Key Insights from the DOJ’s First-Ever Department-Wide Corporate Enforcement Policy

Last month, the United States Department of Justice (DOJ) released a Corporate Enforcement and Voluntary Self-Disclosure Policy (CEP) which, for the first time in the DOJ’s history, applies across the entire DOJ with the exception of antitrust cases.

The CEP creates a universal framework with respect to the DOJ’s approach to voluntary self-disclosures, cooperation, and remediation by corporations under investigation.  Importantly, the CEP supersedes any prior office-specific corporate enforcement policies, such as the United States Attorney’s Office for the Southern District of New York’s corporate enforcement policy that was announced just weeks before the DOJ released its department-wide CEP. 

The CEP builds upon the DOJ’s continued focus on prosecuting individual bad actors and “aligns the Department’s interest in swift criminal justice with the interests of companies, shareholders, and other stakeholders in good corporate governance and the public’s interest in rooting out fraud and misconduct.” (CEP, p. 1.)

Under the new CEP, the DOJ will decline to prosecute companies for criminal conduct if four factors are met:

1. The company voluntarily self-disclosed the misconduct to the appropriate DOJ criminal component;
2. The company “fully cooperated” with the DOJ’s investigation;
3. The company “timely and appropriately remediated” the misconduct; and
4. No aggravating circumstances are present, which relate to “the nature and seriousness of the offense, egregiousness or pervasiveness of the misconduct within the company, severity of harm caused by the misconduct, or corporate recidivism”

In the event of a declination, the company will still be required to pay disgorgement and restitution compensation resulting from the misconduct at issue.

Additionally, in instances where a company fails to meet the requirements for a declination because its failure to meet the “voluntary self-disclosure requirements”[1] or the presence of aggravating factors,  the company can still take advantage of the “Near Miss” policy under the new CEP, under which the DOJ will:

1. Provide a Non-Prosecution Agreement (NPA);
2. Allow a term of fewer than three years;
3. Not require an independent compliance monitor; and
4. Allow a reduction of at least 50% but not more than 75% off the low end of the U.S. Sentencing Guidelines fine range.

One significant exception to the CEP is a carve out for any antitrust cases, which will continue to be governed by the Antitrust Division’s Leniency Policy.  Under that policy, a company may be eligible for either “Type A” or “Type B” corporate leniency.  To obtain Type A leniency:

1. The company must report its participation in illegal activity before the Antitrust Division receives information about the illegal activity from another source;
2. The company must promptly report its discovery of the illegal activity;
3. The company must provide its report with “candor and completeness” and make a confession of wrongdoing “that is truly a corporate act, as opposed to isolated confessions of directors, officers, and employees”;
4. The company must provide timely and complete cooperation;
5. The company must use its “best efforts” to make restitution to injured parties, remediate the harm, and improve its compliance program; and
6. The company must not have coerced another party to participate in the illegal activity and must not have been the “leader” of the illegal activity.

If Type A leniency is granted, the Antitrust Division will not charge the company’s current directors, officers, and employees for the illegal activity.  If the company is unable to meet the requirements of Type A leniency it may still be eligible for Type B leniency at the discretion of the Antitrust Division, which may consider a non-prosecution agreement.

Takeaways

Companies should be cautiously optimistic that if they identify potential misconduct at their organization, there is a significant likelihood of obtaining a declination of prosecution as long as the requirements set forth in the DOJ’s CEP are met.  It remains critical for companies to have effective compliance programs to enable the prompt discovery and remediation of any potential misconduct, which will allow for companies to act deftly to obtain the benefits under the CEP if voluntary self-disclosure is appropriate.  However, companies must carefully analyze their particular facts and circumstances to determine whether any “aggravating circumstances” are present which would negate their ability to obtain the benefits under the CEP even if they choose to voluntarily self-disclose.  More clarity will come as the DOJ publicizes its enforcement activities under this new CEP.

[1] Under the CEP, voluntary self-disclosure exists where (1) a company makes a good faith disclosure of the misconduct to the DOJ; (2) the misconduct was not previously known to the DOJ; (3) “the company had no preexisting obligation to disclose the misconduct” to the DOJ; (4) the voluntary self-disclosure occurred before an “imminent threat of disclosure or government investigation”; and (5) the company disclosed the conduct within a “reasonably prompt time.”  (CEP, Appendix B.)