On February 22, 2023 the Department of Justice (DOJ) released a new policy governing self-disclosure of corporate criminal wrongdoing to United States Attorney’s Offices (USAOs). The policy entitled “United States Attorney’s Office Voluntary Self-Disclosure Policy” (the “VSD Policy”) is the latest guidance from the department designed to encourage businesses to report and remediate misconduct before it otherwise comes to light. Significantly, this policy specifically defines what will be considered a “Voluntary Self-Disclosure” (VSD), and the credit the government will afford business that choose the VSD path. While the policy is not comprehensive, it does provide businesses with some guidance in evaluating whether to self-report potential issues to the government.
Cooperation in government investigations has long offered benefits for businesses under government scrutiny. In recent years, DOJ has particularly emphasized that a company’s credit for cooperation depends heavily on corporate self-reporting, including reporting individual executives who engaged in misconduct. Since the much-discussed memorandum from Deputy Attorney General Sally Yates in 2015, corporate cooperation has been the subject of repeated DOJ pronouncements. More recently, Deputy Attorney General Lisa Monaco weighed in on the subject with her September 15, 2022 memorandum, “Further Revisions to Corporate Criminal Enforcement Policies Following Discussion with Corporate Crime Advisory Group” (the Monaco Memo). Monaco directed components of DOJ that prosecute corporate crime to draft and publicly share policies incentivizing self-disclosure. The VSD Policy is the USAOs’s response to this mandate. In January 2023, DOJ’s Criminal Division announced a similar policy governing conduct of its prosecutors. The Eye on Enforcement blog previously covered the DOJ policy here.
The VSD Policy
The VSD Policy was issued by the Corporate Criminal Enforcement Policy Working Group, a group composed of representatives of multiple USAOs. The Policy focuses on specifically defining what will qualify as a VSD and providing concrete benefits that businesses can expect when they provide a VSD to the government.
What qualifies as a VSD?
Under the policy, a VSD must meet all of the following requirements:
- Disclosure must be voluntary – A disclosure is not a VSD if the entity has a preexisting obligation to disclose, for example, under regulation, contract, or agreement. This includes obligations that may arise under an earlier deferred prosecution agreement or a non-prosecution agreement.
- Timing of disclosure – A disclosure will be deemed a VSD only when the disclosure is made:
- before an imminent threat of disclosure or government investigation; before misconduct is being publicly disclosed or otherwise known to the government; and
- within a reasonably prompt time after the company learns of the misconduct. The company bears the burden of demonstrating timeliness.
- Substance of the disclosure and other required actions – The disclosure must include all relevant facts concerning the misconduct that are known at the time, and the disclosing party must commit to:
- timely factual updates as more information is discovered;
- timely preservation, collection, and production of documents and other information; and
- updates to the USAO on results of any internal investigation if one is conducted.
Although the policy is clear that an entity must meet all of the requirements to qualify for a formal VSD, it also states that “[r]egardless of whether the disclosure meets the standards of a VSD, prosecutors will continue to consider the corporation’s pre-indictment conduct, e.g., voluntary disclosure or cooperation, in determining whether to seek an indictment.” Thus, although the policy specifies criteria for a corporation to qualify for the benefits offered, entities that fall short of these specific criteria can still qualify for some cooperation credit.
What benefits are available for a VSD?
Perhaps most significantly, the VSD Policy provides specific benefits that a business can count on if it meets the criteria, unless certain aggravating factors are involved.
First and foremost, the business avoids having to plead guilty to a crime. The policy states “[a]bsent the presence of an aggravating factor, the USAO will not seek a guilty plea where the company has (a) voluntarily self-disclosed in accordance with the criteria [detailed above], (b) fully cooperated, and (c) timely and appropriately remediated the criminal conduct.” Appropriate remediation must include full disgorgement, forfeiture, and restitution resulting from the criminal conduct.
Aggravating factors that may still warrant a guilty plea include conduct that:
- Poses a grave threat to national security, public health, or the environment;
- Is deeply pervasive throughout the company; or
- Involved current executive management of the company.
The list of aggravating factors provided in the policy is not exclusive, which injects some uncertainty for companies considering disclosure. Fortunately, the policy also states that the existence of an aggravating factor does not require a guilty plea even if it may be considered.
Second, the policy allows USAOs to decline to institute a criminal penalty and, in fact, directs them not to impose a penalty greater than 50% of the low end of the U.S. Sentencing Guidelines (USSG) fine range. If a plea is required due to aggravating factors, the policy direct USAOs to recommend at least a between 25% and 50% of the low end of the USSG fine range after any applicable reduction already applied under the USSG for self-reporting, cooperation, and acceptance of responsibility. Finally, the government will not require the appointment of a corporate monitor if the company has demonstrated that it has implemented and tested an effective compliance program at the time of resolution of the matter.
Importantly, the policy references the Criminal Division’s guidance for Evaluation of Corporate Compliance Programs (updated June 2020) with regards to the criteria for an effective compliance program.
Takeaways for Corporations
The VSD Policy provides important information for companies deciding how to handle potential internal misconduct. But while it establishes a framework and some criteria to consider in deciding whether to make a disclosure, prosecutors still retain substantial discretion. Nonetheless, several general takeaways can be gleaned from this new policy and DOJ’s previous guidance on self-disclosure:
- Timeliness matters. Both the Monaco Memorandum and the USAO VSD Policy emphasize the need for corporations to provide information quickly, even if all of the facts are not yet developed. Supplemental disclosure or qualifications based on uncertainty can mitigate the problem of incomplete information at the time of initial disclosure. Companies should move quickly when misconduct arises to evaluate the situation and consider whether self-disclosure is appropriate.
- Disclose all known facts, including pointing out the responsible individuals. Although individual accountability is not a focus of this policy, it states that rewarding self-disclosure “helps … ensure individual accountability.” Multiple recent DOJ statements have emphasized holding culpable individuals to account as a priority.
- Do not ignore compliance complaints. Today’s internal complaint is tomorrow’s government whistleblower. A threshold requirement for credit under this policy is bringing the matter to the government before the government is otherwise aware of it. Prompt attention to internal complaints may allow a company to beat a potential whistleblower to the government.
- Compliance programs matter. Compliance programs can help not only avoid problematic conduct in the first instance, but also serve as the basis to avoid a corporate monitor under this policy. Companies should be familiar with the DOJ’s 2020 guidance update on corporation compliance programs.