The US Publishes a Memorandum on Corporate Liability for Corruption

The 2022 Memorandum from US Deputy Attorney General Lisa O. Monaco was drafted by an ad hoc advisory group established in line with 2021 Memorandum “Corporate Crime Advisory Group and Initial Revisions to Corporate Criminal Enforcement Policies”* from Deputy Attorney General Lisa O. Monaco. The Group was instructed, in particular, to revise, with the assistance of academia and the business sector, the approach to criminal liability of legal persons, their management and employees, including such issues as leniency in the case of self-disclosure and cooperation with the investigation, corporations’ record of past misconduct, conclusion of non-trial resolutions with law enforcement etc.

The 2022 Monaco Memorandum covers the following topics:

1. Individual accountability

The US DOJ states that its first priority in corporate criminal matters is to hold accountable the individuals who commit and profit from corporate crime. As a follow up to this intent, the document provides a number of additional principles for holding natural persons liable in the framework of corporate proceedings:

1.1.  Timely disclosures and prioritization of individual investigations

To be eligible for any cooperation credit, corporations must disclose to the DOJ all non-privileged facts about individual misconduct (managers, employees etc.) and provide all documents relevant for investigation. This disclosure must be timely, as delayed disclosure of facts can make it impossible to hold the perpetrators liable due to the expiration of statutes of limitations, the dissipation of corroborating evidence, and other factors.

The document also highlights that prosecutors must strive to complete investigations into individuals and seek any warranted individual criminal charges prior to or simultaneously with the entry of a resolution against the corporation.

1.2.  Foreign prosecutions of individuals responsible for corporate crime

The document points that in the recent years cooperation with foreign law enforcement partners has become a significant part of the Department’s overall efforts. At the same time, in holding liable individuals, US prosecutors should estimate whether these persons will be subject to “effective prosecution” in other jurisdictions under parallel proceedings concerning the same offences and, as a consequence, whether they should be prosecuted in the United States. To this end, prosecutors should take into account: (1) the strength of the other jurisdiction’s interest in the prosecution; (2) the other jurisdiction’s ability and willingness to prosecute effectively; and (3) the probable sentence and/or other consequences if the individual is convicted in the other jurisdiction.

2. Guidance on corporate accountability

The Memorandum also introduces several important changes to corporate law enforcement policy of the US DOJ:

2.1.  Evaluating a corporation’s history of misconduct

In determining how best to resolve an investigation of corporate criminal activity, prosecutors should, among other factors, consider the corporation’s record of past misconduct, including prior criminal, civil, and regulatory resolutions, both domestically and internationally, as well as the form and the scope of sanctions, the time since the resolution and the charges.

The greatest significance should be assigned to recent US criminal resolutions, and to prior misconduct involving the same personnel or management. Conversely, dated conduct addressed by prior criminal resolutions entered into more than ten years ago, and civil or regulatory resolutions that were finalized more than five years ago, should generally be accorded less weight as such conduct may be generally less reflective of the corporation’s current compliance culture and internal policies as they have almost certainly changed.

According to the document, prosecutors should assess:

seriousness and pervasiveness of the misconduct underlying each prior resolution and whether that conduct was similar in nature to the instant misconduct under investigation, even if it was prosecuted under different statutes;
record of the same misconducts in the corporations operating in the same industry as the corporation under investigation;
if prior misconduct rests with the corporation that was merged with or acquired by a corporation under investigation – the degree of integration of the management and resources of this corporation into the new one or a compliance programme in the acquiring corporation and its applicability to the acquired corporation, as well as elimination of the root cause of misconduct in the acquired entity and of its effects;
whether the conduct at issue in the prior and current matters reflects broader weaknesses in a corporation’s compliance culture or practices; it can be indicated by the fact that the conduct occurred under the same management team/executive leadership, or the present and prior instances of misconduct share the same root causes;
what remediation was taken to address the root causes of misconduct, including employee discipline, compensation clawbacks, restitution, management restructuring, and compliance program upgrades.

If the decision to conclude a deferred prosecution agreement is made, prosecutors must secure the written approval of the responsible U.S. Attorney or Assistant Attorney General and provide notice to the Office of the Deputy Attorney General.

2.2.  Voluntary self-disclosure

The document stresses that corporations become aware of misconduct of employees before it is made known to prosecutors. In those cases, corporations may come to the DOJ which must ensure that a corporation benefits from its decision to come forward and voluntarily self-disclose misconduct through resolution under more favorable terms. In this context, only a voluntary (where a corporation has no preexisting obligation to disclose pursuant to regulation, contract, or prior Department resolution) and promptly (prior to an imminent threat of disclosure or government investigation) disclosure will be considered as “due”.

Many Department components have already adopted relevant policies: for instance, the Criminal Division uses the FCPA Corporate Enforcement Policy, the Antitrust Division employs the Leniency Policy and Procedures etc. The Memorandum directs each DOJ component to draft and publicly share relevant policies that should set forth what constitutes a voluntary self-disclosure, including with regard to the timing of the disclosure, the need for the disclosure to be accompanied by timely preservation, collection, and production of relevant documents and/or information, and a description of the types of information and facts that should be provided as part of the disclosure process, as well as the benefits that corporations can expect to receive if they resort to self- disclosure.

Furthermore, the document provides for the core principles of self-disclosure which prosecutors must adhere to:

absent the presence of aggravating factors, not to seek a guilty plea where a corporation has voluntarily self-disclosed, fully cooperated, and timely and appropriately remediated the criminal conduct (each component of the DOJ will autonomously provide guidance on what circumstances would constitute such aggravating factors);
not to require the imposition of an independent compliance monitor for a cooperating corporation that voluntarily self-discloses the relevant conduct if, at the time of resolution, it also demonstrates that it has implemented and tested an effective compliance program. Final decisions about the imposition of a monitor will be made on a case-by-case basis.

2.3.  Evaluation of cooperation by corporations

The Memorandum reiterates that (1) comprehensive cooperation is a mitigating factor; (2) eligibility for cooperation credit is not predicated upon the waiver of attorney-client privilege or work product protection; and (3) credit for cooperation takes many forms and is calculated differently based on the degree to which a corporation cooperates with the government’s investigation. These principles are provided in the Justice Manual which US prosecutors are guided by.

According to the Memorandum, companies seeking credit for cooperation must timely preserve, collect, and disclose relevant documents located both within the United States and overseas. In some cases, where there are blocking statutes or other restrictions imposed by foreign law, the cooperating corporation bears the burden of establishing the existence of any restriction on production and of identifying reasonable alternatives to provide the requested evidence. Corporations that find ways to navigate such issues of foreign law and produce such records should be provided with credit. Conversely, the situations where a corporation actively seeks to capitalize on data privacy laws and similar statutes to shield misconduct inappropriately from US law enforcement, will be viewed negatively.

2.4.  Evaluation of a corporation’s compliance programme

Although an effective compliance program does not constitute a defense to prosecution, it can have a direct and significant impact on the terms of a corporation’s potential resolution, including whether an independent compliance monitor is warranted. Prosecutors should assess the effectiveness of the corporation’s compliance program both at the time of the offense and at the time of a charging decision.

The criteria for assessing compliance programmes are provided in the Evaluation of Corporate Compliance Programs guidance, adopted in 2017 and considerably revised in 2020. In addition, the Memorandum identifies two other evaluation metrics:

а) Compensation structures that promote compliance

Corporations must have compensation systems that clearly incentivize compliant conduct and impose financial penalties for misconduct. These systems should, among other things, allow for sanctions against current employees as well as for retroactive discipline with regard to former employees, managers or directors to ensure that the persons involved in misconduct at the moment of their employment do not evade justice due to the termination.

Additionally, prosecutors should look to what has happened in practice at a corporation and whether a corporation uses non-disclosure provisions in agreements with employees so as to inhibit the public disclosure of criminal misconduct by the corporation or its employees.

The Memorandum also stresses that the Criminal Division will develop further guidance by the end of the year on how to reward corporations that develop and apply compensation clawback policies, including how to shift the burden of corporate financial penalties away from shareholders - who in many cases do not have a role in misconduct - onto those more directly responsible.

b) Use of personal devices and third-party applications

The document stresses that the ubiquity of personal smartphones, tablets, laptops, and other device, as well as third-party messaging platforms, including the use of encrypted messaging applications poses significant corporate compliance risks, particularly as to the ability of companies to monitor the use of such devices for misconduct and to recover relevant data from them during a subsequent investigation. How companies address their use by employees, including the corporate policies for memorizing digital data and messages related to business, can impact a prosecutor’s evaluation of the effectiveness of a corporation’s compliance program, as well as the assessment of a corporation’s cooperation during a criminal investigation.

The Memorandum highlights that the Criminal Division will further study this matter and incorporate more detailed principles into the next edition of its Evaluation of Corporate Compliance Programs.

3. Independent compliance monitorships

The document notes that the need for a monitor and the scope of any monitorship must depend on the facts and circumstances of the particular case.

3.1. Factors to consider

In deciding whether a monitor is needed, the following circumstances can be taken into consideration:

whether the corporation voluntarily self-disclosed the misconduct in a manner that satisfies the DOJ self-disclosure policy;
whether, at the time of the resolution and after a thorough risk assessment, the corporation has implemented an effective compliance program and sufficient internal controls to detect and prevent similar misconduct in the future;
whether, at the time of the resolution, the corporation has adequately tested its compliance program and internal controls;
whether the underlying criminal conduct was long-lasting or pervasive across the organization or was approved, facilitated, or ignored by senior management, executives, or directors (including by means of a corporate culture that tolerated such behavior, or did not encourage open discussion and reporting of possible risks and concerns);
whether the underlying criminal conduct involved the exploitation of an inadequate compliance program or system of internal controls;
whether the underlying criminal conduct involved active participation of compliance personnel or the failure of compliance personnel to appropriately escalate or respond to red flags;
whether the corporation took adequate investigative or remedial measures to address the underlying criminal conduct, including, where appropriate, the termination of business relationships and practices that contributed to the criminal conduct, and discipline or termination of personnel involved, including also with respect to those with management responsibilities for the misconduct etc.;
whether, at the time of the resolution, the corporation’s risk profile has substantially changed, such that the risk of recurrence of the misconduct is minimal or nonexistent;
whether the corporation faces any unique risks or challenges, including with respect to the particular region or business sector in which the corporation operates or the nature of the corporation’s customers; and
whether and to what extent the corporation is subject to oversight from industry regulators or a monitor imposed by another domestic (besides the US DOJ) or foreign enforcement authority or regulator etc.

3.2. Selection of monitors

In selecting a monitor, prosecutors should employ a documented process that is available to the public, in particular, in the memoranda of Assistant Attorney General Brian A. Benczkowski (Benczkowski Memo, 2018 and Benczkowski Memo, 2019): every component of the DOJ must adopt an already existing Department process, or publish its own selection process by the end of the year.

The main selection standards should be the following:

the consideration of monitor candidates shall be done by a standing or ad hoc committee within the component where the case originated that must include as a member an ethics official or professional responsibility officer, who shall ensure that the other members of the committee do not have any conflicts of interest in selection of the monitor;
monitor selection processes shall be conducted in line with the principles of diversity and inclusion;
it is necessary to notify the appropriate United States Attorney or Department Component Head of the decision taken and get the approval of the Office of the Deputy Attorney General (unless the monitor is court-appointed), and describe the reasoning for requiring a monitor in any agreement imposing a monitorship.

3.3. Continued review of monitorships

As per the Memorandum, prosecutors should ensure that the monitor’s responsibilities and scope of authority are well-defined and recorded in writing, and that a clear workplan is agreed upon between the monitor and the corporation. For the term of the monitorship, prosecutors must remain apprised of the ongoing work conducted by the monitor. Prosecutors should receive regular updates from the monitor about the status of the monitorship and any issues presented and consider the reasonableness of the monitor’s review, including issues relating to the cost of the monitor’s work. In certain cases, prosecutors may determine that the initial term of the monitorship is longer or the scope of the monitorship is broader than necessary to address the concerns that created the need for the monitor, or, on the contrary, they may consider it expedient to broaden the scope of the monitor or to prolong it.

4.  Commitment to transparency in corporate criminal enforcement

The DOJ also reiterates its commitment to the principle of transparency regarding the corporate criminal enforcement priorities and processes, including its expectations as to corporate cooperation and compliance, and the consequences of meeting or failing to meet those expectations.

As per the document, when the DOJ elects to enter into an agreement to resolve corporate criminal liability, the agreement should, to the greatest extent possible, include: (1) an agreed-upon statement of facts outlining the criminal conduct; and (2) a statement of relevant considerations that explains the Department’s reasons for entering into the agreement, such as the corporation’s voluntary self-disclosure, cooperation, and remedial efforts (or lack thereof), the seriousness and pervasiveness of the criminal conduct, the corporation’s history of misconduct etc. The agreements must be published on the DOJ website (unless the circumstances are exceptional and the agreement therefore cannot be published).

The memoranda released by the US Department of Justice constitute a key source of information about liability principles both for law enforcement and those who can be potentially subject to it. As a rule, these documents bear the name of the signatory Deputy Attorney General.

As regards anti-corruption and the enforcement of the Foreign Corrupt Practices Act (FCPA), besides the memoranda from Monaco, analysed here, and the memoranda from Benczkowski, mentioned above, other most important memoranda are:

Memorandum from US Deputy Attorney General Mark Filip (Filip Memo, 2008);
Memorandum from US Deputy Attorney General Craig S. Morford (Morford Memo, 2008);
Memorandum from US Deputy Attorney General Gary G. Grindler (Grindler Memo, 2010); and
Memorandum from US Deputy Attorney General Sally Q. Yates (Yates Memo, 2015).

Legal experts, however, have long criticised this approach, stating that the use of these departmental documents that are actually non-binding and contain only “general principles”, makes the investigation and prosecution process extremely subjective and does not provide natural and legal persons with clear understanding of whether a certain action will be considered as an offence. This drawback is highlighted, in particular, by Mike Koehler, a renowned expert in the FCPA enforcement. He cites a practitioner saying the following in 1982, but whose words he considers to be still relevant:

“The government has the option of deciding whether or not to prosecute. For practitioners, however, the situation is intolerable. We must be able to advise our clients as to whether their conduct violates the law, not whether this year’s crop of administrators is likely to enforce a particular alleged violation. That would produce, in effect, a government of men and women rather than a government of law”.

Besides that, Prof. Koehler believes that the provisions of the memoranda and statements delivered by high-ranking officials of the US DOJ are repeated year after year, but remain on paper. For instance, despite the announcement of enhanced efforts to prosecute certain natural persons in the framework of corporate law enforcement back in 2015 in the dedicated Yates memorandum and persistent repetition of this thesis until the publication of the Monaco memoranda, the statistics suggest the opposite: in spite of the fact that charges were brought against over 180 persons between 2000 and 2019, the prosecution related only to a limited number of corporate cases (93 (78%) out of 119 cases against legal persons did not result in charges against natural persons).

*The 2021 Memorandum from Monaco also announced the return to a tougher approach to the conditions to penalty mitigation for cooperation. It implies the provision by the corporation of all facts relevant to the case concerning any persons involved in misconduct rather than only those who, according to the corporation, are involved in misconduct to a considerable extent. This requirement was already enshrined in the memorandum from Deputy Yates, but in 2018 the US DOJ announced the ease of requirements, and stuck to the approach that corporations had to disclose information concerning only the persons who were considerably involved in misconduct until the Monaco Memorandum was published in 2021.