The United States Updates the Principles of Corporate Law Enforcement

The amendments made only four months after the Memorandum from US Deputy Attorney General Lisa O.Monaco on corporate criminal law enforcement was released are, as Assistant Attorney General Kenneth A. Polite,  Jr. put it, the first significant changes to the policy of corporate law enforcement of the DOJ since its adoption in 2017 and revision in 2019.

Corporate law enforcement and voluntary self-disclosure policy of the Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy is a part of the Justice Manual (JM), which the prosecutors of the DOJ are guided by. Previously, relevant section 9-47.120 of the JM was entitled “The FCPA Corporate Enforcement Policy” and regarded (at least officially) liability of legal persons only in the FCPA context. The updated Policy will cover other cases investigated by the Criminal Division of the US DOJ (hereinafter, the Division) as well.

The content of the document is divided into six parts:

1. Criteria for making decisions on a declination due to voluntary self-disclosure, full cooperation and timely and appropriate remediation.

The first part of the Policy reiterates the principle of presumption of a declination absent aggravating circumstances under three basic conditions:

the organisation voluntarily self-discloses the misconduct to the competent authorities;
the organisation ensures full cooperation with the investigation;
the organisation ensures timely and appropriate remediation.

However, it should be highlighted that a declination does not mean that the organisation will not be sanctioned in a certain way. In particular, according to the Policy, the company will be

2. Consideration of aggravating circumstances and leniency due to voluntary self-disclosure, full cooperation and timely and appropriate remediation.

The renunciation of criminal proceedings, as stressed above, is not envisaged by definition in the presence of aggravating circumstances. The latter include:

involvement of the executive management of the company in the misconduct;
a significant profit to the company from the misconduct (in this case, the profit is considered as “significant” if its proportion is large if compared to the total revenue of the company);
pervasiveness of the misconduct within the company;
criminal recidivism (recurrence of similar crimes).

However, under the updated Policy, the prosecutors of the DOJ will now be able to decide on a declination even in the presence of aggravating circumstances* if:

the voluntary self-disclosure was made immediately after the company learnt about the misconduct;
at the moment of the misconduct and the disclosure the company had an effective compliance programme and internal accounting controls, which made it possible to detect the misconduct and make the voluntary self-disclosure;
the company cooperated extraordinarily with the investigation and undertook exclusive measures to remediate, which exceed the aggravating factors**.

Additionally, compliance with the three basic principles – self-disclosure, cooperation and remediation – permits to count on leniency even in the presence of aggravating circumstances, namely:

a fine reduced by 50-75 per cent (the previous version of the Policy provided for a maximum reduction of 50 per cent) from the lower limit of the range of fines established by the US Sentencing Guidelines (USSG) (except for the cases of recidivism, where the “basic” amount of the fine that will be used for calculating the percentage of the reduction is defined autonomously by prosecutors);
no need for the organisation to plead guilty (except for the cases of particularly serious or multiple aggravating circumstances);
no need to appoint an external monitor if at the moment of resolution the company demonstrated that it had implemented and tested an effective compliance programme and eliminated the underlying cause of the misconduct.

3. Leniency due to full cooperation and timely and appropriate remediation in the absence of voluntary self-disclosure.

If the organisation did not disclose the misconduct to the US DOJ, but subsequently ensured full cooperation with the investigation and timely and appropriate remediation in line with the standards of the Policy, it can be entitled to a reduction of the fine of up to 50 per cent from the lower limit of the range of fines under the USSG (except for the cases of recidivism, where the “basic” amount of the fine that will be used for calculating the percentage of the reduction is defined autonomously by prosecutors). It should be highlighted that the previous version of the Policy provided for a maximum “discount” of 25 per cent.

4. Due diligence and remediation in the cases of mergers and acquisitions.

Another issue focused on corporate liability for the violations admitted by the companies participating in mergers and acquisitions is now covered by a separate section, whereas it was mentioned in the comments section of the previous version of the publication.

In particular, the document stresses that if the organisation is undergoing the merger or acquisition procedure and detects misconduct throughout thorough and timely due diligence, or, where appropriate, in the course of auditing after the acquisition of or the merger with a new company, voluntarily discloses the information concerning the detected violations and undertakes other actions in line with the Policy (including timely implementation of an effective compliance programme in the merged or acquired company), the presumption of a declination will be applicable to this organisation.

5. Definitions.

This section of the Policy, as in its previous version, contains the clarifying criteria for assessing the level of compliance of the organisation with the three basic conditions for the presumption of a declination or leniency.

5.1. As regards voluntary self-disclosure, the organisation must meet the following conditions to have a “discount”:

the information disclosed must be sent to the Criminal Division of the US DOJ;
the company had no prior obligations to disclose misconduct [for instance, under non-trial agreements with law enforcement];
the voluntary self-disclosure is qualified under §8C2.5(g)(1) of the USSG as it took place “prior to an imminent threat of disclosure or government investigation”;
the company self-discloses within a reasonably short period of time after it learnt about the misconduct; in this context, the burden of proof of the timely character of the disclosure rests with the company;
the company discloses all facts it is aware of that are not confidential, including all facts and evidence with regard to all persons involved or responsible for the misconduct, including the natural persons within and outside of the company regardless of their position, status or professional experience.

The last three conditions were already present in the previous version of the Policy, whereas the first two appeared only in the revised version of the document.

5.2. As regards full cooperation with the investigation, the updated Policy contains the requirements for getting a “discount” that remained almost unchanged and provide, in particular, for:

the timely disclosure of all facts of the offence that are not confidential, including: a) the facts that were unveiled in the course of an independent internal investigation of the company, in the event that the latter decides to have it; b) the ratio of the facts detected to the specific sources, if it does not contradict the principles of legal privilege, which is given priority if compared with a simple statement of facts; c) timely update of the findings of the internal investigation conducted by the company, including the disclosure of additional information as it becomes available; d) the information on all persons involved in or responsible for the violation regardless of their position, status or professional experience, including the management of the company, its staff, clients, competitors, agents and third parties, as well as all non-confidential information concerning the misconduct and involvement of these persons;
proactive [preventive] rather that reactive cooperation which implies timely disclosure of the facts necessary to the investigation by the company even in the absence of the respective requirement and, if the company understands or must understand the capabilities of the Division to get the necessary evidence that the company itself does not have, which the Division will not be able to get in any other way – to inform the Division about it;
timely maintenance, collection and disclosure of relevant documents and information about the conditions for obtaining them, including: a) disclosure of overseas documents, the site of their discovery and information about the persons who found those documents; b) assistance in the provision of documents by counterparties; c) translation of relevant documents in foreign languages on request;
adoption of the measures for managing conflicts between the witness interviews and other investigative actions within the internal investigation and the measures undertaken by the Division in the framework of its investigation;
availability of the managers and employees of the company who have the necessary information, including those posted abroad, as well as former managers and employees (who are subjects of law covered by the Fifth amendment) to interviews, and, where possible, assistance in involving witnesses and counterparties in interviews.

5.3. Substantial changes were neither made to the Policy with regard to the remediation with a view to receiving a “discount”, which includes:

demonstration of a thorough analysis of the underlying causes of the misconduct (the cause-effect analysis) and, where necessary, elimination of these causes;
implementation of an effective ethics and compliance programme, the criteria for which will be periodically updated and can differ depending on the size and resources of the organisation, and can include: a) compliance culture of the organisation, including the awareness of the staff about non-tolerance of misconduct, including the acts under consideration in the framework of the proceedings; b) the resources allocated to the organisation to implement the compliance programme; c) the performance and experience of the staff responsible for compliance, including their understanding of specifics and ability to detect the deals and situations that can potentially pose a risk; d) appropriate powers and autonomy of the divisions/officials responsible for compliance, and membership of compliance experts in the governing body of the organisation; e) efficiency of risk assessment and measures to improve the compliance programme of the organisation based on the assessment; f) reporting system for all employees involved in compliance, including those engaged on contract terms; g) reward and promotion of the employees responsible for compliance taking account of their role, responsibilities, performance and other factors; h) auditing of the compliance programme with regard to its effectiveness;
adoption of appropriate disciplinary measures, including responsibility for both the participation in misconduct and failure to undertake appropriate control measures, and responsibility of the divisions/persons supervising the area of activities of the company where the misconduct took place;
proper storage of the business documentation and prohibition of its inappropriate destruction or correction, including the issuance of relevant instructions and adoption of the measures for controlling personal communications and messaging applications, including ephemeral messaging platforms that can undermine the capability of the company to properly maintain its business documentation or messages or to comply with the corporate policy of documents storage or legal obligations in other ways;
any additional steps demonstrating the understanding of the seriousness of the misconduct, assumption of responsibility for its commission and implementation of the measures aimed at mitigating the risk of repetition of the misconduct, including the measures for identifying future risks.

6. Comments.

The final part of the Policy contains more detailed explanations of certain provisions of the document:

1) With regard to the “discount” for full cooperation with the investigation, it is clarified that when a decision on the criminal case is taken the degree and quality of cooperation of the company is an important part of the analysis of the case and can influence the choice of resolution method (for example, the possibility to conclude a pre-trial agreement), as well as the range of fines and the amount of the final fine.

Initially, prosecutors assess the compliance of cooperation with the Principles of Federal Prosecution of Business Organisations (section 9-28.700 JM). After that they shall additionally analyse the amount, quantity, quality and period of cooperation with regard to the circumstances of each case. In this context, the company starts at a zero “discount” for cooperation and then it gains points for specific cooperation acts (rather than starting at the maximum “discount” and loosing points for its failure to cooperate); moreover, the reluctance to cooperate at the initial stage can determine the refusal of prosecutors to grant the company the maximum “discount” for full cooperation even if the company met all the conditions to get it at a later stage.

As in the previous version of the Policy, it is highlighted that the right to get a “discount” for cooperation does not depend on the consent of the company to refuse the principle of legal privilege or trade secret, and none of the provisions of the Policy requires such refusal;

2) In order to get the maximum “discount” for remediation and benefit from the Policy, the organisation must undertake effective remediation before the agreement with [the Division] is concluded;

3) As for voluntary self-disclosure, in spite of the fact that the Policy states that the misconduct must be reported to the Criminal Division by default, prosecutors will apply the provisions of the Policy also in the event that the company reported the misconduct in good faith to a different division of the US DOJ with the case being subsequently forwarded to the Division or solved in cooperation with the latter;

4) Under the Policy, a declination is a case that should be investigated or solved within criminal proceedings if the conditions for voluntary self-disclosure, full cooperation, remediation, are not met. If the proceedings are dismissed in the absence of these circumstances, it does not constitute a declination for the purposes of the Policy. The declinations based on the Policy are subject to publication on the US DOJ website.

*It is noteworthy that the US DOJ prosecutors resorted to a declination in the presence of aggravating circumstances before as well: in 2018 for instance, in the case against Barbados Limited a declination was decided despite “the high-level involvement of corporate officers in the misconduct”. The inclusion of relevant provisions in the Policy seems to simply formalize the approach already adopted by prosecutors.

**As some experts point out (see, for example, here and here), the relevant conditions included in the updated Policy are still too vague and indefinite. In particular, they do not clarify in any way the content of such terms as “immediate disclosure of the misconduct”, “effective compliance programme” and “extraordinary cooperation”, which can hinder companies’ understanding of when they can count on a declination and what actions they should undertake to this end.

At this point in time, the only explanation in the context of these notions is the mentioning of “extraordinary cooperation” in the abovementioned speech of Mr. Polite,  Jr. who stressed that “to receive credit for extraordinary cooperation, companies must go above and beyond the criteria for full cooperation set in the policies - not just run of the mill, or even gold-standard cooperation, but truly extraordinary”. However, this definition hardly clarifies the term for organisations.

Thus, until the US DOJ offers additional explanations, the question as to where companies can qualify for a declination in the presence of aggravating circumstances remains open.