Foreign Corrupt Practices Act

U.S. Deputy Attorney General (DAG) Lisa Monaco recently announced several important updates to the Department of Justice’s criminal enforcement policies. While many of the updates reemphasize longstanding practice, a few new initiatives promise to change how prosecutors will assess and reach resolutions resulting from corporate crime cases going forward.

On Sept. 15, DAG Monaco issued to DoJ prosecutors her second memorandum of the year. In her first memo, issued in October 2021, DAG Monaco announced formation of the Corporate Crime Advisory Group and initial revisions to the agency’s corporate criminal enforcement policies. This second memo outlines further revisions to those policies based on the advisory group’s findings.

“To get a wide range of perspectives, we met with a broad group of outside experts, including public interest groups, ethicists, academics, audit committee members, in-house attorneys, former corporate monitors, and members of the business community and defense bar,” DAG Monaco said in a Sept. 15 speech at New York University Law School. The new DoJ policies are a result of those discussions.

For corporate counsel and chief compliance officers alike, the second memo provides an inside look at how prosecutors not only continue to assess corporate compliance programs, but also what new ways they intend to approach corporate criminal cases going forward. The most significant of those policies changes are explored in more detail below.

Individual accountability

In her remarks, DAG Monaco reemphasized individual accountability as being the DoJ’s number one priority, specifically prosecuting those who commit and profit from corporate crimes. “In individual prosecutions, speed is of the essence,” she said.

The Monaco Memo reinstates what was already previously established by the 2015 Yates Memo: “To receive full cooperation credit, corporations must produce on a timely basis all relevant, non-privileged facts and evidence about individual misconduct such that prosecutors have the opportunity to effectively investigate and seek criminal charges against culpable individuals.”

What is new this time around, however, is the enhanced emphasis DAG Monaco places on the interplay between individual accountability and the pace of internal investigations, stating that prosecutors no longer will tolerate companies and their counsel intentionally delaying critical documents or information that point to individual culpability, “while they consider how to mitigate the damage or investigate on their own.” Doing so may result in reduced or outright denial of cooperation credit, she said.

What exactly is meant by the “timely” production of documents is likely to spark much debate between the DoJ and companies looking to resolve a criminal case. Dan Tehrani, a partner at Morgan Lewis told ACI Insights that may mean turning information over even in the middle of an internal investigation. “It’s not acceptable in the Department’s view for a company to complete its investigation before turning over information about culpable individuals,” he said.

“I think it’s going to cause companies to have very difficult conversations and make very difficult decisions very early on in their internal investigations,” Tehrani added. Those conversations are likely to concern many thorny issues, he said, like attorney-client privilege concerns and employment-related concerns.

Compensation systems

Another significant implication of the DoJ’s new policies will be heightened scrutiny over companies’ compensation structures in evaluating the strength of a compliance program. “Compensation systems that clearly and effectively impose financial penalties for misconduct can deter risky behavior and foster a culture of compliance,” DAG Monaco said in her remarks.

Moving forward, prosecutors will consider whether compensation structures not only incentivize compliance-promoting practices, but also whether companies “impose financial sanctions on employees, executives, or directors whose direct or supervisory actions or omission contributed to the criminal conduct,” DAG Monaco stated.

Specifically, prosecutors will “evaluate what companies say and what they do, including whether, after learning of misconduct, a company actually claws back compensation or otherwise imposes financial penalties,” she added.

The memo further makes clear that just having a claw back policy is not going to be sufficient. “They have to actually be enforced,” Tehrani said.

Geoff Martin, a partner at Baker & McKenzie, told ACI Insights that implementing and enforcing claw backs is likely to pose practical challenges for companies. “On the one hand, a company facing a criminal enforcement action may be incentivized to attribute blame to certain executives by clawing back their compensation in order to receive cooperation credit with the Department,” Martin said. “On the other hand, this could create challenges in balancing the defense rights and interests of individual executives who may be simultaneously defending themselves against the company’s claim for claw back and criminal charges brought against them.”

The new memo also directs prosecutors to consider whether the company “uses or has used non-disclosure or non-disparagement provisions in compensation agreements, severance agreements, or other financial arrangements so as to inhibit the public disclosure of criminal misconduct by the corporation or its employees.”

More guidance will be forthcoming. The Criminal Division has been directed to develop guidance by the end of the year on how to reward companies that employ claw back arrangements.

Voluntary self-disclosure

Regarding corporate accountability, the memo reemphasizes the importance of assuring companies about the benefits of voluntary self-disclosure—a point DoJ officials have stressed on multiple occasions and in various other guidance, including in the FCPA Corporate Enforcement Policy.

However, many departments within the agency do not currently have formal, documented policies on voluntary self-disclosure. DAG Monaco said she wants to change that by expanding those policies Department-wide: “For the first time ever, every Department component that prosecutes corporate crime will have a program that incentivizes voluntary self-disclosure. If a component currently lacks a formal, documented policy, it must draft one.”

DAG Monaco further stated her intent to establish common principles that will apply across these Department-wide voluntary self-disclosure policies. “Absent aggravating factors, the Department will not seek a guilty plea when a company has voluntarily self-disclosed, cooperated, and remediated misconduct,” she stated.

Assistant Attorney General Kenneth Polite clarified this point further in follow-up remarks at the University of Texas Law School on Sept. 16. In his remarks, Polite noted that even companies with a history of prior misconduct may still benefit from voluntarily self-disclosing known misconduct.

“A history of misconduct will not necessarily mean an automatic guilty plea, unless aggravating factors—such as misconduct posing a national security threat, or deeply pervasive conduct—are present,” Polite said. Examples of aggravating factors the Criminal Division will consider going forward include, but are not limited to, “involvement by executive management of the company in the misconduct, significant profit to the company from the misconduct, or pervasive or egregious misconduct,” he said.

Corporate recidivism

Further regarding companies with a history of misconduct, the new Monaco memo describes a new policy for prioritizing these types of cases: “The most significant types of prior misconduct will be criminal resolutions here in the United States, as well as prior wrongdoing involving the same personnel or management as the current misconduct,” DAG Monaco explained.

Because past actions don’t always reflect a company’s current culture and commitment to compliance, DAG Monaco added that the agency will give less weight to “criminal resolutions that occurred more than 10 years before the conduct under investigation, and civil or regulatory resolutions that took place more than five years before the current conduct.”

DAG Monaco said the DoJ also will consider the “nature and circumstances of the prior misconduct, including whether it shared the same root causes as the present misconduct.” And if a company operates in a highly regulated industry, prosecutors are directed to compare its history with similarly situated companies “to determine if the company is an outlier,” she explained.

DAG Monaco further warned that the DoJ will “disfavor multiple, successive” non-prosecution agreements or deferred prosecution agreements (DPAs). “Companies cannot assume that they are entitled to an NPA or a DPA, particularly when they are frequent flyers. We will not shy away from bringing charges or requiring guilty pleas where facts and circumstances require.”

Third-party messaging apps

Another area addressed in the Monaco Memo is companies’ use of personal devices and third-party messaging applications. As Polite stated in his remarks, “We have seen a rise in companies and individuals using these types of messaging systems, and companies must ensure that they can monitor and retain these communications as appropriate.”

To help companies in this effort, Polite said the Criminal Division is currently examining whether additional guidance is necessary regarding best practices for companies on the use of personal devices and third-party messaging apps.

“As a general rule, all corporations with robust compliance programs should have effective policies governing the use of personal devices and third-party messaging platforms for corporate communications, should provide clear training to employees about such policies, and should enforce such policies when violations are identified,” DAG Monaco stated in the memo.

She continued, “prosecutors should also consider whether a corporation seeking cooperation credit in connection with an investigation has instituted policies to ensure that it will be able to collect and provide to the government all non-privileged responsive documents relevant to the investigation, including work-related communications (e.g., texts, e-messages, or chats), and data contained on phones, tablets, or other devices that are used by its employees for business purposes.”

Compliance monitor oversight

Additionally, prosecutors now have new guidance on “how to identify the need for a monitor, how to select a monitor, and how to oversee the monitor’s work to increase the likelihood of success.”

In the past, the Department has faced criticism for not overseeing the activities of monitors extensively enough. In her remarks, Monaco addressed this criticism by announcing that Department prosecutors are now also being directed “to monitor those monitors: to ensure they remain on the job, on task, and on budget.”

ACI will be holding a session on corporate and individual liability risks at its “39^th International Conference on the FCPA,” taking place Nov. 30-Dec. 1, 2022, at the Gaylord National Resort and Convention Center in Washington D.C. | www.FCPAconference.com

For questions, concerns or more information about ACI Insights, please contact:
Chris Corbin
Associate Director of Marketing
American Conference Institute | The Canadian Institute | C5
E: [email protected]