More companies are choosing to voluntarily report instances of potential criminal misconduct after the US Department of Justice upped the rewards for doing so, a senior DOJ official has said.

Assistant Attorney General (AAG) Kenneth Polite Jr., who leads the DOJ’s criminal division, told attendees at a white-collar crime conference hosted by the New York City Bar Association that the department has already seen a shift in the number of corporate disclosures despite the fact that new incentives for companies to self-report were only announced this January. 

Polite said the criminal division is also looking into increasing visibility of its enforcement actions, including how it selects compliance monitors in settlements and how and when it charges executives on an individual basis.

He noted the other goals for his division include more engagement with law enforcement overseas and, as usual, he highlighted the incredibly important role that compliance officers play in their businesses.

“What you’re hoping to see is moving away from the CCO or compliance division being siloed.”

Kenneth Polite, AAG

A former chief compliance officer himself at power company Entergy, AAG Polite stressed the importance of empowering compliance chiefs and allocating adequate resources to their departments. “At the end of the day, [chief compliance officers] have to be one of the voices that sign off on these resolutions,” he said. “What you’re hoping to see is moving away from the CCO or compliance division being siloed.”

As compliance officers in the United States are aware, the DOJ’s Corporate Enforcement Policy (CEP) has gone through a number of adjustments and iterations, moving from one focused specifically on the Foreign Corrupt Practices Act to one applied to all corporate cases prosecuted by the Criminal Division.

The policy revolves around what cooperation credit the DOJ will extend to business for doing the following: voluntarily self-disclosing the transgression; fully cooperating with the DOJ’s investigation; and remediating the deficiencies in the compliance program or internal controls giving rise to the wrongdoing in an appropriate and timely manner.

Culpable individuals

If a company does all of those things (which can involve some other actions in furtherance of them – such as identifying the culpable individuals and turning over pertinent documents in a timely way, etc), there is a presumption the DOJ will decline to prosecute without an aggravating circumstance.

Those aggravating circumstances could include the seriousness of the offense, the business being a repeat offender of that type of offense, and participation in the wrongdoing by senior-level executives.

If a criminal resolution is deemed warranted because the company failed to fulfill every part of the CEP’s requirements or an aggravating factor is involved, the DOJ will offer 50% off the low end of the applicable Sentencing Guidelines penalties range if the company at least self-disclosed the violation.

That is how important that self-disclosure prong is to the agency and its timely resolution to its enforcement actions.

In fact, the DOJ has further pressed for and incentivized companies that have an aggravating factor – namely, a history of misconduct – to self-disclose wrongdoing by saying in late March that even it might be able to get a declination by virtue of their prompt self-disclosure and fulsome cooperation efforts.

“Chief compliance officers should have true independence, authority and stature within their organizations.”

Kenneth Polite, AAG

In May 2022, Polite told attendees at the Compliance Week Annual Conference in Washington, DC, that, as a former CCO himself, he worries about the difficulties posed by lack of adequate resources and stature of compliance officers within an organization. 

He labeled as misguided the notion that compliance is a drain or cost center in the overall corporate landscape. Instead, he warned that companies that fail to invest adequate resources in compliance will definitely pay in the event that they are subject to a DOJ enforcement action. 

“Chief compliance officers should have true independence, authority and stature within their organizations,” he said, emphasizing that they should be empowered by having adequate access to and engagement with business functions, management and the board of directors.

Polite mentioned a specific example when, during a presentation by a company on proposed resolution of an investigation, the general counsel answered a question directed to the CCO. “That single act gave me all the information I needed. That one act demonstrated, literally and figuratively, that CCO had no voice in that organization,” he observed.

He said that companies that do not invest in compliance will face a greater risk of prosecution and will be more likely to have an independent corporate compliance monitor imposed as part of a resolution.

Compliance monitors

There has been some concern in compliance circles over the lack of clarity about what goes into DOJ’s decision to mandate a compliance monitor for a business as part of a criminal resolution.

On March 1, Polite issued a document entitled Revised Memorandum on Selection of Monitors in Criminal Division Matters to provide some more clarity to the factors going into this decision.

The memo both updates and clarifies prior DOJ policy in the following ways:

• It clarifies that monitors are not disfavored and will be used in appropriate circumstances;
• lists additional factors for prosecutors to consider when determining whether to impose a monitor;
• articulates DOJ’s commitment to focusing on diversity and inclusion when evaluating compliance monitor candidates; and
• increases the period from two to three years before a monitor can be employed by, or affiliated with, the monitored entity.

To be sure, the memo did not significantly change prior DOJ guidance regarding the selection of monitors, but it further emphasized the Criminal Division’s sharper focus on whether a business organization has voluntarily disclosed wrongdoing and implemented appropriate remedial measures to guard against the wrongdoing occurring again. 

Together, these changes provide additional clarity for the monitor selection process.

In his memo, Polite said: “The Department should favor the imposition of a monitor where there is a demonstrated need for, and clear benefit to be derived from, a monitorship. Where a corporation’s compliance program and controls are untested, ineffective, inadequately resourced, or not fully implemented at the time of a resolution, Department attorneys should consider imposing a monitorship.”

“Where a corporation’s compliance program and controls are untested, ineffective, inadequately resourced, or not fully implemented at the time of a resolution, Department attorneys should consider imposing a monitorship.”

Kenneth Polite, AAG

Deputy Attorney General Lisa A Monaco and members of the DOJ’s leadership like Polite are trying to give compliance officers greater clarity about what they expect from companies seeking reduced penalties or declination and what “immediate” or “extraordinary” cooperation or remediation looks like via their many memos, speeches, and press releases.

Plus, as they point out, and as corporate leaders should appreciate, the DOJ can’t really offer prescriptive guidance. There is no one-size-fits-all approach that will work, given the incredible amount of nuance between case scenarios, risk factors, harm caused, timing elements, etc.

What we know is that business organizations can expect prosecutors will consider the company’s voluntary self-disclosure, cooperation, and remediation efforts when assessing the need for a monitor. 

Demonstrate commitment

Although no factor on its own may be dispositive, the DOJ has indicated it is less likely to impose a monitor in those situations where a business organization has shown a demonstrated commitment to enhanced compliance measures through testing and represents a decreased likelihood of recidivism through its compliance enhancements.

Polite’s observation that more companies are coming forward to self-disclose in a timely manner to seek a declination from his division since his January remarks about the CEP highlights how well the CEP’s incentives are working – and how willing companies are to resolve matters in an efficient way to avoid the financial and reputational damage that criminal actions can bring.

Even if there is always some element of mystery in how DOJ decides its individual cases, the roadmap of telling the DOJ what happened, who did what, producing documents, and timely remediating of flawed compliance programs (and maybe their associated technology systems, or fixing the lack thereof) is often the safer road to follow.