US DOJ sharpens its tools: What the new enforcement regime means for corporations

The United States Department of Justice (DOJ) has made it clear: fighting corporate crime is one of the administration’s top priorities. This week, as part of DOJ’s coordinated roll-out of a suite of new corporate-related policies, deputy attorney general Lisa Monaco issued a memorandum (the “Memorandum”) that significantly revises DOJ corporate criminal enforcement policies and practices. Among other things, the Memorandum instructs U.S. Attorney’s offices and coordinate DOJ litigating divisions to: (1) consider a corporation’s criminal history of misconduct when making charging decisions and resolutions, including domestic or foreign civil or criminal actions against any entities within the corporate family; (2) hold individuals accountable for corporate misconduct and not credit cooperation for the corporation unless it has identified all responsible individuals; and (3) increase the use of corporate monitors where there is a demonstrated need for them, particularly when a company’s compliance program is not fully tested or implemented. To assist with this priority, the memo also creates a Corporate Crime Advisory group within DOJ to further review and revise the current approach to prosecuting corporate crime. 

The memorandum follows recent public messaging from senior DOJ officials who indicated that prosecution strategies for corporate wrongdoing were on the horizon. For example, on October 5, 2021, principal associate deputy attorney general John Carlin announced “surging resources for corporate enforcement,” including a new squad of FBI agents that will be embedded in the department’s Criminal Fraud section. The SEC, too, appeared to be in lockstep with the initiative, announcing just days later that it was pivoting back towards requiring defendants to admit wrongdoing in appropriate circumstances.

This week, in the run-up to the Memorandum’s release, Monaco gave the keynote address to the ABA’s White Collar Crime conference in Miami, Florida, where she announced that new policy changes would be aimed at strengthening the federal response to white-collar crime. Monaco was not the only senior official who was present to comment. The day before Monaco’s appearance, the director of enforcement at the Security and Exchange Commission, Gurbir Grewal, and the principal deputy assistant attorney general, DOJ Criminal Division, Nicholas McQuaid, both emphasized the importance of prosecuting individuals in corporate cases. McQuaid highlighted the establishment of the new FBI squad in the Criminal Fraud Section and explained that holding individuals responsible was a critical component of corporate accountability. Grewal described the necessity of restoring public trust and that this would include a renewed focus on gatekeeper accountability, including looking at auditors, audit firms, lawyers, and underwriters. Lastly, Bryan M. Boynton, DOJ’s Civil Division acting assistant attorney general, also emphasized that companies must identify individual wrongdoers to receive cooperation credit. 

What does all this mean for the business community? Companies need to be aware of this DOJ policy shift and scrutinize internally their policies and procedures to minimize any exposure they might have. In particular, companies should be aware of the following:  

• Companies should diligently review every whistleblower complaint and any suggestion internally that there could be a corporate governance or compliance issue. DOJ’s revised policies make clear that uncovering potential wrongdoing internally and remediating the issues immediately is the key to either avoiding a government investigation or at least putting the company in the best possible position for a favorable resolution. Among the most significant steps a company can take in the face of an investigation is to proactively attempt to remediate the issue or problem in a good faith, lawful manner.
• Companies should also review their compliance programs to make sure they are sufficiently robust rather than waiting for an issue to surface. The alternative may be a corporate monitor, which is a costly and burdensome process for companies. For example, the Memorandum makes it clear that where compliance programs are “untested, ineffective, inadequately resourced, or not fully implemented” at the time of a resolution, DOJ will consider a monitorship. Even in cases that do not result in a full-bore criminal prosecution, many DOJ investigations are concluded by a settlement that involves the payment of civil and/or criminal penalties on an ability-to-pay basis, with the added imposition of a costly monitorship. These requirements frequently leave the target companies in a precarious financial position by jeopardizing stock prices, profitability, lines of credit and the like. Accordingly, it is wise to invest in enhancements to compliance programs that will minimize the possibility of a corporate monitorship and associated financial penalties.    
• Companies should revisit their document retention and litigation hold policies to make sure that they are current, and that they include the retention of text messages, internal messaging platforms, and external messaging platforms such as WhatsApp. Lorinda Laryea, co-principal deputy chief of DOJ’s criminal fraud section, stated at the Miami ABA conference that a failure to produce these messages may impact a company’s ability to cooperate. While companies often prohibit the use of “off-channel” communications for business, the reality is that many corporate employees, including executives, persist in using these methods, and the mere fact that the company has a policy against their use is not going to be persuasive with the DOJ. In addition, companies can be subject to violations of record retention requirements by the SEC, the CFTC, and other agencies when such messages are not retained.

While portions of the memorandum are a restatement of prior guidance—particularly the reintroduction of the 2015 “Yates Memorandum,” which sought to prioritize the prosecution of individuals in corporate misconduct investigations—these initiatives also signal a much wider re-commitment to corporate enforcement. For example, this is the first time that DOJ has created a Corporate Crime Advisory group—and its mandate is broad, with the goal of updating the department’s approach to corporate criminal enforcement. The group will have an expansive mandate to consider various topics that are central to the goal of updating DOJ’s approach to corporate criminal enforcement. These items will include investing in new technologies to assist in prosecutions and reconsidering the factors bearing on the determination of whether a corporate case should be resolved through a deferred prosecution agreement, non-prosecution agreement, or plea agreement.  

A second salient feature of the Memorandum is the renewed consideration of a corporation’s history of prior misconduct. While such history has been a factor in the past, this consideration is much broader, ensuring that second-time or repeat offenders should anticipate harsher penalties. Relevant considerations will include not just violations of criminal laws, but civil and regulatory violations as well. Moreover, DOJ will now look at all corporate misconduct, including even misconduct by the smallest subsidiary or affiliate of the company. 

The uptick in corporate enforcement that was predicted at the beginning of the new administration is here. Not only does the memorandum and the DOJ’s related statements signal that enhanced enforcement actions are coming, but the SEC’s coordinated announcements on the same issues further suggest that the government is seeking to present a united front against corporate enforcement that will increase the identification and prosecution of corporate wrongdoing.