New DOJ Corporate Enforcement Policies 'Likely' to Lead to More Disclosures, Law Firms Say
DOJ’s new corporate enforcement policies substantially increase compliance incentives and may lead to more voluntary self-disclosures, law firms said. But they also said much of the new policy will depend on how DOJ implements the changes, and it remains unclear how much of a downstream impact the revisions will have on export control and sanctions cases handled by other agencies.
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DOJ announced the new policies last month, outlining new criteria companies must meet to qualify for declinations even in cases where there are aggravating factors (see 2301190031). The agency said the changes, the first substantial updates to the Criminal Division’s corporate enforcement policies (CEP) since 2017, offer companies new, concrete incentives to self-disclose violations.
A range of U.S. law firms agreed. The new policies provide “significant increases in credit” for companies cooperating with DOJ investigations,” Vinson & Elkins said in a February alert, calling it a “welcome change.” If the agency follows through on the “promises,” companies will be “more likely to self-report crimes and cooperate,” the firm said.
Vinson & Elkins also noted that the policies represent a “shift” of the past two years of “escalating rhetoric” that some said was “deterring otherwise cooperatively inclined companies from working with DOJ.” The firm said that rhetoric didn’t match up with how DOJ recently administered its CEP policies before the changes last month. “The changes in some ways align more closely to the reality of recent enforcement actions where DOJ appears to have taken a nuanced approach to settlements despite its tough talk,” it said.
Even so, outlining the new policies in writing should boost industry compliance. The “greater transparency and specificity of the formal policy could have an impact on companies’ decision making as they work through the incentive calculus of self-disclosure -- it will all depend on how DOJ actually implements and applies this refined, but very subjective, rubric in practice,” Vinson & Elkins said.
The new policy also “removes many of the disincentives that may have previously discouraged corporate recidivists from making voluntary disclosures,” Willkie Farr said. Like Vinson & Elkins, the firm believes the policies “may lead to more self-disclosures of corporate malfeasance,” particularly by recidivists.
Willkie Farr pointed to the CEP’s new financial incentives for disclosures. If a company submits a disclosure to DOJ and fully cooperates, but the agency still decides to pursue a criminal penalty, the agency will recommend to a sentencing court anywhere from 50% to 75% off “of the low end of the U.S. Sentencing Guidelines fine range,” DOJ said, except in cases of recidivism.
“Corporations, and their outside counsel, must recalibrate how they weigh the benefits potentially being conferred by the Department when making decisions on self-disclosure, but should be cautious given that there is no guarantee of the benefits,” the firm said.
The firm also cautioned that portions of the new policy are vague, including the “extraordinary” cooperation companies must meet to qualify for a declination -- a decision by DOJ not to prosecute. The agency “offered little guidance as to what constitutes ‘extraordinary’ cooperation, particularly as compared to ‘full’ cooperation,” Willkie Farr said. “What constitutes ‘extraordinary’ cooperation remains unclear.”
Although the new policies apply to DOJ’s Criminal Division, they could have “ripple effects” on other agency “components,” including those that handle export control and sanctions cases, such as the National Security Division (NSD), Steptoe & Johnson said. That division typically operates under a policy “consistent” with DOJ’s corporate enforcement policies, Steptoe said, but the NSD’s policy doesn’t “affirmatively” spell out the circumstances a company must demonstrate to be considered for a non-prosecution agreement if there are aggravating factors. “It therefore remains to be seen whether these other Divisions within DOJ will adjust their corporate enforcement policies to align more precisely with the CEP,” the firm said.
Steptoe also stressed that those policies don’t necessarily apply to penalties imposed by the State Department’s Directorate of Defense Trade Controls, the Department of Commerce’s Bureau of Industry and Security and the Treasury Department’s Office of Foreign Assets Control. But Steptoe said lawyers prosecuting these cases “are expected to coordinate with other enforcement authorities and consider the total amount of fines, penalties, and forfeiture paid to DDTC, BIS, and/or OFAC in determining the criminal penalty.”
Shearman & Sterling said “time will tell” how DOJ implements the policies, but said they will certainly put “added pressure” on companies to disclose certain potential violations. “Overall, it is clear that the DOJ is pushing companies to self-disclose and will treat harshly those that do not.”