DOJ sets forth new guidance for corporate compliance and cooperation

Introduction
Individual accountability
Corporate accountability
Independent compliance monitorships
Comment

Introduction

On 15 September 2022, the US Department of Justice (DOJ), through Deputy Attorney General Lisa Monaco, issued a new memorandum entitled "Further Revisions to Corporate Criminal Enforcement Policies Following Discussions with Corporate Crime Advisory Group" (the September 2022 memorandum). The September 2022 memorandum follows the DOJ's prior memorandum issued on 28 October 2021 (the October 2021 memorandum); both memoranda provide guidance on the DOJ's corporate criminal enforcement policies and practices with respect to individual accountability, corporate accountability and the use of corporate monitors.

Individual accountability

The DOJ identifies individual accountability as its "first priority" in corporate criminal matters and emphasised the "need to do more and move faster." The September 2022 memorandum evinces a sense of urgency for both prosecutors in expediting their investigations and for companies in making disclosures to the government in a timely manner. The October 2021 memorandum states that in order to be eligible for cooperation credit, corporations must disclose to the DOJ all relevant, non-privileged facts about individual conduct. In the September 2022 memorandum, the DOJ states that mere disclosure is not enough; rather, the disclosure of facts must be made "swiftly and without delay" in order for a corporation to receive "full" cooperation credit. The DOJ places the burden on the corporation to ensure that documents are produced in a timely manner and that the most relevant evidence for assessing individual culpability is prioritised. Notably, the DOJ will reduce or eliminate a corporation's cooperation credit if it finds that there was undue or intentional delay in the production of information or documents.

Corporate accountability

The September 2022 memorandum clarifies the DOJ's evaluation of a corporation's history of misconduct, voluntary self-disclosure, cooperation and compliance programme.

The September 2022 memorandum sets forth numerous factors prosecutors should consider when evaluating corporate recidivism, including:

• the form of the prior resolution;
• the associated sanctions or penalties;
• the elapsed time between the instant misconduct, the prior resolution and the conduct underlying the prior resolution;
• whether misconduct is repeated;
• the factual admissions by the corporation in the prior resolution;
• the seriousness and pervasiveness of the misconduct underlying each prior resolution;
• whether the conduct was similar in nature to the instant misconduct under investigation, even if it was prosecuted under different statutes;
• whether, at the time of the misconduct under review, the corporation was serving a term of probation or was subject to supervision, monitorship or other obligation imposed by the prior resolution;
• whether the conduct occurred under the same management team and executive leadership of the prior misconduct;
• whether the present and prior instances of misconduct share the same root causes; and
• whether remediation was taken to address the root causes of the prior misconduct, including:
  • employee discipline;
  • compensation clawbacks;
  • restitution;
  • management restructuring; and
  • compliance programme upgrades.

The September 2022 memorandum provides guidance on how much weight to assign to different factors. For example, the DOJ will afford significant weight to a corporation's prior misconduct involving:

• recent US resolutions;
• the same personnel, management or executive leadership;
• the same root causes as the misconduct under investigation; and
• a lack of proper remediation.

By contrast, the DOJ will assign less weight to a corporation's dated conduct addressed by prior criminal resolutions entered more than 10 years before the conduct under investigation, or civil or regulatory resolutions finalised more than five years before the conduct under investigation. The various factors set forth in the September 2022 memorandum warrant scrutiny by companies with histories of misconduct.

The DOJ also states its goal to incentivise companies to make voluntary self-disclosures of corporate misconduct and directs each DOJ component to draft such a policy, including defining what voluntary self-disclosure means and the expected benefits. The September 2022 memorandum outlines two common principles that will apply to voluntary self-disclosure policies. First, the September 2022 memorandum states that "absent the presence of aggravating factors, [the DOJ] will not seek a guilty plea where a corporation has voluntarily self-disclosed, fully cooperated, and timely and appropriately remediated the criminal conduct". The September 2022 memorandum further notes that:

[w]hile multiple deferred or non-prosecution agreements are generally disfavored, nothing in this memorandum should disincentivize corporations that have been the subject of prior resolutions from voluntarily disclosing misconduct to [the DOJ].

Second, the DOJ:

will not require the imposition of an independent compliance monitor for a cooperating corporation that voluntarily self-discloses the relevant conduct if, at the time of resolution, it also demonstrates that it has implemented and tested an effective compliance program.

Although many existing DOJ policies discuss the DOJ's expectations for full and effective cooperation, the September 2022 memorandum provides additional guidance on this topic. The September 2022 memorandum states that corporations seeking credit for cooperation must preserve, collect and disclose relevant documents located both within the United States and overseas in a timely manner. While the September 2022 memorandum notes that, in some cases, data privacy laws, blocking statutes or other restrictions imposed by foreign law may complicate the method of production of documents located overseas, it states that the burden is on the cooperating corporation to establish the existence of any restriction on production and to identify reasonable alternatives to provide the requested facts and evidence. A corporation that produces foreign evidence may receive cooperation credit, whereas an adverse inference as to a corporation's cooperation may apply to a corporation that fails to do so. When making disclosures, counsel for global companies with operations in multiple jurisdictions should ensure compliance with applicable data privacy laws and other foreign laws and regulations and verify that a sound basis exists for any claims that a company may wish to assert to limit its document production.

Finally, the September 2022 memorandum identifies two metrics, in addition to the many factors identified in the DOJ's prior guidance, for prosecutors to consider when evaluating a corporate compliance programme and culture:

• formulating compensation structures to promote compliance; and
• the use of personal devices and third-party applications.

Regarding the first metric, the September 2022 memorandum emphasises that a compensation system which imposes financial penalties and personal accountability for misconduct and rewards compliant behaviour promotes an ethical corporate culture. Prosecutors must evaluate how a corporation's compliance programme works in practice. Regarding the second metric, the September 2022 memorandum states that all corporations with robust compliance programmes should:

• have effective policies governing the use of personal devices and third-party messaging platforms for corporate communications;
• provide clear training to employees about such policies; and
• enforce such policies when violations are identified.

The Criminal Division will develop further guidance on rewarding corporations that develop and apply compensation clawback policies by the end of 2022. It will also incorporate best corporate practices regarding use of personal devices and third-party messaging platforms in the next edition of its evaluation of corporate compliance programmes.

Independent compliance monitorships

The September 2022 memorandum states that the need for a monitor and the scope of any monitorship must depend on the facts and circumstances of the particular case. The DOJ sets forth that, when evaluating whether a monitor is appropriate, it must be considered whether:

• the corporation voluntarily self-disclosed the underlying misconduct in a manner that satisfies the particular the DOJ component's self-disclosure policy;
• the corporation, at the time of the resolution and after a thorough risk assessment, has implemented an effective compliance programme and sufficient internal controls to detect and prevent similar misconduct in the future;
• the corporation, at the time of the resolution, has adequately tested its compliance programme and internal controls to demonstrate that they would likely detect and prevent similar misconduct in the future;
• the underlying criminal conduct was long-lasting or pervasive across the business organisation or was approved, facilitated or ignored by senior management, executives or directors (including by means of a corporate culture that tolerated risky behaviour or misconduct, or did not encourage open discussion and reporting of possible risks and concerns);
• the underlying criminal conduct involved the exploitation of an inadequate compliance programme or system of internal controls;
• the underlying criminal conduct involved active participation of compliance personnel or the failure of compliance personnel to appropriately escalate or respond to red flags;
• the corporation took adequate investigative or remedial measures to address the underlying criminal conduct, including, where appropriate, the termination of business relationships and practices that contributed to the criminal conduct and discipline or termination of personnel involved, including with respect to those with supervisory, management or oversight responsibilities for the misconduct;
• the corporation's risk profile, at the time of the resolution, has substantially changed, such that the risk of recurrence of the misconduct is minimal or non-existent;
• the corporation faces any unique risks or compliance challenges, including with respect to the particular region or business sector in which the corporation operates or the nature of the corporation's customers; and
• the corporation is subject to oversight from industry regulators or a monitor imposed by another domestic or foreign enforcement authority or regulator – and to what extent.

After a monitor is selected through "consistent and transparent procedures", prosecutors are directed to ensure that the monitor's responsibilities and scope of authority are well defined, recorded in writing and agreed upon by the monitor, the corporation and the DOJ. The scope of the review should be monitored by the DOJ through regular updates from the monitor.

Comment

The impact of the DOJ's various policy pronouncements will remain to be seen for some time. Corporate criminal investigations are typically years-long processes, with incremental developments becoming publicly apparent at the time of a resolution, if at all. This is even more true of companies' internal decisions, particularly decisions not to disclose misconduct, insofar as that conduct may never become the subject of any public investigation or resolution.

What is clear, however, is that the DOJ expects companies to have strong compliance programmes in place to detect and address potential misconduct. Companies should review their compliance policies and procedures and update them as appropriate in light of the September 2022 memorandum. Companies with prior corporate resolutions, as well as companies operating in high-risk markets or heavily regulated industries, should pay particular attention to this guidance. Companies should engage in broad efforts, such as testing of policies and procedures for effectiveness, as well as more targeted reviews of topics such as policies governing executive compensation and employees' use of personal devices and third-party applications.

It is critical that companies work with experienced counsel to protect the company's interests when handling misconduct allegations for potential disclosure to the DOJ. The DOJ's directive for companies to come forward with important evidence quickly or risk losing cooperation credit underscores the importance of companies engaging counsel as soon as potential misconduct issues emerge. While being mindful of both the DOJ's expectations and of the complexities and sensitivities for companies dealing with misconduct allegations, counsel should diligently work to assess the evidence of any potential misconduct, consider potential criminal exposure and defenses, and address complicated questions of privilege and waiver in order to make informed and timely decisions about the nature and manner of any disclosures to the government.

For further information on this topic please contact Kristy J. Greenberg, Matthew Sullivan or Safa Osmani at Hogan Lovells by telephone (+33 1 53 67 47 47) or email ([email protected], [email protected] or [email protected]). The Hogan Lovells website can be accessed at www.hoganlovells.com.