New policies on corporate enforcement and voluntary disclosure
Early in 2023, the DOJ’s Criminal Division issued a revised Corporate Enforcement and Voluntary Self-Disclosure Policy (2023 CEP). This was shortly followed by a similar, though not identical, Voluntary Self-Disclosure Policy (VSDP) applicable to all of the United States Attorneys' Offices around the country.
For context, “Main Justice” (those parts of DOJ based in Washington, D.C. and considered to be part of DOJ headquarters) has several divisions, including the Antitrust Division and the Criminal Division. The Antitrust Division has long had a robust Leniency Program to encourage self-disclosures. The Criminal Division, which includes the Fraud Section (one of the DOJ components most often bringing corporate enforcement cases) has now issued the 2023 CEP. In addition to Main Justice, DOJ brings cases via 94 United States Attorneys’ Offices spread throughout the country. The U.S. Attorneys’ Offices did not have a uniform voluntary disclosure policy until now.
Significant changes in 2023 Corporate Enforcement and Voluntary Self-Disclosure Policy
The significant changes to the 2023 CEP as compared to the earlier 2017 FCPA Policy include the possibility of a company receiving:
- a declination even in cases presenting “aggravating circumstances”
- increased credit for voluntary self-disclosure in cases where a declination is not granted
- credit for extraordinary cooperation and remediation, even absent voluntary self-disclosure.
Declination if certain conditions are met
To incentivize self-disclosure, the 2023 CEP allows a prosecutor to determine that a declination is the appropriate outcome, even with the presence of aggravating circumstances, if the following features are all present:
- the self-disclosure was made “immediately” upon the company learning of the alleged misconduct
- an effective compliance program and system of internal accounting and controls was in place at the time of the misconduct that allowed the company to identify the misconduct
- the company provided “extraordinary” cooperation in the investigation to DOJ
- the company has implemented “extraordinary” remediation.
Aggravating circumstances include involvement by executive management of the company in the misconduct, a significant profit to the company, egregiousness or pervasiveness of the misconduct within the company, and the company is a criminal recidivist.
What does disclosing ‘immediately’ mean?
The Criminal Division is making clear that a company can obtain a declination even with the presence of aggravating circumstances. The biggest hurdle will be self-disclosing “immediately”. In the weeks since the 2023 CEP was issued, various DOJ officials have given their take on the meaning of “immediately” and the general consensus seems to be that a disclosure must be made within weeks of a company learning of an allegation.
If it means within weeks following an allegation, it will usually be the case that an internal investigation will still be in its very early stages. A company will not yet know whether there is merit to an allegation and will certainly not know whether aggravating circumstances are present. Thus, a company will often find itself deciding whether or not to disclose with very imperfect information. In this circumstance, not disclosing at this early stage may be the better course unless other factors are present which would point to an early disclosure, eg that the DOJ is already, or will become, aware of the situation from another source.
Increased credit for voluntary self-disclosure
Other credit is possible where the Criminal Division does not issue a declination following a self-disclosure. The DOJ may recommend a reduction of at least 50% and up to 75% off the low end of the Guidelines range as part of the criminal resolution. Similar to the conditions for a declination above, this reduction is conditional on the company voluntarily self-disclosing the suspected misconduct, fully cooperating with the DOJ, timely and appropriately remediation of the suspected misconduct, and the company not being a criminal recidivist.
DOJ may not require a corporate guilty plea and would instead resolve the matter via a deferred prosecution agreement or a non-prosecution agreement.
Potential credit with no voluntary self-disclosure
Even in circumstances where a company does not voluntarily self-disclose, the 2023 CEP offers incentives for corporate cooperation. It states that if a company provides “extraordinary” cooperation and remediation and is not a criminal recidivist, it may receive a recommended fine reduction of up to 50% off the low end of the Guidelines range.
Such a reduction cannot be presumed – it is an earned credit given to companies that “truly distinguish themselves and demonstrate extraordinary cooperation and remediation.”
Meaning of extraordinary cooperation
Immediacy, consistency, degree, and impact of the cooperation will all be considered. Assistant Attorney General for the Criminal Division Kenneth A. Polite said that, “we know ‘extraordinary cooperation’ when we see it, and the differences between ‘full’ and ‘extraordinary’ cooperation are perhaps more in degree than kind,” and in order to receive credit for “extraordinary” cooperation and remediation, the company must “go above and beyond the criteria for full cooperation.”
Voluntary Self-Disclosure Policy – key points
The VSDP took immediate effect when it was issued on February 23rd. It applies to all U.S. Attorneys’ offices and is aimed at standardizing how voluntary self-disclosures are defined and credited nationwide.
The VSDP incentivizes companies to voluntarily self-disclose suspected misconduct, fully cooperate, and timely and appropriately remediate the suspected misconduct.
Meaning of voluntary disclosure
Voluntary self-disclosure is defined to be a situation where a company: (1) had no pre-existing obligation to disclose; (2) made the disclosure promptly after becoming aware; (3) made the disclosure prior to “imminent threat” of disclosure or government investigation; and (4) disclosed all known relevant facts concerning the misconduct.
Benefits of voluntary disclosure
Just like the 2023 CEP policy, the potential benefits are:
- prosecutors will not seek a guilty plea
- prosecutors may not impose a criminal penalty
- if a criminal penalty is imposed, prosecutors may recommend a criminal penalty that is at least 50% and up to 75% below the low end of the Guidelines
- prosecutors may not seek to impose an independent compliance monitor.
Key differences from the 2023 CEP include:
- whereas the Criminal Division requires immediate self-disclosure, the VSDP requires that disclosure be made “within a reasonably prompt time after the company becoming aware of the misconduct.” It is not clear whether the latter will allow for more time.
- unlike the Criminal Division, the VSDP does not stress the importance of disclosing all facts with regard to culpable individuals (nevertheless, given the DOJ’s department-wide focus on individual liability, it is likely that the United States Attorneys’ Offices will require that all information regarding individual misconduct be disclosed).
- the VSDP does not explicitly set forth any potential benefits or incentives for companies that cooperate and remediate but failed to meet the voluntary self-disclosure requirements.
- the VSDP does not provide specific guidance for when a prosecutor might provide a declination in situations where aggravating circumstances are present. That said, the VSDP does provide as follows: “The presence of an aggravating factor does not necessarily mean that a guilty plea will be required. The USAO will assess the relevant facts and circumstances to determine the appropriate resolution.”
It remains uncertain how the VSDP will be used in cases that are jointly prosecuted by a U.S. Attorney’s Office and another component of the DOJ.
Considerations for businesses
Key takeaways for companies are:
- Having a robust and effective compliance program in place at the time of a potential violation will aid a company enormously in achieving a successful outcome with DOJ.
- As part of an effective compliance program, companies should have policies and procedures which encourage speaking up within the organization and conducting prompt and thorough internal investigations.
- Despite the incentives on offer from DOJ to encourage self-disclosure, it may be that, in certain circumstances, the better course for companies is to not make a self-disclosure. This may be particularly true given one aspect of the 2023 CEP, in particular the Criminal Division’s requirement that a company self-disclose “immediately” where aggravating circumstances are present.
Balancing the costs and benefits of self-reporting and cooperation was one of the ten key challenges for In-house Counsel and Heads of Risk identified for this year in the 2023 Allen & Overy Cross-border White Collar Crime and Investigations Review.
