DOJ Now Asking About Compensation Clawbacks in ‘Every Enforcement Action,’ Lawyer Says
DOJ is now regularly asking companies about their compensation clawback policies, including in investigations into corporate violations of sanctions or export controls, said Jamie Schafer, a trade lawyer with Perkins Coie. She said companies should have a plan for how they will use compensation clawbacks if they need to submit a voluntary disclosure, which could help them mitigate potential penalties.
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DOJ in June warned industry as part of a compliance note (see 2307260022) that its National Security Division is looking into whether a disclosing company has “imposed appropriate disciplinary measures,” including compensation clawbacks for employees who directly participated in or oversaw the violations.
Since that warning, Schafer, speaking during an Oct. 11 event hosted by Kharon, said DOJ has been asking every company about their use of clawbacks. “It's something that in every enforcement action, I can tell you, DOJ is bringing up,” she said. "They're asking how are you going to claw back incentive based compensation from individuals who are involved.”
She added that compliance departments can “sell this as a compliance priority” to their management by pointing to the significant benefits DOJ is handing out for firms that withhold compensation. The agency recently reduced the penalty for a North Carolina-based specialty chemical manufacturing company after it withheld bonuses that would have gone to wrongdoers (see 2310040057), and Schafer said some companies are receiving “100% credit off of any fine or penalty” for every dollar they collect in a compensation clawback.
“That is something that every enforcement action I'm involved in right now, that everybody's considering very clearly,” she said. “If companies have a robust clawback policy and have thought about these issues ahead of time, it's going to make it a lot easier for you to be able to actually activate that and claw back that compensation when it's needed.”
Although DOJ’s June compliance note was meant to educate industry about the various voluntary disclosure policies among DOJ and the Commerce and Treasury departments, Schafer said it can still be challenging for companies to decide at which agency to submit their voluntary disclosure. In the note, DOJ reiterated that some of its disclosure incentives only apply to companies that voluntarily disclose their violations directly to the agency, and may not count if the agency becomes aware of the disclosure through a referral from Commerce or Treasury.
“This throws a real wild card into sanctions and export control voluntary disclosure calculuses,” Schafer said. “We now have to think a lot harder about voluntary disclosures and how the NSD is going to approach them in the future.”
She also stressed the importance of sanctions and export control compliance departments conducting a “robust risk assessment” to determine where the company’s compliance resources should go. Although sanctions screening is useful, she said screening every party against a government watch list can sometimes feel like “boiling the ocean,” and said regulators would prefer that a company instead dedicate their resources to where they could most likely face a compliance issue.
“And if something in another area slips through the cracks, that's where you have that risk assessment to really defend your decision-making,” Schafer said.