“More Cooperation Please”: DOJ Revises Corporate Enforcement Policy to Encourage Even Greater Cooperation | Dechert LLP

Key Takeaways:

• This week the DOJ published revisions to its Corporate Enforcement Policy designed to even further encourage corporations to make voluntary self-disclosures of wrongdoing inside their ranks, cooperate with investigations, and take remedial actions.
• The revisions include making a declination of charges available to corporations that self-disclose in certain circumstances, even where aggravating circumstances are present, in addition to increasing the DOJ-recommended advantageous reductions for corporations that self-disclose, cooperate, and/or remediate.
• The DOJ’s emphasis on the importance of cooperation as a tool to forestall corporate fraud comes on the heels of a widely circulated study suggesting that corporate securities fraud is widespread and on the rise.

The USA Department of Justice (“DOJ”) published a revised version of its corporate enforcement policy on January 17, 2023.¹ As Assistant Attorney General Kenneth Polite identified in his public remarks on the revisions, the DOJ sought with these changes to “provide specific, additional incentives to corporations for voluntary self-disclosures, in addition to for cooperation and remediation.” Coming as they do on the heels of a significant study suggesting that corporate securities fraud is widespread and on the rise, the revisions to the policy function a crucial reminder to corporations of the importance of developing robust compliance programs to detect fraud and effectively communicate with the DOJ and other agencies. These policy revisions also clarify that it’s critically necessary for corporations to fastidiously and thoroughly discover and weigh the varied cost-benefit considerations that accompany a choice to self-disclose.

The DOJ’s Announcement

Although AAG Polite touted the DOJ’s recent successes in combatting corporate crime in his remarks, he also acknowledged that the DOJ “could never completely discover and address this area of criminality without corporations—our corporate residents—coming forward and reporting the conduct of those wrongdoers.”⁴ Thus, Polite said, the DOJ has sought “to make clear the advantages of promptly coming forward to self-report, in order that chief compliance officers, general counsels, and others could make the case within the boardroom that voluntary self-disclosure is a very good business decision.”⁵ That was what motivated the DOJ to announce the FCPA Corporate Enforcement Policy in 2016, and to expand it to use to all corporate cases prosecuted by the Criminal Division in 2018.⁶ Similarly, Polite explained, the current revisions to the policy are intended to “offer corporations recent, significant, and concrete incentives to self-disclose misconduct.”⁷

The Revisions to the Corporate Enforcement Policy

Polite focused on three specific changes in his remarks. First, corporations that voluntarily self-disclose misconduct will now be eligible for declinations, even where aggravating circumstances that will ordinarily warrant a criminal prosecution are present, provided they meet the next criteria:

• The voluntary self-disclosure was made “immediately” upon the corporate becoming aware of the allegation of misconduct;
• On the time of the misconduct and the disclosure, the corporate had an efficient compliance program and system of internal accounting controls that enabled the identification of the misconduct and led to the corporate’s voluntary self-disclosure; and
• The corporate provided “extraordinary cooperation” with the Department’s investigation and undertook “extraordinary remediation.”⁸

Polite explained that distinguishing between “extraordinary” and “full” cooperation would concentrate on “immediacy, consistency, degree, and impact” and be “more [a matter of] degree than kind.”⁹

Second, corporations that voluntarily self-disclose, cooperate, and remediate but don’t receive declinations will still receive a DOJ suggestion of at the very least 50%, and as much as 75% off of the low end of the U.S. Sentencing Guidelines advantageous range, unless they’re criminal recidivists.¹⁰ (Recidivists will probably be eligible for an analogous reduction, but generally not from the low end of the range.¹¹) As Polite identified, this represents a major profit from the previous potential maximum reduction of fifty% off the Guidelines range.¹²

Finally, corporations that don’t voluntarily self-disclose, but do engage in extraordinary cooperation and remediation, will probably be eligible for a DOJ suggestion reduction of as much as 50% from the low end of the Guidelines advantageous range.¹³ (This doubles the prior maximum really helpful reduction available under such circumstances pursuant to the prior version of the policy.)¹⁴ Again, recidivists will probably be eligible for an analogous reduction, but generally not from the low end of the Guidelines range.¹⁵

Deterring Corporate Crime

Polite closed his remarks with a message to corporations:

[O]ur job shouldn’t be simply to prosecute crime, but to discourage and stop criminal conduct. Through our enforcement efforts and our policies, we’re committed to incentivizing corporations to detect and stop crime in their very own operations, and to come back forward and cooperate with us after they discover criminal wrongdoing.

We want corporations to be our allies within the fight against crime.

And we consider that our revised policies will, at the top of the day, further our ability to bring individual wrongdoers—the company executives, employees, and agents who engage in misconduct—to justice.

Your resources—particularly your investment in your compliance function—can assist increase your corporate civic engagement and result in lasting solutions to corporate criminality.¹⁶

Study Suggests Corporate Crime is on the Rise

A recent academic study that has received a number of attention, including in the favored press, suggests that such solutions are needed. Earlier this month, Professors from the University of Toronto, the University of California at Berkley, and the University of Chicago published research “estimat[ing] that on average 10% of enormous publicly traded firms are committing securities fraud every yr” and “corporate fraud destroys 1.6% of equity value every year, equal to $830 billion in 2021.”¹⁷ The study also concluded that “[a]ccounting violations, less severe than alleged securities fraud, are more prevalent, with a median annual pervasiveness of 41%” and two out of three corporate frauds go undetected.¹⁸ Briefly, as one in every of the authors stated in a Latest York Times article on the study, corporate fraud is “widespread” and “disturbingly common.”¹⁹ After all, the study shouldn’t be without its critics, who state amongst other things, that the authors’ definition of “fraud” is each nebulous and overinclusive thereby rendering the study unreliable.

Be it as it might and no matter whether corporate fraud is on the rise, one prime point of the study is that corporate fraud exists. Thus, the present discussion of corporate fraud (in an environment of inauspicious economic times) in addition to corporate cooperation and compliance function a crucial reminder for companies of the high value of strong compliance programs. Beyond the plain advantage of serving as a shield with the DOJ within the unlucky event of a government investigation, compliance programs can assist detect wrongdoing before it involves the eye of regulators and even potentially deter it entirely.²⁰ Indeed, the DOJ itself has repeatedly stressed that it’ll consider “the adequacy and effectiveness of the corporation’s compliance program on the time of the offense, in addition to on the time of a charging decision” in considering whether to bring charges.²¹

As we have now previously advised, the DOJ’s guidance on such compliance programs has stressed the necessity to supply these programs with adequate resources, incorporate lessons learned, and take an inexpensive, individualized approach to compliance.²² Corporations and those that advise them should fastidiously develop and continually evaluate their compliance programs to make sure they’re providing maximum protection from liability. And, in fact, if wronging is detected, it needs to be appropriately investigated and remediated, together with careful consideration to the all-important decision of creating a voluntary self-disclosure to government officials.

Footnotes:

1. United States Department of Justice, Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy (January 2023), available at https://www.justice.gov/opa/speech/file/1562851/download.
2. United States Department of Justice, Assistant Attorney General Kenneth A. Polite, Jr. Delivers Remarks on Revisions to the Criminal Division’s Corporate Enforcement Policy (Jan. 17, 2023), available at https://www.justice.gov/opa/speech/assistant-attorney-general-kenneth-polite-jr-delivers-remarks-georgetown-university-law.
3. Alexander Dyck et al., How Pervasive is Corporate Fraud?, REVIEW OF ACCOUNTING STUDIES (Jan. 5, 2023), available at https://link.springer.com/article/10.1007/s11142-022-09738-5.
4. Polite Remarks, supra note 2.
5. Id.
6. Id.
7. Id.
8. Id.
9. Id.
10. Id.
11. Id.
12. Id.
13. Id.
14. Id.
15. Id.
16. Id.
17. Dyck et al., supra note 3.
18. Id.
19. Ephrat Livni, Just How Common Is Corporate Fraud?, N.Y. TIMES (Jan. 14, 2023), available at https://www.nytimes.com/2023/01/14/business/dealbook/how-common-is-corporate-fraud.html.
20. See generally J. Paul McNulty et al., What an Effective Corporate Compliance Program Should Look Like, 9 J.L. ECON. & POL’Y 375 (2013).
21. U.S. Department of Justice Criminal Division, Evaluation of Corporate Compliance Programs (June 2020), available at https://www.justice.gov/criminal-fraud/page/file/937501/download.
22. Boutros et al., DOJ Releases Revised Guidance on Corporate Compliance Programs and in Doing so Takes a More Nuanced Approach to Compliance Investigations (June 8, 2020), available at https://www.dechert.com/knowledge/onpoint/2020/6/doj-releases-revised-guidance-on-corporate-compliance-programs-a.html.