Continuing a trend that began last decade, the Biden Administration Department of Justice ("DOJ") has continued efforts to incentivize companies to voluntarily self-report criminal misconduct by their employees and to encourage companies to cooperate with government investigations more broadly. Even if not always explicitly acknowledged by DOJ's policy pronouncements, this trend results (at least in part) from DOJ's need to obtain private actors' assistance in reviewing and analyzing the vast reams of data that may need to be reviewed in a corporate investigation and in obtaining evidence from outside the U.S. that might not be obtainable (or at least quickly obtainable) through normal process. Corporate executives, general counsel, and board members should be aware of the carrots and sticks associated with these DOJ policies because, in the event of a corporate crisis, they may have to quickly decide whether self-disclosure to the government is prudent.
The most recent example of this trend began with a September 2022 memorandum, in which Deputy Attorney General ("DAG") Lisa Monaco, the second highest ranking official in the Justice Department, stated that absent aggravating factors, the DOJ will not seek a guilty plea from a company when the company has voluntarily self-disclosed, cooperated, and remediated misconduct.
Following DAG Monaco's directives last fall, DOJ's Criminal Division announced changes to its Corporate Enforcement Policy on January 19 and, on February 22, the Attorney General Advisory Committee, which advises the Attorney General on policies relating to each of the 93 U.S. Attorney's Offices, announced a similar policy (the "USAO Policy"). The USAO Policy, discussed more below, largely tracks the changes to the Criminal Division's Corporate Enforcement Policy, but now applies to U.S. Attorney's Offices across the country and not just in cases brought solely by the DOJ's Criminal Division.
I. Overview of the USAO Policy
Under the USAO Policy, prosecutors will determine whether a disclosure constitutes a "voluntary self-disclosure" (VSD) based on an assessment of the circumstances of the disclosure on a case-by-case basis and at the sole discretion of the USAO. That said, the Policy instructs prosecutors to consider the voluntariness, timeliness, and completeness of the disclosure:
Voluntariness: A USAO will not deem a disclosure to be a VSD where there is a preexisting obligation to disclose, such as pursuant to regulation, contract, or a prior DOJ resolution.
Timeliness: A USAO will only deem a disclosure to be a VSD when the disclosure is made:
1. "[P]rior to an imminent threat of disclosure or government investigation," U.S.S.G. § 8C2.5(g)(1);
2. Prior to the misconduct being publicly disclosed or otherwise known to the government; and
3. Within a reasonably prompt time after the company becoming aware of the misconduct, with the burden on the company of demonstrating timeliness.
Completeness: A USAO will deem a disclosure to be a VSD under the Policy only where the disclosure includes "all relevant facts" concerning the misconduct that are known to the company at the time of the disclosure. The USAO Policy explicitly acknowledges that a company may not be in a position to know all relevant facts at the time of a VSD because the company disclosed reasonably promptly after becoming aware of the misconduct. In that case, the DOJ encourages companies to make clear that their disclosure is based upon a preliminary investigation or assessment of information, but to nonetheless provide a fulsome disclosure of the relevant facts known to the company at the time.
II. The Carrots from the Policy
Potential non-prosecution of the Company, albeit with monetary penalties: The chief benefit to a company of meeting the standards for VSD is that the USAO will not seek a guilty plea from the company where the company has (a) voluntarily self-disclosed in accordance with the criteria set forth above, (b) fully cooperated, and (c) timely and appropriately remediated the criminal conduct, absent any aggravating factors. The policy notes that certain aggravating factors, such as misconduct that (1) poses a grave threat to national security, public health, or the environment; (2) is deeply pervasive throughout the company; or (3) involves current executive management may warrant the government still seeking a guilty plea. The policy provides USAOs with discretion, allowing prosecutors to weigh these aggravating factors on a fact- and circumstance-specific basis. Remediation of the criminal conduct must include, but is not limited to, a company agreeing to pay all disgorgement, forfeiture, and restitution resulting from the misconduct at issue.
Potential Reduced Sentencing Exposure: Even if,
however, due to the presence of an aggravating factor, the USAO
decides a guilty plea is warranted for a company that has
voluntarily self-disclosed, fully cooperated, and timely and
appropriately remediated the criminal conduct, the USAO still may,
under the policy, recommend a 50-75% reduction in the applicable
fine range under the Sentencing Guidelines and not require the
appointment of a monitor.
III. Takeaways
- Like the similar Corporate Enforcement Policy and other DOJ self-disclosure policies, the USAO Policy still leaves much to the discretion of the prosecutors, such as what the "relevant" facts are that should have been disclosed in a timely manner. Similarly, a disclosure is not deemed a VSD under the policy where there is a "preexisting obligation to disclose," such as pursuant to regulation, but the policy is not clear as to whether this applies to any government regulation or contract provision, which may, for example, require some kind of disclosure if a company learns of potential criminal conduct, a reading that would effectively swallow the Policy. Moreover, as experienced lawyers know, in the initial stages of a corporate investigation or response to a whistleblower report, there is often a question of whether criminal conduct has in fact occurred.
- In short, whether a company has, in fact, voluntarily and timely "self-disclosed" will be very much a matter of degree. Thus, during an investigation of potential criminal conduct, companies should document their investigative steps in a manner that will allow them to demonstrate in negotiations over a resolution with DOJ (which may occur years after an incident) that any purported "delay" in disclosure was the result of a good-faith preliminary investigation or assessment of information necessary to understand the facts.
- Further, even before an investigation begins, a company must position itself to capture all the relevant facts in a timely fashion, so it can assess what happened and whether a self-disclosure is warranted. This means, among other things, a company should consider how its employees and agents are communicating (e.g., via text messages or apps) and where relevant documents may be stored (e.g., on employees' desktops) and ensure that policies fostering the preservation and collection of relevant communications and documents are implemented and regularly reinforced.
- Ultimately, neither the Corporate Enforcement Policy nor USAO Policy provide any protection for individuals. Indeed, one of the purposes of these policies is to obtain information to facilitate the prosecutions of individuals DOJ views as culpable. Time constraints notwithstanding, companies and boards should ensure the decision whether or not to self-disclose is made by individuals not involved in the potential misconduct.
- More broadly, DOJ's efforts to incentivize corporations to report on potential wrongdoing by their employees are not without criticism, and there are a number of pending cases where former, now-indicted corporate executives have brought motions to dismiss or suppress evidence on the ground that DOJ improperly co-opted their former employer into an investigative arm of the state. Decisions in these matters may provide further gloss or limits on DOJ's expectations around cooperation.
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