The January 2023 revisions to DOJ’s Corporate Enforcement Policy for the first time spelled out the factors that allow a company to qualify for a declination even in the presence of aggravating circumstances. This change has been touted alongside other significant revisions to the Policy—including increased penalty reductions in certain scenarios—as providing further encouragement for companies to self-disclose misconduct. But on closer inspection, these newly articulated factors may have the opposite effect.
Who’s eligible for a declination?
The prior version of the Corporate Enforcement Policy awarded self-disclosing companies a presumption of a declination if they fully cooperated and remediated—unless there were aggravating circumstances present, such as recidivism or pervasive misconduct. Companies facing aggravating circumstances were still eligible for declination, they just could not earn a presumption of that outcome.
The recent revisions do not change that fundamental proposition. The difference now is that DOJ articulated the following factors that must be met in order to remain eligible for a declination:
- the company voluntarily self-disclosed immediately upon becoming aware of the alleged misconduct,
- at the time of the misconduct and disclosure, the company had an effective compliance program and system of internal accounting controls, which enabled the identification of the misconduct and led to the self-disclosure, and
- the company undertook extraordinary cooperation and remediation.
These factors may actually narrow the path to a declination in two significant ways: First, they specify certain gating criteria which must exist at the time of the misconduct, and second, they articulate potentially higher standards than previously applied.
New gating criteria.
Under the now renamed Corporate Enforcement and Voluntary Self-Disclosure Policy (which we refer to as the Policy), some companies who self-disclose with aggravating circumstances will now be ineligible for a declination. That’s because two components of the second factor are beyond the company’s control by the time misconduct occurs: (1) whether the company had an effective compliance program and system of internal accounting controls at the time of the misconduct, and (2) whether that program and system enabled the identification of the misconduct.
Companies can (and should) strive to build effective programs in advance of misconduct occurring, and in doing so may increase the chances that such programs will identify the misconduct at issue. But they will have no ability to make up ground on either front once misconduct comes to their attention.
The previous version of the Policy delineated no such backward-looking requirements that would automatically disqualify companies from eligibility for a declination.
The Policy also now states that a company must “immediately” self-disclose and provide “extraordinary” cooperation and remediation to qualify for a declination under aggravating circumstances. No doubt, debate will continue as to the meaning of these standards and their practical effect.
Regardless, it is hard to imagine how the bar could have been any higher before. What is faster than “immediate” self-disclosure? What level of cooperation and remediation reaches beyond “extraordinary”?
Are incentives with the DOJ undermined?
The articulation of these factors in the recent updates to the Policy seems to clarify that a company must do just about everything possible within its control (and then some) to remain eligible for a declination under an aggravating circumstances scenario.
Companies grappling with these factors may conclude that they are either ineligible for a declination or that earning one is unlikely. That analysis may ultimately discourage such companies from self-disclosing—undermining one of DOJ’s primary aims in revising the Policy.
Helpful impact in dealing with others?
There is an interesting implication of the revised Policy for a company that successfully navigates the path to a declination despite aggravating circumstances: the newly delineated factors indicate that DOJ must have necessarily concluded that the company had an effective compliance program in place at the time of the misconduct.
This implication could have a significant (and potentially helpful) impact on negotiations with regulators in parallel investigations, public relations, and in a variety of other collateral contexts.
The authors would like to thank Diane Aguirre-Dominguez, an associate at Crowell & Moring, for her contributions to this article.
Derek Hahn, pictured above left, is a partner in Crowell & Moring’s White Collar and Regulatory Enforcement group. Derek’s practice focuses on white collar defense, internal investigations, complex litigation, and compliance counseling. He has extensive experience managing matters involving the Foreign Corrupt Practices Act, including government and internal investigations, third-party due diligence reviews, compliance program and training development, and anti-bribery anti-corruption risk assessments.
Sarah Bartle, above right, is a counsel in Crowell & Moring’s White Collar and Regulatory Enforcement group. Her practice includes defending clients in FCPA investigations brought by DOJ and SEC, conducting internal investigations for multinational clients across industries, and helping companies design practical and effective solutions to their compliance quandaries, with a focus on anti-bribery and anti-corruption.
Comments are closed for this article!