New US law enforcement leadership means business on corporate crime

February 2022  |  SPECIAL REPORT: CORPORATE FRAUD

Financier Worldwide Magazine

February 2022 Issue

It has been widely expected among white-collar lawyers that under president Biden, the US Department of Justice (DOJ) would take steps to prioritise corporate criminal enforcement. At the end of October 2021, Lisa Monaco, deputy attorney general, laid out three key policy shifts intended to do just that.

Her announcement also came on the heels of a proclaimed ‘surge’ in resources for corporate criminal enforcement, including a new squad of FBI agents who will be embedded within the fraud section of the DOJ’s Criminal Division, as well as a greater emphasis on utilising data analytics to identify and investigate misconduct. Taken together, these developments should serve as a reminder to companies of the need for robust compliance programmes.

Revised guidance for corporate prosecutors

The three policy changes announced by Ms Monaco signal the Biden administration’s heightened focus on corporate crime and are intended to bolster the DOJ’s corporate criminal enforcement efforts while sending a powerful message to companies that might someday find themselves the target of a criminal investigation.

First, Ms Monaco restored the DOJ’s prior guidance requiring corporations seeking leniency to identify every person involved in corporate wrongdoing. Under this policy, a corporation under criminal investigation may only be considered for cooperation credit if it has provided the DOJ with all nonprivileged information about all individuals who were involved in the potentially criminal conduct at issue. This is a modification of the guidance in the last administration that limited the required disclosures to those individuals “substantially involved in or responsible for” the alleged misconduct. In effect, the current policy removes discretion from corporate legal counsel to determine whether any individual’s conduct is material to the investigation and vests that determination solely with prosecutors.

Second, prosecutors must now take into account all past misconduct by a company when deciding how to resolve a corporate criminal investigation, not just wrongdoing that is similar to the conduct now under investigation. Ms Monaco stated that this inquiry should entail evaluating a company’s “full criminal, civil and regulatory record” in order to assess its “overall commitment to compliance programmes and the appropriate culture to disincentivise criminal activity”. She provided the example of a Foreign Corrupt Practices Act (FCPA) prosecutor who must now factor into the prosecution decision a corporation’s prior tax and environmental offences, as well as violations found by other regulatory or law enforcement agencies, both domestic and foreign.

Third, the DOJ no longer disfavours the use of corporate monitors in criminal resolutions. Ms Monaco maintained that corporate criminal settlements implicitly reflect a governmental decision to “trust” the company’s commitment to comply with the law and emphasised that independent private sector monitors are “a tool to encourage and verify compliance”. Consequently, prosecutors are now encouraged to condition settlement on the imposition of an independent monitor whenever they believe it is appropriate to do so in order to ensure that a company satisfies the terms of a deferred prosecution agreement or a non-prosecution agreement.

And to further address corporate recidivism, the DOJ will examine whether such pretrial diversion programmes are accomplishing their stated goals. Ms Monaco cited an internal study, commissioned by her office, finding that somewhere between 10 and 20 percent of the DOJ’s significant corporate criminal resolutions involve corporations that have previously entered into at least one resolution with the Department. She said that “a company might have an antitrust investigation one year, a tax investigation the next, and a sanctions investigation two years after that”. Companies that repeatedly come under scrutiny, she warned, could be deemed ineligible for settlements short of criminal conviction.

A few days after Ms Monaco announced her policy changes, Gary Gensler, chairman of the Securities and Exchange Commission, described the DOJ’s approach as “broadly consistent with [his] view of how to handle corporate offenders”, signalling that his agency will take a similarly robust approach.

Full speed ahead for DOJ leadership

Ms Monaco’s announcement, six months into her tenure as deputy attorney general, highlights the relatively rapid pace at which the Biden administration has succeeded in filling a number of senior leadership positions at Main Justice. This stands in contrast with the beginning of president Trump’s administration, when several key jobs – including the leaders of the Criminal Division and the Civil Division – remained vacant for 18 months. President Biden and the Democratic-controlled Senate have made DOJ headquarters confirmations a priority, filling more senior roles in Biden’s first year. This has fuelled the DOJ’s policy reforms.

In accordance with Ms Monaco’s October 2021 announcement, the leaders of the DOJ’s Criminal Division have been consistent in their public comments about corporate enforcement. Nicholas McQuaid, principal deputy assistant attorney general, said in October that prosecuting individuals is “a critical component of accountability” and prevents the recurrence of corporate crime. “The top priority really is individuals”, he said. Likewise, FCPA unit chief David Last recently opined that corporations are not in a position to assess which individuals were substantially involved in misconduct: “That’s not their job. We’ll decide based on looking at the evidence who was substantially involved or who might have less involvement”. Finally, Kenneth Polite, the Senate-confirmed head of the Criminal Division, commented on 1 December that, over the past few years, the DOJ has observed that corporations are self-reporting even minor instances of misconduct in an attempt to err on the side of caution. Mr Polite noted that this was especially true of companies that were operating under deferred prosecution agreements or non-prosecution agreements, which impose heightened compliance obligations and entail ongoing DOJ oversight.

Impact of new policies

We are still in the early days of these new policies, so it remains to be seen whether the changes will materially alter the enforcement landscape. It is possible that the modifications will result in more self-disclosures if businesses view the changes as raising the costs of failing to self-report and cooperate with investigators. The new policies may also boost international coordination among the DOJ and foreign law enforcement and regulatory authorities, given that prosecutors must now take into account foreign misconduct.

On the other hand, some of the announced changes could have a chilling effect on a corporation’s willingness to self-disclose wrongdoing and cooperate with criminal investigations. For example, the higher the likelihood that a costly independent monitor will be imposed or that unrelated past misconduct will result in an increased penalty, the less inclined that corporate executives or board members may be to self-report potentially incriminating information or to settle a case expeditiously. And the requirement to identify every individual involved in alleged wrongdoing may increase the cost and duration of internal investigations.

The DOJ’s new policy to “start by assuming all prior misconduct is potentially relevant” will create a particular challenge for multinational corporations that inevitably face enhanced regulatory and enforcement risk. Many questions remain, including how far back prosecutors will look when considering prior misconduct and what factors they will consider when evaluating resolutions by foreign jurisdictions.

How corporations should prepare

At bottom, the recent announcements serve as a wake-up call to corporations and C-suite leaders who may have shifted their attention and resources away from compliance programmes during the coronavirus (COVID-19) pandemic. As Mr Polite observed in December 2021, “corporate enforcement has remained a very high priority for… career prosecutors regardless of political winds”. The government’s approach in recent years has included enhanced written guidance for companies, including through the Justice Manual, FCPA Resource Guide, Evaluation of Corporate Compliance Programs Guidance, Corporate Enforcement Policy and Anti-Piling On Policy. Prosecutors exercise considerable enforcement discretion, but the written policies at least provide a framework for companies to fashion their requests for leniency.

The government’s aggressive rhetoric is intended in part to achieve deterrence by incentivising companies to revise corporate practices. Mr Polite pledged that companies that fall under governmental scrutiny will receive “significant rewards” if they have properly resourced their compliance initiatives. Consequently, corporations should work with compliance experts and counsel to review and pressure test their compliance programmes. Additionally, given the major changes that have been brought by disruptions to the global supply chain and the distribution of billions of dollars in governmental aid, companies need to reassess their corporate risk profiles.

 

Rod Rosenstein is a partner and Scott Hiers is an associate at King & Spalding LLP. Mr Rosenstein can be contacted at +1 (202) 626 9220 or by email: rrosenstein@kslaw.com. Mr Hiers can be contacted at +1 (202) 626 9109 or by email: shiers@kslaw.com.

© Financier Worldwide

BY

Rod Rosenstein and Scott Hiers

King & Spalding LLP

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