low end of the guideline range. AAG Polite noted that this is a “significant increase from the previous potential maximum reduction of 50% off the Guidelines range.”

Additionally, the government will generally not require a corporate guilty plea, even for criminal recidivists, unless there are multiple or especially significant aggravating factors. While criminal recidivism is still relevant and important under the revised CEP, AAG Polite noted that “criminal recidivism alone will not always mean a plea.”

New Incentives for Remediation and Cooperation Absent Self-Disclosure

The revised CEP provides new incentives for full cooperation and timely and appropriate remediation, even when the company has failed to self-disclose. Under the new policy, such companies may be eligible for as much as a 50% reduction off the low end of the Guidelines range. The prior version of the CEP only allowed for a maximum 25% fine reduction absent a self-disclosure. AAG Polite cautioned that the 50% reduction would not be “the new norm.” Rather, the maximum reduction is only available “for companies that truly distinguish themselves and demonstrate extraordinary cooperation and remediation.”

‘Extraordinary Cooperation’

Several of the new incentives depend on a demonstration of “extraordinary cooperation” with the DOJ. AAG Polite stated that the concepts of “immediacy, consistency, degree, and impact” will factor into the Department’s evaluation of cooperation and that companies must go “above and beyond the criteria for full cooperation” in order to receive extraordinary cooperation credit. Additionally, AAG Polite noted that prosecutors value “individuals who allow us to obtain evidence we otherwise couldn’t get, like quickly obtaining and imaging their electronic devices, or having recorded conversations” as well as cooperation that leads to trial testimony or additional convictions.

However, the actual standard for extraordinary cooperation remains nebulous. As AAG Polite stated, “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.” Notably, AAG Polite explained that “each and every company starts at zero cooperation credit and must earn credit based on the parameters and factors outlined in the CEP.”  

Conclusion

Although much of his remarks focused on new incentives for cooperation and self-disclosure, AAG Polite warned companies that “failing to self-report, failing to fully cooperate, failing to remediate, can lead to dire consequences” and that the DOJ will be “closely examining how companies discipline bad actors and reward the good ones.” He emphasized that the Department’s “number one goal in this area” is individual accountability, noting that the Department “can hold accountable those who are criminally culpable – no matter their seniority – when companies come forward and cooperate with our investigation.”

Given the Department’s continued focus on corporate criminal enforcement, we can expect existing cases to gain speed and new actions to be initiated swiftly and aggressively. Companies would be well advised to review existing compliance programs and internal accounting controls to ensure that current procedures are sufficient to effectively detect and prevent misconduct. Because of the ambiguity of “extraordinary” cooperation and remediation, companies considering self-disclosure will need to carefully consider how best to cooperate with any government investigation. Additionally, it is critical that companies consult with outside counsel as to whether to self-report as soon as any potential misconduct is detected, because time is of the essence.

By George A. Stamboulidis, Jonathan B. New, Lauren R. Weinberg, and Alexandra Karambelas

The BakerHostetler White Collar, Investigations, and Securities Enforcement and Litigation team is composed of dozens of experienced individuals, including attorneys who have served in the DOJ and at the Securities and Exchange Commission (SEC). Our attorneys include a former U.S. Attorney, former Assistant U.S. Attorneys, branch chiefs, and unit chiefs as well as partners who have served in the SEC’s Division of Enforcement and the SEC’s Office of the General Counsel, and attorneys with extensive experience in regulatory investigations, litigation and compliance counseling. Please feel free to contact any of our experienced professionals if you have questions about this alert.

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