Earlier this month, DOJ updated its Corporate Enforcement Policy (CEP). Aimed at encouraging companies to voluntarily disclose unlawful conduct, the updated CEP gives greater opportunities to companies to avoid charges altogether or to get more cooperation credit.
First Significant Changes in Over Five Years
On January 17, 2023, DOJ announced what Assistant Attorney General Kenneth A. Polite called “the first significant changes to the Criminal Division’s CEP [Corporate Enforcement Policy] since 2017.” The revised policy (1) expands corporate eligibility for declinations with disgorgement, (2) increases the cooperation credit available for companies that voluntarily disclose misconduct but do not receive a declination, and (3) increases the cooperation credit available for companies that do not voluntarily disclose misconduct but later fully cooperate with DOJ and timely remediate.
The changes update what was previously known as the FCPA Corporate Enforcement Policy. That policy originated in 2016 as a pilot program in DOJ’s FCPA Unit and was later incorporated into the Justice Manual in 2018. The revised policy makes clear that it applies to all corporate criminal matters handled by the Criminal Division, not just FCPA matters.
Declination with Disgorgement
In perhaps the most notable change, the new CEP provides for “declinations with disgorgement,” which allow companies to avoid charges altogether, subject to certain conditions, including disgorgement of profits from the misconduct. Declinations of charges with disgorgement are a relatively new item on DOJ’s corporate resolution menu, and they make a tantalizing carrot for companies considering self-disclosure. Under the revised policy, companies that voluntarily self-disclose misconduct, fully cooperate, and timely remediate are afforded a presumption that the company will receive a declination unless aggravating circumstances exist – such as involvement by executive management in the misconduct, large profits from the misconduct, pervasiveness of the misconduct, or recidivism.
A company receiving a declination pursuant to the policy must disgorge profits from the misconduct, and the declination and disgorgement will be made public. A declination with disgorgement under the CEP therefore differs from a traditional declination in which DOJ decides not to pursue a prosecution for reasons other than the company’s compliance with the factors in the CEP. Traditional declinations do not entail any payment or agreement between the company and DOJ, and they are not publicized by DOJ.
Not Just for FCPA Matters
DOJ’s historical use of declinations with disgorgement, previously limited to the FCPA context, provides insight into the department’s intentions moving forward. For example, as recently as December 21, 2022, DOJ announced a declination with disgorgement related to French aerospace company Safran SA, based on self-disclosure of FCPA violations that Safran discovered during post-acquisition due diligence. Safran agreed to disgorge $17,159,753 in connection with past FCPA violations by two companies it acquired and to cooperate with DOJ’s ongoing investigation, and, in exchange, DOJ declined to prosecute Safran “despite the bribery committed by employees and agents of the Company.”
The revisions to the CEP signal two significant expansions in the use of declinations with disgorgement:
- They will be employed to resolve corporate criminal matters not involving the FCPA, and
- They will be available to some companies even in the presence of aggravating circumstances, provided that certain factors are met – namely that the self-disclosure was immediate, that at the time of the misconduct the company had an effective compliance program which enabled detection and disclosure of the misconduct, and that the company provided “extraordinary” cooperation to DOJ and undertook “extraordinary” remediation.
As under the old policy, companies that voluntarily disclose misconduct discovered through M&A due diligence or post-acquisition audit will be entitled to a declination with disgorgement, absent aggravating circumstances. Even where aggravating circumstances existed, in “appropriate cases” the old policy allowed for the possibility of a declination with disgorgement for companies self-disclosing misconduct detected through M&A diligence. The revised policy retains and promotes this language, suggesting that a company self-disclosing misconduct uncovered through M&A diligence may be eligible for a declination despite aggravating circumstances, even if it does not meet the all the factors required of companies self-disclosing in a non-M&A context.
Cooperation Credit for Companies That Voluntarily Self-Disclose
The revised policy increases the cooperation credit available to self-disclosing companies where DOJ determines that a declination with disgorgement is not warranted. If the company voluntarily disclosed the misconduct, fully cooperated, timely remediated, and is not a recidivist, DOJ will provide a reduction of between 50% and 75% off the low end of the U.S. Sentencing Guidelines fine range (or recommend such a reduction to the sentencing court in the case of a guilty plea, which will generally not be required absent “particularly egregious or multiple aggravating circumstances”). Recidivists meeting the factors in the policy will also receive a 50% to 75% cooperation credit but generally not from the low end of the Guidelines range.
These policy revisions substantially increase the available cooperation credit for self-disclosing companies. Under the old policy, only 50% cooperation credit was accorded, and that credit was not available to recidivists.
Cooperation Credit for Companies That Do Not Voluntarily Self-Disclose
The revised policy also increases the cooperation credit available to companies that do not self-disclose but that later fully cooperate and timely remediate. In that situation, companies can receive up to a 50% reduction off the low end of the Guidelines range, except in the case of recidivists, for whom the reduction will generally not be from the low end. Under the old policy, companies that did not self-disclose could receive only up to 25% off the low end of the applicable range.
These revisions to the CEP signal DOJ’s desire to further incentivize self-disclosure and full cooperation by companies, in pursuit of what AAG Polite called the department’s “number one goal”: identifying and prosecuting culpable individuals, regardless of their seniority in the company.
Retained Provisions and M&A Diligence
The revised policy is also notable in what it retained: the presumption of a declination with disgorgement for companies self-disclosing misconduct discovered through M&A diligence or post-acquisition audit or compliance integration efforts. This policy reflects DOJ’s recognition that a company with a strong compliance program and culture should not face criminal sanction if it acquires less-compliant companies and integrates them into the acquiring company’s compliance regime. Therefore, companies that demonstrate their compliance commitment by detecting past misconduct through M&A diligence and promptly disclosing it have a stronger case that any liability they inherited through the acquisition should not result in a criminal resolution.
Companies should consider the incentives offered by the revised policy as they develop, implement, or update their compliance programs (including outside of the anti-bribery and corruption context) and as they consider what resources to invest in M&A due diligence. The decision to voluntarily disclose criminal conduct will nearly always be a difficult one, but it may not even be an option unless structures are in place to detect the misconduct in the first place.