The Biden Administration is seeking to monitor and address two issues it considers mission-critical: punishing corporate crime and stimulating market competition. Each of these initiatives is likely to attract committed federal enforcement, creating major challenges for compliance committees of corporate boards. In this first of a two-part series, attorney Michael Peregrine addresses corporate crime. In part two, the spotlight shifts to how boards can prepare for the DOJ’s expected vigorous enforcement of antitrust law.
Corporate crime is moving front and center on the enforcement agenda. The Biden Administration is renewing its commitment to reducing incidents of corporate crime and to hold accountable individuals deemed responsible for such crime. Recent public comments from senior DOJ officials elaborated on the administration’s policy regarding corporate crime and individual accountability. In so doing, they provided highly relevant guidance for compliance committees in their oversight, corporate compliance programs and codes of conduct.
Five Points of Renewed Emphasis
This new administration policy essentially represents a reintroduction of the Obama-era commitment to corporate fraud enforcement. It was first referenced in a series of presentations by Deputy Attorney General Lisa Monaco in late 2021. As described by Monaco, the policy encompasses five main components:
- The expectation that corporations subject to federal criminal exposure must provide information on all individuals responsible for misconduct in order to receive cooperation credit from DOJ
- Corporations that resolve exposure through deferred prosecution agreements or non-prosecution agreements with DOJ may also be subject to independent monitorships
- Additional federal resources will be provided to assist prosecutors in evaluating incidents of corporate crime
- Increased consideration of corporation’s prior criminal and regulatory histories will be applied in making enforcement and resolution decisions
- A more uniform approach will be adopted to corporate enforcement across DOJ and the U.S. Attorneys’ Offices
Attorney General Merrick Garland and Assistant Attorney General Kenneth A. Polite Jr. have both elaborated this year on the core policy. Polite emphasized DOJ’s specific requirements for a corporation to receive any credit for cooperation with the government. These include notifying DOJ of all relevant, non-privileged facts and evidence about the misconduct and all the individuals involved.
The Garland and Polite comments reflect the seriousness with which DOJ approaches its commitment to corporate fraud and individual accountability. It is important that the compliance committee be reminded of this commitment and, importantly, the types of remedial factors the DOJ will consider in making cooperation credit decisions.
Avenues of Remediation
In the event of a crime, Polite points to two key areas that will receive immediate attention from the DOJ. To the extent companies have taken steps to evaluate and address these factors, they will receive commensurate credit for cooperation. These include:
- The corporate compliance program: Here the DOJ is likely to examine the scope of the compliance program to make sure that it is “adequately creating, maintaining and supporting an ethical culture,” says Polite. In particular, the DOJ will want to see evidence of the company’s commitment to compliance, examining whether the company is doing “everything [it] can to ensure that when that individual employee is facing a singular ethical challenge, he has been informed, trained and empowered to choose right over wrong.”
- Leadership and personnel: Upon the discovery of a crime, the DOJ is urging that companies immediately examine whether a change in the CEO position is necessary even where “there is no evidence that a CEO personally committed a crime.” The DOJ suggests there will be instances where a CEO should be replaced, even when they played no part in the crime. Changes would still be necessary, says Polite, if the CEO “modeled poor ethical behavior for the workforce, or fostered a climate in which subordinates committed wrongdoing to benefit the company, or permitted weak internal controls that allowed the crimes of the individuals to go undetected.”
Your company’s compliance committee should consider taking a critical look at these remedial factors when making decisions with respect to the scope, funding and organizational application of the compliance program. The committee may also want to initiate supplemental compliance education for corporate executives who should be made aware of the DOJ’s added emphasis on individual accountability.
A committee may also wish to:
- Enhance resources available to executive leadership to evaluate the risk associated with strategies and initiatives
- Review and enhance as necessary corporate commitments to indemnification and advancement payments
- Consider additional efforts intended to support and demonstrate a “tone at the top” culture by the CEO and other executive leaders
These recent comments by senior DOJ officials should be heeded by corporate compliance committees. The response may entail the development of new company policies, expanded monitoring efforts, enhanced executive and manager education and screening proposed transactions for signs of associated risks.
As Monaco noted, “Companies need to actively review their compliance programs to ensure they adequately monitor for and remediate misconduct — or else it’s going to cost them down the line.”