ALERT: New DOJ Policies Reward Companies for Fast Self-Disclosure and Claw Backs of Corporate Compensation
The Department of Justice (DOJ) wants businesses to self-report crimes committed by its executives and employees to earn a pass from prosecution, according to DOJ’s February 22, 2023 policy announcement. As explained last week by Deputy Attorney General Lisa Monaco at the American Bar Association’s National Institute on White Collar Crime, DOJ is strongly encouraging companies to err on the side of earlier – rather than later – disclosure.
Now, if certain requirements are met and a company becomes aware of misconduct by its employees or agents and reports that knowledge to the United States Attorney’s Office (“USAO”) soon after its discovered (but before the conduct is publicly reported or otherwise known to DOJ), that company can receive significant credits from federal prosecutors.
In order for a self-disclosure by a company to qualify for these credits, the DOJ will consider the voluntariness, timing, and substance of the disclosure. With respect to voluntariness of the disclosure, the DOJ will consider whether the company had an existing requirement to disclose the information pursuant to a regulation, contract, or prior agreement with the DOJ. With respect to the timing of the disclosure, the disclosure must be: 1) prior to an imminent threat of disclosure or government investigation; 2) prior to the misconduct being publicly disclosed or otherwise known to the government; and 3) within a reasonably prompt time after the company becomes aware of the misconduct. With respect to the substance of the disclosure, it must include all relevant facts known to the company at the time of the disclosure, the reporting company must keep the government informed as the company’s internal investigation continues, and reporting company should preserve, collect, and produce all relevant documents and information.
As long as there are no aggravating factors, the USAO will not seek a guilty plea where the company has voluntarily and quickly self-disclosed the wrongdoing to law enforcement, the company full cooperated, and the company timely and appropriately remedied the criminal conduct. Aggravating factors include threats to national security or the environment, conduct that is deeply pervasive in the company, and conduct involving current executive management of the companies. If an aggravating factor is present, the USAO will assess the facts and use its discretion.
To qualify under this policy, remediation – including disgorgement, forfeiture, and restitution – must be included. If the self-disclosure qualifies, the USAO may choose not to impose a criminal penalty at all, and in any case will not impose a criminal penalty that is greater than 50% below the low end of the guidelines fine range. If an aggravating factor justifies a guilty plea for a company who has otherwise complied fully, the USAO will recommend reductions from the sentencing guideline fine range. Self-reporting that does not meet the above-criteria will still be credited as it is currently.
Under this new policy, companies should consider quickly self-reporting criminal activity of its employees, where the above factors can be met and even before a full internal investigation has been conducted. This policy creates an opportunity for companies to appropriately shift the blame and the consequences of illegal activity on the individuals who actually broke the law, rather than the entity itself. Still, companies must also consider the impact of such self-reporting on profit margins, public relations, and goodwill. Companies must also consider whether a self-report will lead to further investigation which might bring to light violations that will be held against the company. For that reason, each decision to self-report (or not) is highly fact specific and technical, and should be discussed in detail with the company’s legal counsel.
In a separate policy announced by the DOJ, fines against companies will be reduced for companies that claw back payments to executives and employees who break the law. The DOJ will similarly discount fines for corporations that make a good faith effort to claw back the compensation but are not successful.