During a March 2, 2023, speech in Miami at the annual American Bar Association National Institute on White Collar Crime, Deputy Attorney General Lisa Monaco announced a new policy designed to incentivize companies to factor in executives’ dedication to legal and regulatory compliance in connection with compensation decisions.
The new DOJ policy has two main aspects. First, corporate criminal resolutions will now require that companies implement a compensation system that promotes compliance. As an example, Ms. Monaco pointed to a recent criminal guilty plea and $2 billion forfeiture by a Danish bank, Danske Bank A/S, in which the bank admitted to deficient anti-money laundering controls and lying to U.S.-based banks to facilitate access to the U.S. banking system by high-risk customers in Estonia and elsewhere (see article here). As part of this criminal resolution, Danske Bank agreed that going forward executives and staff will not receive bonuses if they fail to meet certain compliance-related criteria.
Second, under the new DOJ policy, companies will be rewarded for taking action to claw-back funds from executives who were involved in wrongdoing. If a company takes good faith steps, including bringing legal action, to recover funds from such executives, the company will be allowed to keep those funds and, in addition, will receive a credit for that amount on the criminal fine imposed in the case. Ms. Monaco also commented that companies that try in good faith but fail to recover funds will still be considered for credit against fines. The Deputy Attorney General did not comment on how this program will interact with the corporate statutes providing for indemnity and advancement of legal expenses for officers and directors, which under typical state law statutes are mandatory and require final, unappealable findings of wrongdoing before funds may be subject to claw-back. Ms. Monaco also did not comment on how the new DOJ policy will interact with indemnity agreements that are commonly in place for directors and high-level officers.
The DOJ will issue the official written policy on March 3, 2023. It would likely take time to measure the impact of the new DOJ policy regarding corporate compensation. In the meantime, companies will be well-advised to examine their policies to evaluate how the focus on compliance and compensation interact, if at all.